CSC vs.

DBM

EN BANC CIVIL SERVICE COMMISSION, Petitioner, G.R. No. 158791 Present: DAVIDE, JR., C.J., PUNO, PANGANIBAN, QUISUMBING, YNARES-SANTIAGO, SANDOVAL-GUTIERREZ, CARPIO, AUSTRIA-MARTINEZ, CORONA, CARPIO MORALES, CALLEJO, SR., AZCUNA, TINGA, CHICO-NAZARIO, and GARCIA, JJ. Promulgated: July 22, 2005 _______________________
x - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

- versus -

DEPARTMENT OF BUDGET AND MANAGEMENT, Respondent.

DECISION
CARPIO MORALES, J.: The Civil Service Commission (petitioner) via the present petition for mandamus seeks to compel the Department of Budget and Management (respondent) to release the balance of its budget for fiscal year 2002. At the same time, it seeks a determination by this Court of the extent of the constitutional concept of fiscal autonomy. By petitioners claim, the amount of P215,270,000.00 was appropriated for its Central Office by the General Appropriations Act (GAA) of 2002, while the total allocations for the same Office, if all sources of funds are considered, amount to P285,660,790.44.[1] It complains,

CSC vs. DBM

however, that the total fund releases by respondent to its Central Office during the fiscal year 2002 was only P279,853,398.14, thereby leaving an unreleased balance of P5,807,392.30. To petitioner, this balance was intentionally withheld by respondent on the basis of its no report, no release policy whereby allocations for agencies are withheld pendin g their submission of the documents mentioned in Sections 3.8 to 3.10 and Section 7.0 of National Budget Circular No. 478 on Guidelines on the Release of the FY 2002 Funds,[2] which documents are: 1. 2. Annual Cash Program (ACP) Requests for the Release of Special Allotment Release Order (SARO) and Notice of Cash Allocation (NCA) 3. Summary List of Checks Issued and Cancelled 4. Statement of Allotment, Obligations and Balances 5. Monthly Statement of Charges to Accounts Payable 6. Quarterly Report of Actual Income 7. Quarterly Financial Report of Operations 8. Quarterly Physical Report of Operations 9. FY 2001 Preliminary and Final Trial Balance 10. Statement of Accounts Payable Petitioner contends that the application of the no report, no release policy upon independent constitutional bodies of which it is one is a violation of the principle of fiscal autonomy and, therefore, unconstitutional. Respondent, at the outset, opposes the petition on procedural grounds. It contends that first, petitioner did not exhaust administrative remedies as it could have sought clarification from respondents Secretary regarding the extent of fiscal autonomy before resorting to this Court. Second, even assuming that administrative remedies were exhausted, there are no exceptional and compelling reasons to justify the direct filing of the petition with this Court instead of the trial court, thus violating the hierarchy of courts. On the merits, respondent, glossing over the issue raised by petitioner on the constitutionality of enforcing the no report, no release policy, denies having strictly enforced the policy upon offices vested with fiscal autonomy, it claiming that it has applied by extension to these offices the Resolution of this Court in A.M. No. 92-9-029-SC (Constitutional Mandate on the Judiciarys Fiscal Autonomy) issued on June 3, 1993, [3] particularly one of the guiding principles established therein governing the budget of the Judiciary, to wit:
5. The Supreme Court may submit to the Department of Budget and Management reports of operation and income, current plantilla of personnel, work and financial plans and similar reports only for recording purposes. The submission thereof concerning funds previously

CSC vs. DBM

released shall not be a condition precedent for subsequent fund releases . (Emphasis and underscoring supplied)

Respondent proffers at any rate that the delay in releasing the balance of peti tioners budget was not on account of any failure on petitioners part to submit the required reports; rather, it was due to a shortfall in revenues.[4] The rule on exhaustion of administrative remedies invoked by respondent applies only where there is an express legal provision requiring such administrative step as a condition precedent to taking action in court.[5] As petitioner is not mandated by any law to seek clarification from the Secretary of Budget and Management prior to filing the present action, its failure to do so does not call for the application of the rule. As for the rule on hierarchy of courts, it is not absolute. A direct invocation of this Court's original jurisdiction may be allowed where there are special and important reasons therefor, clearly and specifically set out in the petition.[6] Petitioner justifies its direct filing of the petition with this Court as the matter involves the concept of fiscal autonomy granted to [it] as well as other constitutional bodies, a legal question not heretofore determined and which only the Honorable Supreme Court can decide with authority and finality.[7] To this Court, such justification suffices for allowing the petition. Now on the substantive issues. That the no report, no release policy may not be validly enforced against offices vested with fiscal autonomy is not disputed. Indeed, such policy cannot be enforced against offices possessing fiscal autonomy without violating Article IX (A), Section 5 of the Constitution which provides:
Sec. 5. The Commission shall enjoy fiscal autonomy. Their approved appropriations shall be automatically and regularly released.

In Province of Batangas v. Romulo,[8] this Court, in construing the phrase automatic release in Section 6, Article X of the Constitution reading:
Section 6. Local government units shall have a just share, as determined by law, in the national taxes which shall be automatically released to them,

held:

CSC vs. DBM

Websters Third New International Dictionary defines automatic as involuntary either wholly or to a major extent so that any activity of the will is largely negligible; of a reflex nature; without volition; mechanical; like or suggestive of an automaton. Further, the word automatically is defined as in an automatic manner: without thought or conscious intention. Being automatic, thus, connotes something mechanical, spontaneous and perfunctory. As such the LGUs are not required to perform any act to receive the just share accruing to them from the national coffers. x x x (Emphasis and underscoring supplied)[9]

By parity of construction, automatic release of approved annual appropriations to petitioner, a constitutional commission which is vested with fiscal autonomy, should thus be construed to mean that no condition to fund releases to it may be imposed. This conclusion is consistent with the above-cited June 3, 1993 Resolution of this Court which effectively prohibited the enforcement of a no report, no release policy against the Judiciary which has also been granted fiscal autonomy by the Constitution.[10] Respecting respondents justification for the withholding of funds from petitioner as due to a shortfall in revenues, the same does not lie. In the first place, the alleged shortfall is totally unsubstantiated. In the second place, even assuming that there was indeed such a shortfall, that does not justify non-compliance with the mandate of above-quoted Article IX (A), Section 5 of the Constitution. Asturias Sugar Central, Inc. v. Commissioner of Customs teaches that [a]n interpretation should, if possible, be avoided under which a statute or provision being construed is defeated, or as otherwise expressed, nullified, destroyed, emasculated, repealed, explained away, or rendered insignificant, meaningless, inoperative, or nugatory.[11] If respondents theory were adopted, then the constitutional mandate to automatically and regularly release approved appropriations would be suspended every year, or even every month[12] that there is a shortfall in revenues, thereby emasculating to a significant degree, if not rendering insignificant altogether, such mandate. Furthermore, the Constitution grants the enjoyment of fiscal autonomy only to the Judiciary, the Constitutional Commissions of which petitioner is one, and the Ombudsman. To hold that petitioner may be subjected to withholding or reduction of funds in the event of a revenue shortfall would, to that extent, place petitioner and the other entities vested with fiscal autonomy on equal footing with all others which are not granted the same autonomy, thereby reducing to naught the distinction established by the Constitution.

CSC vs. DBM

The agencies which the Constitution has vested with fiscal autonomy should thus be given priority in the release of their approved appropriations over all other agencies not similarly vested when there is a revenue shortfall. Significantly, the Year 2002 GAA itself distinguished between two types of public institutions in the matter of fund releases. With respect to government agencies in general, the pertinent General Provisions of the GAA read as follows:
Sec. 62. Prohibition Against Impoundment of Appropriations. No appropriations authorized in this Act shall be impounded through deduction or retention, unless in accordance with the guidelines for the imposition and release of reserves and the rules and regulations for deduction, retention or deferral of releases shall have been issued by the DBM in coordination with the House Committee on Appropriations and the Senate Committee on Finance. Accordingly, all the funds appropriated for the purposes, programs, projects and activities authorized in this Act, except those covered by Special Provision No. 1 of the Unprogrammed Fund shall be regularly andautomatically released in accordance with the established allotment period and system by the DBM without any deduction, retention or imposition of reserves. (Emphasis and underscoring supplied) Sec. 63. Unmanageable National Government Budget Deficit. Retention or reduction of appropriations authorized in this Act shall be effected only in cases where there is unmanageable national government budget deficit.

Unmanageable national government budget deficit as used in this Section shall be construed to mean that the actual national government budget deficit has exceeded the quarterly budget deficit targets consistent with the full-year target deficit of P130.0 billion as indicated in the FY 2002 Budget of Expenditures and Sources of Financing submitted by the President to Congress pursuant to Section 22, Article VII of the Constitution or there are clear economic indications of an impending occurrence of such condition, as determined by the Development Budget Coordinating Committee and approved by the President. (Emphasis and underscoring supplied)

In contrast, the immediately succeeding provision of the Year 2002 GAA, which specifically applied to offices vested with fiscal autonomy, stated:
Sec. 64. Appropriations of Agencies Vested with Fiscal Autonomy. Any provision of law to the contrary notwithstanding, the appropriations authorized in this Act for the Judiciary, Congress of the Philippines, the Commission on Human Rights, the Office of the Ombudsman, the Civil Service Commission, the Commission on Audit and the Commission on Elections shall be automatically and regularly released. (Emphasis and underscoring supplied)

Clearly, while the retention or reduction of appropriations for an office is generally allowed when there is an unmanageable budget deficit, the Year 2002 GAA, in conformity with the

CSC vs. DBM

Constitution, excepted from such rule the appropriations for entities vested with fiscal autonomy. Thus, even assuming that there was a revenue shortfall as respondent claimed, it could not withhold full release of petitioners funds without violating not only the Constitution but also Section 64 of the General Provisions of the Year 2002 GAA. This Court is not unaware that its above-cited June 3, 1993 Resolution also states as a guiding principle on the Constitutional Mandate on the Judiciarys Fiscal Autonomy that:
4. After approval by Congress, the appropriations for the Judiciary shall be automatically and regularly released subject to availability of funds. (Underscoring supplied)

This phrase subject to availability of funds does not, however, contradict the present ruling that the funds of entities vested with fiscal autonomy should be automatically and regularly released, a shortfall in revenues notwithstanding. What is contemplated in the said quoted phrase is a situation where total revenue collections are so low that they are not sufficient to cover the total appropriations for all entities vested with fiscal autonomy. In such event, it would be practically impossible to fully release the Judiciarys appropriations or any of the entities also vested with fiscal autonomy for that matter, without violating the right of such other entities to an automatic release of their own appropriations. It is under that situation that a relaxation of the constitutional mandate to automatically and regularly release appropriations is allowed. Considering that the budget for agencies enjoying fiscal autonomy is only a small portion of the total national budget, only in the most extreme circumstances will the total revenue collections fall short of the requirements of such agencies. To illustrate, in the Year 2002 GAA the budget for agencies vested with fiscal autonomy amounted only to P14,548,620,000.00, which is 2.53% of the total appropriations in the amount of P575,123,728,000.00.[13] In Year 2003 GAA, which was re-enacted in 2004, the budget for the same agencies was P13,807,932,000.00, which is 2.27% of the total appropriations amounting to P609,614,730,000.00.[14] And in the Year 2005, the budget for the same agencies was only P13,601,124,000.00, which is 2.28% of the total appropriations amounting to P597,663,400,000.00.[15] Finally, petitioners claim that its budget may not be reduced by Congress lower than that of the previous fiscal year, as is the case of the Judiciary, must be rejected. For with respect to the Judiciary, Art. VIII, Section 3 of the Constitution explicitly provides:
Section 3. The Judiciary shall enjoy fiscal autonomy. Appropriations for the Judiciary may not be reduced by the legislature below the amount appropriated for the previous year and,

CSC vs. DBM

after approval, shall be automatically and regularly released.[16] (Emphasis and underscoring supplied)

On the other hand, in the parallel provision granting fiscal autonomy to Constitutional Commissions, a similar proscription against the reduction of appropriations below the amount for the previous year is clearly absent. Article IX (A), Section 5 merely states:
Section 5. The Commission shall enjoy fiscal autonomy. Their approved annual appropriations shall be automatically and regularly released.

The plain implication of the omission of the provision proscribing such reduction of appropriations below that for the previous year is that Congress is not prohibited from reducing the appropriations of Constitutional Commissions below the amount appropriated for them for the previous year. WHEREFORE, the petition is, in light of all the foregoing discussions, GRANTED. Respondents act of withholding the subject funds from petitioner due to revenue shortfall is hereby declared UNCONSTITUTIONAL. Accordingly, respondent is directed to release to petitioner the amount of Five Million Eight Hundred Seven Thousand, Three hundred Ninety Two Pesos and Thirty Centavos (P5,807,392.30) representing the unreleased balance of petitioners appropriation for its Central Office by the General Appropriations Act for FY 2002. SO ORDERED.

Re: EM No. 03-8-22

A.M. No. 03-8-22-SC. September 16, 2003 RE: EM NO. 03-010 - ORDER OF THE FIRST DIVISION OF THE COMMISSION ON ELECTIONS DATED AUGUST 15, 2003. EN BANC Gentlemen: Quoted hereunder, for your information, is a resolution of the Court En Banc dated 16 SEP 2003 A.M. No. 03-8-22 SC. (Re: EM No. 03-010 Order of the First Division of the Commission on Elections dated August 15, 2003.) On 10 September 2003, the First Division bf the Commission Elections (COMELEC) promulgated a Resolution in EM Nos. 03-010 & 03-011,[1] which disposed thus:
cralaw

"WHEREFORE, for the reasons given, this Commission may be persuaded to pronounce the existence of sufficient grounds to declare respondents in contempt of this Commission and accordingly impose the proper penalty. Nevertheless, we are constitutionally enjoined from doing so without respondents first going through the process of impeachment. "As prayed for by Petitioner Rodolfo T. AIbano III and Intervenor Rodrigo B. Gutang, let [a] copy of this resolution be forwarded [to] the House of Representatives. "However, in the light of the foregoing discussion, we find the filing of the present petitions premature because of the authoritative doctrine that impeachable officers must first be removed from office by impeachment before any punitive measure may be imposed against them. Consequently, the actions being untimely filed, as explained by the Supreme Court, the Petitions for Indirect Contempt deserve nothing less than outright dismissal. Let the above-captioned cases be, as they are hereby ordered, DISMISSED. "SO ORDERED."
On 26 August 2003, prior to the promulgation of the above Resolution of the COMELEC's First Division, this Court en banc issued its own Resolution, quoted in full as follows:

"Acting on the Order of the Commission on Elections dated August 15, 2003 signed by Presiding Commissioner Rufino SB. Javier of the Comelec First Division addressed to Chief Justice Hilario G. Davide Jr. and Associate Justices Josue N. Bellosillo, Reynato S. Puno and Artemio V. Panganiban, sending them copies of Petition's for Indirect Contempt filed against them in the Commission by the Malay Democrats of the Philippines (signed by Ma. Linda Olaguer Montayre), Rodolfo T. Albano III and Rodrigo B. Gutang, and advising them that they may, if they so desire, send to (the) Commission within a reasonable time their observation or comment on the aforeenumerated pleadings to help the Commission in intelligently disposing of them, the Court RESOLVED (1) to treat it as an administrative matter cognizable by the Courts en banc as it affects the entire Court, and (2.) to inform the Commission that the subject matter of the Petitions involves a, review of the final decision and/or official actions of this Court in G.R. Nos. 147589 and 147613, June 26, 2001 (Ang Bagong Bayani-OFW Labor Party vs. commission on Elections, et al.), a review that is, unquestionably beyond the jurisdiction of the Commission. Under the Constitution and pursuant to the principle of separation of powers, decisions, orders and official actions of the Supreme Court and its Members cannot be reviewed, passed upon, modified, much less reversed by any department, agency or branch of government, whether directly or indirectly under any guise whatsoever. Accordingly, the Petitions for Indirect Contempt deserve nothing less than outright dismissal.

Re: EM No. 03-8-22

"SO ORDERED"
While this Court does not fault the COMELEC's First Division for outrightly DISMISSING the Petitions for Contempt, it cannot let the "reasons given" therefor pass unchallenged and uncorrected. These reasons were proffered without jurisdiction or with grave abuse of discretion, in clear contravention of the Constitution and the above-quoted Resolution. In its 38-page Resolution, the COMELEC First Division basically insinuates two points as follows:

(1)

that it possesses the power to hold in contempt the Chief Justice and some Associate Justices for their participation and vote in decisions and orders of this Court, which allegedly interfered with or impeded the proceedings of the Commission; and that it had in fact determined the "existence of sufficient grounds to declare respondents in contempt of [the] Commission and to 'impose the proper penalty," were it not for the fact that the Justices were impeachable officers who "must first be removed from office by impeachment before any punitive measure may be imposed against them."

(2)

These ratiocinations constitute plain and simple legal balderdash. FIRST, as already stated in our foregoing 26 August 2003 Resolution, the Commission has no. jurisdiction to hold the Court or any of its Members in contempt for any, decision, order or official action they issue. Initially, the COMELEC's First Division and its three signatory Commissioners openly conceded that, indeed, they did not have any power to review, alter or reverse such act. Yet, it did pass upon them in its Resolution and concluded thereafter that the "June 6, 2001 Decision, Order of October 8, 2002, and Resolution dated February 18, 2003 restrained the COMELEC from performing its constitutional duties and prerogatives." That restraint allegedly constituted contempt of the Commission. There is no need to explain in detail or to defend the aforesaid three issuances of this Court in G.R. Nos. 147589 and 147613, (Ang Bagong Bayani-OFW Labor Party v. Commission on Elections), because they speak for themselves. Suffice it to say that they were its official actions promulgated in appropriate certiorari proceedings, in, which the Commission's previous Decision on the matter was, REVERSED. That the Supreme Court has the authority to pass upon, modify or reverse the quasi-judicial actions of the COMELEC is UNQUESTIONED. Verily, under Article VIII, Section 1 of the Constitution "[j]udicial power includes the duty of the courts of justice x x x 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." More specifically, Article. IX, Section 7 of the Constitution grants the Supreme Court the authority to pass upon on certiorari "any decision, order or ruling" of the COMELEC and other constitutional commissions. Giving flesh to these constitutional provisions is Rule 64 of the Rules of Court which provides that" "[a] judgment or final order or resolution of the Commission on Elections x x x may be brought x x x to .the Supreme Court on certiorari under Rule 65." On the other hand, Rule 65 states: "When any tribunal, board or officer exercising judicial or quasi-judicial functions has acted Without or in excess of its or his jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, x x x" the Supreme Court may annul or modify the proceedings of such tribunal, board or officer, and grant such incidental reliefs as law and justice may require. Finally, Rules 135 and 136 list the inherent powers of courts and judicial officers to ensure that their decisions or orders are: carried out, including the power of meting out contempt. True, the COMELEC -- along with the Commission on Audit, the Commission on Civil Service and the, Ombudsman -- is a constitutionally created body with constitutionally mandated functions. However, as already stated, the actions of all such constitutional, bodies are subject to" certiorari review by the Supreme Court as was done in G.R. Nos. 147589 and 147613. Thus, the Court may intervene, strike down or modify COMELEC's actions without itself incurring any liability for contempt; whether its Justices happen to be impeachable officers or not if the Supreme Court (or its Members) can be held liable for contempt for official actions, then it would cease to be "supreme" in its task of interpreting the law and would become subordinate to whichever agency claims the power to cite the Court or its Members for contempt. In short, the fact that Supreme Court Justices are impeachable officers should not be the ground for the COMELEC's dismissal of the contempt charges. Rather, they cannot be held liable for contempt, because their herein questioned Decision, Resolution, and Order that have allegedly interfered with, proceedings of the COMELEC were made pursuant to their constitutional function. To stop or impede COMELEC's proceedings when these have been conducted without or in excess of jurisdiction or with grave abuse of discretion is not merely a judicial prerogative; the Constitution mandates such move as a judicial duty." The

Re: EM No. 03-8-22

performance of this duty cannot subject the Court or its Members to contempt of the COMELEC; otherwise, they would not be able to reverse or modify its abusive actions.

"The sound, salutary and self-evident principle, prevailing in this as in most jurisdictions, is that judgments of the highest tribunal of the land may not be reviewed by any other agency branch, department, or official of Government. Once the Supreme Court has spoken, there the matter must rest. Its decision should not and cannot be appealed to or reviewed by any other entity, much less reversed or modified on the ground that it is, tainted by error in its findings of fact or conclusions of law, flawed in its logic or language, or otherwise erroneous in some other respect. This, on the indisputable and unshakeable foundation of public policy, and constitutional and traditional principle." (In Re Joaquin T. Borromeo, 311 Phil. 441, 509, February 21, 1995)
SECOND. The COMELEC's notion that impeachable officers cannot be held in contempt is palpably incorrect or at least misleading. Maliciously implied in this notion is that the Supreme Court erred in holding the Chairman and Members of the COMELEC in contempt via its Resolution dated 18 February 2003 in the same G.R. Nos. 147589 and 147613. As mentioned earlier, this Court has undisputed certiorari powers over the actions of the Commission on Elections. As an incident of such prerogative, the Court has the inherent authority to enforce its orders and to hold the COMELEC's Chairman and Commissioners in contempt when they impede, obstruct, or degrade its proceedings or orders, or disobey, ignore or otherwise offend its dignity. Clearly, the COMELEC has no reciprocal constitutional power to pass upon the actions of this Court or its Members Hence, the Commission has absolutely no authority to hold them in contempt as an incident of its inexistent power of review. Even more clearly, it has no right to recriminate or sulk when its imprudent actions are reversed, or its Members held in contempt for their rash actions. By voluntarily paying the fine imposed in our contempt Resolution of 18 February 2003, the Chairman and all the Commissioners of the COMELEC displayed a becoming regard for the rule of law in thereby recognizing this Court's authority to hold in contempt impeachable officials like them. It is a source of wonder why the First Division composed of only three -- a minority -- of the seven COMELEC members are now in a tantrum over a final and executed contempt Order of this Court.

"x x x [T]he punishment for contempt of court is a remedial, preservative or coercive act, rather than a vindictive or punitive one, and is imposed for the benefit of complainant or the other party to the suit who has been injured, and its object is to compel obedience to, or the performance of, the court's orders or decrees, which the contemnor refuses to obey although able to do so, and thus, to secure, preserve, vindicate, enforce, or advance the rights of such private parties, as well as to vindicate the court's authority." (Facinal vs. Cruz, 213 SCRA 23.8, 244-245, September 2, 1992)
As to the First division's reckless innuendo that. COMELEC Commissioners are exempt' from criminal prosecution and thus from the criminal aspects of contempt, they should read De. Venecia vs. Sandiganbayan (G.R. No. 130240, February 5, 2002), People vs. Jalosjos (381 Phil. 6901, February .3, 2000), Santiago vs. Sandiganbayan; (363 Phil. 605, March 8, 1999), Paredes, vs. Sandiganbayan (G.R. No. 118354, August 8, 1995), and Martinez vs. Morfe (44 SCRA 22, March 24, 1972). In those Decisions, lawmakers are not totally exempt from criminal proceedings; how then can the First Division Commissioners pretend to be more special than they? THIRD, under the doctrine of separation of powers, the three major branches of government -- the Executive, the Legislative and the Judicial -- are coequal and coordinate with each other. But none may interfere with, review or pass upon the exclusive powers vested in each of them by the Constitution. Specifically, not even the other two great branches of government may reverse or modify decisions and orders of the Supreme Court in given case -- not the President, not Congress much less the COMELEC. But, as part of the system of checks and balances, if. Congress does not agree with the Court's interpretation of a law, it may repeal, modify or amend the statute; but it cannot directly overturn the decision or hold the magistrates writing or voting thereon liable for contempt or for any administrative, criminal, civil or any other liability. On the other hand, the President may appoint justices who may change the interpretation in the future. But no act of Congress or the President may alter a final and executory decision of this Court.

Re: EM No. 03-8-22

"Indeed, resolutions of the Supreme Court as a collegiate court, whether en banc or division, speak for themselves and are entitled to full faith and credence and are beyond investigation or inquiry under the same principle of conclusiveness of enrolled bills of the legislature. (U.S. vs. Pons, 34 Phil. 729; Gardiner, et al. vs. Paredes, et al., 61 Phil. 118; Mabanag vs. Lopez Vito, 78 Phil. 1) The Supreme Court's pronouncement of the doctrine that (l)t is well settled that the enrolled bill . . . is conclusive upon the courts as regards the tenor of the measure passed by Congress and approved by the President. If there has been any mistake in the printing of the bill before it was certified by the officers of Congress and approved by the Executive [as claimed by petitionerimporter who unsuccessfully sought refund of margin fees] - on which' we cannot speculate, without jeopardizing the principle of separation of powers and undermining one of the cornerstones of our democratic system - the remedy is by amendment or curative legislation, not by judicial decree is fully and reciprocally applicable to Supreme Court orders, resolutions and decisions, mutatis mutandis. (Casco Phil. Chemical Co., Inc. vs. Gimenez, 7 SCRA 347, 350. (Citing Primicias vs. Paredes, 61 'Phil. 118, 120; Mabanag vs. Lopez Vito, 78 Phil. 1; Macias vs. Comelec, 3 SCRA 1) "The Court has consistently stressed that the doctrine of separation, of powers calls for the executive, legislative and judicial departments being left alone to discharge their duties as they see fit (Tan vs. Macapagal, 43 SCRA 677). It has thus maintained in the same way that the judiciary has a right to expect that neither the President nor Congress would cast doubt on the mainspring of its orders or decisions, it should refrain from speculating as to alleged hidden forces at work that could have impelled either coordinate branch into acting the way it did. The concept of separation of powers presupposes mutual' respect by and between the three departments of the government (Tecson vs. Salas, 34 SCRA 275, 286-287) "To allow litigants to go beyond the Courts resolution and claim that the members acted 'with deliberate bad faith' and rendered (an) 'unjust resolution' in disregard or violation of the duty of their high office to act upon their own independent consideration and judgment of the matter at hand would be to destroy the authenticity, integrity and conclusiveness of such collegiate acts and resolutions and to disregard utterly' the presumption of regular performance' of official duty. To allow such collateral attack would destroy the separation of powers and undermine the role of the Supreme Court as the final arbiter of all justiciable disputes." (In Re Wenceslao Laureta, 148 SCRA 382, 419-420, March 12, 1987; italics in original)
While the COMELEC is given specific powers and functions by the Constitution, the Commission does not have the same level and standing as the three great branches of government. Hence, erroneous and whimsical are all pretentions of equality, with those three, as unabashedly propositioned directly or indirectly -- in the COMELEC Order of 10 September 2003. FOURTH, citing the Separate Opinions of Justices Jose C. Vitug and, Vicente V. Mendoza in the same cases (G.R. Nos. 147589 and 147613), the COMELEC's First division peremptorily and erroneously charges the Chief Justice and the concerned Associate Justices with "judicial legislation" allegedly constituting contempt. To begin with, the, dissenting Justices, particularly Justice Vitug who is still a sitting Member, merely said that the ponencia "x x x may unwittingly be crossing the limits of judicial legislation." The Dissent advisedly used the words "may" and "unwittingly," but the First Division deviously misinterpreted these terms to mean a positive charge of judicial lawmaking. The main objection of the COMELEC's First Division which was earlier espoused by Justices Vitug and Mendoza during 'the Court's deliberation namely, that the majority ignored the alleged intent of the framers of the Constitution to open the party-list system to all groups, and not exclusively to the "marginalized and underrepresented," has already been adequately: addressed by the Court's 26 June 2001 Decision, from which we quote in part as follows:

"The Separate Opinions of our distinguished colleagues, Justices Jose C. Vitug and Vicente V. Mendoza, are anchored mainly on the supposed intent of the framers of the Constitution as culled, from their deliberations.

Re: EM No. 03-8-22

"The fundamental principle in constitutional construction, however, is that the primary source from. Which to ascertain constitutional intent or purpose is the language of the provision itself. The presumption is that the words in which the constitutional provisions are couched express the' objective sought to be attained. In other words, verba legis still prevails. Only when the meaning of the words used .is unclear and equivocal should resort be made to extraneous aids of construction and interpretation, such as the proceedings of the Constitutional Commission or Convention, in order to shed light on and ascertain the true intent or purpose of the provision being construed. "Indeed, as cited in the Separate Opinion of Justice Mendoza, this Court stated in Civil Liberties Union v. Executive Secretary that 'the debates and proceedings of the constitutional convention [may be consulted in order to arrive at the reason and purpose of the resulting Constitution x x x 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 of the mass of our fellow citizens whose votes at the polls 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.' "Section 5, Article VI of the Constitution, relatives to the party-list system, is couched in clear terms: the mechanics of the system shall be provided by law. Pursuant thereto, Congress enacted RA 7941. In understanding and implementing party-list representation, we should therefore look at the law first. Only when we find its provisions ambiguous should the use of extraneous aids of construction be resorted to. "But, as discussed earlier, the intent of the law is obvious and clear from its plain words. Section 2 thereof unequivocally states that the party-list system of electing congressional representatives was designed to 'enable underrepresented sectors, organizations and parties, and who lack well-defined political' constituencies but who could contribute to the formulation and enactment of appropriate legislation that will benefit the nation as a whole x x x.' The criteria for participation is well defined. .Thus, there is no need for recourse to constitutional deliberations, not even to the proceedings of Congress. In any event, the framers deliberations merely express their individual opinions and are, at best, only persuasive in construing the meaning and purpose of the constitution or statute. "Be it remembered that the constitutionality or validity of Sections 2 and 5 of RA 7941 is hot an issue here. Hence, they remain parts of the law, which must be applied plainly and simply." (Citations omitted.)
Also, the Opinions of' the two esteemed Justices were merely those of individual Members But the Court's Decision, Resolution and Order impugned by the COMELEC's First Division constituted the collective rulings of the Court, not individual opinions of those writing or voting for them. Unlike the members of the First Division, the dissenting Justices have graciously accepted without any complaint, rancor or tantrum these collective actions of the Court which, to quote the First Division itself, "form part of the legal system of the land." The fact that the dissenters touched on the subject of judicial legislation means that the issue had been thoroughly discussed by the Justices; but that after meticulous deliberation and judicious study, the Court by majority vote held that its carefully crafted Decision did not amount to usurpation of legislative' functions. Despite the foregoing explanation, the C0MELEC First Division still condemned the Court for .championing "the cause of the marginalized and underrepresented sectors [and] judicially [giving] them a better chance to win the elections by prescribing that "nominees x x x must [also] belong to marginalized and underrepresented sectors." It likewise contended that by disqualifying parties that received funding, from the government (and not just from foreign governments), the Court had unconstitutionally expanded the grounds for disqualification of party-list candidates.

Re: EM No. 03-8-22

Again, our 26 June 2001 Decision has adequately taken up these concerns quite extensively. We need not repeat here the lengthy discussions therein, except to say that: (1) The Court's conclusion that the party-list system was intended for the marginalized and underrepresented was, painstakingly and carefully culled from the Constitution and the law. It was made only after, debate, discussion and a long study, as can be gleaned from even a cursory reading of our Decision. That there were dissents even among the justices themselves is proof enough of these spirited Deliberations. Finally, in consonance with the social justice principle espoused by the partly-list law, the Court said:

"In the end, the role of the Comelec is to see to it that only those Filipinos who are marginalized and underrepresented' become members of Congress under the party list system, Filipino-style. "The intent of the Constitution is clear to give genuine power to the people, not only by giving more law to those who have less in life, but more so by enabling them to become veritable Lawmakers themselves Consistent with this intent, the policy of the implementing law, we repeat, is likewise clear 'to enable Filipino citizens belonging to marginalized and underrepresented sectors, organizations and parties, x x x, to become members of the House of Representatives.' Where the language of the law is clear, it must be applied according to its express terms. (Citation omitted)
Additionally, to stress the social Justice rationale of the law, the Court observed, as follows:

"It is ironic, therefore, that the marginalized and underrepresented in our midst are the majority who wallow in poverty, destitution and infirmity It was for them that the party-list system was enacted - to give them not only genuine hope, but genuine power; to give them the opportunity to be elected and to represent the specific concerns of their constituencies, and simply to give them a direct voice in Congress and in the larger affairs of the State In its noblest sense, the patty-list system truly empowers the masses and ushers a new hope for genuine change. Verily, it invites those marginalized and under represented in the past - the farm hands, the fisher folk, the urban poor, even those in the underground movement to come out and participate, as indeed many of them came out and participated during the last elections. The State cannot now disappoint and frustrate them by disabling and desecrating this social justice vehicle."
(2) Citing Section 2(4) of Article IX (B) of the Constitution and Article 261(o) of B.P. Big. 881, the Court held that "the participation of the government or its officials in the affairs of a party-list candidate is not only illegal and unfair to other parties, but also deleterious to the objective of the law to enable citizens belonging to marginalized and underrepresented sectors and organizations to be elected to the House of Representatives." Thus, in formulating one of the guidelines for determining the qualifications of a party-list candidate, the Court ruled that the "party or organization must not be an adjunct of, or a project organized or an entity funded or assisted by, the government" FIFTH, the COMELEC'S First Division ruled that in the same cases (G.R. Nos. 147589 and 1 4761 3), the Court had allegedly degraded the Commission by making the latter a mere recommendatory body" and thus deprived it of its constitutional powers to enforce election laws. Again, this is pure legal heresy. In our 26 June 2001 Decision in those cases, a fact-finding task was delegated to the COMELEC: to determine which of the party-list candidates had complied with the eight-point guideline we had issued. This task had to be delegated because the Court is not a trier of facts, and' the Corn mission is' precisely the constitutional agency that is supposedly knowledgeable of election matters and the principal trier thereof. Clearly delineated in our Decision was the specific work remanded to the COMELEC fact-findings It did not involve, much less impair, the normal powers and duties of the poll body. To stress, its task of fact-finding was specific and limited, one that accrued only as a direct result of the disposition" in the said cases. In other words, its authority in this specific instance was coextensive only with that which, was delegated to it to implement the Decision. To its credit, it performed its delegated task without much ado and later submitted its three Compliance Reports, which were subsequently affirmed by this Court.

Re: EM No. 03-8-22

Thus, the Court is now bewildered at these new sanctimonious perorations of the First Division, complaining about the COMELEC being allegedly "scale(d) down to a mere recommendatory body x x x virtually making it a mere rubber stamp" of the Court. These complaints had never been aired by the Commission en banc which, as earlier stated, had performed its fact-finding mission with commendable alacrity. Only when it overstepped as very limited and delegated fact-finding authority and usurped the Court's work in relation to the aforementioned cases (G.R. Nos. 147589 and 147613) did its attention have to be called by way of our contempt Resolution dated 28 February 2003. Incidentally, in this connection, the First Division is "astonished" at the fact that after penalizing the COMELEC Commissioners for their improvident issuance of their Resolution proclaiming certain party-list candidates, this Court did not void the proclamation. Plainly, the answer is contained in our 25 June 2003 Resolution: The affected parties deserve due process, and a decision or order affecting them may be issued only after they have completed their arguments on the legal effects of the wrongful proclamation Indeed, there is a distinction between holding in contempt the authors of an arbitrary proclamation resolution, on the one hand, and, on the other, unseating those who have been proclaimed, have taken their seats in Congress, and have begun performing their lawmaking duties. Has the First Division, wallowing in its own tantrums, overlooked this significant difference? SIXTH. The First Division also raised a big fuss about the alleged deprivation of due process and equal protection. Again, the Honorable Division may have overlooked the fact that the basic requirement of due process is the opportunity to be heard. The COMELEC has had more than as just share of that opportunity. Prior to the Court's imposition of a penalty on them, the COMELEC's Chairman and Members were asked to show cause why they should not be cited for contempt via our rather lengthy Resolution dated December 17, 2002. And they responded and tried vainly, it turned out in the end to justify their contumacious actions. Too, they were heard via their Motion for Reconsideration which, after due deliberation, was denied by this Court. As already stated, all seven Members (including the Chairman) of the Comelec paid the fine. Why are the three Members of, the First Division a minority in the banc of seven now whining about their liability for contempt? SEVENTH. That the official actions of this Court may be commented on or even criticized is a right granted by the Constitution. But criticism that takes the form of malicious insinuation, brazen ridicule or capricious innuendo has no place in a formal resolution of an agency that seeks wrongly to hold in contempt this Court's Members for issuing decisions and orders that have allegedly interfered with its proceedings. This truism remains clear and untrammeled in our system of government, no matter how extravagantly the Members of the Commission First Division may regard their own intellectual capacities and how poorly those of others. They must bear in mind that there is only one Supreme Court to which all judicial and quasi-judicial agencies must take their bearings. By their oath of office, they are bound to respect and obey its decisions and orders, even if they may not agree with them. They need only to be reminded of the following dictum which, though issued by the Court many years ago, still holds sway up to now: "We concede that a lawyer may think highly of his intellectual, endowment. That is his privilege. And, he may suffer frustration at what he feels is others' lack of it. That is his misfortune. x x x (S)uch frame of mind, however, should not be allowed to harden into a belief that he may attack a court's decision in words calculated to jettison the time-honored aphorism that courts are the temples of right." (Rheem of the Philippines vs. Ferrer, 20 SCRA 441, 444, June 26, 1967) WHEREFORE, the Resolution promulgated by the First Division of the Commission on Elections in EM-03-010 and EM-03-01 1, is NOTED insofar as it DISMISSED the Petitions for Contempt; but its "reasons given" therefor are DECLARED UTTERLY BASELESS for having been 'palpably issued without jurisdiction, being in clear contravention of the Constitution and, of our Resolution dated 26 August 2003. Inasmuch as "the COMELEC's First Division forwarded September 2003 Resolution to the House of Representatives, let a copy of this unanimous en banc' Resolution of the Court be sent also to the House of Representatives as well as to- the Chairman of the Commission on Elections. Very truly yours, LUZVIMINDA D. PUNO Clerk of Court

PAGCOR vs. Angara

Republic of the Philippines Supreme Court

Manila SECOND DIVISION
PHILIPPINE AMUSEMENT AND GAMING CORPORATION, Petitioner, G.R. NO. 142937

Present: - versus PUNO, Chairman, AUSTRIA-MARTINEZ, CALLEJO, SR., TINGA, and CHICO-NAZARIO, JJ.

MARITA A. ANGARA and BEATRIZ T. LA VICTORIA, Promulgated: Respondents. November 15, 2005 x --------------------------------------------------x

DECISION
AUSTRIA-MARTINEZ, J.: Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the Resolution[1] of the Court of Appeals (CA) dated January 31, 2000 in CA-G.R. SP No. 56375, which dismissed petitioners petition for review for late filing; and the Resolution dated April 7, 2000, which denied petitioners motion for reconsideration.

The factual background of the case is as follows:

PAGCOR vs. Angara

Respondents Beatriz T. La Victoria (La Victoria) and Marita A. Angara (Angara) were Slot Machine Roving Token Attendants (SMRTAs)[2] of petitioner Philippine Amusement and Gaming Corporation (PAGCOR) assigned at its casino in Davao City.

In a letter dated July 23, 1997, the PAGCOR Board of Directors dismissed them from service, effective June 28, 1997, for loss of trust and confidence.[3] It appears that respondent La Victoria was dismissed for alleged short selling of tokens while respondent Angara was dismissed for alleged token passing and condoning or actively assisting La Victoria in covering up her shortage. On August 12, 1997, respondents filed a motion for reconsideration [4] but their motion was denied.[5]

On October 17, 1997, respondents filed their appeal memorandum with the Civil Service Commission (CSC).[6] In a resolution dated October 21, 1997, the CSC directed PAGCOR Chairman Alicia Ll. Reyes to submit her comment on the said appeal together with the records of the case within ten days from receipt of the resolution.[7] Instead of filing a comment, petitioner filed a motion to dismiss, on November 24, 1997, on the ground that the appeal was filed out of time.[8] On May 27, 1999, the CSC issued Resolution No. 991110. It treated petitioners motion to dismiss as its comment and, on the basis of respondents appeal memorandum, ruled in the latters favor. It reversed the respondents dismissal and ordered their reinstatement.[9] Petitioner filed a motion for reconsideration[10] but was denied by the CSC in its Resolution No. 992571 dated November 19, 1999.[11]

On December 22, 1999, petitioner filed a motion for a twenty-day extension of time from December 23, 1999 or until January 11, 2000 within which to file its petition for review with the CA.[12]

PAGCOR vs. Angara

On January 10, 2000, petitioner filed its petition for review with the CA.[13] On January 13, 2000, the CA granted petitioners motion for extension but only for fifteen days from December 23, 1999 or until January 7, 2000.[14]

On January 31, 2000, the CA issued the first assailed Resolution denying due course to the petition for review for having been filed three days past the extended period granted by the court.[15]

On February 22, 2000, petitioner filed a motion for reconsideration, contending that the petition was filed within the twenty-day extension it had asked for and thus should have been given due course. It further invoked liberal interpretation of the Rules for consideration of equity and substantial justice.[16]

On April 7, 2000, the CA rendered the second assailed Resolution denying for lack of merit petitioners motion for reconsideration.[17] The CA held that: Section 3,[18] Rule 43 of the 1997 Rules of Civil Procedure expressly provides that only one extension of fifteen (15) days may be granted to a petitioner within which to file a petition for review; petitioner took the risk when it asked for a twenty-day extension, evidently assuming that the court will grant the extension prayed for; even if the petition was timely filed, it will still have to be denied for the following formal defects: (a) the petition lacks an affidavit of service as mandated under Section 13[19] of Rule 13; (b) the signatory to the certification against forum shopping was not shown to have been validly and legally authorized by the petitioner to sign the same; and (c) the written explanation required under Section 11, [20] Rule 13 shows that the respondents were furnished, not with copies of the petition for review, but with copies of the Motion for Extension of Time to File Verified Petition for Review.

PAGCOR vs. Angara

Hence, the present petition for review on certiorari anchored on the following assigned errors:
I THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN DISMISSING PETITIONERS VERIFIED PETITION FOR REVIEW.

II THE CIVIL SERVICE COMMISSION (CSC) ERRED IN DECLARING PRIVATE RESPONDENTS DISMISSAL WITHOUT CAUSE AND WITHOUT DUE PROCESS EVEN WITHOUT AWAITING THE COMMENT OF THE PETITIONER AND THE COMPLETE RECORDS OF THE CASE, WHERE THE MERIT OF THE CASE SHOULD HAVE BEEN FAIRLY AND IMPARTIALLY ASSESSED.

III THE ACTS OF RTAs LA VICTORIA AND ANGARA CONSTITUTE DISHONESTY, A VIOLATION OF PAGCORS RULES ON EMPLOYEES DISCIPLINE REGARDED AS LOSS OF TRUST AND CONFIDENCE. IV RTAs LA VICTORIA AND ANGARA HOLD CONFIDENTIAL POSITIONS WHOSE REMOVAL FROM THE SERVICE CAN BE JUSTIFIED THROUGH LOSS OF TRUST AND CONFIDENCE.

V THE APPEAL FILED BY THE RESPONDENTS BEFORE THE CSC WAS NOT WITHIN THE REGLEMENTARY PERIOD TO FILE AN APPEAL, AND THEREFORE, THE CSC COULD NOT VALIDLY ACT ON IT.[21]

Petitioner submits that technicalities should be set aside in the interest of substantial justice. It avers that the dismissal of the petition filed three days past the granted period is unwarranted because the delay is excusable. It points out that: the case was originally handled by PAGCOR and referred to the Office of the Government Corporate Counsel for proper handling on December 10, 1999; the case was assigned to the present counsel for preparation of the petition only on December 13, 1999, or ten days before December 23, 1999, the expiry date for appeal; counsel had

PAGCOR vs. Angara

to coordinate with the former handling counsel of PAGCOR in order to be apprised of the factual background of the case and collate the documents and exhibits necessary for the preparation of the petition.

On the failure to attach an affidavit of service, petitioner contends that the CA did not require it to attach the same. Besides, the CA had notice that the petition was duly furnished all the parties, as manifested by the annotation of the registry receipt numbers, place and date of filing opposite the names of the parties, located at the last page of the petition, such that there was substantial compliance with the requirements of the Rules.

As to the verification and certification of non-forum shopping, petitioner maintains that the same was signed by the Managing Head for Corporate and Legal Services Department, Atty. Carlos R. Bautista, the officer of the petitioner who has personal knowledge of all the cases, perhaps, more knowledgeable than the head of the office.

With regard to the written explanation in the petition which states that respondents were furnished with copies of the Motion for Extension of Time to File Verified Petition for Review, petitioner submits that it should be considered a mere typographical error.

Moreover, petitioner submits that its case is meritorious. It insists that it was denied due process when the CSC treated petitioners motion to dismiss as its comment a nd decided the case forthwith, without allowing petitioner to submit its comment or the whole record of the case be elevated to it. Besides, petitioner maintains that the records show that respondents committed acts of dishonesty which are punishable with dismissal, even on the first offense.

Furthermore, petitioner submits that since respondents are confidential employees, pursuant to Section 16[22] of Presidential Decree No. 1869[23] (the PAGCOR Charter), they did not have fixed term of office; their tenure of employment was dependent on the continued confidence of

PAGCOR vs. Angara

their superiors; such confidence was lost because it was proven that they committed dishonest acts in the performance of their duties.

Lastly, petitioner submits that since the CSC admitted that the appeal of the respondents was filed out of time, it should not have entertained the same. Therefore, petitioners decision dismissing respondents from service, being final and executory, should stand.

Respondents, on the other hand, submit that the instant petition should have been dismissed outright since the verification and certification of non-forum shopping was signed by Atty. Bautista, the Managing Head for Corporate and Legal Services Department, and no board resolution was attached to show that he is petitioners duly authorized represen tative. They further submit that there is no proof of service.

As to the issues presented by petitioner, respondents contend that the appeal before the CSC was not filed beyond the reglementary period because respondents were not furnished with petitioners resolution dismissing them from service for loss of trust and confidence. Respondent La Victoria claims that she secured a copy through her own efforts while respondent Angara alleges that she was never furnished with a decision dismissing her from service. Besides, they submit that there is no rule before the CSC which provides that whenever a motion for reconsideration is denied, the moving party has only the remaining period from notice of denial within which to file notice of appeal. In any event, they aver that the CSC did not err in admitting the appeal because it is within its power to relax the rules to attain substantial justice.

They further contend that the CSC did not err in issuing Resolution No. 991110 despite the absence of the records since petitioner was deemed to have waived such right to file its comment when it chose to file a motion to dismiss. Moreover, the CSC did not err in ruling that respondents were not dismissed for cause and after due process since loss of trust and confidence is not one among the grounds for disciplinary action and there was no formal investigation conducted but a summary proceeding.

PAGCOR vs. Angara

On one hand, the Court finds that petitioner has offered no justifiable reasons in filing the petition for review three days past the period granted since the Rules allow only a 15-day extension and petitioners counsel cannot assume that his request for a 20 -day extension will be granted. The reasons proffered by petitioners counsel that he needs sufficient time to collate and review the records of the case which are still in the possession of PAGCOR in order to come up with a well studied and appropriate Verified Petition for Review[24] and since assigned counsel is saddled with the preparation of equally important pleadings coupled with almost daily appearances in court[25] are not exceptionally meritorious or most compelling reasons to allow petitioner additional three days or up to January 10, 2000, after the lapse of the fifteen-day period on January 7, 2000.

On the other hand, the Court notes that the last day for filing the petition for review, that is, January 7, 2000, fell on a Friday. Petitioner filed its petition for review on January 10, 2000, Monday, which was the next working day. Therefore, the delay in filing the motion for extension was actually for one day only. It has been held that a one-day delay does not justify the appeals denial where no element of intent to delay the administration of justice could be attributed to the petitioner. [26] Needless to stress, the real purpose behind the limitation of the period of appeal is to forestall or avoid an unreasonable delay in the administration of justice and to put an end to controversies.[27]

In this case, the Court is inclined to excuse the one-day delay, in order to fully settle the merits of the case. After all, the policy of our judicial system is to encourage full adjudication of the merits of an appeal.

With respect to the non-attachment of the affidavit of service, such is not fatal to the petition since the registry receipts attached to the petition clearly show that respondents were served copies

PAGCOR vs. Angara

of the petition.[28] The demands of substantial justice were satisfied by the actual receipt of the petition. In fact, respondents filed their comment thereon.[29] With respect to the verification and certification signed by Atty. Bautista, petitioners Managing Head for Corporate and Legal Services Department, it is but logical that he be the party affixing his signature therein, considering that the person who is in the best position to ascertain the truthfulness and the correctness of the allegations in the petition is its legal officer, who necessarily knows the status of any suit involving the company.[30]

As to the written explanation stating that respondents were furnished with copies of the Motion for Extension of Time to File Verified Petition for Review,[31] it should be considered as a typographical or clerical error since what was actually furnished, as shown by the heading of the pleading, is a Verified Petition for Review.[32]

While it is true that rules of procedure are intended to promote rather than frustrate the ends of justice, and the swift unclogging of court dockets is a laudable objective, it nevertheless must not be met at the expense of substantial justice.[33] Time and again, this Court has reiterated the doctrine that the rules of procedure are mere tools intended to facilitate the attainment of justice, rather than frustrate it. A strict and rigid application of the rules must always be eschewed when it would subvert the primary objective of the rules, that is, to enhance fair trials and expedite justice. Technicalities should never be used to defeat the substantive rights of the other party. Every party-litigant must be afforded the amplest opportunity for the proper and just determination of his cause, free from the constraints of technicalities.[34] Thus, the CA should have refrained from hastily dismissing the petition on procedural flaws. In similar cases,[35] the Court ordinarily remands the case to the CA for proper disposition on the merits. However, in the present case, considering the issues raised and the fact that the records of the case are before us, the Court deems it more appropriate and practical to resolve the present controversy in order to avoid further delay.[36]

PAGCOR vs. Angara

The issue on the nature of employment of an employee of the petitioner has been laid to rest in Civil Service Commission vs. Salas, wherein the Courten banc, speaking through the learned Justice Florenz D. Regalado, held:[37]
In reversing the decision of the CSC, the Court of Appeals opined that the provisions of Section 16 of Presidential Decree No. 1869 may no longer be applied in the case at bar because the same is deemed to have been repealed in its entirety by Section 2(1), Article IX-B of the 1987 Constitution. This is not completely correct. On this point, we approve the more logical interpretation advanced by the CSC to the effect that Section 16 of PD 1869 insofar as it exempts PAGCOR positions from the provisions of Civil Service Law and Rules has been amended, modified or deemed repealed by the 1987 Constitution and Executive Order No. 292 (Administrative Code of 1987). However, the same cannot be said with respect to the last portion of Section 16 which provides that all employees of the casino and related services shall be classified as confidential appointees. While such executive declaration emanated merely from the provisions of Section 2, Rule XX of the Implementing Rules of the Civil Service Act of 1959, the power to declare a position as policy-determining, primarily confidential or highly technical as defined therein has subsequently been codified and incorporated in Section 12(9), Book V of Executive Order No. 292 or the Administrative Code of 1987. This later enactment only serves to bolster the validity of the categorization made under Section 16 of Presidential Decree No. 1869. Be that as it may, such classification is not absolute and all-encompassing. Prior to the passage of the aforestated Civil Service Act of 1959, there were two recognized instances when a position may be considered primarily confidential: Firstly, when the President, upon recommendation of the Commissioner of Civil Service, has declared the position to be primarily confidential; and, secondly, in the absence of such declaration, when by the nature of the functions of the office there exists close intimacy between the appointee and appointing power which insures freedom of intercourse without embarrassment or freedom from misgivings of betrayals of personal trust or confidential matters of state. At first glance, it would seem that the instant case falls under the first category by virtue of the express mandate under Section 16 of Presidential Decree No. 1869. An in-depth analysis, however, of the second category evinces otherwise. When Republic Act No. 2260 was enacted on June 19, 1959, Section 5 thereof provided that the non-competitive or unclassified service shall be composed of positions expressly declared by law to be in the non-competitive or unclassified service or those which are policy-determining, primarily confidential, or highly technical in nature. In the case of Piero, et al. vs. Hechanova, et al., the Court obliged with a short discourse there on how the phrase in nature came to find its way into the law, thus: The change from the original wording of the bill (expressly declared by law x x x to be policy-determining, etc.) to that finally approved and enacted (orwhich are policy determining, etc. in nature) came about because of the observations of Senator Taada, that as originally worded the proposed bill gave Congress power to declare by fiat of law a certain position as primarily confidential or policydetermining, which should not be the case. The Senator urged that since the Constitution speaks of positions which are primarily confidential, policy-

PAGCOR vs. Angara

determining or highly technical in nature, it is not within the power of Congress to declare what positions are primarily confidential or policy-determining. It is the nature alone of the position that determines whether it is policy-determining or primarily confidential. Hence, the Senator further observed, the matter should be left to the proper implementation of the laws, depending upon the nature of the position to be filled, and if the position is highly confidential then the President and the Civil Service Commissioner must implement the law. To a question of Senator Tolentino, But in positions that involved both confidential matters and matters which are routine, x x x who is going to determine whether it is primarily confidential? Senator Taada replied: SENATOR TAADA: Well, at the first instance, it is the appointing power that determines that: the nature of the position. In case of conflict then it is the Court that determines whether the position is primarily confidential or not. Hence the dictum that, at least since the enactment of the Civil Service Act of 1959, it is the nature of the position which finally determines whether a position is primarily confidential, policy-determining or highly technical. And the Court in the aforecited case explicitly decreed that executive pronouncements, such as Presidential Decree No. 1869, can be no more than initial determinations that are not conclusive in case of conflict. It must be so, or else it would then lie within the discretion of the Chief Executive to deny to any officer, by executive fiat, the protection of Section 4, Article XII (now Section 2[3], Article IX-B) of the Constitution. In other words, Section 16 of Presidential Decree No. 1869 cannot be given a literally stringent application without compromising the constitutionally protected right of an employee to security of tenure. The doctrinal ruling enunciated in Piero finds support in the 1935 Constitution and was reaffirmed in the 1973 Constitution, as well as in the implementing rules of Presidential Decree No. 807, or the Civil Service Decree of the Philippines. It may well be observed that both the 1935 and 1973 Constitutions contain the provision, in Section 2, Article XII-B thereof, that appointments in the Civil Service, except as to those which are policy-determining, primarily confidential, or highly technical in nature, shall be made only according to merit and fitness, to be determined as far as practicable by competitive examination. Corollarily, Section 5 of Republic Act No. 2260 states that the non-competitive or unclassified service shall be composed of positions expressly declared by law to be in the non-competitive or unclassified service or those which are policy-determining, primarily confidential, or highly technical in nature. Likewise, Section 1 of the General Rules in the implementing rules of Presidential Decree No. 807 states that appointments in the Civil Service, except as to those which are policy-determining, primarily confidential, or highly technical in nature, shall be made only according to merit and fitness to be determined as far as practicable by competitive examination. Let it be here emphasized, as we have accordingly italicized them, that these fundamental laws and legislative or executive enactments all utilized the phrase in nature to describe the character of the positions being classified. The question that may now be asked is whether the Piero doctrineto the effect that notwithstanding any statutory classification to the contrary, it is still the nature of the position, as may be ascertained by the court in case of conflict, which finally determines whether a position is primarily confidential, policy-determining or highly technicalis still controlling with the advent of the 1987 Constitution and the Administrative Code of 1987, Book V of which deals specifically with the Civil Service Commission, considering that from these later enactments, in defining positions which are policy-determining, primarily confidential or highly technical, the phrase in nature was deleted.

PAGCOR vs. Angara

We rule in the affirmative. The matter was clarified and extensively discussed during the deliberations in the plenary session of the 1986 Constitutional Commission on the Civil Service provisions, to wit: MR. FOZ: Which department of government has the power or authority to determine whether a position is policy-determining or primarily confidential or highly technical? FR. BERNAS: The initial decision is made by the legislative body or by the executive department, but the final decision is done by the court. The Supreme Court has constantly held that whether or not a position is policy-determining, primarily confidential or highly technical, it is determined not by the title but by the nature of the task that is entrusted to it. For instance, we might have a case where a position is created requiring that the holder of that position should be a member of the Bar and the law classifies this position as highly technical. However, the Supreme Court has said before that a position which requires mere membership in the Bar is not a highly technical position. Since the term highly technical means something beyond the ordinary requirements of the profession, it is always a question of fact. MR. FOZ: Does not Commissioner Bernas agree that the general rule should be that the merit system or the competitive system should be upheld? FR. BERNAS: I agree that that should be the general rule; that is why we are putting this as an exception. MR. FOZ: The declaration that certain positions are policy-determining, primarily confidential or highly technical has been the source of practices which amount to the spoils system. FR. BERNAS: The Supreme Court has always said that, but if the law of the administrative agency says that a position is primarily confidential when in fact it is not, we can always challenge that in court. It is not enough that the law calls it primarily confidential to make it such; it is the nature of the duties which makes a position primarily confidential. MR. FOZ: The effect of a declaration that a position is policy-determining, primarily confidential or highly technicalas an exceptionis to take it away from the usual rules and provisions of the Civil Service Law and to place it in a class by itself so that it can avail itself of certain privileges not available to the ordinary run of government employees and officers. FR. BERNAS: As I have already said, this classification does not do away with the requirement of merit and fitness. All it says is that there are certain positions which should not be determined by competitive examination . For instance, I have just mentioned a position in the Atomic Energy Commission. Shall we require a physicist to undergo a competitive examination before appointment? Or a confidential secretary or any position in policy-determining administrative bodies, for that matter? There are other ways of determining merit and fitness than competitive examination. This is not a denial of the requirement of merit and fitness. It is thus clearly deducible, if not altogether apparent, that the primary purpose of the framers of the 1987 Constitution in providing for the declaration of a position as policy-

PAGCOR vs. Angara

determining, primarily confidential or highly technical is to exempt these categories from competitive examination as a means for determining merit and fitness. It must be stressed further that these positions are covered by security of tenure, although they are considered noncompetitive only in the sense that appointees thereto do not have to undergo competitive examinations for purposes of determining merit and fitness. In fact, the CSC itself ascribes to this view as may be gleaned from its questioned resolution wherein it stated that the declaration of a position as primarily confidential if at all, merely exempts the position from the civil service eligibility requirement. Accordingly, the Piero doctrine continues to be applicable up to the present and is hereby maintained. Such being the case, the submission that PAGCOR employees have been declared confidential appointees by operation of law under the bare authority of CSC Resolution No. 91-830 must be rejected.[38] (Emphasis supplied)

In Philippine Amusement and Gaming Corporation vs. Rilloraza,[39] the Court, in reiterating the foregoing pronouncements, further stated that:
Justice Regalados incisive discourse yields three (3) important points: first, the classification of a particular position as primarily confidential, policy-determining or highly technical amounts to no more than an executive or legislative declaration that is not conclusive upon the courts, the true test being the nature of the position. Second, whether primarily confidential, policy-determining or highly technical, the exemption provided in the Charter pertains to exemption from competitive examination to determine merit and fitness to enter the civil service. Such employees are still protected by the mantle of security of tenure. Last, and more to the point, Section 16 of P.D. 1869, insofar as it declares all positions within PAGCOR as primarily confidential, is not absolutely binding on the courts.[40]

In the present case, as SMRTAs, respondents duties and responsibilities are:

JOB SUMMARY: Working under the supervision of the Slot Machine Supervisor, the Slot Machine Roving Token Attendant provides cash-to-token exchange services to slot machine players. DUTIES AND RESPONSIBILITIES: 1. Handles cash-to-token exchange transactions with slot machine players. 2. Accounts for the proper use, safekeeping, and liquidation of the individual vale issued by Treasury. 3. Provides optimum customer service to casino players in accordance with the established House Rules and company policies. 4. Notifies the Slot Machine Attendant of any need for jackpot payment or hopper refills, and informs the Slot Machine Technician of any fault codes or machine malfunctions.

PAGCOR vs. Angara

5. Ensures the cleanliness of slot machine units, the proper arrangement of slot machine area stools, and the return of empty coin trays, bowls or tubes to the Token Counter or to a designated location. 6. Assists in the preparation of periodic slot machine reports, and in the maintenance of the sections files records and reports. 7. Notifies the Slot Machine Head/Asst. Head/Supervisor of any incident of doubtful nature. 8. Performs other duties as may be designated by the Casino Operations Manager.[41]

As a SMRTA, each of them earns P3,000.00 a month.[42] From the nature of respondents functions, their organizational ranking, and their compensation level, it is obviously beyond debate that respondents, occupying one of the lowest ranks in petitioner, cannot be considered confidential employees. Their job description spells out their routinary functions. As enumerated in their functions, there is nothing to suggest that their positions were highly, or much less primarily confidential in nature. There is no showing of that element of trust indicative of a primarily confidential position, as defined in De los Santos vs. Mallare,[43] thus:
Every appointment implies confidence, but much more than ordinary confidence is reposed in the occupant of a position that is primarily confidential. The latter phrase denotes not only confidence in the aptitude of the appointee for the duties of the office but primarily close intimacy which insures freedom of intercourse without embarrassment or freedom from misgivings of betrayals of personal trust or confidential matters of state.[44]

Petitioner, therefore, cannot justify respondents dismissal on loss of trust and confidence since the latter are not confidential employees. Being regular employees that enjoy security of tenure, respondents can only be dismissed for just cause and with due process, notice and hearing. Petitioner cannot, in the alternative, allege that respondents are being dismissed for dishonesty since petitioners thesis, in its motion for reconsideration in the CSC and petition before the CA, has always been that respondents, as confidential employees, can be dismissed for loss of trust and confidence. Besides, dishonesty is not the reason for which they were dismissed per the letter of dismissal of July 23, 1997, but for loss of trust and confidence.[45]

PAGCOR vs. Angara

Moreover, the petitioner cannot claim it was deprived of due process of law when the CSC granted respondents appeal without the comment of the petitioner or the records before it. Petitioner was directed to file its comment but chose instead to move for the dismissal of the appeal. It must be remembered that the CSC, being an administrative body with quasi-judicial powers, is not bound by the technical rules of procedure and evidence in the adjudication of cases, subject only to limitations imposed by basic requirements of due process.[46] In Ang Tibay vs. Court of Industrial Relations,[47] we held that the provision for flexibility in administrative procedure does not go so far as to justify orders without a basis in evidence having rational probative value. In the present case, since petitioner claims that respondents are confidential employees and can be dismissed on loss of trust and confidence, the attachments to respondents appeal memorandum, namely: (a) the letter dated February 6, 1997 from the petitioners Board of Directors confirming respondent La Victorias regular appointment as SMRTA, effective January 8, 1997, after six months probationary period, with a salary of P3,000 a month;[48] (b) the letter dated July 11, 1996 from the petitioners Board o f Directors confirming respondent Angaras regular appointment as SMRTA, effective June 4, 1996 with a salary of P3,000 a month;[49] (c) the letter dated July 28, 1997 from Richard S. Syhongpan (Syhongpan), Branch Manager, Casino Filipino, Davao, addressed to respondent Angara informing her of preventive suspension effective same date, pending investigation;[50] (d) two letters, both dated July 1, 1997, from Syhongpan, separately addressed to respondents, requiring them to appear before the Branch Management Panel;[51] (e) the letter dated July 2, 1998 of respondent La Victoria addressed to the Branch Manager, explaining her side on the incident she was investigated on;[52] (f) the Memorandum dated July 5, 1997 from Syhongpan directing respondent Angara to report to the Corporate Office on July 7, 1997 for further investigation;[53] (g) the two letters, both of July 23, 1997, separately addressed to respondents, from Teresita S. Ela, Managing Head of the Personnel Administration Department of PAGCOR, informing them that the Board of Directors in the meeting on July 22, 1997 resolved to dismiss them from service for loss of trust and confidence effective June 28, 1997;[54] (h) respondents appeal for reconsideration dated August 12, 1997 filed with Alicia Ll. Reyes, Chairman and Chief Executor Officer of

PAGCOR vs. Angara

PAGCOR;[55] (i) respondents tracer letter dated September 12, 1997 addressed to Reyes, requesting speedy disposition of their appeal for reconsideration;[56] (j) the Reply to Endorsement of Appeal for Reconsideration, dated September 12, 1997 from Reyes addressed to then Senate President Ernesto Maceda, on the denial of respondent La Victorias appeal for reconsideration of their dismissal;[57] and (k) the letter dated September 17, 1997 from Romeo T. Trio, PAGCORs Corporate Secretary, informing respondents of the denial of their appeal for reconsideration by the PAGCORs Board of Directors;[58] and settled jurisprudence enunciated in Civil Service Commission vs. Salas and Philippine Amusement and Gaming Corporation vs. Rilloraza, are sufficient bases for the CSCs decision in favor of respondents.

Besides, petitioner was given the opportunity to be heard when it filed a motion for reconsideration of Resolution No. 991110, wherein it attached the records of the case, which included all the documents attached to respondents appeal memorandum. [59] The CSC, however, after a thorough re-evaluation of the arguments raised by petitioner, found no sufficient legal and factual basis to modify or alter its decision in the resolution. Petitioner cannot bewail denial of due process since it was given the opportunity to present its side on the propriety of respondents dismissal through its motion for reconsideration and the attachments therein. [60] Accordingly, the demands of due process have been sufficiently met. WHEREFORE, the petition is DENIED for lack of merit. SO ORDERED.

CSC vs Javier
EN BANC [G.R. No. 173264, February 22, 2008] CIVIL SERVICE COMMISSION, Petitioner, vs. NITA P. JAVIER, Respondent. DECISION
AUSTRIA-MARTINEZ, J.: Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, seeking to reverse the Decision[1] of the Court of Appeals (CA) dated September 29, 2005, as well as its Resolution of June 5, 2006, in CA-G.R. SP No. 88568, which set aside the resolutions and orders of the Civil Service Commission (CSC) invalidating the appointment of respondent as Corporate Secretary of the Board of Trustees of the Government Service and Insurance System (GSIS). The facts are undisputed. According to her service record,[2] respondent was first employed as Private Secretary in the GSIS, a government owned and controlled corporation (GOCC), on February 23, 1960, on a confidential status. On July 1, 1962, respondent was promoted to Tabulating Equipment Operator with permanent status. The permanent status stayed with respondent throughout her career. She spent her entire career with GSIS, earning several more promotions, until on December 16, 1986, she was appointed Corporate Secretary of the Board of Trustees of the corporation. On July 16, 2001, a month shy of her 64th birthday,[3] respondent opted for early retirement and received the corresponding monetary benefits.[4] On April 3, 2002, GSIS President Winston F. Garcia, with the approval of the Board of Trustees, reappointed respondent as Corporate Secretary, the same position she left and retired from barely a year earlier. Respondent was 64 years old at the time of her reappointment.[5] In its Resolution, the Board of Trustees classified her appointment as confidential in nature and the tenure of office is at the pleasure of the Board.[6] Petitioner alleges that respondent's reappointment on confidential status was meant to illegally extend her service and circumvent the laws on compulsory retirement.[7] This is because under Republic Act (R.A.) No. 8291, or the Government Service Insurance System Act of 1997, the compulsory retirement age for government employees is 65 years, thus: Sec. 13. x x x (b) Unless the service is extended by appropriate authorities, retirement shall be compulsory for an employee at sixty-five (65) years of age with at least fifteen (15) years of service: Provided, That if he has less than fifteen (15) years of service, he may be allowed to continue in the service in accordance with existing civil service rules and regulations. Under the civil service regulations, those who are in primarily confidential positions may serve even beyond the age of 65 years. Rule XIII of the Revised Omnibus Rules on Appointments and Other Personnel Actions, as amended, provides that: Sec. 12. (a) No person who has reached the compulsory retirement age of 65 years can be appointed to any position in the government, subject only to the exception provided under sub-section (b) hereof. xxxx b. A person who has already reached the compulsory retirement age of 65 can still be appointed to a coterminous/primarily confidential position in the government. A person appointed to a coterminous/primarily confidential position who reaches the age of 65 is considered automatically extended in the service until the expiry date of his/her appointment or until his/her services are earlier terminated.[8] It is for these obvious reasons that respondent's appointment was characterized as confidential by the GSIS. On October 10, 2002, petitioner issued Resolution No. 021314, invalidating the reappointment of respondent as Corporate Secretary, on the ground that the position is a permanent, career position and not primarily confidential.[9] On November 2, 2002, the CSC, in a letter of even date, through its Chairperson Karina Constantino-David, informed GSIS of CSC's invalidation of respondent's appointment, stating, thus:

CSC vs Javier
Records show that Ms. Javier was formerly appointed as Corporate Secretary in a Permanent capacity until her retirement in July 16, 2001. The Plantilla of Positions shows that said position is a career position. However, she was reemployed as Corporate Secretary, a position now declared as confidential by the Board of Trustees pursuant to Board Resolution No. 94 dated April 3, 2002. Since the position was not declared primarily confidential by the Civil Service Commission or by any law, the appointment of Ms. Javier as Corporate Secretary is hereby invalidated.[10] Respondent and GSIS sought to reconsider the ruling of petitioner. CSC replied that the position of Corporate Secretary is a permanent (career) position, and not primarily confidential (non-career); thus, it was wrong to appoint respondent to this position since she no longer complies with eligibility requirements for a permanent career status. More importantly, as respondent by then has reached compulsory retirement at age 65, respondent was no longer qualified for a permanent career position.[11] With the denial of respondent's plea for reconsideration, she filed a Petition for Review with the Court of Appeals. On September 29, 2005, the CA rendered a Decision setting aside the resolution of petitioner invalidating respondent's appointment.[12] The CA ruled that in determining whether a position is primarily confidential or otherwise, the nature of its functions, duties and responsibilities must be looked into, and not just its formal classification.[13] Examining the functions, duties and responsibilities of the GSIS Corporate Secretary, the CA concluded that indeed, such a position is primarily confidential in nature. Petitioner filed a motion for reconsideration, which was denied by the CA on June 5, 2006. Hence, herein petition. The petition assails the CA Decision, contending that the position of Corporate Secretary is a career position and not primarily confidential in nature.[14] Further, it adds that the power to declare whether any position in government is primarily confidential, highly technical or policy determining rests solely in petitioner by virtue of its constitutional power as the central personnel agency of the government.[15] Respondent avers otherwise, maintaining that the position of Corporate Secretary is confidential in nature and that it is within the powers of the GSIS Board of Trustees to declare it so.[16] She argues that in determining the proper classification of a position, one should be guided by the nature of the office or position, and not by its formal designation.[17] Thus, the Court is confronted with the following issues: whether the courts may determine the proper classification of a position in government; and whether the position of corporate secretary in a GOCC is primarily confidential in nature. The Court's Ruling The courts may determine the proper classification of a position in government. Under Executive Order No. 292, or the Administrative Code of 1987, civil service positions are currently classified into either 1) career service and 2) non-career service positions.[18] Career positions are characterized by: (1) entrance based on merit and fitness to be determined as far as practicable by competitive examinations, or based on highly technical qualifications; (2) opportunity for advancement to higher career positions; and (3) security of tenure.[19] In addition, the Administrative Code, under its Book V, sub-classifies career positions according to appointment status, divided into: 1) permanent which is issued to a person who meets all the requirements for the positions to which he is being appointed, including the appropriate eligibility prescribed, in accordance with the provisions of law, rules and standards promulgated in pursuance thereof; and 2)temporary which is issued, in the absence of appropriate eligibles and when it becomes necessary in the public interest to fill a vacancy, to a person who meets all the requirements for the position to which he is being appointed except the appropriate civil service eligibility; provided, that such temporary appointment shall not exceed twelve months, and the appointee may be replaced sooner if a qualified civil service eligible becomes available.[20] Positions that do not fall under the career service are considered non-career positions, which are characterized by: (1) entrance

CSC vs Javier
on bases other than those of the usual tests of merit and fitness utilized for the career service; and (2) tenure which is limited to a period specified by law, or which is co-terminous with that of the appointing authority or subject to his pleasure, or which is limited to the duration of a particular project for which purpose employment was made.[21] Examples of positions in the non-career service enumerated in the Administrative Code are: Sec. 9. Non-Career Service. - x x x The Non-Career Service shall include: (1) Elective officials and their personal or confidential staff; (2) Secretaries and other officials of Cabinet rank who hold their positions at the pleasure of the President and their personal or confidential staff(s); (3) Chairman and members of commissions and boards with fixed terms of office and their personal or confidential staff; (4) Contractual personnel or those whose employment in the government is in accordance with a special contract to undertake a specific work or job, requiring special or technical skills not available in the employing agency, to be accomplished within a specific period, which in no case shall exceed one year, and performs or accomplishes the specific work or job, under his own responsibility with a minimum of direction and supervision from the hiring agency; and (5) Emergency and seasonal personnel. (Emphasis supplied) A strict reading of the law reveals that primarily confidential positions fall under the non-career service. It is also clear that, unlike career positions, primarily confidential and other non-career positions do not have security of tenure. The tenure of a confidential employee is co-terminous with that of the appointing authority, or is at the latter's pleasure. However, the confidential employee may be appointed or remain in the position even beyond the compulsory retirement age of 65 years.[22] Stated differently, the instant petition raises the question of whether the position of corporate secretary in a GOCC, currently classified by the CSC as belonging to the permanent, career service, should be classified as primarily confidential, i.e., belonging to the non-career service. The current GSIS Board holds the affirmative view, which is ardently opposed by petitioner. Petitioner maintains that it alone can classify government positions, and that the determination it made earlier, classifying the position of GOCC corporate secretary as a permanent, career position, should be maintained. At present, there is no law enacted by the legislature that defines or sets definite criteria for determining primarily confidential positions in the civil service. Neither is there a law that gives an enumeration of positions classified as primarily confidential. What is available is only petitioner's own classification of civil service positions, as well as jurisprudence which describe or give examples of confidential positions in government. Thus, the corollary issue arises: should the Court be bound by a classification of a position as confidential already made by an agency or branch of government? Jurisprudence establishes that the Court is not bound by the classification of positions in the civil service made by the legislative or executive branches, or even by a constitutional body like the petitioner.[23] The Court is expected to make its own determination as to the nature of a particular position, such as whether it is a primarily confidential position or not, without being bound by prior classifications made by other bodies.[24] The findings of the other branches of government are merely considered initial and not conclusive to the Court.[25] Moreover, it is well-established that in case the findings of various agencies of government, such as the petitioner and the CA in the instant case, are in conflict, the Court must exercise its constitutional role as final arbiter of all justiciable controversies and disputes.[26] Piero v. Hechanova,[27] interpreting R.A. No. 2260, or the Civil Service Act of 1959, emphasized how the legislature refrained from declaring which positions in the bureaucracy are primarily confidential, policy determining or highly technical in nature, and declared that such a determination is better left to the judgment of the courts. The Court, with the ponencia of Justice J.B.L. Reyes, expounded, thus: The change from the original wording of the bill (expressly declared by law x x x to be policy determining, etc.) to that finally approved and enacted (or which are policy determining, etc. in nature) came about because of the observations of Senator Taada, that as originally worded the proposed bill gave Congress power to declare by fiat of law a certain position as primarily confidential or policy determining, which should not be the case. The Senator urged that since the Constitution speaks of positions which are primarily confidential, policy determining or highly technical in nature, it is not within the power of Congress to declare what positions are primarily confidential or policy determining. It is the nature alone of the position that determines whether it is policy determining or primarily confidential. Hence, the Senator further observed, the matter should be left to the proper implementation of the laws,

CSC vs Javier
depending upon the nature of the position to be filled, and if the position is highly confidential then the President and the Civil Service Commissioner must implement the law. To a question of Senator Tolentino, But in positions that involved both confidential matters and matters which are routine, x x x who is going to determine whether it is primarily confidential? Senator Taada replied: SENATOR TAADA: Well. at the first instance, it is the appointing power that determines that: the nature of the position. In case of conflict then it is the Court that determines whether the position is primarily confidential or not. I remember a case that has been decided by the Supreme Court involving the position of a district engineer in Baguio, and there. precisely, the nature of the position was in issue. It was the Supreme Court that passed upon the nature of the position, and held that the President could not transfer the district engineer in Baguio against his consent. Senator Taada, therefore, proposed an amendment to section 5 of the bill, deleting the words to be and inserting in lieu thereof the words Positions which are by their nature policy determining, etc., and deleting the last words in nature. Subsequently, Senator Padilla presented an amendment to the Taada amendment by adopting the very words of the Constitution, i.e., those which are policy determining, primarily confidential and highly technical in nature. The Padilla amendment was adopted, and it was this last wording with which section 5 was passed and was enacted (Senate Journal, May 10, 1959, Vol. 11, No. 32, pp. 679-681). It is plain that, at least since the enactment of the 1959 Civil Service Act (R. A. 2260), it is the nature of the position which finally determines whether a position is primarily confidential, policy determining or highly technical. Executive pronouncements can be no more than initial determinations that are not conclusive in case of conflict. And it must be so, or else it would then lie within the discretion of title Chief Executive to deny to any officer, by executive fiat, the protection of section 4, Article XII, of the Constitution.[28] (Emphasis and underscoring supplied) This doctrine in Piero was reiterated in several succeeding cases.[29] Presently, it is still the rule that executive and legislative identification or classification of primarily confidential, policydetermining or highly technical positions in government is no more than mere declarations, and does not foreclose judicial review, especially in the event of conflict. Far from what is merely declared by executive or legislative fiat, it is the nature of the position which finally determines whether it is primarily confidential, policy determining or highly technical, and no department in government is better qualified to make such an ultimate finding than the judicial branch. Judicial review was also extended to determinations made by petitioner. In Grio v. Civil Service Commission,[30] the Court held: The fact that the position of respondent Arandela as provincial attorney has already been classified as one under the career service and certified as permanent by the Civil Service Commission cannot conceal or alter its highly confidential nature. As in Cadiente where the position of the city legal officer was duly attested as permanent by the Civil Service Commission before this Court declared that the same was primarily confidential, this Court holds that the position of respondent Arandela as the provincial attorney of Iloilo is also a primarily confidential position. To rule otherwise would be tantamount to classifying two positions with the same nature and functions in two incompatible categories.[31] The framers of the 1987 Constitution were of the same disposition. Section 2 (2) Article IX (B) of the Constitution provides that: Appointments in the civil service shall be made only according to merit and fitness to be determined, as far as practicable, and, except to positions which are policy-determining, primarily confidential, or highly technical, by competitive examination. The phrase in nature after the phrase policy-determining, primarily confidential, or highly technical was deleted from the 1987 Constitution.[32]However, the intent to lay in the courts the power to determine the nature of a position is evident in the following deliberation: MR. FOZ. Which department of government has the power or authority to determine whether a position is policy-determining or primarily confidential or highly technical? FR. BERNAS: The initial decision is made by the legislative body or by the executive department, but the final decision is done by the court. The Supreme Court has constantly held that whether or not a position is policydetermining, primarily confidential or highly technical, it is determined not by the title but by the nature of the task that is entrusted to it. For instance, we might have a case where a position is created requiring that the holder of that position should be a member of the Bar and the law classifies this position as highly technical. However, the Supreme Court has said before that a position which requires mere membership in the Bar is not a highly technical position. Since the term 'highly technical' means something beyond the ordinary requirements of the profession, it is always a question of fact. MR. FOZ. Does not Commissioner Bernas agree that the general rule should be that the merit system or the competitive system

CSC vs Javier
should be upheld? FR. BERNAS. I agree that that it should be the general rule; that is why we are putting this as an exception. MR. FOZ. The declaration that certain positions are policy-determining, primarily confidential or highly technical has been the source of practices which amount to the spoils system. FR. BERNAS. The Supreme Court has always said that, but if the law of the administrative agency says that a position is primarily confidential when in fact it is not, we can always challenge that in court. It is not enough that the law calls it primarily confidential to make it such; it is the nature of the duties which makes a position primarily confidential. MR. FOZ. The effect of a declaration that a position is policy-determining, primarily confidential or highly technical as an exception is to take it away from the usual rules and provisions of the Civil Service Law and to place it in a class by itself so that it can avail itself of certain privileges not available to the ordinary run of government employees and officers. FR. BERNAS. As I have already said, this classification does not do away with the requirement of merit and fitness. All it says is that there are certain positions which should not be determined by competitive examination. For instance, I have just mentioned a position in the Atomic Energy Commission. Shall we require a physicist to undergo a competitive examination before appointment? Or a confidential secretary or any position in policy-determining administrative bodies, for that matter? There are other ways of determining merit and fitness than competitive examination. This is not a denial of the requirement of merit and fitness.[33] (Emphasis supplied) This explicit intent of the framers was recognized in Civil Service Commission v. Salas,[34] and Philippine Amusement and Gaming Corporation v. Rilloraza,[35] which leave no doubt that the question of whether the position of Corporate Secretary of GSIS is confidential in nature may be determined by the Court. The position of corporate secretary in a government owned and controlled corporation, currently classified as a permanent career position, is primarily confidential in nature. First, there is a need to examine how the term primarily confidential in nature is described in jurisprudence. According to Salas,[36] Prior to the passage of the x x x Civil Service Act of 1959 (R.A. No. 2260), there were two recognized instances when a position may be considered primarily confidential: Firstly, when the President, upon recommendation of the Commissioner of Civil Service, has declared the position to be primarily confidential; and, secondly in the absence of such declaration, when by the nature of the functions of the office there exists "close intimacy" between the appointee and appointing power which insures freedom of intercourse without embarrassment or freedom from misgivings of betrayals of personal trust or confidential matters of state.[37] (Emphasis supplied) However, Salas declared that since the enactment of R.A. No. 2260 and Piero,[38] it is the nature of the position which finally determines whether a position is primarily confidential or not, without regard to existing executive or legislative pronouncements either way, since the latter will not bind the courts in case of conflict. A position that is primarily confidential in nature is defined as early as 1950 in De los Santos v. Mallare,[39] through the ponencia of Justice Pedro Tuason, to wit: x x x These positions (policy-determining, primarily confidential and highly technical positions), involve the highest degree of confidence, or are closely bound up with and dependent on other positions to which they are subordinate, or are temporary in nature. It may truly be said that the good of the service itself demands that appointments coming under this category be terminable at the will of the officer that makes them. xxxx Every appointment implies confidence, but much more than ordinary confidence is reposed in the occupant of a position that is primarily confidential. The latter phrase denotes not only confidence in the aptitude of the appointee for the duties of the office but primarily close intimacy which insures freedom of [discussion, delegation and reporting] without embarrassment or freedom from misgivings of betrayals of personal trust or confidential matters of state. x x x[40](Emphasis supplied)

CSC vs Javier
Since the definition in De los Santos came out, it has guided numerous other cases.[41] Thus, it still stands that a position is primarily confidential when by the nature of the functions of the office there exists close intimacy between the appointee and appointing power which insures freedom of intercourse without embarrassment or freedom from misgivings of betrayals of personal trust or confidential matters of state. In classifying a position as primarily confidential, its functions must not be routinary, ordinary and day to day in character.[42] A position is not necessarily confidential though the one in office may sometimes handle confidential matters or documents.[43] Only ordinary confidence is required for all positions in the bureaucracy. But, as held in De los Santos,[44] for someone holding a primarily confidential position, more than ordinary confidence is required. In Ingles v. Mutuc,[45] the Court, through Chief Justice Roberto Concepcion as ponente, stated: Indeed, physicians handle confidential matters. Judges, fiscals and court stenographers generally handle matters of similar nature. The Presiding and Associate Justices of the Court of Appeals sometimes investigate, by designation of the Supreme Court, administrative complaints against judges of first instance, which are confidential in nature. Officers of the Department of Justice, likewise, investigate charges against municipal judges. Assistant Solicitors in the Office of the Solicitor General often investigate malpractice charges against members of the Bar. All of these are confidential matters, but such fact does not warrant the conclusion that the office or position of all government physicians and all Judges, as well as the aforementioned assistant solicitors and officers of the Department of Justice are primarily confidential in character.[46] (Emphasis supplied) It is from De los Santos that the so-called proximity rule was derived. A position is considered to be primarily confidential when there is a primarily close intimacy between the appointing authority and the appointee, which ensures the highest degree of trust and unfettered communication and discussion on the most confidential of matters.[47] This means that where the position occupied is already remote from that of the appointing authority, the element of trust between them is no longer predominant.[48] On further interpretation in Grio, this was clarified to mean that a confidential nature would be limited to those positions not separated from the position of the appointing authority by an intervening public officer, or series of public officers, in the bureaucratic hierarchy.[49] Consequently, brought upon by their remoteness to the position of the appointing authority, the following were declared by the Court to be not primarily confidential positions: City Engineer;[50] Assistant Secretary to the Mayor;[51] members of the Customs Police Force or Port Patrol;[52] Special Assistant of the Governor of the Central Bank, Export Department;[53] Senior Executive Assistant, Clerk I and Supervising Clerk I and Stenographer in the Office of the President;[54] Management and Audit Analyst I of the Finance Ministry Intelligence Bureau;[55] Provincial Administrator;[56] Internal Security Staff of the Philippine Amusement and Gaming Corporation (PAGCOR);[57] Casino Operations Manager;[58] and Slot Machine Attendant.[59] All positions were declared to be not primarily confidential despite having been previously declared such either by their respective appointing authorities or the legislature. The following were declared in jurisprudence to be primarily confidential positions: Chief Legal Counsel of the Philippine National Bank;[60] Confidential Agent of the Office of the Auditor, GSIS;[61] Secretary of the Sangguniang Bayan;[62] Secretary to the City Mayor;[63] Senior Security and Security Guard in the Office of the Vice Mayor;[64] Secretary to the Board of a government corporation;[65] City Legal Counsel, City Legal Officer or City Attorney;[66] Provincial Attorney;[67] Private Secretary;[68] and Board Secretary II of the Philippine State College of Aeronautics.[69] In fine, a primarily confidential position is characterized by the close proximity of the positions of the appointer and appointee as well as the high degree of trust and confidence inherent in their relationship. Ineluctably therefore, the position of Corporate Secretary of GSIS, or any GOCC, for that matter, is a primarily confidential position. The position is clearly in close proximity and intimacy with the appointing power. It also calls for the highest degree of confidence between the appointer and appointee. In classifying the position of Corporate Secretary of GSIS as primarily confidential, the Court took into consideration the proximity rule together with the duties of the corporate secretary, enumerated as follows:[70] 1. 2. Performs all duties, and exercises the power, as defined and enumerated in Section 4, Title IX, P.D. No. 1146; Undertakes research into past Board resolutions, policies, decisions, directives and other Board action, and relate these to present matters under Board consideration;

CSC vs Javier
3. Analyzes and evaluates the impact, effects and relevance of matters under Board consideration on existing Board policies and provide the individual Board members with these information so as to guide or enlighten them in their Board decision; 4. Records, documents and reproduces in sufficient number all proceedings of Board meetings and disseminate relevant Board decisions/information to those units concerned; 5. Coordinates with all functional areas and units concerned and monitors the manner of implementation of approved Board resolutions, policies and directives; 6. Maintains a permanent, complete, systematic and secure compilation of all previous minutes of Board meetings, together with all their supporting documents; 7. Attends, testifies and produces in Court or in administrative bodies duly certified copies of Board resolutions, whenever required; 8. Undertakes the necessary physical preparations for scheduled Board meetings; 9. Pays honoraria of the members of the Board who attend Board meetings; 10. Takes custody of the corporate seal and safeguards against unauthorized use; and 11. Performs such other functions as the Board may direct and/or require. The nature of the duties and functions attached to the position points to its highly confidential character.[71] The secretary reports directly to the board of directors, without an intervening officer in between them.[72] In such an arrangement, the board expects from the secretary nothing less than the highest degree of honesty, integrity and loyalty, which is crucial to maintaining between them freedom of intercourse without embarrassment or freedom from misgivings or betrayals of personal trust or confidential matters of state.[73] The responsibilities of the corporate secretary are not merely clerical or routinary in nature. The work involves constant exposure to sensitive policy matters and confidential deliberations that are not always open to the public, as unscrupulous persons may use them to harm the corporation. Board members must have the highest confidence in the secretary to ensure that their honest sentiments are always and fully expressed, in the interest of the corporation. In this respect, the nature of the corporate secretary's work is akin to that of a personal secretary of a public official, a position long recognized to be primarily confidential in nature.[74] The only distinction is that the corporate secretary is secretary to the entire board, composed of a number of persons, but who essentially act as one body, while the private secretary works for only one person. However, the degree of confidence involved is essentially the same. Not only do the tasks listed point to sensitive and confidential acts that the corporate secretary must perform, they also include such other functions as the Board may direct and/or require, a clear indication of a closely intimate relationship that exists between the secretary and the board. In such a highly acquainted relation, great trust and confidence between appointer and appointee is required. The loss of such trust or confidence could easily result in the board's termination of the secretary's services and ending of his term. This is understandably justified, as the board could not be expected to function freely with a suspicious officer in its midst. It is for these same reasons that jurisprudence, as earlier cited, has consistently characterized personal or private secretaries, and board secretaries, as positions of a primarily confidential nature.[75] The CA did not err in declaring that the position of Corporate Secretary of GSIS is primarily confidential in nature and does not belong to the career service. The Court is aware that this decision has repercussions on the tenure of other corporate secretaries in various GOCCs. The officers likely assumed their positions on permanent career status, expecting protection for their tenure and appointments, but are now re-classified as primarily confidential appointees. Such concern is unfounded, however, since the statutes themselves do not classify the position of corporate secretary as permanent and career in nature. Moreover, there is no absolute guarantee that it will not be classified as confidential when a dispute arises. As earlier stated, the Court, by legal tradition, has the power to make a final determination as to which positions in government are primarily confidential or otherwise. In the light of the instant controversy, the Court's view is that the greater public interest is served if the position of a corporate secretary is classified as primarily confidential in nature. Moreover, it is a basic tenet in the country's constitutional system that public office is a public trust,[76] and that there is no vested right in public office, nor an absolute right to hold office.[77] No proprietary title attaches to a public office, as public service is not a property right.[78] Excepting constitutional offices which provide for special immunity as regards salary and tenure, no one can be said to have any vested right in an office.[79] The rule is that offices in government, except those created

CSC vs Javier
by the constitution, may be abolished, altered, or created anytime by statute.[80] And any issues on the classification for a position in government may be brought to and determined by the courts.[81] WHEREFORE, premises considered, the Petition is DENIED. The Decision of the Court of Appeals dated September 29, 2005, in CA-G.R. SP No. 88568, as well as its Resolution of June 5, 2006 are hereby AFFIRMED in toto. No costs. SO ORDERED.

Veloso vs. CoA

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 193677 September 6, 2011

LUCIANO VELOSO, ABRAHAM CABOCHAN, JOCELYN DAWIS-ASUNCION and MARLON M. LACSON,Petitioners, vs. COMMISSION ON AUDIT, Respondent. DECISION PERALTA, J.: This is a Petition for Review on Certiorari under Rule 65 of the Rules of Court assailing Decision No. 2008-0881dated September 26, 2008 and Decision No. 2010-0772 dated August 23, 2010 of the Commission on Audit (COA) sustaining Notice of Disallowance (ND) No. 06-010-100-053 dated May 24, 2006 disallowing the payment of monetary reward as part of the Exemplary Public Service Award (EPSA) to former three-term councilors of the City of Manila authorized by City Ordinance No. 8040. The facts of the case are as follows: On December 7, 2000, the City Council of Manila enacted Ordinance No. 8040 entitled An Ordinance Authorizing the Conferment of Exemplary Public Service Award to Elective Local Officials of Manila Who Have Been Elected for Three (3) Consecutive Terms in the Same Position. Section 2 thereof provides: SEC. 2. The EPSA shall consist of a Plaque of Appreciation, retirement and gratuity pay remuneration equivalent to the actual time served in the position for three (3) consecutive terms, subject to the availability of funds as certified by the City Treasurer. PROVIDED, That [it] shall be accorded to qualified elected City Officials on or before the first day of service in an appropriated public ceremony to be conducted for the purpose. PROVIDED FURTHER, That this Ordinance shall only cover the Position of Mayor, Vice-Mayor and Councilor: PROVIDED FURTHERMORE, That those who were elected for this term and run for higher elective position thereafter, after being elected shall still be eligible for this award for the actual time served: PROVIDED FINALLY That the necessary and incidental expenses needed to implement the provisions of this Ordinance shall be appropriated and be included in the executive budget for the year when any city official will qualify for the Award.4 The ordinance was deemed approved on August 23, 2002. Pursuant to the ordinance, the City made partial payments in favor of the following former councilors: Councilor/Recipients Abraham C. Cabochan Julio E. Logarta, Jr. Luciano M. Veloso Check Date Amount

353010 06/07/05 P1,658,989.09 353156 06/14/05 P1,658,989.08 353778 06/30/05 P1,658,989.08

Jocelyn Dawis-Asuncion 353155 06/14/05 P1,658,989.08 Marlon M. Lacson 353157 06/14/05 P1,658,989.08

Heirs of Hilarion C. Silva 353093 06/09/05 P1,628,311.59

Veloso vs. CoA

TOTAL P9,923,257.00
5

On August 8, 2005, Atty. Gabriel J. Espina (Atty. Espina), Supervising Auditor of the City of Manila, issued Audit Observation Memorandum (AOM) No. 2005-100(05)07(05)6 with the following observations: 1. The initial payment of monetary reward as part of Exemplary Public Service Award (EPSA) amounting toP9,923,257.00 to former councilors of the City Government of Manila who have been elected for three (3) consecutive terms to the same position as authorized by City Ordinance No. 8040 is without legal basis. 2. The amount granted as monetary reward is excessive and tantamount to double compensation in contravention to Article 170 (c) of the IRR of RA 7160 which provides that no elective or appointive local official shall receive additional, double or indirect compensation unless specifically authorized by law. 3. The appropriations for retirement gratuity to implement EPSA ordinance was classified as Maintenance and Other Operating Expenses instead of Personal Services contrary to Section 7, Volume III of the Manual on the New Government Accounting System (NGAS) for local government units and COA Circular No. 2004-008 dated September 20, 2004 which provide the updated description of accounts under the NGAS.7 After evaluation of the AOM, the Director, Legal and Adjudication Office (LAO)-Local of the COA issued ND No. 06010-100-058 dated May 24, 2006. On November 9, 2006, former councilors Jocelyn Dawis-Asuncion (Dawis-Asuncion), Luciano M. Veloso (Veloso), Abraham C. Cabochan (Cabochan), Marlon M. Lacson (Lacson), Julio E. Logarta, Jr., and Monina U. Silva, City Accountant Gloria C. Quilantang, City Budget Officer Alicia Moscaya and then Vice Mayor and Presiding Officer Danilo B. Lacuna filed a Motion to Lift the Notice of Disallowance.9 In its Decision No. 2007-17110 dated November 29, 2007, the LAO-Local decided in favor of the movants, the pertinent portion of which reads: WHEREFORE, premises considered, the motion of former Vice- Mayor Danilo B. Lacuna, et al., is GRANTED and ND No. 06-010-100-05 dated May 24, 2006 is hereby ordered lifted as the reasons for the disallowance have been sufficiently explained. This decision, however, should not be taken as precedence (sic) to other or similar personal benefits that a local government unit may extend which should be appreciated based on their separate and peculiar circumstances.11 Citing Article 170 of the Implementing Rules and Regulations (IRR) of Republic Act (RA) No. 7160, the LAO-Local held that the monetary reward given to the former councilors can be one of gratuity and, therefore, cannot be considered as additional, double or indirect compensation. Giving importance to the principle of local autonomy, the LAO-local upheld the power of local government units (LGUs) to grant allowances. More importantly, it emphasized that the Department of Budget and Management (DBM) did not disapprove the appropriation for the EPSA of the City which indicate that the same is valid.12 Upon review, the COA rendered the assailed Decision No. 2008-088 sustaining ND No. 06-010-100-05.13 The motion for reconsideration was likewise denied in Decision No. 2010-077.14 The COA opined that the monetary reward under the EPSA is covered by the term "compensation." Though it recognizes the local autonomy of LGUs, it emphasized the limitations thereof set forth in the Salary Standardization Law (SSL). It explained that the SSL does not authorize the grant of such monetary reward or gratuity. It also stressed the absence of a specific law passed by Congress which ordains the conferment of such monetary reward or gratuity to the former councilors.15In Decision No. 2010-077, in response to the question on its jurisdiction to rule on the legality of the disbursement, the COA held that it is vested by the Constitution the power to determine whether government entities comply with laws and regulations in disbursing government funds and to disallow irregular disbursements.16 Aggrieved, petitioners Veloso, Cabochan, Dawis-Asuncion and Lacson come before the Court in this special civil action for certiorari alleging grave abuse of discretion on the part of the COA. Specifically, petitioners claim that: The respondent Commission on Audit did not only commit a reversible error but was, in fact, guilty of grave abuse of discretion amounting to lack or excess of jurisdiction when it ruled that the monetary award given under the EPSA

Veloso vs. CoA partakes of the nature of an additional compensation prohibited under the Salary Standardization Law, and other existing laws, rules and regulations, and not a GRATUITY "voluntarily given in return for a favor or services rendered purely out of generosity of the giver or grantor." (Plastic Tower Corporation vs. NLRC, 172 SCRA 580-581).
Apart from being totally oblivious of the fact that the monetary award given under the EPSA was intended or given in return for the exemplary service rendered by its recipient(s), the respondent COA further committed grave abuse of discretion when it effectively nullified a duly-enacted ordinance which is essentially a judicial function. In other words, in the guise of disallowing the disbursement in question, the respondent Commission arrogated unto itself an authority it did not possess, and a prerogative it did not have.17 On November 30, 2010, the Court issued a Status Quo Ante Order18 requiring the parties to maintain the status quo prevailing before the implementation of the assailed COA decisions. There are two issues for resolution: (1) whether the COA has the authority to disallow the disbursement of local government funds; and (2) whether the COA committed grave abuse of discretion in affirming the disallowance ofP9,923,257.00 covering the EPSA of former three-term councilors of the City of Manila authorized by Ordinance No. 8040. In their Reply,19 petitioners insist that the power and authority of the COA to audit government funds and accounts does not carry with it in all instances the power to disallow a particular disbursement.20 Citing Guevara v. Gimenez,21 petitioners claim that the COA has no discretion or authority to disapprove payments on the ground that the same was unwise or that the amount is unreasonable. The COA's remedy, according to petitioners, is to bring to the attention of the proper administrative officer such expenditures that, in its opinion, are irregular, unnecessary, excessive or extravagant.22 While admitting that the cited case was decided by the Court under the 1935 Constitution, petitioners submit that the same principle applies in the present case. We do not agree. As held in National Electrification Administration v. Commission on Audit,23 the ruling in Guevara cited by petitioners has already been overturned by the Court in Caltex Philippines, Inc. v. Commission on Audit.24 The Court explained25 that under the 1935 Constitution, the Auditor General could not correct irregular, unnecessary, excessive or extravagant expenditures of public funds, but could only bring the matter to the attention of the proper administrative officer. Under the 1987 Constitution, however, the COA is vested with the authority to determine whether government entities, including LGUs, comply with laws and regulations in disbursing government funds, and to disallow illegal or irregular disbursements of these funds. Section 2, Article IX-D of the Constitution gives a broad outline of the powers and functions of the COA, to wit: Section 2. (1) The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned or controlled corporations with original charters, and on a post-audit basis: (a) constitutional bodies, commissions and offices that have been granted fiscal autonomy under this Constitution; (b) autonomous state colleges and universities; (c) other government-owned or controlled corporations and their subsidiaries; and (d) such nongovernmental entities receiving subsidy or equity, directly or indirectly, from or through the Government, which are required by law or the granting institution to submit to such audit as a condition of subsidy or equity. However, where the internal control system of the audited agencies is inadequate, the Commission may adopt such measures, including temporary or special pre-audit, as are necessary and appropriate to correct the deficiencies. It shall keep the general accounts of the Government and, for such period as may be provided by law, preserve the vouchers and other supporting papers pertaining thereto. (2) The Commission shall have exclusive authority, subject to the limitations in this Article, to define the scope of its audit and examination, establish the techniques and methods required therefor, and promulgate accounting and auditing rules and regulations, including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or uses of government funds and properties.26

Veloso vs. CoA Section 11, Chapter 4, Subtitle B, Title I, Book V of the Administrative Code of 1987 echoes this constitutional mandate to COA.
Under the first paragraph of the above provision, the COA's audit jurisdiction extends to the government, or any of its subdivisions, agencies, or instrumentalities, including government-owned or controlled corporations with original charters. Its jurisdiction likewise covers, albeit on a post-audit basis, the constitutional bodies, commissions and offices that have been granted fiscal autonomy, autonomous state colleges and universities, other government-owned or controlled corporations and their subsidiaries, and such non-governmental entities receiving subsidy or equity from or through the government. The power of the COA to examine and audit government agencies cannot be taken away from it as Section 3, Article IX-D of the Constitution mandates that "no law shall be passed exempting any entity of the Government or its subsidiary in any guise whatever, or any investment of public funds, from the jurisdiction of the [COA]." Pursuant to its mandate as the guardian of public funds, the COA is vested with broad powers over all accounts pertaining to government revenue and expenditures and the uses of public funds and property.27 This includes the exclusive authority to define the scope of its audit and examination, establish the techniques and methods for such review, and promulgate accounting and auditing rules and regulations.28 The COA is endowed with enough latitude to determine, prevent and disallow irregular, unnecessary, excessive, extravagant or unconscionable expenditures of government funds.29 It is tasked to be vigilant and conscientious in safeguarding the proper use of the government's, and ultimately the people's, property.30 The exercise of its general audit power is among the constitutional mechanisms that gives life to the check and balance system inherent in our form of government.31 The Court had therefore previously upheld the authority of the COA to disapprove payments which it finds excessive and disadvantageous to the Government; to determine the meaning of "public bidding" and when there is failure in the bidding; to disallow expenditures which it finds unnecessary according to its rules even if disallowance will mean discontinuance of foreign aid; to disallow a contract even after it has been executed and goods have been delivered.32 Thus, LGUs, though granted local fiscal autonomy, are still within the audit jurisdiction of the COA. Now on the more important issue of whether the COA properly exercised its jurisdiction in disallowing the disbursement of the City of Manila's funds for the EPSA of its former three-term councilors. It is the general policy of the Court to sustain the decisions of administrative authorities, especially one which is constitutionally-created not only on the basis of the doctrine of separation of powers but also for their presumed expertise in the laws they are entrusted to enforce. Findings of administrative agencies are accorded not only respect but also finality when the decision and order are not tainted with unfairness or arbitrariness that would amount to grave abuse of discretion.33 It is only when the COA has acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, that this Court entertains a petition questioning its rulings.34 There is grave abuse of discretion when there is an evasion of a positive duty or a virtual refusal to perform a duty enjoined by law or to act in contemplation of law as when the judgment rendered is not based on law and evidence but on caprice, whim and despotism.35 In this case, we find no grave abuse of discretion on the part of the COA in issuing the assailed decisions as will be discussed below. Petitioners claim that the grant of the retirement and gratuity pay remuneration is a valid exercise of the powers of the Sangguniang Panlungsod set forth in RA 7160. We disagree. Indeed, Section 458 of RA 7160 defines the power, duties, functions and compensation of the Sangguniang Panlungsod, to wit: SEC. 458. Powers, Duties, Functions and Compensation. - (a) The Sangguniang Panlungsod, as the legislative body of the city, shall enact ordinances, approve resolutions and appropriate funds for the general welfare of the city and its

Veloso vs. CoA inhabitants pursuant to Section 16 of this Code and in the proper exercise of the corporate powers of the city as provided for under Section 22 of this Code, and shall:
xxxx (viii) Determine the positions and salaries, wages, allowances and other emoluments and benefits of officials and employees paid wholly or mainly from city funds and provide for expenditures necessary for the proper conduct of programs, projects, services, and activities of the city government. In the exercise of the above power, the City Council of Manila enacted on December 7, 2000 Ordinance No. 8040, but the same was deemed approved on August 23, 2002. The ordinance authorized the conferment of the EPSA to the former three-term councilors and, as part of the award, the qualified city officials were to be given "retirement and gratuity pay remuneration." We believe that the award is a "gratuity" which is a free gift, a present, or benefit of pecuniary value bestowed without claim or demand, or without consideration.36 However, as correctly held by the COA, the above power is not without limitations. These limitations are embodied in Section 81 of RA 7160, to wit: SEC. 81. Compensation of Local Officials and Employees. The compensation of local officials and personnel shall be determined by the sanggunian concerned: Provided, That the increase in compensation of elective local officials shall take effect only after the terms of office of those approving such increase shall have expired:Provided, further, That the increase in compensation of the appointive officials and employees shall take effect as provided in the ordinance authorizing such increase; Provided however, That said increases shall not exceed the limitations on budgetary allocations for personal services provided under Title Five, Book II of this Code: Provided finally, That such compensation may be based upon the pertinent provisions of Republic Act Numbered Sixty-seven fifty-eight (R.A. No. 6758), otherwise known as the "Compensation and Position Classification Act of 1989. Moreover, the IRR of RA 7160 reproduced the Constitutional provision that "no elective or appointive local official or employee shall receive additional, double, or indirect compensation, unless specifically authorized by law, nor accept without the consent of the Congress, any present, emoluments, office, or title of any kind from any foreign government." Section 325 of the law limit the total appropriations for personal services37 of a local government unit to not more than 45% of its total annual income from regular sources realized in the next preceding fiscal year. While it may be true that the above appropriation did not exceed the budgetary limitation set by RA 7160, we find that the COA is correct in sustaining ND No. 06-010-100-05. Section 2 of Ordinance No. 8040 provides for the payment of "retirement and gratuity pay remuneration equivalent to the actual time served in the position for three (3) consecutive terms" as part of the EPSA. The recomputation of the award disclosed that it is equivalent to the total compensation received by each awardee for nine years that includes basic salary, additional compensation, Personnel Economic Relief Allowance, representation and transportation allowance, rice allowance, financial assistance, clothing allowance, 13th month pay and cash gift.38 This is not disputed by petitioners. There is nothing wrong with the local government granting additional benefits to the officials and employees. The laws even encourage the granting of incentive benefits aimed at improving the services of these employees. Considering, however, that the payment of these benefits constitute disbursement of public funds, it must not contravene the law on disbursement of public funds.39
lawphi 1

As clearly explained by the Court in Yap v. Commission on Audit,40 the disbursement of public funds, salaries and benefits of government officers and employees should be granted to compensate them for valuable public services rendered, and the salaries or benefits paid to such officers or employees must be commensurate with services rendered. In the same vein, additional allowances and benefits must be shown to be necessary or relevant to the fulfillment of the official duties and functions of the government officers and employees. Without this limitation, government officers and employees may be paid enormous sums without limit or without justification necessary other than that such sums are being paid to someone employed by the government. Public funds are the property of the people and must be used prudently at all times with a view to prevent dissipation and waste.41

Veloso vs. CoA Undoubtedly, the above computation of the awardees' reward is excessive and tantamount to double and additional compensation. This cannot be justified by the mere fact that the awardees have been elected for three (3) consecutive terms in the same position. Neither can it be justified that the reward is given as a gratuity at the end of the last term of the qualified elective official. The fact remains that the remuneration is equivalent to everything that the awardees received during the entire period that he served as such official. Indirectly, their salaries and benefits are doubled, only that they receive half of them at the end of their last term.
The purpose of the prohibition against additional or double compensation is best expressed in Peralta v. Auditor General,42 to wit: This is to manifest a commitment to the fundamental principle that a public office is a public trust. It is expected of a government official or employee that he keeps uppermost in mind the demands of public welfare. He is there to render public service. He is of course entitled to be rewarded for the performance of the functions entrusted to him, but that should not be the overriding consideration. The intrusion of the thought of private gain should be unwelcome. The temptation to further personal ends, public employment as a means for the acquisition of wealth, is to be resisted. That at least is the idea. There is then to be an awareness on the part of the officer or employee of the government that he is to receive only such compensation as may be fixed by law. With such a realization, he is expected not to avail himself of devious or circuitous means to increase the remuneration attached to his position.43 Verily, the COA's assailed decisions were made in faithful compliance with its mandate and in judicious exercise of its general audit power as conferred on it by the Constitution.44 The COA adheres to the policy that government funds and property should be fully protected and conserved and that irregular, unnecessary, excessive or extravagant expenditures or uses of such funds and property should be prevented.45 However, in line with existing jurisprudence,46 we need not require the refund of the disallowed amount because all the parties acted in good faith. In this case, the questioned disbursement was made pursuant to an ordinance enacted as early as December 7, 2000 although deemed approved only on August 22, 2002. The city officials disbursed the retirement and gratuity pay remuneration in the honest belief that the amounts given were due to the recipients and the latter accepted the same with gratitude, confident that they richly deserve such reward. WHEREFORE, the petition is DISMISSED. Decision No. 2008-088 dated September 26, 2008 and Decision No. 2010077 dated August 23, 2010 of the Commission on Audit, are AFFIRMED WITH MODIFICATION. The recipients need not refund the retirement and gratuity pay remuneration that they already received. Accordingly, the Status Quo Ante Order issued by the Court on November 30, 2010 is hereby RECALLED. In view, however, of this Court's decision not to require the refund of the amounts already received, the Commission on Audit is ORDERED to cease and desist from enforcing the Notice of Finality of Decision47 dated October 5, 2010. SO ORDERED.

DBP vs. CoA

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 88435 January 16, 2002

DEVELOPMENT BANK OF THE PHILIPPINES, JESUS P. ESTANISLAO, DOLORES A. SANTIAGO, LYNN H. CATUNCAN, NORMA O. TERREL, MA. ANTONIA G. REBUENO, petitioners, vs. COMMISSION ON AUDIT, respondent. CARPIO, J.: The Case This is a petition for review on certiorari1 of the letter-decision of the Chairman of the Commission on Audit2("COA" for brevity) and the letter-decision of the COA en banc3, prohibiting the Development Bank of the Philippines ("DBP" for brevity) from hiring a private external auditor. This petition raises a question of first impression, whether or not the constitutional power of the COA to examine and audit the DBP is exclusive and precludes a concurrent audit of the DBP by a private external auditor. The Antecedent Facts In 1986, the Philippine government, under the administration of then President Corazon C. Aquino, obtained from the World Bank an Economic Recovery Loan ("ERL" for brevity) in the amount of US$310 million. The ERL was intended to support the recovery of the Philippine economy, at that time suffering severely from the financial crisis that hit the country during the latter part of the Marcos regime. As a condition for granting the loan, the World Bank required the Philippine government to rehabilitate the DBP which was then saddled with huge non-performing loans. Accordingly, the government committed to rehabilitate the DBP to make it a viable and self-sustaining financial institution in recognition of its developmental role in the economy. The DBP was expected to continue "providing principally medium and long-term financing to projects with risks higher than the private sector may be willing to accept under reasonable terms."4 The government's commitment was embodied in the Policy Statement for the Development Bank of the Philippines which stated in part: "4. Furthermore, like all financial institutions under Central Bank supervision, DBP will now be required to have a private external audit, and its Board of Directors will now be opened to adequate private sector representation. It is hoped that with these commitments, DBP can avoid the difficulties of the past and can function as a competitive and viable financial institution within the Philippine financial system."5 (Emphasis supplied) On November 28, 1986, the Monetary Board adopted Resolution No. 1079 amending the Central Bank's Manual of Regulations for Banks and other Financial Intermediaries, in line with the government's commitment to the World Bank to require a private external auditor for DBP. Thus, on December 5, 1986, the Central Bank Governor issued Central Bank Circular No. 1124, providing that: "SECTION 1. Subsection 1165.5 (Book I) is amended to read as follows: 1165.5 Financial Audit. - Each Bank, whether Government-owned or controlled or private, shall cause an annual financial audit to be conducted by an external independent auditor not later than thirty (30) days after the close of the calendar year or the fiscal year adopted by the bank. x x x.

DBP vs. CoA

x x x The Audit of a Government-owned or controlled bank by an external independent auditor shall be in addition to and without prejudice to that conducted by the Commission on Audit in the discharge of its mandate under existing law. x x x. xxx "SECTION 3. The requirement for an annual financial audit by an external independent auditor shall extend to specialized and unique government banks such as the Land Bank of the Philippines and the Development Bank of the Philippines."6 On December 12, 1986, pursuant to Central Bank Circular No. 1124 and the government's commitment to the World Bank, DBP Chairman Jesus Estanislao wrote the COA seeking approval of the DBP's engagement of a private external auditor in addition to the COA.7 On January 2, 1987, to formalize its request for the ERL, the Philippine government sent the World Bank a letter assuring the World Bank that pursuant to Central Bank Circular No. 1124, "all Banks, including government banks, shall be fully audited by external independent auditors x x x in addition to that provided by the Commission on Audit." The letter was signed by the Central Bank Governor and the Ministers of Finance, Trade and Industry, and Economic Planning of the Philippine government.8 On January 8, 1987, the Philippine government and World Bank negotiating panels reached final agreement on the private audit of the DBP, as follows: "13. With respect to the draft Policy Statement, it was agreed that Sections 4, 7 and 11 would be amended as follows: x x x (iii) Section 11 should in line with the letter of Development Policy, confirm that the external independent audits would commence with a balance sheet audit as of December 31, 1986 and a full financial audit, including income statements, starting with the period July 1 to December 31, 1986. A copy of COA's letter (referred to in par. 1, a draft of which is attached as Annex VIII) regarding DBP's appointment of a private external auditor will be sent to the Bank before the distribution of the loan documents to the Bank's Board, along with a copy of the scope of audit as approved by COA and satisfactory to the Bank. With regard to the scope of the audit to be undertaken by the private external auditors, the terms of reference which will be issued to the selected auditors should be generally consistent with the attached model terms of reference for financial audits (Annex IX). These general terms of reference were discussed during negotiations and form a part of the World Bank's guidelines for financial information on financial institutions."9 On January 20, 1987, then COA Chairman Teofisto Guingona, Jr. replied to the December 12, 1986 letter of the DBP Chairman. The COA Chairman's reply stated that: "x x x the Commission on Audit (COA) will interpose no objection to your engagement of a private external auditor as required by the Economic Recovery Program Loan Agreements of 1987 provided that the terms for said audit are first reviewed and approved by the Commission."10 The following day, the COA Chairman also informed the Consultant of the Central Bank that the COA interposed no objection to the proposed scope of audit services to be undertaken by the private external auditors to be engaged by the DBP.11 On February 18, 1987, the Board of Directors of the DBP approved the hiring of Joaquin Cunanan & Co. as the DBP's private external auditor for calendar year 1986 as required by Central Bank Circular No. 1124 and the World Bank. The DBP Board of Directors placed a ceiling on the amount of reimbursable out-of-pocket expenses that could be charged by the private auditor.12

DBP vs. CoA On February 23, 1987, the World Bank President, in his Report to the Bank's Executive Directors on the Philippine government's application for the ERL, certified that the Philippine government was complying with the requirement of a private external auditor. The World Bank President's certification stated that:
"74. Accounting and Auditing. All banks both government and private are now subject to accounting and auditing standards as established by the Central Bank. To ensure full public accountability, the Monetary Board now requires that all government banks be subject to annual audits by independent private auditing firms, in addition to those normally undertaken by the Government's Commission on Audit. DBP and PNB have already selected private auditors, and audited accounts for 1986 and 1987 will be a requirement for the releases of the second and third tranches, respectively, of the ERL."13 However, a change in the leadership of the COA suddenly reversed the course of events. On April 27, 1987, the new COA Chairman, Eufemio Domingo, wrote the Central Bank Governor protesting the Central Bank's issuance of Circular No. 1124 which allegedly encroached upon the COA's constitutional and statutory power to audit government agencies. The COA Chairman's letter informed the Governor that: "This Commission hereby registers its strong objection to that portion of the CBP Circular No. 1124 which requires government banks to engage private auditors in addition to that conducted by the Commission on Audit, and urges the immediate amendment thereof. It is the position of this Commission that the said requirement: (a) infringes on Article IX-D of the Philippine Constitution; (b) violates Section 26 and 32 of the Government Auditing Code of the Philippines; (c) exposes the financial programs and strategies of the Philippine Government to high security risks; (d) allows the unnecessary and unconscionable expenditure of government funds; and (e) encourages unethical encroachment among professionals."14 On May 13, 1987, after learning that the DBP had signed a contract with a private auditing firm for calendar year 1986, the new COA Chairman wrote the DBP Chairman that the COA resident auditors were under instructions to disallow any payment to the private auditor whose services were unconstitutional, illegal and unnecessary.15 On July 1, 1987, the DBP Chairman sent to the COA Chairman a copy of the DBP's contract with Joaquin Cunanan & Co., signed four months earlier on March 5, 1987. The DBP Chairman's covering handwritten note sought the COA's concurrence to the contract.16 During the pendency of the DBP Chairman's note-request for concurrence, the DBP paid the billings of the private auditor in the total amount of P487,321.1417 despite the objection of the COA. On October 30, 1987, the COA Chairman issued a Memorandum disallowing the payments, and holding the following persons personally liable for such payment: "SVP Fajardo who approved the voucher for payment; VP Santiago who certified that the expenditure was authorized, necessary and lawful; SM Terrel, Catuncan and Rebueno who signed the checks; and the head of office who signed the contract and who is immediately and primarily responsible for the funds of the Bank."18 On January 19, 1988, the DBP Chairman wrote the COA Chairman seeking reconsideration of the COA Chairman's Memorandum.19 However, the DBP received no response until August 29, 1988 when the COA Chairman issued a letter-decision denying petitioner's July 1, 1987 note-request for concurrence. The letter-decision, one of the two COA decisions assailed in this petition, declared in part as follows: "(a) In the letter to the Central Bank Governor x x x, this Commission clearly stated its non-negotiable stand on the issue in the following terms: ' x x x the very essence of the Commission on Audit as an independent constitutional commission in the total scheme of Government, is its singular function to '[E]xamine, audit, and settle x x x all accounts pertaining to x x x the Government, or any of its subdivisions, x x x including government-owned or controlled corporations.' To allow private firms to interfere in this governmental audit domain would be to derogate the Constitutional supremacy of State audit as the Government's guardian of the people's treasury, and as the prime advocate of economy in the use of government resources.'

DBP vs. CoA

xxx "(c) In the letter to the Secretary of Finance dated January 28, 1988 x x x, this Commission maintains: 1. 'COA is in no way prepared to permit 'use of private auditors' except insofar as the law allows, which is 'to deputize and retain in the name of the Commission such certified public accountants and other licensed professionals not in the public service as it may deem necessary to assist government auditors in undertaking specialized audit engagements' (Sec. 31, PD No 1445). Outside of this, the Commission does not consider the matter of hiring private auditing firms a negotiable matter, and this we want to emphasize to avoid future embarrassment to the Government. The Commission on Audit is a constitutionally-created independent and separate body, and neither Congress nor the Executive Department has the power to detract from its mandated duties, functions, and powers. 2. 'Since the proceeds of the proposed loan accrue to the Republic of the Philippines as borrower, it follows that its accounting and audit must comply with the laws of this country. To specify in the Loan Agreement that the loan account, once released to the Government, shall be 'audited by independent auditors acceptable to the Bank' is not only to entirely by-pass this Commission but to ignore as well the Constitution and the laws of this country which vests in this Commission the 'power, authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property x x x pertaining to the Government.' (Sec. 2, Art. IX-D, Phil. Const.).
1wphi1.nt

'Such brazen disregard of the fundamental law of this country cannot be countenanced by this Commission.' "In view of all the foregoing, you are hereby advised: "1. To desist from proceeding with the audit of Joaquin Cunanan & Co. of the Bank's financial statements for the year ending December 31, 1987. "2. To refrain from making any payments out of the funds of the Development Bank of the Philippines, in the event that such audit services have already been rendered, attention being invited to the following provisions of the Government Auditing Code of the Philippines: 'Sec. 108. General liability for unlawful expenditures Expenditures of government funds or uses of government property in violation of law or regulations shall be a personal liability of the official or employee found to be directly responsible therefore.' "3. To restitute, within thirty (30) days from receipt hereof, the total amount of P513,549.24 under CV Nos. 9136, 5014, 6201 and 4082 for professional services rendered in the audit of the 1986 financial operations of the Bank. Pursuant to the aforequoted provisions of law, such unlawful expenditure is the personal liability of the official directly responsible therefore. "Please be guided accordingly."20 On September 26, 1988, the DBP Chairman appealed the letter-decision to the COA en banc. On May 20, 1989, the COA en banc, in a letter-decision, denied the DBP's appeal. This letter-decision, now also assailed by the DBP, held that: "Upon a circumspect evaluation of the grounds upon which your instant request is predicated, this Commission finds the same to be devoid of merit. As hereunder demonstrated, the justifications offered do not inspire rational belief in the mind of this Commission. "First, it bears stress that CB Circular No. 1124, series of 1986, which has earlier been shown to be constitutionally and legally infirm, cannot by any means possess any binding and conclusive effect upon this Commission and, hence, may not be properly invoked in support of the instant appeal.

DBP vs. CoA "Secondly, it was not the International Bank for Reconstruction and Development which required the audit of government banks by private auditing firm, but the Central Bank itself.
"Thirdly, insofar as this Commission is concerned, PD 2029 is an anachronism of sorts if viewed in the light of the present Constitution recognizing this Commission as the supreme and exclusive audit institution of the government. This is necessarily implicit from the bare language of Section 2(1), Article IX-D thereof which, despite the absence of the qualifying adjective "exclusive" that anyway would be a surplusage, ought to be reasonably construed as vesting in this Commission the "power, authority, and duty" to audit all government accounts to the exclusion of any other person or entity, whether in the public or the private sector. Expressio unius est exclusio alterius. A contrary interpretation, such as that being pressed upon this Commission, would reduce this constitutional ordinance to an absurdity (reductio ad absurdum) as it thereby would give rise to the rather confusing spectacle, as it were, of a government agency or corporation being audited not only by this Commission but also and in addition thereto by one or two or several private accounting firms certainly a situation never intended by the framers of the Constitution. "Lastly, while this Commission has not lost sight of the letter of then COA Chairman Guingona, Jr. to the DBP Chairman, dated January 20, 1987, it has opted to be guided and influenced by the more persuasive and controlling COA Circular No. 860254 dated March 24, 1986, which in categorical and precise terms ordained that: 'Accordingly, by way of reassertion and reaffirmation of its primary audit jurisdiction, as herein above defined, the Commission on Audit hereby issues the following directives: 1. Any ongoing audit of a government-owned and/or controlled corporation or any of its subsidiaries or corporate offsprings being conducted by a private auditor or accounting firm shall cease and terminate on April 15, 1986. Henceforth, from and after said date, the audit of said corporate entity shall be undertaken solely and exclusively by the Commission on Audit. x x x.' "Premises considered, it is regretted that your instant request for reconsideration has to be, as it is hereby, denied."21 Hence, on June 14, 1989 the DBP filed this petition for review with prayer for a temporary restraining order, assailing the two COA letter-decisions for being contrary to the Constitution and existing laws. On June 15, 1989 this Court issued a temporary restraining order directing the COA to cease and desist from enforcing its challenged letterdecisions. The Office of the Solicitor General, in a Manifestation dated October 18, 1989, declined to appear on behalf of the COA on the ground that the Solicitor General was "taking a position adverse to that of the COA." Consequently, a private counsel on pro bono basis represented the COA. The Issues The DBP's petition raises the following issues: 1. Does the Constitution vest in the COA the sole and exclusive power to examine and audit government banks so as to prohibit concurrent audit by private external auditors under any circumstance? 2. Is there an existing statute that prohibits government banks from hiring private auditors in addition to the COA? If there is none, is there an existing statute that authorizes government banks to hire private auditors in addition to the COA? 3. If there is no legal impediment to the hiring by government banks of a private auditor, was the hiring by the DBP of a private auditor in the case at bar necessary, and were the fees paid by DBP to the private auditor reasonable, under the circumstances? The Court's Ruling

DBP vs. CoA The DBP's petition is meritorious.

First Issue: Power of COA to Audit under the Constitution The resolution of the primordial issue of whether or not the COA has the sole and exclusive power to examine and audit government banks involves an interpretation of Section 2, Article IX-D of the 1987 Constitution. This Section provides as follows: "Sec. 2. (1) The Commission on Audit shall have the power, authority, and duty to examine, audit, and settleall accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned and held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned or controlled corporations with original charters, x x x. "(2) The Commission shall have the exclusive authority, subject to the limitations in this Article, to define the scope of its audit and examination, establish the techniques and methods required therefore, and promulgate accounting and auditing rules and regulations, including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or uses of government funds and properties." (Emphasis supplied) The COA vigorously asserts that under the first paragraph of Section 2, the COA enjoys the sole and exclusivepower to examine and audit all government agencies, including the DBP. The COA contends this is similar to its sole and exclusive authority, under the second paragraph of the same Section, to define the scope of its audit, promulgate auditing rules and regulations, including rules on the disallowance of unnecessary expenditures of government agencies. The bare language of Section 2, however, shows that the COA's power under the first paragraph is not declared exclusive, while its authority under the second paragraph is expressly declared "exclusive." There is a significant reason for this marked difference in language. During the deliberations of the Constitutional Commission, Commissioner Serafin Guingona proposed the addition of the word "exclusive" in the first paragraph of Section 2, thereby granting the COA the sole and exclusive power to examine and audit all government agencies. However, the Constitutional Commission rejected the addition of the word "exclusive" in the first paragraph of Section 2 and Guingona was forced to withdraw his proposal. Commissioner Christian Monsod explained the rejection in this manner: "MR. MONSOD. Earlier Commissioner Guingona, in withdrawing his amendment to add "EXCLUSIVE" made a statement about the preponderant right of COA. "For the record, we would like to clarify the reason for not including the word. First, we do not want an Article that would constitute a disincentive or an obstacle to private investment. There are government institutions with private investments in them, and some of these investors - Filipinos, as well as in some cases, foreigners require the presence of private auditing firms, not exclusively, but concurrently. So this does not take away the power of the Commission on Audit. Second, there are certain instances where private auditing may be required, like the listing in the stock exchange. In other words, we do not want this provision to be an unnecessary obstacle to privatization of these companies or attraction of investments."22(Emphasis supplied) Shortly thereafter, Commissioner Guingona attempted to resurrect his amendment by proposing the following provision: "Private auditing firms may not examine or audit accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property owned or held in trust by or pertaining to the Government or any of its subdivisions, agencies or instrumentalities."23 Guingona argued that a private audit in addition to the COA audit would be a useless duplication and an unnecessary expense on the part of government. The Constitutional Commission also rejected this proposed provision, after Commissioner Monsod made the following explanation:

DBP vs. CoA "MR. MONSOD. x x x But it is also a fact that even government agencies, instrumentalities and subdivisions sometimes borrow money from abroad. And if we are at all going to preclude the possibility of anyconcurrent auditing, if that is required, and insist that it is only exclusively the government which can audit, we may be unnecessarily tying their hands without really accomplishing much more than what we want. As long as the COA is there, and the COA's power cannot be eliminated by law, by decree or anything of that sort, then the government funds are protected.
As far as the question of fees is concerned, this is always negotiable. Besides, if one talks about auditing fees, these are governed by certain regulations within the auditing profession, beyond which auditing firms cannot go. Furthermore, the government can always refuse to pay unconscionable fees. So, that matter really is not that relevant. But I think what we want to insist on is that there should be some flexibility so that a procedural requirement does not impede a substantive transaction as long as COA is there."24 (Emphasis supplied) The rejection of Guingona's second proposal put an end to all efforts to grant the COA the sole and exclusive power to examine and audit government agencies. In sharp contrast, the Constitutional Commission placed the word "exclusive" to qualify the authority of the COA under the second paragraph of the same Section 2. The word "exclusive" did not appear in the counterpart provisions of Section 2 in the 1935 and 1973 Constitutions.25 There is no dispute that the COA's authority under the second paragraph of Section 2 is exclusive as the language of the Constitution admits of no other meaning. Thus, the COA has the exclusive authority to decide on disallowances of unnecessary government expenditures. Other government agencies and their officials, as well as private auditors engaged by them, cannot in any way intrude into this exclusive function of the COA. The qualifying word "exclusive" in the second paragraph of Section 2 cannot be applied to the first paragraph which is another sub-section of Section 2. A qualifying word is intended to refer only to the phrase to which it is immediately associated, and not to a phrase distantly located in another paragraph or sub-section.26 Thus, the first paragraph of Section 2 must be read the way it appears, without the word "exclusive", signifying that non-COA auditors can also examine and audit government agencies. Besides, the framers of the Constitution intentionallyomitted the word "exclusive" in the first paragraph of Section 2 precisely to allow concurrent audit by private external auditors. The clear and unmistakable conclusion from a reading of the entire Section 2 is that the COA's power to examine and audit is non-exclusive. On the other hand, the COA's authority to define the scope of its audit, promulgate auditing rules and regulations, and disallow unnecessary expenditures is exclusive. Moreover, as the constitutionally mandated auditor of all government agencies, the COA's findings and conclusions necessarily prevail over those of private auditors, at least insofar as government agencies and officials are concerned. The superiority or preponderance of the COA audit over private audit can be gleaned from the records of the Constitutional Commission, as follows: "MR. GUINGONA. Madam President, after consultation with the honorable members of the Committee, I have amended my proposed amendment by deleting the word EXCLUSIVE because I was made to understand that the Commission on Audit will still have the preponderant power and authority to examine, audit and settle."27 (Emphasis supplied) The findings and conclusions of the private auditor may guide private investors or creditors who require such private audit. Government agencies and officials, however, remain bound by the findings and conclusions of the COA, whether the matter falls under the first or second paragraph of Section 2, unless of course such findings and conclusions are modified or reversed by the courts. The power of the COA to examine and audit government agencies, while non-exclusive, cannot be taken away from the COA. Section 3, Article IX-D of the Constitution mandates that: "Sec. 3. No law shall be passed exempting any entity of the Government or its subsidiary in any guise whatsoever, or any investment of public funds, from the jurisdiction of the Commission on Audit."

DBP vs. CoA The mere fact that private auditors may audit government agencies does not divest the COA of its power to examine and audit the same government agencies. The COA is neither by-passed nor ignored since even with a private audit the COA will still conduct its usual examination and audit, and its findings and conclusions will still bind government agencies and their officials. A concurrent private audit poses no danger whatsoever of public funds or assets escaping the usual scrutiny of a COA audit.
Manifestly, the express language of the Constitution, and the clear intent of its framers, point to only one indubitable conclusion - the COA does not have the exclusive power to examine and audit government agencies. The framers of the Constitution were fully aware of the need to allow independent private audit of certain government agencies in addition to the COA audit, as when there is a private investment in a government-controlled corporation, or when a government corporation is privatized or publicly listed, or as in the case at bar when the government borrows money from abroad. In these instances the government enters the marketplace and competes with the rest of the world in attracting investments or loans. To succeed, the government must abide with the reasonable business practices of the marketplace. Otherwise no investor or creditor will do business with the government, frustrating government efforts to attract investments or secure loans that may be critical to stimulate moribund industries or resuscitate a badly shattered national economy as in the case at bar. By design the Constitution is flexible enough to meet these exigencies. Any attempt to nullify this flexibility in the instances mentioned, or in similar instances, will be ultra vires, in the absence of a statute limiting or removing such flexibility. The deliberations of the Constitutional Commission reveal eloquently the intent of Section 2, Article IX-D of the Constitution. As this Court has ruled repeatedly, the intent of the law is the controlling factor in the interpretation of the law.28 If a law needs interpretation, the most dominant influence is the intent of the law.29 The intent of the law is that which is expressed in the words of the law, which should be discovered within its four corners aided, if necessary, by its legislative history.30 In the case of Section 2, Article IX-D of the Constitution, the intent of the framers of the Constitution is evident from the bare language of Section 2 itself. The deliberations of the Constitutional Commission confirm expressly and even elucidate further this intent beyond any doubt whatsoever. There is another constitutional barrier to the COA's insistence of exclusive power to examine and audit all government agencies. The COA's claim clashes directly with the Central Bank's constitutional power of "supervision" over banks under Section 20, Article XII of the Constitution. This provision states as follows: "Sec. 20. The Congress shall establish an independent central monetary authority, the members of whose governing board must be natural-born Filipino citizens, of known probity, integrity, and patriotism, the majority of whom shall come from the private sector. They shall also be subject to such other qualifications and disabilities as may be prescribed by law. The authority shall provide policy direction in the areas of money, banking, and credit. It shall have supervision over the operations of banks and exercise such regulatory powers as may be provided by law over the operations of finance companies and other institutions performing similar functions." (Emphasis supplied) Historically, the Central Bank has been conducting periodic and special examination and audit of banks to determine the soundness of their operations and the safety of the deposits of the public. Undeniably, the Central Bank's power of "supervision" includes the power to examine and audit banks, as the banking laws have always recognized this power of the Central Bank.31 Hence, the COA's power to examine and audit government banks must be reconciled with the Central Bank's power to supervise the same banks. The inevitable conclusion is that the COA and the Central Bank have concurrent jurisdiction, under the Constitution, to examine and audit government banks. However, despite the Central Bank's concurrent jurisdiction over government banks, the COA's audit still prevails over that of the Central Bank since the COA is the constitutionally mandated auditor of government banks. And in matters falling under the second paragraph of Section 2, Article IX-D of the Constitution, the COA's jurisdiction is exclusive. Thus, the Central Bank is devoid of authority to allow or disallow expenditures of government banks since this function belongs exclusively to the COA. Second Issue: Statutes Prohibiting or Authorizing Private Auditors

DBP vs. CoA The COA argues that Sections 26, 31 and 32 of PD No. 1445, otherwise known as the Government Auditing Code of the Philippines, prohibit the hiring of private auditors by government agencies. Section 26 of PD No. 1445 provides that:
"Section 26. General Jurisdiction. The authority and powers of the Commission shall extend to and comprehend all matters relating to auditing procedures, systems and controls, the keeping of the general accounts of the Government, the preservation of vouchers pertaining thereto for a period of ten years, the examination and inspection of the books, records, and papers relating to those accounts; and the audit and settlement of the accounts of all persons respecting funds or property received or held by them in an accountable capacity, as well as the examination, audit, and settlement of all debts and claims of any sort due or owing to the Government or any of its subdivisions, agencies or instrumentalities. The said jurisdiction extends to all government-owned or controlled corporations, including their subsidiaries, and other self-governing boards, commissions, or agencies of the Government, and as herein prescribed, including non-governmental entities subsidized by the government, those funded by donations through the government, those required to pay levies or government share, and those for which the government has put up a counterpart fund or those partly funded by the government." Section 26 defines the extent and scope of the powers of the COA. Considering the comprehensive definition in Section 26, the COA's jurisdiction covers all government agencies, offices, bureaus and units, including government-owned or controlled corporations, and even non-government entities enjoying subsidy from the government. However, there is nothing in Section 26 that states, expressly or impliedly, that the COA's power to examine and audit government banks is exclusive, thereby preventing private audit of government agencies concurrently with the COA audit. Section 26 is a definition of the COA's "general jurisdiction." Jurisdiction may be exclusive or concurrent. Section 26 of PD No. 1445 does not state that the COA's jurisdiction is exclusive, and there are other laws providing for concurrent jurisdiction. Thus, Section 26 must be applied in harmony with Section 5832 of the General Banking Law of 2000 (RA No. 8791) which authorizes unequivocally the Monetary Board to require banks to hire independent auditors. Section 58 of the General Banking Law of 2000 states as follows: "Section 58. Independent Auditor. - The Monetary Board may require a bank, quasi-bank or trust entity to engage the services of an independent auditor to be chosen by the bank, quasi-bank or trust entity concerned from a list of certified public accountants acceptable to the Monetary Board. The term of the engagement shall be as prescribed by the Monetary Board which may either be on a continuing basis where the auditor shall act as resident examiner, or on the basis of special engagements; but in any case, the independent auditor shall be responsible to the bank's, quasi-bank's or trust entity's board of directors. A copy of the report shall be furnished to the Monetary Board. x x x." (Emphasis supplied) Moreover, Section 26 must also be applied in conformity with Sections 25 and 2833 of the New Central Bank Act (RA No. 7653) which authorize expressly the Monetary Board to conduct periodic or special examination of all banks. Sections 25 and 28 of the New Central Bank Act state as follows: "Sec. 25. Supervision and Examination. The Bangko Sentral shall have supervision over, and conduct periodic or special examinations of, banking institutions x x x. (Emphasis supplied) xxx "Sec. 28. Examination and Fees. The supervising and examining department head, personally or by deputy, shall examine the books of every banking institution once in every twelve (12) months, and at such other time as the Monetary Board by an affirmative vote of five (5) members may deem expedient and to make a report on the same to the Monetary Board: x x x." (Emphasis supplied) The power vested in the Monetary Board under Section 58 of the General Banking Law of 2000, and Sections 25 and 28 of the New Central Bank Act, emanates from the Central Bank's explicit constitutional mandate to exercise "supervision over the operations of banks." Under Section 4 of the General Banking Law of 2000, the term "supervision"34 is defined as follows:

DBP vs. CoA "Section 4. Supervisory Powers. The operations and activities of banks shall be subject to supervision of the Bangko Sentral. "Supervision" shall include the following:
xxx 4.2. The conduct of examination to determine compliance with laws and regulations if the circumstances so warrant as determined by the Monetary Board; xxx 4.4. Regular investigation which shall not be oftener than once a year from the last date ofexamination to determine whether an institution is conducting its business on a safe or sound basis: Provided, That the deficiencies/irregularities found by or discovered by an audit shall immediately be addressed; x x x." (Emphasis supplied) Clearly, under existing laws, the COA does not have the sole and exclusive power to examine and audit government banks. The Central Bank has concurrent jurisdiction to examine and audit, or cause the examination and audit, of government banks. Section 31 of PD No. 1445, another provision of law claimed by the COA to prohibit the hiring of private auditors by government agencies, provides as follows: "Section 31. Deputization of private licensed professionals to assist government auditors. - (1) The Commission may, when the exigencies of the service so require, deputize and retain in the name of the Commission such certified public accountants and other licensed professionals not in the public service as it may deem necessary to assist government auditors in undertaking specialized audit engagements. "(2) The deputized professionals shall be entitled to such compensation and allowances as may be stipulated, subject to pertinent rules and regulations on compensation and fees." According to the COA, Section 31 is the maximum extent that private auditors can participate in auditing government agencies and anything beyond this is without legal basis. Hence, the COA maintains that the hiring of private auditors who act in their own name and operate independently of the COA is unlawful. Section 31 is bereft of any language that prohibits, expressly or impliedly, the hiring of private auditors by government agencies. This provision of law merely grants authority to the COA to hire and deputize private auditors to assist the COA in the auditing of government agencies. Such private auditors operate under the authority of the COA. By no stretch of statutory construction can this provision be interpreted as an absolute statutory ban on the hiring of private auditors by government agencies. Evidently, the language of the law does not support the COA's claim. Moreover, the COA further contends that Section 32 of PD No. 1445 is another provision of law that prohibits the hiring of private auditors by government agencies. Section 32 provides as follows: "Section 32. Government contracts for auditing, accounting, and related services. (1) No government agency shall enter into any contract with any private person or firm for services to undertake studies and services relating to government auditing, including services to conduct, for a fee, seminars or workshops for government personnel on these topics, unless the proposed contract is first submitted to the Commission to enable it to determine if it has the resources to undertake such studies or services. The Commission may engage the services of experts from the public or private sector in the conduct of these studies. "(2) Should the Commission decide not to undertake the study or service, it shall nonetheless have the power to review the contract in order to determine the reasonableness of its costs." (Emphasis supplied)

DBP vs. CoA Section 32 refers to contracts for studies and services "relating to government auditing" which the COA may or may not want to undertake itself for a government agency. Stated another way, Section 32 speaks of studies and services that the COA may choose not to render to a government agency. Obviously, the subject of these contracts is not the audit itself of a government agency because the COA is compelled to undertake such audit and cannot choose not to conduct such audit. The Constitution and existing law mandate the COA to audit all government agencies. Section 2, Article IX-D of the Constitution commands that the COA "shall have the x x x dutyto examine, audit, and settle all accounts" of government agencies (Emphasis supplied). Similarly, the Revised Administrative Code of 1987 directs that the "Commission on Audit shall have the x x x duty to examine, audit, and settle all accounts"35 of government agencies (Emphasis supplied). Hence, the COA cannot refuse to audit government agencies under any circumstance.
The subject of the contracts referred to in Section 32 is necessarily limited to studies, seminars, workshops, researches and other services on government auditing which the COA may or may not undertake at its discretion, thereby excluding the audit itself of government agencies. Since the COA personnel have the experience on government auditing and are in fact the experts on this subject, it is only proper for the COA to be granted the right of first refusal to undertake such services if required by government agencies. This is what Section 32 is all about and nothing more. Plainly, there is nothing in Section 32 which prohibits the hiring of private auditors to audit government agencies concurrently with the COA audit.
1wphi1.nt

On the other hand, the DBP cites Central Bank Circular No. 112436 as legal basis for hiring a private auditor. This Circular amended Subsection 1165.5 (Book I) of the Manual of Regulations for Banks and other Financial Intermediaries to require "[E]ach bank, whether government-owned or controlled or private, x x x (to) cause an annual financial audit to be conducted by an external auditor x x x." Moreover, the Circular states that the "audit of a government-owned or controlled bank by an external independent auditor shall be in addition to and without prejudice to that conducted by the Commission on Audit in the discharge of its mandate under existing law." Furthermore, the Circular provides that the "requirement for an annual audit by an external independent auditor shall extend to specialized and unique government banks such as the Land Bank of the Philippines and the Development Bank of the Philippines." The Central Bank promulgated Circular No. 1124 on December 5, 1986 pursuant to its power under the Freedom Constitution, the fundamental law then in force, as well as pursuant to its general rule making authority under the General Banking Act (RA No. 337), the banking law in effect at that time. Under the Freedom Constitution, the Central Bank exercised supervisory authority over the banking system. Section 14, Article XV of the 1973 Constitution, which was re-adopted in the Freedom Constitution, provided as follows: "SEC. 14. The Batasang Pambansa shall establish a central monetary authority which shall provide policy direction in the areas of money, banking and credit. It shall have supervisory authority over the operations of banks and exercise such regulatory authority as may be provided by law over the operations of finance companies and other institutions performing similar functions. Until the Batasang Pambansa shall otherwise provide, the Central Bank of the Philippines, operating under existing laws, shall function as the central monetary authority." (Emphasis supplied) Section 6-D of the General Banking Act (RA No. 337) vested the Monetary Board with the specific power to "require a bank to engage the services of an independent auditor to be chosen by the bank concerned from a list of certified public accountants acceptable to the Monetary Board." The 1987 Constitution created an independent central monetary authority with substantially the same powers as the Central Bank under the 1973 Constitution and the Freedom Constitution. Section 20, Article XII of the 1987 Constitution provides that the Monetary Board "shall have supervision over the operations of banks". The specific power of the Central Bank under the General Banking Act (RA No. 337) to require an independent audit of banks was re-enacted in Section 58 of the General Banking Law of 2000 (RA No. 8791). Indubitably, the Central Bank had the express constitutional and statutory power to promulgate Circular No. 1124 on December 5, 1986. The power granted to the Central Bank to issue Circular No. 1124 with respect to the independent audit of banks is direct, unambiguous, and beyond dispute. The Bangko Sentral ng Pilipinas, which succeeded the Central Bank, retained under the 1987 Constitution and the General Banking Law of 2000 (RA No. 8791) the same

DBP vs. CoA constitutional and statutory power the Central Bank had under the Freedom Constitution and the General Banking Act (RA No. 337) with respect to the independent audit of banks.
Circular No. 1124 has the force and effect of law. In a long line of decisions,37 this Court has held consistently that the rules and regulations issued by the Central Bank pursuant to its supervisory and regulatory powers have the force and effect of law. The DBP, being a bank under the constitutional and statutory supervision of the Central Bank, was under a clear legal obligation to comply with the requirement of Circular No. 1124 on the private audit of banks. Refusal by the DBP to comply with the Circular would have rendered the DBP and its officers liable to the penal provisions of the General Banking Act,38 as well as the administrative and penal sanctions under the Central Bank Act.39 The DBP also relies on Section 8 of PD No. 2029 as its statutory basis for hiring a private auditor. This Section states in part as follows: "The audit of government corporations by the Commission on Audit shall not preclude government corporations from engaging the services of private auditing firms: Provided, however, that even if the services of the latter are availed of, the audit report of the Commission on Audit shall serve as the report for purposes of compliance with audit requirements as required of government corporations under applicable law." Section 8 of PD No. 2029, however, also provides that the "policy of withdrawal of resident auditors shall be fully implemented x x x." Section 2 of the same decree also excludes from the term "government-owned or controlled corporation" two classes of corporations. The first are originally private corporations the majority of the shares of stock of which are acquired by government financial institutions through foreclosure or dacion en pago. The second are subsidiary corporations of government corporations, which subsidiaries are organized exclusively to own, manage or lease physical assets acquired by government financial institutions through foreclosure or dacion en pago. Claiming that PD No. 2029 operates to exempt certain government-owned corporations from the COA's jurisdiction in violation of Section 3, Article IX-D of the Constitution, the COA is questioning the constitutionality of PD No. 2029. There is, however, no compelling need to pass upon the constitutionality of PD No. 2029 because the Constitution and existing banking laws allow such hiring. The issues raised in this case can be resolved adequately without resolving the constitutionality of PD No. 2029. This Court will leave the issue of the constitutionality of PD No. 2029 to be settled in another case where its resolution is an absolute necessity.40 Third Issue: Necessity of Private Auditor and Reasonableness of the Fees The remaining issue to be resolved is whether or not the DBP's hiring of a private auditor was necessary and the fees it paid reasonable under the circumstances. The hiring by the DBP of a private auditor was a condition imposed by the World Bank for the grant to the Philippine government in early 1987 of a US$310 million Economic Recovery Loan, at a time when the government desperately needed funds to revive a badly battered economy. One of the salient objectives of the US$310 million loan was the rehabilitation of the DBP which was then burdened with enormous bad loans. The rehabilitation of the DBP was important in the overall recovery of the national economy. On February 23, 1986, the World Bank President reported to the Bank's Executive Directors that the privately audited accounts of the DBP for 1986 and 1987 "will be a requirement for the releases of the second and third tranches, respectively, of the ERL" (Emphasis supplied). Moreover, the Agreed Minutes of Negotiations on the Philippine Economic Recovery Program41 signed by the Philippine government and World Bank negotiating panels on January 8, 1987, required that "a copy of COA's letter x x x regarding DBP's appointment of a private external auditor will be sent to the (World) Bank before the distribution of the loan documents to the Bank's Board, along with a copy of the scope of audit as approved by COA and satisfactory to the Bank" (Emphasis supplied). As a creditor, the World Bank needed the private audit for its own information to monitor the progress of the DBP's rehabilitation. This is apparent from the said Agreed Minutes which provided that the "general terms of reference (for the hiring of private external audit) were discussed during the negotiations and form part of the World Bank'sguidelines for financial information on financial institutions"42 (Emphasis supplied).

DBP vs. CoA The hiring of a private auditor being an express condition for the grant of the US$310 million Economic Recovery Loan, a major objective of which was the DBP's rehabilitation, the same was a necessary corporate act on the part of the DBP. The national government, represented by the Central Bank Governor, as well as the Ministers of Finance, Trade, and Economic Planning, had already committed to the hiring by all government banks of private auditors in addition to the COA. For the DBP to refuse to hire a private auditor would have aborted the vital loan and derailed the national economic recovery, resulting in grave consequences to the entire nation. The hiring of a private auditor was not only necessary based on the government's loan covenant with the World Bank, it was also necessary because it was mandated by Central Bank Circular No. 1124 under pain of administrative and penal sanctions.
The last matter to determine is the reasonableness of the fees charged by Joaquin C. Cunanan & Co., the private auditor hired by the DBP. The COA describes the private auditor's fees as an "excessive, extravagant or unconscionable expenditure" of government funds. For the audit of the DBP's financial statements in 1986, the private auditor billed the DBP the amount of P487,321.14.43 In 1987, the private auditor billed the DBP the amount of P529,947.00.44 In comparison, the COA billed the DBP an audit fee of P27,015,963.0045 in 1988, andP15,421,662.0046 in 1989. Even granting that the COA's scope of audit services was broader,47 still it could not be said that the private auditor's fees are excessive, extravagant or unconscionable compared to the COA's billings. The hiring of a private auditor by the DBP being a condition of the US$310 million World Bank loan to the Philippine government, the fees of such private auditor are in reality part of the government's cost of borrowing from the World Bank. The audit report of the private auditor is primarily intended for the World Bank's information48 on the financial status of the DBP whose rehabilitation was one of the objectives of the loan. An annual private audit fee of about half a million pesos added to the interest on a US$310 million loan would hardly make the cost of borrowing excessive, extravagant or unconscionable. Besides, the condition imposed by a lender, whose money is at risk, requiring the borrower or its majority-owned subsidiaries to submit to audit by an independent public accountant, is a reasonable and normal business practice.
1wphi1.nt

WHEREFORE, the petition is hereby GRANTED. The letter-decision of the Chairman of the Commission on Audit dated August 29, 1988, and the letter-decision promulgated by the Commission on Audit en banc dated May 20, 1989, are hereby SET ASIDE, and the temporary restraining order issued by the court enjoining respondent Commission on Audit from enforcing the said decisions is hereby made PERMANENT. SO ORDERED.

Parreno vs. CoA

Republic of the Philippines Supreme Court

Manila EN BANC
PHILIPPINE SOCIETY FOR THE PREVENTION OF CRUELTY TO ANIMALS, Petitioners, G.R. No. 169752

Members: PUNO, C.J. QUISUMBING, YNARES-SANTIAGO, SANDOVAL-GUTIERREZ, CARPIO, AUSTRIA-MARTINEZ, CORONA, CARPIO-MORALES, AZCUNA, TINGA, CHICO-NAZARIO, GARCIA, VELASCO, JR., NACHURA, and REYES, JJ.

- versus -

COMMISSION ON AUDIT, DIR. RODULFO J. ARIESGA (in his official capacity as Director of the Commission on Audit), MS. MERLE M. VALENTIN and MS. SUSAN GUARDIAN (in their official capacities as Team Leader and Team Member, respectively, of the audit Team of the Commission on Audit), Respondents.

Promulgated: September 25, 2007

x----------------------------------------------------------- x

DECISION

Parreno vs. CoA

AUSTRIA-MARTINEZ, J.: Before the Court is a special civil action for Certiorari and Prohibition under Rule 65 of the Rules of Court, in relation to Section 2 of Rule 64, filed by the petitioner assailing Office Order No. 2005-021[1] dated September 14, 2005 issued by the respondents which constituted the audit team, as well as its September 23, 2005 Letter[2] informing the petitioner that respondents audit team shall conduct an audit survey on the petitioner for a detailed audit of its accounts, operations, and financial transactions. No temporary restraining order was issued. The petitioner was incorporated as a juridical entity over one hundred years ago by virtue of Act No. 1285, enacted on January 19, 1905, by the Philippine Commission. The petitioner, at the time it was created, was composed of animal aficionados and animal propagandists. The objects of the petitioner, as stated in Section 2 of its charter, shall be to enforce laws relating to cruelty inflicted upon animals or the protection of animals in the Philippine Islands, and generally, to do and perform all things which may tend in any way to alleviate the suffering of animals and promote their welfare.[3] At the time of the enactment of Act No. 1285, the original Corporation Law, Act No. 1459, was not yet in existence. Act No. 1285 antedated both the Corporation Law and the constitution of the Securities and Exchange Commission. Important to note is that the nature of the petitioner as a corporate entity is distinguished from the sociedad anonimas under the Spanish Code of Commerce. For the purpose of enhancing its powers in promoting animal welfare and enforcing laws for the protection of animals, the petitioner was initially imbued under its charter with the power to apprehend violators of animal welfare laws. In addition, the petitioner was to share one-half (1/2) of the fines imposed and collected through its efforts for violations of the laws related thereto. As originally worded, Sections 4 and 5 of Act No. 1285 provide:
SEC. 4. The said society is authorized to appoint not to exceed five agents in the City of Manila, and not to exceed two in each of the provinces of the Philippine Islandswho shall have all the power and authority of a police officer to make arrests for violation of the laws enacted for the prevention of cruelty to animals and the protection of animals, and to serve any process in connection with the execution of such laws; and in addition thereto, all the police force of the Philippine Islands, wherever organized, shall, as occasion requires, assist said society, its members or agents, in the enforcement of all such laws. SEC. 5. One-half of all the fines imposed and collected through the efforts of said society, its members or its agents, for violations of the laws enacted for the prevention of cruelty to animals and for their protection, shall belong to said society and shall be used to promote its objects.

Parreno vs. CoA

(emphasis supplied)

Subsequently, however, the power to make arrests as well as the privilege to retain a portion of the fines collected for violation of animal-related laws were recalled by virtue of Commonwealth Act (C.A.) No. 148,[4] which reads, in its entirety, thus:
Be it enacted by the National Assembly of the Philippines: Section 1. Section four of Act Numbered Twelve hundred and eighty-five as amended by Act Numbered Thirty five hundred and forty-eight, is hereby further amended so as to read as follows: Sec. 4. The said society is authorized to appoint not to exceed ten agents in the City of Manila, and not to exceed one in each municipality of the Philippines who shall have the authority to denounce to regular peace officers any violation of the laws enacted for the prevention of cruelty to animals and the protection of animals and to cooperate with said peace officers in the prosecution of transgressors of such laws. Sec. 2. The full amount of the fines collected for violation of the laws against cruelty to animals and for the protection of animals, shall accrue to the general fund of the Municipality where the offense was committed. Sec. 3. This Act shall take effect upon its approval. Approved, November 8, 1936. (Emphasis supplied)

Immediately thereafter, then President Manuel L. Quezon issued Executive Order (E.O.) No. 63 dated November 12, 1936, portions of which provide:
Whereas, during the first regular session of the National Assembly, Commonwealth Act Numbered One Hundred Forty Eight was enacted depriving the agents of the Society for the Prevention of Cruelty to Animals of their power to arrest persons who have violated the laws prohibiting cruelty to animals thereby correcting a serious defect in one of the laws existing in our statute books. xxxx Whereas, the cruel treatment of animals is an offense against the State, penalized under our statutes, which the Government is duty bound to enforce; Now, therefore, I, Manuel L. Quezon, President of the Philippines, pursuant to the authority conferred upon me by the Constitution, hereby decree, order, and direct the Commissioner of Public Safety, the Provost Marshal General as head of the Constabulary Division of the Philippine Army, every Mayor of a chartered city, and every municipal president to detail and organize special

Parreno vs. CoA

members of the police force, local, national, and the Constabulary to watch, capture, and prosecute offenders against the laws enacted to prevent cruelty to animals. (Emphasis supplied)

On December 1, 2003, an audit team from respondent Commission on Audit (COA) visited the office of the petitioner to conduct an audit survey pursuant to COA Office Order No. 2003-051 dated November 18, 2003[5] addressed to the petitioner. The petitioner demurred on the ground that it was a private entity not under the jurisdiction of COA, citing Section 2(1) of Article IX of the Constitution which specifies the general jurisdiction of the COA, viz:
Section 1. General Jurisdiction. The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to the Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned and controlled corporations with original charters, and on a post-audit basis: (a) constitutional bodies, commissions and officers that have been granted fiscal autonomy under the Constitution; (b) autonomous state colleges and universities; (c) other government-owned or controlled corporations and their subsidiaries; and (d) such non-governmental entities receiving subsidy or equity, directly or indirectly, from or through the government, which are required by law or the granting institution to submit to such audit as a condition of subsidy or equity. However, where the internal control system of the audited agencies is inadequate, the Commission may adopt such measures, including temporary or special pre-audit, as are necessary and appropriate to correct the deficiencies. It shall keep the general accounts of the Government, and for such period as may be provided by law, preserve the vouchers and other supporting papers pertaining thereto. (Emphasis supplied)

Petitioner explained thus: a. Although the petitioner was created by special legislation, this necessarily came about because in January 1905 there was as yet neither a Corporation Law or any other general law under which it may be organized and incorporated, nor a Securities and Exchange Commission which would have passed upon its organization and incorporation. b. That Executive Order No. 63, issued during the Commonwealth period, effectively deprived the petitioner of its power to make arrests, and that the petitioner lost its operational funding, underscore the fact that it exercises no governmental function. In fine, the government itself, by its overt acts, confirmed petitioners status as a private juridical entity. The COA General Counsel issued a Memorandum[6] dated May 6, 2004, asserting that the petitioner was subject to its audit authority. In a letter datedMay 17, 2004,[7] respondent COA informed the petitioner of the result of the evaluation, furnishing it with a copy of said Memorandum dated May 6, 2004 of the General Counsel.

Parreno vs. CoA

Petitioner thereafter filed with the respondent COA a Request for Re-evaluation dated May 19, 2004,[8] insisting that it was a private domestic corporation. Acting on the said request, the General Counsel of respondent COA, in a Memorandum dated July 13, 2004,[9] affirmed her earlier opinion that the petitioner was a government entity that was subject to the audit jurisdiction of respondent COA. In a letter dated September 14, 2004, the respondent COA informed the petitioner of the result of the re-evaluation, maintaining its position that the petitioner was subject to its audit jurisdiction, and requested an initial conference with the respondents. In a Memorandum dated September 16, 2004, Director Delfin Aguilar reported to COA Assistant Commissioner Juanito Espino, Corporate Government Sector, that the audit survey was not conducted due to the refusal of the petitioner because the latter maintained that it was a private corporation. Petitioner received on September 27, 2005 the subject COA Office Order 2005-021 dated September 14, 2005 and the COA Letter dated September 23, 2005.

Hence, herein Petition on the following grounds: A. RESPONDENT COMMISSION ON AUDIT COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT RULED THAT PETITIONER IS SUBJECT TO ITS AUDIT AUTHORITY. B. PETITIONER IS ENTITLED TO THE RELIEF SOUGHT, THERE BEING NO APPEAL, NOR ANY PLAIN, SPEEDY AND ADEQUATE REMEDY IN THE ORDINARY COURSE OF LAW AVAILABLE TO IT.[10] The essential question before this Court is whether the petitioner qualifies as a government agency that may be subject to audit by respondent COA. Petitioner argues: first, even though it was created by special legislation in 1905 as there was no general law then existing under which it may be organized or incorporated, it exercises no

Parreno vs. CoA

governmental functions because these have been revoked by C.A. No. 148 and E.O. No. 63; second, nowhere in its charter is it indicated that it is a public corporation, unlike, for instance, C.A. No. 111 which created the Boy Scouts of the Philippines, defined its powers and purposes, and specifically stated that it was An Act to Create a Public Corporation in which, even as amended by Presidential Decree No. 460, the law still adverted to the Boy Scouts of the Philippines as a public corporation, all of which are not obtaining in the charter of the petitioner; third, if it were a government body, there would have been no need for the State to grant it tax exemptions under Republic Act No. 1178, and the fact that it was so exempted strengthens its position that it is a private institution; fourth, the employees of the petitioner are registered and covered by the Social Security System at the latters initiative and not through the Government Service Insurance System, which should have been the case had the employees been considered government employees; fifth, the petitioner does not receive any form of financial assistance from the government, since C.A. No. 148, amending Section 5 of Act No. 1285, states that the full amount of the fines, collected for violation of the laws against cruelty to animals and for the protection of animals, shall accrue to the general fund of the Municipality where the offense was committed; sixth, C.A. No. 148 effectively deprived the petitioner of its powers to make arrests and serve processes as these functions were placed in the hands of the police force; seventh, no government appointee or representative sits on the board of trustees of the petitioner; eighth, a reading of the provisions of its charter (Act No. 1285) fails to show that any act or decision of the petitioner is subject to the approval of or control by any government agency, except to the extent that it is governed by the law on private corporations in general; and finally, ninth, the Committee on Animal Welfare, under the Animal Welfare Act of 1998, includes members from both the private and the public sectors. The respondents contend that since the petitioner is a body politic created by virtue of a special legislation and endowed with a governmental purpose, then, indubitably, the COA may audit the financial activities of the latter. Respondents in effect divide their contentions into six strains: first, the test to determine whether an entity is a government corporation lies in the manner of its creation, and, since the petitioner was created by virtue of a special charter, it is thus a government corporation subject to respondents auditing power; second, the petitioner exercises sovereign powers, that is, it is tasked to enforce the laws for the protection and welfare of animals which ultimately redound to the public good and welfare, and, therefore, it is deemed to be a government instrumentality as defined under the Administrative Code of 1987, the purpose of which is connected with the administration of government, as purportedly affirmed by American jurisprudence; third, by virtue of Section 23,[11] Title II, Book III of the same Code, the Office of the President exercises supervision or control over the petitioner; fourth, under the same Code, the requirement under its special charter for the petitioner to render a report to the Civil Governor, whose functions have been inherited by the Office of the President, clearly reflects the

Parreno vs. CoA

nature of the petitioner as a government instrumentality; fifth, despite the passage of the Corporation Code, the law creating the petitioner had not been abolished, nor had it been reincorporated under any general corporation law; and finally, sixth, Republic Act No. 8485, otherwise known as the Animal Welfare Act of 1998, designates the petitioner as a member of its Committee on Animal Welfare which is attached to the Department of Agriculture. In view of the phrase One-half of all the fines imposed and collected through the efforts of said society, the Court, in a Resolution dated January 30, 2007, required the Office of the Solicitor General (OSG) and the parties to comment on: a) petitioner's authority to impose fines and the validity of the provisions of Act No. 1285 and Commonwealth Act No. 148 considering that there are no standard measures provided for in the aforecited laws as to the manner of implementation, the specific violations of the law, the person/s authorized to impose fine and in what amount; and, b) the effect of the 1935 and 1987 Constitutions on whether petitioner continues to exist or should organize as a private corporation under the Corporation Code, B.P. Blg. 68 as amended. Petitioner and the OSG filed their respective Comments. Respondents filed a Manifestation stating that since they were being represented by the OSG which filed its Comment, they opted to dispense with the filing of a separate one and adopt for the purpose that of the OSG. The petitioner avers that it does not have the authority to impose fines for violation of animal welfare laws; it only enjoyed the privilege of sharing in the fines imposed and collected from its efforts in the enforcement of animal welfare laws; such privilege, however, was subsequently abolished by C.A. No. 148; that it continues to exist as a private corporation since it was created by the Philippine Commission before the effectivity of the Corporation law, Act No. 1459; and the 1935 and 1987 Constitutions. The OSG submits that Act No. 1285 and its amendatory laws did not give petitioner the authority to impose fines for violation of laws[12] relating to the prevention of cruelty to animals and the protection of animals; that even prior to the amendment of Act No. 1285, petitioner was only entitled to share in the fines imposed; C.A. No. 148 abolished that privilege to share in the fines collected; that petitioner is a public corporation and has continued to exist since Act No. 1285; petitioner was not repealed by the 1935 and 1987 Constitutions which contain transitory provisions maintaining all laws issued not inconsistent therewith until amended, modified or repealed. The petition is impressed with merit.

Parreno vs. CoA

The arguments of the parties, interlaced as they are, can be disposed of in five points. First, the Court agrees with the petitioner that the charter test cannot be applied. Essentially, the charter test as it stands today provides:
[T]he test to determine whether a corporation is government owned or controlled, or private in nature is simple. Is it created by its own charter for the exercise of a public function, or by incorporation under the general corporation law? Those with special charters are government corporations subject to its provisions, and its employees are under the jurisdiction of the Civil Service Commission, and are compulsory members of the Government Service Insurance System. xxx (Emphasis supplied)[13]

The petitioner is correct in stating that the charter test is predicated, at best, on the legal regime established by the 1935 Constitution, Section 7, Article XIII, which states:
Sec. 7. The National Assembly shall not, except by general law, provide for the formation, organization, or regulation of private corporations, unless such corporations are owned or controlled by the Government or any subdivision or instrumentality thereof.[14]

The foregoing proscription has been carried over to the 1973 and the 1987 Constitutions. Section 16 of Article XII of the present Constitution provides:
Sec. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability.

Section 16 is essentially a re-enactment of Section 7 of Article XVI of the 1935 Constitution and Section 4 of Article XIV of the 1973 Constitution. During the formulation of the 1935 Constitution, the Committee on Franchises recommended the foregoing proscription to prevent the pressure of special interests upon the lawmaking body in the creation of corporations or in the regulation of the same. To permit the lawmaking body by special law to provide for the organization, formation, or regulation of private corporations would be in effect to offer to it the temptation in many cases to favor certain groups, to the prejudice of others or to the prejudice of the interests of the country.[15] And since the underpinnings of the charter test had been introduced by the 1935 Constitution and not earlier, it follows that the test cannot apply to the petitioner, which was incorporated by virtue of Act No. 1285, enacted on January 19, 1905. Settled is the rule that laws

Parreno vs. CoA

in general have no retroactive effect, unless the contrary is provided. [16] All statutes are to be construed as having only a prospective operation, unless the purpose and intention of the legislature to give them a retrospective effect is expressly declared or is necessarily implied from the language used. In case of doubt, the doubt must be resolved against the retrospective effect.[17] There are a few exceptions. Statutes can be given retroactive effect in the following cases: (1) when the law itself so expressly provides; (2) in case of remedial statutes; (3) in case of curative statutes; (4) in case of laws interpreting others; and (5) in case of laws creating new rights.[18] None of the exceptions is present in the instant case. The general principle of prospectivity of the law likewise applies to Act No. 1459, otherwise known as the Corporation Law, which had been enacted by virtue of the plenary powers of the Philippine Commission on March 1, 1906, a little over a year after January 19, 1905, the time the petitioner emerged as a juridical entity. Even the Corporation Law respects the rights and powers of juridical entities organized beforehand, viz:
SEC. 75. Any corporation or sociedad anonima formed, organized, and existing under the laws of the Philippine Islands and lawfully transacting business in the Philippine Islands on the date of the passage of this Act, shall be subject to the provisions hereof so far as such provisions may be applicable and shall be entitled at its option either to continue business as such corporation or to reform and organize under and by virtue of the provisions of this Act, transferring all corporate interests to the new corporation which, if a stock corporation, is authorized to issue its shares of stock at par to the stockholders or members of the old corporation according to their interests. (Emphasis supplied).

As pointed out by the OSG, both the 1935 and 1987 Constitutions contain transitory provisions maintaining all laws issued not inconsistent therewith until amended, modified or repealed.[19] In a legal regime where the charter test doctrine cannot be applied, the mere fact that a corporation has been created by virtue of a special law does not necessarily qualify it as a public corporation. What then is the nature of the petitioner as a corporate entity? What legal regime governs its rights, powers, and duties? As stated, at the time the petitioner was formed, the applicable law was the Philippine Bill of 1902, and, emphatically, as also stated above, no proscription similar to the charter test can be found therein.

Parreno vs. CoA

The textual foundation of the charter test, which placed a limitation on the power of the legislature, first appeared in the 1935 Constitution. However, the petitioner was incorporated in 1905 by virtue of Act No. 1258, a law antedating the Corporation Law (Act No. 1459) by a year, and the 1935 Constitution, by thirty years. There being neither a general law on the formation and organization of private corporations nor a restriction on the legislature to create private corporations by direct legislation, the Philippine Commission at that moment in history was well within its powers in 1905 to constitute the petitioner as a private juridical entity. Time and again the Court must caution even the most brilliant scholars of the law and all constitutional historians on the danger of imposing legal concepts of a later date on facts of an earlier date.[20] The amendments introduced by C.A. No. 148 made it clear that the petitioner was a private corporation and not an agency of the government. This was evident in Executive Order No. 63, issued by then President of the Philippines Manuel L. Quezon, declaring that the revocation of the powers of the petitioner to appoint agents with powers of arrest corrected a serious defect in one of the laws existing in the statute books. As a curative statute, and based on the doctrines so far discussed, C.A. No. 148 has to be given retroactive effect, thereby freeing all doubt as to which class of corporations the petitioner belongs, that is, it is a quasi-public corporation, a kind of private domestic corporation, which the Court will further elaborate on under the fourth point. Second, a reading of petitioners charter shows that it is not subject to control or supervision by any agency of the State, unlike government-owned and -controlled corporations. No government representative sits on the board of trustees of the petitioner. Like all private corporations, the successors of its members are determined voluntarily and solely by the petitioner in accordance with its by-laws, and may exercise those powers generally accorded to private corporations, such as the powers to hold property, to sue and be sued, to use a common seal, and so forth. It may adopt by-laws for its internal operations: the petitioner shall be managed or operated by its officers in accordance with its by-laws in force. The pertinent provisions of the charter provide:
Section 1. Anna L. Ide, Kate S. Wright, John L. Chamberlain, William F. Tucker, Mary S. Fergusson, Amasa S. Crossfield, Spencer Cosby, Sealy B. Rossiter, Richard P. Strong, Jose Robles Lahesa, Josefina R. de Luzuriaga, and such other persons as may be associated with them in conformity with this act, and their successors, are hereby constituted and created a body politic and corporate at law, under the name and style of The Philippines Society for the Prevention of Cruelty to Animals.

Parreno vs. CoA

As incorporated by this Act, said society shall have the power to add to its organization such and as many members as it desires, to provide for and choose such officers as it may deem advisable, and in such manner as it may wish, and to remove members as it shall provide. It shall have the right to sue and be sued, to use a common seal, to receive legacies and donations, to conduct social enterprises for the purpose of obtaining funds, to levy dues upon its members and provide for their collection to hold real and personal estate such as may be necessary for the accomplishment of the purposes of the society, and to adopt such by-laws for its government as may not be inconsistent with law or this charter. xxxx Sec. 3. The said society shall be operated under the direction of its officers, in accordance with its by-laws in force, and this charter. xxxx Sec. 6. The principal office of the society shall be kept in the city of Manila, and the society shall have full power to locate and establish branch offices of the society wherever it may deem advisable in the Philippine Islands, such branch offices to be under the supervision and control of the principal office.

Third. The employees of the petitioner are registered and covered by the Social Security System at the latters initiative, and not through the Government Service Insurance System, which should be the case if the employees are considered government employees. This is another indication of petitioners nature as a private entity. Section 1 of Republic Act No. 1161, as amended by Republic Act No. 8282, otherwise known as the Social Security Act of 1997, defines the employer:
Employer Any person, natural or juridical, domestic or foreign, who carries on in the Philippines any trade, business, industry, undertaking or activity of any kind and uses the services of another person who is under his orders as regards the employment, except the Government and any of its political subdivisions, branches or instrumentalities, including corporations owned or controlled by the Government: Provided, That a self-employed person shall be both employee and employer at the same time. (Emphasis supplied)

Fourth. The respondents contend that the petitioner is a body politic because its primary purpose is to secure the protection and welfare of animals which, in turn, redounds to the public good. This argument, is, at best, specious. The fact that a certain juridical entity is impressed with public interest does not, by that circumstance alone, make the entity a public corporation, inasmuch as a corporation may be private although its charter contains provisions of a public character, incorporated solely for the public good. This class of corporations may be considered

Parreno vs. CoA

quasi-public corporations, which are private corporations that render public service, supply public wants,[21] or pursue other eleemosynary objectives. While purposely organized for the gain or benefit of its members, they are required by law to discharge functions for the public benefit. Examples of these corporations are utility,[22] railroad, warehouse, telegraph, telephone, water supply corporations and transportation companies.[23] It must be stressed that a quasi-public corporation is a species of private corporations, but the qualifying factor is the type of service the former renders to the public: if it performs a public service, then it becomes a quasi-public corporation.[24] Authorities are of the view that the purpose alone of the corporation cannot be taken as a safe guide, for the fact is that almost all corporations are nowadays created to promote the interest, good, or convenience of the public. A bank, for example, is a private corporation; yet, it is created for a public benefit. Private schools and universities are likewise private corporations; and yet, they are rendering public service. Private hospitals and wards are charged with heavy social responsibilities. More so with all common carriers. On the other hand, there may exist a public corporation even if it is endowed with gifts or donations from private individuals.

The true criterion, therefore, to determine whether a corporation is public or private is found in the totality of the relation of the corporation to the State. If the corporation is created by the State as the latters own agency or instrumentality to help it in carrying out its governmental functions, then that corporation is considered public; otherwise, it is private. Applying the above test, provinces, chartered cities, and barangays can best exemplify public corporations. They are created by the State as its own device and agency for the accomplishment of parts of its own public works.[25] It is clear that the amendments introduced by C.A. No. 148 revoked the powers of the petitioner to arrest offenders of animal welfare laws and the power to serve processes in connection therewith. Fifth. The respondents argue that since the charter of the petitioner requires the latter to render periodic reports to the Civil Governor, whose functions have been inherited by the President, the petitioner is, therefore, a government instrumentality. This contention is inconclusive. By virtue of the fiction that all corporations owe their very existence and powers to the State, the reportorial requirement is applicable to all corporations of whatever nature, whether they are public, quasi-public, or private corporationsas creatures of the State, there is a reserved right in the legislature to investigate the activities of a corporation to

Parreno vs. CoA

determine whether it acted within its powers. In other words, the reportorial requirement is the principal means by which the State may see to it that its creature acted according to the powers and functions conferred upon it. These principles were extensively discussed in Bataan Shipyard & Engineering Co., Inc. v. Presidential Commission on Good Government .[26] Here, the Court, in holding that the subject corporation could not invoke the right against self-incrimination whenever the State demanded the production of its corporate books and papers, extensively discussed the purpose of reportorial requirements, viz:
x x x The corporation is a creature of the state. It is presumed to be incorporated for the benefit of the public. It received certain special privileges and franchises, and holds them subject to the laws of the state and the limitations of its charter. Its powers are limited by law. It can make no contract not authorized by its charter. Its rights to act as a corporation are only preserved to it so long as it obeys the laws of its creation. There is a reserve[d] right in the legislature to investigate its contracts and find out whether it has exceeded its powers. It would be a strange anomaly to hold that a state, having chartered a corporation to make use of certain franchises, could not, in the exercise of sovereignty, inquire how these franchises had been employed, and whether they had been abused, and demand the production of the corporate books and papers for that purpose. The defense amounts to this, that an officer of the corporation which is charged with a criminal violation of the statute may plead the criminality of such corporation as a refusal to produce its books. To state this proposition is to answer it. While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not follow that a corporation vested with special privileges and franchises may refuse to show its hand when charged with an abuse of such privileges. (Wilson v. United States, 55 Law Ed., 771, 780.)[27]

WHEREFORE, the petition is GRANTED. Petitioner is DECLARED a private domestic corporation subject to the jurisdiction of the Securities and Exchange Commission. The respondents are ENJOINED from investigating, examining and auditing the petitioner's fiscal and financial affairs. SO ORDERED.

Parreno vs. CoA

EN BANC

2nd LT. SALVADOR PARREO represented by his daughter Myrna P. Caintic, Petitioner,

G.R. No. 162224

Present: PUNO,* C.J., QUISUMBING,** YNARES-SANTIAGO, SANDOVAL-GUTIERREZ, CARPIO, AUSTRIA-MARTINEZ, CORONA,

- versus -

CARPIO MORALES, AZCUNA, TINGA, CHICO-NAZARIO, GARCIA, VELASCO, JR., and NACHURA, JJ.

COMMISSION ON AUDIT and CHIEF OF STAFF, ARMED

Promulgated:

Parreno vs. CoA

FORCES OF THE PHILIPPINES, Respondents. June 7, 2007

x---------------------------------------------------x

DECISION

CARPIO, J.:

The Case

Before the Court is a petition for certiorari[1] assailing the 9 January 2003 Decision[2] and 13 January 2004 Resolution[3] of the Commission on Audit (COA).

The Antecedent Facts

Salvador Parreo (petitioner) served in the Armed Forces of the Philippines (AFP) for 32 years. On 5 January 1982, petitioner retired from the Philippine Constabulary with the rank of 2nd Lieutenant. Petitioner availed, and received payment, of a lump sum pension equivalent to three years pay. In 1985, petitioner started receiving his monthly pension amounting to P13,680.

Petitioner migrated to Hawaii and became a naturalized American citizen. In January 2001, the AFP stopped petitioners monthly pension in accordance with Section 27 of Presidential Decree No. 1638[4] (PD 1638), as amended by Presidential Decree No. 1650.[5] Section 27 of PD 1638, as amended, provides that a retiree who loses his Filipino citizenship shall be removed from the retired list and his retirement benefits terminated upon loss of Filipino

Parreno vs. CoA

citizenship. Petitioner requested for reconsideration but the Judge Advocate General of the AFP denied the request.

Petitioner filed a claim before the COA for the continuance of his monthly pension.

The Ruling of the Commission on Audit

In its 9 January 2003 Decision, the COA denied petitioners claim for lack of jurisdiction. The COA ruled:
It becomes immediately noticeable that the resolution of the issue at hand hinges upon the validity of Section 27 of P.D. No. 1638, as amended. Pursuant to the mandate of the Constitution, whenever a dispute involves the validity of laws, the courts, as guardians of the Constitution, have the inherent authority to determine whether a statute enacted by the legislature transcends the limit imposed by the fundamental law. Where the statute violates the Constitution, it is not only the right but the duty of the judiciary to declare such act as unconstitutional and void. (Tatad vs. Secretary of Department of Energy, 281 SCRA 330) That being so, prudence dictates that this Commission defer to the authority and jurisdiction of the judiciary to rule in the first instance upon the constitutionality of the provision in question.

Premises considered, the request is denied for lack of jurisdiction to adjudicate the same. Claimant is advised to file his claim with the proper court of original jurisdiction.
[6]

Petitioner filed a motion for reconsideration. Petitioner alleged that the COA has the power and authority to incidentally rule on the constitutionality of Section 27 of PD 1638, as amended. Petitioner alleged that a direct recourse to the court would be dismissed for failure to exhaust administrative remedies. Petitioner further alleged that since his monthly pension involves government funds, the reason for the termination of the pension is subject to COAs authority and jurisdiction.

In its 13 January 2004 Resolution, the COA denied the motion. The COA ruled that the doctrine of exhaustion of administrative remedies does not apply if the administrative body has,

Parreno vs. CoA

in the first place, no jurisdiction over the case. The COA further ruled that even if it assumed jurisdiction over the claim, petitioners entitlement to the retirement benefits he was previously receiving must necessarily cease upon the loss of his Filipino citizenship in accordance with Section 27 of PD 1638, as amended.

Hence, the petition before this Court.

The Issues

Petitioner raises the following issues:

1. Whether Section 27 of PD 1638, as amended, is constitutional;

2. Whether the COA has jurisdiction to rule on the constitutionality of Section 27 of PD 1638, as amended; and

3. Whether PD 1638, as amended, has retroactive or prospective effect.[7]

The Ruling of this Court

The petition has no merit.

Parreno vs. CoA

Jurisdiction of the COA

Petitioner filed his money claim before the COA. A money claim is a demand for payment of a sum of money, reimbursement or compensation arising from law or contract due from or owing to a government agency.[8] Under Commonwealth Act No. 327,[9] as amended by Presidential Decree No. 1445,[10] money claims against the government shall be filed before the COA.[11] Section 2(1), Article IX(D) of the 1987 Constitution prescribes the powers of the COA, as follows:

Sec. 2. (1) The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned or controlled corporations with original charters, and on a post-audit basis; (a) constitutional bodies, commissions and offices that have been granted fiscal autonomy under this Constitution; (b) autonomous state colleges and universities; (c) other government-owned or controlled corporations and their subsidiaries; and (d) such non-governmental entities receiving subsidy or equity, directly or indirectly, from or through the Government, which are required by law or the granting institution to submit such audit as a condition of subsidy or equity. However, where the internal control system of the audited agencies is inadequate, the Commission may adopt such measures, including temporary or special pre-audit, as are necessary and appropriate to correct the deficiencies. It shall keep the general accounts of the Government and, for such period as may be provided by law, preserve the vouchers and other supporting papers pertaining thereto.

The jurisdiction of the COA over money claims against the government does not include the power to rule on the constitutionality or validity of laws. The 1987 Constitution vests the power of judicial review or the power to declare unconstitutional a law, treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or regulation in this Court and in all Regional Trial Courts.[12] Petitioners money claim essentially involved the constitutionality of Section 27 of PD 1638, as amended. Hence, the COA did not commit grave abuse of discretion in dismissing petitioners money claim.

Parreno vs. CoA

Petitioner submits that the COA has the authority to order the restoration of his pension even without ruling on the constitutionality of Section 27 of PD 1638, as amended. The COA actually ruled on the matter in its 13 January 2004 Resolution, thus:

Furthermore, assuming arguendo that this Commission assumed jurisdiction over the instant case, claimants entitlement to the retirement benefits he was previously receiving must necessarily be severed or stopped upon the loss of his Filipino citizenship as prescribed in Section 27, P.D. No. 1638, as amended by P.D. No. 1650.
[13]

The COA effectively denied petitioners claim because of the loss of his Filipino citizenship.

Application of PD 1638, as amended

Petitioner alleges that PD 1638, as amended, should apply prospectively. The Office of the Solicitor General (OSG) agrees with petitioner. The OSG argues that PD 1638, as amended, should apply only to those who joined the military service after its effectivity, citing Sections 33 and 35, thus:

Section 33. Nothing in this Decree shall be construed in any manner to reduce whatever retirement and separation pay or gratuity or other monetary benefits which any person is heretofore receiving or is entitled to receive under the provisions of existing law.

xxxx

Section. 35. Except those necessary to give effect to the provisions of this Decree and to preserve the rights granted to retired or separated military personnel, all laws, rules and regulations inconsistent with the provisions of this Decree are hereby repealed or modified accordingly.

Parreno vs. CoA

The OSG further argues that retirement laws are liberally construed in favor of the retirees. Article 4 of the Civil Code provides: Laws shall have no retroactive effect, unless the contrary is provided. Section 36 of PD 1638, as amended, provides that it shall take effect upon its approval. It was signed on10 September 1979. PD 1638, as amended, does not provide for its retroactive application. There is no question that PD 1638, as amended, applies prospectively.

However, we do not agree with the interpretation of petitioner and the OSG that PD 1638, as amended, should apply only to those who joined the military after its effectivity. Since PD 1638, as amended, is about the new system of retirement and separation from service of military personnel, it should apply to those who were in the service at the time of its approval. In fact, Section 2 of PD 1638, as amended, provides that th[e] Decree shall apply to all military personnel in the service of the Armed Forces of the Philippines. PD 1638, as amended, was signed on 10 September 1979. Petitioner retired in 1982, long after the approval of PD 1638, as amended. Hence, the provisions of PD 1638, as amended, apply to petitioner.

Petitioner Has No Vested Right to his Retirement Benefits

Petitioner alleges that Section 27 of PD 1638, as amended, deprives him of his property which the Constitution and statutes vest in him. Petitioner alleges that his pension, being a property vested by the Constitution, cannot be removed or taken from him just because he became a naturalized American citizen. Petitioner further alleges that the termination of his monthly pension is a penalty equivalent to deprivation of his life.

The allegations have no merit. PD 1638, as amended, does not impair any vested right or interest of petitioner. Where the employee retires and meets the eligibility requirements, he acquires a vested right to the benefits that is protected by the due process clause.[14] At the time of the approval of PD 1638 and at the time of its amendment, petitioner was still in active service. Hence, petitioners retirement benefits were only future benefits and did not constitute a vested right. Before a right to retirement benefits or pension vests in an employee, he must have met the stated conditions of eligibility with respect to the nature of employment, age, and length of service.[15] It is only upon retirement that military personnel acquire a vested right to

Parreno vs. CoA

retirement benefits. Retirees enjoy a protected property interest whenever they acquire a right to immediate payment under pre-existing law.[16]

Further, the retirement benefits of military personnel are purely gratuitous in nature. They are not similar to pension plans where employee participation is mandatory, hence, the employees have contractual or vested rights in the pension which forms part of the compensation.[17]

Constitutionality of Section 27 of PD 1638

Section 27 of PD 1638, as amended, provides:

Section 27. Military personnel retired under Sections 4, 5, 10, 11 and 12 shall be carried in the retired list of the Armed Forces of the Philippines. The name of a retiree who loses his Filipino citizenship shall be removed from the retired list and his retirement benefits terminated upon such loss.

The OSG agrees with petitioner that Section 27 of PD 1638, as amended, is unconstitutional. The OSG argues that the obligation imposed on petitioner to retain his Filipino citizenship as a condition for him to remain in the AFP retired list and receive his retirement benefit is contrary to public policy and welfare, oppressive, discriminatory, and violative of the due process clause of the Constitution. The OSG argues that the retirement law is in the nature of a contract between the government and its employees. The OSG further argues that Section 27 of PD 1638, as amended, discriminates against AFP retirees who have changed their nationality.

We do not agree.

The constitutional right to equal protection of the laws is not absolute but is subject to reasonable classification.[18] To be reasonable, the classification (a) must be based on substantial

Parreno vs. CoA

distinctions which make real differences; (b) must be germane to the purpose of the law; (c) must not be limited to existing conditions only; and (d) must apply equally to each member of the class.[19]

There is compliance with all these conditions. There is a substantial difference between retirees who are citizens of the Philippines and retirees who lost their Filipino citizenship by naturalization in another country, such as petitioner in the case before us. The constitutional right of the state to require all citizens to render personal and military service[20] necessarily includes not only private citizens but also citizens who have retired from military service. A retiree who had lost his Filipino citizenship already renounced his allegiance to the state. Thus, he may no longer be compelled by the state to render compulsory military service when the need arises. Petitioners loss of Filipino citizenship constitutes a substantial distinction that distinguishes him from other retirees who retain their Filipino citizenship. If the groupings are characterized by substantial distinctions that make real differences, one class may be treated and regulated differently from another.[21]

Republic Act No. 7077[22] (RA 7077) affirmed the constitutional right of the state to a Citizen Armed Forces. Section 11 of RA 7077 provides that citizen soldiers or reservists include exservicemen and retired officers of the AFP. Hence, even when a retiree is no longer in the active service, he is still a part of the Citizen Armed Forces. Thus, we do not find the requirement imposed by Section 27 of PD 1638, as amended, oppressive, discriminatory, or contrary to public policy. The state has the right to impose a reasonable condition that is necessary for national defense. To rule otherwise would be detrimental to the interest of the state.

There was no denial of due process in this case. When petitioner lost his Filipino citizenship, the AFP had no choice but to stop his monthly pension in accordance with Section 27 of PD 1638, as amended. Petitioner had the opportunity to contest the termination of his pension when he requested for reconsideration of the removal of his name from the list of retirees and the termination of his pension. The Judge Advocate General denied the request pursuant to Section 27 of PD 1638, as amended.

Petitioner argues that he can reacquire his Filipino citizenship under Republic Act No. 9225 (RA 9225), in which case he will still be considered a natural-born Filipino. However, petitioner alleges that if he reacquires his Filipino citizenship under RA 9225, he will still not be
[23]

Parreno vs. CoA

entitled to his pension because of its prior termination. This situation is speculative. In the first place, petitioner has not shown that he has any intention of reacquiring, or has done anything to reacquire, his Filipino citizenship. Secondly, in response to the request for opinion of then AFP Chief of Staff, General Efren L. Abu, the Department of Justice (DOJ) issued DOJ Opinion No. 12, series of 2005, dated 19 January 2005, thus:

[T]he AFP uniformed personnel retirees, having re-acquired Philippine citizenship pursuant to R.A. No. 9225 and its IRR, are entitled to pension and gratuity benefits reckoned from the date they have taken their oath of allegiance to the Republic of the Philippines. It goes without saying that these retirees have no right to receive such pension benefits during the time that they have ceased to be Filipinos pursuant to the aforequoted P.D. No. 1638, as amended, and any payment made to them should be returned to the AFP. x xx.[24]

Hence, petitioner has other recourse if he desires to continue receiving his monthly pension. Just recently, in AASJS Member-Hector GumanganCalilung v. [25] Simeon Datumanong, this Court upheld the constitutionality of RA 9225. If petitioner reacquires his Filipino citizenship, he will even recover his natural-born citizenship.[26] In Tabasa v. Court of Appeals,[27] this Court reiterated that *t+he repatriation of the former Filipino will allow him to recover his natural-born citizenship x x x.

Petitioner will be entitled to receive his monthly pension should he reacquire his Filipino citizenship since he will again be entitled to the benefits and privileges of Filipino citizenship reckoned from the time of his reacquisition of Filipino citizenship. There is no legal obstacle to the resumption of his retirement benefits from the time he complies again with the condition of the law, that is, he can receive his retirement benefits provided he is a Filipino citizen.

We acknowledge the service rendered to the country by petitioner and those similarly situated. However, petitioner failed to overcome the presumption of constitutionality of Section 27 of PD 1638, as amended. Unless the provision is amended or repealed in the future, the AFP has to apply Section 27 of PD 1638, as amended.

Parreno vs. CoA

WHEREFORE, we DISMISS the petition. We AFFIRM the and 13 January 2004 Resolution of the Commission on Audit.

9 January 2003 Decision

SO ORDERED.

La Bugal-Blaan vs. Ramos

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 127882 January 27, 2004

LA BUGAL-B'LAAN TRIBAL ASSOCIATION, INC., represented by its Chairman F'LONG MIGUEL M. LUMAYONG, WIGBERTO E. TAADA, PONCIANO BENNAGEN, JAIME TADEO, RENATO R. CONSTANTINO, JR., F'LONG AGUSTIN M. DABIE, ROBERTO P. AMLOY, RAQIM L. DABIE, SIMEON H. DOLOJO, IMELDA M. GANDON, LENY B. GUSANAN, MARCELO L. GUSANAN, QUINTOL A. LABUAYAN, LOMINGGES D. LAWAY, BENITA P. TACUAYAN, minors JOLY L. BUGOY, represented by his father UNDERO D. BUGOY, ROGER M. DADING, represented by his father ANTONIO L. DADING, ROMY M. LAGARO, represented by his father TOTING A. LAGARO, MIKENY JONG B. LUMAYONG, represented by his father MIGUEL M. LUMAYONG, RENE T. MIGUEL, represented by his mother EDITHA T. MIGUEL, ALDEMAR L. SAL, represented by his father DANNY M. SAL, DAISY RECARSE, represented by her mother LYDIA S. SANTOS, EDWARD M. EMUY, ALAN P. MAMPARAIR, MARIO L. MANGCAL, ALDEN S. TUSAN, AMPARO S. YAP, VIRGILIO CULAR, MARVIC M.V.F. LEONEN, JULIA REGINA CULAR, GIAN CARLO CULAR, VIRGILIO CULAR, JR., represented by their father VIRGILIO CULAR, PAUL ANTONIO P. VILLAMOR, represented by his parents JOSE VILLAMOR and ELIZABETH PUA-VILLAMOR, ANA GININA R. TALJA, represented by her father MARIO JOSE B. TALJA, SHARMAINE R. CUNANAN, represented by her father ALFREDO M. CUNANAN, ANTONIO JOSE A. VITUG III, represented by his mother ANNALIZA A. VITUG, LEAN D. NARVADEZ, represented by his father MANUEL E. NARVADEZ, JR., ROSERIO MARALAG LINGATING, represented by her father RIO OLIMPIO A. LINGATING, MARIO JOSE B. TALJA, DAVID E. DE VERA, MARIA MILAGROS L. SAN JOSE, SR., SUSAN O. BOLANIO, OND, LOLITA G. DEMONTEVERDE, BENJIE L. NEQUINTO,1 ROSE LILIA S. ROMANO, ROBERTO S. VERZOLA, EDUARDO AURELIO C. REYES, LEAN LOUEL A. PERIA, represented by his father ELPIDIO V. PERIA,2 GREEN FORUM PHILIPPINES, GREEN FORUM WESTERN VISAYAS, (GF-WV), ENVIRONMETAL LEGAL ASSISTANCE CENTER (ELAC), PHILIPPINE KAISAHAN TUNGO SA KAUNLARAN NG KANAYUNAN AT REPORMANG PANSAKAHAN (KAISAHAN),3 KAISAHAN TUNGO SA KAUNLARAN NG KANAYUNAN AT REPORMANG PANSAKAHAN (KAISAHAN), PARTNERSHIP FOR AGRARIAN REFORM and RURAL DEVELOPMENT SERVICES, INC. (PARRDS), PHILIPPINE PART`NERSHIP FOR THE DEVELOPMENT OF HUMAN RESOURCES IN THE RURAL AREAS, INC. (PHILDHRRA), WOMEN'S LEGAL BUREAU (WLB), CENTER FOR ALTERNATIVE DEVELOPMENT INITIATIVES, INC. (CADI), UPLAND DEVELOPMENT INSTITUTE (UDI), KINAIYAHAN FOUNDATION, INC., SENTRO NG ALTERNATIBONG LINGAP PANLIGAL (SALIGAN), LEGAL RIGHTS AND NATURAL RESOURCES CENTER, INC. (LRC), petitioners, vs. VICTOR O. RAMOS, SECRETARY, DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES (DENR), HORACIO RAMOS, DIRECTOR, MINES AND GEOSCIENCES BUREAU (MGB-DENR), RUBEN TORRES, EXECUTIVE SECRETARY, and WMC (PHILIPPINES), INC.4 respondents. DECISION CARPIO-MORALES, J.: The present petition for mandamus and prohibition assails the constitutionality of Republic Act No. 7942,5otherwise known as the PHILIPPINE MINING ACT OF 1995, along with the Implementing Rules and Regulations issued pursuant thereto, Department of Environment and Natural Resources (DENR) Administrative Order 96-40, and of the Financial and Technical Assistance Agreement (FTAA) entered into on March 30, 1995 by the Republic of the Philippines and WMC (Philippines), Inc. (WMCP), a corporation organized under Philippine laws. On July 25, 1987, then President Corazon C. Aquino issued Executive Order (E.O.) No. 2796 authorizing the DENR Secretary to accept, consider and evaluate proposals from foreign-owned corporations or foreign investors for contracts or agreements involving either technical or financial assistance for large-scale exploration, development, and utilization of minerals, which, upon appropriate recommendation of the Secretary, the President may execute with the foreign

La Bugal-Blaan vs. Ramos proponent. In entering into such proposals, the President shall consider the real contributions to the economic growth and general welfare of the country that will be realized, as well as the development and use of local scientific and technical resources that will be promoted by the proposed contract or agreement. Until Congress shall determine otherwise, large-scale mining, for purpose of this Section, shall mean those proposals for contracts or agreements for mineral resources exploration, development, and utilization involving a committed capital investment in a single mining unit project of at least Fifty Million Dollars in United States Currency (US $50,000,000.00).7
On March 3, 1995, then President Fidel V. Ramos approved R.A. No. 7942 to "govern the exploration, development, utilization and processing of all mineral resources."8 R.A. No. 7942 defines the modes of mineral agreements for mining operations,9 outlines the procedure for their filing and approval,10 assignment/transfer11and withdrawal,12 and fixes their terms.13 Similar provisions govern financial or technical assistance agreements.14 The law prescribes the qualifications of contractors15 and grants them certain rights, including timber,16 water17and easement18 rights, and the right to possess explosives.19 Surface owners, occupants, or concessionaires are forbidden from preventing holders of mining rights from entering private lands and concession areas.20 A procedure for the settlement of conflicts is likewise provided for.21 The Act restricts the conditions for exploration,22 quarry23 and other24 permits. It regulates the transport, sale and processing of minerals,25 and promotes the development of mining communities, science and mining technology,26 and safety and environmental protection.27 The government's share in the agreements is spelled out and allocated,28 taxes and fees are imposed,29incentives granted.30 Aside from penalizing certain acts,31 the law likewise specifies grounds for the cancellation, revocation and termination of agreements and permits.32 On April 9, 1995, 30 days following its publication on March 10, 1995 in Malaya and Manila Times, two newspapers of general circulation, R.A. No. 7942 took effect.33 Shortly before the effectivity of R.A. No. 7942, however, or on March 30, 1995, the President entered into an FTAA with WMCP covering 99,387 hectares of land in South Cotabato, Sultan Kudarat, Davao del Sur and North Cotabato.34 On August 15, 1995, then DENR Secretary Victor O. Ramos issued DENR Administrative Order (DAO) No. 95-23, s. 1995, otherwise known as the Implementing Rules and Regulations of R.A. No. 7942. This was later repealed by DAO No. 96-40, s. 1996 which was adopted on December 20, 1996. On January 10, 1997, counsels for petitioners sent a letter to the DENR Secretary demanding that the DENR stop the implementation of R.A. No. 7942 and DAO No. 96-40,35 giving the DENR fifteen days from receipt36 to act thereon. The DENR, however, has yet to respond or act on petitioners' letter.37 Petitioners thus filed the present petition for prohibition and mandamus, with a prayer for a temporary restraining order. They allege that at the time of the filing of the petition, 100 FTAA applications had already been filed, covering an area of 8.4 million hectares,38 64 of which applications are by fully foreign-owned corporations covering a total of 5.8 million hectares, and at least one by a fully foreign-owned mining company over offshore areas.39 Petitioners claim that the DENR Secretary acted without or in excess of jurisdiction: I x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic Act No. 7942, the latter being unconstitutional in that it allows fully foreign owned corporations to explore, develop, utilize and exploit mineral resources in a manner contrary to Section 2, paragraph 4, Article XII of the Constitution; II

La Bugal-Blaan vs. Ramos x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic Act No. 7942, the latter being unconstitutional in that it allows the taking of private property without the determination of public use and for just compensation;
III x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic Act No. 7942, the latter being unconstitutional in that it violates Sec. 1, Art. III of the Constitution; IV x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic Act No. 7942, the latter being unconstitutional in that it allows enjoyment by foreign citizens as well as fully foreign owned corporations of the nation's marine wealth contrary to Section 2, paragraph 2 of Article XII of the Constitution; V x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic Act No. 7942, the latter being unconstitutional in that it allows priority to foreign and fully foreign owned corporations in the exploration, development and utilization of mineral resources contrary to Article XII of the Constitution; VI x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic Act No. 7942, the latter being unconstitutional in that it allows the inequitable sharing of wealth contrary to Sections [sic] 1, paragraph 1, and Section 2, paragraph 4[,] [Article XII] of the Constitution; VII x x x in recommending approval of and implementing the Financial and Technical Assistance Agreement between the President of the Republic of the Philippines and Western Mining Corporation Philippines Inc. because the same is illegal and unconstitutional.40 They pray that the Court issue an order: (a) Permanently enjoining respondents from acting on any application for Financial or Technical Assistance Agreements; (b) Declaring the Philippine Mining Act of 1995 or Republic Act No. 7942 as unconstitutional and null and void; (c) Declaring the Implementing Rules and Regulations of the Philippine Mining Act contained in DENR Administrative Order No. 96-40 and all other similar administrative issuances as unconstitutional and null and void; and (d) Cancelling the Financial and Technical Assistance Agreement issued to Western Mining Philippines, Inc. as unconstitutional, illegal and null and void.41 Impleaded as public respondents are Ruben Torres, the then Executive Secretary, Victor O. Ramos, the then DENR Secretary, and Horacio Ramos, Director of the Mines and Geosciences Bureau of the DENR. Also impleaded is private respondent WMCP, which entered into the assailed FTAA with the Philippine Government. WMCP is owned by WMC Resources International Pty., Ltd. (WMC), "a wholly owned subsidiary of Western Mining Corporation Holdings Limited, a publicly listed major Australian mining and exploration company."42 By WMCP's information, "it is a 100% owned subsidiary of WMC LIMITED."43

La Bugal-Blaan vs. Ramos Respondents, aside from meeting petitioners' contentions, argue that the requisites for judicial inquiry have not been met and that the petition does not comply with the criteria for prohibition and mandamus. Additionally, respondent WMCP argues that there has been a violation of the rule on hierarchy of courts.
After petitioners filed their reply, this Court granted due course to the petition. The parties have since filed their respective memoranda. WMCP subsequently filed a Manifestation dated September 25, 2002 alleging that on January 23, 2001, WMC sold all its shares in WMCP to Sagittarius Mines, Inc. (Sagittarius), a corporation organized under Philippine laws.44 WMCP was subsequently renamed "Tampakan Mineral Resources Corporation."45 WMCP claims that at least 60% of the equity of Sagittarius is owned by Filipinos and/or Filipino-owned corporations while about 40% is owned by Indophil Resources NL, an Australian company.46 It further claims that by such sale and transfer of shares, "WMCP has ceased to be connected in any way with WMC."47 By virtue of such sale and transfer, the DENR Secretary, by Order of December 18, 2001,48 approved the transfer and registration of the subject FTAA from WMCP to Sagittarius. Said Order, however, was appealed by Lepanto Consolidated Mining Co. (Lepanto) to the Office of the President which upheld it by Decision of July 23, 2002.49 Its motion for reconsideration having been denied by the Office of the President by Resolution of November 12, 2002,50 Lepanto filed a petition for review51 before the Court of Appeals. Incidentally, two other petitions for review related to the approval of the transfer and registration of the FTAA to Sagittarius were recently resolved by this Court.52 It bears stressing that this case has not been rendered moot either by the transfer and registration of the FTAA to a Filipino-owned corporation or by the non-issuance of a temporary restraining order or a preliminary injunction to stay the above-said July 23, 2002 decision of the Office of the President.53 The validity of the transfer remains in dispute and awaits final judicial determination. This assumes, of course, that such transfer cures the FTAA's alleged unconstitutionality, on which question judgment is reserved. WMCP also points out that the original claimowners of the major mineralized areas included in the WMCP FTAA, namely, Sagittarius, Tampakan Mining Corporation, and Southcot Mining Corporation, are all Filipino-owned corporations,54 each of which was a holder of an approved Mineral Production Sharing Agreement awarded in 1994, albeit their respective mineral claims were subsumed in the WMCP FTAA;55 and that these three companies are the same companies that consolidated their interests in Sagittarius to whom WMC sold its 100% equity in WMCP.56 WMCP concludes that in the event that the FTAA is invalidated, the MPSAs of the three corporations would be revived and the mineral claims would revert to their original claimants.57 These circumstances, while informative, are hardly significant in the resolution of this case, it involving the validity of the FTAA, not the possible consequences of its invalidation. Of the above-enumerated seven grounds cited by petitioners, as will be shown later, only the first and the last need be delved into; in the latter, the discussion shall dwell only insofar as it questions the effectivity of E. O. No. 279 by virtue of which order the questioned FTAA was forged. I Before going into the substantive issues, the procedural questions posed by respondents shall first be tackled. REQUISITES FOR JUDICIAL REVIEW When an issue of constitutionality is raised, this Court can exercise its power of judicial review only if the following requisites are present: (1) The existence of an actual and appropriate case; (2) A personal and substantial interest of the party raising the constitutional question;

La Bugal-Blaan vs. Ramos (3) The exercise of judicial review is pleaded at the earliest opportunity; and
(4) The constitutional question is the lis mota of the case. 58 Respondents claim that the first three requisites are not present. Section 1, Article VIII of the Constitution states that "(j)udicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable." The power of judicial review, therefore, is limited to the determination of actual cases and controversies.59 An actual case or controversy means an existing case or controversy that is appropriate or ripe for determination, not conjectural or anticipatory,60 lest the decision of the court would amount to an advisory opinion.61 The power does not extend to hypothetical questions62 since any attempt at abstraction could only lead to dialectics and barren legal questions and to sterile conclusions unrelated to actualities.63 "Legal standing" or locus standi has been defined as a personal and substantial interest in the case such that the party has sustained or will sustain direct injury as a result of the governmental act that is being challenged,64alleging more than a generalized grievance.65 The gist of the question of standing is whether a party alleges "such personal stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of issues upon which the court depends for illumination of difficult constitutional questions."66Unless a person is injuriously affected in any of his constitutional rights by the operation of statute or ordinance, he has no standing.67 Petitioners traverse a wide range of sectors. Among them are La Bugal B'laan Tribal Association, Inc., a farmers and indigenous people's cooperative organized under Philippine laws representing a community actually affected by the mining activities of WMCP, members of said cooperative,68 as well as other residents of areas also affected by the mining activities of WMCP.69 These petitioners have standing to raise the constitutionality of the questioned FTAA as they allege a personal and substantial injury. They claim that they would suffer "irremediable displacement"70 as a result of the implementation of the FTAA allowing WMCP to conduct mining activities in their area of residence. They thus meet the appropriate case requirement as they assert an interest adverse to that of respondents who, on the other hand, insist on the FTAA's validity. In view of the alleged impending injury, petitioners also have standing to assail the validity of E.O. No. 279, by authority of which the FTAA was executed. Public respondents maintain that petitioners, being strangers to the FTAA, cannot sue either or both contracting parties to annul it.71 In other words, they contend that petitioners are not real parties in interest in an action for the annulment of contract. Public respondents' contention fails. The present action is not merely one for annulment of contract but for prohibition and mandamus. Petitioners allege that public respondents acted without or in excess of jurisdiction in implementing the FTAA, which they submit is unconstitutional. As the case involves constitutional questions, this Court is not concerned with whether petitioners are real parties in interest, but with whether they have legal standing. As held in Kilosbayan v. Morato:72 x x x. "It is important to note . . . that standing because of its constitutional and public policy underpinnings, is very different from questions relating to whether a particular plaintiff is the real party in interest or has capacity to sue. Although all three requirements are directed towards ensuring that only certain parties can maintain an action, standing restrictions require a partial consideration of the merits, as well as broader policy concerns relating to the proper role of the judiciary in certain areas.["] (FRIEDENTHAL, KANE AND MILLER, CIVIL PROCEDURE 328 [1985]) Standing is a special concern in constitutional law because in some cases suits are brought not by parties who have been personally injured by the operation of a law or by official action taken, but by concerned citizens, taxpayers or voters who actually sue in the public interest. Hence, the question in standing is whether such parties have "alleged such a personal stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the

La Bugal-Blaan vs. Ramos presentation of issues upon which the court so largely depends for illumination of difficult constitutional questions." (Baker v. Carr, 369 U.S. 186, 7 L.Ed.2d 633 [1962].)
As earlier stated, petitioners meet this requirement. The challenge against the constitutionality of R.A. No. 7942 and DAO No. 96-40 likewise fulfills the requisites of justiciability. Although these laws were not in force when the subject FTAA was entered into, the question as to their validity is ripe for adjudication. The WMCP FTAA provides: 14.3 Future Legislation Any term and condition more favourable to Financial &Technical Assistance Agreement contractors resulting from repeal or amendment of any existing law or regulation or from the enactment of a law, regulation or administrative order shall be considered a part of this Agreement. It is undisputed that R.A. No. 7942 and DAO No. 96-40 contain provisions that are more favorable to WMCP, hence, these laws, to the extent that they are favorable to WMCP, govern the FTAA. In addition, R.A. No. 7942 explicitly makes certain provisions apply to pre-existing agreements. SEC. 112. Non-impairment of Existing Mining/Quarrying Rights. x x x That the provisions of Chapter XIV on government share in mineral production-sharing agreement and of Chapter XVI on incentives of this Act shall immediately govern and apply to a mining lessee or contractor unless the mining lessee or contractor indicates his intention to the secretary, in writing, not to avail of said provisions x x x Provided, finally, That such leases, productionsharing agreements, financial or technical assistance agreements shall comply with the applicable provisions of this Act and its implementing rules and regulations. As there is no suggestion that WMCP has indicated its intention not to avail of the provisions of Chapter XVI of R.A. No. 7942, it can safely be presumed that they apply to the WMCP FTAA. Misconstruing the application of the third requisite for judicial review that the exercise of the review is pleaded at the earliest opportunity WMCP points out that the petition was filed only almost two years after the execution of the FTAA, hence, not raised at the earliest opportunity. The third requisite should not be taken to mean that the question of constitutionality must be raised immediately after the execution of the state action complained of. That the question of constitutionality has not been raised before is not a valid reason for refusing to allow it to be raised later.73 A contrary rule would mean that a law, otherwise unconstitutional, would lapse into constitutionality by the mere failure of the proper party to promptly file a case to challenge the same. PROPRIETY OF PROHIBITION AND MANDAMUS Before the effectivity in July 1997 of the Revised Rules of Civil Procedure, Section 2 of Rule 65 read: SEC. 2. Petition for prohibition. When the proceedings of any tribunal, corporation, board, or person, whether exercising functions judicial or ministerial, are without or in excess of its or his jurisdiction, or with grave abuse of discretion, and there is no appeal or any other plain, speedy, and adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified petition in the proper court alleging the facts with certainty and praying that judgment be rendered commanding the defendant to desist from further proceeding in the action or matter specified therein. Prohibition is a preventive remedy.74 It seeks a judgment ordering the defendant to desist from continuing with the commission of an act perceived to be illegal.75

La Bugal-Blaan vs. Ramos The petition for prohibition at bar is thus an appropriate remedy. While the execution of the contract itself may be fait accompli, its implementation is not. Public respondents, in behalf of the Government, have obligations to fulfill under said contract. Petitioners seek to prevent them from fulfilling such obligations on the theory that the contract is unconstitutional and, therefore, void.
The propriety of a petition for prohibition being upheld, discussion of the propriety of the mandamus aspect of the petition is rendered unnecessary. HIERARCHY OF COURTS The contention that the filing of this petition violated the rule on hierarchy of courts does not likewise lie. The rule has been explained thus: Between two courts of concurrent original jurisdiction, it is the lower court that should initially pass upon the issues of a case. That way, as a particular case goes through the hierarchy of courts, it is shorn of all but the important legal issues or those of first impression, which are the proper subject of attention of the appellate court. This is a procedural rule borne of experience and adopted to improve the administration of justice. This Court has consistently enjoined litigants to respect the hierarchy of courts. Although this Court has concurrent jurisdiction with the Regional Trial Courts and the Court of Appeals to issue writs of certiorari, prohibition, mandamus, quo warranto, habeas corpus and injunction, such concurrence does not give a party unrestricted freedom of choice of court forum. The resort to this Court's primary jurisdiction to issue said writs shall be allowed only where the redress desired cannot be obtained in the appropriate courts or where exceptional and compelling circumstances justify such invocation. We held in People v. Cuaresma that: A becoming regard for judicial hierarchy most certainly indicates that petitions for the issuance of extraordinary writs against first level ("inferior") courts should be filed with the Regional Trial Court, and those against the latter, with the Court of Appeals. A direct invocation of the Supreme Court's original jurisdiction to issue these writs should be allowed only where there are special and important reasons therefor, clearly and specifically set out in the petition. This is established policy. It is a policy necessary to prevent inordinate demands upon the Court's time and attention which are better devoted to those matters within its exclusive jurisdiction, and to prevent further over-crowding of the Court's docket x x x.76 [Emphasis supplied.] The repercussions of the issues in this case on the Philippine mining industry, if not the national economy, as well as the novelty thereof, constitute exceptional and compelling circumstances to justify resort to this Court in the first instance. In all events, this Court has the discretion to take cognizance of a suit which does not satisfy the requirements of an actual case or legal standing when paramount public interest is involved.77 When the issues raised are of paramount importance to the public, this Court may brush aside technicalities of procedure.78 II Petitioners contend that E.O. No. 279 did not take effect because its supposed date of effectivity came after President Aquino had already lost her legislative powers under the Provisional Constitution. And they likewise claim that the WMC FTAA, which was entered into pursuant to E.O. No. 279, violates Section 2, Article XII of the Constitution because, among other reasons: (1) It allows foreign-owned companies to extend more than mere financial or technical assistance to the State in the exploitation, development, and utilization of minerals, petroleum, and other mineral oils, and even permits foreign owned companies to "operate and manage mining activities." (2) It allows foreign-owned companies to extend both technical and financial assistance, instead of "either technical or financial assistance."

La Bugal-Blaan vs. Ramos To appreciate the import of these issues, a visit to the history of the pertinent constitutional provision, the concepts contained therein, and the laws enacted pursuant thereto, is in order.
Section 2, Article XII reads in full: Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, beneficial use may be the measure and limit of the grant. The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea, and exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens. The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as well as cooperative fish farming, with priority to subsistence fishermen and fish-workers in rivers, lakes, bays, and lagoons. The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions provided by law, based on real contributions to the economic growth and general welfare of the country. In such agreements, the State shall promote the development and use of local scientific and technical resources. The President shall notify the Congress of every contract entered into in accordance with this provision, within thirty days from its execution. THE SPANISH REGIME AND THE REGALIAN DOCTRINE The first sentence of Section 2 embodies the Regalian doctrine or jura regalia. Introduced by Spain into these Islands, this feudal concept is based on the State's power of dominium, which is the capacity of the State to own or acquire property.79 In its broad sense, the term "jura regalia" refers to royal rights, or those rights which the King has by virtue of his prerogatives. In Spanish law, it refers to a right which the sovereign has over anything in which a subject has a right of property or propriedad. These were rights enjoyed during feudal times by the king as the sovereign. The theory of the feudal system was that title to all lands was originally held by the King, and while the use of lands was granted out to others who were permitted to hold them under certain conditions, the King theoretically retained the title. By fiction of law, the King was regarded as the original proprietor of all lands, and the true and only source of title, and from him all lands were held. The theory of jura regalia was therefore nothing more than a natural fruit of conquest.80 The Philippines having passed to Spain by virtue of discovery and conquest,81 earlier Spanish decrees declared that "all lands were held from the Crown."82 The Regalian doctrine extends not only to land but also to "all natural wealth that may be found in the bowels of the earth."83 Spain, in particular, recognized the unique value of natural resources, viewing them, especially minerals, as an abundant source of revenue to finance its wars against other nations.84 Mining laws during the Spanish regime reflected this perspective.85 THE AMERICAN OCCUPATION AND THE CONCESSION REGIME

La Bugal-Blaan vs. Ramos By the Treaty of Paris of December 10, 1898, Spain ceded "the archipelago known as the Philippine Islands" to the United States. The Philippines was hence governed by means of organic acts that were in the nature of charters serving as a Constitution of the occupied territory from 1900 to 1935.86 Among the principal organic acts of the Philippines was the Act of Congress of July 1, 1902, more commonly known as the Philippine Bill of 1902, through which the United States Congress assumed the administration of the Philippine Islands.87 Section 20 of said Bill reserved the disposition of mineral lands of the public domain from sale. Section 21 thereof allowed the free and open exploration, occupation and purchase of mineral deposits not only to citizens of the Philippine Islands but to those of the United States as well:
Sec. 21. That all valuable mineral deposits in public lands in the Philippine Islands, both surveyed and unsurveyed, are hereby declared to be free and open to exploration, occupation and purchase, and the land in which they are found, to occupation and purchase, by citizens of the United States or of said Islands: Provided, That when on any lands in said Islands entered and occupied as agricultural lands under the provisions of this Act, but not patented, mineral deposits have been found, the working of such mineral deposits is forbidden until the person, association, or corporation who or which has entered and is occupying such lands shall have paid to the Government of said Islands such additional sum or sums as will make the total amount paid for the mineral claim or claims in which said deposits are located equal to the amount charged by the Government for the same as mineral claims. Unlike Spain, the United States considered natural resources as a source of wealth for its nationals and saw fit to allow both Filipino and American citizens to explore and exploit minerals in public lands, and to grant patents to private mineral lands.88 A person who acquired ownership over a parcel of private mineral land pursuant to the laws then prevailing could exclude other persons, even the State, from exploiting minerals within his property.89Thus, earlier jurisprudence90 held that: A valid and subsisting location of mineral land, made and kept up in accordance with the provisions of the statutes of the United States, has the effect of a grant by the United States of the present and exclusive possession of the lands located, and this exclusive right of possession and enjoyment continues during the entire life of the location. x x x. x x x. The discovery of minerals in the ground by one who has a valid mineral location perfects his claim and his location not only against third persons, but also against the Government. x x x. [Italics in the original.] The Regalian doctrine and the American system, therefore, differ in one essential respect. Under the Regalian theory, mineral rights are not included in a grant of land by the state; under the American doctrine, mineral rights are included in a grant of land by the government.91 Section 21 also made possible the concession (frequently styled "permit", license" or "lease")92 system.93 This was the traditional regime imposed by the colonial administrators for the exploitation of natural resources in the extractive sector (petroleum, hard minerals, timber, etc.).94 Under the concession system, the concessionaire makes a direct equity investment for the purpose of exploiting a particular natural resource within a given area.95 Thus, the concession amounts to complete control by the concessionaire over the country's natural resource, for it is given exclusive and plenary rights to exploit a particular resource at the point of extraction.96 In consideration for the right to exploit a natural resource, the concessionaire either pays rent or royalty, which is a fixed percentage of the gross proceeds.97 Later statutory enactments by the legislative bodies set up in the Philippines adopted the contractual framework of the concession.98 For instance, Act No. 2932,99 approved on August 31, 1920, which provided for the exploration, location, and lease of lands containing petroleum and other mineral oils and gas in the Philippines, and Act No. 2719,100 approved on May 14, 1917, which provided for the leasing and development of coal lands in the Philippines, both utilized the concession system.101 THE 1935 CONSTITUTION AND THE NATIONALIZATION OF NATURAL RESOURCES

La Bugal-Blaan vs. Ramos By the Act of United States Congress of March 24, 1934, popularly known as the Tydings-McDuffie Law, the People of the Philippine Islands were authorized to adopt a constitution.102 On July 30, 1934, the Constitutional Convention met for the purpose of drafting a constitution, and the Constitution subsequently drafted was approved by the Convention on February 8, 1935.103 The Constitution was submitted to the President of the United States on March 18, 1935.104 On March 23, 1935, the President of the United States certified that the Constitution conformed substantially with the provisions of the Act of Congress approved on March 24, 1934.105 On May 14, 1935, the Constitution was ratified by the Filipino people.106
The 1935 Constitution adopted the Regalian doctrine, declaring all natural resources of the Philippines, including mineral lands and minerals, to be property belonging to the State.107 As adopted in a republican system, the medieval concept of jura regalia is stripped of royal overtones and ownership of the land is vested in the State.108 Section 1, Article XIII, on Conservation and Utilization of Natural Resources, of the 1935 Constitution provided: SECTION 1. All agricultural, timber, and mineral lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, and other natural resources of the Philippines belong to the State, and their disposition, exploitation, development, or utilization shall be limited to citizens of the Philippines, or to corporations or associations at least sixty per centum of the capital of which is owned by such citizens, subject to any existing right, grant, lease, or concession at the time of the inauguration of the Government established under this Constitution. Natural resources, with the exception of public agricultural land, shall not be alienated, and no license, concession, or lease for the exploitation, development, or utilization of any of the natural resources shall be granted for a period exceeding twenty-five years, except as to water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, in which cases beneficial use may be the measure and the limit of the grant. The nationalization and conservation of the natural resources of the country was one of the fixed and dominating objectives of the 1935 Constitutional Convention.109 One delegate relates: There was an overwhelming sentiment in the Convention in favor of the principle of state ownership of natural resources and the adoption of the Regalian doctrine. State ownership of natural resources was seen as a necessary starting point to secure recognition of the state's power to control their disposition, exploitation, development, or utilization. The delegates of the Constitutional Convention very well knew that the concept of State ownership of land and natural resources was introduced by the Spaniards, however, they were not certain whether it was continued and applied by the Americans. To remove all doubts, the Convention approved the provision in the Constitution affirming the Regalian doctrine. The adoption of the principle of state ownership of the natural resources and of the Regalian doctrine was considered to be a necessary starting point for the plan of nationalizing and conserving the natural resources of the country. For with the establishment of the principle of state ownership of the natural resources, it would not be hard to secure the recognition of the power of the State to control their disposition, exploitation, development or utilization.110 The nationalization of the natural resources was intended (1) to insure their conservation for Filipino posterity; (2) to serve as an instrument of national defense, helping prevent the extension to the country of foreign control through peaceful economic penetration; and (3) to avoid making the Philippines a source of international conflicts with the consequent danger to its internal security and independence.111 The same Section 1, Article XIII also adopted the concession system, expressly permitting the State to grant licenses, concessions, or leases for the exploitation, development, or utilization of any of the natural resources. Grants, however, were limited to Filipinos or entities at least 60% of the capital of which is owned by Filipinos.
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The swell of nationalism that suffused the 1935 Constitution was radically diluted when on November 1946, the Parity Amendment, which came in the form of an "Ordinance Appended to the Constitution," was ratified in a plebiscite.112 The Amendment extended, from July 4, 1946 to July 3, 1974, the right to utilize and exploit our natural resources to citizens of the United States and business enterprises owned or controlled, directly or indirectly, by citizens of the United States:113

La Bugal-Blaan vs. Ramos Notwithstanding the provision of section one, Article Thirteen, and section eight, Article Fourteen, of the foregoing Constitution, during the effectivity of the Executive Agreement entered into by the President of the Philippines with the President of the United States on the fourth of July, nineteen hundred and forty-six, pursuant to the provisions of Commonwealth Act Numbered Seven hundred and thirty-three, but in no case to extend beyond the third of July, nineteen hundred and seventy-four, the disposition, exploitation, development, and utilization of all agricultural, timber, and mineral lands of the public domain, waters, minerals, coals, petroleum, and other mineral oils, all forces and sources of potential energy, and other natural resources of the Philippines, and the operation of public utilities, shall, if open to any person, be open to citizens of the United States and to all forms of business enterprise owned or controlled, directly or indirectly, by citizens of the United States in the same manner as to, and under the same conditions imposed upon, citizens of the Philippines or corporations or associations owned or controlled by citizens of the Philippines.
The Parity Amendment was subsequently modified by the 1954 Revised Trade Agreement, also known as the LaurelLangley Agreement, embodied in Republic Act No. 1355.114 THE PETROLEUM ACT OF 1949 AND THE CONCESSION SYSTEM In the meantime, Republic Act No. 387,115 also known as the Petroleum Act of 1949, was approved on June 18, 1949. The Petroleum Act of 1949 employed the concession system for the exploitation of the nation's petroleum resources. Among the kinds of concessions it sanctioned were exploration and exploitation concessions, which respectively granted to the concessionaire the exclusive right to explore for116 or develop117 petroleum within specified areas. Concessions may be granted only to duly qualified persons118 who have sufficient finances, organization, resources, technical competence, and skills necessary to conduct the operations to be undertaken.119 Nevertheless, the Government reserved the right to undertake such work itself.120 This proceeded from the theory that all natural deposits or occurrences of petroleum or natural gas in public and/or private lands in the Philippines belong to the State.121 Exploration and exploitation concessions did not confer upon the concessionaire ownership over the petroleum lands and petroleum deposits.122 However, they did grant concessionaires the right to explore, develop, exploit, and utilize them for the period and under the conditions determined by the law.123 Concessions were granted at the complete risk of the concessionaire; the Government did not guarantee the existence of petroleum or undertake, in any case, title warranty.124 Concessionaires were required to submit information as maybe required by the Secretary of Agriculture and Natural Resources, including reports of geological and geophysical examinations, as well as production reports.125 Exploration126 and exploitation127 concessionaires were also required to submit work programs.
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Exploitation concessionaires, in particular, were obliged to pay an annual exploitation tax,128 the object of which is to induce the concessionaire to actually produce petroleum, and not simply to sit on the concession without developing or exploiting it.129 These concessionaires were also bound to pay the Government royalty, which was not less than 12% of the petroleum produced and saved, less that consumed in the operations of the concessionaire.130 Under Article 66, R.A. No. 387, the exploitation tax may be credited against the royalties so that if the concessionaire shall be actually producing enough oil, it would not actually be paying the exploitation tax.131 Failure to pay the annual exploitation tax for two consecutive years,132 or the royalty due to the Government within one year from the date it becomes due,133 constituted grounds for the cancellation of the concession. In case of delay in the payment of the taxes or royalty imposed by the law or by the concession, a surcharge of 1% per month is exacted until the same are paid.134 As a rule, title rights to all equipment and structures that the concessionaire placed on the land belong to the exploration or exploitation concessionaire.135 Upon termination of such concession, the concessionaire had a right to remove the same.136

La Bugal-Blaan vs. Ramos The Secretary of Agriculture and Natural Resources was tasked with carrying out the provisions of the law, through the Director of Mines, who acted under the Secretary's immediate supervision and control.137 The Act granted the Secretary the authority to inspect any operation of the concessionaire and to examine all the books and accounts pertaining to operations or conditions related to payment of taxes and royalties.138
The same law authorized the Secretary to create an Administration Unit and a Technical Board.139 The Administration Unit was charged, inter alia, with the enforcement of the provisions of the law.140 The Technical Board had, among other functions, the duty to check on the performance of concessionaires and to determine whether the obligations imposed by the Act and its implementing regulations were being complied with.141 Victorio Mario A. Dimagiba, Chief Legal Officer of the Bureau of Energy Development, analyzed the benefits and drawbacks of the concession system insofar as it applied to the petroleum industry: Advantages of Concession. Whether it emphasizes income tax or royalty, the most positive aspect of the concession system is that the State's financial involvement is virtually risk free and administration is simple and comparatively low in cost. Furthermore, if there is a competitive allocation of the resource leading to substantial bonuses and/or greater royalty coupled with a relatively high level of taxation, revenue accruing to the State under the concession system may compare favorably with other financial arrangements. Disadvantages of Concession. There are, however, major negative aspects to this system. Because the Government's role in the traditional concession is passive, it is at a distinct disadvantage in managing and developing policy for the nation's petroleum resource. This is true for several reasons. First, even though most concession agreements contain covenants requiring diligence in operations and production, this establishes only an indirect and passive control of the host country in resource development. Second, and more importantly, the fact that the host country does not directly participate in resource management decisions inhibits its ability to train and employ its nationals in petroleum development. This factor could delay or prevent the country from effectively engaging in the development of its resources. Lastly, a direct role in management is usually necessary in order to obtain a knowledge of the international petroleum industry which is important to an appreciation of the host country's resources in relation to those of other countries.142 Other liabilities of the system have also been noted: x x x there are functional implications which give the concessionaire great economic power arising from its exclusive equity holding. This includes, first, appropriation of the returns of the undertaking, subject to a modest royalty; second, exclusive management of the project; third, control of production of the natural resource, such as volume of production, expansion, research and development; and fourth, exclusive responsibility for downstream operations, like processing, marketing, and distribution. In short, even if nominally, the state is the sovereign and owner of the natural resource being exploited, it has been shorn of all elements of control over such natural resource because of the exclusive nature of the contractual regime of the concession. The concession system, investing as it does ownership of natural resources, constitutes a consistent inconsistency with the principle embodied in our Constitution that natural resources belong to the state and shall not be alienated, not to mention the fact that the concession was the bedrock of the colonial system in the exploitation of natural resources.143 Eventually, the concession system failed for reasons explained by Dimagiba: Notwithstanding the good intentions of the Petroleum Act of 1949, the concession system could not have properly spurred sustained oil exploration activities in the country, since it assumed that such a capital-intensive, high risk venture could be successfully undertaken by a single individual or a small company. In effect, concessionaires' funds were easily exhausted. Moreover, since the concession system practically closed its doors to interested foreign investors, local capital was stretched to the limits. The old system also failed to consider the highly sophisticated technology and expertise required, which would be available only to multinational companies.144 A shift to a new regime for the development of natural resources thus seemed imminent. PRESIDENTIAL DECREE NO. 87, THE 1973 CONSTITUTION AND THE SERVICE CONTRACT SYSTEM

La Bugal-Blaan vs. Ramos The promulgation on December 31, 1972 of Presidential Decree No. 87,145 otherwise known as The Oil Exploration and Development Act of 1972 signaled such a transformation. P.D. No. 87 permitted the government to explore for and produce indigenous petroleum through "service contracts."146
"Service contracts" is a term that assumes varying meanings to different people, and it has carried many names in different countries, like "work contracts" in Indonesia, "concession agreements" in Africa, "production-sharing agreements" in the Middle East, and "participation agreements" in Latin America.147 A functional definition of "service contracts" in the Philippines is provided as follows: A service contract is a contractual arrangement for engaging in the exploitation and development of petroleum, mineral, energy, land and other natural resources by which a government or its agency, or a private person granted a right or privilege by the government authorizes the other party (service contractor) to engage or participate in the exercise of such right or the enjoyment of the privilege, in that the latter provides financial or technical resources, undertakes the exploitation or production of a given resource, or directly manages the productive enterprise, operations of the exploration and exploitation of the resources or the disposition of marketing or resources.148 In a service contract under P.D. No. 87, service and technology are furnished by the service contractor for which it shall be entitled to the stipulated service fee.149 The contractor must be technically competent and financially capable to undertake the operations required in the contract.150 Financing is supposed to be provided by the Government to which all petroleum produced belongs.151 In case the Government is unable to finance petroleum exploration operations, the contractor may furnish services, technology and financing, and the proceeds of sale of the petroleum produced under the contract shall be the source of funds for payment of the service fee and the operating expenses due the contractor.152 The contractor shall undertake, manage and execute petroleum operations, subject to the government overseeing the management of the operations.153 The contractor provides all necessary services and technology and the requisite financing, performs the exploration work obligations, and assumes all exploration risks such that if no petroleum is produced, it will not be entitled to reimbursement.154 Once petroleum in commercial quantity is discovered, the contractor shall operate the field on behalf of the government.155 P.D. No. 87 prescribed minimum terms and conditions for every service contract.156 It also granted the contractor certain privileges, including exemption from taxes and payment of tariff duties,157 and permitted the repatriation of capital and retention of profits abroad.158 Ostensibly, the service contract system had certain advantages over the concession regime.159 It has been opined, though, that, in the Philippines, our concept of a service contract, at least in the petroleum industry, was basically a concession regime with a production-sharing element.160 On January 17, 1973, then President Ferdinand E. Marcos proclaimed the ratification of a new Constitution.161Article XIV on the National Economy and Patrimony contained provisions similar to the 1935 Constitution with regard to Filipino participation in the nation's natural resources. Section 8, Article XIV thereof provides: Sec. 8. All lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all forces of potential energy, fisheries, wildlife, and other natural resources of the Philippines belong to the State. With the exception of agricultural, industrial or commercial, residential and resettlement lands of the public domain, natural resources shall not be alienated, and no license, concession, or lease for the exploration, development, exploitation, or utilization of any of the natural resources shall be granted for a period exceeding twenty-five years, renewable for not more than twentyfive years, except as to water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, in which cases beneficial use may be the measure and the limit of the grant. While Section 9 of the same Article maintained the Filipino-only policy in the enjoyment of natural resources, it also allowed Filipinos, upon authority of the Batasang Pambansa, to enter into service contracts with any person or entity for the exploration or utilization of natural resources.

La Bugal-Blaan vs. Ramos Sec. 9. The disposition, exploration, development, exploitation, or utilization of any of the natural resources of the Philippines shall be limited to citizens, or to corporations or associations at least sixty per centum of which is owned by such citizens. The Batasang Pambansa, in the national interest, may allow such citizens, corporations or associations to enter into service contracts for financial, technical, management, or other forms of assistance with any person or entity for the exploration, or utilization of any of the natural resources. Existing valid and binding service contracts for financial, technical, management, or other forms of assistance are hereby recognized as such. [Emphasis supplied.]
The concept of service contracts, according to one delegate, was borrowed from the methods followed by India, Pakistan and especially Indonesia in the exploration of petroleum and mineral oils.162 The provision allowing such contracts, according to another, was intended to "enhance the proper development of our natural resources since Filipino citizens lack the needed capital and technical know-how which are essential in the proper exploration, development and exploitation of the natural resources of the country."163 The original idea was to authorize the government, not private entities, to enter into service contracts with foreign entities.164 As finally approved, however, a citizen or private entity could be allowed by the National Assembly to enter into such service contract.165 The prior approval of the National Assembly was deemed sufficient to protect the national interest.166 Notably, none of the laws allowing service contracts were passed by the Batasang Pambansa. Indeed, all of them were enacted by presidential decree. On March 13, 1973, shortly after the ratification of the new Constitution, the President promulgated Presidential Decree No. 151.167 The law allowed Filipino citizens or entities which have acquired lands of the public domain or which own, hold or control such lands to enter into service contracts for financial, technical, management or other forms of assistance with any foreign persons or entity for the exploration, development, exploitation or utilization of said lands.168 Presidential Decree No. 463,169 also known as The Mineral Resources Development Decree of 1974, was enacted on May 17, 1974. Section 44 of the decree, as amended, provided that a lessee of a mining claim may enter into a service contract with a qualified domestic or foreign contractor for the exploration, development and exploitation of his claims and the processing and marketing of the product thereof. Presidential Decree No. 704170 (The Fisheries Decree of 1975), approved on May 16, 1975, allowed Filipinos engaged in commercial fishing to enter into contracts for financial, technical or other forms of assistance with any foreign person, corporation or entity for the production, storage, marketing and processing of fish and fishery/aquatic products.171 Presidential Decree No. 705172 (The Revised Forestry Code of the Philippines), approved on May 19, 1975, allowed "forest products licensees, lessees, or permitees to enter into service contracts for financial, technical, management, or other forms of assistance . . . with any foreign person or entity for the exploration, development, exploitation or utilization of the forest resources."173 Yet another law allowing service contracts, this time for geothermal resources, was Presidential Decree No. 1442,174 which was signed into law on June 11, 1978. Section 1 thereof authorized the Government to enter into service contracts for the exploration, exploitation and development of geothermal resources with a foreign contractor who must be technically and financially capable of undertaking the operations required in the service contract. Thus, virtually the entire range of the country's natural resources from petroleum and minerals to geothermal energy, from public lands and forest resources to fishery products was well covered by apparent legal authority to engage in the direct participation or involvement of foreign persons or corporations (otherwise disqualified) in the exploration and utilization of natural resources through service contracts.175 THE 1987 CONSTITUTION AND TECHNICAL OR FINANCIAL ASSISTANCE AGREEMENTS After the February 1986 Edsa Revolution, Corazon C. Aquino took the reins of power under a revolutionary government. On March 25, 1986, President Aquino issued Proclamation No. 3,176 promulgating the Provisional Constitution, more popularly referred to as the Freedom Constitution. By authority of the same Proclamation, the President created a Constitutional Commission (CONCOM) to draft a new constitution, which took effect on the date of its ratification on February 2, 1987.177

La Bugal-Blaan vs. Ramos The 1987 Constitution retained the Regalian doctrine. The first sentence of Section 2, Article XII states: "All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State."
Like the 1935 and 1973 Constitutions before it, the 1987 Constitution, in the second sentence of the same provision, prohibits the alienation of natural resources, except agricultural lands. The third sentence of the same paragraph is new: "The exploration, development and utilization of natural resources shall be under the full control and supervision of the State." The constitutional policy of the State's "full control and supervision" over natural resources proceeds from the concept of jura regalia, as well as the recognition of the importance of the country's natural resources, not only for national economic development, but also for its security and national defense.178 Under this provision, the State assumes "a more dynamic role" in the exploration, development and utilization of natural resources.179 Conspicuously absent in Section 2 is the provision in the 1935 and 1973 Constitutions authorizing the State to grant licenses, concessions, or leases for the exploration, exploitation, development, or utilization of natural resources. By such omission, the utilization of inalienable lands of public domain through "license, concession or lease" is no longer allowed under the 1987 Constitution.180 Having omitted the provision on the concession system, Section 2 proceeded to introduce "unfamiliar language":181 The State may directly undertake such activities or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens. Consonant with the State's "full supervision and control" over natural resources, Section 2 offers the State two "options."182 One, the State may directly undertake these activities itself; or two, it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or entities at least 60% of whose capital is owned by such citizens. A third option is found in the third paragraph of the same section: The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as well as cooperative fish farming, with priority to subsistence fishermen and fish-workers in rivers, lakes, bays, and lagoons. While the second and third options are limited only to Filipino citizens or, in the case of the former, to corporations or associations at least 60% of the capital of which is owned by Filipinos, a fourth allows the participation of foreign-owned corporations. The fourth and fifth paragraphs of Section 2 provide: The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions provided by law, based on real contributions to the economic growth and general welfare of the country. In such agreements, the State shall promote the development and use of local scientific and technical resources. The President shall notify the Congress of every contract entered into in accordance with this provision, within thirty days from its execution. Although Section 2 sanctions the participation of foreign-owned corporations in the exploration, development, and utilization of natural resources, it imposes certain limitations or conditions to agreements with such corporations. First, the parties to FTAAs. Only the President, in behalf of the State, may enter into these agreements, and only with corporations. By contrast, under the 1973 Constitution, a Filipino citizen, corporation or association may enter into a service contract with a "foreign person or entity."

La Bugal-Blaan vs. Ramos Second, the size of the activities: only large-scale exploration, development, and utilization is allowed. The term "large-scale usually refers to very capital-intensive activities."183
Third, the natural resources subject of the activities is restricted to minerals, petroleum and other mineral oils, the intent being to limit service contracts to those areas where Filipino capital may not be sufficient.184 Fourth, consistency with the provisions of statute. The agreements must be in accordance with the terms and conditions provided by law. Fifth, Section 2 prescribes certain standards for entering into such agreements. The agreements must be based on real contributions to economic growth and general welfare of the country. Sixth, the agreements must contain rudimentary stipulations for the promotion of the development and use of local scientific and technical resources. Seventh, the notification requirement. The President shall notify Congress of every financial or technical assistance agreement entered into within thirty days from its execution. Finally, the scope of the agreements. While the 1973 Constitution referred to "service contracts for financial, technical, management, or other forms of assistance" the 1987 Constitution provides for "agreements. . . involving either financial or technical assistance." It bears noting that the phrases "service contracts" and "management or other forms of assistance" in the earlier constitution have been omitted. By virtue of her legislative powers under the Provisional Constitution,185 President Aquino, on July 10, 1987, signed into law E.O. No. 211 prescribing the interim procedures in the processing and approval of applications for the exploration, development and utilization of minerals. The omission in the 1987 Constitution of the term "service contracts" notwithstanding, the said E.O. still referred to them in Section 2 thereof: Sec. 2. Applications for the exploration, development and utilization of mineral resources, including renewal applications and applications for approval of operating agreements and mining service contracts, shall be accepted and processed and may be approved x x x. [Emphasis supplied.] The same law provided in its Section 3 that the "processing, evaluation and approval of all mining applications . . . operating agreements and service contracts . . . shall be governed by Presidential Decree No. 463, as amended, other existing mining laws, and their implementing rules and regulations. . . ." As earlier stated, on the 25th also of July 1987, the President issued E.O. No. 279 by authority of which the subject WMCP FTAA was executed on March 30, 1995. On March 3, 1995, President Ramos signed into law R.A. No. 7942. Section 15 thereof declares that the Act "shall govern the exploration, development, utilization, and processing of all mineral resources." Such declaration notwithstanding, R.A. No. 7942 does not actually cover all the modes through which the State may undertake the exploration, development, and utilization of natural resources. The State, being the owner of the natural resources, is accorded the primary power and responsibility in the exploration, development and utilization thereof. As such, it may undertake these activities through four modes: The State may directly undertake such activities. (2) The State may enter into co-production, joint venture or production-sharing agreements with Filipino citizens or qualified corporations. (3) Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens.

La Bugal-Blaan vs. Ramos (4) For the large-scale exploration, development and utilization of minerals, petroleum and other mineral oils, the President may enter into agreements with foreign-owned corporations involving technical or financial assistance.186
Except to charge the Mines and Geosciences Bureau of the DENR with performing researches and surveys,187and a passing mention of government-owned or controlled corporations,188 R.A. No. 7942 does not specify how the State should go about the first mode. The third mode, on the other hand, is governed by Republic Act No. 7076189 (the People's Small-Scale Mining Act of 1991) and other pertinent laws.190 R.A. No. 7942 primarily concerns itself with the second and fourth modes. Mineral production sharing, co-production and joint venture agreements are collectively classified by R.A. No. 7942 as "mineral agreements."191 The Government participates the least in a mineral production sharing agreement (MPSA). In an MPSA, the Government grants the contractor192 the exclusive right to conduct mining operations within a contract area193 and shares in the gross output.194 The MPSA contractor provides the financing, technology, management and personnel necessary for the agreement's implementation.195 The total government share in an MPSA is the excise tax on mineral products under Republic Act No. 7729,196 amending Section 151(a) of the National Internal Revenue Code, as amended.197 In a co-production agreement (CA),198 the Government provides inputs to the mining operations other than the mineral resource,199 while in a joint venture agreement (JVA), where the Government enjoys the greatest participation, the Government and the JVA contractor organize a company with both parties having equity shares.200 Aside from earnings in equity, the Government in a JVA is also entitled to a share in the gross output.201 The Government may enter into a CA202 or JVA203 with one or more contractors. The Government's share in a CA or JVA is set out in Section 81 of the law: The share of the Government in co-production and joint venture agreements shall be negotiated by the Government and the contractor taking into consideration the: (a) capital investment of the project, (b) the risks involved, (c) contribution of the project to the economy, and (d) other factors that will provide for a fair and equitable sharing between the Government and the contractor. The Government shall also be entitled to compensations for its other contributions which shall be agreed upon by the parties, and shall consist, among other things, the contractor's income tax, excise tax, special allowance, withholding tax due from the contractor's foreign stockholders arising from dividend or interest payments to the said foreign stockholders, in case of a foreign national and all such other taxes, duties and fees as provided for under existing laws. All mineral agreements grant the respective contractors the exclusive right to conduct mining operations and to extract all mineral resources found in the contract area.204 A "qualified person" may enter into any of the mineral agreements with the Government.205 A "qualified person" is any citizen of the Philippines with capacity to contract, or a corporation, partnership, association, or cooperative organized or authorized for the purpose of engaging in mining, with technical and financial capability to undertake mineral resources development and duly registered in accordance with law at least sixty per centum (60%) of the capital of which is owned by citizens of the Philippines x x x.206 The fourth mode involves "financial or technical assistance agreements." An FTAA is defined as "a contract involving financial or technical assistance for large-scale exploration, development, and utilization of natural resources."207 Any qualified person with technical and financial capability to undertake large-scale exploration, development, and utilization of natural resources in the Philippines may enter into such agreement directly with the Government through the DENR.208 For the purpose of granting an FTAA, a legally organized foreign-owned corporation (any corporation, partnership, association, or cooperative duly registered in accordance with law in which less than 50% of the capital is owned by Filipino citizens)209 is deemed a "qualified person."210 Other than the difference in contractors' qualifications, the principal distinction between mineral agreements and FTAAs is the maximum contract area to which a qualified person may hold or be granted.211 "Large-scale" under R.A. No. 7942 is determined by the size of the contract area, as opposed to the amount invested (US $50,000,000.00), which was the standard under E.O. 279.

La Bugal-Blaan vs. Ramos Like a CA or a JVA, an FTAA is subject to negotiation.212 The Government's contributions, in the form of taxes, in an FTAA is identical to its contributions in the two mineral agreements, save that in an FTAA:
The collection of Government share in financial or technical assistance agreement shall commence after the financial or technical assistance agreement contractor has fully recovered its pre-operating expenses, exploration, and development expenditures, inclusive.213 III Having examined the history of the constitutional provision and statutes enacted pursuant thereto, a consideration of the substantive issues presented by the petition is now in order. THE EFFECTIVITY OF EXECUTIVE ORDER NO. 279 Petitioners argue that E.O. No. 279, the law in force when the WMC FTAA was executed, did not come into effect. E.O. No. 279 was signed into law by then President Aquino on July 25, 1987, two days before the opening of Congress on July 27, 1987.214 Section 8 of the E.O. states that the same "shall take effect immediately." This provision, according to petitioners, runs counter to Section 1 of E.O. No. 200,215 which provides: SECTION 1. Laws shall take effect after fifteen days following the completion of their publication either in the Official Gazette or in a newspaper of general circulation in the Philippines, unless it is otherwise provided.216[Emphasis supplied.] On that premise, petitioners contend that E.O. No. 279 could have only taken effect fifteen days after its publication at which time Congress had already convened and the President's power to legislate had ceased. Respondents, on the other hand, counter that the validity of E.O. No. 279 was settled in Miners Association of the Philippines v. Factoran, supra. This is of course incorrect for the issue in Miners Association was not the validity of E.O. No. 279 but that of DAO Nos. 57 and 82 which were issued pursuant thereto. Nevertheless, petitioners' contentions have no merit. It bears noting that there is nothing in E.O. No. 200 that prevents a law from taking effect on a date other than even before the 15-day period after its publication. Where a law provides for its own date of effectivity, such date prevails over that prescribed by E.O. No. 200. Indeed, this is the very essence of the phrase "unless it is otherwise provided" in Section 1 thereof. Section 1, E.O. No. 200, therefore, applies only when a statute does not provide for its own date of effectivity. What is mandatory under E.O. No. 200, and what due process requires, as this Court held in Taada v. Tuvera,217 is the publication of the law for without such notice and publication, there would be no basis for the application of the maxim "ignorantia legis n[eminem] excusat." It would be the height of injustice to punish or otherwise burden a citizen for the transgression of a law of which he had no notice whatsoever, not even a constructive one. While the effectivity clause of E.O. No. 279 does not require its publication, it is not a ground for its invalidation since the Constitution, being "the fundamental, paramount and supreme law of the nation," is deemed written in the law.218 Hence, the due process clause,219 which, so Taada held, mandates the publication of statutes, is read into Section 8 of E.O. No. 279. Additionally, Section 1 of E.O. No. 200 which provides for publication "either in the Official Gazette or in a newspaper of general circulation in the Philippines," finds suppletory application. It is significant to note that E.O. No. 279 was actually published in the Official Gazette220 on August 3, 1987. From a reading then of Section 8 of E.O. No. 279, Section 1 of E.O. No. 200, and Taada v. Tuvera, this Court holds that E.O. No. 279 became effective immediately upon its publication in the Official Gazette on August 3, 1987.

La Bugal-Blaan vs. Ramos That such effectivity took place after the convening of the first Congress is irrelevant. At the time President Aquino issued E.O. No. 279 on July 25, 1987, she was still validly exercising legislative powers under the Provisional Constitution.221 Article XVIII (Transitory Provisions) of the 1987 Constitution explicitly states:
Sec. 6. The incumbent President shall continue to exercise legislative powers until the first Congress is convened. The convening of the first Congress merely precluded the exercise of legislative powers by President Aquino; it did not prevent the effectivity of laws she had previously enacted. There can be no question, therefore, that E.O. No. 279 is an effective, and a validly enacted, statute. THE CONSTITUTIONALITY OF THE WMCP FTAA Petitioners submit that, in accordance with the text of Section 2, Article XII of the Constitution, FTAAs should be limited to "technical or financial assistance" only. They observe, however, that, contrary to the language of the Constitution, the WMCP FTAA allows WMCP, a fully foreign-owned mining corporation, to extend more than mere financial or technical assistance to the State, for it permits WMCP to manage and operate every aspect of the mining activity. 222 Petitioners' submission is well-taken. It is a cardinal rule in the interpretation of constitutions that the instrument must be so construed as to give effect to the intention of the people who adopted it.223 This intention is to be sought in the constitution itself, and the apparent meaning of the words is to be taken as expressing it, except in cases where that assumption would lead to absurdity, ambiguity, or contradiction.224 What the Constitution says according to the text of the provision, therefore, compels acceptance and negates the power of the courts to alter it, based on the postulate that the framers and the people mean what they say.225 Accordingly, following the literal text of the Constitution, assistance accorded by foreign-owned corporations in the large-scale exploration, development, and utilization of petroleum, minerals and mineral oils should be limited to "technical" or "financial" assistance only. WMCP nevertheless submits that the word "technical" in the fourth paragraph of Section 2 of E.O. No. 279 encompasses a "broad number of possible services," perhaps, "scientific and/or technological in basis."226 It thus posits that it may also well include "the area of management or operations . . . so long as such assistance requires specialized knowledge or skills, and are related to the exploration, development and utilization of mineral resources."227 This Court is not persuaded. As priorly pointed out, the phrase "management or other forms of assistance" in the 1973 Constitution was deleted in the 1987 Constitution, which allows only "technical or financial assistance." Casus omisus pro omisso habendus est. A person, object or thing omitted from an enumeration must be held to have been omitted intentionally.228 As will be shown later, the management or operation of mining activities by foreign contractors, which is the primary feature of service contracts, was precisely the evil that the drafters of the 1987 Constitution sought to eradicate. Respondents insist that "agreements involving technical or financial assistance" is just another term for service contracts. They contend that the proceedings of the CONCOM indicate "that although the terminology 'service contract' was avoided [by the Constitution], the concept it represented was not." They add that "[t]he concept is embodied in the phrase 'agreements involving financial or technical assistance.'"229 And point out how members of the CONCOM referred to these agreements as "service contracts." For instance: SR. TAN. Am I correct in thinking that the only difference between these future service contracts and the past service contracts under Mr. Marcos is the general law to be enacted by the legislature and the notification of Congress by the President? That is the only difference, is it not? MR. VILLEGAS. That is right. SR. TAN. So those are the safeguards[?] MR. VILLEGAS. Yes. There was no law at all governing service contracts before.

La Bugal-Blaan vs. Ramos SR. TAN. Thank you, Madam President.230 [Emphasis supplied.]
WMCP also cites the following statements of Commissioners Gascon, Garcia, Nolledo and Tadeo who alluded to service contracts as they explained their respective votes in the approval of the draft Article: MR. GASCON. Mr. Presiding Officer, I vote no primarily because of two reasons: One, the provision on service contracts. I felt that if we would constitutionalize any provision on service contracts, this should always be with the concurrence of Congress and not guided only by a general law to be promulgated by Congress. x x x.231 [Emphasis supplied.] x x x. MR. GARCIA. Thank you. I vote no. x x x. Service contracts are given constitutional legitimization in Section 3, even when they have been proven to be inimical to the interests of the nation, providing as they do the legal loophole for the exploitation of our natural resources for the benefit of foreign interests. They constitute a serious negation of Filipino control on the use and disposition of the nation's natural resources, especially with regard to those which are nonrenewable.232 [Emphasis supplied.] xxx MR. NOLLEDO. While there are objectionable provisions in the Article on National Economy and Patrimony, going over said provisions meticulously, setting aside prejudice and personalities will reveal that the article contains a balanced set of provisions. I hope the forthcoming Congress will implement such provisions taking into account that Filipinos should have real control over our economy and patrimony, and if foreign equity is permitted, the same must be subordinated to the imperative demands of the national interest. x x x. It is also my understanding that service contracts involving foreign corporations or entities are resorted to only when no Filipino enterprise or Filipino-controlled enterprise could possibly undertake the exploration or exploitation of our natural resources and that compensation under such contracts cannot and should not equal what should pertain to ownership of capital. In other words, the service contract should not be an instrument to circumvent the basic provision, that the exploration and exploitation of natural resources should be truly for the benefit of Filipinos. Thank you, and I vote yes.233 [Emphasis supplied.] x x x. MR. TADEO. Nais ko lamang ipaliwanag ang aking boto. Matapos suriin ang kalagayan ng Pilipinas, ang saligang suliranin, pangunahin ang salitang "imperyalismo." Ang ibig sabihin nito ay ang sistema ng lipunang pinaghaharian ng iilang monopolyong kapitalista at ang salitang "imperyalismo" ay buhay na buhay sa National Economy and Patrimony na nating ginawa. Sa pamamagitan ng salitang "based on," naroroon na ang free trade sapagkat tayo ay mananatiling tagapagluwas ng hilaw na sangkap at tagaangkat ng yaring produkto. Pangalawa, naroroon pa rin ang parity rights, ang service contract, ang 60-40 equity sa natural resources. Habang naghihirap ang sambayanang Pilipino, ginagalugad naman ng mga dayuhan ang ating likas na yaman. Kailan man ang Article on National Economy and Patrimony ay hindi nagpaalis sa pagkaalipin ng ating ekonomiya sa kamay ng mga dayuhan. Ang solusyon sa suliranin ng bansa ay dalawa lamang: ang pagpapatupad ng tunay na reporma sa lupa at ang national industrialization. Ito ang tinatawag naming pagsikat ng araw sa Silangan. Ngunit ang mga landlords and big

La Bugal-Blaan vs. Ramos businessmen at ang mga komprador ay nagsasabi na ang free trade na ito, ang kahulugan para sa amin, ay ipinipilit sa ating sambayanan na ang araw ay sisikat sa Kanluran. Kailan man hindi puwedeng sumikat ang araw sa Kanluran. I vote no.234 [Emphasis supplied.]
This Court is likewise not persuaded. As earlier noted, the phrase "service contracts" has been deleted in the 1987 Constitution's Article on National Economy and Patrimony. If the CONCOM intended to retain the concept of service contracts under the 1973 Constitution, it could have simply adopted the old terminology ("service contracts") instead of employing new and unfamiliar terms ("agreements . . . involving either technical or financial assistance"). Such a difference between the language of a provision in a revised constitution and that of a similar provision in the preceding constitution is viewed as indicative of a difference in purpose.235 If, as respondents suggest, the concept of "technical or financial assistance" agreements is identical to that of "service contracts," the CONCOM would not have bothered to fit the same dog with a new collar. To uphold respondents' theory would reduce the first to a mere euphemism for the second and render the change in phraseology meaningless. An examination of the reason behind the change confirms that technical or financial assistance agreements are not synonymous to service contracts. [T]he Court in construing a Constitution should bear in mind the object sought to be accomplished by its adoption, and the evils, if any, sought to be prevented or remedied. A doubtful provision will be examined in light of the history of the times, and the condition and circumstances under which the Constitution was framed. The object is to ascertain the reason which induced the framers of the Constitution to enact the particular provision and the purpose sought to be accomplished thereby, in order to construe the whole as to make the words consonant to that reason and calculated to effect that purpose.236 As the following question of Commissioner Quesada and Commissioner Villegas' answer shows the drafters intended to do away with service contracts which were used to circumvent the capitalization (60%-40%) requirement: MS. QUESADA. The 1973 Constitution used the words "service contracts." In this particular Section 3, is there a safeguard against the possible control of foreign interests if the Filipinos go into coproduction with them? MR. VILLEGAS. Yes. In fact, the deletion of the phrase "service contracts" was our first attempt to avoid some of the abuses in the past regime in the use of service contracts to go around the 60-40 arrangement. The safeguard that has been introduced and this, of course can be refined is found in Section 3, lines 25 to 30, where Congress will have to concur with the President on any agreement entered into between a foreign-owned corporation and the government involving technical or financial assistance for large-scale exploration, development and utilization of natural resources.237 [Emphasis supplied.] In a subsequent discussion, Commissioner Villegas allayed the fears of Commissioner Quesada regarding the participation of foreign interests in Philippine natural resources, which was supposed to be restricted to Filipinos. MS. QUESADA. Another point of clarification is the phrase "and utilization of natural resources shall be under the full control and supervision of the State." In the 1973 Constitution, this was limited to citizens of the Philippines; but it was removed and substituted by "shall be under the full control and supervision of the State." Was the concept changed so that these particular resources would be limited to citizens of the Philippines? Or would these resources only be under the full control and supervision of the State; meaning, noncitizens would have access to these natural resources? Is that the understanding? MR. VILLEGAS. No, Mr. Vice-President, if the Commissioner reads the next sentence, it states: Such activities may be directly undertaken by the State, or it may enter into co-production, joint venture, productionsharing agreements with Filipino citizens.

La Bugal-Blaan vs. Ramos So we are still limiting it only to Filipino citizens.

x x x. MS. QUESADA. Going back to Section 3, the section suggests that: The exploration, development, and utilization of natural resources may be directly undertaken by the State, or it may enter into co-production, joint venture or production-sharing agreement with . . . corporations or associations at least sixty per cent of whose voting stock or controlling interest is owned by such citizens. Lines 25 to 30, on the other hand, suggest that in the large-scale exploration, development and utilization of natural resources, the President with the concurrence of Congress may enter into agreements with foreign-owned corporations even for technical or financial assistance. I wonder if this part of Section 3 contradicts the second part. I am raising this point for fear that foreign investors will use their enormous capital resources to facilitate the actual exploitation or exploration, development and effective disposition of our natural resources to the detriment of Filipino investors. I am not saying that we should not consider borrowing money from foreign sources. What I refer to is that foreign interest should be allowed to participate only to the extent that they lend us money and give us technical assistance with the appropriate government permit. In this way, we can insure the enjoyment of our natural resources by our own people. MR. VILLEGAS. Actually, the second provision about the President does not permit foreign investors to participate. It is only technical or financial assistance they do not own anything but on conditions that have to be determined by law with the concurrence of Congress. So, it is very restrictive. If the Commissioner will remember, this removes the possibility for service contracts which we said yesterday were avenues used in the previous regime to go around the 60-40 requirement.238 [Emphasis supplied.] The present Chief Justice, then a member of the CONCOM, also referred to this limitation in scope in proposing an amendment to the 60-40 requirement: MR. DAVIDE. May I be allowed to explain the proposal? MR. MAAMBONG. Subject to the three-minute rule, Madam President. MR. DAVIDE. It will not take three minutes. The Commission had just approved the Preamble. In the Preamble we clearly stated that the Filipino people are sovereign and that one of the objectives for the creation or establishment of a government is to conserve and develop the national patrimony. The implication is that the national patrimony or our natural resources are exclusively reserved for the Filipino people. No alien must be allowed to enjoy, exploit and develop our natural resources. As a matter of fact, that principle proceeds from the fact that our natural resources are gifts from God to the Filipino people and it would be a breach of that special blessing from God if we will allow aliens to exploit our natural resources. I voted in favor of the Jamir proposal because it is not really exploitation that we granted to the alien corporations but only for them to render financial or technical assistance. It is not for them to enjoy our natural resources. Madam President, our natural resources are depleting; our population is increasing by leaps and bounds. Fifty years from now, if we will allow these aliens to exploit our natural resources, there will be no more natural resources for the next generations of Filipinos. It may last long if we will begin now. Since 1935 the aliens have been allowed to enjoy to a certain extent the exploitation of our natural resources, and we became victims of foreign dominance and control. The aliens are interested in coming to the Philippines because they would like to enjoy the bounty of nature exclusively intended for Filipinos by God.

La Bugal-Blaan vs. Ramos And so I appeal to all, for the sake of the future generations, that if we have to pray in the Preamble "to preserve and develop the national patrimony for the sovereign Filipino people and for the generations to come," we must at this time decide once and for all that our natural resources must be reserved only to Filipino citizens.
Thank you.239 [Emphasis supplied.] The opinion of another member of the CONCOM is persuasive240 and leaves no doubt as to the intention of the framers to eliminate service contracts altogether. He writes: Paragraph 4 of Section 2 specifies large-scale, capital-intensive, highly technological undertakings for which the President may enter into contracts with foreign-owned corporations, and enunciates strict conditions that should govern such contracts. x x x. This provision balances the need for foreign capital and technology with the need to maintain the national sovereignty. It recognizes the fact that as long as Filipinos can formulate their own terms in their own territory, there is no danger of relinquishing sovereignty to foreign interests. Are service contracts allowed under the new Constitution? No. Under the new Constitution, foreign investors (fully alien-owned) can NOT participate in Filipino enterprises except to provide: (1) Technical Assistance for highly technical enterprises; and (2) Financial Assistance for large-scale enterprises. The intent of this provision, as well as other provisions on foreign investments, is to prevent the practice (prevalent in the Marcos government) of skirting the 60/40 equation using the cover of service contracts.241 [Emphasis supplied.] Furthermore, it appears that Proposed Resolution No. 496,242 which was the draft Article on National Economy and Patrimony, adopted the concept of "agreements . . . involving either technical or financial assistance" contained in the "Draft of the 1986 U.P. Law Constitution Project" (U.P. Law draft) which was taken into consideration during the deliberation of the CONCOM.243 The former, as well as Article XII, as adopted, employed the same terminology, as the comparative table below shows:

DRAFT OF THE UP LAW CONSTITUTION PROJECT

PROPOSED RESOLUTION NO. 496 OF THE CONSTITUTIONAL COMMISSION

ARTICLE XII OF THE 1987 CONSTITUTION

Sec. 1. All lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all forces of potential energy, fisheries, flora and fauna and other natural resources of the Philippines 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. Such activities may be directly undertaken by the state, or it may enter into co-production, joint venture, production sharing agreements with Filipino citizens or

Sec. 3. All lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all forces of potential energy, fisheries, forests, 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. Such activities may be directly undertaken by the State, or it may enter into co-production, joint venture, production-sharing agreements with Filipino citizens or

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 coproduction, joint venture, or production-sharing agreements

La Bugal-Blaan vs. Ramos

corporations or associations sixty per cent of whose voting stock or controlling interest is owned by such citizens for a period of not more than twenty-five years, renewable for not more than twenty-five years and under such terms and conditions as may be provided by law. In case as to 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 National Assembly may by law allow small scale utilization of natural resources by Filipino citizens. The National Assembly, may, by two-thirds vote of all its members by special law provide the terms and conditions under which a foreign-owned corporation may enter into agreements with the government involving either technical or financial assistance for large-scale exploration, development, or utilization of natural resources. [Emphasis supplied.] corporations or associations at least sixty per cent of whose voting stock or controlling interest is owned by such citizens. Such agreements shall be for a period of twenty-five years, renewable for not more than twenty-five years, and under such term 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 for water power, beneficial use may be the measure and limit of the grant. The Congress may by law allow small-scale utilization of natural resources by Filipino citizens, as well as cooperative fish farming in rivers, lakes, bays, and lagoons. The President with the concurrence of Congress, by special law, shall provide the terms and conditions under which a foreign-owned corporation may enter into agreements with the government involving either technical or financial assistance for large-scale exploration, development, and utilization of natural resources. [Emphasis supplied.] 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 case 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. [Emphasis supplied.] The President shall notify the Congress of every contract entered into in accordance with this provision, within thirty days from its execution.

La Bugal-Blaan vs. Ramos The insights of the proponents of the U.P. Law draft are, therefore, instructive in interpreting the phrase "technical or financial assistance."
In his position paper entitled Service Contracts: Old Wine in New Bottles?, Professor Pacifico A. Agabin, who was a member of the working group that prepared the U.P. Law draft, criticized service contracts for they "lodge exclusive management and control of the enterprise to the service contractor, which is reminiscent of the old concession regime. Thus, notwithstanding the provision of the Constitution that natural resources belong to the State, and that these shall not be alienated, the service contract system renders nugatory the constitutional provisions cited."244He elaborates: Looking at the Philippine model, we can discern the following vestiges of the concession regime, thus: 1. Bidding of a selected area, or leasing the choice of the area to the interested party and then negotiating the terms and conditions of the contract; (Sec. 5, P.D. 87) 2. Management of the enterprise vested on the contractor, including operation of the field if petroleum is discovered; (Sec. 8, P.D. 87) 3. Control of production and other matters such as expansion and development; (Sec. 8) 4. Responsibility for downstream operations marketing, distribution, and processing may be with the contractor (Sec. 8); 5. Ownership of equipment, machinery, fixed assets, and other properties remain with contractor (Sec. 12, P.D. 87); 6. Repatriation of capital and retention of profits abroad guaranteed to the contractor (Sec. 13, P.D. 87); and 7. While title to the petroleum discovered may nominally be in the name of the government, the contractor has almost unfettered control over its disposition and sale, and even the domestic requirements of the country is relegated to a pro rata basis (Sec. 8). In short, our version of the service contract is just a rehash of the old concession regime x x x. Some people have pulled an old rabbit out of a magician's hat, and foisted it upon us as a new and different animal. The service contract as we know it here is antithetical to the principle of sovereignty over our natural resources restated in the same article of the [1973] Constitution containing the provision for service contracts. If the service contractor happens to be a foreign corporation, the contract would also run counter to the constitutional provision on nationalization or Filipinization, of the exploitation of our natural resources.245 [Emphasis supplied. Underscoring in the original.] Professor Merlin M. Magallona, also a member of the working group, was harsher in his reproach of the system: x x x the nationalistic phraseology of the 1935 [Constitution] was retained by the [1973] Charter, but the essence of nationalism was reduced to hollow rhetoric. The 1973 Charter still provided that the exploitation or development of the country's natural resources be limited to Filipino citizens or corporations owned or controlled by them. However, the martial-law Constitution allowed them, once these resources are in their name, to enter into service contracts with foreign investors for financial, technical, management, or other forms of assistance. Since foreign investors have the capital resources, the actual exploitation and development, as well as the effective disposition, of the country's natural resources, would be under their direction, and control, relegating the Filipino investors to the role of second-rate partners in joint ventures. Through the instrumentality of the service contract, the 1973 Constitution had legitimized at the highest level of state policy that which was prohibited under the 1973 Constitution, namely: the exploitation of the country's natural resources by foreign nationals. The drastic impact of [this] constitutional change becomes more pronounced when it is considered that the active party to any service contract may be a corporation wholly owned by foreign interests. In such a case, the

La Bugal-Blaan vs. Ramos citizenship requirement is completely set aside, permitting foreign corporations to obtain actual possession, control, and [enjoyment] of the country's natural resources.246 [Emphasis supplied.]
Accordingly, Professor Agabin recommends that: Recognizing the service contract for what it is, we have to expunge it from the Constitution and reaffirm ownership over our natural resources. That is the only way we can exercise effective control over our natural resources. This should not mean complete isolation of the country's natural resources from foreign investment. Other contract forms which are less derogatory to our sovereignty and control over natural resources like technical assistance agreements, financial assistance [agreements], co-production agreements, joint ventures, production-sharing could still be utilized and adopted without violating constitutional provisions. In other words, we can adopt contract forms which recognize and assert our sovereignty and ownership over natural resources, and where the foreign entity is just a pure contractor instead of the beneficial owner of our economic resources.247 [Emphasis supplied.] Still another member of the working group, Professor Eduardo Labitag, proposed that: 2. Service contracts as practiced under the 1973 Constitution should be discouraged, instead the government may be allowed, subject to authorization by special law passed by an extraordinary majority to enter into either technical or financial assistance. This is justified by the fact that as presently worded in the 1973 Constitution, a service contract gives full control over the contract area to the service contractor, for him to work, manage and dispose of the proceeds or production. It was a subterfuge to get around the nationality requirement of the constitution.248 [Emphasis supplied.] In the annotations on the proposed Article on National Economy and Patrimony, the U.P. Law draft summarized the rationale therefor, thus: 5. The last paragraph is a modification of the service contract provision found in Section 9, Article XIV of the 1973 Constitution as amended. This 1973 provision shattered the framework of nationalism in our fundamental law (see Magallona, "Nationalism and its Subversion in the Constitution"). Through the service contract, the 1973 Constitution had legitimized that which was prohibited under the 1935 constitutionthe exploitation of the country's natural resources by foreign nationals. Through the service contract, acts prohibited by the Anti-Dummy Law were recognized as legitimate arrangements. Service contracts lodge exclusive management and control of the enterprise to the service contractor, not unlike the old concession regime where the concessionaire had complete control over the country's natural resources, having been given exclusive and plenary rights to exploit a particular resource and, in effect, having been assured of ownership of that resource at the point of extraction (see Agabin, "Service Contracts: Old Wine in New Bottles"). Service contracts, hence, are antithetical to the principle of sovereignty over our natural resources, as well as the constitutional provision on nationalization or Filipinization of the exploitation of our natural resources. Under the proposed provision, only technical assistance or financial assistance agreements may be entered into, and only for large-scale activities. These are contract forms which recognize and assert our sovereignty and ownership over natural resources since the foreign entity is just a pure contractor and not a beneficial owner of our economic resources. The proposal recognizes the need for capital and technology to develop our natural resources without sacrificing our sovereignty and control over such resources by the safeguard of a special law which requires two-thirds vote of all the members of the Legislature. This will ensure that such agreements will be debated upon exhaustively and thoroughly in the National Assembly to avert prejudice to the nation.249 [Emphasis supplied.] The U.P. Law draft proponents viewed service contracts under the 1973 Constitution as grants of beneficial ownership of the country's natural resources to foreign owned corporations. While, in theory, the State owns these natural resources and Filipino citizens, their beneficiaries service contracts actually vested foreigners with the right to dispose, explore for, develop, exploit, and utilize the same. Foreigners, not Filipinos, became the beneficiaries of Philippine natural resources. This arrangement is clearly incompatible with the constitutional ideal of nationalization of natural resources, with the Regalian doctrine, and on a broader perspective, with Philippine sovereignty. The proponents nevertheless acknowledged the need for capital and technical know-how in the large-scale exploitation, development and utilization of natural resources the second paragraph of the proposed draft itself being an admission

La Bugal-Blaan vs. Ramos of such scarcity. Hence, they recommended a compromise to reconcile the nationalistic provisions dating back to the 1935 Constitution, which reserved all natural resources exclusively to Filipinos, and the more liberal 1973 Constitution, which allowed foreigners to participate in these resources through service contracts. Such a compromise called for the adoption of a new system in the exploration, development, and utilization of natural resources in the form of technical agreements or financial agreements which, necessarily, are distinct concepts from service contracts.
The replacement of "service contracts" with "agreements involving either technical or financial assistance," as well as the deletion of the phrase "management or other forms of assistance," assumes greater significance when note is taken that the U.P. Law draft proposed other equally crucial changes that were obviously heeded by the CONCOM. These include the abrogation of the concession system and the adoption of new "options" for the State in the exploration, development, and utilization of natural resources. The proponents deemed these changes to be more consistent with the State's ownership of, and its "full control and supervision" (a phrase also employed by the framers) over, such resources. The Project explained: 3. In line with the State ownership of natural resources, the State should take a more active role in the exploration, development, and utilization of natural resources, than the present practice of granting licenses, concessions, or leases hence the provision that said activities shall be under the full control and supervision of the State. There are three major schemes by which the State could undertake these activities: first, directly by itself; second, by virtue of coproduction, joint venture, production sharing agreements with Filipino citizens or corporations or associations sixty per cent (60%) of the voting stock or controlling interests of which are owned by such citizens; or third, with a foreignowned corporation, in cases of large-scale exploration, development, or utilization of natural resources through agreements involving either technical or financial assistance only. x x x. At present, under the licensing concession or lease schemes, the government benefits from such benefits only through fees, charges, ad valorem taxes and income taxes of the exploiters of our natural resources. Such benefits are very minimal compared with the enormous profits reaped by theses licensees, grantees, concessionaires. Moreover, some of them disregard the conservation of natural resources and do not protect the environment from degradation. The proposed role of the State will enable it to a greater share in the profits it can also actively husband its natural resources and engage in developmental programs that will be beneficial to them. 4. Aside from the three major schemes for the exploration, development, and utilization of our natural resources, the State may, by law, allow Filipino citizens to explore, develop, utilize natural resources in small-scale. This is in recognition of the plight of marginal fishermen, forest dwellers, gold panners, and others similarly situated who exploit our natural resources for their daily sustenance and survival.250 Professor Agabin, in particular, after taking pains to illustrate the similarities between the two systems, concluded that the service contract regime was but a "rehash" of the concession system. "Old wine in new bottles," as he put it. The rejection of the service contract regime, therefore, is in consonance with the abolition of the concession system. In light of the deliberations of the CONCOM, the text of the Constitution, and the adoption of other proposed changes, there is no doubt that the framers considered and shared the intent of the U.P. Law proponents in employing the phrase "agreements . . . involving either technical or financial assistance." While certain commissioners may have mentioned the term "service contracts" during the CONCOM deliberations, they may not have been necessarily referring to the concept of service contracts under the 1973 Constitution. As noted earlier, "service contracts" is a term that assumes different meanings to different people.251 The commissioners may have been using the term loosely, and not in its technical and legal sense, to refer, in general, to agreements concerning natural resources entered into by the Government with foreign corporations. These loose statements do not necessarily translate to the adoption of the 1973 Constitution provision allowing service contracts. It is true that, as shown in the earlier quoted portions of the proceedings in CONCOM, in response to Sr. Tan's question, Commissioner Villegas commented that, other than congressional notification, the only difference between "future" and "past" "service contracts" is the requirement of a general law as there were no laws previously authorizing the same.252 However, such remark is far outweighed by his more categorical statement in his exchange with Commissioner Quesada that the draft article "does not permit foreign investors to participate" in the nation's natural resources which was exactly what service contracts did except to provide "technical or financial assistance."253

La Bugal-Blaan vs. Ramos In the case of the other commissioners, Commissioner Nolledo himself clarified in his work that the present charter prohibits service contracts.254 Commissioner Gascon was not totally averse to foreign participation, but favored stricter restrictions in the form of majority congressional concurrence.255 On the other hand, Commissioners Garcia and Tadeo may have veered to the extreme side of the spectrum and their objections may be interpreted as votes against any foreign participation in our natural resources whatsoever.
WMCP cites Opinion No. 75, s. 1987,256 and Opinion No. 175, s. 1990257 of the Secretary of Justice, expressing the view that a financial or technical assistance agreement "is no different in concept" from the service contract allowed under the 1973 Constitution. This Court is not, however, bound by this interpretation. When an administrative or executive agency renders an opinion or issues a statement of policy, it merely interprets a pre-existing law; and the administrative interpretation of the law is at best advisory, for it is the courts that finally determine what the law means.258 In any case, the constitutional provision allowing the President to enter into FTAAs with foreign-owned corporations is an exception to the rule that participation in the nation's natural resources is reserved exclusively to Filipinos. Accordingly, such provision must be construed strictly against their enjoyment by non-Filipinos. As Commissioner Villegas emphasized, the provision is "very restrictive."259 Commissioner Nolledo also remarked that "entering into service contracts is an exception to the rule on protection of natural resources for the interest of the nation and, therefore, being an exception, it should be subject, whenever possible, to stringent rules."260Indeed, exceptions should be strictly but reasonably construed; they extend only so far as their language fairly warrants and all doubts should be resolved in favor of the general provision rather than the exception.261 With the foregoing discussion in mind, this Court finds that R.A. No. 7942 is invalid insofar as said Act authorizes service contracts. Although the statute employs the phrase "financial and technical agreements" in accordance with the 1987 Constitution, it actually treats these agreements as service contracts that grant beneficial ownership to foreign contractors contrary to the fundamental law. Section 33, which is found under Chapter VI (Financial or Technical Assistance Agreement) of R.A. No. 7942 states: SEC. 33. Eligibility.Any qualified person with technical and financial capability to undertake large-scale exploration, development, and utilization of mineral resources in the Philippines may enter into a financial or technical assistance agreement directly with the Government through the Department. [Emphasis supplied.] "Exploration," as defined by R.A. No. 7942, means the searching or prospecting for mineral resources by geological, geochemical or geophysical surveys, remote sensing, test pitting, trending, drilling, shaft sinking, tunneling or any other means for the purpose of determining the existence, extent, quantity and quality thereof and the feasibility of mining them for profit.262 A legally organized foreign-owned corporation may be granted an exploration permit,263 which vests it with the right to conduct exploration for all minerals in specified areas,264 i.e., to enter, occupy and explore the same.265Eventually, the foreign-owned corporation, as such permittee, may apply for a financial and technical assistance agreement.266 "Development" is the work undertaken to explore and prepare an ore body or a mineral deposit for mining, including the construction of necessary infrastructure and related facilities.267 "Utilization" "means the extraction or disposition of minerals."268 A stipulation that the proponent shall dispose of the minerals and byproducts produced at the highest price and more advantageous terms and conditions as provided for under the implementing rules and regulations is required to be incorporated in every FTAA.269 A foreign-owned/-controlled corporation may likewise be granted a mineral processing permit.270 "Mineral processing" is the milling, beneficiation or upgrading of ores or minerals and rocks or by similar means to convert the same into marketable products.271

La Bugal-Blaan vs. Ramos An FTAA contractor makes a warranty that the mining operations shall be conducted in accordance with the provisions of R.A. No. 7942 and its implementing rules272 and for work programs and minimum expenditures and commitments.273 And it obliges itself to furnish the Government records of geologic, accounting, and other relevant data for its mining operation.274
"Mining operation," as the law defines it, means mining activities involving exploration, feasibility, development, utilization, and processing.275 The underlying assumption in all these provisions is that the foreign contractor manages the mineral resources, just like the foreign contractor in a service contract. Furthermore, Chapter XII of the Act grants foreign contractors in FTAAs the same auxiliary mining rights that it grants contractors in mineral agreements (MPSA, CA and JV).276 Parenthetically, Sections 72 to 75 use the term "contractor," without distinguishing between FTAA and mineral agreement contractors. And so does "holders of mining rights" in Section 76. A foreign contractor may even convert its FTAA into a mineral agreement if the economic viability of the contract area is found to be inadequate to justify large-scale mining operations,277provided that it reduces its equity in the corporation, partnership, association or cooperative to forty percent (40%).278 Finally, under the Act, an FTAA contractor warrants that it "has or has access to all the financing, managerial, and technical expertise. . . ."279 This suggests that an FTAA contractor is bound to provide some management assistance a form of assistance that has been eliminated and, therefore, proscribed by the present Charter. By allowing foreign contractors to manage or operate all the aspects of the mining operation, the above-cited provisions of R.A. No. 7942 have in effect conveyed beneficial ownership over the nation's mineral resources to these contractors, leaving the State with nothing but bare title thereto. Moreover, the same provisions, whether by design or inadvertence, permit a circumvention of the constitutionally ordained 60%-40% capitalization requirement for corporations or associations engaged in the exploitation, development and utilization of Philippine natural resources. In sum, the Court finds the following provisions of R.A. No. 7942 to be violative of Section 2, Article XII of the Constitution: (1) The proviso in Section 3 (aq), which defines "qualified person," to wit: Provided, That a legally organized foreign-owned corporation shall be deemed a qualified person for purposes of granting an exploration permit, financial or technical assistance agreement or mineral processing permit. (2) Section 23,280 which specifies the rights and obligations of an exploration permittee, insofar as said section applies to a financial or technical assistance agreement, (3) Section 33, which prescribes the eligibility of a contractor in a financial or technical assistance agreement; (4) Section 35,281 which enumerates the terms and conditions for every financial or technical assistance agreement; (5) Section 39,282 which allows the contractor in a financial and technical assistance agreement to convert the same into a mineral production-sharing agreement; (6) Section 56,283 which authorizes the issuance of a mineral processing permit to a contractor in a financial and technical assistance agreement; The following provisions of the same Act are likewise void as they are dependent on the foregoing provisions and cannot stand on their own:

La Bugal-Blaan vs. Ramos (1) Section 3 (g),284 which defines the term "contractor," insofar as it applies to a financial or technical assistance agreement.
Section 34,285 which prescribes the maximum contract area in a financial or technical assistance agreements; Section 36,286 which allows negotiations for financial or technical assistance agreements; Section 37,287 which prescribes the procedure for filing and evaluation of financial or technical assistance agreement proposals; Section 38,288 which limits the term of financial or technical assistance agreements; Section 40,289 which allows the assignment or transfer of financial or technical assistance agreements; Section 41,290 which allows the withdrawal of the contractor in an FTAA; The second and third paragraphs of Section 81,291 which provide for the Government's share in a financial and technical assistance agreement; and Section 90,292 which provides for incentives to contractors in FTAAs insofar as it applies to said contractors; When the parts of the statute are so mutually dependent and connected as conditions, considerations, inducements, or compensations for each other, as to warrant a belief that the legislature intended them as a whole, and that if all could not be carried into effect, the legislature would not pass the residue independently, then, if some parts are unconstitutional, all the provisions which are thus dependent, conditional, or connected, must fall with them.293 There can be little doubt that the WMCP FTAA itself is a service contract. Section 1.3 of the WMCP FTAA grants WMCP "the exclusive right to explore, exploit, utilise[,] process and dispose of all Minerals products and by-products thereof that may be produced from the Contract Area."294 The FTAA also imbues WMCP with the following rights: (b) to extract and carry away any Mineral samples from the Contract area for the purpose of conducting tests and studies in respect thereof; (c) to determine the mining and treatment processes to be utilised during the Development/Operating Period and the project facilities to be constructed during the Development and Construction Period; (d) have the right of possession of the Contract Area, with full right of ingress and egress and the right to occupy the same, subject to the provisions of Presidential Decree No. 512 (if applicable) and not be prevented from entry into private ands by surface owners and/or occupants thereof when prospecting, exploring and exploiting for minerals therein; xxx (f) to construct roadways, mining, drainage, power generation and transmission facilities and all other types of works on the Contract Area; (g) to erect, install or place any type of improvements, supplies, machinery and other equipment relating to the Mining Operations and to use, sell or otherwise dispose of, modify, remove or diminish any and all parts thereof;

La Bugal-Blaan vs. Ramos (h) enjoy, subject to pertinent laws, rules and regulations and the rights of third Parties, easement rights and the use of timber, sand, clay, stone, water and other natural resources in the Contract Area without cost for the purposes of the Mining Operations;
xxx (i) have the right to mortgage, charge or encumber all or part of its interest and obligations under this Agreement, the plant, equipment and infrastructure and the Minerals produced from the Mining Operations; x x x. 295 All materials, equipment, plant and other installations erected or placed on the Contract Area remain the property of WMCP, which has the right to deal with and remove such items within twelve months from the termination of the FTAA.296 Pursuant to Section 1.2 of the FTAA, WMCP shall provide "[all] financing, technology, management and personnel necessary for the Mining Operations." The mining company binds itself to "perform all Mining Operations . . . providing all necessary services, technology and financing in connection therewith,"297 and to "furnish all materials, labour, equipment and other installations that may be required for carrying on all Mining Operations."298> WMCP may make expansions, improvements and replacements of the mining facilities and may add such new facilities as it considers necessary for the mining operations.299 These contractual stipulations, taken together, grant WMCP beneficial ownership over natural resources that properly belong to the State and are intended for the benefit of its citizens. These stipulations are abhorrent to the 1987 Constitution. They are precisely the vices that the fundamental law seeks to avoid, the evils that it aims to suppress. Consequently, the contract from which they spring must be struck down. In arguing against the annulment of the FTAA, WMCP invokes the Agreement on the Promotion and Protection of Investments between the Philippine and Australian Governments, which was signed in Manila on January 25, 1995 and which entered into force on December 8, 1995. x x x. Article 2 (1) of said treaty states that it applies to investments whenever made and thus the fact that [WMCP's] FTAA was entered into prior to the entry into force of the treaty does not preclude the Philippine Government from protecting [WMCP's] investment in [that] FTAA. Likewise, Article 3 (1) of the treaty provides that "Each Party shall encourage and promote investments in its area by investors of the other Party and shall [admit] such investments in accordance with its Constitution, Laws, regulations and investment policies" and in Article 3 (2), it states that "Each Party shall ensure that investments are accorded fair and equitable treatment." The latter stipulation indicates that it was intended to impose an obligation upon a Party to afford fair and equitable treatment to the investments of the other Party and that a failure to provide such treatment by or under the laws of the Party may constitute a breach of the treaty. Simply stated, the Philippines could not, under said treaty, rely upon the inadequacies of its own laws to deprive an Australian investor (like [WMCP]) of fair and equitable treatment by invalidating [WMCP's] FTAA without likewise nullifying the service contracts entered into before the enactment of RA 7942 such as those mentioned in PD 87 or EO 279. This becomes more significant in the light of the fact that [WMCP's] FTAA was executed not by a mere Filipino citizen, but by the Philippine Government itself, through its President no less, which, in entering into said treaty is assumed to be aware of the existing Philippine laws on service contracts over the exploration, development and utilization of natural resources. The execution of the FTAA by the Philippine Government assures the Australian Government that the FTAA is in accordance with existing Philippine laws.300 [Emphasis and italics by private respondents.] The invalidation of the subject FTAA, it is argued, would constitute a breach of said treaty which, in turn, would amount to a violation of Section 3, Article II of the Constitution adopting the generally accepted principles of international law as part of the law of the land. One of these generally accepted principles is pacta sunt servanda, which requires the performance in good faith of treaty obligations.

La Bugal-Blaan vs. Ramos Even assuming arguendo that WMCP is correct in its interpretation of the treaty and its assertion that "the Philippines could not . . . deprive an Australian investor (like [WMCP]) of fair and equitable treatment by invalidating [WMCP's] FTAA without likewise nullifying the service contracts entered into before the enactment of RA 7942 . . .," the annulment of the FTAA would not constitute a breach of the treaty invoked. For this decision herein invalidating the subject FTAA forms part of the legal system of the Philippines.301 The equal protection clause302 guarantees that such decision shall apply to all contracts belonging to the same class, hence, upholding rather than violating, the "fair and equitable treatment" stipulation in said treaty.
One other matter requires clarification. Petitioners contend that, consistent with the provisions of Section 2, Article XII of the Constitution, the President may enter into agreements involving "either technical or financial assistance" only. The agreement in question, however, is a technical and financial assistance agreement. Petitioners' contention does not lie. To adhere to the literal language of the Constitution would lead to absurd consequences.303 As WMCP correctly put it: x x x such a theory of petitioners would compel the government (through the President) to enter into contract with two (2) foreign-owned corporations, one for financial assistance agreement and with the other, for technical assistance over one and the same mining area or land; or to execute two (2) contracts with only one foreign-owned corporation which has the capability to provide both financial and technical assistance, one for financial assistance and another for technical assistance, over the same mining area. Such an absurd result is definitely not sanctioned under the canons of constitutional construction.304 [Underscoring in the original.] Surely, the framers of the 1987 Charter did not contemplate such an absurd result from their use of "either/or." A constitution is not to be interpreted as demanding the impossible or the impracticable; and unreasonable or absurd consequences, if possible, should be avoided.305 Courts are not to give words a meaning that would lead to absurd or unreasonable consequences and a literal interpretation is to be rejected if it would be unjust or lead to absurd results.306 That is a strong argument against its adoption.307 Accordingly, petitioners' interpretation must be rejected. The foregoing discussion has rendered unnecessary the resolution of the other issues raised by the petition. WHEREFORE, the petition is GRANTED. The Court hereby declares unconstitutional and void: (1) The following provisions of Republic Act No. 7942: (a) The proviso in Section 3 (aq), (b) Section 23, (c) Section 33 to 41, (d) Section 56, (e) The second and third paragraphs of Section 81, and (f) Section 90. (2) All provisions of Department of Environment and Natural Resources Administrative Order 96-40, s. 1996 which are not in conformity with this Decision, and (3) The Financial and Technical Assistance Agreement between the Government of the Republic of the Philippines and WMC Philippines, Inc. SO ORDERED.

La Bugal-Blaan vs. Ramos

EN BANC

[G.R. No. 127882. December 1, 2004]

LA BUGAL-BLAAN TRIBAL ASSOCIATION, INC., Represented by its Chairman FLONG MIGUEL M. LUMAYONG; WIGBERTO E. TAADA; PONCIANO BENNAGEN; JAIME TADEO; RENATO R. CONSTANTINO JR.; FLONG 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); WOMENS LEGAL BUREAU (WLB); CENTER FOR ALTERNATIVE DEVELOPMENT INITIATIVES,

La Bugal-Blaan vs. Ramos

INC. (CADI); UPLAND DEVELOPMENT INSTITUTE (UDI); KINAIYAHAN FOUNDATION, INC.; SENTRO NG ALTERNATIBONG LINGAP PANLIGAL (SALIGAN); and LEGAL RIGHTS AND NATURAL RESOURCES CENTER, INC. (LRC), petitioners, vs. VICTOR O. RAMOS, Secretary, Department of Environment and Natural Resources (DENR); HORACIO RAMOS, Director, Mines and Geosciences Bureau (MGB-DENR); RUBEN TORRES, Executive Secretary; and WMC (PHILIPPINES), INC.,[4] respondents. RESOLUTION
PANGANIBAN, J.:

All mineral resources are owned by the State. Their exploration, development and utilization (EDU) must always be subject to the full control and supervision of the State. More specifically, given the inadequacy of Filipino capital and technology in large-scale EDU activities, the State may secure the help of foreign companies in all relevant matters -- especially financial and technical assistance -provided that, at all times, the State maintains its right of full control. The foreign assistor or contractor assumes all financial, technical and entrepreneurial risks in the EDU activities; hence, it may be given reasonable management, operational, marketing, audit and other prerogatives to protect its investments and to enable the business to succeed. Full control is not anathematic to day-to-day management by the contractor, provided that the State retains the power to direct overall strategy; and to set aside, reverse or modify plans and actions of the contractor. The idea of full control is similar to that which is exercised by the board of directors of a private corporation: the performance of managerial, operational, financial, marketing and other 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

La Bugal-Blaan vs. Ramos

The Petition for Prohibition and Mandamus before the Court challenges the constitutionality of (1) Republic Act No. [RA] 7942 (The Philippine Mining Act of 1995); (2) its Implementing Rules and Regulations (DENR Administrative Order No. [DAO] 96-40); and (3) the FTAA dated March 30, 1995,[6] executed by the government with Western Mining Corporation (Philippines), Inc. (WMCP).[7] On January 27, 2004, the Court en banc promulgated its Decision[8] 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 latters Motion for Reconsideration. Memoranda were accordingly filed by the intervenor as well as by petitioners, public respondents, and private respondent, dwelling at length on the three issues discussed below. Later, WMCP submitted its Reply Memorandum, while the OSG -- in obedience to an Order of this Court -- filed a Compliance submitting copies of more FTAAs entered into by the government.

Three Issues Identified by the Court During the Oral Argument, the Court identified the three issues to be resolved in the present controversy, as follows: 1. Has the case been rendered moot by the sale of WMC shares in WMCP to Sagittarius (60 percent of Sagittarius equity is owned by Filipinos and/or Filipino -owned corporations while 40 percent is owned by Indophil Resources NL, an Australian company) and by the subsequent transfer and registration of the FTAA from WMCP to Sagittarius? 2. Assuming that the case has been rendered moot, would it still be proper to resolve the constitutionality of the assailed provisions of the Mining Law, DAO 96-40 and the WMCP FTAA?

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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 intervenors 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 ponenciadeclared 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).

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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 countrys natural resources, could have wan ted 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 arguments 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 WMCs 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

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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 Presidents 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 transferees 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.

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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 contractors 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

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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

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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 cite Acop v. Guingona,[23] to the effect that the courts will decide a question -- otherwise moot and academic -- if it is capable of repetition, yet evading review.[24] Public respondents ask the Court to avoid a situation in which the constitutionality issue may again arise with respect to another FTAA, the resolution of which may not be achieved until after it has become too late for our mining industry to grow out of its infancy. They also recall Salonga v. Cruz Pao,[25] in which this Court declared that (t)he Court also has the duty to formulate guiding and controlling constitutional principles, precepts, doctrines or rules. It has the symbolic function of educating the bench and bar on the extent of protection given by constitutional guarantees. x x x. The mootness of the case in relation to the WMCP FTAA led the undersigned ponente to state in his dissent to the Decision that there was no more justiciable controversy and the plea to nullify the Mining Law has become a virtual petition for declaratory relief.[26] The entry of the Chamber of Mines of the Philippines, Inc., however, has put into focus the seriousness of the allegations of unconstitutionality of RA 7942 and DAO 96-40 which converts the case to one for prohibition [27] in the enforcement of the said law and regulations. Indeed, this CMP entry brings to fore that the real issue in this case is whether paragraph 4 of Section 2 of Article XII of the Constitution is contravened by RA 7942 and DAO 96-40, not whether it was violated by specific acts implementing RA 7942 and DAO 96-40. [W]hen an act of the legislative department is seriously alleged to have infringed the Constitution, settling the controversy becomes the duty of this Court. By the mere enactment of the questioned law or the approval of the challenged action, the dispute is said to have ripened into a judicial controversy even without any other overt act.[28] This ruling can be traced from Taada 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 xxx xxx

La Bugal-Blaan vs. Ramos

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 nations 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.

La Bugal-Blaan vs. Ramos

The President shall notify the Congress of every contract entered into in accordance with this provision, within thirty days from its execution.[31]
No Restriction of Meaning by a Verba Legis Interpretation To interpret the foregoing provision, petitioners adamantly assert that the language of the Constitution should prevail; that the primary method of interpreting it is to seek the ordinary meaning of the words used in its provisions. They rely on rulings of this Court, such as the following:

The fundamental principle in constitutional construction however is that the primary source from which to ascertain constitutional intent or purpose is the language of the provision itself. The presumption is that the words in which the constitutional provisions are couched express the objective sought to be attained. In other words, verba legis prevails. Only when the meaning of the words used is unclear and equivocal should resort be made to extraneous aids of construction and interpretation, such as the proceedings of the Constitutional Commission or Convention to shed light on and ascertain the true intent or purpose of the provision being construed.[32]
Very recently, in Francisco v. The House of Representatives,[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 xxx 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 xxx 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

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(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 tandemwith 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; andsecond, 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 countrys natural resources. They maintain that this Courts 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 countrys 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 corporations integrated exploration, development and utilization of mineral, petroleum or other mineral oils on a large-scale basis. The agreement, therefore, authorizes the foreign contractors 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.

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In contrast, the use of the word involving signifies the possibility of the inclusion of other forms of assistance or activities having to do with, otherwise related to or compatible with financial or technical assistance. The word involving as used in this context has three connotations that can be differentiated thus: one, the sense of concerning, having to do with, or affecting; two, entailing, requiring, implying or necessitating; and three, including, containing or comprising.[38] Plainly, none of the three connotations convey a sense of exclusivity. Moreover, the word involving, when understood in the sense of including, as in including technical or financial assistance, necessarily implies that there are activities other than those that are being included. In other words, if an agreement includes technical or financial assistance, there is apart from such assistance -something else already in, and covered or may be covered by, the said agreement. In short, it allows for the possibility that matters, other than those explicitly mentioned, could be made part of the agreement. Thus, we are now led to the conclusion that the use of the word involving implies that these agreements with foreign corporations are not limited to mere financial or technical assistance. The difference in sense becomes very apparent when we juxtapose agreements for technical or financial assistance against agreements including technical or financial assistance. This much is unalterably clear in a verba legis approach. Second, if the real intention of the drafters was to confine foreign corporations to financial or technical assistance and nothing more, their language would have certainly been so unmistakably restrictive and stringent as to leave no doubt in anyones 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 involvi ng 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

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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 Presidents 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

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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 largescale mineral or petroleum extraction and the countrys deficiency in precisely those are as.[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 Charters 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 nave 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

La Bugal-Blaan vs. Ramos

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 dayto-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 xxx 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.

La Bugal-Blaan vs. Ramos

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 childs 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.

La Bugal-Blaan vs. Ramos MR. VILLEGAS. The Committee accepts the amendment. Commissioner Suarez will give the background. MR. JAMIR. Thank you. THE PRESIDENT. Commissioner Suarez is recognized. MR. SUAREZ. Thank you, Madam President. Will Commissioner Jamir answer a few clarificatory questions? MR. JAMIR. Yes, Madam President. MR. SUAREZ. This particular portion of the section has reference to what was popularly known before as service contracts, among other things, is that correct? MR. JAMIR. Yes, Madam President. MR. SUAREZ. As it is formulated, the President may enter into service contracts but subject to the guidelines that may be promulgated by Congress? MR. JAMIR. That is correct. MR. SUAREZ. Therefore, that aspect of negotiation and consummation will fall on the President, not upon Congress? MR. JAMIR. That is also correct, Madam President. MR. SUAREZ. Except that all of these contracts, service or otherwise, must be made strictly in accordance with guidelines prescribed by Congress? MR. JAMIR. That is also correct. MR. SUAREZ. And the Gentleman is thinking in terms of a law that uniformly covers situations of the same nature? MR. JAMIR. That is 100 percent correct. MR. SUAREZ. I thank the Commissioner. MR. JAMIR. Thank you very much.[44]

The following exchange leaves no doubt that the commissioners knew exactly what they were dealing with: service contracts.
THE PRESIDENT. Commissioner Gascon is recognized. MR. GASCON. Commissioner Jamir had proposed an amendment with regard to special service contracts which was accepted by the Committee. Since the Committee has accepted it, I would like to ask some questions. THE PRESIDENT. Commissioner Gascon may proceed. MR. GASCON. As it is proposed now, such service contracts will be entered into by the President with the guidelines of a general law on service contract to be enacted by Congress. Is that correct? MR. VILLEGAS. The Commissioner is right, Madam President. MR. GASCON. According to the original proposal, if the President were to enter into a particular agreement, he would need the concurrence of Congress. Now that it has been changed by the proposal of Commissioner Jamir in that Congress will set the general law to which the President shall comply, the President will, therefore, not need the concurrence of Congress every time he enters into service contracts. Is that correct? MR. VILLEGAS. That is right.

La Bugal-Blaan vs. Ramos 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 xxx
MR. GASCON. Yes, it will be up to the body.

xxx

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 xxx

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 Commissioners 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 Commissioners 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 Committees 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 peoples elected representatives should be on top of it.

xxx xxx

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

La Bugal-Blaan vs. Ramos CONGRESS OF EVERY SERVICE CONTRACT ENTERED INTO IN ACCORDANCE WITH THE GENERAL LAW. I think the reason is, if I may state it briefly, as Commissioner Bengzon said, Congress can always change the general law later on to conform to new perceptions of standards that should be built into service contracts. But the only way Congress can do this is if there were a notification requirement from the Office of the President that such service contracts had been entered into, subject then to the scrutiny of the Members of Congress. This pertains to a situation where the service contractsare already entered into, and all that this amendment seeks is the reporting requirement from the Office of the President. Will Commissioner Jamir entertain that? MR. JAMIR. I will gladly do so, if it is still within my power. MR. VILLEGAS. Yes, the Committee accepts the amendment.

xxx xxx
SR. TAN. Madam President, may I ask a question? THE PRESIDENT. Commissioner Tan is recognized.

xxx

SR. TAN. Am I correct in thinking that the only difference between these future service contracts and the past service contracts under Mr. Marcos is the general law to be enacted by the legislature and the notification of Congress by the President? That is the only difference, is it not? MR. VILLEGAS. That is right. SR. TAN. So those are the safeguards. MR. VILLEGAS. Yes. There was no law at all governing service contracts before. SR. TAN. Thank you, Madam President.[45]

More Than Mere Financial and Technical Assistance Entailed by the Agreements The clear words of Commissioner Jose N. Nolledo quoted below explicitly and eloquently demonstrate that the drafters knew that the agreements with foreign corporations were going to entail not mere technical or financial assistance but, rather, foreign investment in and management of an enterprise involved in large-scale exploration, development and utilization of minerals, petroleum, and other mineral oils.
THE PRESIDENT. Commissioner Nolledo is recognized. MR. NOLLEDO. Madam President, I have the permission of the Acting Floor Leader to speak for only two minutes in favor of the amendment of Commissioner Gascon. THE PRESIDENT. Commissioner Nolledo may proceed. MR. NOLLEDO. With due respect to the members of the Committee and Commissioner Jamir, I am in favor of the objection of Commissioner Gascon.

Madam President, I was one of those who refused to sign the 1973 Constitution, and one of the reasons is that there were many provisions in the Transitory Provisions therein that favored aliens. I was shocked when I read a provision authorizing service contracts while we, in this Constitutional Commission, provided for Filipino control of the economy. We are, therefore, providing for

La Bugal-Blaan vs. Ramos

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 twothirds vote of all the Members of Congress as a safeguard. I think we should not mistrust the future Members of Congress by saying that the purpose of this provision is to avoid corruption. We cannot claim that they are less patriotic than we are. I think the Members of this Commission should know that entering into service contracts is an exception to the rule on protection of natural resources for the interest of the nation, and therefore, being an exception it should be subject, whenever possible, to stringent rules. It seems to me that we are liberalizing the rules in favor of aliens. I say these things with a heavy heart, Madam President. I do not claim to be a nationalist, but I love my country. Although we need investments, we must adopt safeguards that are truly reflective of the sentiments of the people and not mere cosmetic safeguards as they now appear in the Jamir amendment. (Applause) Thank you, Madam President.[46]
Another excerpt, featuring then Commissioner (now Chief Justice) Hilario G. Davide Jr., indicates the limitations of the scope of such service contracts -- they are valid only in regard to minerals, petroleum and other mineral oils, not to all natural resources.
THE PRESIDENT. Commissioner Davide is recognized. MR. DAVIDE. Thank you, Madam President. This is an amendment to the Jamir amendment and also to the Ople amendment. I propose to delete NATURAL RESOURCES and substitute it with the following: MINERALS, PETROLEUM AND OTHER MINERAL OILS. On the Ople amendment, I propose to add: THE NOTIFICATION TO CONGRESS SHALL BE WITHIN THIRTY DAYS FROM THE EXECUTION OF THE SERVICE CONTRACT. THE PRESIDENT. What does the Committee say with respect to the first amendment in lieu of NATURAL RESOURCES? MR. VILLEGAS. Could Commissioner Davide explain that? MR. DAVIDE. Madam President, with the use of NATURAL RESOURCES here, it would necessarily include all lands of the public domain, our marine resources, forests, parks and so on. So we would like to limit the scope of these service contracts to those areas really where these may be needed, the exploitation, development and exploration of minerals, petroleum and other mineral oils. And so, we believe that we should really, if we want to grant service contracts at all, limit the same to only those particular areas where Filipino capital may not be sufficient, and not to all natural resources. MR. SUAREZ. Just a point of clarification again, Madam President. When the Commissioner made those enumerations and specifications, I suppose he deliberately did not include agricultural land? MR. DAVIDE. That is precisely the reason we have to enumerate what these resources are into which service contracts may enter. So, beyond the reach of any service contract will be lands of the public domain, timberlands, forests, marine resources, fauna and flora, wildlife and national parks.[47]

After the Jamir amendment was voted upon and approved by a vote of 21 to 10 with 2 abstentions, Commissioner Davide made the following statement, which is very relevant to our quest:

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

The foregoing are mere fragments of the framers lengthy discussions of the provision dealing with agreements x x x involving either technical or financial assistance,which ultimately became paragraph 4 of Section 2 of Article XII of the Constitution. Beyond any doubt, the members of the ConCom were actually debating about the martial-law-era service contracts for which they were crafting appropriate safeguards. In the voting that led to the approval of Article XII by the ConCom, the explanations given by Commissioners Gascon, Garcia and Tadeo indicated that they had voted to reject this provision on account of their objections to the constitutionalization of the service contract concept. Mr. Gascon said, I felt that if we would constitutionalize any provision on service contracts, this should always be with the concurrence of Congress and not guided only by a general law to be promulgated by Congress.[49] Mr. Garcia explained, Service contracts are given constitutional legitimization in Sec. 3, even when they have been proven to be inimical to the interests of the nation, providing, as they do, the legal loophole for the exploitation of our natural resources for the benefit of foreign interests.[50] Likewise, Mr. Tadeo cited inter alia the fact that service contracts continued to subsist, enabling foreign interests to benefit from our natural resources. [51] It was hardly likely that these gentlemen would have objected so strenuously, had the provision called for mere technical or financial assistance and nothing more. The deliberations of the ConCom and some commissioners explanation of their votes leave no room for doubt that the service contract concept precisely underpinned the commissioners understanding of the agreements involving either technical or financial assistance.

Summation of the Concom Deliberations At this point, we sum up the matters established, based on a careful reading of the ConCom deliberations, as follows: In their deliberations on what was to become paragraph 4, the framers used the term service contracts in referring to agreements x x x involving either technical or financial assistance. They spoke of service contracts as the concept was understood in the 1973 Constitution. It was obvious from their discussions that they were not about to ban or eradicate service contracts.

La Bugal-Blaan vs. Ramos

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 nations 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. Everyones 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 factservice 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.

La Bugal-Blaan vs. Ramos

(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--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.

La Bugal-Blaan vs. Ramos

In short, a large proportion of the voters voted yes because the drafters, or a majority of them, endorsed the proposed Constitution. What this fact translates to is the inescapable conclusion that many of the voters in the referendum did not form their own isolated judgment about the draft Charter, much less about particular provisions therein. They only relied or fell back and acted upon the favorable endorsement or recommendation of the framers as a group. In other words, by voting yes, they may be deemed to have signified their voluntary adoption of the understanding and interpretation of the delegates with respect to the proposed Charter and its particular provisions. If its good enough for them, its good enough for me; or, in many instances, If its good enough for President Cory Aquino, its 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: States 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

La Bugal-Blaan vs. Ramos

ground to be concerned that either the States 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 States 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 countrys 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 nations 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 investments and to enable it to succeed. The question to be answered, then, is whether RA 7942 and its Implementing Rules enable the government to exercise that degree of control sufficient to direct and regulate the conduct of affairs of individual enterprises and restrain undesirable activities. On the resolution of these questions will depend the validity and constitutionality of certain provisions of the Philippine Mining Act of 1995 (RA 7942) and its Implementing Rules and Regulations (DAO 96-40), as well as the WMCP FTAA.

La Bugal-Blaan vs. Ramos

Indeed, petitioners charge[54] that RA 7942, as well as its Implementing Rules and Regulations, makes it possible for FTAA contracts to cede full control and management of mining enterprises over to fully foreign-owned corporations, with the result that the State is allegedly reduced to a passive regulator dependent on submitted plans and reports, with weak review and audit powers. The State does not supposedly act as the owner of the natural resources for and on behalf of the Filipino people; it practically has little effective say in the decisions made by the enterprise. Petitioners then conclude that the law, the implementing regulations, and the WMCP FTAA cede beneficial ownership of the mineral resources to the foreign contractor. A careful scrutiny of the provisions of RA 7942 and its Implementing Rules belies petitioners claims. Paraphrasing the Constitution, Section 4 of the statute clearly affirms the States control thus:

Sec. 4. Ownership of Mineral Resources. Mineral resources are owned by the State and the exploration, development, utilization and processing thereof shall be under its full control and supervision. The State may directly undertake such activities or it may enter into mineral agreements with contractors. The State shall recognize and protect the rights of the indigenous cultural communities to their ancestral lands as provided for by the Constitution.
The aforequoted provision is substantively reiterated in Section 2 of DAO 96-40 as follows:

Sec. 2. Declaration of Policy. All mineral resources in public and private lands within the territory and exclusive economic zone of the Republic of the Philippines are owned by the State. It shall be the responsibility of the State to promote their rational exploration, development, utilization and conservation through the combined efforts of the Government and private sector in order to enhance national growth in a way that effectively safeguards the environment and protects the rights of affected communities.
Sufficient Control Over Mining Operations Vested in the State by RA 7942 and DAO 96-40 RA 7942 provides for the States control and supervision over mining operations. The following provisions thereof establish the mechanism of inspection and visitorial rights over mining operations and institute reportorial requirements in this manner:

1.

Sec. 8 which provides for the DENRs power of over-all supervision and periodic review for the conservation, management, development and proper use of the States mineral resources; Sec. 9 which authorizes the Mines and Geosciences Bureau (MGB) under the DENR to exercise direct charge in the administration and disposition of mineral resources, and empowers the MGB to monitor the compliance by the contractor of the terms and conditions of the mineral agreements, confiscate surety and performance bonds, and deputize whenever necessary any member or unit of the Phil. National Police, barangay,

2.

La Bugal-Blaan vs. Ramos

duly registered non-governmental organization (NGO) or any qualified person to police mining activities; 3. Sec. 66 which vests in the Regional Director exclusive jurisdiction over safety inspections of all installations, whether surface or underground, utilized in mining operations. Sec. 35, which incorporates into all FTAAs the following terms, conditions and warranties: (g) (h) Mining operations shall be conducted in accordance with the provisions of the Act and its IRR. Work programs and minimum expenditures commitments. xxx xxx (k) xxx

4.

Requiring proponent to effectively use appropriate anti-pollution technology and facilities to protect the environment and restore or rehabilitate mined-out areas. 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.

(l)

(m) Requiring the proponent to dispose of the minerals at the highest price and more advantageous terms and conditions. (n) (o) xxx xxx xxx

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

The foregoing provisions of Section 35 of RA 7942 are also reflected and implemented in Section 56 (g), (h), (l), (m) and (n) of the Implementing Rules, DAO 96-40. Moreover, RA 7942 and DAO 96-40 also provide various stipulations confirming the governments control over mining enterprises: The contractor is to relinquish to the government those portions of the contract area not needed for mining operations and not covered by any declaration of mining feasibility (Section 35-e, RA 7942; Section 60, DAO 96-40). The contractor must comply with the provisions pertaining to mine safety, health and environmental protection (Chapter XI, RA 7942; Chapters XV and XVI, DAO 96-40).

La Bugal-Blaan vs. Ramos

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

1. 2. 3. 4.

Approved mining project feasibility study (Section 53-d, DAO 96-40) Approved three-year work program (Section 53-a-4, DAO 96-40) Environmental compliance certificate (Section 70, RA 7942) 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

La Bugal-Blaan vs. Ramos

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 9640, 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 contractors 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.

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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 contractors 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.

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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. 2. 3. 4. 5. 6. 7. 8. 9. The contractor is obligated to account for the value of production and sale of minerals (Clause 1.4). The contractors work program, activities and budgets must be approved by/on behalf of the State (Clause 2.1). The DENR secretary has the power to extend the exploration period (Clause 3.2-a). Approval by the State is necessary for incorporating lands into the FTAA contract area (Clause 4.3c). 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). The contractor is obliged to relinquish periodically parts of the contract area not needed for exploration and development (Clause 4.6). A Declaration of Mining Feasibility must be submitted for approval by the State (Clause 4.6-b). The contractor is obligated to report to the State its exploration activities (Clause 4.9). 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).

La Bugal-Blaan vs. Ramos 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 contractors unremedied substantial breach thereof (Clause 13.2); 22. The States 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 States 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 contractors proposedexploration 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 years expenditure commitment shall apply. This provision alone grants the government through the DENR secretary a very big say in the exploration phase of the project. This fact is not something to be taken lightly, considering that the government has absolutely no contribution to the exploration expenditures or work activities and yet is given veto power over such a critical aspect of the project . We cannot but construe as very significant such a degree of control over the project and, resultantly, over the mining enterprise itself. Following its exploration activities or feasibility studies, if the contractor believes that any part of the contract area is likely to contain an economic mineral resource, it shall submit to the DENR secretary a declaration of mining feasibility (per Clause 5.4 of the FTAA), together with a technical description of the area delineated for development and production, a description of the proposed mining operations including the technology to be used, a work program for development, an environmental impact statement, and a description of the contributions to the economic and general welfare of the country to be generated by the mining operations (pursuant to Clause 5.5). The work program for development is subject to the approval of the DENR secretary. Upon its approval, the contractor must comply with it and complete the development of the mine, including the construction of production facilities and installation of machinery and equipment, within the period provided in the approved work program for development (per Clause 6.1).

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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 States 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). 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. xxx xxx xxx

8.3.

8.4. 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

La Bugal-Blaan vs. Ramos 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 governments 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

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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 contractors self-interest will propel proper and efficient relinquishment. According to private respondent,[57] a mining company tries to relinquish as much nonmineral 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 contractors 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 Contractors 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 latters 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

La Bugal-Blaan vs. Ramos

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 contractors 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. Contractors Right to Mortgage Not Objectionable Per Se

La Bugal-Blaan vs. Ramos

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 contractors right to mortgage the minerals is s imply 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 latters right to mortgage the minerals does not negate the States 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. Contractors Right to Ask For Amendment Not Absolute

La Bugal-Blaan vs. Ramos

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 Contractors obligations or the Governments rights hereunder. The colatilla obviously safeguards the States 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 States alleged lack of control.

Financial Benefits Not Surrendered to the Contractor One of the main reasons certain provisions of RA 7942 were struck down was the finding mentioned in the Decision that beneficial ownership of the mineral resources had been conveyed to the contractor. This finding was based on the underlying assumption, common to the said provisions, that the foreign contractor manages the mineral resources in the same way that foreign contractors in service contracts used to. By allowing foreign contractors to manage or operate all the aspects of the mining operation, the above-cited provisions of R.A. No. 7942 have in effect conveyed beneficial ownership over the nations 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] Blacks Law Dictionary indicates that the term is used in two senses: first, to indicate the interest of a beneficiary in trust property (also called

La Bugal-Blaan vs. Ramos

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 corporations 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 governments 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 formers cash flow during the most critical phase (cost recovery) and to make the Philippines competitive with other mineral-producing countries. After the contractor has recovered its initial investment, it will pay all the normal taxes and fees comprising the basic share of the government, plus an additional share for the government based on the options and formulae set forth in DAO 99-56. The said DAO spells out the financial benefits the government will receive from an FTAA, referred to as the Government Share, composed of a basic government share and an additional government share. The basic government share is comprised of all direct taxes, fees and royalties, as well as other payments made by the contractor during the term of the FTAA. These are amounts paid directly to (i) the national government (through the Bureau of Internal Revenue, Bureau of Customs, Mines & Geosciences Bureau and other national government agencies imposing taxes or fees), (ii) the local government units where the mining activity is conducted, and (iii) persons and communities directly

La Bugal-Blaan vs. Ramos

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:

La Bugal-Blaan vs. Ramos

The Government share in a financial or technical assistance agreement shall consist of, among other things, the contractors corporate income tax, excise tax, special allowance, withholding tax due from the contractors 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 Provincial Government Municipal Government Affected Barangays 50 percent 10 percent 20 percent 20 percent

The portion of revenues remaining after the deduction of the basic and additional government shares is what goes to the contractor. Governments 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 States 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.

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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 9956 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 governments take from an FTAA consists solely of taxes, fees and duties. Unfortunately, the Office of the Solicitor General -- although in possession of the relevant data -failed to fully replicate or echo the pertinent elucidation in the Ramos-DeVera paper regarding the three schemes or options for computing the additional government share presented in DAO 99-56. Had due care been taken by the OSG, the Court would have been duly apprised of the real nature and particulars of the additional share. But, perhaps, on account of the esoteric discussion in the Ramos-DeVera paper, and the even more abstruse mathematical jargon employed in DAO 99-56, the OSG omitted any mention of the three options. Instead, the OSG skipped to a side discussion of the effect of indirect taxes, which had nothing at all to do with the additional government share, to begin with. Unfortunately, this move created the wrong impression, pointed out in Justice Antonio T. Carpios 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

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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 Courts 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 governments 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 States 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 governments share is limited to taxes, fees and duties. Consequently, we find the attacks on the second paragraph of Section 81 of RA 7942 totally unwarranted.

Collections Not Made Uncertain by the Third Paragraph of Section 81 The third or last paragraph of Section 81[72] provides that the government share in FTAAs shall be collected when the contractor shall have recovered its pre-operating expenses and exploration and development expenditures. The objection has been advanced that, on account of the proviso, the collection of the States share is not even certain, as there is no time limit in RA 7942 for this grac e 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.

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Approval of Pre-Operating Expenses Required by RA 7942 Still, RA 7942 is criticized for allegedly not requiring government approval of pre-operating, exploration and development expenses of the foreign contractors, who are in effect given unfettered discretion to determine the amounts of such expenses. Supposedly, nothing prevents the contractors from recording such expenses in amounts equal to the mining revenues anticipated for the first 10 or 15 years of commercial production, with the result that the share of the State will be zero for the first 10 or 15 years. Moreover, under the circumstances, the government would be unable to say when it would start to receive its share under the FTAA. We believe that the argument is based on incorrect information as well as speculation. Obviously, certain crucial provisions in the Mining Law were overlooked. Section 23, dealing with the rights and obligations of the exploration permit grantee, states: The permittee shall undertake exploration work on the area as specified by its permit based on an approved work program. The next proviso reads: Any expenditure in excess of the yearly budget of the approved work program may be carried forward and credited to the succeeding years covering the duration of the permit. x x x. (underscoring supplied) Clearly, even at the stage of application for an exploration permit, the applicant is required to submit -- for approval by the government -- a proposed work program for exploration, containing a yearly budget of proposed expenditures. The State has the opportunity to pass upon (and approve or reject) such proposed expenditures, with the foreknowledge that -- if approved -- these will subsequently be recorded as pre-operating expenses that the contractor will have to recoup over the grace period. That is not all. Under Section 24, an exploration permit holder who determines the commercial viability of a project covering a mining area may, within the term of the permit, file with the Mines and Geosciences Bureau a declaration of mining project feasibility. This declaration is to be accompanied by a work program for development for the Bureaus approval, the necessary prelude for entering into an FTAA, a mineral production sharing agreement (MPSA), or some other mineral agreement. At this stage, too, the government obviously has the opportunity to approve or reject the proposed work program and budgeted expenditures for development works on the project. Such expenditures will ultimately become the pre-operating and development costs that will have to be recovered by the contractor. Naturally, with the submission of approved work programs and budgets for the exploration and the development/construction phases, the government will be able to scrutinize and approve or reject such expenditures. It will be well-informed as to the amounts of pre-operating and other expenses that the contractor may legitimately recover and the approximate period of time needed to effect such a recovery. There is therefore no way the contractor can just randomly post any amount of pre-operating expenses and expect to recover the same. The aforecited provisions on approved work programs and budgets have counterparts in Section 35, which deals with the terms and conditions exclusively applicable to FTAAs. The said provision requires certain terms and conditions to be incorporated into FTAAs; among them, a firm commitment x x x of an amount corresponding to the expenditure obligation that will be invested in the contract area and representations and warranties x x x to timely deploy these [financing, managerial and technical expertise and technological] resources under its supervision pursuant to the periodic work programs and related budgets x x x, as well as work programs and minimum expenditures commitments. (underscoring supplied) Unarguably, given the provisions of Section 35, the State has every opportunity to pass upon the proposed expenditures under an FTAA and approve or reject them. It has access to all the information it

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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 States share in a mineral production -sharing agreement (MPSA) to just the excise tax on the mineral product. Under Section 151(A) of the Tax Code, such tax is only 2 percent of the market value of the gross output of the minerals. The colatilla in Section 84, the portion considered offensive to the Constitution, reiterates the same limitation made in Section 80.[73] It should be pointed out that Section 80 and the colatilla in Section 84 pertain only to MPSAs and have no application to FTAAs. These particular statutory provisions do not come within the issues that were defined and delineated by this Court during the Oral Argument -- particularly the third issue, which pertained exclusively to FTAAs. Neither did the parties argue upon them in their pleadings. Hence, this Court cannot make any pronouncement in this case regarding the constitutionality of Sections 80 and 84 without violating the fundamental rules of due process. Indeed, the two provisos will have to await another case specifically placing them in issue. On the other hand, Section 112[74] is disparaged for allegedly reverting FTAAs and all mineral agreements to the old and discredited license, concession or lease system. This Section states in relevant part that the provisions of Chapter XIV [which includes Sections 80 to 82] on government share in mineral production-sharing agreement x x x shall immediately govern and apply to a mining lessee or contractor. (underscoring supplied) This provision is construed as signifying that the 2 percent excise tax which, pursuant to Section 80, comprises the government share in MPSAs shall now also constitute the government share in FTAAs -- as well as in co-production agreements and joint venture agreements -- to the exclusion of revenues of any other nature or from any other source. Apart from the fact that Section 112 likewise does not come within the issues delineated by this Court during the Oral Argument, and was never touched upon by the parties in their pleadings, it must also be noted that the criticism hurled against this Section is rooted in unwarranted conclusions made without considering other relevant provisions in the statute. Whether Section 112 may properly apply to co-production or joint venture agreements, the fact of the matter is that it cannot be made to apply to FTAAs. First, Section 112 does not specifically mention or refer to FTAAs; the only reason it is being applied to them at all is the fact that it happens to use the word contractor. Hence, it is a bit of a stretch to insist that it covers FTAAs as well. Second, mineral agreements, of which there are three types -MPSAs, co-production agreements, and joint venture agreements -- are covered by Chapter V of RA 7942. On the other hand, FTAAs are covered by and in fact are the subject of Chapter VI, an entirely

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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 intervenors 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 ju stify large-scale mining operations; second, it must contend with the Presidents 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 largescale mining, and thus the contractor requests the conversion of the FTAA into an MPSA. The contractor in effect needs to explain why, despite its exploration activities, including the conduct of various geologic and other scientific tests and procedures in the contract area, it was unable to determine correctly the mineral ore reserves and the economic viability of the area. The contractor must explain why, after conducting such exploration activities, it decided to file a declaration of mining feasibility, and to apply for an FTAA, thereby leading the State to believe that the area could sustain large-scale mining. The contractor must justify fully why its earlier findings, based on scientific procedures, tests and data, turned out to be wrong, or were way off. It must likewise prove that its new findings, also based on scientific tests and procedures, are correct. Right away, this puts the contractors 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 contractors 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.

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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 years[77] counted from the commencement of commercial production. It must be noted that there can be no recovery without commencing actual commercial production . In the meantime that the contractors are recouping costs, they need to continue operating; in order to do so, they have to disburse money to meet their various needs. In short, money is continually infused into the economy. The foregoing discussion should serve to rid us of the mistaken belief that, since the foreign contractors are allowed to recover their investments and costs, the end result is that they practically get the minerals for free, which leaves the Filipino people none the better for it.

All Businesses Entitled to Cost Recovery Let it be put on record that not only foreign contractors, but all businessmen and all business entities in general, have to recoup their investments and costs. That is one of the first things a student learns in business school. Regardless of its nationality, and whether or not a business entity has a five-year cost recovery period, it will -- must -- have to recoup its investments, one way or another. This is just

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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 contractors 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 illconceived 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 pa rticular year will be taken out and

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repatriated. The net income figure reflected in the bottom line is a mere accounting figure not necessarily corresponding to cash in the bank, or other quick assets. In order to produce and set aside cash in an amount equivalent to the bottom line figure, one may need to sell off assets or immediately collect receivables or liquidate short-term investments; but doing so may very likely disrupt normal business operations. In terms of cash flows, the funds corresponding to the net income as of a particular point in time are actually in use in the normal course of business operations. Pulling out such net income disrupts the cash flows and cash position of the enterprise and, depending on the amount being taken out, could seriously cripple or endanger the normal operations and financial health of the business enterprise. In short, no sane business person, concerned with maintaining the mining enterprise as a going concern and keeping a foothold in its market, can afford to repatriate the entire after-tax income to the home country. The States Receipt of Sixty Percent of an FTAA Contractors 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 States partner in a co -production agreement, joint venture agreement or MPSA to be a Filipino corporation (at least 60 percent owned by Filipino citizens). We question the logic of this reasoning, premised on a supposedly parallel or analogous situation. We are, after all, dealing with an essentially different equation, one that involves different elements. The Charter did not intend to fix an iron-clad rule on the 60 percent share, applicable to all situations at all times and in all circumstances. If ever such was the intention of the framers, they would have spelt it out in black and white. Verba legis will serve to dispel unwarranted and untenable conclusions. Second, if we would bother to do the math, we might better appreciate the impact (and reasonableness) of what we are demanding of the foreign contractor. Let us use a simplified illustration. Let us base it on gross revenues of, say, P500. After deducting operating expenses, but prior to income tax, suppose a mining firm makes ataxable income of P100. A corporate income tax of 32 percent results in P32 of taxable income going to the government, leaving the mining firm with P68. Government then takes 60 percent thereof, equivalent to P40.80, leaving only P27.20 for the mining firm. At this point the government has pocketed P32.00 plus P40.80, or a total of P72.80 for every P100 of taxable income, leaving the mining firm with only P27.20. But that is not all. The government has also taken 2 percent excise tax off the top, equivalent to another P10. Under the minimum 60 percent proposal, the government nets aroundP82.80 (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,

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and another portion thereof income from exploitation of mineral resources. Some might think it wonderful to be able to take the lions 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 lions share. Fairness is a credo not only in law, but also in business. Third, the 60 percent rule in the petroleum industry cannot be insisted upon at all times in the mining business. The reason happens to be the fact that in petroleum operations, the bulk of expenditures is in exploration, but once the contractor has found and tapped into the deposit, subsequent investments and expenditures are relatively minimal. The crude (or gas) keeps gushing out, and the work entailed is just a matter of piping, transporting and storing. Not so in mineral mining. The ore body does not pop out on its own. Even after it has been located, the contractor must continually invest in machineries and expend funds to dig and build tunnels in order to access and extract the minerals from underneath hundreds of tons of earth and rock. As already stated, the numerous intrinsic differences involved in their respective operations and requirements, cost structures and investment needs render it highly inappropriate to use petroleum operations FTAAs as benchmarks for mining FTAAs. Verily, we cannot just ignore the realities of the distinctly different situations and stubbornly insist on the minimum 60 percent.

The Mining and the Oil Industries Different From Each Other To stress, there is no independent showing that the taking of at least a 60 percent share in the aftertax income of a mining company operated by a foreign contractor isfair 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

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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 countrys competitiveness in the international market, to the detriment of the Filipino people. This you-have-to-give-us-60-percent-of-after-taxincome-or-we-dont-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 gove rnments 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 States 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 contractors net mining revenues or after tax income, or whatever other basis the government may decide to use in reckoning its share. It is not necessary for it to do so in every case, regardless of circumstances. In fact, the government must be trusted, must be accorded the liberty and the utmost flexibility to deal, negotiate and transact with contractors and third parties as it sees fit; and upon terms that it ascertains to be most favorable or most acceptable under the circumstances, even if it means agreeing to less than 60 percent. Nothing must prevent the State from agreeing to a share less than that, should it be deemed fit; otherwise the State will be deprived of full control over mineral exploitation that the Charter has vested in it. To stress again, there is simply no constitutional or legal provision fixing the minimum share of the government in an FTAA at 60 percent of the net profit. For this Court to decree such minimum is to wade into judicial legislation, and thereby inordinately impinge on the control power of the State. Let it

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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 governments hand to adopt the 60 percent demand of some of our esteemed colleagues.

Capital and Expertise Provided, Yet All Risks Assumed by Contractor Here, we will repeat what has not been emphasized and appreciated enough: the fact that the contractor in an FTAA provides all the needed capital, technical and managerial expertise, and technology required to undertake the project. In regard to the WMCP FTAA, the then foreign-owned WMCP as contractor committed, at the very outset, to make capital investments of up to US$50 million in that single mining project. WMCP claims to have already poured in well over P800 million into the country as of February 1998, with more in the pipeline. These resources, valued in the tens or hundreds of millions of dollars, are invested in a mining project that provides no assurance whatsoever that any part of the investment will be ultimately recouped. At the same time, the contractor must comply with legally imposed environmental standards and the social obligations, for which it also commits to make significant expenditures of funds. Throughout, the contractor assumes all the risks[79] 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 contractors 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

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Petitioners question whether the States 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 Contractors 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 contractors 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 WMCPs 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 WMCPs foreign stockholders, who can at any time cut off the governments entire 60 percent share. They can do so by simply selling 60 percent of WMCPs outstanding capital stock to a Philipp ine 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 WMCPs 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]

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In fact, the January 23, 2001 sale by WMCPs 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 States 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 WMCPs net mining revenues, without any form of compensation whatsoever. Such an outcome is completely unacceptable. The whole point of developing the nations natural resources is to benefit the Filipino people, future generations included. And the State as sovereign and custodian of the nations 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 countrys 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 States 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 antigraft 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

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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; any payments to local and regional government, including taxes, fees, levies, costs, imposts, duties, royalties, occupation and regulatory fees and infrastructure contributions; any payments to landowners, surface rights holders, occupiers, indigenous people or Claimowners; costs and expenses of fulfilling the Contractors obligations to contribute to national development in accordance with Clause 10.1(i) (1) and 10.1(i) (2); 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; 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)

(b) (c) (d) (e) (f)

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 States share in net mining revenues. Allowing this deduction results in benefiting the contractor twice over. It constitutesunjust 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)

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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 States 60 percent share. After taking these into account, will the State ever receive anything for its ownership of the mineral resources? We are confident that under normal circumstances, the answer will be yes. If we examine the various items of deduction listed in Section 7.8 of the WMCP FTAA, we will find that they correspond closely to the components or elements of the basic government share established in DAO 99-56, as discussed in the earlier part of this Opinion. Likewise, the balance of the governments 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 RamosDeVera paper[92] concisely presents the fiscal contribution of an FTAA under DAO 99-56 in this equation: Receipts from an FTAA = basic govt share + addl govt share Transposed into a similar equation, the fiscal payments system from the WMCP FTAA assumes the following formulation:

Governments 60 percent share in net mining revenues of WMCP = items listed in Sec. 7.8 of the FTAA + balance of Govt 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-miningrevenue-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 9956 -- 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

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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 nations 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

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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 ac quiring and enjoying beneficial interest in the development of Philippine natural resources. The State itself need not directly undertake exploration, development, and utilization activities. Alternatively, the Constitution authorizes the government to enter into joint venture agreements (JVAs), co-production agreements (CPAs) and mineral production sharing agreements (MPSAs) with contractors who are Filipino citizens or corporations that are at least 60 percent Filipino-owned. They may do the actual dirty work -- the mining operations. In the case of a 60 percent Filipino-owned corporation, the 40 percent individual and/or corporate non-Filipino stakeholders obviously participate in the beneficial interest derived from the development and utilization of our natural resources. They may receive by way of dividends, up to 40 percent of the contractors 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 contractors equity.

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Hence, the non-Filipino stakeholders may in that manner also participate in the management of the contractors 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, the government has to ante up some risk capital for the enterprise . In other words, government funds (public moneys) are withdrawn from other possible uses, put to work in the venture and placed at risk in case the venture fails. This notwithstanding, management and control of the operations of the enterprise are -- in all three arrangements -- in the hands of the contractor, with the government being mainly a silent partner. The three types of agreement mentioned above apply to any natural resource, without limitation and regardless of the size or magnitude of the project or operations. In contrast to the foregoing arrangements, and pursuant to paragraph 4 of Section 2 of Article XII, the FTAA is limited to large-scale projects and only for minerals, petroleum and other mineral oils. Here, the Constitution removes the 40 percent cap on foreign ownership and allows the foreign corporation to own up to 100 percent of the equity. Filipino capital may not be sufficient on account of the size of the project, so the foreign entity may have to ante up all the risk capital. Correlatively, the foreign stakeholder bears up to 100 percent of the risk of loss if the project fails. In respect of the particular FTAA granted to it, WMCP (then 100 percent foreign owned) was responsible, as contractor, for providing the entire equity, including all the inputs for the project. It was to bear 100 percent of the risk of loss if the project failed, but its maximum potential beneficial interest consist ed only of 40 percent of the net beneficial interest, because the other 60 percent is the share of the government, which will never be exposed to any risk of loss whatsoever. In consonance with the degree of risk assumed, the FTAA vested in WMCP the day-to-day management of the mining operations. Still such management is subject to the overall control and supervision of the State in terms of regular reporting, approvals of work programs and budgets, and so on.

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So, one needs to consider in relative terms, the costs of inputs for, degree of risk attendant to, and benefits derived or to be derived from a CPA, a JVA or an MPSA vis--vis those pertaining to an FTAA. It may not be realistically asserted that the foreign grantee of an FTAA is being unduly favored or benefited as compared with a foreign stakeholder in a corporation holding a CPA, a JVA or an MPSA. Seen the other way around, the government is definitely better off with an FTAA than a CPA, a JVA or an MPSA.

Developmental Policy on the Mining Industry During the Oral Argument and in their Final Memorandum , petitioners repeatedly urged the Court to consider whether mining as an industry and economic activity deserved to be accorded priority, preference and government support as against, say, agriculture and other activities in which Filipinos and the Philippines may have an economic advantage. For instance, a recent US study [96] reportedly examined the economic performance of all local US counties that were dependent on mining and 20 percent of whose labor earnings between 1970 and 2000 came from mining enterprises. The study -- covering 100 US counties in 25 states dependent on mining -- showed that per capita income grew about 30 percent less in mining-dependent communities in the 1980s and 25 percent less for the entire period 1980 to 2000; the level of per capita income was also lower. Therefore, given the slower rate of growth, the gap between these and other local counties increased. Petitioners invite attention to the OXFAM America Reports warning to developing nations that mining brings with it serious economic problems, including increased regional inequality, unemployment and poverty. They also cite the final report[97] of the Extractive Industries Review project commissioned by the World Bank (the WB-EIR Report), which warns of environmental degradation, social disruption, conflict, and uneven sharing of benefits with local communities that bear the negative social and environmental impact. The Report suggests that countries need to decide on the best way to exploit their natural resources, in order to maximize the value added from the development of their resources and ensure that they are on the path to sustainable development once the resources run out. Whatever priority or preference may be given to mining vis--vis other economic or non-economic activities is a question of policy that the President and Congress will have to address; it is not for this Court to decide. This Court declares what the Constitution and the laws say, interprets only when necessary, and refrains from delving into matters of policy. Suffice it to say that the State control accorded by the Constitution over mining activities assures a proper balancing of interests. More pointedly, such control will enable the President to demand the best mining practices and the use of the best available technologies to protect the environment and to rehabilitate mined-out areas. Indeed, under the Mining Law, the government can ensure the protection of the environment during and after mining. It can likewise provide for the mechanisms to protect the rights of indigenous communities, and thereby mold a more socially-responsive, culturally-sensitive and sustainable mining industry. Early on during the launching of the Presidential Mineral Industry Environmental Awards on February 6, 1997, then President Fidel V. Ramos captured the essence of balanced and sustainable mining in these words:

Long term, high profit mining translates into higher revenues for government, more decent jobs for the population, more raw materials to feed the engines of downstream and allied industries, and

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improved chances of human resource and countryside development by creating self-reliant communities away from urban centers.
xxx xxx xxx

Against a fragile and finite environment, it is sustainability that holds the key. In sustainable mining, we take a middle ground where both production and protection goals are balanced, and where parties-in-interest come to terms.
Neither has the present leadership been remiss in addressing the concerns of sustainable mining operations. Recently, on January 16, 2004 and April 20, 2004, President Gloria Macapagal Arroyo issued Executive Orders Nos. 270 and 270-A, respectively, to promote responsible mineral resources exploration, development and utilization, in order to enhance economic growth, in a manner that adheres to the principles of sustainable development and with due regard for justice and equity, sensitivity to the culture of the Filipino people and respect for Philippine sovereignty.[98]

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

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But if the Court should follow this restrictive and literal construction, can we really find two (or more) contractors who are willing to participate in one single project -- one to provide the financial assistance only and the other the technical assistance exclusively; it would be excellent if these two or more contractors happen to be willing and are able to cooperate and work closely together on the same project (even if they are otherwise competitors). And it would be superb if no conflicts would arise between or among them in the entire course of the contract. But what are the chances things will turn out this way in the real world? To think that the framers deliberately imposed this kind of restriction is to say that they were either exceedingly optimistic, or incredibly nave. This begs the question -- What laudable objective or purpose could possibly be served by such strict and restrictive literal interpretation? 3. Citing Oposa v. Factoran Jr., Justice Morales claims that a service contract is not a contract or property right which merits protection by the due process clause of the Constitution, but merely a license or privilege which may be validly revoked, rescinded or withdrawn by executive action whenever dictated by public interest or public welfare. Oposa cites Tan v. Director of Forestry and Ysmael v. Deputy Executive Secretary as authority. The latter cases dealt specifically with timber licenses only. Oposaallegedly reiterated that a license is merely a permit or privilege to do what otherwise would be unlawful, and is not a contract between the authority, federal, state or municipal, granting it and the person to whom it is granted; neither is it property or a property right, nor does it create a vested right; nor is it taxation. Thus this Court held that the granting of license does not create irrevocable rights, neither is it property or property rights. Should Oposa be deemed applicable to the case at bar, on the argument that natural resources are also involved in this situation? We do not think so. A grantee of a timber license, permit or license agreement gets to cut the timber already growing on the surface; it need not dig up tons of earth to get at the logs. In a logging concession, the investment of the licensee is not as substantial as the investment of a large-scale mining contractor. If a timber license were revoked, the licensee packs up its gear and moves to a new area applied for, and starts over; what it leaves behind are mainly the trails leading to the logging site. In contrast, the mining contractor will have sunk a great deal of money (tens of millions of dollars) into the ground, so to speak, for exploration activities, for development of the mine site and infrastructure, and for the actual excavation and extraction of minerals, including the extensive tunneling work to reach the ore body. The cancellation of the mining contract will utterly deprive the contractor of its investments (i.e., prevent recovery of investments), most of which cannot be pulled out. To say that an FTAA is just like a mere timber license or permit and does not involve contract or property rights which merit protection by the due process clause of the Constitution, and may therefore be revoked or cancelled in the blink of an eye, is to adopt a well-nigh confiscatory stance; at the very least, it is downright dismissive of the property rights of businesspersons and corporate entities that have investments in the mining industry, whose investments, operations and expenditures do contribute to the general welfare of the people, the coffers of government, and the strength of the economy. Such a pronouncement will surely discourage investments (local and foreign) which are critically needed to fuel the engine of economic growth and move this country out of the rut of poverty. In sum, Oposa is not applicable. 4. Justice Morales adverts to the supposedly clear intention of the framers of the Constitution to reserve our natural resources exclusively for the Filipino people. She then quoted from the records of the ConCom deliberations a passage in which then Commissioner Davide explained his vote, arguing in the process that aliens ought not be allowed to participate in the enjoyment of our natural resources. One passage does not suffice to capture the tenor or substance of the entire extensive deliberations of the commissioners, or to reveal the clear intention of the framers as a group. A re-reading of the entire deliberations (quoted here earlier) is necessary if we are to understand the true intent of the framers.

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5. Since 1935, the Filipino people, through their Constitution, have decided that the retardation or delay in the exploration, development or utilization of the nations natural resources is merely secondary to the protection and preservation of their ownership of the natural resources, so says Justice Morales, citing Aruego. If it is true that the framers of the 1987 Constitution did not care much about alleviating the retardation or delay in the development and utilization of our natural resources, why did they bother to write paragraph 4 at all? Were they merely paying lip service to large-scale exploration, development and utilization? They could have just completely ignored the subject matter and left it to be dealt with through a future constitutional amendment. But we have to harmonize every part of the Constitution and to interpret each provision in a manner that would give life and meaning to it and to the rest of the provisions. It is obvious that a literal interpretation of paragraph 4 will render it utterly inutile and inoperative. 6. According to Justice Morales, the deliberations of the Constitutional Commission do not support our contention that the framers, by specifying such agreements involving financial or technical assistance, necessarily gave implied assent to everything that these agreements implicitly entailed, or that could reasonably be deemed necessary to make them tenable and effective, including management authority in the day-to-day operations. As proof thereof, she quotes one single passage from the ConCom deliberations, consisting of an exchange among Commissioners Tingson, Garcia and Monsod. However, the quoted exchange does not serve to contradict our argument; it even bolsters it. Comm. Christian Monsod was quoted as saying: xxx I think we have to make a distinction that it is not really realistic to say that we will borrow on our own terms. Maybe we can say that we inherited unjust loans, and we would like to repay these on terms that are not prejudicial to our own growth. But the general statement that we should only borrow on our own terms is a bit unrealistic. Comm. Monsod is one who knew whereof he spoke. 7. Justice Morales also declares that the optimal time for the conversion of an FTAA into an MPSA is after completion of the exploration phase and just before undertaking the development and construction phase, on account of the fact that the requirement for a minimum investment of $50 million is applicable only during the development, construction and utilization phase, but not during the exploration phase, when the foreign contractor need merely comply with minimum ground expenditures. Thus by converting, the foreign contractor maximizes its profits by avoiding its obligation to make the minimum investment of $50 million. This argument forgets that the foreign contractor is in the game precisely to make money. In order to come anywhere near profitability, the contractor must first extract and sell the mineral ore. In order to do that, it must also develop and construct the mining facilities, set up its machineries and equipment and dig the tunnels to get to the deposit. The contractor is thus compelled to expend funds in order to make profits. If it decides to cut back on investments and expenditures, it will necessarily sacrifice the pace of development and utilization; it will necessarily sacrifice the amount of profits it can make from the mining operations. In fact, at certain less-than-optimal levels of operation, the stream of revenues generated may not even be enough to cover variable expenses, let alone overhead expenses; this is a dismal situation anyone would want to avoid. In order to make money, one has to spend money. This truism applies to the mining industry as well. 8. Mortgaging the minerals to secure a foreign FTAA contractors obligations is anomalous, according to Justice Morales since the contractor was from the beginning obliged to provide all financing needed for the mining operations. However, the mortgaging of minerals by the contractor does not necessarily signify that the contractor is unable to provide all financing required for the project, or that it does not have the financial capability to undertake large-scale operations. Mortgaging of mineral products, just like the assignment (by way of security) of manufactured goods and goods in inventory, and the assignment of receivables, is an ordinary requirement of banks, even in the case of

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clients with more than sufficient financial resources. And nowadays, even the richest and best managed corporations make use of bank credit facilities -- it does not necessarily signify that they do not have the financial resources or are unable to provide the financing on their own; it is just a manner of maximizing the use of their funds. 9. Does the contractor in reality acquire the surface rights for free, by virtue of the fact that it is entitled to reimbursement for the costs of acquisition and maintenance, adjusted for inflation? We think not. The reimbursement is possible only at the end of the term of the contract, when the surface rights will no longer be needed, and the land previously acquired will have to be disposed of, in which case the contractor gets reimbursement from the sales proceeds. The contractor has to pay out the acquisition price for the land. That money will belong to the seller of the land. Only if and when the land is finally sold off will the contractor get any reimbursement. In other words, the contractor will have been cashout for the entire duration of the term of the contract -- 25 or 50 years, depending. If we calculate the cost of money at say 12 percent per annum, that is the cost or opportunity loss to the contractor, in addition to the amount of the acquisition price. 12 percent per annum for 50 years is 600 percent; this, without any compounding yet. The cost of money is therefore at least 600 percent of the original acquisition cost; it is in addition to the acquisition cost. For free? Not by a long shot. 10. The contractor will acquire and hold up to 5,000 hectares? We doubt it. The acquisition by the State of land for the contractor is just to enable the contractor to establish its mine site, build its facilities, establish a tailings pond, set up its machinery and equipment, and dig mine shafts and tunnels, etc. It is impossible that the surface requirement will aggregate 5,000 hectares. Much of the operations will consist of the tunneling and digging underground, which will not require possessing or using any land surface. 5,000 hectares is way too much for the needs of a mining operator. It simply will not spend its cash to acquire property that it will not need; the cash may be better employed for the actual mining operations, to yield a profit. 11. Justice Carpio claims that the phrase among other things (found in the second paragraph of Section 81 of the Mining Act) is being incorrectly treated as a delegation of legislative power to the DENR secretary to issue DAO 99-56 and prescribe the formulae therein on the States share from mining operations. He adds that the phrase among other things was not intended as a delegation of legislative power to the DENR secretary, much less could it be deemed a valid delegation of legislative power, since there is nothing in the second paragraph of Section 81 which can be said to grant any delegated legislative power to the DENR secretary. And even if there were, such delegation would be void, for lack of any standards by which the delegated power shall be exercised. While there is nothing in the second paragraph of Section 81 which can directly be construed as a delegation of legislative power to the DENR secretary, it does not mean that DAO 99-56 is invalid per se, or that the secretary acted without any authority or jurisdiction in issuing DAO 99-56. As we stated earlier in our Prologue, Who or what organ of government actually exercises this power of control on behalf of the State? The Constitution is crystal clear: the President. Indeed, the Chief Executive is the official constitutionally mandated to enter into agreements with foreign owned corporations. On the other hand, Congress may review the action of the President once it is notified of every contract entered into in accordance with this [constitutional] provision within thirty days from its execution. It is the President who is constitutionally mandated to enter into FTAAs with foreign corporations, and in doing so, it is within the Presidents prerogative to specify certain terms and conditionsof the FTAAs, for example, the fiscal regime of FTAAs -- i.e., the sharing of the net mining revenues between the contractor and the State. Being the Presidents 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

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of benefits from mining, to be applicable to FTAAs in general. It is important to remember that DAO 9956 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 legislatures power pertains to the imposition of taxes, duties and fees. This power was not delegated to the DENR secretary. But the power to negotiate and enter into FTAAs was withheld from Congress, and reserved for the President. In determining the sharing of mining benefits, i.e., in specifying what the phrase among other things include, the President (through the secretary acting in his/her behalf) was not determining the amount or rate of taxes, duties and fees, but rather the amount of INCOME to be derived from minerals to be extracted and sold, income which belongs to the State as owner of the mineral resources. We may say that, in the second paragraph of Section 81, the legislature in a sense intruded partially into the Presidents sphere of authority when the former provided that

The Government share in financial or technical assistance agreement shall consist of, among other things, the contractors corporate income tax, excise tax, special allowance, withholding tax due from the contractors 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 Presidents 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 States 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 governments share, while adopting the items enumerated by Congress as part of the government share also. 12. Justice Carpios insistence on applying the ejusdem generis rule of statutory construction to the phrase among other things is therefore useless, and must fall by the wayside. There is no point trying to construe that phrase in relation to the enumeration of taxes, duties and fees found in paragraph 2 of Section 81, precisely becausethe constitutional power to prescribe the sharing of mining income between the State and mining companies, to quote Justice Carpio pursuant to an FTAA isconstitutionally lodged with the President, not with Congress. It thus makes no sense to persist in giving the phrase among other things a restricted meaning referring only to taxes, duties and fees. 13. Strangely, Justice Carpio claims that the DENR secretary can change the formulae in DAO 9956 any time even without the approval of the President, and the secretary is the sole authority to determine the amount of consideration that the State shall receive in an FTAA, because Section 5 of the DAO states that xxx any amendment of an FTAA other than the provision on fiscal regime shall require the negotiation with the Negotiation Panel and the recommendation of the Secretary for approval of the President xxx. Allegedly, because of that provision, if an amendment in the FTAA involves non-fiscal matters, the amendment requires approval of the President, but if the amendment involves a change in the fiscal regime, the DENR secretary has the final authority, and approval of the President may be dispensed with; hence the secretary is more powerful than the President. We believe there is some distortion resulting from the quoted provision being taken out of context. Section 5 of DAO 99-56 reads as follows:

Section 5. Status of Existing FTAAs. All FTAAs approved prior to the effectivity of this Administrative Order shall remain valid and be recognized by the Government: Provided, That should

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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 FTAAs 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 Carpios 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 majoritys 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.

La Bugal-Blaan vs. Ramos

To clarify, we said that Sections 7.9 and 7.8(e) of the WMCP FTAA are provisions grossly disadvantageous to government and detrimental to the interests of the Filipino people, as well as violative of public policy, and must therefore be stricken off as invalid. Since the offending provisions are very much separable from Section 7.7 and the rest of the FTAA, the deletion of Sections 7.9 and 7.8(e) can be done without affecting or requiring the invalidation of the WMCP FTAA itself, and such deletion will preserve for government its due share of the 60 percent benefits. Therefore, the WMCP FTAA is NOT bereft of a valid consideration (assuming for the nonce that indeed this is the consideration of the FTAA).

SUMMATION To conclude, a summary of the key points discussed above is now in order. The Meaning of Agreements Involving Either Technical or Financial Assistance Applying familiar principles of constitutional construction to the phrase agreements involving either technical or financial assistance, the framers choice of words does not indicate the intent to exclude other modes of assistance, but rather implies that there are other things being included or possibly being made part of the agreement, apart from financial or technical assistance. The drafters avoided the use of restrictive and stringent phraseology; a verba legis scrutiny of Section 2 of Article XII of the Constitution discloses not even a hint of a desire to prohibit foreign involvement in the management or operation of mining activities, or to eradicate service contracts. Such moves would necessarily imply an underlying drastic shift in fundamental economic and developmental policies of the State. That change requires a much more definite and irrefutable basis than mere omission of the words service contract from the new Constitution. Furthermore, a literal and restrictive interpretation of this paragraph leads to logical inconsistencies. A constitutional provision specifically allowing foreign-owned corporations to render financial or technical assistance in respect of mining or any other commercial activity was clearly unnecessary; the provision was meant to refer to more than mere financial or technical assistance. Also, if paragraph 4 permits only agreements for financial or technical assistance, there would be no point in requiring that they be based on real contributions to the economic growth and general welfare of the country. And considering that there were various long-term service contracts still in force and effect at the time the new Charter was being drafted, the absence of any transitory provisions to govern the termination and closing-out of the then existing service contracts strongly militates against the theory that the mere omission of service contracts signaled their prohibition by the new Constitution. Resort to the deliberations of the Constitutional Commission is therefore unavoidable, and a careful scrutiny thereof conclusively shows that the ConCom members discussed agreements involving either technical or financial assistance in the same sense as service contracts and used the terms interchangeably. The drafters in fact knew that the agreements with foreign corporations were going to entail not mere technical or financial assistance but, rather, foreign investment in and management of an enterprise for large-scale exploration, development and utilization of minerals. The framers spoke about service contracts as the concept was understood in the 1973 Constitution. It is obvious from their discussions that they did not intend to ban or eradicate service contracts. Instead, they

La Bugal-Blaan vs. Ramos

were intent on crafting provisions to put in place safeguards that would eliminate or minimize the abuses prevalent during the martial law regime. In brief, they were going to permit service contracts with foreign corporations as contractors, but with safety measures to prevent abuses, as an exception to the general norm established in the first paragraph of Section 2 of Article XII, which reserves or limits to Filipino citizens and corporations at least 60 percent owned by such citizens the exploration, development and utilization of mineral or petroleum resources. This was prompted by the perceived insufficiency of Filipino capital and the felt need for foreign expertise in the EDU of mineral resources. Despite strong opposition from some ConCom members during the final voting, the Article on the National Economy and Patrimony -- including paragraph 4 allowing service contracts with foreign corporations as an exception to the general norm in paragraph 1 of Section 2 of the same Article -- was resoundingly and overwhelmingly approved. The drafters, many of whom were economists, academicians, lawyers, businesspersons and politicians knew that foreign entities will not enter into agreements involving assistance without requiring measures of protection to ensure the success of the venture and repayment of their investments, loans and other financial assistance, and ultimately to protect the business reputation of the foreign corporations. The drafters, by specifying such agreements involving assistance, necessarily gave implied assent to everything that these agreements entailed or that could reasonably be deemed necessary to make them tenable and effective -- including management authority with respect to the day-to-day operations of the enterprise, and measures for the protection of the interests of the foreign corporation, at least to the extent that they are consistent with Philippine sovereignty over natural resources, the constitutional requirement of State control, and beneficial ownership of natural resources remaining vested in the State. From the foregoing, it is clear that agreements involving either technical or financial assistance referred to in paragraph 4 are in fact service contracts, but such new service contracts are between foreign corporations acting as contractors on the one hand, and on the other hand government as principal or owner (of the works), whereby the foreign contractor provides the capital, technology and technical know-how, and managerial expertise in the creation and operation of the large-scale mining/extractive enterprise, and government through its agencies (DENR, MGB) actively exercises full control and supervision over the entire enterprise. Such service contracts may be entered into only with respect to minerals, petroleum and other mineral oils. The grant of such service contracts is subject to several safeguards, among them: (1) that the service contract be crafted in accordance with a general law setting standard or uniform terms, conditions and requirements; (2) the President be the signatory for the government; and (3) the President report the executed agreement to Congress within thirty days.

Ultimate Test: Full State Control To repeat, the primacy of the principle of the States 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 superviseseverything 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.

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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 States 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 contractors 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 FTAAs 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

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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 contractors work program, activities and budgets be approved by the State (Clause 2.1); gives the DENR secretary power to extend the exploration period (Clause 3.2a); 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).

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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 governments 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 contractors 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 contractors ability to mortgage the minerals does not negate the States 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.

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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 contractors obligations or the governments 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 States share in FTAAs with foreign contractors to just taxes, fees and duties, and depriving the State of a share in the after-tax income of the enterprise. However, the inclusion of the phrase among other things in the second paragraph of Section 81 clearly and unmistakably reveals the legislative intent to have the State collect more than just the usual taxes, duties and fees. Thus, DAO 99-56, the Guidelines Establishing the Fiscal Regime of Financial or Technical Assistance Agreements, spells out the financial benefits government will receive from an FTAA, as consisting of not only a basic government share, comprised of all direct taxes, fees and royalties, as well as other payments made by the contractor during the term of the FTAA, but also an additional government share, being a share in the earnings or cash flows of the mining enterprise, so as to achieve a fifty-fifty sharing of net benefits from mining between the government and the contractor. The additional government share is computed using one of three (3) options or schemes detailed in DAO 99-56, viz., (1) the fifty-fifty sharing of cumulative present value of cash flows; (2) the excess profit-related additional government share; and (3) the additional sharing based on the cumulative net mining revenue. Whichever option or computation is used, the additional government share has nothing to do with taxes, duties, fees or charges. The portion of revenues remaining after the deduction of the basic and additional government shares is what goes to the contractor. The basic government share and the additional government share do not yet take into account the indirect taxes and other financial contributions of mining projects,which are real and actual benefits enjoyed by the Filipino people; if these are taken into account, total government share increases to 60 percent or higher (as much as 77 percent, and 89 percent in one instance) of the net present value of total benefits from the project. The third or last paragraph of Section 81 of RA 7942 is slammed for deferring the payment of the government share in FTAAs until after the contractor shall have recovered its pre-operating expenses, exploration and development expenditures. Allegedly, the collection of the States 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.

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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 States 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 preoperating 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 States 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.

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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 governments 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 States 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 States 60 percent share of WMCPs revenues. Under Section 7.9, should WMCPs 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 WMCPs foreign stockholders, who can at any time cut off the governments entire share by simply selling 60 percent of WMCPs equity to a Philippine citizen or corporation. In fact, the sale by WMCPs 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 States right to receive its 60 percent share. Section 7.9 of the WMCP FTAA has effectively given away the States 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 States 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.

La Bugal-Blaan vs. Ramos

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 States need to maintain flexibility in its dealings, in order to preserve and enhance our countrys 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 moveinstitutionalizes the very reduction if not deprivation of the States 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 Blaan 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 countrys mineral resources as the petitioners.

La Bugal-Blaan vs. Ramos

Whether we consider the near term or take the longer view, we cannot overemphasize the need for an appropriate balancing of interests and needs -- the need to develop our stagnating mining industry and extract what NEDA Secretary Romulo Neri estimates is some US$840 billion (approx. PhP47.04 trillion) worth of mineral wealth lying hidden in the ground, in order to jumpstart our floundering economy on the one hand, and on the other, the need to enhance our nationalistic aspirations, protect our indigenous communities, and prevent irreversible ecological damage. This Court cannot but be mindful that any decision rendered in this case will ultimately impact not only the cultural communities which lodged the instant Petition, and not only the larger community of the Filipino people now struggling to survive amidst a fiscal/budgetary deficit, ever increasing prices of fuel, food, and essential commodities and services, the shrinking value of the local currency, and a government hamstrung in its delivery of basic services by a severe lack of resources, but also countless future generations of Filipinos. For this latter group of Filipinos yet to be born, their eventual access to education, health care and basic services, their overall level of well-being, the very shape of their lives are even now being determined and affected partly by the policies and directions being adopted and implemented by government today. And in part by the this Resolution rendered by this Court today. Verily, the mineral wealth and natural resources of this country are meant to benefit not merely a select group of people living in the areas locally affected by mining activities, but the entire Filipino nation, present and future, to whom the mineral wealth really belong. This Court has therefore weighed carefully the rights and interests of all concerned, and decided for the greater good of the greatest number. JUSTICE FOR ALL, not just for some; JUSTICE FOR THE PRESENT AND THE FUTURE, not just for the here and now. WHEREFORE, the Court RESOLVES to GRANT the respondents and the intervenors Motions for Reconsideration; to REVERSE and SET ASIDE this Courts 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.

Muller vs Muller
Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 149615 August 29, 2006 IN RE: PETITION FOR SEPARATION OF PROPERTY ELENA BUENAVENTURA MULLER, Petitioner, vs. HELMUT MULLER, Respondent. DECISION YNARES-SANTIAGO, J.: This petition for review on certiorari 1 assails the February 26, 2001 Decision 2 of the Court of Appeals in CA-G.R. CV No. 59321 affirming with modification the August 12, 1996 Decision 3 of the Regional Trial Court of Quezon City, Branch 86 in Civil Case No. Q-94-21862, which terminated the regime of absolute community of property between petitioner and respondent, as well as the Resolution 4 dated August 13, 2001 denying the motion for reconsideration. The facts are as follows: Petitioner Elena Buenaventura Muller and respondent Helmut Muller were married in Hamburg, Germany on September 22, 1989. The couple resided in Germany at a house owned by respondents parents but decided to move and reside permanently in the Philippines in 1992. By this time, respondent had inherited the house in Germany from his parents which he sold and used the proceeds for the purchase of a parcel of land in Antipolo, Rizal at the cost of P528,000.00 and the construction of a house amounting to P2,300,000.00. The Antipolo property was registered in the name of petitioner under Transfer Certificate of Title No. 219438 5 of the Register of Deeds of Marikina, Metro Manila. Due to incompatibilities and respondents alleged womanizing, drinking, and maltreatment, the spouses eventually separated. On September 26, 1994, respondent filed a petition 6 for separation of properties before the Regional Trial Court of Quezon City. On August 12, 1996, the trial court rendered a decision which terminated the regime of absolute community of property between the petitioner and respondent. It also decreed the separation of properties between them and ordered the equal partition of personal properties located within the country, excluding those acquired by gratuitous title during the marriage. With regard to the Antipolo property, the court held that it was acquired using paraphernal funds of the respondent. However, it ruled that respondent cannot recover his funds because the property was purchased in violation of Section 7, Article XII of the Constitution. Thus However, pursuant to Article 92 of the Family Code, properties acquired by gratuitous title by either spouse during the marriage shall be excluded from the community property. The real property, therefore, inherited by petitioner in Germany is excluded from the absolute community of property of the herein spouses. Necessarily, the proceeds of the sale of said real property as well as the personal properties purchased thereby, belong exclusively to the petitioner. However, the part of that inheritance used by the petitioner for acquiring the house and lot in this country cannot be recovered by the petitioner, its acquisition being a violation of Section 7, Article XII of the Constitution which provides that "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 law will leave the parties in the situation where they are in without prejudice to a voluntary partition by the parties of the said real property. x x x xxxx

Muller vs Muller As regards the property covered by Transfer Certificate of Title No. 219438 of the Registry of Deeds of Marikina, Metro Manila, situated in Antipolo, Rizal and the improvements thereon, the Court shall not make any pronouncement on constitutional grounds. 7
Respondent appealed to the Court of Appeals which rendered the assailed decision modifying the trial courts Decision. It held that respondent merely prayed for reimbursement for the purchase of the Antipolo property, and not acquisition or transfer of ownership to him. It also considered petitioners ownership over the property in trust for the respondent. As regards the house, the Court of Appeals ruled that there is nothing in the Constitution which prohibits respondent from acquiring the same. The dispositive portion of the assailed decision reads: WHEREFORE, in view of the foregoing, the Decision of the lower court dated August 12, 1996 is hereby MODIFIED. Respondent Elena Buenaventura Muller is hereby ordered to REIMBURSE the petitioner the amount of P528,000.00 for the acquisition of the land and the amount of P2,300,000.00 for the construction of the house situated in Atnipolo, Rizal, deducting therefrom the amount respondent spent for the preservation, maintenance and development of the aforesaid real property including the depreciation cost of the house or in the alternative to SELL the house and lot in the event respondent does not have the means to reimburse the petitioner out of her own money and from the proceeds thereof, reimburse the petitioner of the cost of the land and the house deducting the expenses for its maintenance and preservation spent by the respondent. Should there be profit, the same shall be divided in proportion to the equity each has over the property. The case is REMANDED to the lower court for reception of evidence as to the amount claimed by the respondents for the preservation and maintenance of the property. SO ORDERED. 8 Hence, the instant petition for review raising the following issues: I THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE RESPONDENT HEREIN IS ENTITLED TO REIMBURSEMENT OF THE AMOUNT USED TO PURCHASE THE LAND AS WELL AS THE COSTS FOR THE CONSTRUCTION OF THE HOUSE, FOR IN SO RULING, IT INDIRECTLY ALLOWED AN ACT DONE WHICH OTHERWISE COULD NOT BE DIRECTLY x x x DONE, WITHOUT DOING VIOLENCE TO THE CONSTITUTIONAL PROSCRIPTION THAT AN ALIEN IS PROHIBITED FROM ACQUIRING OWNERSHIP OF REAL PROPERTIES LOCATED IN THE PHILIPPINES. II THE COURT OF APPEALS GRAVELY ERRED IN SUSTAINING RESPONDENTS CAUSE OF ACTION WHICH IS ACTUALLY A DESPERATE ATTEMPT TO OBTAIN OWNERSHIP OVER THE LOT IN QUESTION, CLOTHED UNDER THE GUISE OF CLAIMING REIMBURSEMENT. Petitioner contends that respondent, being an alien, is disqualified to own private lands in the Philippines; that respondent was aware of the constitutional prohibition but circumvented the same; and that respondents purpose for filing an action for separation of property is to obtain exclusive possession, control and disposition of the Antipolo property. Respondent claims that he is not praying for transfer of ownership of the Antipolo property but merely reimbursement; that the funds paid by him for the said property were in consideration of his marriage to petitioner; that the funds were given to petitioner in trust; and that equity demands that respondent should be reimbursed of his personal funds. The issue for resolution is whether respondent is entitled to reimbursement of the funds used for the acquisition of the Antipolo property. The petition has merit. Section 7, Article XII of the 1987 Constitution states:

Muller vs Muller 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.
Aliens, whether individuals or corporations, are disqualified from acquiring lands of the public domain. Hence, they are also disqualified from acquiring private lands. 9 The primary purpose of the constitutional provision is the conservation of the national patrimony. In the case of Krivenko v. Register of Deeds, 10 the Court held: Under section 1 of Article XIII 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. x x x xxxx If the term "private agricultural lands" is to be construed as not including residential lots or lands not strictly agricultural, the result would be that "aliens may freely acquire and possess not only residential lots and houses for themselves but entire subdivisions, and whole towns and cities," and that "they may validly buy and hold in their names lands of any area for building homes, factories, industrial plants, fisheries, hatcheries, schools, health and vacation resorts, markets, golf courses, playgrounds, airfields, and a host of other uses and purposes that are not, in appellants words, strictly agricultural." (Solicitor Generals Brief, p. 6.) That this is obnoxious to the conservative spirit of the Constitution is beyond question. Respondent was aware of the constitutional prohibition and expressly admitted his knowledge thereof to this Court.11 He declared that he had the Antipolo property titled in the name of petitioner because of the said prohibition. 12His attempt at subsequently asserting or claiming a right on the said property cannot be sustained. The Court of Appeals erred in holding that an implied trust was created and resulted by operation of law in view of petitioners marriage to respondent. Save for the exception provided in cases of hereditary succession, respondents disqualification from owning lands in the Philippines is absolute. Not even an ownership in trust is allowed. Besides, where the purchase is made in violation of an existing statute and in evasion of its express provision, no trust can result in favor of the party who is guilty of the fraud. 13 To hold otherwise would allow circumvention of the constitutional prohibition. Invoking the principle that a court is not only a court of law but also a court of equity, is likewise misplaced. It has been held that equity as a rule will follow the law and will not permit that to be done indirectly which, because of public policy, cannot be done directly. 14 He who seeks equity must do equity, and he who comes into equity must come with clean hands. The latter is a frequently stated maxim which is also expressed in the principle that he who has done inequity shall not have equity. It signifies that a litigant may be denied relief by a court of equity on the ground that his conduct has been inequitable, unfair and dishonest, or fraudulent, or deceitful as to the controversy in issue. 15 Thus, in the instant case, respondent cannot seek reimbursement on the ground of equity where it is clear that he willingly and knowingly bought the property despite the constitutional prohibition. Further, the distinction made between transfer of ownership as opposed to recovery of funds is a futile exercise on respondents part. To allow reimbursement would in effect permit respondent to enjoy the fruits of a property which he is not allowed to own. Thus, it is likewise proscribed by law. As expressly held in Cheesman v. Intermediate Appellate Court: 16

Muller vs Muller 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." 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. 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 to 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. (Emphasis added) WHEREFORE, in view of the foregoing, the instant petition is GRANTED. The Decision dated February 26, 2001 of the Court of Appeals in CA-G.R. CV No. 59321 ordering petitioner Elena Buenaventura Muller to reimburse respondent Helmut Muller the amount of P528,000 for the acquisition of the land and the amount of P2,300,000 for the construction of the house in Antipolo City, and the Resolution dated August 13, 2001 denying reconsideration thereof, are REVERSED and SET ASIDE. The August 12, 1996 Decision of the Regional Trial Court of Quezon City, Branch 86 in Civil Case No. Q-94-21862 terminating the regime of absolute community between the petitioner and respondent, decreeing a separation of property between them and ordering the partition of the personal properties located in the Philippines equally, is REINSTATED. SO ORDERED.

Hulst vs. PR Builders

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 156364 September 3, 2007

JACOBUS BERNHARD HULST, petitioner, vs. PR BUILDERS, INC., respondent. DECISION AUSTRIA-MARTINEZ, J.: Before the Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court assailing the Decision1 dated October 30, 2002 of the Court of Appeals (CA) in CA-G.R. SP No. 60981. The facts: Jacobus Bernhard Hulst (petitioner) and his spouse Ida Johanna Hulst-Van Ijzeren (Ida), Dutch nationals, entered into a Contract to Sell with PR Builders, Inc. (respondent), for the purchase of a 210-sq m residential unit in respondent's townhouse project in Barangay Niyugan, Laurel, Batangas. When respondent failed to comply with its verbal promise to complete the project by June 1995, the spouses Hulst filed before the Housing and Land Use Regulatory Board (HLURB) a complaint for rescission of contract with interest, damages and attorney's fees, docketed as HLRB Case No. IV6-071196-0618. On April 22, 1997, HLURB Arbiter Ma. Perpetua Y. Aquino (HLURB Arbiter) rendered a Decision 2 in favor of spouses Hulst, the dispositive portion of which reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of the complainant, rescinding the Contract to Sell and ordering respondent to: 1) Reimburse complainant the sum of P3,187,500.00, representing the purchase price paid by the complainants to P.R. Builders, plus interest thereon at the rate of twelve percent (12%) per annum from the time complaint was filed; 2) Pay complainant the sum of P297,000.00 as actual damages; 3) Pay complainant the sum of P100,000.00 by way of moral damages; 4) Pay complainant the sum of P150,000.00 as exemplary damages; 5) P50,000.00 as attorney's fees and for other litigation expenses; and 6) Cost of suit. SO ORDERED.3

Hulst vs. PR Builders Meanwhile, spouses Hulst divorced. Ida assigned her rights over the purchased property to petitioner.4 From then on, petitioner alone pursued the case.
On August 21, 1997, the HLURB Arbiter issued a Writ of Execution addressed to the Ex-Officio Sheriff of the Regional Trial Court of Tanauan, Batangas directing the latter to execute its judgment.5 On April 13, 1998, the Ex-Officio Sheriff proceeded to implement the Writ of Execution. However, upon complaint of respondent with the CA on a Petition for Certiorari and Prohibition, the levy made by the Sheriff was set aside, requiring the Sheriff to levy first on respondent's personal properties.6 Sheriff Jaime B. Ozaeta (Sheriff) tried to implement the writ as directed but the writ was returned unsatisfied.7 On January 26, 1999, upon petitioner's motion, the HLURB Arbiter issued an Alias Writ of Execution.8 On March 23, 1999, the Sheriff levied on respondent's 15 parcels of land covered by 13 Transfer Certificates of Title (TCT)9 in Barangay Niyugan, Laurel, Batangas.10 In a Notice of Sale dated March 27, 2000, the Sheriff set the public auction of the levied properties on April 28, 2000 at 10:00 a.m..11 Two days before the scheduled public auction or on April 26, 2000, respondent filed an Urgent Motion to Quash Writ of Levy with the HLURB on the ground that the Sheriff made an overlevy since the aggregate appraised value of the levied properties at P6,500.00 per sq m is P83,616,000.00, based on the Appraisal Report12 of Henry Hunter Bayne Co., Inc. dated December 11, 1996, which is over and above the judgment award.13 At 10:15 a.m. of the scheduled auction date of April 28, 2000, respondent's counsel objected to the conduct of the public auction on the ground that respondent's Urgent Motion to Quash Writ of Levy was pending resolution. Absent any restraining order from the HLURB, the Sheriff proceeded to sell the 15 parcels of land. Holly Properties Realty Corporation was the winning bidder for all 15 parcels of land for the total amount of P5,450,653.33. The sum of P5,313,040.00 was turned over to the petitioner in satisfaction of the judgment award after deducting the legal fees.14 At 4:15 p.m. of the same day, while the Sheriff was at the HLURB office to remit the legal fees relative to the auction sale and to submit the Certificates of Sale15 for the signature of HLURB Director Belen G. Ceniza (HLURB Director), he received the Order dated April 28, 2000 issued by the HLURB Arbiter to suspend the proceedings on the matter.16 Four months later, or on August 28, 2000, the HLURB Arbiter and HLURB Director issued an Order setting aside the sheriff's levy on respondent's real properties,17 reasoning as follows: While we are not making a ruling that the fair market value of the levied properties is PhP6,500.00 per square meter (or an aggregate value of PhP83,616,000.00) as indicated in the Hunter Baynes Appraisal Report, we definitely cannot agree with the position of the Complainants and the Sheriff that the aggregate value of the 12,864.00-square meter levied properties is only around PhP6,000,000.00. The disparity between the two valuations are [sic] so egregious that the Sheriff should have looked into the matter first before proceeding with the execution sale of the said properties, especially when the auction sale proceedings was seasonably objected by Respondent's counsel, Atty. Noel Mingoa. However, instead of resolving first the objection timely posed by Atty. Mingoa, Sheriff Ozaete totally disregarded the objection raised and, posthaste, issued the corresponding Certificate of Sale even prior to the payment of the legal fees (pars. 7 & 8, Sheriff's Return). While we agree with the Complainants that what is material in an execution sale proceeding is the amount for which the properties were bidded and sold during the public auction and that, mere inadequacy of the price is not a sufficient ground to annul the sale, the court is justified to intervene where the inadequacy of the price shocks the conscience (Barrozo vs. Macaraeg, 83 Phil. 378). The difference between PhP83,616,000.00 and Php6,000,000.00 is PhP77,616,000.00 and it definitely invites our attention to look into the proceedings had especially so when there was only one bidder, the HOLLY PROPERTIES REALTY CORPORATION represented by Ma, Chandra Cacho (par. 7, Sheriff's Return) and the auction sale proceedings was timely

Hulst vs. PR Builders objected by Respondent's counsel (par. 6, Sheriff's Return) due to the pendency of the Urgent Motion to Quash the Writ of Levy which was filed prior to the execution sale.
Besides, what is at issue is not the value of the subject properties as determined during the auction sale, but the determination of the value of the properties levied upon by the Sheriff taking into consideration Section 9(b) of the 1997 Rules of Civil Procedure x x x. xxxx It is very clear from the foregoing that, even during levy, the Sheriff has to consider the fair market value of the properties levied upon to determine whether they are sufficient to satisfy the judgment, and any levy in excess of the judgment award is void (Buan v. Court of Appeals, 235 SCRA 424). x x x x18 (Emphasis supplied). The dispositive portion of the Order reads: WHEREFORE, the levy on the subject properties made by the Ex-Officio Sheriff of the RTC of Tanauan, Batangas, is hereby SET ASIDE and the said Sheriff is hereby directed to levy instead Respondent's real properties that are reasonably sufficient to enforce its final and executory judgment, this time, taking into consideration not only the value of the properties as indicated in their respective tax declarations, but also all the other determinants at arriving at a fair market value, namely: the cost of acquisition, the current value of like properties, its actual or potential uses, and in the particular case of lands, their size, shape or location, and the tax declarations thereon. SO ORDERED.19 A motion for reconsideration being a prohibited pleading under Section 1(h), Rule IV of the 1996 HLURB Rules and Procedure, petitioner filed a Petition for Certiorari and Prohibition with the CA on September 27, 2000. On October 30, 2002, the CA rendered herein assailed Decision20 dismissing the petition. The CA held that petitioner's insistence that Barrozo v. Macaraeg21 does not apply since said case stated that "when there is a right to redeem inadequacy of price should not be material" holds no water as what is obtaining in this case is not "mere inadequacy," but an inadequacy that shocks the senses; that Buan v. Court of Appeals22 properly applies since the questioned levy covered 15 parcels of land posited to have an aggregate value of P83,616,000.00 which shockingly exceeded the judgment debt of only around P6,000,000.00. Without filing a motion for reconsideration,23 petitioner took the present recourse on the sole ground that: THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE ARBITER'S ORDER SETTING ASIDE THE LEVY MADE BY THE SHERIFF ON THE SUBJECT PROPERTIES.24 Before resolving the question whether the CA erred in affirming the Order of the HLURB setting aside the levy made by the sheriff, it behooves this Court to address a matter of public and national importance which completely escaped the attention of the HLURB Arbiter and the CA: petitioner and his wife are foreign nationals who are disqualified under the Constitution from owning real property in their names. Section 7 of Article XII of the 1987 Constitution 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. (Emphasis supplied). The capacity to acquire private land is made dependent upon the capacity to acquire or hold lands of the public domain. Private land may be transferred or conveyed only to individuals or entities "qualified to acquire lands of the public

Hulst vs. PR Builders domain." The 1987 Constitution reserved the right to participate in the disposition, exploitation, development and utilization of lands of the public domain for Filipino citizens25 or corporations at least 60 percent of the capital of which is owned by Filipinos.26 Aliens, whether individuals or corporations, have been disqualified from acquiring public lands; hence, they have also been disqualified from acquiring private lands.27
Since petitioner and his wife, being Dutch nationals, are proscribed under the Constitution from acquiring and owning real property, it is unequivocal that the Contract to Sell entered into by petitioner together with his wife and respondent is void. Under Article 1409 (1) and (7) of the Civil Code, all contracts whose cause, object or purpose is contrary to law or public policy and those expressly prohibited or declared void by law are inexistent and void from the beginning. Article 1410 of the same Code provides that the action or defense for the declaration of the inexistence of a contract does not prescribe. A void contract is equivalent to nothing; it produces no civil effect.28 It does not create, modify or extinguish a juridical relation.29 Generally, parties to a void agreement cannot expect the aid of the law; the courts leave them as they are, because they are deemed in pari delicto or "in equal fault."30 In pari delicto is "a universal doctrine which holds that no action arises, in equity or at law, from an illegal contract; no suit can be maintained for its specific performance, or to recover the property agreed to be sold or delivered, or the money agreed to be paid, or damages for its violation; and where the parties are in pari delicto, no affirmative relief of any kind will be given to one against the other."31 This rule, however, is subject to exceptions32 that permit the return of that which may have been given under a void contract to: (a) the innocent party (Arts. 1411-1412, Civil Code);33 (b) the debtor who pays usurious interest (Art. 1413, Civil Code);34 (c) the party repudiating the void contract before the illegal purpose is accomplished or before damage is caused to a third person and if public interest is subserved by allowing recovery (Art. 1414, Civil Code);35 (d) the incapacitated party if the interest of justice so demands (Art. 1415, Civil Code);36 (e) the party for whose protection the prohibition by law is intended if the agreement is not illegal per se but merely prohibited and if public policy would be enhanced by permitting recovery (Art. 1416, Civil Code);37 and (f) the party for whose benefit the law has been intended such as in price ceiling laws (Art. 1417, Civil Code)38 and labor laws (Arts. 1418-1419, Civil Code).39 It is significant to note that the agreement executed by the parties in this case is a Contract to Sell and not a contract of sale. A distinction between the two is material in the determination of when ownership is deemed to have been transferred to the buyer or vendee and, ultimately, the resolution of the question on whether the constitutional proscription has been breached. In a contract of sale, the title passes to the buyer upon the delivery of the thing sold. The vendor has lost and cannot recover the ownership of the property until and unless the contract of sale is itself resolved and set aside.40 On the other hand, a contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendor's obligation to transfer title is subordinated to the happening of a future and uncertain event, so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed.41 In other words, in a contract to sell, the prospective seller agrees to transfer ownership of the property to the buyer upon the happening of an event, which normally is the full payment of the purchase price. But even upon the fulfillment of the suspensive condition, ownership does not automatically transfer to the buyer. The prospective seller still has to convey title to the prospective buyer by executing a contract of absolute sale.42 Since the contract involved here is a Contract to Sell, ownership has not yet transferred to the petitioner when he filed the suit for rescission. While the intent to circumvent the constitutional proscription on aliens owning real property was evident by virtue of the execution of the Contract to Sell, such violation of the law did not materialize because petitioner caused the rescission of the contract before the execution of the final deed transferring ownership. Thus, exception (c) finds application in this case. Under Article 1414, one who repudiates the agreement and demands his money before the illegal act has taken place is entitled to recover. Petitioner is therefore entitled to recover what he has paid, although the basis of his claim for rescission, which was granted by the HLURB, was not the fact that he is not allowed to acquire private land under the Philippine Constitution. But petitioner is entitled to the recovery only of the amount of P3,187,500.00, representing the purchase price paid to respondent. No damages may be recovered on the basis of a void contract; being nonexistent, the agreement produces no juridical tie between the parties

Hulst vs. PR Builders involved.43 Further, petitioner is not entitled to actual as well as interests thereon,44 moral and exemplary damages and attorney's fees.
The Court takes into consideration the fact that the HLURB Decision dated April 22, 1997 has long been final and executory. Nothing is more settled in the law than that a decision that has acquired finality becomes immutable and unalterable and may no longer be modified in any respect even if the modification is meant to correct erroneous conclusions of fact or law and whether it was made by the court that rendered it or by the highest court of the land.45 The only recognized exceptions to the general rule are the correction of clerical errors, the so-called nunc pro tunc entries which cause no prejudice to any party, void judgments, and whenever circumstances transpire after the finality of the decision rendering its execution unjust and inequitable.46 None of the exceptions is present in this case. The HLURB decision cannot be considered a void judgment, as it was rendered by a tribunal with jurisdiction over the subject matter of the complaint.47 Ineluctably, the HLURB Decision resulted in the unjust enrichment of petitioner at the expense of respondent. Petitioner received more than what he is entitled to recover under the circumstances. Article 22 of the Civil Code which embodies the maxim, nemo ex alterius incommode debet lecupletari (no man ought to be made rich out of another's injury), states: Art. 22. Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him. The above-quoted article is part of the chapter of the Civil Code on Human Relations, the provisions of which were formulated as basic principles to be observed for the rightful relationship between human beings and for the stability of the social order; designed to indicate certain norms that spring from the fountain of good conscience; guides for human conduct that should run as golden threads through society to the end that law may approach its supreme ideal which is the sway and dominance of justice.48 There is unjust enrichment when a person unjustly retains a benefit at the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience.49 A sense of justice and fairness demands that petitioner should not be allowed to benefit from his act of entering into a contract to sell that violates the constitutional proscription. This is not a case of equity overruling or supplanting a positive provision of law or judicial rule. Rather, equity is exercised in this case "as the complement of legal jurisdiction [that] seeks to reach and to complete justice where courts of law, through the inflexibility of their rules and want of power to adapt their judgments to the special circumstances of cases, are incompetent to do so."50 The purpose of the exercise of equity jurisdiction in this case is to prevent unjust enrichment and to ensure restitution. Equity jurisdiction aims to do complete justice in cases where a court of law is unable to adapt its judgments to the special circumstances of a case because of the inflexibility of its statutory or legal jurisdiction.51 The sheriff delivered to petitioner the amount of P5,313,040.00 representing the net proceeds (bidded amount isP5,450,653.33) of the auction sale after deducting the legal fees in the amount of P137,613.33.52 Petitioner is only entitled to P3,187,500.00, the amount of the purchase price of the real property paid by petitioner to respondent under the Contract to Sell. Thus, the Court in the exercise of its equity jurisdiction may validly order petitioner to return the excess amount of P2,125,540.00. The Court shall now proceed to resolve the single issue raised in the present petition: whether the CA seriously erred in affirming the HLURB Order setting aside the levy made by the Sheriff on the subject properties. Petitioner avers that the HLURB Arbiter and Director had no factual basis for pegging the fair market value of the levied properties at P6,500.00 per sq m or P83,616,000.00; that reliance on the appraisal report was misplaced since the appraisal was based on the value of land in neighboring developed subdivisions and on the assumption that the

Hulst vs. PR Builders residential unit appraised had already been built; that the Sheriff need not determine the fair market value of the subject properties before levying on the same since what is material is the amount for which the properties were bidded and sold during the public auction; that the pendency of any motion is not a valid ground for the Sheriff to suspend the execution proceedings and, by itself, does not have the effect of restraining the Sheriff from proceeding with the execution.
Respondent, on the other hand, contends that while it is true that the HLURB Arbiter and Director did not categorically state the exact value of the levied properties, said properties cannot just amount to P6,000,000.00; that the HLURB Arbiter and Director correctly held that the value indicated in the tax declaration is not the sole determinant of the value of the property. The petition is impressed with merit. If the judgment is for money, the sheriff or other authorized officer must execute the same pursuant to the provisions of Section 9, Rule 39 of the Revised Rules of Court, viz: Sec. 9. Execution of judgments for money, how enforced. (a) Immediate payment on demand. - The officer shall enforce an execution of a judgment for money by demanding from the judgment obligor the immediate payment of the full amount stated in the writ of execution and all lawful fees. x x x (b) Satisfaction by levy. - If the judgment obligor cannot pay all or part of the obligation in cash, certified bank check or other mode of payment acceptable to the judgment obligee, the officer shall levy upon the properties of the judgment obligor of every kind and nature whatsoever which may be disposed of for value and not otherwise exempt from execution, giving the latter the option to immediately choose which property or part thereof may be levied upon, sufficient to satisfy the judgment. If the judgment obligor does not exercise the option, the officer shall first levy on the personal properties, if any, and then on the real properties if the personal properties are insufficient to answer for the judgment. The sheriff shall sell only a sufficient portion of the personal or real property of the judgment obligor which has been levied upon. When there is more property of the judgment obligor than is sufficient to satisfy the judgment and lawful fees, he must sell only so much of the personal or real property as is sufficient to satisfy the judgment and lawful fees. Real property, stocks, shares, debts, credits, and other personal property, or any interest in either real or personal property, may be levied upon in like manner and with like effect as under a writ of attachment (Emphasis supplied).53 Thus, under Rule 39, in executing a money judgment against the property of the judgment debtor, the sheriff shall levy on all property belonging to the judgment debtor as is amply sufficient to satisfy the judgment and costs, and sell the same paying to the judgment creditor so much of the proceeds as will satisfy the amount of the judgment debt and costs. Any excess in the proceeds shall be delivered to the judgment debtor unless otherwise directed by the judgment or order of the court.54 Clearly, there are two stages in the execution of money judgments. First, the levy and then the execution sale. Levy has been defined as the act or acts by which an officer sets apart or appropriates a part or the whole of a judgment debtor's property for the purpose of satisfying the command of the writ of execution.55 The object of a levy is to take property into the custody of the law, and thereby render it liable to the lien of the execution, and put it out of the power of the judgment debtor to divert it to any other use or purpose.56

Hulst vs. PR Builders On the other hand, an execution sale is a sale by a sheriff or other ministerial officer under the authority of a writ of execution of the levied property of the debtor.57
In the present case, the HLURB Arbiter and Director gravely abused their discretion in setting aside the levy conducted by the Sheriff for the reason that the auction sale conducted by the sheriff rendered moot and academic the motion to quash the levy. The HLURB Arbiter lost jurisdiction to act on the motion to quash the levy by virtue of the consummation of the auction sale. Absent any order from the HLURB suspending the auction sale, the sheriff rightfully proceeded with the auction sale. The winning bidder had already paid the winning bid. The legal fees had already been remitted to the HLURB. The judgment award had already been turned over to the judgment creditor. What was left to be done was only the issuance of the corresponding certificates of sale to the winning bidder. In fact, only the signature of the HLURB Director for that purpose was needed58 a purely ministerial act. A purely ministerial act or duty is one which an officer or tribunal performs in a given state of facts, in a prescribed manner, in obedience to the mandate of a legal authority, without regard for or the exercise of his own judgment upon the propriety or impropriety of the act done. If the law imposes a duty upon a public officer and gives him the right to decide how or when the duty shall be performed, such duty is discretionary and not ministerial. The duty is ministerial only when the discharge of the same requires neither the exercise of official discretion nor judgment.59In the present case, all the requirements of auction sale under the Rules have been fully complied with to warrant the issuance of the corresponding certificates of sale. And even if the Court should go into the merits of the assailed Order, the petition is meritorious on the following grounds: Firstly, the reliance of the HLURB Arbiter and Director, as well as the CA, on Barrozo v. Macaraeg60 and Buan v. Court of Appeals61 is misplaced. The HLURB and the CA misconstrued the Court's pronouncements in Barrozo. Barrozo involved a judgment debtor who wanted to repurchase properties sold at execution beyond the one-year redemption period. The statement of the Court in Barrozo, that "only where such inadequacy shocks the conscience the courts will intervene," is at best a mere obiter dictum. This declaration should be taken in the context of the other declarations of the Court in Barrozo, to wit: Another point raised by appellant is that the price paid at the auction sale was so inadequate as to shock the conscience of the court. Supposing that this issue is open even after the one-year period has expired and after the properties have passed into the hands of third persons who may have paid a price higher than the auction sale money, the first thing to consider is that the stipulation contains no statement of the reasonable value of the properties; and although defendant' answer avers that the assessed value wasP3,960 it also avers that their real market value was P2,000 only. Anyway, mere inadequacy of price which was the complaint' allegation is not sufficient ground to annul the sale. It is only where such inadequacy shocks the conscience that the courts will intervene. x x x Another consideration is that the assessed value being P3,960 and the purchase price being in effect P1,864 (P464 sale price plus P1,400 mortgage lien which had to be discharged) the conscience is not shocked upon examining the prices paid in the sales in National Bank v. Gonzales, 45 Phil., 693 and Guerrero v. Guerrero, 57 Phil., 445, sales which were left undisturbed by this Court. Furthermore, where there is the right to redeem as in this case inadequacy of price should not be material because the judgment debtor may re-acquire the property or else sell his right to redeem and thus recover any loss he claims to have suffered by reason of the price obtained at the execution sale. x x x x (Emphasis supplied).62 In other words, gross inadequacy of price does not nullify an execution sale. In an ordinary sale, for reason of equity, a transaction may be invalidated on the ground of inadequacy of price, or when such inadequacy shocks one's conscience as to justify the courts to interfere; such does not follow when the law gives the owner the right to redeem as when a sale is made at public auction,63 upon the theory that the lesser the price, the easier it is for the owner to effect redemption.64 When there is a right to redeem, inadequacy of price should not be material because the judgment

Hulst vs. PR Builders debtor may re-acquire the property or else sell his right to redeem and thus recover any loss he claims to have suffered by reason of the price obtained at the execution sale.65 Thus, respondent stood to gain rather than be harmed by the low sale value of the auctioned properties because it possesses the right of redemption. More importantly, the subject matter in Barrozo is the auction sale, not the levy made by the Sheriff.
The Court does not sanction the piecemeal interpretation of a decision. To get the true intent and meaning of a decision, no specific portion thereof should be isolated and resorted to, but the decision must be considered in its entirety.66 As regards Buan, it is cast under an entirely different factual milieu. It involved the levy on two parcels of land owned by the judgment debtor; and the sale at public auction of one was sufficient to fully satisfy the judgment, such that the levy and attempted execution of the second parcel of land was declared void for being in excess of and beyond the original judgment award granted in favor of the judgment creditor. In the present case, the Sheriff complied with the mandate of Section 9, Rule 39 of the Revised Rules of Court, to "sell only a sufficient portion" of the levied properties "as is sufficient to satisfy the judgment and the lawful fees." Each of the 15 levied properties was successively bidded upon and sold, one after the other until the judgment debt and the lawful fees were fully satisfied. Holly Properties Realty Corporation successively bidded upon and bought each of the levied properties for the total amount of P5,450,653.33 in full satisfaction of the judgment award and legal fees.67 Secondly, the Rules of Court do not require that the value of the property levied be exactly the same as the judgment debt; it can be less or more than the amount of debt. This is the contingency addressed by Section 9, Rule 39 of the Rules of Court. In the levy of property, the Sheriff does not determine the exact valuation of the levied property. Under Section 9, Rule 39, in conjunction with Section 7, Rule 57 of the Rules of Court, the sheriff is required to do only two specific things to effect a levy upon a realty: (a) file with the register of deeds a copy of the order of execution, together with the description of the levied property and notice of execution; and (b) leave with the occupant of the property copy of the same order, description and notice.68 Records do not show that respondent alleged non-compliance by the Sheriff of said requisites. Thirdly, in determining what amount of property is sufficient out of which to secure satisfaction of the execution, the Sheriff is left to his own judgment. He may exercise a reasonable discretion, and must exercise the care which a reasonably prudent person would exercise under like conditions and circumstances, endeavoring on the one hand to obtain sufficient property to satisfy the purposes of the writ, and on the other hand not to make an unreasonable and unnecessary levy.69 Because it is impossible to know the precise quantity of land or other property necessary to satisfy an execution, the Sheriff should be allowed a reasonable margin between the value of the property levied upon and the amount of the execution; the fact that the Sheriff levies upon a little more than is necessary to satisfy the execution does not render his actions improper.70 Section 9, Rule 39, provides adequate safeguards against excessive levying. The Sheriff is mandated to sell so much only of such real property as is sufficient to satisfy the judgment and lawful fees. In the absence of a restraining order, no error, much less abuse of discretion, can be imputed to the Sheriff in proceeding with the auction sale despite the pending motion to quash the levy filed by the respondents with the HLURB. It is elementary that sheriffs, as officers charged with the delicate task of the enforcement and/or implementation of judgments, must, in the absence of a restraining order, act with considerable dispatch so as not to unduly delay the administration of justice; otherwise, the decisions, orders, or other processes of the courts of justice and the like would be futile.71 It is not within the jurisdiction of the Sheriff to consider, much less resolve, respondent's objection to the continuation of the conduct of the auction sale. The Sheriff has no authority, on his own, to suspend the auction sale. His duty being ministerial, he has no discretion to postpone the conduct of the auction sale. Finally, one who attacks a levy on the ground of excessiveness carries the burden of sustaining that contention.72In the determination of whether a levy of execution is excessive, it is proper to take into consideration encumbrances upon the property, as well as the fact that a forced sale usually results in a sacrifice; that is, the price demanded for the property upon a private sale is not the standard for determining the excessiveness of the levy.73 Here, the HLURB Arbiter and Director had no sufficient factual basis to determine the value of the levied property. Respondent only submitted an Appraisal Report, based merely on surmises. The Report was based on the projected

Hulst vs. PR Builders value of the townhouse project after it shall have been fully developed, that is, on the assumption that the residential units appraised had already been built. The Appraiser in fact made this qualification in its Appraisal Report: "[t]he property subject of this appraisal has not been constructed. The basis of the appraiser is on the existing model units."74 Since it is undisputed that the townhouse project did not push through, the projected value did not become a reality. Thus, the appraisal value cannot be equated with the fair market value. The Appraisal Report is not the best proof to accurately show the value of the levied properties as it is clearly self-serving.
Therefore, the Order dated August 28, 2000 of HLURB Arbiter Aquino and Director Ceniza in HLRB Case No. IV6071196-0618 which set aside the sheriff's levy on respondent's real properties, was clearly issued with grave abuse of discretion. The CA erred in affirming said Order. WHEREFORE, the instant petition is GRANTED. The Decision dated October 30, 2002 of the Court of Appeals in CAG.R. SP No. 60981 is REVERSED and SET ASIDE. The Order dated August 28, 2000 of HLURB Arbiter Ma. Perpetua Y. Aquino and Director Belen G. Ceniza in HLRB Case No. IV6-071196-0618 is declared NULL andVOID. HLURB Arbiter Aquino and Director Ceniza are directed to issue the corresponding certificates of sale in favor of the winning bidder, Holly Properties Realty Corporation. Petitioner is ordered to return to respondent the amount of P2,125,540.00, without interest, in excess of the proceeds of the auction sale delivered to petitioner. After the finality of herein judgment, the amount of P2,125,540.00 shall earn 6% interest until fully paid. SO ORDERED

Hulst vs. PR Builders

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

JACOBUS BERNHARD HULST, Petitioner, G.R. No. 156364 Present: YNARES-SANTIAGO, J., Chairperson, AUSTRIA-MARTINEZ, CHICO-NAZARIO, NACHURA, and REYES, JJ. Promulgated: September 25, 2008

- versus -

PR BUILDERS, INC., Respondent.

x----------------------------------------------------------x RESOLUTION AUSTRIA-MARTINEZ, J.: This resolves petitioner's Motion for Partial Reconsideration. On September 3, 2007, the Court rendered a Decision1 in the present case, the dispositive portion of which reads: WHEREFORE, the instant petition is GRANTED. The Decision dated October 30, 2002 of the Court of Appeals in CA-G.R. SP No. 60981 is REVERSED and SET ASIDE. The Order dated August 28, 2000 of HLURB Arbiter Ma. Perpetua Y. Aquino and Director Belen G. Ceniza in HLRB Case No. IV6-071196-0618 is declared NULL and VOID. HLURB Arbiter Aquino and Director Ceniza are directed to issue the corresponding certificates of sale in favor of the winning bidder, Holly Properties Realty Corporation.Petitioner is ordered to return to respondent the amount of P2,125,540.00, without interest, in excess of the proceeds of the auction sale delivered to petitioner. After the finality of herein judgment, the amount of P2,125,540.00 shall earn 6% interest until fully paid. SO ORDERED.2 (Emphasis supplied) Petitioner filed the present Motion for Partial Reconsideration3 insofar as he was ordered to return to respondent the amount of P2,125,540.00 in excess of the proceeds of the auction

Hulst vs. PR Builders

sale delivered to petitioner. Petitioner contends that the Contract to Sell between petitioner and respondent involved a condominium unit and did not violate the Constitutional proscription against ownership of land by aliens. He argues that the contract to sell will not transfer to the buyer ownership of the land on which the unit is situated; thus, the buyer will not get a transfer certificate of title but merely a Condominium Certificate of Title as evidence of ownership; a perusal of the contract will show that what the buyer acquires is the seller's title and rights to and interests in the unit and the common areas. Despite receipt of this Courts Resolution dated February 6, 2008, respondent failed to file a comment on the subject motion. The Motion for Partial Reconsideration is impressed with merit. The Contract to Sell between petitioner and respondent provides as follows: Section 3. TITLE AND OWNERSHIP OF UNIT a. Upon full payment by the BUYER of the purchase price stipulated in Section 2 hereof, x x x, the SELLER shall deliver to the BUYER the Deed of Absolute Sale conveying its rights, interests and title to the UNIT and to the common areas appurtenant to such UNIT, and the corresponding Condominium Certificate of Title in the SELLER's name; x x x b. The Seller shall register with the proper Registry of Deeds, the Master Deed with the Declaration of Restrictions and other documents and shall immediately comply with all requirements ofRepublic Act No. 4726 (The Condominium Act) and Presidential Decree No. 957 (Regulating the Sale of Subdivision Lots and Condominiums, Providing Penalties for Violations Thereof). It is hereby understood that all title, rights and interest so conveyed shall be subject to the provisions of the Condominium Act, the Master Deed with Declaration of Restrictions, the Articles of Incorporation and By-Laws and the Rules and Regulations of the Condominium Corporation, zoning regulations and such other restrictions on the use of the property as annotated on the title or may be imposed by any government agency or instrumentality having jurisdiction thereon.4 (Emphasis supplied) Under Republic Act (R.A.) No. 4726, otherwise known as the Condominium Act, foreign nationals can own Philippine real estate through the purchase of condominium units or townhouses constituted under the Condominium principle with Condominium Certificates of Title. Section 5 of R.A. No. 4726 states: SECTION 5. Any transfer or conveyance of a unit or an apartment, office or store or other space therein, shall include the transfer or conveyance of the undivided interest in the common areas or, in a proper case, the membership or shareholdings in the condominium corporation; Provided, however, That where the common areas in the condominium project are held by the owners of separate units as co-owners thereof, no condominium unit therein

Hulst vs. PR Builders

shall be conveyed or transferred to persons other than Filipino citizens or corporations at least 60% of the capital stock of which belong to Filipino citizens, except in cases of hereditary succession. Where the common areas in a condominium project are held by a corporation, no transfer or conveyance of a unit shall be valid if the concomitant transfer of the appurtenant membership or stockholding in the corporation will cause the alien interest in such corporation to exceed the limits imposed by existing laws. (Emphasis supplied) The law provides that no condominium unit can be sold without at the same time selling the corresponding amount of rights, shares or other interests in the condominium management body, the Condominium Corporation; and no one can buy shares in a Condominium Corporation without at the same time buying a condominium unit. It expressly allows foreigners to acquire condominium units and shares in condominium corporations up to not more than 40% of the total and outstanding capital stock of a Filipino-owned or controlled corporation. Under this set up, the ownership of the land is legally separated from the unit itself. The land is owned by a Condominium Corporation and the unit owner is simply a member in this Condominium Corporation.5 As long as 60% of the members of this Condominium Corporation are Filipino, the remaining members can be foreigners. Considering that the rights and liabilities of the parties under the Contract to Sell is covered by the Condominium Act wherein petitioner as unit owner was simply a member of the Condominium Corporation and the land remained owned by respondent, then the constitutional proscription against aliens owning real property does not apply to the present case. There being no circumvention of the constitutional prohibition, the Court's pronouncements on the invalidity of the Contract of Sale should be set aside. WHEREFORE, the Motion for Partial Reconsideration is GRANTED. Accordingly, the Decision dated September 3, 2007 of the Court is MODIFIED by deleting the order to petitioner to return to respondent the amount of P2,125,540.00 in excess of the proceeds of the auction sale delivered to petitioner. SO ORDERED.

Chavez vs National Housing Authority

Republic of the Philippines SUPREME COURT Manila

EN BANC FRANCISCO I. CHAVEZ, Petitioner, G.R. No. 164527 Present: PUNO, CJ, QUISUMBING, YNARES-SANTIAGO, SANDOVAL-GUTIERREZ, CARPIO, AUSTRIA-MARTINEZ, CORONA, CARPIO MORALES, AZCUNA, TINGA, CHICO-NAZARIO, GARCIA, VELASCO, NACHURA, and REYES, JJ.

- versus -

NATIONAL HOUSING AUTHORITY, R-II BUILDERS, INC., R-II HOLDINGS, INC., HARBOUR CENTRE PORT TERMINAL, INC., and Promulgated: MR. REGHIS ROMERO II, Respondents. August 15, 2007 x-----------------------------------------------------------------------------------------x DECISION VELASCO, JR., J.: In this Petition for Prohibition and Mandamus with Prayer for Temporary Restraining Order and/or Writ of Preliminary Injunction under Rule 65, petitioner, in his capacity as taxpayer, seeks:
to declare NULL AND VOID the Joint Venture Agreement (JVA) dated March 9, 1993 between the National Housing Authority and R-II Builders, Inc. and the Smokey Mountain Development and Reclamation Project embodied therein; the subsequent amendments to the said JVA; and all other

Chavez vs National Housing Authority

agreements signed and executed in relation thereto including, but not limited to the Smokey Mountain Asset Pool Agreement dated 26 September 1994 and the separate agreements for Phase I and Phase II of the Projectas well as all other transactions which emanated therefrom, for being UNCONSTITUTIONAL and INVALID; to enjoin respondentsparticularly respondent NHAfrom further implementing and/or enforcing the said project and other agreements related thereto, and from further deriving and/or enjoying any rights, privileges and interest therefrom x x x; and to compel respondents to disclose all documents and information relating to the projectincluding, but not limited to, any subsequent agreements with respect to the different phases of the project, the revisions over the original plan, the additional works incurred thereon, the current financial condition of respondent R-II Builders, Inc., and the transactions made respecting the project.[1]

The Facts On March 1, 1988, then President Corazon C. Aquino issued Memorandum Order No. (MO) 161 approving and directing the implementation of the Comprehensive and Integrated Metropolitan Manila Waste Management Plan (the Plan). The Metro Manila Commission, in coordination with various government agencies, was tasked as the lead agency to implement the Plan as formulated by the Presidential Task Force on Waste Management created by Memorandum Circular No. 39. A day after, on March 2, 1988, MO 161-A[3] was issued, containing the guidelines which prescribed the functions and responsibilities of fifteen (15) various government departments and offices tasked to implement the Plan, namely: Department of Public Works and Highway (DPWH), Department of Health (DOH), Department of Environment and Natural Resources (DENR), Department of Transportation and Communication, Department of Budget and Management, National Economic and Development Authority (NEDA), Philippine Constabulary Integrated National Police, Philippine Information Agency and the Local Government Unit (referring to the City of Manila), Department of Social Welfare and Development, Presidential Commission for Urban Poor, National Housing Authority (NHA), Department of Labor and Employment, Department of Education, Culture and Sports (now Department of Education), and Presidential Management Staff.
[2]

Specifically, respondent NHA was ordered to conduct feasibility studies and develop lowcost housing projects at the dumpsite and absorb scavengers in NHA resettlement/low-cost housing projects.[4] On the other hand, the DENR was tasked to review and evaluate proposed projects under the Plan with regard to their environmental impact, conduct regular monitoring of activities of the Plan to ensure compliance with environmental standards and assist DOH in the conduct of the study on hospital waste management.[5]

Chavez vs National Housing Authority

At the time MO 161-A was issued by President Aquino, Smokey Mountain was a wasteland in Balut, Tondo, Manila, where numerous Filipinos resided in subhuman conditions, collecting items that may have some monetary value from the garbage. The Smokey Mountain dumpsite is bounded on the north by the Estero Marala, on the south by the property of the National Government, on the east by the property of B and I Realty Co., and on the west by Radial Road 10 (R-10). Pursuant to MO 161-A, NHA prepared the feasibility studies of the Smokey Mountain lowcost housing project which resulted in the formulation of the Smokey Mountain Development Plan and Reclamation of the Area Across R-10 or the Smokey Mountain Development and Reclamation Project (SMDRP; the Project). The Project aimed to convert the Smokey Mountain dumpsite into a habitable housing project, inclusive of the reclamation of the area across R-10, adjacent to the Smokey Mountain as the enabling component of the project.[6] Once finalized, the Plan was submitted to President Aquino for her approval. On July 9, 1990, the Build-Operate-and-Transfer (BOT) Law (Republic Act No. [RA] 6957) was enacted.[7] Its declared policy under Section 1 is [t]o recognize the indispensable role of the private sector as the main engine for national growth and development and provide the most appropriate favorable incentives to mobilize private resources for the purpose. Sec. 3 authorized and empowered [a]ll government infrastructure agencies, including government -owned and controlled corporations and local government units x x x to enter into contract with any duly prequalified private contractor for the financing, construction, operation and maintenance of any financially viable infrastructure facilities through the build-operate-transfer or build and transfer scheme. RA 6957 defined build-and-transfer scheme as [a] contractual arrangement whereby the contractor undertakes the construction, including financing, of a given infrastructure facility, and its turnover after the completion to the government agency or local government unit concerned which shall pay the contractor its total investment expended on the project, plus reasonable rate of return thereon. The last paragraph of Sec. 6 of the BOT Law provides that the repayment scheme in the case of land reclamation or the building of industrial estates may consist of [t]he grant of a portion or percentage of the reclaimed land or industrial estate built, subject to the constitutional requirements with respect to the ownership of lands. On February 10, 1992, Joint Resolution No. 03[8] was passed by both houses of Congress. Sec. 1 of this resolution provided, among other things, that:

Chavez vs National Housing Authority

Section 1. There is hereby approved the following national infrastructure projects for implementation under the provisions of Republic Act No. 6957 and its implementing rules and regulations: xxxx (d) Port infrastructure like piers, wharves, quays, storage handling, ferry service and related facilities; xxxx (k) Land reclamation, dredging and other related development facilities;

(l) Industrial estates, regional industrial centers and export processing zones including steel mills, iron-making and petrochemical complexes and related infrastructure and utilities; xxxx (p) Environmental and solid waste management-related facilities such as collection equipment, composting plants, incinerators, landfill and tidal barriers, among others; and (q) Development of new townsites and communities and related facilities.

This resolution complied with and conformed to Sec. 4 of the BOT Law requiring the approval of all national infrastructure projects by the Congress. On January 17, 1992, President Aquino proclaimed MO 415[9] approving and directing the implementation of the SMDRP. Secs. 3 and 4 of the Memorandum Order stated:
Section 3. The National Housing Authority is hereby directed to implement the Smokey Mountain Development Plan and Reclamation of the Area Across R-10 through a private sector joint venture scheme at the least cost to the government. Section 4. The land area covered by the Smokey Mountain dumpsite is hereby conveyed to the National Housing Authority as well as the area to be reclaimed across R-10. (Emphasis supplied.)

In addition, the Public Estates Authority (PEA) was directed to assist in the evaluation of proposals regarding the technical feasibility of reclamation, while the DENR was directed to (1) facilitate titling of Smokey Mountain and of the area to be reclaimed and (2) assist in the technical evaluation of proposals regarding environmental impact statements.[10]

Chavez vs National Housing Authority

In the same MO 415, President Aquino created an Executive Committee (EXECOM) to oversee the implementation of the Plan, chaired by the National Capital Region-Cabinet Officer for Regional Development (NCR-CORD) with the heads of the NHA, City of Manila, DPWH, PEA, Philippine Ports Authority (PPA), DENR, and Development Bank of the Philippines (DBP) as members.[11] The NEDA subsequently became a member of the EXECOM. Notably, in a September 2, 1994 Letter,[12] PEA General Manager Amado Lagdameo approved the plans for the reclamation project prepared by the NHA. In conformity with Sec. 5 of MO 415, an inter-agency technical committee (TECHCOM) was created composed of the technical representatives of the EXECOM [t]o assist the NHA in the evaluation of the project proposals, assist in the resolution of all issues and problems in the project to ensure that all aspects of the development from squatter relocation, waste management, reclamation, environmental protection, land and house construction meet governing regulation of the region and to facilitate the completion of the project.[13] Subsequently, the TECHCOM put out the Public Notice and Notice to Pre-Qualify and Bid for the right to become NHAs joint venture partner in the implementation of the SMDRP. The notices were published in newspapers of general circulation on January 23 and 26 and February 1, 14, 16, and 23, 1992, respectively. Out of the thirteen (13) contractors who responded, only five (5) contractors fully complied with the required pre-qualification documents. Based on the evaluation of the pre-qualification documents, the EXECOM declared the New San Jose Builders, Inc. and R-II Builders, Inc. (RBI) as the top two contractors.[14] Thereafter, the TECHCOM evaluated the bids (which include the Pre-feasibility Study and Financing Plan) of the top two (2) contractors in this manner: (1) The DBP, as financial advisor to the Project, evaluated their Financial Proposals;

(2) The DPWH, PPA, PEA and NHA evaluated the Technical Proposals for the Housing Construction and Reclamation; (3) The DENR evaluated Technical Proposals on Waste Management and Disposal by conducting the Environmental Impact Analysis; and (4) The NHA and the City of Manila evaluated the socio-economic benefits presented by the proposals.

Chavez vs National Housing Authority

On June 30, 1992, Fidel V. Ramos assumed the Office of the President (OP) of the Philippines. On August 31, 1992, the TECHCOM submitted its recommendation to the EXECOM to approve the R-II Builders, Inc. (RBI) proposal which garnered the highest score of 88.475%.

Subsequently, the EXECOM made a Project briefing to President Ramos. As a result, President Ramos issued Proclamation No. 39[15] on September 9, 1992, which reads:
WHEREAS, the National Housing Authority has presented a viable conceptual plan to convert the Smokey Mountain dumpsite into a habitable housing project, inclusive of the reclamation of the area across Road Radial 10 (R-10) adjacent to the Smokey Mountain as the enabling component of the project; xxxx These parcels of land of public domain are hereby placed under the administration and disposition of the National Housing Authority to develop, subdivide and dispose to qualified beneficiaries, as well as its development for mix land use (commercial/industrial) to provide employment opportunities to on-site families and additional areas for port-related activities. In order to facilitate the early development of the area for disposition, the Department of Environment and Natural Resources, through the Lands and Management Bureau, is hereby directed to approve the boundary and subdivision survey and to issue a special patent and title in the name of the National Housing Authority, subject to final survey and private rights, if any there be. (Emphasis supplied.)

On October 7, 1992, President Ramos authorized NHA to enter into a Joint Venture Agreement with RBI [s]ubject to final review and app roval of the Joint Venture Agreement by the Office of the President.[16] On March 19, 1993, the NHA and RBI entered into a Joint Venture Agreement[17] (JVA) for the development of the Smokey Mountain dumpsite and the reclamation of the area across R-10 based on Presidential Decree No. (PD) 757[18] which mandated NHA [t]o undertake the physical and socio-economic upgrading and development of lands of the public domain identified for housing, MO 161-A which required NHA to conduct the feasibility studies and develop a lowcost housing project at the Smokey Mountain, and MO 415 as amended by MO 415-A which approved the Conceptual Plan for Smokey Mountain and creation of the EXECOM and TECHCOM. Under the JVA, the Project involves the clearing of Smokey Mountain for eventual development into a low cost medium rise housing complex and industrial/commercial site with the

Chavez vs National Housing Authority

reclamation of the area directly across [R-10] to act as the enabling component of the Project.[19] The JVA covered a lot in Tondo, Manila with an area of two hundred twelve thousand two hundred thirty-four (212,234) square meters and another lot to be reclaimed also in Tondo with an area of four hundred thousand (400,000) square meters. The Scope of Work of RBI under Article II of the JVA is as follows:
a) To fully finance all aspects of development of Smokey Mountain and reclamation of no more than 40 hectares of Manila Bay area across Radial Road 10. b) To immediately commence on the preparation of feasibility report and detailed engineering with emphasis to the expedient acquisition of the Environmental Clearance Certificate (ECC) from the DENR. c) The construction activities will only commence after the acquisition of the ECC, and

d) Final details of the contract, including construction, duration and delivery timetables, shall be based on the approved feasibility report and detailed engineering.

Other obligations of RBI are as follows:

2.02 The [RBI] shall develop the PROJECT based on the Final Report and Detailed Engineering as approved by the Office of the President. All costs and expenses for hiring technical personnel, date gathering, permits, licenses, appraisals, clearances, testing and similar undertaking shall be for the account of the [RBI]. 2.03 The [RBI] shall undertake the construction of 3,500 temporary housing units complete with basic amenities such as plumbing, electrical and sewerage facilities within the temporary housing project as staging area to temporarily house the squatter families from the Smokey Mountain while development is being undertaken. These temporary housing units shall be turned over to the [NHA] for disposition. 2.04 The [RBI] shall construct 3,500 medium rise low cost permanent housing units on the leveled Smokey Mountain complete with basic utilities and amenities, in accordance with the plans and specifications set forth in the Final Report approved by the [NHA]. Completed units ready for mortgage take out shall be turned over by the [RBI] to NHA on agreed schedule. 2.05 The [RBI] shall reclaim forty (40) hectares of Manila Bay area directly across [R-10] as contained in Proclamation No. 39 as the enabling component of the project and payment to the [RBI] as its asset share. 2.06 The [RBI] shall likewise furnish all labor materials and equipment necessary to complete all herein development works to be undertaken on a phase to phase basis in accordance with the work program stipulated therein.

Chavez vs National Housing Authority

The profit sharing shall be based on the approved pre-feasibility report submitted to the EXECOM, viz: For the developer (RBI):
1. 2. and 3. To own all the constructed units of medium rise low cost permanent housing units beyond the 3,500 units share of the [NHA]. To own the forty (40) hectares of reclaimed land. To own the commercial area at the Smokey Mountain area composed of 1.3 hectares,

For the NHA:

1. To own the temporary housing consisting of 3,500 units.

2. To own the cleared and fenced incinerator site consisting of 5 hectares situated at the Smokey Mountain area. 3. To own the 3,500 units of permanent housing to be constructed by [RBI] at the Smokey Mountain area to be awarded to qualified on site residents. 4. 5. To own the Industrial Area site consisting of 3.2 hectares, and To own the open spaces, roads and facilities within the Smokey Mountain area.

In the event of extraordinary increase in labor, materials, fuel and non -recoverability of total project expenses,[20] the OP, upon recommendation of the NHA, may approve a corresponding adjustment in the enabling component. The functions and responsibilities of RBI and NHA are as follows: For RBI:
4.01 Immediately commence on the preparation of the FINAL REPORT with emphasis to the expedient acquisition, with the assistance of the [NHA] of Environmental Compliance Certificate (ECC) from the Environmental Management Bureau (EMB) of the [DENR]. Construction shall only commence after the acquisition of the ECC. The Environment Compliance Certificate (ECC) shall form part of the FINAL REPORT.

Chavez vs National Housing Authority

The FINAL REPORT shall provide the necessary subdivision and housing plans, detailed engineering and architectural drawings, technical specifications and other related and required documents relative to the Smokey Mountain area. With respect to the 40-hectare reclamation area, the [RBI] shall have the discretion to develop the same in a manner that it deems necessary to recover the [RBIs] investment, subject to environmental and zoning rules. 4.02 Finance the total project cost for land development, housing construction and reclamation of the PROJECT. 4.03 Warrant that all developments shall be in compliance with the requirements of the FINAL REPORT. 4.04 Provide all administrative resources for the submission of project accomplishment reports to the [NHA] for proper evaluation and supervision on the actual implementation. 4.05 Negotiate and secure, with the assistance of the [NHA] the grant of rights of way to the PROJECT, from the owners of the adjacent lots for access road, water, electrical power connections and drainage facilities. 4.06 Provide temporary field office and transportation vehicles (2 units), one (1) complete set of computer and one (1) unit electric typewriter for the [NHAs] field personnel to be charged to the PROJECT.

For the NHA:

4.07 The [NHA] shall be responsible for the removal and relocation of all squatters within Smokey Mountain to the Temporary Housing Complex or to other areas prepared as relocation areas with the assistance of the [RBI]. The [RBI] shall be responsible in releasing the funds allocated and committed for relocation as detailed in the FINAL REPORT. 4.08 Assist the [RBI] and shall endorse granting of exemption fees in the acquisition of all necessary permits, licenses, appraisals, clearances and accreditations for the PROJECT subject to existing laws, rules and regulations. 4.09 The [NHA] shall inspect, evaluate and monitor all works at the Smokey Mountain and Reclamation Area while the land development and construction of housing units are in progress to determine whether the development and construction works are undertaken in accordance with the FINAL REPORT. If in its judgment, the PROJECT is not pursued in accordance with the FINAL REPORT, the [NHA] shall require the [RBI] to undertake necessary remedial works. All expenses, charges and penalties incurred for such remedial, if any, shall be for the account of the [RBI]. 4.10 xx The [NHA] shall assist the [RBI] in the complete electrification of the PROJECT. x

Chavez vs National Housing Authority

4.11 Handle the processing and documentation of all sales transactions related to its assets shares from the venture such as the 3,500 units of permanent housing and the allotted industrial area of 3.2 hectares. 4.12 All advances outside of project costs made by the [RBI] to the [NHA] shall be deducted from the proceeds due to the [NHA]. 4.13 The [NHA] shall be responsible for the acquisition of the Mother Title for the Smokey Mountain and Reclamation Area within 90 days upon submission of Survey returns to the Land Management Sector. The land titles to the 40-hectare reclaimed land, the 1.3 hectare commercial area at the Smokey Mountain area and the constructed units of medium-rise permanent housing units beyond the 3,500 units share of the [NHA] shall be issued in the name of the [RBI] upon completion of the project. However, the [RBI] shall have the authority to pre-sell its share as indicated in this agreement.

The final details of the JVA, which will include the construction duration, costs, extent of reclamation, and delivery timetables, shall be based on the FINAL REPORT which will be contained in a Supplemental Agreement to be executed later by the parties. The JVA may be modified or revised by written agreement between the NHA and RBI specifying the clauses to be revised or modified and the corresponding amendments. If the Project is revoked or terminated by the Government through no fault of RBI or by mutual agreement, the Government shall compensate RBI for its actual expenses incurred in the Project plus a reasonable rate of return not exceeding that stated in the feasibility study and in the contract as of the date of such revocation, cancellation, or termination on a schedule to be agreed upon by both parties. As a preliminary step in the project implementation, consultations and dialogues were conducted with the settlers of the Smokey Mountain Dumpsite Area. At the same time, DENR started processing the application for the Environmental Clearance Certificate (ECC) of the SMDRP. As a result however of the consultative dialogues, public hearings, the report on the onsite field conditions, the Environmental Impact Statement (EIS) published on April 29 and May 12, 1993 as required by the Environmental Management Bureau of DENR, the evaluation of the DENR, and the recommendations from other government agencies, it was discovered that design changes and additional work have to be undertaken to successfully implement the Project. [21] Thus, on February 21, 1994, the parties entered into another agreement denominated as the Amended and Restated Joint Venture Agreement[22](ARJVA) which delineated the different phases of the Project. Phase I of the Project involves the construction of temporary housing units

Chavez vs National Housing Authority

for the current residents of the Smokey Mountain dumpsite, the clearing and leveling-off of the dumpsite, and the construction of medium-rise low-cost housing units at the cleared and leveled dumpsite.[23] Phase II of the Project involves the construction of an incineration area for the onsite disposal of the garbage at the dumpsite.[24] The enabling component or consideration for Phase I of the Project was increased from 40 hectares of reclaimed lands across R-10 to 79 hectares.[25] The revision also provided for the enabling component for Phase II of 119 hectares of reclaimed lands contiguous to the 79 hectares of reclaimed lands for Phase I.[26] Furthermore, the amended contract delineated the scope of works and the terms and conditions of Phases I and II, thus:
The PROJECT shall consist of Phase I and Phase II. Phase I shall involve the following: a. the construction of 2,992 units of temporary housing for the affected residents while clearing and development of Smokey Mountain [are] being undertaken b. the clearing of Smokey Mountain and the subsequent construction of 3,520 units of medium rise housing and the development of the industrial/commercial site within the Smokey Mountain area c. the reclamation and development of a 79 hectare area directly across Radial Road 10 to serve as the enabling component of Phase I Phase II shall involve the following: a. the construction and operation of an incinerator plant that will standards of the DENR b. the reclamation and development of 119-hectare area under Phase I to serve as the enabling component of Phase II. conform to the emission

contiguous to that to be reclaimed

Under the ARJVA, RBI shall construct 2,992 temporary housing units, a reduction from 3,500 units under the JVA.[27] However, it was required to construct 3,520 medium-rise low-cost permanent housing units instead of 3,500 units under the JVA. There was a substantial change in the design of the permanent housing units such that a loft shall be incorporated in each unit so as to increase the living space from 20 to 32 square meters. The additions and changes in the Original Project Component are as follows:
ORIGINAL 1. TEMPORARY HOUSING Wood/Plywood, ga. 31 G.I. years, Concrete/Steel Frame Structure Sheet usable life of 3 gauge 26 G.I. roofing sheets future 12 SM floor CHANGES/REVISIONS

Chavez vs National Housing Authority

area. warehouses mixed 2. MEDIUM RISE MASS HOUSING

use as permanent structures for 17 sm & 12 sm floor area.

factory and

Box type precast Shelter Conventional and precast component 20 square meter concrete structures, 32 square floor area with 2.4 meter meter floor area with loft floor height; bare type, 160 units/ (sleeping quarter) 3.6 m. floor building. height, painted and improved architectural faade, 80 units/ building. 3. MITIGATING MEASURES 3.1 For reclamation work Use of clean dredgefill material below the MLLW and SM material mixed with dredgefill above MLLW.

a. 100% use of Smokey Mountain material as dredgefill b. Concrete Sheet Piles short depth of embedment c. Silt removal approximately 1.0 meter only

Use of Steel Sheet Piles needed for longer depth of embedment.

Need to remove more than 3.0 meters of silt after sub-soil investigation.[28]

These material and substantial modifications served as justifications for the increase in the share of RBI from 40 hectares to 79 hectares of reclaimed land. Under the JVA, the specific costs of the Project were not stipulated but under the ARJVA, the stipulated cost for Phase I was pegged at six billion six hundred ninetythree million three hundred eighty-seven thousand three hundred sixty-four pesos (PhP 6,693,387,364). In his February 10, 1994 Memorandum, the Chairperson of the SMDRP EXECOM submitted the ARJVA for approval by the OP. After review of said agreement, the OP directed that certain terms and conditions of the ARJVA be further clarified or amended preparatory to its approval. Pursuant to the Presidents directive, the parties reached an agreement on the clarifications and amendments required to be made on the ARJVA.

Chavez vs National Housing Authority

On August 11, 1994, the NHA and RBI executed an Amendment To the Amended and Restated Joint Venture Agreement (AARJVA)[29] clarifying certain terms and condition of the ARJVA, which was submitted to President Ramos for approval, to wit:
Phase II shall involve the following: a. the construction and operation of an incinerator plant that will conform to the emission standards of the DENR

b. the reclamation and development of 119-hectare area contiguous to that to be reclaimed under Phase I to serve as the enabling component of Phase II, the exact size and configuration of [30] which shall be approved by the SMDRP Committee

Other substantial amendments are the following:

4. Paragraph 2.05 of Article II of the ARJVA is hereby amended to read as follows: 2.05. The DEVELOPER shall reclaim seventy nine (79) hectares of the Manila Bay area directly across Radial Road 10 (R-10) to serve as payment to the DEVELOPER as its asset share for Phase I and to develop such land into commercial area with port facilities; provided, that the port plan shall be integrated with the Philippine Port Authoritys North Harbor plan for the Manila Bay area and provided further, that the final reclamation and port plan for said reclaimed area shall be submitted for approval by the Public Estates Authority and the Philippine Ports Authority, respectively: provided finally, that subject to par. 2.02 above, actual reclamation work may commence upon approval of the final reclamation plan by the Public Estates Authority. xxxx 9. A new paragraph to be numbered 5.05 shall be added to Article V of the ARJVA, and shall read as follows: 5.05. In the event this Agreement is revoked, cancelled or terminated by the AUTHORITY through no fault of the DEVELOPER, the AUTHORITY shall compensate the DEVELOPER for the value of the completed portions of, and actual expenditures on the PROJECT plus a reasonable rate of return thereon, not exceeding that stated in the Cost Estimates of Items of Work previously approved by the SMDRP Executive Committee and the AUTHORITY and stated in this Agreement, as of the date of such revocation, cancellation, or termination, on a schedule to be agreed upon by the parties, provided that said completed portions of Phase I are in accordance with the approved FINAL REPORT.

Chavez vs National Housing Authority

Afterwards, President Ramos issued Proclamation No. 465 dated August 31, 1994 increasing the proposed area for reclamation across R-10 from 40 hectares to 79 hectares,[32] to wit:
[31]

NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Republic of the Philippines, by virtue of the powers vested in me by the law, and as recommended by the SMDRP Executive Committee, do hereby authorize the increase of the area of foreshore or submerged lands of Manila Bay to be reclaimed, as previously authorized under Proclamation No. 39 (s. 1992) and Memorandum Order No. 415 (s. 1992), from Four Hundred Thousand (400,000) square meters, more or less, to Seven Hundred Ninety Thousand (790,000) square meters, more or less.

On September 1, 1994, pursuant to Proclamation No. 39, the DENR issued Special Patent No. 3591 conveying in favor of NHA an area of 211,975 square meters covering the Smokey Mountain Dumpsite. In its September 7, 1994 letter to the EXECOM, the OP through then Executive Secretary Teofisto T. Guingona, Jr., approved the ARJVA as amended by the AARJVA. On September 8, 1994, the DENR issued Special Patent 3592 pursuant to Proclamation No. 39, conveying in favor of NHA a 401,485-square meter area. On September 26, 1994, the NHA, RBI, Home Insurance and Guaranty Corporation (HIGC), now known as the Home Guaranty Corporation, and the Philippine National Bank (PNB)[33] executed the Smokey Mountain Asset Pool Formation Trust Agreement (Asset Pool Agreement).[34] Thereafter, a Guaranty Contract was entered into by NHA, RBI, and HIGC. On June 23, 1994, the Legislature passed the Clean Air Act. [35] The Act made the establishment of an incinerator illegal and effectively barred the implementation of the planned incinerator project under Phase II. Thus, the off-site disposal of the garbage at the Smokey Mountain became necessary.[36] The land reclamation was completed in August 1996.[37] Sometime later in 1996, pursuant likewise to Proclamation No. 39, the DENR issued Special Patent No. 3598 conveying in favor of NHA an additional 390,000 square meter area. During the actual construction and implementation of Phase I of the SMDRP, the InterAgency Technical Committee found and recommended to the EXECOM on December 17, 1997 that additional works were necessary for the completion and viability of the Project. The

Chavez vs National Housing Authority

EXECOM approved the recommendation and so, NHA instructed RBI to implement the change orders or necessary works.[38] Such necessary works comprised more than 25% of the original contract price and as a result, the Asset Pool incurred direct and indirect costs. Based on C1 12 A of the Implementing Rules and Regulations of PD 1594, a supplemental agreement is required for all change orders and extra work orders, the total aggregate cost of which being more than twenty-five (25%) of the escalated original contract price. The EXECOM requested an opinion from the Department of Justice (DOJ) to determine whether a bidding was required for the change orders and/or necessary works. The DOJ, through DOJ Opinion Nos. 119 and 155 dated August 26, 1993 and November 12, 1993, opined that a rebidding, pursuant to the aforequoted provisions of the implementing rules (referring to PD 1594) would not be necessary where the change orders inseparable from the original scope of the project, in which case, a negotiation with the incumbent contractor may be allowed. Thus, on February 19, 1998, the EXECOM issued a resolution directing NHA to enter into a supplemental agreement covering said necessary works. On March 20, 1998, the NHA and RBI entered into a Supplemental Agreement covering the aforementioned necessary works and submitted it to the President on March 24, 1998 for approval. Outgoing President Ramos decided to endorse the consideration of the Supplemental Agreement to incoming President Joseph E. Estrada. On June 30, 1998, Estrada became the 13th Philippine President. However, the approval of the Supplemental Agreement was unacted upon for five months. As a result, the utilities and the road networks were constructed to cover only the 79hectare original enabling component granted under the ARJVA. The 220-hectare extension of the 79-hectare area was no longer technically feasible. Moreover, the financial crises and unreliable real estate situation made it difficult to sell the remaining reclaimed lots. The devaluation of the peso and the increase in interest cost led to the substantial increase in the cost of reclamation. On August 1, 1998, the NHA granted RBIs request to suspend work on the SMDRP due to the delay in the approval of the Supplemental Agreement, the consequent absence of an enabling component to cover the cost of the necessary works for the project, and the resulting inability to replenish the Asset Pool funds partially used for the completion of the necessary works.[39]

Chavez vs National Housing Authority

As of August 1, 1998 when the project was suspended, RBI had already accomplished a portion of the necessary works and change orders which resulted in [RBI] and the Asset Pool incurring advances for direct and indirect cost which amount can no longer be covered by the 79hectare enabling component under the ARJVA.[40] Repeated demands were made by RBI in its own capacity and on behalf of the asset pool on NHA for payment for the advances for direct and indirect costs subject to NHA validation. In November 1998, President Estrada issued Memorandum Order No. 33 reconstituting the SMDRP EXECOM and further directed it to review the Supplemental Agreement and submit its recommendation on the completion of the SMDRP. The reconstituted EXECOM conducted a review of the project and recommended the amendment of the March 20, 1998 Supplemental Agreement to make it more feasible and to identify and provide new sources of funds for the project and provide for a new enabling component to cover the payment for the necessary works that cannot be covered by the 79-hectare enabling component under the ARJVA.[41] The EXECOM passed Resolution Nos. 99-16-01 and 99-16-02[42] which approved the modification of the Supplemental Agreement, to wit:
a) Approval of 150 hectares additional reclamation in order to feasible as part of the enabling component. b) The conveyance of the 15-hectare NHA Vitas property (actually surveys) to the SMDRP Asset Pool. make the reclamation

17 hectares based on

c) The inclusion in the total development cost of other additional, necessary and indispensable infrastructure works and the revision of the original cost stated in the Supplemental Agreement dated March 20, 1998 from PhP 2,953,984,941.40 to PhP 2,969,134,053.13. d) Revision in the sharing agreement between the parties.

In the March 23, 2000 OP Memorandum, the EXECOM was authorized to proceed and complete the SMDRP subject to certain guidelines and directives. After the parties in the case at bar had complied with the March 23, 2000 Memorandum, the NHA November 9, 2000 Resolution No. 4323 approved the conveyance of the 17-hectare Vitas property in favor of the existing or a newly created Asset Pool of the project to be developed into a mixed commercial-industrial area, subject to certain conditions.

Chavez vs National Housing Authority

On January 20, 2001, then President Estrada was considered resigned. On the same day, President Gloria M. Arroyo took her oath as the 14th President of the Philippines. As of February 28, 2001, the estimated total project cost of the SMDRP has reached P8.65 billion comprising of P4.78 billion in direct cost and P3.87 billion in indirect cost,[43] subject to validation by the NHA. On August 28, 2001, NHA issued Resolution No. 4436 to pay for the various necessary works/change orders to SMDRP, to effect the corresponding enabling component consisting of the conveyance of the NHAs Vitas Property and an additional 150 -hectare reclamation area and to authorize the release by NHA of PhP 480 million as advance to the project to make the Permanent Housing habitable, subject to reimbursement from the proceeds of the expanded enabling component.[44] On November 19, 2001, the Amended Supplemental Agreement (ASA) was signed by the parties, and on February 28, 2002, the Housing and Urban Development Coordinating Council (HUDCC) submitted the agreement to the OP for approval. In the July 20, 2002 Cabinet Meeting, HUDCC was directed to submit the works covered by the PhP 480 million [advance to the Project] and the ASA to public bidding.[45] On August 28, 2002, the HUDCC informed RBI of the decision of the Cabinet. In its September 2, 2002 letter to the HUDCC Chairman, RBI lamented the decision of the government to bid out the remaining works under the ASA thereby unilaterally terminating the Project with RBI and all the agreements related thereto. RBI demanded the payment of just compensation for all accomplishments and costs incurred in developing the SMDRP plus a reasonable rate of return thereon pursuant to Section 5.05 of the ARJVA and Section 6.2 of the ASA.[46] Consequently, the parties negotiated the terms of the termination of the JVA and other subsequent agreements. On August 27, 2003, the NHA and RBI executed a Memorandum of Agreement (MOA) whereby both parties agreed to terminate the JVA and other subsequent agreements, thus:
1. TERMINATION

Chavez vs National Housing Authority

1.1

In compliance with the Cabinet directive dated 30 July 2002 to submit the works covered by the P480 Million and the ASA to public bidding, the following agreements executed by and between the NHA and the DEVELOPER are hereby terminated, to wit: a. b. c. d. e. Joint Venture Agreement (JVA) dated 19 March 1993 Amended and Restated Joint Venture Agreement (ARJVA) dated 21 February 1994 Amendment and Restated Joint Venture Agreement dated 11 August 1994 Supplemental Agreement dated 24 March 1998 Amended Supplemental Agreement (ASA) dated 19 November 2001.

xxxx 5. SETTLEMENT OF CLAIMS 5.1 Subject to the validation of the DEVELOPERs claims, the NHA hereby agrees to initially compensate the Developer for the abovementioned costs as follows: a. Direct payment to DEVELOPER of the amounts herein listed in the following manner: a.1 P250 Million in cash from the escrow account in accordance with Section 2 herewith; Conveyance of a 3 hectare portion of the Vitas Industrial area immediately after joint determination of the appraised value of the said property in accordance with the procedure herein set forth in the last paragraph of Section 5.3. For purposes of all payments to be made through conveyance of real properties, the parties shall secure from the NHA Board of Directors all documents necessary and sufficient to effect the transfer of title over the properties to be conveyed to RBI, which documents shall be issued within a reasonable period.

a.2

5.2

Any unpaid balance of the DEVELOPERS claims determined after the validation process referred to in Section 4 hereof, may be paid in cash, bonds or through the conveyance of properties or any combination thereof. The manner, terms and conditions of payment of the balance shall be specified and agreed upon later within a period of three months from the time a substantial amount representing the unpaid balance has been validated pursuant hereto including, but not limited to the programming of quarterly cash payments to be sourced by the NHA from its budget for debt servicing, from its income or from any other sources. In any case the unpaid balance is agreed to be paid, either partially or totally through conveyance of properties, the parties shall agree on which properties shall be subject to conveyance. The NHA and DEVELOPER hereby agree to determine the valuation of the properties to be conveyed by getting the average of the appraisals to be made by two (2) mutually acceptable independent appraisers.

5.3

Chavez vs National Housing Authority

Meanwhile, respondent Harbour Centre Port Terminal, Inc. (HCPTI) entered into an agreement with the asset pool for the development and operations of a port in the Smokey Mountain Area which is a major component of SMDRP to provide a source of livelihood and employment for Smokey Mountainresidents and spur economic growth. A Subscription Agreement was executed between the Asset Pool and HCPTI whereby the asset pool subscribed to 607 million common shares and 1,143 million preferred shares of HCPTI. The HCPTI preferred shares had a premium and penalty interest of 7.5% per annum and a mandatory redemption feature. The asset pool paid the subscription by conveying to HCPTI a 10-hectare land which it acquired from the NHA being a portion of the reclaimed land of the SMDRP. Corresponding certificates of titles were issued to HCPTI, namely: TCT Nos. 251355, 251356, 251357, and 251358. Due to HCPTIs failure to obtain a license to handle foreign containerized cargo from PPA, it suffered a net income loss of PhP 132,621,548 in 2002 and a net loss of PhP 15,540,063 in 2003. The Project Governing Board of the Asset Pool later conveyed by way of dacion en pago a number of HCPTI shares to RBI in lieu of cash payment for the latters work in SMDRP. On August 5, 2004, former Solicitor General Francisco I. Chavez, filed the instant petition which impleaded as respondents the NHA, RBI, R-II Holdings, Inc. (RHI), HCPTI, and Mr. Reghis Romero II, raising constitutional issues. The NHA reported that thirty-four (34) temporary housing structures and twenty-one (21) permanent housing structures had been turned over by respondent RBI. It claimed that 2,510 beneficiary-families belonging to the poorest of the poor had been transferred to their permanent homes and benefited from the Project.

The Issues The grounds presented in the instant petition are:

I NEITHER RESPONDENT NHA NOR RESPONDENT R-II BUILDERS MAY VALIDLY RECLAIM FORESHORE AND SUBMERGED LAND BECAUSE: 1. RESPONDENT NHA AND R-II BUILDERS WERE NEVER GRANTED ANY POWER AND AUTHORITY TO RECLAIM LANDS OF THE PUBLIC DOMAIN AS THIS POWER IS VESTED EXCLUSIVELY WITH THE PEA.

Chavez vs National Housing Authority

2. EVEN ASSUMING THAT RESPONDENTS NHA AND R-II BUILDERS WERE GIVEN THE POWER AND AUTHORITY TO RECLAIM FORESHORE AND SUBMERGED LAND, THEY WERE NEVER GIVEN THE AUTHORITY BY THE DENR TO DO SO. II RESPONDENT R-II BUILDERS CANNOT ACQUIRE THE RECLAIMED FORESHORE AND SUBMERGED LAND AREAS BECAUSE: 1. THE RECLAIMED FORESHORE AND SUBMERGED PARCELS OF LAND ARE INALIENABLE PUBLIC LANDS WHICH ARE BEYOND THE COMMERCE OF MAN. 2. ASSUMING ARGUENDO THAT THE SUBJECT RECLAIMED FORESHORE AND SUBMERGED PARCELS OF LAND WERE ALREADY DECLARED ALIENABLE LANDS OF THE PUBLIC DOMAIN, RESPONDENT R-II BUILDERS STILL COULD NOT ACQUIRE THE SAME BECAUSE THERE WAS NEVER ANY DECLARATION THAT THE SAID LANDS WERE NO LONGER NEEDED FOR PUBLIC USE.

3. EVEN ASSUMING THAT THE SUBJECT RECLAIMED LANDS ARE ALIENABLE AND NO LONGER NEEDED FOR PUBLIC USE, RESPONDENT R-II BUILDERS STILL CANNOT ACQUIRE THE SAME BECAUSE THERE WAS NEVER ANY LAW AUTHORIZING THE SALE THEREOF. 4. THERE WAS NEVER ANY PUBLIC BIDDING AWARDING THE SUBJECT LAND TO RESPONDENT R-II BUILDERS. 5. OWNERSHIP OF

ASSUMING THAT ALL THE REQUIREMENTS FOR A VALID TRANSFER OF ALIENABLE PUBLIC HAD BEEN PERFORMED, RESPONDENT R-II BUILDERS, BEING PRIVATE CORPORATION IS NONETHELESS EXPRESSLYPROHIBITED BY THE PHILIPPINE CONSTITUTION TO ACQUIRE LANDS OF THE PUBLIC DOMAIN. III

RESPONDENT HARBOUR, BEING A PRIVATE CORPORATION WHOSE MAJORITY STOCKS ARE OWNED AND CONTROLLED BY RESPONDENT ROMEROS CORPORATIONS R-II BUILDERS AND R-II HOLDINGS IS DISQUALIFIED FROM BEING A TRANSFEREE OF PUBLIC LAND. IV RESPONDENTS MUST BE COMPELLED TO DISCLOSE ALL INFORMATION RELATED TO THE SMOKEY MOUNTAIN DEVELOPMENT AND RECLAMATION PROJECT.

The Courts Ruling Before we delve into the substantive issues raised in this petition, we will first deal with several procedural matters raised by respondents.

Chavez vs National Housing Authority

Whether petitioner has the requisite locus standi to file this case Respondents argue that petitioner Chavez has no legal standing to file the petition. Only a person who stands to be benefited or injured by the judgment in the suit or entitled to the avails of the suit can file a complaint or petition.[47] Respondents claim that petitioner is not a proper party-in-interest as he was unable to show that he has sustained or is in immediate or imminent danger of sustaining some direct and personal injury as a result of the execution and enforcement of the assailed contracts or agreements.[48] Moreover, they assert that not all government contracts can justify a taxpayers suit especially when no public funds were utilized in contravention of the Constitution or a law. We explicated in Chavez v. PCGG[49] that in cases where issues of transcendental public importance are presented, there is no necessity to show that petitioner has experienced or is in actual danger of suffering direct and personal injury as the requisite injury is assumed. We find our ruling in Chavez v. PEA[50] as conclusive authority on locus standi in the case at bar since the issues raised in this petition are averred to be in breach of the fair diffusion of the countrys natural resources and the constitutional right of a citizen to information which have been declared to be matters of transcendental public importance. Moreover, the pleadings especially those of respondents readily reveal that public funds have been indirectly utilized in the Project by means of Smokey Mountain Project Participation Certificates (SMPPCs) bought by some government agencies. Hence, petitioner, as a taxpayer, is a proper party to the instant petition before the court. Whether petitioners direct recourse to this Court was proper Respondents are one in asserting that petitioner circumvents the principle of hierarchy of courts in his petition. Judicial hierarchy was made clear in the case of People v. Cuaresma, thus:
There is after all a hierarchy of courts. That hierarchy is determinative of the venue of appeals, and should also serve as a general determinant of the appropriate forum for petitions for the extraordinary writs. A becoming regard for that judicial hierarchy most certainly indicates that petitions for the issuance of extraordinary writs against first level (inferior) courts should be filed with the Regional Trial Court, and those against the latter, with the Court of Appeals. A direct invocation of the Supreme Courts original jurisdiction to issue these writs should be allowed only when there are special and important reasons therefor, clearly and specifically set out in the petition. This is established policy. It is a policy that is necessary to prevent inordinate demands upon the Courts time and attention which are better devoted to those matters within its exclusive jurisdiction, and to prevent further over-crowding of the Courts docket.[51] x x x

Chavez vs National Housing Authority

The OSG claims that the jurisdiction over petitions for prohibition and mandamus is concurrent with other lower courts like the Regional Trial Courts and the Court of Appeals. Respondent NHA argues that the instant petition is misfiled because it does not introduce special and important reasons or exceptional and compelling circumstances to warrant direct recourse to this Court and that the lower courts are more equipped for factual issues since this Court is not a trier of facts. Respondents RBI and RHI question the filing of the petition as this Court should not be unduly burdened with repetitions, invocation of jurisdiction over constitutional questions it had previously resolved and settled. In the light of existing jurisprudence, we find paucity of merit in respondents postulation. While direct recourse to this Court is generally frowned upon and discouraged, we have however ruled in Santiago v. Vasquez that such resort to us may be allowed in certain situations, wherein this Court ruled that petitions for certiorari, prohibition, or mandamus, though cognizable by other courts, may directly be filed with us if the redress desired cannot be obtained in the appropriate courts or where exceptional compelling circumstances justify availment of a remedy within and calling for the exercise of [this Courts] primary jurisdiction.[52] The instant petition challenges the constitutionality and legality of the SMDRP involving several hectares of government land and hundreds of millions of funds of several government agencies. Moreover, serious constitutional challenges are made on the different aspects of the Project which allegedly affect the right of Filipinos to the distribution of natural resources in the country and the right to information of a citizenmatters which have been considered to be of extraordinary significance and grave consequence to the public in general. These concerns in the instant action compel us to turn a blind eye to the judicial structure meant to provide an orderly dispensation of justice and consider the instant petition as a justified deviation from an established precept. Core factual matters undisputed Respondents next challenge the projected review by this Court of the alleged factual issues intertwined in the issues propounded by petitioner. They listed a copious number of questions seemingly factual in nature which would make this Court a trier of facts.[53] We find the position of respondents bereft of merit.

Chavez vs National Housing Authority

For one, we already gave due course to the instant petition in our January 18, 2005 Resolution.[54] In said issuance, the parties were required to make clear and concise statements of established facts upon which our decision will be based. Secondly, we agree with petitioner that there is no necessity for us to make any factual findings since the facts needed to decide the instant petition are well established from the admissions of the parties in their pleadings[55] and those derived from the documents appended to said submissions. Indeed, the core facts which are the subject matter of the numerous issues raised in this petition are undisputed. Now we will tackle the issues that prop up the instant petition. Since petitioner has cited our decision in PEA as basis for his postulations in a number of issues, we first resolve the queryis PEA applicable to the case at bar? A juxtaposition of the facts in the two cases constrains the Court to rule in the negative. The Court finds that PEA is not a binding precedent to the instant petition because the facts in said case are substantially different from the facts and circumstances in the case at bar, thus: (1) The reclamation project in PEA was undertaken through a JVA entered into between PEA and AMARI. The reclamation project in the instant NHA case was undertaken by the NHA, a national government agency in consultation with PEA and with the approval of two Philippine Presidents; (2) In PEA, AMARI and PEA executed a JVA to develop the Freedom Islands and reclaim submerged areas without public bidding on April 25, 1995. In the instant NHA case, the NHA and RBI executed a JVA after RBI was declared the winning bidder on August 31, 1992 as the JVA partner of the NHA in the SMDRP after compliance with the requisite public bidding. (3) In PEA, there was no law or presidential proclamation classifying the lands to be reclaimed as alienable and disposal lands of public domain. In this RBI case, MO 415 of former President Aquino and Proclamation No. 39 of then President Ramos, coupled with Special Patents Nos. 3591, 3592, and 3598, classified the reclaimed lands as alienable and disposable; (4) In PEA, the Chavez petition was filed before the amended JVA was executed by PEA and AMARI. In this NHA case, the JVA and subsequent amendments were already substantially

Chavez vs National Housing Authority

implemented. Subsequently, the Project was terminated through a MOA signed on August 27, 2003. Almost one year later on August 5, 2004, the Chavez petition was filed; (5) In PEA, AMARI was considered to be in bad faith as it signed the amended JVA after the Chavez petition was filed with the Court and after Senate Committee Report No. 560 was issued finding that the subject lands are inalienable lands of public domain. In the instant petition, RBI and other respondents are considered to have signed the agreements in good faith as the Project was terminated even before the Chavez petition was filed; (6) The PEA-AMARI JVA was executed as a result of direct negotiation between the parties and not in accordance with the BOT Law. The NHA-RBI JVA and subsequent amendments constitute a BOT contract governed by the BOT Law; and (7) In PEA, the lands to be reclaimed or already reclaimed were transferred to PEA, a government entity tasked to dispose of public lands under Executive Order No. (EO) 525. [56] In the NHA case, the reclaimed lands were transferred to NHA, a government entity NOT tasked to dispose of public land and therefore said alienable lands were converted to patrimonial lands upon their transfer to NHA.[57] Thus the PEA Decision[58] cannot be considered an authority or precedent to the instant case. The principle of stare decisis[59] has no application to the different factual setting of the instant case. We will now dwell on the substantive issues raised by petitioner. After a perusal of the grounds raised in this petition, we find that most of these issues are moored on our PEA Decision which, as earlier discussed, has no application to the instant petition. For this reason alone, the petition can already be rejected. Nevertheless, on the premise of the applicability of said decision to the case at bar, we will proceed to resolve said issues.

First Issue: Whether respondents NHA and RBI have been granted the power and authority to reclaim lands of the public domain as this power is vested exclusively in PEA as claimed by petitioner

Petitioner contends that neither respondent NHA nor respondent RBI may validly reclaim foreshore and submerged land because they were not given any power and authority to reclaim lands of the public domain as this power was delegated by law to PEA.

Chavez vs National Housing Authority

Asserting that existing laws did not empower the NHA and RBI to reclaim lands of public domain, the Public Estates Authority (PEA), petitioner claims, is the primary authority for the reclamation of all foreshore and submerged lands of public domain, and relies on PEA where this Court held:
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. 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.[60]

In the Smokey Mountain Project, petitioner clarifies that the reclamation was not done by PEA or through a contract executed by PEA with another person or entity but by the NHA through an agreement with respondent RBI. Therefore, he concludes that the reclamation is null and void. Petitioners contention has no merit. EO 525 reads:
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. (Emphasis supplied.)

The aforequoted provision points to three (3) requisites for a legal and valid reclamation project, viz: (1) (2) (3) approval by the President; favorable recommendation of PEA; and undertaken by any of the following:

Chavez vs National Housing Authority

a. b. PEA c. authorized consultation

by PEA by any person or entity pursuant to a contract it executed by the National Government agency under its charter to reclaim lands with PEA

with or entity subject to

Without doubt, PEA under EO 525 was designated as the agency primarily responsible for integrating, directing, and coordinating all reclamation projects. Primarily means mainly, principally, mostly, generally. Thus, not all reclamation projects fall under PEAs authority of supervision, integration, and coordination. The very charter of PEA, PD 1084,[61] does not mention that PEA has the exclusive and sole power and authority to reclaim lands of public domain. EO 525 even reveals the exceptionreclamation projects by a national government agency or entity authorized by its charter to reclaim land. One example is EO 405 which authorized the Philippine Ports Authority (PPA) to reclaim and develop submerged areas for port related purposes. Under its charter, PD 857, PPA has the power to reclaim, excavate, enclose or raise any of the lands vested in it. Thus, while PEA under PD 1084 has the power to reclaim land and under EO 525 is primarily responsible for integrating, directing and coordinating reclamation projects, such authority is NOT exclusive and such power to reclaim may be granted or delegated to another government agency or entity or may even be undertaken by the National Government itself, PEA being only an agency and a part of the National Government. Let us apply the legal parameters of Sec. 1, EO 525 to the reclamation phase of SMDRP. After a scrutiny of the facts culled from the records, we find that the project met all the three (3) requirements, thus: 1. There was ample approval by the President of the Philippines; as a matter of fact, two Philippine Presidents approved the same, namely: Presidents Aquino and Ramos. President Aquino sanctioned the reclamation of both the SMDRP housing and commercial-industrial sites through MO 415 (s. 1992) which approved the SMDRP under Sec. 1 and directed NHA x x x to implement the Smokey Mountain Development Plan and Reclamation of the Area across R10 through a private sector joint venture scheme at the least cost to government under Section 3.

Chavez vs National Housing Authority

For his part, then President Ramos issued Proclamation No. 39 (s. 1992) which expressly reserved the Smokey Mountain Area and the Reclamation Area for a housing project and related commercial/industrial development. Moreover, President Ramos issued Proclamation No. 465 (s. 1994) which authorized the increase of the Reclamation Area from 40 hectares of foreshore and submerged land of the Manila Bay to 79 hectares. It speaks of the reclamation of 400,000 square meters, more or less, of the foreshore and submerged lands of Manila Bay adjoining R-10 as an enabling component of the SMDRP. As a result of Proclamations Nos. 39 and 465, Special Patent No. 3591 covering 211,975 square meters of Smokey Mountain, Special Patent No. 3592 covering 401,485 square meters of reclaimed land, and Special Patent No. 3598 covering another 390,000 square meters of reclaimed land were issued by the DENR. Thus, the first requirement of presidential imprimatur on the SMDRP has been satisfied. 2. The requisite favorable endorsement of the reclamation phase was impliedly granted by PEA. President Aquino saw to it that there was coordination of the project with PEA by designating its general manager as member of the EXECOM tasked to supervise the project implementation. The assignment was made in Sec. 2 of MO 415 which provides:
Section 2. An Executive Committee is hereby created to oversee the implementation of the Plan, chaired by the NCR-CORD, with the heads of the following agencies as members: The National Housing Authority, the City of Manila, the Department of Public Works and Highways, the Public Estates Authority, the Philippine Ports Authority, the Department of Environment and Natural Resources and the Development Bank of the Philippines. (Emphasis supplied.)

The favorable recommendation by PEA of the JVA and subsequent amendments were incorporated as part of the recommendations of the EXECOM created under MO 415. While there was no specific recommendation on the SMDRP emanating solely from PEA, we find that the approbation of the Project and the land reclamation as an essential component by the EXECOM of which PEA is a member, and its submission of the SMDRP and the agreements on the Project to the President for approval amply met the second requirement of EO 525. 3. The third element was also presentthe reclamation was undertaken either by PEA or any person or entity under contract with PEA or by the National Government agency or entity authorized under its charter to reclaim lands subject to consultation with PEA. It cannot be

Chavez vs National Housing Authority

disputed that the reclamation phase was not done by PEA or any person or entity under contract with PEA. However, the reclamation was implemented by the NHA, a national government agency whose authority to reclaim lands under consultation with PEA is derived from its charter PD 727 and other pertinent lawsRA 7279[62]and RA 6957 as amended by RA 7718. While the authority of NHA to reclaim lands is challenged by petitioner, we find that the NHA had more than enough authority to do so under existing laws. While PD 757, the charter of NHA, does not explicitly mention reclamation in any of the listed powers of the agency, we rule that the NHA has an implied power to reclaim land as this is vital or incidental to effectively, logically, and successfully implement an urban land reform and housing program enunciated in Sec. 9 of Article XIII of the 1987 Constitution. Basic in administrative law is the doctrine that a government agency or office has express and implied powers based on its charter and other pertinent statutes. Express powers are those powers granted, allocated, and delegated to a government agency or office by express provisions of law. On the other hand, implied powers are those that can be inferred or are implicit in the wordings of the law[63] or conferred by necessary or fair implication in the enabling act.[64] In Angara v. Electoral Commission, the Court clarified and stressed that when a general grant of power is conferred or duty enjoined, every particular power necessary for the exercise of the one or the performance of the other is also conferred by necessary implication. [65] It was also explicated that when the statute does not specify the particular method to be followed or used by a government agency in the exercise of the power vested in it by law, said agency has the authority to adopt any reasonable method to carry out its functions.[66] The power to reclaim on the part of the NHA is implicit from PD 757, RA 7279, MO 415, RA 6957, and PD 3-A,[67] viz: 1. NHAs power to reclaim derived from PD 757 provisions:

a. Sec. 3 of PD 757 implies that reclamation may be resorted to in order to attain the goals of NHA:
Section 3. Progress and Objectives. The Authority shall have the following purposes and objectives: xxxx b) To undertake housing, development, resettlement or other activities as would enhance the provision of housing to every Filipino;

Chavez vs National Housing Authority

c)

To harness and promote private participation in housing ventures in terms of capital expenditures, land, expertise, financing and other facilities for the sustained growth of the housing industry. (Emphasis supplied.)

Land reclamation is an integral part of the development of resources for some of the housing requirements of the NHA. Private participation in housing projects may also take the form of land reclamation. b. Sec. 5 of PD 757 serves as proof that the NHA, as successor of the Tondo Foreshore Development Authority (TFDA), has the power to reclaim, thus:
Section 5. Dissolution of Existing Housing Agencies. The People's Homesite and Housing Corporation (PHHC), the Presidential Assistant on Housing Resettlement Agency (PAHRA), the Tondo Foreshore Development Authority (TFDA), the Central Institute for the Training and Relocation of Urban Squatters (CITRUS), the Presidential Committee for Housing and Urban Resettlement (PRECHUR), Sapang Palay Development Committee, Inter-Agency Task Force to Undertake the Relocation of Families in Barrio Nabacaan, Villanueva, Misamis Oriental and all other existing government housing and resettlement agencies, task forces and ad-hoc committees, are hereby dissolved. Their powers and functions, balance of appropriations, records, assets, rights, and choses in action, are transferred to, vested in, and assumed by the Authority . x x x (Emphasis supplied.)

PD 570 dated October 30, 1974 created the TFDA, which defined its objectives, powers, and functions. Sec. 2 provides:
Section 2. Objectives and Purposes. The Authority shall have the following purposes and objectives: a) To undertake all manner of activity, business or development projects for the establishment of harmonious, comprehensive, integrated and healthy living community in theTondo Foreshoreland and its resettlement site; b) To undertake and promote the physical and socio-economic amelioration of the Tondo Foreshore residents in particular and the nation in general (Emphasis supplied.)

The powers and functions are contained in Sec. 3, to wit:

a) To develop and implement comprehensive and integrated urban renewal programs for the Tondo Foreshore and Dagat-dagatan lagoon and/or any other additional/alternative resettlement site and to formulate and enforce general and specific policies for its development which shall ensure reasonable degree of compliance with environmental standards.

Chavez vs National Housing Authority

b) To prescribe guidelines and standards for the reservation, conservation and utilization of public lands covering the Tondo Foreshore land and its resettlement sites; c) To construct, acquire, own, lease, operate and maintain infrastructure facilities, housing complex, sites and services; d) To determine, regulate and supervise the establishment and operation of housing, sites, services and commercial and industrial complexes and any other enterprises to be constructed or established within the Tondo Foreshore and its resettlement sites; e) To undertake and develop, by itself or through joint ventures with other public or private entities, all or any of the different phases of development of the Tondo Foreshore land and its resettlement sites; f) To acquire and own property, property-rights and interests, and encumber or otherwise dispose of the same as it may deem appropriate (Emphasis supplied.)

From the foregoing provisions, it is readily apparent that the TFDA has the explicit power to develop public lands covering the Tondo foreshore land and any other additional and alternative resettlement sites under letter b, Sec. 3 of PD 570. Since the additional and/or alternative sites adjacent to Tondo foreshore land cover foreshore and submerged areas, the reclamation of said areas is necessary in order to convert them into a comprehensive and integrated resettlement housing project for the slum dwellers and squatters of Tondo. Since the powers of TFDA were assumed by the NHA, then the NHA has the power to reclaim lands in the Tondo foreshore area which covers the 79-hectare land subject of Proclamations Nos. 39 and 465 and Special Patents Nos. 3592 and 3598. c. Sec. 6 of PD 757 delineates the functions and powers of the NHA which embrace the authority to reclaim land, thus:
Sec. 6. Powers and functions of the Authority.The Authority shall have the following powers and functions to be exercised by the Board in accordance with its established national human settlements plan prepared by the Human Settlements Commission: (a) Develop and implement program provided for in Section hereof; xxxx (c) Prescribe guidelines and standards for the reservation, conservation and utilization of public lands identified for housing and resettlement; xxxx the comprehensive and integrated housing

Chavez vs National Housing Authority

(e) Develop and undertake housing development and/or resettlement projects through joint ventures or other arrangements with public and private entities; xxxx (k) Enter into contracts whenever necessary under such terms and conditions as it may deem proper and reasonable; (l) Acquire property rights and interests and encumber or otherwise dispose the same as it may deem appropriate; xxxx (s) Perform such other acts not inconsistent with this Decree, as may be necessary to effect the policies and objectives herein declared. (Emphasis supplied.)

The NHAs authority to reclaim land can be inferred from the aforequoted provisions. It can make use of public lands under letter (c) of Sec. 6 which includes reclaimed land as site for its comprehensive and integrated housing projects under letter (a) which can be undertaken through joint ventures with private entities under letter (e). Taken together with letter (s) which authorizes NHA to perform such other activities necessary to effect the policies and objectives of PD 757, it is safe to conclude that the NHAs power to reclaim lands is a power that is implied from the exercise of its explicit powers under Sec. 6 in order to effectively accomplish its policies and objectives under Sec. 3 of its charter. Thus, the reclamation of land is an indispensable component for the development and construction of the SMDRP housing facilities. 2. NHAs implied power to reclaim land is enhanced by RA 7279.

PD 757 identifies NHAs mandate to [d]evelop and undertake housing development and/or resettlement projects through joint ventures or other arrangements with public and private entities. The power of the NHA to undertake reclamation of land can be inferred from Secs. 12 and 29 of RA 7279, which provide:

Section 12. Disposition of Lands for Socialized Housing.The National Housing Authority, with respect to lands belonging to the National Government, and the local government units with respect to other lands within their respective localities, shall coordinate with each other to formulate and make available various alternative schemes for the disposition of lands to the beneficiaries of the Program. These schemes shall not be limited to those involving transfer of ownership in fee simple but shall include lease, with option to purchase, usufruct or such

Chavez vs National Housing Authority

other variations as the local government units or the National Housing Authority may deem most expedient in carrying out the purposes of this Act. xxxx Section 29. Resettlement.With two (2) years from the effectivity of this Act, the local government units, in coordination with the National Housing Authority, shall implement the relocation and resettlement of persons living in danger areas such as esteros, railroad tracks, garbage dumps, riverbanks, shorelines, waterways, and in other public places as sidewalks, roads, parks, and playgrounds. The local government unit, in coordination with the National Housing Authority, shall provide relocation or resettlement sites with basic services and facilities and access to employment and livelihood opportunities sufficient to meet the basic needs of the affected families. (Emphasis supplied.)

Lands belonging to the National Government include foreshore and submerged lands which can be reclaimed to undertake housing development and resettlement projects. 3. MO 415 explains the undertaking of the NHA in SMDRP:
WHEREAS, Memorandum Order No. 161-A mandated the National Housing Authority to conduct feasibility studies and develop low-cost housing projects at the dumpsites of Metro Manila; WHEREAS, the National Housing Authority has presented a viable Conceptual Plan to convert the Smokey Mountain dumpsite into a habitable housing project inclusive of the reclamation area across R-10 as enabling component of the Project; WHEREAS, the said Plan requires the coordinated and synchronized efforts of the City of Manila and other government agencies and instrumentalities to ensure effective and efficient implementation; WHEREAS, the government encourages private sector initiative in the implementation of its projects. (Emphasis supplied.)

Proceeding from these whereas clauses, it is unequivocal that reclamation of land in the Smokey Mountain area is an essential and vital power of the NHA to effectively implement its avowed goal of developing low-cost housing units at the Smokey Mountain dumpsites. The interpretation made by no less than the President of the Philippines as Chief of the Executive Branch, of which the NHA is a part, must necessarily command respect and much weight and credit.

Chavez vs National Housing Authority

4. RA 6957 as amended by RA 7718the BOT Lawserves as an exception to PD 1084 and EO 525. Based on the provisions of the BOT Law and Implementing Rules and Regulations, it is unequivocal that all government infrastructure agencies like the NHA can undertake infrastructure or development projects using the contractual arrangements prescribed by the law, and land reclamation is one of the projects that can be resorted to in the BOT project implementation under the February 10, 1992 Joint Resolution No. 3 of the 8th Congress. From the foregoing considerations, we find that the NHA has ample implied authority to undertake reclamation projects. Even without an implied power to reclaim lands under NHAs charter, we rule that the authority granted to NHA, a national government agency, by the President under PD 3-A reinforced by EO 525 is more than sufficient statutory basis for the reclamation of lands under the SMDRP. PD 3-A is a law issued by then President Ferdinand E. Marcos under his martial law powers on September 23, 1972. It provided that [t]he provisions of any law to the contrary notwithstanding, the reclamation of areas, underwater, whether foreshore or inland, shall be limited to the National Government or any person authorized by it under the proper contract. It repealed, in effect, RA 1899 which previously delegated the right to reclaim lands to municipalities and chartered cities and revested it to the National Government.[68] Under PD 3-A, national government can only mean the Executive Branch headed by the President. It cannot refer to Congress as it was dissolved and abolished at the time of the issuance of PD 3-A on September 23, 1972. Moreover, the Executive Branch is the only implementing arm in the government with the equipment, manpower, expertise, and capability by the very nature of its assigned powers and functions to undertake reclamation projects. Thus, under PD 3-A, the Executive Branch through the President can implement reclamation of lands through any of its departments, agencies, or offices. Subsequently, on February 4, 1977, President Marcos issued PD 1084 creating the PEA, which was granted, among others, the power to reclaim land, including foreshore and submerged areas by dredging, filling or other means or to acquire reclaimed lands. The PEAs power to reclaim is not however exclusive as can be gleaned from its charter, as the President retained his power under PD 3-A to designate another agency to reclaim lands.

Chavez vs National Housing Authority

On February 14, 1979, EO 525 was issued. It granted PEA primary responsibility for integrating, directing, and coordinating reclamation projects for and on behalf of the National Government although other national government agencies can be designated by the President to reclaim lands in coordination with the PEA. Despite the issuance of EO 525, PD 3-A remained valid and subsisting. Thus, the National Government through the President still retained the power and control over all reclamation projects in the country. The power of the National Government through the President over reclamation of areas, that is, underwater whether foreshore or inland, was made clear in EO 543[69] which took effect on June 24, 2006. Under EO 543, PEA was renamed the Philippine Reclamation Authority (PRA) and was granted the authority to approve reclamation projects, a power previously reposed in the President under EO 525. EO 543 reads:
Section 1. The power of the President to approve reclamation projects is hereby delegated to the Philippine Reclamation Authority [formerly PEA], through its governing board, subject to compliance with existing laws and rules and subject to the condition that reclamation contracts to be executed with any person or entity go through public bidding. Section 2. Nothing in the Order shall be construed as diminishing the Presidents authority to modify, amend or nullify PRAs action. Section 3. All executive issuances inconsistent with this Executive Order are hereby repealed or amended accordingly. (Emphasis supplied.)

Sec. 2 of EO 543 strengthened the power of control and supervision of the President over reclamation of lands as s/he can modify, amend, or nullify the action of PEA (now PRA). From the foregoing issuances, we conclude that the Presidents delegation to NHA, a national government agency, to reclaim lands under the SMDRP, is legal and valid, firmly anchored on PD 3-A buttressed by EO 525 notwithstanding the absence of any specific grant of power under its charter, PD 757.

Second Issue: Whether respondents NHA and RBI were given the power and authority by DENR to reclaim foreshore and submerged lands Petitioner Chavez puts forth the view that even if the NHA and RBI were granted the authority to reclaim, they were not authorized to do so by the DENR.

Chavez vs National Housing Authority

Again, reliance is made on our ruling in PEA where it was held that the DENRs authority is necessary in order for the government to validly reclaim foreshore and submerged lands. In PEA, we expounded in this manner:
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 and 7 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.[70]

Despite our finding that PEA is not a precedent to the case at bar, we find after all that under existing laws, the NHA is still required to procure DENRs authorization before a reclamation project in Manila Bay or in any part of the Philippines can be undertaken. The requirement applies to PEA, NHA, or any other government agency or office granted with such power under the law. Notwithstanding the need for DENR permission, we nevertheless find petitioners position bereft of merit. The DENR is deemed to have granted the authority to reclaim in the Smokey Mountain Project for the following reasons: 1. Sec. 17, Art. VII of the Constitution provides that the President shall have control of all executive departments, bureaus and offices. The President is assigned the task of seeing to it that all laws are faithfully executed. Control, in administrative law, means the power of an officer to alter, modify, nullify or set aside what a subordinate officer has done in the performance of his duties and to substitute the judgment of the former for that of the latter.[71]

Chavez vs National Housing Authority

As such, the President can exercise executive power motu proprio and can supplant the act or decision of a subordinate with the Presidents own. The DENR is a department in the executive branch under the President, and it is only an alter ego of the latter. Ordinarily the proposed action and the staff work are initially done by a department like the DENR and then submitted to the President for approval. However, there is nothing infirm or unconstitutional if the President decides on the implementation of a certain project or activity and requires said department to implement it. Such is a presidential prerogative as long as it involves the department or office authorized by law to supervise or execute the Project. Thus, as in this case, when the President approved and ordered the development of a housing project with the corresponding reclamation work, making DENR a member of the committee tasked to implement the project, the required authorization from the DENR to reclaim land can be deemed satisfied. It cannot be disputed that the ultimate power over alienable and disposable public lands is reposed in the President of the Philippines and not the DENR Secretary. To still require a DENR authorization on the Smokey Mountain when the President has already authorized and ordered the implementation of the Project would be a derogation of the powers of the President as the head of the executive branch. Otherwise, any department head can defy or oppose the implementation of a project approved by the head of the executive branch, which is patently illegal and unconstitutional. In Chavez v. Romulo, we stated that when a statute imposes a specific duty on the executive department, the President may act directly or order the said department to undertake an activity, thus:
[A]t the apex of the entire executive officialdom is the President. Section 17, Article VII of the Constitution specifies [her] power as Chief executive departments, bureaus and offices. [She] shall ensure that the laws be faithfully executed. As Chief Executive, President Arroyo holds the steering wheel that controls the course of her government. She lays down policies in the execution of her plans and programs. Whatever policy she chooses, she has her subordinates to implement them. In short, she has the power of control. Whenever a specific function is entrusted by law or regulation to her subordinate, she may act directly or merely direct the performance of a duty x x x. Such act is well within the prerogative of her office (emphasis supplied).[72]

Moreover, the power to order the reclamation of lands of public domain is reposed first in the Philippine President. The Revised Administrative Code of 1987 grants authority to the President to reserve lands of public domain for settlement for any specific purpose, thus:
Section 14. Power to Reserve Lands of the Public and Private Domain of the Government.(1) The President shall have the power to reserve for settlement or public use, and for specific public purposes, any of the lands of the public domain, the use of which is not

Chavez vs National Housing Authority

otherwise directed by law. The reserved land shall thereafter remain subject to the specific public purpose indicated until otherwise provided by law or proclamation. (Emphasis supplied.)

President Aquino reserved the area of the Smokey Mountain dumpsite for settlement and issued MO 415 authorizing the implementation of the Smokey Mountain Development Project plus the reclamation of the area across R-10. Then President Ramos issued Proclamation No. 39 covering the 21-hectare dumpsite and the 40-hectare commercial/industrial area, and Proclamation No. 465 and MO 415 increasing the area of foreshore and submerged lands ofManila Bay to be reclaimed from 40 to 79 hectares. Having supervision and control over the DENR, both Presidents directly assumed and exercised the power granted by the Revised Administrative Code to the DENR Secretary to authorize the NHA to reclaim said lands. What can be done indirectly by the DENR can be done directly by the President. It would be absurd if the power of the President cannot be exercised simply because the head of a department in the executive branch has not acted favorably on a project already approved by the President. If such arrangement is allowed then the department head will become more powerful than the President. 2. Under Sec. 2 of MO 415, the DENR is one of the members of the EXECOM chaired by the NCR-CORD to oversee the implementation of the Project. The EXECOM was the one which recommended approval of the project plan and the joint venture agreements. Clearly, the DENR retained its power of supervision and control over the laws affected by the Project since it was tasked to facilitate the titling of the Smokey Mountain and of the area to be reclaimed, which shows that it had tacitly given its authority to the NHA to undertake the reclamation. 3. Former DENR Secretary Angel C. Alcala issued Special Patents Nos. 3591 and 3592 while then Secretary Victor O. Ramos issued Special Patent No. 3598 that embraced the areas covered by the reclamation. These patents conveyed the lands to be reclaimed to the NHA and granted to said agency the administration and disposition of said lands for subdivision and disposition to qualified beneficiaries and for development for mix land use (commercial/industrial) to provide employment opportunities to on-site families and additional areas for port related activities. Such grant of authority to administer and dispose of lands of public domain under the SMDRP is of course subject to the powers of the EXECOM of SMDRP, of which the DENR is a member. 4. The issuance of ECCs by the DENR for SMDRP is but an exercise of its power of supervision and control over the lands of public domain covered by the Project.

Chavez vs National Housing Authority

Based on these reasons, it is clear that the DENR, through its acts and issuances, has ratified and confirmed the reclamation of the subject lands for the purposes laid down in Proclamations Nos. 39 and 465.

Third Issue: Whether respondent RBI can acquire reclaimed foreshore and submerged lands considered as inalienable and outside the commerce of man

Petitioner postulates that respondent RBI cannot acquire the reclaimed foreshore and submerged areas as these are inalienable public lands beyond the commerce of man based on Art. 1409 of the Civil Code which provides:
Article 1409. The following contracts are inexistent and void from the beginning: (1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy; xxxx (7) Those expressly prohibited or declared void by law.

These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.

Secs. 2 and 3, Art. XII of the Constitution declare that all natural resources are owned by the State and they cannot be alienated except for alienable agricultural lands of the public domain. One of the States natural resources are lands of public domain which include reclaimed lands. Petitioner contends that for these reclaimed lands to be alienable, there must be a law or presidential proclamation officially classifying these reclaimed lands as alienable and disposable and open to disposition or concession. Absent such law or proclamation, the reclaimed lands cannot be the enabling component or consideration to be paid to RBI as these are beyond the commerce of man. We are not convinced of petitioners postulation. The reclaimed lands across R-10 were classified alienable and disposable lands of public domain of the State for the following reasons, viz:

Chavez vs National Housing Authority

First, there were three (3) presidential proclamations classifying the reclaimed lands across R-10 as alienable or disposable hence open to disposition or concession, to wit: (1) MO 415 issued by President Aquino, of which Sec. 4 states that [t]he land covered by the Smokey Mountain Dumpsite is hereby conveyed to the National Housing Authority as well as the area to be reclaimed across R-10. The directive to transfer the lands once reclaimed to the NHA implicitly carries with it the declaration that said lands are alienable and disposable. Otherwise, the NHA cannot effectively use them in its housing and resettlement project. (2) Proclamation No. 39 issued by then President Ramos by which the reclaimed lands were conveyed to NHA for subdivision and disposition to qualified beneficiaries and for development into a mixed land use (commercial/industrial) to provide employment opportunities to on-site families and additional areas for port-related activities. Said directive carries with it the pronouncement that said lands have been transformed to alienable and disposable lands. Otherwise, there is no legal way to convey it to the beneficiaries. (3) Proclamation No. 465 likewise issued by President Ramos enlarged the reclaimed area to 79 hectares to be developed and disposed of in the implementation of the SMDRP. The authority put into the hands of the NHA to dispose of the reclaimed lands tacitly sustains the conversion to alienable and disposable lands. Secondly, Special Patents Nos. 3591, 3592, and 3598 issued by the DENR anchored on Proclamations Nos. 39 and 465 issued by President Ramos, without doubt, classified the reclaimed areas as alienable and disposable. Admittedly, it cannot be said that MO 415, Proclamations Nos. 39 and 465 are explicit declarations that the lands to be reclaimed are classified as alienable and disposable. We find however that such conclusion is derived and implicit from the authority given to the NHA to transfer the reclaimed lands to qualified beneficiaries. The query is, when did the declaration take effect? It did so only after the special patents covering the reclaimed areas were issued. It is only on such date that the reclaimed lands became alienable and disposable lands of the public domain. This is in line with the ruling in PEA where said issue was clarified and stressed:

Chavez vs National Housing Authority

PD No. 1085, coupled with President Aquinos 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 Aquinos 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.[73] (Emphasis supplied.)

Thus, MO 415 and Proclamations Nos. 39 and 465 cumulatively and jointly taken together with Special Patent Nos. 3591, 3592, and 3598 more than satisfy the requirement in PEA that [t]here must be a law or presidential proclamation officially classifying these reclaimed lands as alienable or disposable and open to disposition or concession (emphasis supplied).[74] Apropos the requisite law categorizing reclaimed land as alienable or disposable, we find that RA 6957 as amended by RA 7718 provides ample authority for the classification of reclaimed land in the SMDRP for the repayment scheme of the BOT project as alienable and disposable lands of public domain. Sec. 6 of RA 6957 as amended by RA 7718 provides:
For the financing, construction, operation and maintenance of any infrastructure projects undertaken through the build-operate-and transfer arrangement or any of its variations pursuant to 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 not limited to, the grant of a portion or percentage of the reclaimed land, subject to the constitutional requirements with respect to the ownership of the land. (Emphasis supplied.)

While RA 6957 as modified by RA 7718 does not expressly declare that the reclaimed lands that shall serve as payment to the project proponent have become alienable and disposable lands and opened for disposition; nonetheless, this conclusion is necessarily implied, for how else can the land be used as the enabling component for the Project if such classification is not deemed made? It may be argued that the grant of authority to sell public lands, pursuant to PEA, does not convert alienable lands of public domain into private or patrimonial lands. We ruled in PEA that alienable lands of 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 (emphasis supplied).[75] To lands reclaimed by PEA or through a contract with a private person or entity, such reclaimed lands still remain alienable lands of public domain which can be transferred only to Filipino citizens but not to a private corporation. This is because PEA under PD 1084 and EO 525 is tasked to hold and dispose of alienable lands of public

Chavez vs National Housing Authority

domain and it is only when it is transferred to Filipino citizens that it becomes patrimonial property. On the other hand, the NHA is a government agency nottasked to dispose of public lands under its charterThe Revised Administrative Code of 1987. The NHA is an end-user agency authorized by law to administer and dispose of reclaimed lands. The moment titles over reclaimed lands based on the special patents are transferred to the NHA by the Register of Deeds, they are automatically converted to patrimonial properties of the State which can be sold to Filipino citizens and private corporations, 60% of which are owned by Filipinos. The reason is obvious: if the reclaimed land is not converted to patrimonial land once transferred to NHA, then it would be useless to transfer it to the NHA since it cannot legally transfer or alienate lands of public domain. More importantly, it cannot attain its avowed purposes and goals since it can only transfer patrimonial lands to qualified beneficiaries and prospective buyers to raise funds for the SMDRP. From the foregoing considerations, we find that the 79-hectare reclaimed land has been declared alienable and disposable land of the public domain; and in the hands of NHA, it has been reclassified as patrimonial property. Petitioner, however, contends that the reclaimed lands were inexistent prior to the three (3) Presidential Acts (MO 415 and Proclamations Nos. 39 and 465) and hence, the declaration that such areas are alienable and disposable land of the public domain, citing PEA, has no legal basis. Petitioners contention is not well-taken. Petitioners sole reliance on Proclamations Nos. 39 and 465 without taking into consideration the special patents issued by the DENR demonstrates the inherent weakness of his proposition. As was ruled in PEA cited by petitioner himself, PD No. 1085, coupled with President Aquinos 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 public domain. In a similar vein, the combined and collective effect of Proclamations Nos. 39 and 465 with Special Patents Nos. 3592 and 3598 is tantamount to and can be considered to be an official declaration that the reclaimed lots are alienable or disposable lands of the public domain. The reclaimed lands covered by Special Patents Nos. 3591, 3592, and 3598, which evidence transfer of ownership of reclaimed lands to the NHA, are official acts of the DENR Secretary in the exercise of his power of supervision and control over alienable and disposable public lands and his exclusive jurisdiction over the management and disposition of all lands of public domain under the Revised Administrative Code of 1987. Special Patent No. 3592 speaks of the transfer of Lots 1 and 2, and RI-003901-000012-D with an area of 401,485 square meters based on the survey and

Chavez vs National Housing Authority

technical description approved by the Bureau of Lands. Lastly, Special Patent No. 3598 was issued in favor of the NHA transferring to said agency a tract of land described in Plan RL-00000013 with an area of 390,000 square meters based on the survey and technical descriptions approved by the Bureau of Lands. The conduct of the survey, the preparation of the survey plan, the computation of the technical description, and the processing and preparation of the special patent are matters within the technical area of expertise of administrative agencies like the DENR and the Land Management Bureau and are generally accorded not only respect but at times even finality.[76] Preparation of special patents calls for technical examination and a specialized review of calculations and specific details which the courts are ill-equipped to undertake; hence, the latter defer to the administrative agency which is trained and knowledgeable on such matters. [77] Subsequently, the special patents in the name of the NHA were submitted to the Register of Deeds of the City of Manila for registration, and corresponding certificates of titles over the reclaimed lots were issued based on said special patents. The issuance of certificates of titles in NHAs name automatically converts the reclaimed lands to patrimonial properties of the NHA. Otherwise, the lots would not be of use to the NHAs housing projects or as payment to the BOT contractor as the enabling component of the BOT contract. The laws of the land have to be applied and interpreted depending on the changing conditions and times. Tempora mutantur et legis mutantur in illis (time changes and laws change with it). One such law that should be treated differently is the BOT Law (RA 6957) which brought about a novel way of implementing government contracts by allowing reclaimed land as part or full payment to the contractor of a government project to satisfy the huge financial requirements of the undertaking. The NHA holds the lands covered by Special Patents Nos. 3592 and 3598 solely for the purpose of the SMDRP undertaken by authority of the BOT Law and for disposition in accordance with said special law. The lands become alienable and disposable lands of public domain upon issuance of the special patents and become patrimonial properties of the Government from the time the titles are issued to the NHA. As early as 1999, this Court in Baguio v. Republic laid down the jurisprudence that:
It is true that, once a patent is registered and the corresponding certificate of title is issued, the land covered by them ceases to be part of the public domain and becomes private property, and the Torrens Title issued pursuant to the patent becomes indefeasible upon the expiration of one year from the date of issuance of such patent.[78]

The doctrine was reiterated in Republic v. Heirs of Felipe Alijaga, Sr.,[79] Heirs of Carlos Alcaraz v. Republic,[80] and the more recent case of Doris Chiongbian-Oliva v. Republic of

Chavez vs National Housing Authority

the Philippines.[81] Thus, the 79-hectare reclaimed land became patrimonial property after the issuance of certificates of titles to the NHA based on Special Patents Nos. 3592 and 3598. One last point. The ruling in PEA cannot even be applied retroactively to the lots covered by Special Patents Nos. 3592 (40 hectare reclaimed land) and 3598 (39-hectare reclaimed land). The reclamation of the land under SMDRP was completed in August 1996 while the PEA decision was rendered on July 9, 2002. In the meantime, subdivided lots forming parts of the reclaimed land were already sold to private corporations for value and separate titles issued to the buyers. The Project was terminated through a Memorandum of Agreement signed on August 27, 2003. The PEA decision became final through theNovember 11, 2003 Resolution. It is a settled precept that decisions of the Supreme Court can only be applied prospectively as they may prejudice vested rights if applied retroactively. In Benzonan v. Court of Appeals, the Court trenchantly elucidated the prospective application of its decisions based on considerations of equity and fair play, thus:
At that time, the prevailing jurisprudence interpreting section 119 of R.A. 141 as amended was that enunciated in Monge and Tupas cited above. The petitioners Benzonan and respondent Pe and the DBP are bound by these decisions for pursuant to Article 8 of the Civil Code judicial decisions applying or interpreting the laws of the Constitution shall form a part of the legal system of the Philippines. But while our decisions form part of the law of the land, they are also subject to Article 4 of the Civil Code which provides that laws shall have no retroactive effect unless the contrary is provided. This is expressed in the familiar legal maxim lex prospicit, non respicit, the law looks forward not backward. The rationale against retroactivity is easy to perceive. The retroactive application of a law usually divests rights that have already become vested or impairs the obligations of contract and hence, is unconstitutional. The same consideration underlies our rulings giving only prospective effect to decisions enunciating new doctrines. Thus, we emphasized in People v. Jabinal, 55 SCRA 607 [1974] x x x when a doctrine of this Court is overruled and a different view is adopted, the new doctrine should be applied prospectively and should not apply to parties who had relied on the old doctrine and [82] acted on the faith thereof.

Fourth Issue: Whether respondent RBI can acquire reclaimed lands when there was no declaration that said lands are no longer needed for public use Petitioner Chavez avers that despite the declaration that the reclaimed areas are alienable lands of the public domain, still, the reclamation is flawed for there was never any declaration that said lands are no longer needed for public use. We are not moved by petitioners submission.

Chavez vs National Housing Authority

Even if it is conceded that there was no explicit declaration that the lands are no longer needed for public use or public service, there was however an implicit executive declaration that the reclaimed areas R-10 are not necessary anymore for public use or public service when President Aquino through MO 415 conveyed the same to the NHA partly for housing project and related commercial/industrial development intended for disposition to and enjoyment of certain beneficiaries and not the public in general and partly as enabling component to finance the project. President Ramos, in issuing Proclamation No. 39, declared, though indirectly, that the reclaimed lands of the Smokey Mountain project are no longer required for public use or service, thus:
These parcels of land of public domain are hereby placed under the administration and disposition of the National Housing Authority to develop, subdivide and dispose to qualified beneficiaries, as well as its development for mix land use (commercial/industrial) to provide employment opportunities to on-site families and additional areas for port related activities. (Emphasis supplied.)

While numerical count of the persons to be benefited is not the determinant whether the property is to be devoted to public use, the declaration in Proclamation No. 39 undeniably identifies only particular individuals as beneficiaries to whom the reclaimed lands can be sold, namelythe Smokey Mountaindwellers. The rest of the Filipinos are not qualified; hence, said lands are no longer essential for the use of the public in general. In addition, President Ramos issued on August 31, 1994 Proclamation No. 465 increasing the area to be reclaimed from forty (40) hectares to seventy-nine (79) hectares, elucidating that said lands are undoubtedly set aside for the beneficiaries of SMDRP and not the public declaring the power of NHA to dispose of land to be reclaimed, thus: The authority to administer, develop, or dispose lands identified and reserved by this Proclamation and Proclamation No. 39 (s.1992), in accordance with the SMDRP, as enhance, is vested with the NHA, subject to the provisions of existing laws. (Emphasis supplied.) MO 415 and Proclamations Nos. 39 and 465 are declarations that proclaimed the non-use of the reclaimed areas for public use or service as the Project cannot be successfully implemented without the withdrawal of said lands from public use or service. Certainly, the devotion of the reclaimed land to public use or service conflicts with the intended use of the Smokey Mountain areas for housing and employment of the Smokey Mountain scavengers and for financing the Project because the latter cannot be accomplished without abandoning the public use of the subject

Chavez vs National Housing Authority

land. Without doubt, the presidential proclamations on SMDRP together with the issuance of the special patents had effectively removed the reclaimed lands from public use. More decisive and not in so many words is the ruling in PEA which we earlier cited, that PD No. 1085 and President Aquinos issuance of a land patent also constitute a declaration that the Freedom Islands are no longer needed for public service. Consequently, we ruled in that case that the reclaimed lands are open to disposition or concession to qualified parties.[83] In a similar vein, presidential Proclamations Nos. 39 and 465 jointly with the special patents have classified the reclaimed lands as alienable and disposable and open to disposition or concession as they would be devoted to units for Smokey Mountain beneficiaries. Hence, said lands are no longer intended for public use or service and shall form part of the patrimonial properties of the State under Art. 422 of the Civil Code.[84] As discussed a priori, the lands were classified as patrimonial properties of the NHA ready for disposition when the titles were registered in its name by the Register of Deeds. Moreover, reclaimed lands that are made the enabling components of a BOT infrastructure project are necessarily reclassified as alienable and disposable lands under the BOT Law; otherwise, absurd and illogical consequences would naturally result. Undoubtedly, the BOT contract will not be accepted by the BOT contractor since there will be no consideration for its contractual obligations. Since reclaimed land will be conveyed to the contractor pursuant to the BOT Law, then there is an implied declaration that such land is no longer intended for public use or public service and, hence, considered patrimonial property of the State. Fifth Issue: Whether there is a law authorizing sale of reclaimed lands

Petitioner next claims that RBI cannot acquire the reclaimed lands because there was no law authorizing their sale. He argues that unlike PEA, no legislative authority was granted to the NHA to sell reclaimed land. This position is misplaced. Petitioner relies on Sec. 60 of Commonwealth Act (CA) 141 to support his view that the NHA is not empowered by any law to sell reclaimed land, thus:

Chavez vs National Housing Authority

Section 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. The area of the land 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 if requested and shall in no case exceed one hundred and forty-four hectares: Provided, however, That this limitation shall not apply to grants, donations, 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; Provided, further, That any person, corporation, association or partnership disqualified from purchasing public land for agricultural purposes under the provisions of this Act, may lease land included under this title suitable for industrial or residential purposes, but the lease granted shall only be valid while such land is used for the purposes referred to. (Emphasis supplied.)

Reliance on said provision is incorrect as the same applies only to a province, municipality or branch or subdivision of the Government. The NHA is not a government unit but a government corporation performing governmental and proprietary functions. In addition, PD 757 is clear that the NHA is empowered by law to transfer properties acquired by it under the law to other parties, thus:
Section 6. Powers and functions of the Authority. The Authority shall have the following powers and functions to be exercised by the Boards in accordance with the established national human settlements plan prepared by the Human Settlements Commission: xxxx (k) Enter into contracts whenever necessary under such terms and conditions as it may deem proper and reasonable; (l) Acquire property rights and interests, and encumber or otherwise dispose the same as it may deem appropriate (Emphasis supplied.)

Letter (l) is emphatic that the NHA can acquire property rights and interests and encumber or otherwise dispose of them as it may deem appropriate. The transfer of the reclaimed lands by the National Government to the NHA for housing, commercial, and industrial purposes transformed them into patrimonial lands which are of course owned by the State in its private or proprietary capacity. Perforce, the NHA can sell the reclaimed lands to any Filipino citizen or qualified corporation.

Chavez vs National Housing Authority

Sixth Issue: Whether the transfer of reclaimed lands to RBI was done by public bidding

Petitioner also contends that there was no public bidding but an awarding of ownership of said reclaimed lands to RBI. Public bidding, he says, is required under Secs. 63 and 67 of CA 141 which read:
Section 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 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, that the Government will lease or sell, as the case may be, the lots or blocks specified in the advertisement, for the purpose stated in the notice and subject to the conditions specified in this chapter. xxxx Section 67. The lease or sale shall be made through oral bidding; and adjudication shall be made to the highest bidder. However, where an applicant has made improvements on the land by virtue of a permit issued to him by competent authority, the sale or lease shall be made by sealed bidding as prescribed in section twenty-six of this Act, the provisions of which shall be applied whenever applicable. If all or part of the lots remain unleased or unsold, the Director of Lands shall from time to time announce in the Official Gazette or in any other newspapers of general circulation, the lease of sale of those lots, if necessary.

He finds that the NHA and RBI violated Secs. 63 and 67 of CA 141, as the reclaimed lands were conveyed to RBI by negotiated contract and not by public bidding as required by law. This stand is devoid of merit. There is no doubt that respondent NHA conducted a public bidding of the right to become its joint venture partner in the Smokey Mountain Project. Notices or Invitations to Bid were published in the national dailies on January 23 and 26, 1992 and February 1, 14, 16, and 23, 1992. The bidding proper was done by the Bids and Awards Committee (BAC) on May 18, 1992. On August 31, 1992, the Inter-Agency Techcom made up of the NHA, PEA, DPWH, PPA, DBP, and DENR opened the bids and evaluated them, resulting in the award of the contract to respondent RBI on October 7, 1992.

Chavez vs National Housing Authority

On March 19, 1993, respondents NHA and RBI signed the JVA. On February 23, 1994, said JVA was amended and restated into the ARJVA. OnAugust 11, 1994, the ARJVA was again amended. On September 7, 1994, the OP approved the ARJVA and the amendments to the ARJVA. From these factual settings, it cannot be gainsaid that there was full compliance with the laws and regulations governing public biddings involving a right, concession, or property of the government. Petitioner concedes that he does not question the public bidding on the right to be a joint venture partner of the NHA, but the absence of bidding in the sale of alienable and disposable lands of public domain pursuant to CA 141 as amended. Petitioners theory is incorrect. Secs. 63 and 67 of CA 141, as amended, are in point as they refer to government sale by the Director of Lands of alienable and disposable lands of public domain. This is not present in the case at bar. The lands reclaimed by and conveyed to the NHA are no longer lands of public domain. These lands became proprietary lands or patrimonial properties of the State upon transfer of the titles over the reclaimed lands to the NHA and hence outside the ambit of CA 141. The NHA can therefore legally transfer patrimonial land to RBI or to any other interested qualified buyer without any bidding conducted by the Director of Lands because the NHA, unlike PEA, is a government agency not tasked to sell lands of public domain. Hence, it can only hold patrimonial lands and can dispose of such lands by sale without need of public bidding. Petitioner likewise relies on Sec. 79 of PD 1445 which requires public bidding when government property has become unserviceable for any cause or is no longer needed. It appears from the Handbook on Property and Supply Management System, Chapter 6, that reclaimed lands which have become patrimonial properties of the State, whose titles are conveyed to government agencies like the NHA, which it will use for its projects or programs, are not within the ambit of Sec. 79. We quote the determining factors in the Disposal of Unserviceable Property, thus:
Determining Factors in the Disposal of Unserviceable Property Property, which can no longer be repaired or reconditioned; Property whose maintenance costs of repair more than outweigh the benefits and services that will be derived from its continued use; Property that has become obsolete or outmoded because of changes in technology;

Chavez vs National Housing Authority

Serviceable property that has been rendered unnecessary due to change in the agencys function or mandate; Unused supplies, materials and spare parts that were procured in excess of requirements; and Unused supplies and materials that [have] become dangerous to use because of long storage or use of which is determined to be hazardous.[85]

Reclaimed lands cannot be considered unserviceable properties. The reclaimed lands in question are very much needed by the NHA for the Smokey Mountain Project because without it, then the projects will not be successfully implemented. Since the reclaimed lands are not unserviceable properties and are very much needed by NHA, then Sec. 79 of PD 1445 does not apply. More importantly, Sec. 79 of PD 1445 cannot be applied to patrimonial properties like reclaimed lands transferred to a government agency like the NHA which has entered into a BOT contract with a private firm. The reason is obvious. If the patrimonial property will be subject to public bidding as the only way of disposing of said property, then Sec. 6 of RA 6957 on the repayment scheme is almost impossible or extremely difficult to implement considering the uncertainty of a winning bid during public auction. Moreover, the repayment scheme of a BOT contract may be in the form of non-monetary payment like the grant of a portion or percentage of reclaimed land. Even if the BOT partner participates in the public bidding, there is no assurance that he will win the bid and therefore the payment in kind as agreed to by the parties cannot be performed or the winning bid prize might be below the estimated valuation of the land. The only way to harmonize Sec. 79 of PD 1445 with Sec. 6 of RA 6957 is to consider Sec. 79 of PD 1445 as inapplicable to BOT contracts involving patrimonial lands. The law does not intend anything impossible (lex non intendit aliquid impossibile).

Seventh Issue: Whether RBI, being a private corporation, is barred by the Constitution to acquire lands of public domain

Petitioner maintains that RBI, being a private corporation, is expressly prohibited by the 1987 Constitution from acquiring lands of public domain. Petitioners proposition has no legal mooring for the following reasons: 1. RA 6957 as amended by RA 7718 explicitly states that a contractor can be paid a portion as percentage of the reclaimed land subject to the constitutional requirement that on ly

Chavez vs National Housing Authority

Filipino citizens or corporations with at least 60% Filipino equity can acquire the same. It cannot be denied that RBI is a private corporation, where Filipino citizens own at least 60% of the stocks. Thus, the transfer to RBI is valid and constitutional. 2. When Proclamations Nos. 39 and 465 were issued, inalienable lands covered by said proclamations were converted to alienable and disposable lands of public domain. When the titles to the reclaimed lands were transferred to the NHA, said alienable and disposable lands of public domain were automatically classified as lands of the private domain or patrimonial properties of the State because the NHA is an agency NOT tasked to dispose of alienable or disposable lands of public domain. The only way it can transfer the reclaimed land in conjunction with its projects and to attain its goals is when it is automatically converted to patrimonial properties of the State. Being patrimonial or private properties of the State, then it has the power to sell the same to any qualified personunder the Constitution, Filipino citizens as private corporations, 60% of which is owned by Filipino citizens like RBI. 3. The NHA is an end-user entity such that when alienable lands of public domain are transferred to said agency, they are automatically classified as patrimonial properties. The NHA is similarly situated as BCDA which was granted the authority to dispose of patrimonial lands of the government under RA 7227. The nature of the property holdings conveyed to BCDA is elucidated and stressed in the May 6, 2003 Resolution in Chavez v. PEA, thus:
BCDA is an entirely different government entity. BCDA is authorized by law to sell specific government lands that have long been declared by presidential proclamations as military reservations for use by the different services of the armed forces under the Department of National Defense. BCDAs mandate is specific and limited in area, while PEAs mandate is general and national. BCDA holds government lands that have been granted to end-user government entitiesthe military services of the armed forces. In contrast, under Executive Order No. 525, PEA holds the reclaimed public lands, not as an end-user entity, but as the government agency primarily responsible for integrating, directing, and coordinating all reclamation projects for and on behalf of the National Government. x x x Well-settled is the doctrine that public land granted to an end-user government agency for a specific public use may subsequently be withdrawn by Congress from public use and declared patrimonial property to be sold to private parties. R.A. No. 7227 creating the BCDA is a law that declares specific military reservations no longer needed for defense or military purposes and reclassifies such lands as patrimonial property for sale to private parties. Government owned lands, as long as they are patrimonial property, can be sold to private parties, whether Filipino citizens or qualified private corporations. Thus, the so-called Friar Lands acquired by the government under Act No. 1120 are patrimonial property which even private corporations can acquire by purchase. Likewise, reclaimed alienable lands of the public domain if sold or transferred to a public or municipal corporation for a monetary consideration become patrimonial property in the hands of the public or municipal corporation. Once converted to

Chavez vs National Housing Authority

patrimonial property, the land may be sold by the public or municipal corporation to private parties, whether Filipino citizens or qualified private corporations.[86] (Emphasis supplied.)

The foregoing Resolution makes it clear that the SMDRP was a program adopted by the Government under Republic Act No. 6957 (An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the Private Sector, and For Other Purposes), as amended by RA 7718, which is a special law similar to RA 7227. Moreover, since the implementation was assigned to the NHA, an end-user agency under PD 757 and RA 7279, the reclaimed lands registered under the NHA are automatically classified as patrimonial lands ready for disposition to qualified beneficiaries. The foregoing reasons likewise apply to the contention of petitioner that HCPTI, being a private corporation, is disqualified from being a transferee of public land. What was transferred to HCPTI is a 10-hectare lot which is already classified as patrimonial property in the hands of the NHA. HCPTI, being a qualified corporation under the 1987 Constitution, the transfer of the subject lot to it is valid and constitutional. Eighth Issue: Whether respondents can be compelled to disclose all information related to the SMDRP

Petitioner asserts his right to information on all documents such as contracts, reports, memoranda, and the like relative to SMDRP. Petitioner asserts that matters relative to the SMDRP have not been disclosed to the public like the current stage of the Project, the present financial capacity of RBI, the complete list of investors in the asset pool, the exact amount of investments in the asset pool and other similar important information regarding the Project. He prays that respondents be compelled to disclose all information regarding the SMDRP and furnish him with originals or at least certified true copies of all relevant documents relating to the said project including, but not limited to, the original JVA, ARJVA, AARJVA, and the Asset Pool Agreement. This relief must be granted. The right of the Filipino people to information on matters of public concern is enshrined in the 1987 Constitution, thus:

Chavez vs National Housing Authority

ARTICLE II xxxx 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. ARTICLE III 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.

In Valmonte v. Belmonte, Jr., this Court explicated this way:

[A]n 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 peoples 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 issues and have access to information relating thereto [87] can such bear fruit.

In PEA, this Court elucidated the rationale behind the right to information:
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, 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.[88]

Sec. 28, Art. II compels the State and its agencies to fully disclose all of its transactions involving public interest. Thus, the government agencies, without need of demand from anyone,

Chavez vs National Housing Authority

must bring into public view all the steps and negotiations leading to the consummation of the transaction and the contents of the perfected contract.[89] Such information must pertain to definite propositions of the government, meaning official recommendations or final positions reached on the different matters subject of negotiation. The government agency, however, need not disclose 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. The limitation also covers privileged communication like information on military and diplomatic secrets; information affecting national security; information on investigations of crimes by law enforcement agencies before the prosecution of the accused; information on foreign relations, intelligence, and other classified information. It is unfortunate, however, that after almost twenty (20) years from birth of the 1987 Constitution, there is still no enabling law that provides the mechanics for the compulsory duty of government agencies to disclose information on government transactions. Hopefully, the desired enabling law will finally see the light of day if and when Congress decides to approve the proposed Freedom of Access to Information Act. In the meantime, it would suffice that government agencies post on their bulletin boards the documents incorporating the information on the steps and negotiations that produced the agreements and the agreements themselves, and if finances permit, to upload said information on their respective websites for easy access by interested parties. Without any law or regulation governing the right to disclose information, the NHA or any of the respondents cannot be faulted if they were not able to disclose information relative to the SMDRP to the public in general. The other aspect of the peoples right to know apart from the duty to disclose is the duty to allow access to information on matters of public concern under Sec. 7, Art. III of the Constitution. The gateway to information opens to the public the following: (1) official records; (2) documents and papers pertaining to official acts, transactions, or decisions; and (3) government research data used as a basis for policy development. Thus, the duty to disclose information should be differentiated from the duty to permit access to information. There is no need to demand from the government agency disclosure of information as this is mandatory under the Constitution; failing that, legal remedies are available. On the other hand, the interested party must first request or even demand that he be allowed access to documents and papers in the particular agency. A request or demand is required; otherwise, the government office or agency will not know of the desire of the interested party to gain access to such papers and what papers are needed. The duty to disclose covers only transactions involving public interest, while the duty to allow access has a broader scope of

Chavez vs National Housing Authority

information which embraces not only transactions involving public interest, but any matter contained in official communications and public documents of the government agency. We find that although petitioner did not make any demand on the NHA to allow access to information, we treat the petition as a written request or demand. We order the NHA to allow petitioner access to its official records, documents, and papers relating to official acts, transactions, and decisions that are relevant to the said JVA and subsequent agreements relative to the SMDRP. Ninth Issue: Whether the operative fact doctrine applies to the instant petition Petitioner postulates that the operative fact doctrine is inapplicable to the present case because it is an equitable doctrine which could not be used to countenance an inequitable result that is contrary to its proper office. On the other hand, the petitioner Solicitor General argues that the existence of the various agreements implementing the SMDRP is an operative fact that can no longer be disturbed or simply ignored, citing Rieta v. People of the Philippines.[90] The argument of the Solicitor General is meritorious. The operative fact doctrine is embodied in De Agbayani v. Court of Appeals, wherein it is stated that a legislative or executive act, prior to its being declared as unconstitutional by the courts, is valid and must be complied with, thus:
As the new Civil Code puts it: When the courts declare a law to be inconsistent with the Constitution, the former shall be void and the latter shall govern. Administrative or executive acts, orders and regulations shall be valid only when they are not contrary to the laws of the Constitution. It is understandable why it should be so, the Constitution being supreme and paramount. Any legislative or executive act contrary to its terms cannot survive. Such a view has support in logic and possesses the merit of simplicity. It may not however be sufficiently realistic. It does not admit of doubt that prior to the declaration of nullity such challenged legislative or executive act must have been in force and had to be complied with. This is so as until after the judiciary, in an appropriate case, declares its invalidity, it is entitled to obedience and respect. Parties may have acted under it and may have changed their positions. What could be more fitting than that in a subsequent litigation regard be had to what has been done while such legislative or executive act was in operation and presumed to be valid in all respects. It is now accepted as a doctrine that prior to its being nullified, its existence as a fact must be reckoned with. This is merely to reflect awareness that precisely because the judiciary is the governmental organ which has the final say on whether or not a legislative or executive measure is

Chavez vs National Housing Authority

valid, a period of time may have elapsed before it can exercise the power of judicial review that may lead to a declaration of nullity. It would be to deprive the law of its quality of fairness and justice then, if there be no recognition of what had transpired prior to such adjudication. In the language of an American Supreme Court decision: The actual existence of a statute, prior to such a determination [of unconstitutionality], is an operative fact and may have consequences which cannot justly be ignored. The past cannot always be erased by a new judicial declaration. The effect of the subsequent ruling as to invalidity may have to be considered in various aspects, with respect to particular relations, individual and corporate, and particular conduct, private and official. This language has been quoted with approval in a resolution in Araneta v. Hill and the decision in Manila Motor Co., Inc. v. Flores. An even more recent instance is the opinion of Justice Zaldivar speaking for the Court in Fernandez v. Cuerva and Co.[91] (Emphasis supplied.)

This doctrine was reiterated in the more recent case of City of Makati v. Civil Service Commission, wherein we ruled that:
Moreover, we certainly cannot nullify the City Governments order of suspension, as we have no reason to do so, much less retroactively apply such nullification to deprive private respondent of a compelling and valid reason for not filing the leave application. For as we have held, a void act though in law a mere scrap of paper nonetheless confers legitimacy upon past acts or omissions done in reliance thereof. Consequently, the existence of a statute or executive order prior to its being adjudged void is an operative fact to which legal consequences are attached. It would indeed be ghastly unfair to prevent private respondent from [92] relying upon the order of suspension in lieu of a formal leave application. (Emphasis supplied.)

The principle was further explicated in the case of Rieta v. People of the Philippines, thus:
In similar situations in the past this Court had taken the pragmatic and realistic course set forth in Chicot County Drainage District vs. Baxter Bank to wit: The courts below have proceeded on the theory that the Act of Congress, having been found to be unconstitutional, was not a law; that it was inoperative, conferring no rights and imposing no duties, and hence affording no basis for the challenged decree. x x x It is quite clear, however, that such broad statements as to the effect of a determination of unconstitutionality must be taken with qualifications. The actual existence of a statute, prior to [the determination of its invalidity], is an operative fact and may have consequences which cannot justly be ignored. The past cannot always be erased by a new judicial declaration. The effect of the subsequent ruling as to invalidity may have to be considered in various aspects with respect to particular conduct, private and official. Questions of rights claimed to have become vested, of status, of prior determinations deemed to have finality and acted upon accordingly, of public policy in the light of the nature both of the statute and of its previous application, demand examination. These questions are among the most difficult of those which have engaged the attention of courts, state and federal, and it is manifest from numerous decisions that an all-inclusive statement of a principle of absolute retroactive invalidity cannot be justified.

Chavez vs National Housing Authority

In the May 6, 2003 Resolution in Chavez v. PEA,[93] we ruled that De Agbayani[94] is not applicable to the case considering that the prevailing law did not authorize private corporations from owning land. The prevailing law at the time was the 1935 Constitution as no statute dealt with the same issue. In the instant case, RA 6957 was the prevailing law at the time that the joint venture agreement was signed. RA 6957, entitled An Act Authorizing The Financing, Construction, Operation And Maintenance Of Infrastructure Projects By The Private Sector And For Other Purposes, which was passed by Congress on July 24, 1989, allows repayment to the private contractor of reclaimed lands.[95] Such law was relied upon by respondents, along with the abovementioned executive issuances in pushing through with the Project. The existence of such law and issuances is an operative fact to which legal consequences have attached. This Court is constrained to give legal effect to the acts done in consonance with such executive and legislative acts; to do otherwise would work patent injustice on respondents. Further, in the May 6, 2003 Resolution in Chavez v. PEA, we ruled that in certain cases, the transfer of land, although illegal or unconstitutional, will not be invalidated on considerations of equity and social justice. However, in that case, we did not apply the same considering that PEA, respondent in said case, was not entitled to equity principles there being bad faith on its part, thus:
There are, moreover, special circumstances that disqualify Amari from invoking equity principles. Amari cannot claim good faith because even before Amari signed the Amended JVA on March 30, 1999, petitioner had already filed the instant case on April 27, 1998 questioning precisely the qualification of Amari to acquire the FreedomIslands. Even before the filing of this petition, two Senate Committees had already approved on September 16, 1997 Senate Committee Report No. 560. This Report concluded, after a well-publicized investigation into PEAs sale of the Freedom Islands to Amari, that the Freedom Islands are inalienable lands of the public domain. Thus, Amari signed the Amended JVA knowing and assuming all the attendant risks, including the annulment of the Amended JVA.[96]

Such indicia of bad faith are not present in the instant case. When the ruling in PEA was rendered by this Court on July 9, 2002, the JVAs were all executed. Furthermore, when petitioner filed the instant case against respondents on August 5, 2004, the JVAs were already terminated by virtue of the MOA between the NHA and RBI. The respondents had no reason to think that their agreements were unconstitutional or even questionable, as in fact, the concurrent acts of the executive department lent validity to the implementation of the Project. The SMDRP agreements have produced vested rights in favor of the slum dwellers, the buyers of reclaimed land who were

Chavez vs National Housing Authority

issued titles over said land, and the agencies and investors who made investments in the project or who bought SMPPCs. These properties and rights cannot be disturbed or questioned after the passage of around ten (10) years from the start of the SMDRP implementation. Evidently, the operative fact principle has set in. The titles to the lands in the hands of the buyers can no longer be invalidated. The Courts Dispositions Based on the issues raised in this petition, we find that the March 19, 1993 JVA between NHA and RBI and the SMDRP embodied in the JVA, the subsequent amendments to the JVA and all other agreements signed and executed in relation to it, including, but not limited to, the September 26, 1994 Smokey Mountain Asset Pool Agreement and the agreement on Phase I of the Project as well as all other transactions which emanated from the Project, have been shown to be valid, legal, and constitutional. Phase II has been struck down by the Clean Air Act. With regard to the prayer for prohibition, enjoining respondents particularly respondent NHA from further implementing and/or enforcing the said Project and other agreements related to it, and from further deriving and/or enjoying any rights, privileges and interest from the Project, we find the same prayer meritless. Sec. 2 of Rule 65 of the 1997 Rules of Civil Procedure provides:
Sec. 2. Petition for prohibition.When the proceedings of any tribunal, corporation, board, officer or person, whether exercising judicial, quasi-judicial or ministerial functions, are without or in excess of its or his jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal or any other plain, speedy, and adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified petition in the proper court, alleging the facts with certainty and praying that judgment be rendered commanding the respondent to desist from further proceedings in the action or matter specified therein, or otherwise granting such incidental reliefs as law and justice may require.

It has not been shown that the NHA exercised judicial or quasi-judicial functions in relation to the SMDRP and the agreements relative to it. Likewise, it has not been shown what ministerial functions the NHA has with regard to the SMDRP. A ministerial duty is one which is so clear and specific as to leave no room for the exercise of discretion in its performance. It is a duty which an officer performs in a given state of facts in a prescribed manner in obedience to the mandate of legal authority, without regard to the exercise of his/her own judgment upon the propriety of the act done.[97]

Chavez vs National Housing Authority

Whatever is left to be done in relation to the August 27, 2003 MOA, terminating the JVA and other related agreements, certainly does not involve ministerial functions of the NHA but instead requires exercise of judgment. In fact, Item No. 4 of the MOA terminating the JVAs provides for validation of the developers (RBIs) claims arising from the termination of the SMDRP through the various government agencies.[98] Such validation requires the exercise of discretion. In addition, prohibition does not lie against the NHA in view of petitioners failure to avail and exhaust all administrative remedies. Clear is the rule that prohibition is only available when there is no adequate remedy in the ordinary course of law. More importantly, prohibition does not lie to restrain an act which is already a fait accompli. The operative fact doctrine protecting vested rights bars the grant of the writ of prohibition to the case at bar. It should be remembered that petitioner was the Solicitor General at the time SMDRP was formulated and implemented. He had the opportunity to question the SMDRP and the agreements on it, but he did not. The moment to challenge the Project had passed. On the prayer for a writ of mandamus, petitioner asks the Court to compel respondents to disclose all documents and information relating to the project, including, but not limited to, any subsequent agreements with respect to the different phases of the Project, the revisions of the original plan, the additional works incurred on the Project, the current financial condition of respondent RBI, and the transactions made with respect to the project. We earlier ruled that petitioner will be allowed access to official records relative to the SMDRP. That would be adequate relief to satisfy petitioners right to the information gateway. WHEREFORE, the petition is PARTIALLY GRANTED. The prayer for a writ of prohibition is DENIED for lack of merit. The prayer for a writ of mandamus is GRANTED. Respondent NHA is ordered to allow access to petitioner to all public documents and official records relative to the SMDRP including, but not limited to, the March 19, 1993 JVA between the NHA and RBI and subsequent agreements related to the JVA, the revisions over the original plan, and the additional works incurred on and the transactions made with respect to the Project. No costs.

Chavez vs National Housing Authority

SO ORDERED.

G.R. No. 164527 Ponente: VELASCO, JR., J.

15 August 2007

FACTS:

On August 5, 2004, former Solicitor General Francisco Chavez, filed an instant petition raising constitutional issues on the JVA entered by National Housing Authority and R-II Builders, Inc.

On March 1, 1988, then-President Cory Aquino issued Memorandum order No. (MO) 161 approving and directing implementation of the Comprehensive and Integrated Metropolitan Manila Waste Management Plan. During this time, Smokey Mountain, a wasteland in Tondo, Manila, are being made residence of many Filipinos living in a subhuman state.

As presented in MO 161, NHA prepared feasibility studies to turn the dumpsite into low-cost housing project, thus, Smokey Mountain Development and Reclamation Project (SMDRP), came into place. RA 6957 (Build-Operate-Transfer Law) was passed on July 1990 declaring the importance of private sectors as contractors in government projects. Thereafter, Aquino proclaimed MO 415 applying RA 6957 to SMDRP, among others. The same MO also established EXECOM and TECHCOM in the execution and evaluation of the plan, respectively, to be assisted by the Public Estates Authority (PEA).

Notices of public bidding to become NHAs venture partner for SMDRP were published in newspapers in 1992, from which R -II Builders, Inc. (RBI) won the bidding process. Then-President Ramos authorized NHA to enter into a Joint Venture Agreement with RBI.

Under the JVA, the project involves the clearing of Smokey Mountain for eventual development into a low cost housing complex and industrial/commercial site. RBI is expected to fully finance the development of Smokey Mountain and reclaim 40 hectares of the land at the Manila Bay Area. The latter together with the commercial area to be built on Smokey Mountain will be owned by RBI as enabling components. If the project is revoked or terminated by the Government through no fault of RBI or by mutual agreement, the Government shall compensate RBI for its actual expenses incurred in the Project plus a reasonable rate of return not exceeding that stated in the feasibility study and in the contract as of the date of such revocation, cancellation, or termination on a schedule to be agreed upon by both parties.

To summarize, the SMDRP shall consist of Phase I and Phase II. Phase I of the project involves clearing, levelling-off the dumpsite, and construction of temporary housing units for the current residents on the cleared and levelled site. Phase II involves the construction of a fenced incineration area for the on-site disposal of the garbage at the dumpsite.

Due to the recommendations done by the DENR after evaluations done, the JVA was amended and restated (now ARJVA) to accommodate the design changes and additional work to be done to successfully implement the project. The original 3,500 units of temporary housing were decreased to 2,992. The reclaimed land as enabling component was increased from 40 hectares to 79 hectares, which was supported by the issuance of Proclamation No. 465 by President Ramos. The revision also provided for the 119-hectare land as an enabling component for Phase II of the project.

Chavez vs National Housing Authority

Subsequently, the Clean Air Act was passed by the legislature which made the establishment of an incinerator illegal, making the off-site dumpsite at Smokey Mountain necessary. On August 1, 1998, the project was suspended, to be later reconstituted by President Estrada in MO No. 33.

On August 27, 2003, the NHA and RBI executed a Memorandum of Agreement whereby both parties agreed to terminate the JVA and subsequent agreements. During this time, NHA reported that 34 temporary housing structures and 21 permanent housing structures had been turned over by RBI.

ISSUES:

1.

Whether respondents NHA and RBI have been granted the power and authority to reclaim lands of the public domain as this power is vested exclusively in PEA as claimed by petitioner

2. 3. 4. 5. 6. 7. 8. 9.

Whether respondents NHA and RBI were given the power and authority by DENR to reclaim foreshore and submerged lands Whether respondent RBI can acquire reclaimed foreshore and submerged lands considered as alienable and outside the commerce of man Whether respondent RBI can acquire reclaimed lands when there was no declaration that said lands are no longer needed for public use Whether there is a law authorizing sale of reclaimed lands Whether the transfer of reclaimed lands to RBI was done by public bidding Whether RBI, being a private corporation, is barred by the Constitution to acquire lands of public domain Whether respondents can be compelled to disclose all information related to the SMDRP Whether the operative fact doctrine applies to the instant position HELD:

1.

Executive Order 525 reads that the PEA shall be primarily responsible for integrating, directing, and coordinating all reclamation projects for and on behalf of the National Government. This does not mean that it shall be responsible for all. The requisites for a valid and legal reclamation project are approval by the President (which were provided for by MOs), favourable recommendation of PEA (which were seen as a part of its recommendations to the EXECOM), and undertaken either by PEA or entity under contract of PEA or by the National Government Agency (NHA is a government agency whose authority to reclaim lands under consultation with PEA is derived under PD 727 and RA 7279).

2.

Notwithstanding the need for DENR permission, the DENR is deemed to have granted the authority to reclaim in the Smokey Mountain Project for the DENR is one of the members of the EXECOM which provides reviews for the project. ECCs and Special Patent Orders were given by the DENR which are exercises of its power of supervision over the project. Furthermore, it was the President via the abovementioned MOs that originally authorized the reclamation. It must be noted that the reclamation of lands of public domain is reposed first in the Philippine President.

3.

The reclaimed lands were classified alienable and disposable via MO 415 issued by President Aquino and Proclamation Nos. 39 and 465 by President Ramos.

4.

Despite not having an explicit declaration, the lands have been deemed to be no longer needed for public use as stated in Proclamation No. 39 that these are to be disposed to qualified beneficiaries. Furthermore, these lands have already been necessarily reclassified as alienable and disposable lands under the BOT law.

5.

Letter I of Sec. 6 of PD 757 clearly states that the NHA can acquire property rights and interests and encumber or otherwise dispose of them as it may deem appropriate.

Chavez vs National Housing Authority

6. There is no doubt that respondent NHA conducted a public bidding of the right to become its joint venture partner in the Smokey Mountain Project. It was noted that notices were published in national newspapers. The bidding proper was done by the Bids and Awards Committee on May 18, 1992. 7. RA 6957 as amended by RA 7718 explicitly states that a contractor can be paid a portion as percentage of the reclaimed land subject to the constitutional requirement that only Filipino citizens or corporation with at least 60% Filipino equity can acquire the same. In addition, when the lands were transferred to the NHA, these were considered Patrimonial lands of the state, by which it has the power to sell the same to any qualified person. 8. This relief must be granted. It is the right of the Filipino people to information on matters of public concerned as stated in Article II, Sec. 28, and Article III, Sec. 7 of the 1987 Constitution. 9. When the petitioner filed the case, the JVA had already been terminated by virtue of MOA between RBI and NHA. The properties and rights in question after the passage of around 10 years from the start of the projects implementation cannot be disturbed or questione d. The petitioner, being the Solicitor General at the time SMDRP was formulated, had ample opportunity to question the said project, but did not do so. The moment to challenge has passed.

Gamboa vs. Teves

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 176579 June 28, 2011

WILSON P. GAMBOA, Petitioner, vs. FINANCE SECRETARY MARGARITO B. TEVES, FINANCE UNDERSECRETARY JOHN P. SEVILLA, AND COMMISSIONER RICARDO ABCEDE OF THE PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG) IN THEIR CAPACITIES AS CHAIR AND MEMBERS, RESPECTIVELY, OF THE PRIVATIZATION COUNCIL, CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC CO., LTD. IN HIS CAPACITY AS DIRECTOR OF METRO PACIFIC ASSET HOLDINGS INC., CHAIRMAN MANUEL V. PANGILINAN OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY (PLDT) IN HIS CAPACITY AS MANAGING DIRECTOR OF FIRST PACIFIC CO., LTD., PRESIDENT NAPOLEON L. NAZARENO OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, CHAIR FE BARIN OF THE SECURITIES EXCHANGE COMMISSION, and PRESIDENT FRANCIS LIM OF THE PHILIPPINE STOCK EXCHANGE, Respondents. PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioners-in-Intervention. DECISION CARPIO, J.: The Case This is an original petition for prohibition, injunction, declaratory relief and declaration of nullity of the sale of shares of stock of Philippine Telecommunications Investment Corporation (PTIC) by the government of the Republic of the Philippines to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company Limited (First Pacific). The Antecedents The facts, according to petitioner Wilson P. Gamboa, a stockholder of Philippine Long Distance Telephone Company (PLDT), are as follows:1 On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT a franchise and the right to engage in telecommunications business. In 1969, General Telephone and Electronics Corporation (GTE), an American company and a major PLDT stockholder, sold 26 percent of the outstanding common shares of PLDT to PTIC. In 1977, Prime Holdings, Inc. (PHI) was incorporated by several persons, including Roland Gapud and Jose Campos, Jr. Subsequently, PHI became the owner of 111,415 shares of stock of PTIC by virtue of three Deeds of Assignment executed by PTIC stockholders Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 shares of stock of PTIC held by PHI were sequestered by the Presidential Commission on Good Government (PCGG). The 111,415 PTIC shares, which represent about 46.125 percent of the outstanding capital stock of PTIC, were later declared by this Court to be owned by the Republic of the Philippines.2 In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm, acquired the remaining 54 percent of the outstanding capital stock of PTIC. On 20 November 2006, the Inter-Agency Privatization Council (IPC) of the Philippine Government announced that it would sell the 111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of PTIC, through a public bidding to be conducted on 4 December 2006. Subsequently, the public bidding was reset to 8 December 2006, and only two bidders, Parallax Venture Fund XXVII (Parallax) and Pan-Asia Presidio Capital, submitted their bids. Parallax won with a bid of P25.6 billion or US$510 million.

Gamboa vs. Teves Thereafter, First Pacific announced that it would exercise its right of first refusal as a PTIC stockholder and buy the 111,415 PTIC shares by matching the bid price of Parallax. However, First Pacific failed to do so by the 1 February 2007 deadline set by IPC and instead, yielded its right to PTIC itself which was then given by IPC until 2 March 2007 to buy the PTIC shares. On 14 February 2007, First Pacific, through its subsidiary, MPAH, entered into a Conditional Sale and Purchase Agreement of the 111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of PTIC, with the Philippine Government for the price of P25,217,556,000 or US$510,580,189. The sale was completed on 28 February 2007.
Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of PTIC shares is actually an indirect sale of 12 million shares or about 6.3 percent of the outstanding common shares of PLDT.With the sale, First Pacifics common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing the common shareholdings of foreigners in PLDT to about 81.47 percent. This violates Section 11, Article XII of the 1987 Philippine Constitution which limits foreign ownership of the capital of a public utility to not more than 40 percent.3 On the other hand, public respondents Finance Secretary Margarito B. Teves, Undersecretary John P. Sevilla, and PCGG Commissioner Ricardo Abcede allege the following relevant facts: On 9 November 1967, PTIC was incorporated and had since engaged in the business of investment holdings. PTIC held 26,034,263 PLDT common shares, or 13.847 percent of the total PLDT outstanding common shares. PHI, on the other hand, was incorporated in 1977, and became the owner of 111,415 PTIC shares or 46.125 percent of the outstanding capital stock of PTIC by virtue of three Deeds of Assignment executed by Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 PTIC shares held by PHI were sequestered by the PCGG, and subsequently declared by this Court as part of the ill-gotten wealth of former President Ferdinand Marcos. The sequestered PTIC shares were reconveyed to the Republic of the Philippines in accordance with this Courts decision4 which became final and executory on 8 August 2006. The Philippine Government decided to sell the 111,415 PTIC shares, which represent 6.4 percent of the outstanding common shares of stock of PLDT, and designated the Inter-Agency Privatization Council (IPC), composed of the Department of Finance and the PCGG, as the disposing entity. An invitation to bid was published in seven different newspapers from 13 to 24 November 2006. On 20 November 2006, a pre-bid conference was held, and the original deadline for bidding scheduled on 4 December 2006 was reset to 8 December 2006. The extension was published in nine different newspapers. During the 8 December 2006 bidding, Parallax Capital Management LP emerged as the highest bidder with a bid of P25,217,556,000. The government notified First Pacific, the majority owner of PTIC shares, of the bidding results and gave First Pacific until 1 February 2007 to exercise its right of first refusal in accordance with PTICs Articles of Incorporation. First Pacific announced its intention to match Parallaxs bid. On 31 January 2007, the House of Representatives (HR) Committee on Good Government conducted a public hearing on the particulars of the then impending sale of the 111,415 PTIC shares. Respondents Teves and Sevilla were among those who attended the public hearing. The HR Committee Report No. 2270 concluded that: (a) the auction of the governments 111,415 PTIC shares bore due diligence, transparency and conformity with existing legal procedures; and (b) First Pacifics intended acquisition of the governments 111,415 PTIC shares resulting in First Pacifics 100% ownership of PTIC will not violate the 40 percent constitutional limit on foreign ownership of a public utility since PTIC holds only 13.847 percent of the total outstanding common shares of PLDT.5 On 28 February 2007, First Pacific completed the acquisition of the 111,415 shares of stock of PTIC. Respondent Manuel V. Pangilinan admits the following facts: (a) the IPC conducted a public bidding for the sale of 111,415 PTIC shares or 46 percent of the outstanding capital stock of PTIC (the remaining 54 percent of PTIC shares was already owned by First Pacific and its affiliates); (b) Parallax offered the highest bid amounting toP25,217,556,000; (c) pursuant to the right of first refusal in favor of PTIC and its shareholders granted in PTICs Articles of Incorporation, MPAH, a First Pacific affiliate, exercised its right of first refusal by matching the highest bid offered for PTIC shares on 13 February 2007; and (d) on 28 February 2007, the sale was consummated when MPAH paid IPC P25,217,556,000 and the government delivered the certificates for the 111,415 PTIC shares. Respondent Pangilinan denies the other allegations of facts of petitioner.

Gamboa vs. Teves On 28 February 2007, petitioner filed the instant petition for prohibition, injunction, declaratory relief, and declaration of nullity of sale of the 111,415 PTIC shares. Petitioner claims, among others, that the sale of the 111,415 PTIC shares would result in an increase in First Pacifics common shareholdings in PLDT from 30.7 percent to 37 percent, and this, combined with Japanese NTT DoCoMos common shareholdings in PLDT, would result to a total foreign common shareholdings in PLDT of 51.56 percent which is over the 40 percent constitutional limit.6 Petitioner asserts:
If and when the sale is completed, First Pacifics equity in PLDT will go up from 30.7 percent to 37.0 percent of its common or voting- stockholdings, x x x. Hence, the consummation of the sale will put the two largest foreign investors in PLDT First Pacific and Japans NTT DoCoMo, which is the worlds largest wireless telecommunications firm, owning 51.56 percent of PLDT common equity. x x x With the completion of the sale, data culled from the official website of the New York Stock Exchange (www.nyse.com) showed that those foreign entities, which own at least five percent of common equity, will collectively own 81.47 percent of PLDTs common equity. x x x x x x as the annual disclosure reports, also referred to as Form 20-K reports x x x which PLDT submitted to the New York Stock Exchange for the period 2003-2005, revealed that First Pacific and several other foreign entities breached the constitutional limit of 40 percent ownership as early as 2003. x x x"7 Petitioner raises the following issues: (1) whether the consummation of the then impending sale of 111,415 PTIC shares to First Pacific violates the constitutional limit on foreign ownership of a public utility; (2) whether public respondents committed grave abuse of discretion in allowing the sale of the 111,415 PTIC shares to First Pacific; and (3) whether the sale of common shares to foreigners in excess of 40 percent of the entire subscribed common capital stock violates the constitutional limit on foreign ownership of a public utility.8 On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a Motion for Leave to Intervene and Admit Attached Petition-in-Intervention. In the Resolution of 28 August 2007, the Court granted the motion and noted the Petition-inIntervention. Petitioners-in-intervention "join petitioner Wilson Gamboa x x x in seeking, among others, to enjoin and/or nullify the sale by respondents of the 111,415 PTIC shares to First Pacific or assignee." Petitioners-in-intervention claim that, as PLDT subscribers, they have a "stake in the outcome of the controversy x x x where the Philippine Government is completing the sale of government owned assets in [PLDT], unquestionably a public utility, in violation of the nationality restrictions of the Philippine Constitution." The Issue This Court is not a trier of facts. Factual questions such as those raised by petitioner,9 which indisputably demand a thorough examination of the evidence of the parties, are generally beyond this Courts jurisdiction. Adhering to this wellsettled principle, the Court shall confine the resolution of the instant controversy solely on the threshold and purely legal issue of whether the term "capital" in Section 11, Article XII of the Constitution refers to the total common shares only or to the total outstanding capital stock (combined total of common and non-voting preferred shares) of PLDT, a public utility. The Ruling of the Court The petition is partly meritorious. Petition for declaratory relief treated as petition for mandamus At the outset, petitioner is faced with a procedural barrier. Among the remedies petitioner seeks, only the petition for prohibition is within the original jurisdiction of this court, which however is not exclusive but is concurrent with the Regional Trial Court and the Court of Appeals. The actions for declaratory relief,10 injunction, and annulment of sale are not embraced within the original jurisdiction of the Supreme Court. On this ground alone, the petition could have been dismissed outright.

Gamboa vs. Teves While direct resort to this Court may be justified in a petition for prohibition,11 the Court shall nevertheless refrain from discussing the grounds in support of the petition for prohibition since on 28 February 2007, the questioned sale was consummated when MPAH paid IPC P25,217,556,000 and the government delivered the certificates for the 111,415 PTIC shares.
However, since the threshold and purely legal issue on the definition of the term "capital" in Section 11, Article XII of the Constitution has far-reaching implications to the national economy, the Court treats the petition for declaratory relief as one for mandamus.12 In Salvacion v. Central Bank of the Philippines,13 the Court treated the petition for declaratory relief as one for mandamus considering the grave injustice that would result in the interpretation of a banking law. In that case, which involved the crime of rape committed by a foreign tourist against a Filipino minor and the execution of the final judgment in the civil case for damages on the tourists dollar deposit with a local bank, the Court declared Section 113 of Central Bank Circular No. 960, exempting foreign currency deposits from attachment, garnishment or any other order or process of any court, inapplicable due to the peculiar circumstances of the case. The Court held that "injustice would result especially to a citizen aggrieved by a foreign guest like accused x x x" that would "negate Article 10 of the Civil Code which provides that in case of doubt in the interpretation or application of laws, it is presumed that the lawmak ing body intended right and justice to prevail." The Court therefore required respondents Central Bank of the Philippines, the local bank, and the accused to comply with the writ of execution issued in the civil case for damages and to release the dollar deposit of the accused to satisfy the judgment. In Alliance of Government Workers v. Minister of Labor,14 the Court similarly brushed aside the procedural infirmity of the petition for declaratory relief and treated the same as one for mandamus. In Alliance, the issue was whether the government unlawfully excluded petitioners, who were government employees, from the enjoyment of rights to which they were entitled under the law. Specifically, the question was: "Are the branches, agencies, subdivisions, and instrumentalities of the Government, including government owned or controlled corporations included among the four employers under Presidential Decree No. 851 which are required to pay their employees x x x a thirteenth (13th) month pay x x x ?" The Constitutional principle involved therein affected all government employees, clearly justifying a relaxation of the technical rules of procedure, and certainly requiring the interpretation of the assailed presidential decree. In short, it is well-settled that this Court may treat a petition for declaratory relief as one for mandamus if the issue involved has far-reaching implications. As this Court held in Salvacion: The Court has no original and exclusive jurisdiction over a petition for declaratory relief. However, exceptions to this rule have been recognized. Thus, where the petition has far-reaching implications and raises questions that should be resolved, it may be treated as one for mandamus.15 (Emphasis supplied) In the present case, petitioner seeks primarily the interpretation of the term "capital" in Section 11, Article XII of the Constitution. He prays that this Court declare that the term "capital" refers to common shares only, and that such shares constitute "the sole basis in determining foreign equity in a public utility." Petitioner further asks this Court to declare any ruling inconsistent with such interpretation unconstitutional. The interpretation of the term "capital" in Section 11, Article XII of the Constitution has far-reaching implications to the national economy. In fact, a resolution of this issue will determine whether Filipinos are masters, or second class citizens, in their own country. What is at stake here is whether Filipinos or foreigners will have effective control of the national economy. Indeed, if ever there is a legal issue that has far-reaching implications to the entire nation, and to future generations of Filipinos, it is the threshhold legal issue presented in this case. The Court first encountered the issue on the definition of the term "capital" in Section 11, Article XII of the Constitution in the case of Fernandez v. Cojuangco, docketed as G.R. No. 157360.16 That case involved the same public utility (PLDT) and substantially the same private respondents. Despite the importance and novelty of the constitutional issue raised therein and despite the fact that the petition involved a purely legal question, the Court declined to resolve the case on the merits, and instead denied the same for disregarding the hierarchy of courts.17 There, petitioner Fernandez assailed on a pure question of law the Regional Trial Courts Decision of 21 February 2003 via a petition for review under Rule 45. The Courts Resolution, denying the petition, became final on 21 December 2004.

Gamboa vs. Teves The instant petition therefore presents the Court with another opportunity to finally settle this purely legal issuewhich is of transcendental importance to the national economy and a fundamental requirement to a faithful adherence to our Constitution. The Court must forthwith seize such opportunity, not only for the benefit of the litigants, but more significantly for the benefit of the entire Filipino people, to ensure, in the words of the Constitution, "a self-reliant and independent national economy effectively controlled by Filipinos."18 Besides, in the light of vague and confusing positions taken by government agencies on this purely legal issue, present and future foreign investors in this country deserve, as a matter of basic fairness, a categorical ruling from this Court on the extent of their participation in the capital of public utilities and other nationalized businesses.
Despite its far-reaching implications to the national economy, this purely legal issue has remained unresolved for over 75 years since the 1935 Constitution. There is no reason for this Court to evade this ever recurring fundamental issue and delay again defining the term "capital," which appears not only in Section 11, Article XII of the Constitution, but also in Section 2, Article XII on co-production and joint venture agreements for the development of our natural resources,19 in Section 7, Article XII on ownership of private lands,20 in Section 10, Article XII on the reservation of certain investments to Filipino citizens,21 in Section 4(2), Article XIV on the ownership of educational institutions,22 and in Section 11(2), Article XVI on the ownership of advertising companies.23 Petitioner has locus standi There is no dispute that petitioner is a stockholder of PLDT. As such, he has the right to question the subject sale, which he claims to violate the nationality requirement prescribed in Section 11, Article XII of the Constitution. If the sale indeed violates the Constitution, then there is a possibility that PLDTs franchise could be revoked, a dire consequence directly affecting petitioners interest as a stockholder. More importantly, there is no question that the instant petition raises matters of transcendental importance to the public. The fundamental and threshold legal issue in this case, involving the national economy and the economic welfare of the Filipino people, far outweighs any perceived impediment in the legal personality of the petitioner to bring this action. In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring a suit on matters of transcendental importance to the public, thus: In Taada 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 Taada, 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 development of the country and the magnitude of the financial consideration involved. We concluded that, as a consequence, the disclosure provision in the Constitution would constitute sufficient authority for upholding the petitioners standing. (Emphasis supplied) Clearly, since the instant petition, brought by a citizen, involves matters of transcendental public importance, the petitioner has the requisite locus standi.

Gamboa vs. Teves

Definition of the Term "Capital" in Section 11, Article XII of the 1987 Constitution Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the Filipinization of public utilities, to wit: Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines. (Emphasis supplied) The above provision substantially reiterates Section 5, Article XIV of the 1973 Constitution, thus: Section 5. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of the capital of which is owned by such citizens, nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the National Assembly when the public interest so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in the capital thereof. (Emphasis supplied) The foregoing provision in the 1973 Constitution reproduced Section 8, Article XIV of the 1935 Constitution, viz: Section 8. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or other entities organized under the laws of the Philippines sixty per centum of the capital of which is owned by citizens of the Philippines, nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. No franchise or right shall be granted to any individual, firm, or corporation, except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the public interest so requires. (Emphasis supplied) Father Joaquin G. Bernas, S.J., a leading member of the 1986 Constitutional Commission, reminds us that the Filipinization provision in the 1987 Constitution is one of the products of the spirit of nationalism which gripped the 1935 Constitutional Convention.25 The 1987 Constitution "provides for the Filipinization of public utilities by requiring that any form of authorization for the operation of public utilities should be granted only to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens. The provision is [an express] recognition of the sensitive and vital position of public utilities both in the national economy and for national security."26 The evident purpose of the citizenship requirement is to prevent aliens from assuming control of public utilities, which may be inimical to the national interest.27 This specific provision explicitly reserves to Filipino citizens control of public utilities, pursuant to an overriding economic goal of the 1987 Constitution: to "conserve and develop our patrimony"28 and ensure "a self-reliant and independent national economy effectively controlled by Filipinos."29 Any citizen or juridical entity desiring to operate a public utility must therefore meet the minimum nationality requirement prescribed in Section 11, Article XII of the Constitution. Hence, for a corporation to be granted authority to operate a public utility, at least 60 percent of its "capital" must be owned by Filipino citizens. The crux of the controversy is the definition of the term "capital." Does the term "capital" in Section 11, Article XII of the Constitution refer to common shares or to the total outstanding capital stock (combined total of common and non-voting preferred shares)?

Gamboa vs. Teves Petitioner submits that the 40 percent foreign equity limitation in domestic public utilities refers only to common shares because such shares are entitled to vote and it is through voting that control over a corporation is exercised. Petitioner posits that the term "capital" in Section 11, Article XII of the Constitution refers to "the ownership of common capital stock subscribed and outstanding, which class of shares alone, under the corporate set-up of PLDT, can vote and elect members of the board of directors." It is undisputed that PLDTs non-voting preferred shares are held mostly by Filipino citizens.30 This arose from Presidential Decree No. 217,31 issued on 16 June 1973 by then President Ferdinand Marcos, requiring every applicant of a PLDT telephone line to subscribe to non-voting preferred shares to pay for the investment cost of installing the telephone line.32
Petitioners-in-intervention basically reiterate petitioners arguments and adopt petitioners definition of the term "capital."33 Petitioners-in-intervention allege that "the approximate foreign ownership of common capital stock of PLDT x x x already amounts to at least 63.54% of the total outstanding common stock," which means that foreigners exercise significant control over PLDT, patently violating the 40 percent foreign equity limitation in public utilities prescribed by the Constitution. Respondents, on the other hand, do not offer any definition of the term "capital" in Section 11, Article XII of the Constitution. More importantly, private respondents Nazareno and Pangilinan of PLDT do not dispute that more than 40 percent of the common shares of PLDT are held by foreigners. In particular, respondent Nazarenos Memorandum, consisting of 73 pages, harps mainly on the procedural infirmities of the petition and the supposed violation of the due process rights of the "affected foreign common shareholders." Respondent Nazareno does not deny petitioners allegation of foreigners dominating the common shareholdings of PLDT. Nazareno stressed mainly that the petition "seeks to divest foreign common shareholders purportedly exceeding 40% of the total common shareholdings in PLDT of their ownership over their shares." Thus, "the foreign natural and juridical PLDT shareholders must be impleaded in this suit so that they can be heard."34 Essentially, Nazareno invokes denial of due process on behalf of the foreign common shareholders. While Nazareno does not introduce any definition of the term "capital," he states that "among the factual assertions that need to be established to counter petitioners allegations is the uniform interpretation by government agencies (such as the SEC), institutions and corporations (such as the Philippine National Oil CompanyEnergy Development Corporation or PNOC-EDC) of including both preferred shares and common shares in "controlling interest" in view of testing compliance with the 40% constitutional limitation on foreign ownership in public utilities."35 Similarly, respondent Manuel V. Pangilinan does not define the term "capital" in Section 11, Article XII of the Constitution. Neither does he refute petitioners claim of foreigners holding more than 40 percent of PLDTs common shares. Instead, respondent Pangilinan focuses on the procedural flaws of the petition and the alleged violation of the due process rights of foreigners. Respondent Pangilinan emphasizes in his Memorandum (1) the absence of this Courts jurisdiction over the petition; (2) petitioners lack of standing; (3) mootness of the petition; (4) non-availability of declaratory relief; and (5) the denial of due process rights. Moreover, respondent Pangilinan alleges that the issue should be whether "owners of shares in PLDT as well as owners of shares in companies holding shares in PLDT may be required to relinquish their shares in PLDT and in those companies without any law requiring them to surrender their shares and also without notice and trial." Respondent Pangilinan further asserts that "Section 11, [Article XII of the Constitution] imposes no nationality requirement on the shareholders of the utility company as a condition for keeping their shares in the utility company." According to him, "Section 11 does not authorize taking one persons property (the shareholders stock in the utility company) on the basis of another partys alleged failure to satisfy a requirement that is a condition only for that other partys retention of another piece of property (the utility company being at least 60% Filipino-owned to keep its franchise)."36 The OSG, representing public respondents Secretary Margarito Teves, Undersecretary John P. Sevilla, Commissioner Ricardo Abcede, and Chairman Fe Barin, is likewise silent on the definition of the term "capital." In its Memorandum37 dated 24 September 2007, the OSG also limits its discussion on the supposed procedural defects of the petition, i.e. lack of standing, lack of jurisdiction, non-inclusion of interested parties, and lack of basis for injunction. The OSG does not present any definition or interpretation of the term "capital" in Section 11, Article XII of the

Gamboa vs. Teves Constitution. The OSG contends that "the petition actually partakes of a collateral attack on PLDTs franchise as a public utility," which in effect requires a "full-blown trial where all the parties in interest are given their day in court."38
Respondent Francisco Ed Lim, impleaded as President and Chief Executive Officer of the Philippine Stock Exchange (PSE), does not also define the term "capital" and seeks the dismissal of the petition on the following grounds: (1) failure to state a cause of action against Lim; (2) the PSE allegedly implemented its rules and required all listed companies, including PLDT, to make proper and timely disclosures; and (3) the reliefs prayed for in the petition would adversely impact the stock market. In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez who claimed to be a stockholder of record of PLDT, contended that the term "capital" in the 1987 Constitution refers to shares entitled to vote or the common shares. Fernandez explained thus: The forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution refers to ownership of shares of stock entitled to vote, i.e., common shares, considering that it is through voting that control is being exercised. xxx Obviously, the intent of the framers of the Constitution in imposing limitations and restrictions on fully nationalized and partially nationalized activities is for Filipino nationals to be always in control of the corporation undertaking said activities. Otherwise, if the Trial Courts ruling upholding respondents arguments were to be given credence, it would be possible for the ownership structure of a public utility corporation to be divided into one percent (1%) common stocks and ninety-nine percent (99%) preferred stocks. Following the Trial Courts ruling adopting respondents arguments, the common shares can be owned entirely by foreigners thus creating an absurd situation wherein foreigners, who are supposed to be minority shareholders, control the public utility corporation. xxxx Thus, the 40% foreign ownership limitation should be interpreted to apply to both the beneficial ownership and the controlling interest. xxxx Clearly, therefore, the forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution refers to ownership of shares of stock entitled to vote, i.e., common shares. Furthermore, ownership of record of shares will not suffice but it must be shown that the legal and beneficial ownership rests in the hands of Filipino citizens. Consequently, in the case of petitioner PLDT, since it is already admitted that the voting interests of foreigners which would gain entry to petitioner PLDT by the acquisition of SMART shares through the Questioned Transactions is equivalent to 82.99%, and the nominee arrangements between the foreign principals and the Filipino owners is likewise admitted, there is, therefore, a violation of Section 11, Article XII of the Constitution. Parenthetically, the Opinions dated February 15, 1988 and April 14, 1987 cited by the Trial Court to support the proposition that the meaning of the word "capital" as used in Section 11, Article XII of the Constitution allegedly refers to the sum total of the shares subscribed and paid-in by the shareholder and it allegedly is immaterial how the stock is classified, whether as common or preferred, cannot stand in the face of a clear legislative policy as stated in the FIA which took effect in 1991 or way after said opinions were rendered, and as clarified by the above-quoted Amendments. In this regard, suffice it to state that as between the law and an opinion rendered by an administrative agency, the law indubitably prevails. Moreover, said Opinions are merely advisory and cannot prevail over the clear intent of the framers of the Constitution. In the same vein, the SECs construction of Section 11, Article XII of the Constitution is at best merely advisory for it is the courts that finally determine what a law means.39 On the other hand, respondents therein, Antonio O. Cojuangco, Manuel V. Pangilinan, Carlos A. Arellano, Helen Y. Dee, Magdangal B. Elma, Mariles Cacho-Romulo, Fr. Bienvenido F. Nebres, Ray C. Espinosa, Napoleon L. Nazareno,

Gamboa vs. Teves Albert F. Del Rosario, and Orlando B. Vea, argued that the term "capital" in Section 11, Article XII of the Constitution includes preferred shares since the Constitution does not distinguish among classes of stock, thus:
16. The Constitution applies its foreign ownership limitation on the corporations "capital," without distinction as to classes of shares. x x x In this connection, the Corporation Code which was already in force at the time the present (1987) Constitution was drafted defined outstanding capital stock as follows: Section 137. Outstanding capital stock defined. The term "outstanding capital stock", as used in this Code, means the total shares of stock issued under binding subscription agreements to subscribers or stockholders, whether or not fully or partially paid, except treasury shares. Section 137 of the Corporation Code also does not distinguish between common and preferred shares, nor exclude either class of shares, in determining the outstanding capital stock (the "capital") of a corporation. Consequently, petitioners suggestion to reckon PLDTs foreign equity only on the basis of PLDTs outstanding common shares is without legal basis. The language of the Constitution should be understood in the sense it has in common use. xxxx 17. But even assuming that resort to the proceedings of the Constitutional Commission is necessary, there is nothing in the Record of the Constitutional Commission (Vol. III) which petitioner misleadingly cited in the Petition x x x which supports petitioners view that only common shares should form the basis for computing a public utilitys foreign equity. xxxx 18. In addition, the SEC the government agency primarily responsible for implementing the Corporation Code, and which also has the responsibility of ensuring compliance with the Constitutions foreign equity restrictions as regards nationalized activities x x x has categorically ruled that both common and preferred shares are properly considered in determining outstanding capital stock and the nationality composition thereof.40 We agree with petitioner and petitioners-in-intervention. The term "capital" in Section 11, Article XII of the Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares,41 and not to the total outstanding capital stock comprising both common and non-voting preferred shares. The Corporation Code of the Philippines42 classifies shares as common or preferred, thus: Sec. 6. Classification of shares. - The shares of stock of stock corporations may be divided into classes or series of shares, or both, any of which classes or series of shares may have such rights, privileges or restrictions as may be stated in the articles of incorporation: Provided, That no share may be deprived of voting rights except those classified and issued as "preferred" or "redeemable" shares, unless otherwise provided in this Code: Provided, further, That there shall always be a class or series of shares which have complete voting rights. Any or all of the shares or series of shares may have a par value or have no par value as may be provided for in the articles of incorporation: Provided, however, That banks, trust companies, insurance companies, public utilities, and building and loan associations shall not be permitted to issue no-par value shares of stock. Preferred shares of stock issued by any corporation may be given preference in the distribution of the assets of the corporation in case of liquidation and in the distribution of dividends, or such other preferences as may be stated in the articles of incorporation which are not violative of the provisions of this Code: Provided, That preferred shares of stock may be issued only with a stated par value. The Board of Directors, where authorized in the articles of incorporation, may fix the terms and conditions of preferred shares of stock or any series thereof: Provided, That such terms and conditions shall be effective upon the filing of a certificate thereof with the Securities and Exchange Commission. Shares of capital stock issued without par value shall be deemed fully paid and non-assessable and the holder of such shares shall not be liable to the corporation or to its creditors in respect thereto: Provided; That shares without par

Gamboa vs. Teves value may not be issued for a consideration less than the value of five (P5.00) pesos per share: Provided, further, That the entire consideration received by the corporation for its no-par value shares shall be treated as capital and shall not be available for distribution as dividends.
A corporation may, furthermore, classify its shares for the purpose of insuring compliance with constitutional or legal requirements. Except as otherwise provided in the articles of incorporation and stated in the certificate of stock, each share shall be equal in all respects to every other share. Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the holders of such shares shall nevertheless be entitled to vote on the following matters: 1. Amendment of the articles of incorporation; 2. Adoption and amendment of by-laws; 3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property; 4. Incurring, creating or increasing bonded indebtedness; 5. Increase or decrease of capital stock; 6. Merger or consolidation of the corporation with another corporation or other corporations; 7. Investment of corporate funds in another corporation or business in accordance with this Code; and 8. Dissolution of the corporation. Except as provided in the immediately preceding paragraph, the vote necessary to approve a particular corporate act as provided in this Code shall be deemed to refer only to stocks with voting rights. Indisputably, one of the rights of a stockholder is the right to participate in the control or management of the corporation.43 This is exercised through his vote in the election of directors because it is the board of directors that controls or manages the corporation.44 In the absence of provisions in the articles of incorporation denying voting rights to preferred shares, preferred shares have the same voting rights as common shares. However, preferred shareholders are often excluded from any control, that is, deprived of the right to vote in the election of directors and on other matters, on the theory that the preferred shareholders are merely investors in the corporation for income in the same manner as bondholders.45 In fact, under the Corporation Code only preferred or redeemable shares can be deprived of the right to vote.46 Common shares cannot be deprived of the right to vote in any corporate meeting, and any provision in the articles of incorporation restricting the right of common shareholders to vote is invalid.47 Considering that common shares have voting rights which translate to control, as opposed to preferred shares which usually have no voting rights, the term "capital" in Section 11, Article XII of the Constitution refers only to common shares. However, if the preferred shares also have the right to vote in the election of directors, then the term "capital" shall include such preferred shares because the right to participate in the control or management of the corporation is exercised through the right to vote in the election of directors. In short, the term "capital" in Section 11, Article XII of the Constitution refers only to shares of stock that can vote in the election of directors. This interpretation is consistent with the intent of the framers of the Constitution to place in the hands of Filipino citizens the control and management of public utilities. As revealed in the deliberations of the Constitutional Commission, "capital" refers to the voting stock or controlling interest of a corporation, to wit:

Gamboa vs. Teves MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity; namely, 60-40 in Section 3, 60-40 in Section 9 and 2/3-1/3 in Section 15.
MR. VILLEGAS. That is right. MR. NOLLEDO. In teaching law, we are always faced with this question: "Where do we base the equity requirement, is it on the authorized capital stock, on the subscribed capital stock, or on the paid-up capital stock of a corporation"? Will the Committee please enlighten me on this? MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP Law Center who provided us a draft. The phrase that is contained here which we adopted from the UP draft is "60 percent of voting stock." MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared delinquent, unpaid capital stock shall be entitled to vote. MR. VILLEGAS. That is right. MR. NOLLEDO. Thank you. With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percent equity invests in another corporation which is permitted by the Corporation Code, does the Committee adopt the grandfather rule? MR. VILLEGAS. Yes, that is the understanding of the Committee. MR. NOLLEDO. Therefore, we need additional Filipino capital? MR. VILLEGAS. Yes.48 xxxx MR. AZCUNA. May I be clarified as to that portion that was accepted by the Committee. MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase "voting stock or controlling interest." MR. AZCUNA. Hence, without the Davide amendment, the committee report would read: "corporations or associations at least sixty percent of whose CAPITAL is owned by such citizens." MR. VILLEGAS. Yes. MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the capital to be owned by citizens. MR. VILLEGAS. That is right. MR. AZCUNA. But the control can be with the foreigners even if they are the minority. Let us say 40 percent of the capital is owned by them, but it is the voting capital, whereas, the Filipinos own the nonvoting shares. So we can have a situation where the corporation is controlled by foreigners despite being the minority because they have the voting capital. That is the anomaly that would result here. MR. BENGZON. No, the reason we eliminated the word "stock" as stated in the 1973 and 1935 Constitutions is that according to Commissioner Rodrigo, there are associations that do not have stocks. That is why we say "CAPITAL."

Gamboa vs. Teves MR. AZCUNA. We should not eliminate the phrase "controlling interest."
MR. BENGZON. In the case of stock corporations, it is assumed.49 (Emphasis supplied) Thus, 60 percent of the "capital" assumes, or should result in, "controlling interest" in the corporation. Reinforcing this interpretation of the term "capital," as referring to controlling interest or shares entitled to vote, is the definition of a "Philippine national" in the Foreign Investments Act of 1991,50 to wit: SEC. 3. Definitions. - As used in this Act: a. The term "Philippine national" shall mean a citizen of the Philippines; or a domestic partnership or association wholly owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or a corporation organized abroad and registered as doing business in the Philippines under the Corporation Code of which one hundred percent (100%) of the capital stock outstanding and entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders own stocks in a Securities and Exchange Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital stock outstanding and entitled to vote of each of both corporations must be owned and held by citizens of the Philippines and at least sixty percent (60%) of the members of the Board of Directors of each of both corporations must be citizens of the Philippines, in order that the corporation, shall be considered a "Philippine national." (Emphasis supplied) In explaining the definition of a "Philippine national," the Implementing Rules and Regulations of the Foreign Investments Act of 1991 provide: b. "Philippine national" shall mean a citizen of the Philippines or a domestic partnership or association wholly owned by the citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least sixty percent [60%] of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty percent [60%] of the fund will accrue to the benefit of the Philippine nationals; Provided, that where a corporation its non-Filipino stockholders own stocks in a Securities and Exchange Commission [SEC] registered enterprise, at least sixty percent [60%] of the capital stock outstanding and entitled to vote of both corporations must be owned and held by citizens of the Philippines and at least sixty percent [60%] of the members of the Board of Directors of each of both corporation must be citizens of the Philippines, in order that the corporation shall be considered a Philippine national. The control test shall be applied for this purpose. Compliance with the required Filipino ownership of a corporation shall be determined on the basis of outstanding capital stock whether fully paid or not, but only such stocks which are generally entitled to vote are considered. For stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is not enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate voting rights is essential. Thus, stocks, the voting rights of which have been assigned or transferred to aliens cannot be considered held by Philippine citizens or Philippine nationals. Individuals or juridical entities not meeting the aforementioned qualifications are considered as non-Philippine nationals. (Emphasis supplied) Mere legal title is insufficient to meet the 60 percent Filipino-owned "capital" required in the Constitution. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is required. The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipino nationals in accordance with the constitutional mandate. Otherwise, the corporation is "considered as non-Philippine national[s]."

Gamboa vs. Teves Under Section 10, Article XII of the Constitution, Congress may "reserve to citizens of the Philippines or to corporations or associations at least sixty per centum of whose capital is owned by such citizens, or such higher percentage as Congress may prescribe, certain areas of investments." Thus, in numerous laws Congress has reserved certain areas of investments to Filipino citizens or to corporations at least sixty percent of the "capital" of which is owned by Filipino citizens. Some of these laws are: (1) Regulation of Award of Government Contracts or R.A. No. 5183; (2) Philippine Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro, Small and Medium Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping Development Act or R.A. No. 7471; (5) Domestic Shipping Development Act of 2004 or R.A. No. 9295; (6) Philippine Technology Transfer Act of 2009 or R.A. No. 10055; and (7) Ship Mortgage Decree or P.D. No. 1521. Hence, the term "capital" in Section 11, Article XII of the Constitution is also used in the same context in numerous laws reserving certain areas of investments to Filipino citizens.
To construe broadly the term "capital" as the total outstanding capital stock, including both common and nonvoting preferred shares, grossly contravenes the intent and letter of the Constitution that the "State shall develop a selfreliant and independent national economy effectively controlled by Filipinos." A broad definition unjustifiably disregards who owns the all-important voting stock, which necessarily equates to control of the public utility. We shall illustrate the glaring anomaly in giving a broad definition to the term "capital." Let us assume that a corporation has 100 common shares owned by foreigners and 1,000,000 non-voting preferred shares owned by Filipinos, with both classes of share having a par value of one peso (P1.00) per share. Under the broad definition of the term "capital," such corporation would be considered compliant with the 40 percent constitutional limit on foreign equity of public utilities since the overwhelming majority, or more than 99.999 percent, of the total outstanding capital stock is Filipino owned. This is obviously absurd. In the example given, only the foreigners holding the common shares have voting rights in the election of directors, even if they hold only 100 shares. The foreigners, with a minuscule equity of less than 0.001 percent, exercise control over the public utility. On the other hand, the Filipinos, holding more than 99.999 percent of the equity, cannot vote in the election of directors and hence, have no control over the public utility. This starkly circumvents the intent of the framers of the Constitution, as well as the clear language of the Constitution, to place the control of public utilities in the hands of Filipinos. It also renders illusory the State policy of an independent national economy effectively controlled by Filipinos. The example given is not theoretical but can be found in the real world, and in fact exists in the present case. Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of directors. PLDTs Articles of Incorporation expressly state that "the holders of Serial Preferred Stock shall not be entitled to vote at any meeting of the stockholders for the election of directors or for any other purpose or otherwise participate in any action taken by the corporation or its stockholders, or to receive notice of any meeting of stockholders."51 On the other hand, holders of common shares are granted the exclusive right to vote in the election of directors. PLDTs Articles of Incorporation52 state that "each holder of Common Capital Stock shall have one vote in respect of each share of such stock held by him on all matters voted upon by the stockholders, and the holders of Common Capital Stock shall have the exclusive right to vote for the election of directors and for all other purposes."53 In short, only holders of common shares can vote in the election of directors, meaning only common shareholders exercise control over PLDT. Conversely, holders of preferred shares, who have no voting rights in the election of directors, do not have any control over PLDT. In fact, under PLDTs Articles of Incorporation, holders of common shares have voting rights for all purposes, while holders of preferred shares have no voting right for any purpose whatsoever. It must be stressed, and respondents do not dispute, that foreigners hold a majority of the common shares of PLDT. In fact, based on PLDTs 2010 General Information Sheet (GIS),54 which is a document required to be submitted annually to the Securities and Exchange Commission,55 foreigners hold 120,046,690 common shares of PLDT whereas Filipinos hold only 66,750,622 common shares.56 In other words, foreigners hold 64.27% of the total number of PLDTs common shares, while Filipinos hold only 35.73%. Since holding a majority of the common shares equates to control, it is clear that foreigners exercise control over PLDT. Such amount of control unmistakably exceeds the allowable 40 percent limit on foreign ownership of public utilities expressly mandated in Section 11, Article XII of the Constitution.

Gamboa vs. Teves Moreover, the Dividend Declarations of PLDT for 2009,57 as submitted to the SEC, shows that per share the SIP58preferred shares earn a pittance in dividends compared to the common shares. PLDT declared dividends for the common shares at P70.00 per share, while the declared dividends for the preferred shares amounted to a measlyP1.00 per share.59 So the preferred shares not only cannot vote in the election of directors, they also have very little and obviously negligible dividend earning capacity compared to common shares.
As shown in PLDTs 2010 GIS,60 as submitted to the SEC, the par value of PLDT common shares is P5.00 per share, whereas the par value of preferred shares is P10.00 per share. In other words, preferred shares have twice the par value of common shares but cannot elect directors and have only 1/70 of the dividends of common shares. Moreover, 99.44% of the preferred shares are owned by Filipinos while foreigners own only a minuscule 0.56% of the preferred shares.61 Worse, preferred shares constitute 77.85% of the authorized capital stock of PLDT while common shares constitute only 22.15%.62 This undeniably shows that beneficial interest in PLDT is not with the non-voting preferred shares but with the common shares, blatantly violating the constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership in a public utility. The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of Filipinos in accordance with the constitutional mandate. Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights, is constitutionally required for the States grant of authority to operate a public utility. The undisputed fact that the PLDT preferred shares, 99.44% owned by Filipinos, are non-voting and earn only 1/70 of the dividends that PLDT common shares earn, grossly violates the constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership of a public utility. In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of the dividends, of PLDT. This directly contravenes the express command in Section 11, Article XII of the Constitution that "[n]o franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to x x x corporations x x x organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens x x x." To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercises the soleright to vote in the election of directors, and thus exercise control over PLDT; (2) Filipinos own only 35.73% of PLDTs common shares, constituting a minority of the voting stock, and thus do not exercise control over PLDT; (3) preferred shares, 99.44% owned by Filipinos, have no voting rights; (4) preferred shares earn only 1/70 of the dividends that common shares earn;63 (5) preferred shares have twice the par value of common shares; and (6) preferred shares constitute 77.85% of the authorized capital stock of PLDT and common shares only 22.15%. This kind of ownership and control of a public utility is a mockery of the Constitution. Incidentally, the fact that PLDT common shares with a par value of P5.00 have a current stock market value ofP2,328.00 per share,64 while PLDT preferred shares with a par value of P10.00 per share have a current stock market value ranging from only P10.92 to P11.06 per share,65 is a glaring confirmation by the market that control and beneficial ownership of PLDT rest with the common shares, not with the preferred shares. Indisputably, construing the term "capital" in Section 11, Article XII of the Constitution to include both voting and nonvoting shares will result in the abject surrender of our telecommunications industry to foreigners, amounting to a clear abdication of the States constitutional duty to limit control of public utilities to Filipino citizens. Such an interpretati on certainly runs counter to the constitutional provision reserving certain areas of investment to Filipino citizens, such as the exploitation of natural resources as well as the ownership of land, educational institutions and advertising businesses. The Court should never open to foreign control what the Constitution has expressly reserved to Filipinos for that would be a betrayal of the Constitution and of the national interest. The Court must perform its solemn duty to defend and uphold the intent and letter of the Constitution to ensure, in the words of the Constitution, "a self-reliant and independent national economy effectively controlled by Filipinos." Section 11, Article XII of the Constitution, like other provisions of the Constitution expressly reserving to Filipinosspecific areas of investment, such as the development of natural resources and ownership of land, educational institutions and advertising business, is self-executing. There is no need for legislation to implement these selfexecuting provisions of the Constitution. The rationale why these constitutional provisions are self-executing was explained in Manila Prince Hotel v. GSIS,66 thus:

Gamboa vs. Teves x x x Hence, unless it is expressly provided that a legislative act is necessary to enforce a constitutional mandate, the presumption now is that all provisions of the constitution are self-executing. If the constitutional provisions are treated as requiring legislation instead of self-executing, the legislature would have the power to ignore and practically nullify the mandate of the fundamental law. This can be cataclysmic. That is why the prevailing view is, as it has always been, that
. . . in case of doubt, the Constitution should be considered self-executing rather than non-self-executing. . . .Unless the contrary is clearly intended, the provisions of the Constitution should be considered self-executing, as a contrary rule would give the legislature discretion to determine when, or whether, they shall be effective. These provisions would be subordinated to the will of the lawmaking body, which could make them entirely meaningless by simply refusing to pass the needed implementing statute. (Emphasis supplied) In Manila Prince Hotel, even the Dissenting Opinion of then Associate Justice Reynato S. Puno, later Chief Justice, agreed that constitutional provisions are presumed to be self-executing. Justice Puno stated: Courts as a rule consider the provisions of the Constitution as self-executing, rather than as requiring future legislation for their enforcement. The reason is not difficult to discern. For if they are not treated as self-executing, the mandate of the fundamental law ratified by the sovereign people can be easily ignored and nullified by Congress. Suffused with wisdom of the ages is the unyielding rule that legislative actions may give breath to constitutional rights but congressional inaction should not suffocate them. Thus, we have treated as self-executing the provisions in the Bill of Rights on arrests, searches and seizures, the rights of a person under custodial investigation, the rights of an accused, and the privilege against self-incrimination. It is recognized that legislation is unnecessary to enable courts to effectuate constitutional provisions guaranteeing the fundamental rights of life, liberty and the protection of property. The same treatment is accorded to constitutional provisions forbidding the taking or damaging of property for public use without just compensation. (Emphasis supplied) Thus, in numerous cases,67 this Court, even in the absence of implementing legislation, applied directly the provisions of the 1935, 1973 and 1987 Constitutions limiting land ownership to Filipinos. In Soriano v. Ong Hoo,68this Court ruled: x x x As the Constitution is silent as to the effects or consequences of a sale by a citizen of his land to an alien, and as both the citizen and the alien have violated the law, none of them should have a recourse against the other, and it should only be the State that should be allowed to intervene and determine what is to be done with the property subject of the violation. We have said that what the State should do or could do in such matters is a matter of public policy, entirely beyond the scope of judicial authority. (Dinglasan, et al. vs. Lee Bun Ting, et al., 6 G. R. No. L-5996, June 27, 1956.) While the legislature has not definitely decided what policy should be followed in cases of violations against the constitutional prohibition, courts of justice cannot go beyond by declaring the disposition to be null and void as violative of the Constitution. x x x (Emphasis supplied) To treat Section 11, Article XII of the Constitution as not self-executing would mean that since the 1935 Constitution, or over the last 75 years, not one of the constitutional provisions expressly reserving specific areas of investments to corporations, at least 60 percent of the "capital" of which is owned by Filipinos, was enforceable. In short, the framers of the 1935, 1973 and 1987 Constitutions miserably failed to effectively reserve to Filipinos specific areas of investment, like the operation by corporations of public utilities, the exploitation by corporations of mineral resources, the ownership by corporations of real estate, and the ownership of educational institutions. All the legislatures that convened since 1935 also miserably failed to enact legislations to implement these vital constitutional provisions that determine who will effectively control the national economy, Filipinos or foreigners. This Court cannot allow such an absurd interpretation of the Constitution. This Court has held that the SEC "has both regulatory and adjudicative functions."69 Under its regulatory functions, the SEC can be compelled by mandamus to perform its statutory duty when it unlawfully neglects to perform the same. Under its adjudicative or quasi-judicial functions, the SEC can be also be compelled by mandamus to hear and decide a possible violation of any law it administers or enforces when it is mandated by law to investigate such violation.
1aw phi 1

Under Section 17(4)70 of the Corporation Code, the SEC has the regulatory function to reject or disapprove the Articles of Incorporation of any corporation where "the required percentage of ownership of the capital stock to be owned

Gamboa vs. Teves by citizens of the Philippines has not been complied with as required by existing laws or the Constitution." Thus, the SEC is the government agency tasked with the statutory duty to enforce the nationality requirement prescribed in Section 11, Article XII of the Constitution on the ownership of public utilities. This Court, in a petition for declaratory relief that is treated as a petition for mandamus as in the present case, can direct the SEC to perform its statutory duty under the law, a duty that the SEC has apparently unlawfully neglected to do based on the 2010 GIS that respondent PLDT submitted to the SEC.
Under Section 5(m) of the Securities Regulation Code,71 the SEC is vested with the "power and function" to "suspend or revoke, after proper notice and hearing, the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law." The SEC is mandated under Section 5(d) of the same Code with the "power and function" to "investigate x x x the activities of persons to ensure compliance" with the laws and regulations that SEC administers or enforces. The GIS that all corporations are required to submit to SEC annually should put the SEC on guard against violations of the nationality requirement prescribed in the Constitution and existing laws. This Court can compel the SEC, in a petition for declaratory relief that is treated as a petition for mandamus as in the present case, to hear and decide a possible violation of Section 11, Article XII of the Constitution in view of the ownership structure of PLDTs voting shares, as admitted by respondents and as stated in PLDTs 2010 GIS that PLDT submitted to SEC. WHEREFORE, we PARTLY GRANT the petition and rule that the term "capital" in Section 11, Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares, and not to the total outstanding capital stock (common and non-voting preferred shares). Respondent Chairperson of the Securities and Exchange Commission is DIRECTED to apply this definition of the term "capital" in determining the extent of allowable foreign ownership in respondent Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article XII of the Constitution, to impose the appropriate sanctions under the law. SO ORDERED.

MCWD vs. Adala

EN BANC
METROPOLITAN CEBU WATER DISTRICT (MCWD), Petitioner, G.R. No. 168914 Present: PUNO, C.J., QUISUMBING,* YNARES-SANTIAGO, SANDOVAL-GUTIERREZ,** CARPIO, AUSTRIA-MARTINEZ, CORONA, CARPIO MORALES, AZCUNA, TINGA, CHICO-NAZARIO, GARCIA, VELASCO, JR., and NACHURA, JJ. Promulgated: July 4, 2007 x ------------------------------------------------x

- versus -

MARGARITA A. ADALA, Respondent.

DECISION

CARPIO MORALES, J.: The Decision of the Regional Trial Court (RTC) of Cebu dated February 10, 2005, which affirmed in toto the Decision of the National Water Resources Board (NWRB) dated September 22, 2003 in favor of Margarita A. Adala, respondent, is being challenged in the present petition for review on certiorari. Respondent filed on October 24, 2002 an application with the NWRB for the issuance of a Certificate of Public Convenience (CPC) to operate and maintain waterworks system in sitios San Vicente, Fatima, and Sambag in Barangay Bulacao, Cebu City.

MCWD vs. Adala

At the initial hearing of December 16, 2002 during which respondent submitted proof of compliance with jurisdictional requirements of notice and publication, herein petitioner Metropolitan Cebu Water District, a government-owned and controlled corporation created pursuant to P.D. 198[1] which took effect upon its issuance by then President Marcos on May 25, 1973, as amended, appeared through its lawyers to oppose the application. While petitioner filed a formal opposition by mail, a copy thereof had not, on December 16, 2002, yet been received by the NWRB, the day of the hearing. Counsel for respondent, who received a copy of petitioners Opposition dated December 12, 2002 earlier that morning, volunteered to give a copy thereof to the hearing officer.[2] In its Opposition, petitioner prayed for the denial of respondents application on the following grounds: (1) petitioners Board of Directors had not consented to the issuance of the franchise applied for, such consent being a mandatory condition pursuant to P.D. 198, (2) the proposed waterworks would interfere with petitioners water supply which it has the right to protect, and (3) the water needs of the residents in the subject area was already being well served by petitioner. After hearing and an ocular inspection of the area, the NWRB, by Decision dated September 22, 2003, dismissed petitioners Opposition for lack of merit and/or failure to state the cause of action[3] and ruled in favor of respondent as follows:
PREMISES ALL CONSIDERED, and finding that Applicant is legally and financially qualified to operate and maintain the subject waterworks system, and that said operation shall redound to the benefit of the of the [sic] consumers of Sitios San Vicente, Fatima and Sambag at Bulacao Pardo, Cebu City, thereby promoting public service in a proper and suitable manner, the instant application for a Certificate of Public Convenience (CPC) is, hereby, GRANTED for a period of five (5) years with authority to charge the proposed rates herein set effective upon approval as follows:

Consumption Blocks 0-10 cu. m. 11-20 cu. m. 21-30 cu. m. 31-40 cu. m. 41-50 cu. m. 51-60 cu. m. 61-70 cu. m. 71-100 cu. m. Over 100 cu. m.

Proposed Rates P125.00(min. charge) 13.50 per cu. m. 14.50 per cu. m. 35.00 per cu. m. 37.00 per cu. m. 38.00 per cu. m. 40.00 per cu. m. 45.00 per cu. m. 50.00 per cu. m.

MCWD vs. Adala

The Rules and Regulations, hereto, attached for the operation of the waterworks system should be strictly complied with. Since the average production is below average day demand, it is recommended to construct another well or increase the well horsepower from 1.5 - 3.00 Hp to satisfy the water requirement of the consumers. Moreover, the rates herein approved should be posted by GRANTEE at conspicuous places within the area serviced by it, within seven (7) calendar days from notice of this Decision. SO ORDERED.[4]

Its motion for reconsideration having been denied by the NWRB by Resolution of May 17, 2004, petitioner appealed the case to the RTC of Cebu City. As mentioned early on, the RTC denied the appeal and upheld the Decision of the NWRB by Decision dated February 10, 2005. And the RTC denied too petitioners motion for reconsideration by Order of May 13, 2005. Hence, the present petition for review raising the following questions of law:
i. WHETHER OR NOT THE CONSENT OF THE BOARD OF DIRECTORS OF THE WATER DISTRICT IS A CONDITION SINE QUA NON TO THE GRANT OF CERTIFICATE OF PUBLIC CONVENIENCE BY THE NATIONAL WATER RESOURCES BOARD UPON OPERATORS OF WATERWORKS WITHIN THE SERVICE AREA OF THE WATER DISTRICT? WHETHER THE TERM FRANCHISE AS USED IN SECTION 47 OF PRESIDENTIAL DECREE 198, AS AMENDED MEANS A FRANCHISE GRANTED BY CONGRESS THROUGH LEGISLATION ONLY OR DOES IT ALSO INCLUDE IN ITS MEANING A CERTIFICATE OF PUBLIC CONVENIENCE ISSUED BY THE NATIONAL WATER RESOURCES BOARD FOR THE MAINTENANCE OF WATERWORKS SYSTEM OR WATER SUPPLY SERVICE?[5]

ii.

Before discussing these substantive issues, a resolution of the procedural grounds raised by respondent for the outright denial of the petition is in order. By respondents claim, petitioners General Manager, Engineer Armando H. Paredes, who filed the present petition and signed the accompanying verification and certification of non-forum shopping, was not specifically authorized for that purpose. Respondent cites Premium Marble Resources v. Court of Appeals[6] where this Court held that, in the absence of a board resolution authorizing a person to act for and in behalf of a corporation, the action filed in its behalf must fail since the power of the corporation to sue and be sued in any court is lodged with the board of directors that exercises its corporate powers.

MCWD vs. Adala

Respondent likewise cites ABS-CBN Broadcasting Corporation v. Court of Appeals[7] where this Court held that [f]or such officers to be deemed fully clothed by the corporation to exercise a power of the Board, the latter must specially authorize them to do so. (Emphasis supplied by respondent) That there is a board resolution authorizing Engineer Paredes to file cases in behalf of petitioner is not disputed. Attached to the petition is petitioners Board of Directors Resolution No. 015-2004, the relevant portion of which states:
RESOLVE[D], AS IT IS HEREBY RESOLVED, to authorize the General Manager, ENGR. ARMANDO H. PAREDES, to file in behalf of the Metropolitan Cebu Water District expropriation and other cases and to affirm and confirm above-stated authority with respect to previous cases filed by MCWD. x x x x[8] (Emphasis and underscoring supplied)

To respondent, however, the board resolution is invalid and ineffective for being a roving authority and not a specific resolution pursuant to the ruling in ABS-CBN. That the subject board resolution does not authorize Engineer Paredes to file the instant petition in particular but expropriation and other cases does not, by itself, render the authorization invalid or ineffective. In BA Savings Bank v. Sia,[9] the therein board resolution, couched in words similar to the questioned resolution, authorized persons to represent the corporation, not for a specific case, but for a general class of cases. Significantly, the Court upheld its validity:
In the present case, the corporation's board of directors issued a Resolution specifically authorizing its lawyers "to act as their agents in any action or proceeding before the Supreme Court, the Court of Appeals, or any other tribunal or agency[;] and to sign, execute and deliver in connection therewith the necessary pleadings, motions, verification, affidavit of merit, certificate of non-forum shopping and other instruments necessary for such action and proceeding." The Resolution was sufficient to vest such persons with the authority to bind the corporation and was specific enough as to the acts they were empowered to do. (Emphasis and underscoring supplied, italics in the original)

Nonetheless, while the questioned resolution sufficiently identifies the kind of cases which Engineer Paredes may file in petitioners behalf, the same does not authorize him for the specific act of signing verifications and certifications against forum shopping. For it merely authorizes Engineer Paredes to filecases in behalf of the corporation. There is no mention of signing

MCWD vs. Adala

verifications and certifications against forum shopping, or, for that matter, any document of whatever nature. A board resolution purporting to authorize a person to sign documents in behalf of the corporation must explicitly vest such authority. BPI Leasing Corporation v. Court of Appeals[10] so instructs:
Corporations have no powers except those expressly conferred upon them by the Corporation Code and those that are implied by or are incidental to its existence. These powers are exercised through their board of directors and/or duly authorized officers and agents. Hence, physical acts, like the signing of documents, can be performed only by natural persons duly authorized for the purpose by corporate bylaws or by specific act of the board of directors. The records are bereft of the authority of BLC's [BPI Leasing Corporation] counsel to institute the present petition and to sign the certification of non-forum shopping. While said counsel may be the counsel of record for BLC, the representation does not vest upon him the authority to execute the certification on behalf of his client. There must be a resolution issued by the board of directors that specifically authorizes him to institute the petition and execute the certification, for it is only then that his actions can be legally binding upon BLC. (Emphasis, italics and underscoring supplied)

It bears noting, moreover, that Rule 13 Section 2 of the Rules of Court merely defines filing as the act of presenting the pleading or other paper to the clerk of court. Since the signing of verifications and certifications against forum shopping is not integral to the act of filing, this may not be deemed as necessarily included in an authorization merely to file cases. Engineer Paredes not having been specifically authorized to sign the verification and certification against forum shopping in petitioners behalf, the instant petition may be dismissed outright. Technicality aside, the petition just the same merits dismissal. In support of its contention that the consent of its Board of Directors is a condition sine qua non for the grant of the CPC applied for by respondent, petitioner cites Section 47 of P.D. 198[11] which states:
Sec. 47. Exclusive Franchise. No franchise shall be granted to any other person or agency for domestic, industrial or commercial water service within the district or any portion thereof unless and except to the extent that the board of directors of said district consents thereto by resolution duly adopted, such resolution, however, shall be subject to review by the Administration. (Emphasis and underscoring supplied)

MCWD vs. Adala

There being no such consent on the part of its board of directors, petitioner concludes that respondents application for CPC should be denied. Both parties arguments center, in the main, on the scope of the word franchise as used in the above-quoted provision. Petitioner contends that franchise should be broadly interpreted, such that the prohibition against its grant to other entities without the consent of the districts board of directors extends to the issuance of CPCs. A contrary reading, petitioner adds, would result in absurd consequences, for it would mean that Congress power to grant franchises for the operation of waterworks systems cannot be exercised without the consent of water districts. Respondent, on the other hand, proffers that the same prohibition only applies to franchises in the strict sense those granted by Congress by means of statute and does not extend to CPCs granted by agencies such as the NWRB. Respondent quotes the NWRB Resolution dated May 17, 2004 which distinguished a franchise from a CPC, thus:
A CPC is formal written authority issued by quasi-judicial bodies for the operation and maintenance of a public utility for which a franchise is not required by law and a CPC issued by this Board is an authority to operate and maintain a waterworks system or water supply service. On the other hand, a franchise is privilege or authority to operate appropriate private property for public use vested by Congress through legislation. Clearly, therefore, a CPC is different from a franchise and Section 47 of Presidential Decree 198 refers only to franchise. Accordingly, the possession of franchise by a water district does not bar the issuance of a CPC for an area covered by the water district. (Emphasis and underscoring supplied by respondent)

Petitioners position that an overly strict construction of the term franchise as used in Section 47 of P.D. 198 would lead to an absurd result impresses. If franchises, in this context, were strictly understood to mean an authorization issuing directly from the legislature, it would follow that, while Congress cannot issue franchises for operating waterworks systems without the water districts consent, the NWRB may keep on issuing CPCs authorizing the very same act even without such consent. In effect, not only would the NWRB be subject to less constraints than Congress in issuing franchises. The exclusive character of the franchise provided for by Section 47 would be illusory. Moreover, this Court, in Philippine Airlines, Inc. v. Civil Aeronautics Board,[12] has construed the term franchise broadly so as to include, not only authorizations issuing directly

MCWD vs. Adala

from Congress in the form of statute, but also those granted by administrative agencies to which the power to grant franchises has been delegated by Congress, to wit:
Congress has granted certain administrative agencies the power to grant licenses for, or to authorize the operation of certain public utilities. With the growing complexity of modern life, the multiplication of the subjects of governmental regulation, and the increased difficulty of administering the laws, there is a constantly growing tendency towards the delegation of greater powers by the legislature, and towards the approval of the practice by the courts. It is generally recognized that a franchise may be derived indirectly from the state through a duly designated agency, and to this extent, the power to grant franchises has frequently been delegated, even to agencies other than those of a legislative nature. In pursuance of this, it has been held that privileges conferred by grant by local authorities as agents for the state constitute as much a legislative franchise as though the grant had been made by an act of the Legislature.[13]

That the legislative authority in this instance, then President Marcos[14] intended to delegate its power to issue franchises in the case of water districts is clear from the fact that, pursuant to the procedure outlined in P.D. 198, it no longer plays a direct role in authorizing the formation and maintenance of water districts, it having vested the same to local legislative bodies and the Local Water Utilities Administration (LWUA). Sections 6 and 7 of P.D. 198, as amended, state:
SECTION 6. Formation of District. This Act is the source of authorization and power to form and maintain a district. Once formed, a district is subject to the provisions of this Act and not under the jurisdiction of any political subdivision. For purposes of this Act, a district shall be considered as a quasi-public corporation performing public service and supplying public wants. As such, a district shall exercise the powers, rights and privileges given to private corporations under existing laws, in addition to the powers granted in, and subject to such restrictions imposed, under this Act. To form a district, the legislative body of any city, municipality or province shall enact a resolution containing the following: (a) The name of the local water district, which shall include the name of the city, municipality, or province, or region thereof, served by said system, followed by the words "Water District". (b) A description of the boundary of the district. In the case of a city or municipality, such boundary may include all lands within the city or municipality. A district may include one or more municipalities, cities or provinces, or portions thereof: Provided, That such municipalities, cities or provinces, or portions thereof, cover a contiguous area. (c) A statement completely transferring any and all waterworks and/or sewerage facilities managed, operated by or under the control of such city, municipality or province to such district upon the filing of resolution forming the district. (d) A statement identifying the purpose for which the district is formed, which shall include those purposes outlined in Section 5 above.

MCWD vs. Adala

(e) The names of the initial directors of the district with the date of expiration of the term of office for each which shall be on the 31st of December of first, second, or third evennumbered year after assuming office, as set forth in Section 11 hereof. (f) A statement that the district may only be dissolved on the grounds and under the conditions set forth in Section 45 of this Title. (g) A statement acknowledging the powers, rights and obligations as set forth in Section 25 of this Title. Nothing in the resolution of formation shall state or infer that the local legislative body has the power to dissolve, alter or affect the district beyond that specifically provided for in this Act. If two or more cities, municipalities or provinces, or any combination thereof, desire to form a single district, a similar resolution shall be adopted in each city, municipality and province; or the city, municipality or province in which 75% of the total active service connections are situated shall pass an initial resolution to be concurred in by the other cities, municipalities or provinces. SECTION 7. Filing of Resolution. A certified copy of the resolution or resolutions forming a district shall be forwarded to the office of the Secretary of Administration. If found by the Administration to conform to the requirements of Section 6 and the policy objectives in Section 2, the resolution shall be duly filed.The district shall be deemed duly formed and existing upon the date of such filing. A certified copy of said resolution showing the stamp of the Administration shall be maintained in the office of the district. Upon such filing, the local government or governments concerned shall lose ownership, supervision and control or any right whatsoever over the district except as provided herein. (Emphasis and underscoring supplied)

It bears noting that once a district is duly formed and existing after following the above procedure, it acquires the exclusive franchise referred to in Section 47. Thus, P.D. 198 itself, in harmony with Philippine Airlines, Inc. v. Civil Aeronautics Board,[15] gives the name franchise to an authorization that does not proceed directly from the legislature. It would thus be incongruous to adopt in this instance the strict interpretation proffered by respondent and exclude from the scope of the term franchise the CPCs issued by the NWRB.[16] Nonetheless, while the prohibition in Section 47 of P.D. 198 applies to the issuance of CPCs for the reasons discussed above, the same provision must be deemed void ab initio for being irreconcilable with Article XIV Section 5 of the 1973 Constitution which was ratified on January 17, 1973 the constitution in force when P.D. 198 was issued on May 25, 1973. Thus, Section 5 of Art. XIV of the 1973 Constitution reads:
SECTION 5. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of the capital of

MCWD vs. Adala

which is owned by such citizens, nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Batasang Pambansa when the public interest so requires. The State shall encourage equity participation in public utilities by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in the capital thereof. (Emphasis and underscoring supplied)

This provision has been substantially reproduced in Article XII Section 11 of the 1987 Constitution, including the prohibition against exclusive franchises.[17] In view of the purposes for which they are established,[18] water districts fall under the term public utility as defined in the case of National Power Corporation v. Court of Appeals:[19]
A public utility is a business or service engaged in regularly supplying the public with some commodity or service of public consequence such as electricity, gas, water, transportation, telephone or telegraph service. x x x (Emphasis and underscoring supplied)

It bears noting, moreover, that as early as 1933, the Court held that a particular water district the Metropolitan Water District is a public utility.[20] The ruling in National Waterworks and Sewerage Authority v. NWSA Consolidated Unions[21] is also instructive:
We agree with petitioner that the NAWASA is a public utility because its primary function is to construct, maintain and operate water reservoirs and waterworks for the purpose of supplying

MCWD vs. Adala

water to the inhabitants, as well as consolidate and centralize all water supplies and drainage systems in the Philippines. x x x (Emphasis supplied)

Since Section 47 of P.D. 198, which vests an exclusive franchise upon public utilities, is clearly repugnant to Article XIV, Section 5 of the 1973 Constitution,[22] it is unconstitutional and may not, therefore, be relied upon by petitioner in support of its opposition against respondents application for CPC and the subsequent grant thereof by the NWRB. WHEREFORE, Section 47 of P.D. 198 is unconstitutional. The Petition is thus, in light of the foregoing discussions, DISMISSED. SO ORDERED.

MIAA vs CA
Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 155650 July 20, 2006

MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner, vs. COURT OF APPEALS, CITY OF PARAAQUE, CITY MAYOR OF PARAAQUE, SANGGUNIANG PANGLUNGSOD NG PARAAQUE, CITY ASSESSOR OF PARAAQUE, and CITY TREASURER OF PARAAQUE, respondents. DECISION CARPIO, J.: The Antecedents Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport (NAIA) Complex in Paraaque City under Executive Order No. 903, otherwise known as the Revised Charter of the Manila International Airport Authority ("MIAA Charter"). Executive Order No. 903 was issued on 21 July 1983 by then President Ferdinand E. Marcos. Subsequently, Executive Order Nos. 9091 and 2982 amended the MIAA Charter. As operator of the international airport, MIAA administers the land, improvements and equipment within the NAIA Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of land,3 including the runways and buildings ("Airport Lands and Buildings") then under the Bureau of Air Transportation.4 The MIAA Charter further provides that no portion of the land transferred to MIAA shall be disposed of through sale or any other mode unless specifically approved by the President of the Philippines.5 On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061. The OGCC opined that the Local Government Code of 1991 withdrew the exemption from real estate tax granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA negotiated with respondent City of Paraaque to pay the real estate tax imposed by the City. MIAA then paid some of the real estate tax already due. On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of Paraaque for the taxable years 1992 to 2001. MIAA's real estate tax delinquency is broken down as follows: TAX DECLARATION E-016-01370 E-016-01374 E-016-01375 E-016-01376 E-016-01377 E-016-01378 E-016-01379 E-016-01380 *E-016-013-85 *E-016-01387 TAXABLE YEAR 1992-2001 1992-2001 1992-2001 1992-2001 1992-2001 1992-2001 1992-2001 1992-2001 1998-2001 1998-2001 TAX DUE 19,558,160.00 111,689,424.90 20,276,058.00 58,144,028.00 18,134,614.65 111,107,950.40 4,322,340.00 7,776,436.00 6,444,810.00 34,876,800.00 PENALTY 11,201,083.20 68,149,479.59 12,371,832.00 35,477,712.00 11,065,188.59 67,794,681.59 2,637,360.00 4,744,944.00 2,900,164.50 5,694,560.00 TOTAL 30,789,243.20 179,838,904.49 32,647,890.00 93,621,740.00 29,199,803.24 178,902,631.99 6,959,700.00 12,521,380.00 9,344,974.50 50,571,360.00

MIAA vs CA *E-016-01396 GRAND TOTAL

1998-2001

75,240.00 33,858.00 109,098.00 P392,435,861.95 P232,070,863.47 P 624,506,725.42

1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75 #9476101 for P28,676,480.00 #9476103 for P49,115.006 On 17 July 2001, the City of Paraaque, through its City Treasurer, issued notices of levy and warrants of levy on the Airport Lands and Buildings. The Mayor of the City of Paraaque threatened to sell at public auction the Airport Lands and Buildings should MIAA fail to pay the real estate tax delinquency. MIAA thus sought a clarification of OGCC Opinion No. 061. On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The OGCC pointed out that Section 206 of the Local Government Code requires persons exempt from real estate tax to show proof of exemption. The OGCC opined that Section 21 of the MIAA Charter is the proof that MIAA is exempt from real estate tax. On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition and injunction, with prayer for preliminary injunction or temporary restraining order. The petition sought to restrain the City of Paraaque from imposing real estate tax on, levying against, and auctioning for public sale the Airport Lands and Buildings. The petition was docketed as CA-G.R. SP No. 66878. On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond the 60-day reglementary period. The Court of Appeals also denied on 27 September 2002 MIAA's motion for reconsideration and supplemental motion for reconsideration. Hence, MIAA filed on 5 December 2002 the present petition for review.7 Meanwhile, in January 2003, the City of Paraaque posted notices of auction sale at the Barangay Halls of Barangays Vitalez, Sto. Nio, and Tambo, Paraaque City; in the public market of Barangay La Huerta; and in the main lobby of the Paraaque City Hall. The City of Paraaque published the notices in the 3 and 10 January 2003 issues of the Philippine Daily Inquirer, a newspaper of general circulation in the Philippines. The notices announced the public auction sale of the Airport Lands and Buildings to the highest bidder on 7 February 2003, 10:00 a.m., at the Legislative Session Hall Building of Paraaque City. A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this Court an Urgent ExParte and Reiteratory Motion for the Issuance of a Temporary Restraining Order. The motion sought to restrain respondents the City of Paraaque, City Mayor of Paraaque, Sangguniang Panglungsod ng Paraaque, City Treasurer of Paraaque, and the City Assessor of Paraaque ("respondents") from auctioning the Airport Lands and Buildings. On 7 February 2003, this Court issued a temporary restraining order (TRO) effective immediately. The Court ordered respondents to cease and desist from selling at public auction the Airport Lands and Buildings. Respondents received the TRO on the same day that the Court issued it. However, respondents received the TRO only at 1:25 p.m. or three hours after the conclusion of the public auction. On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO. On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the directive issued during the hearing, MIAA, respondent City of Paraaque, and the Solicitor General subsequently submitted their respective Memoranda. MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the name of MIAA. However, MIAA points out that it cannot claim ownership over these properties since the real owner of the Airport Lands and Buildings is the Republic of the Philippines. The MIAA Charter mandates MIAA to devote the Airport Lands

MIAA vs CA and Buildings for the benefit of the general public. Since the Airport Lands and Buildings are devoted to public use and public service, the ownership of these properties remains with the State. The Airport Lands and Buildings are thus inalienable and are not subject to real estate tax by local governments.
MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the payment of real estate tax. MIAA insists that it is also exempt from real estate tax under Section 234 of the Local Government Code because the Airport Lands and Buildings are owned by the Republic. To justify the exemption, MIAA invokes the principle that the government cannot tax itself. MIAA points out that the reason for tax exemption of public property is that its taxation would not inure to any public advantage, since in such a case the tax debtor is also the tax creditor. Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the tax exemption privileges of "government-owned and-controlled corporations" upon the effectivity of the Local Government Code. Respondents also argue that a basic rule of statutory construction is that the express mention of one person, thing, or act excludes all others. An international airport is not among the exceptions mentioned in Section 193 of the Local Government Code. Thus, respondents assert that MIAA cannot claim that the Airport Lands and Buildings are exempt from real estate tax. Respondents also cite the ruling of this Court in Mactan International Airport v. Marcos8 where we held that the Local Government Code has withdrawn the exemption from real estate tax granted to international airports. Respondents further argue that since MIAA has already paid some of the real estate tax assessments, it is now estopped from claiming that the Airport Lands and Buildings are exempt from real estate tax. The Issue This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA are exempt from real estate tax under existing laws. If so exempt, then the real estate tax assessments issued by the City of Paraaque, and all proceedings taken pursuant to such assessments, are void. In such event, the other issues raised in this petition become moot. The Court's Ruling We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local governments. First, MIAA is not a government-owned or controlled corporation but an instrumentality of the National Government and thus exempt from local taxation. Second, the real properties of MIAA are owned by the Republic of the Philippines and thus exempt from real estate tax. 1. MIAA is Not a Government-Owned or Controlled Corporation Respondents argue that MIAA, being a government-owned or controlled corporation, is not exempt from real estate tax. Respondents claim that the deletion of the phrase "any government-owned or controlled so exempt by its charter" in Section 234(e) of the Local Government Code withdrew the real estate tax exemption of government-owned or controlled corporations. The deleted phrase appeared in Section 40(a) of the 1974 Real Property Tax Code enumerating the entities exempt from real estate tax. There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax. However, MIAA is not a government-owned or controlled corporation. Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a government-owned or controlled corporation as follows: SEC. 2. General Terms Defined. x x x x (13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the

MIAA vs CA case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock: x x x. (Emphasis supplied)
A government-owned or controlled corporation must be "organized as a stock or non-stock corporation." MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock corporation because it has no capital stock divided into shares. MIAA has no stockholders or voting shares. Section 10 of the MIAA Charter9provides: SECTION 10. Capital. The capital of the Authority to be contributed by the National Government shall be increased from Two and One-half Billion (P2,500,000,000.00) Pesos to Ten Billion (P10,000,000,000.00) Pesos to consist of: (a) The value of fixed assets including airport facilities, runways and equipment and such other properties, movable and immovable[,] which may be contributed by the National Government or transferred by it from any of its agencies, the valuation of which shall be determined jointly with the Department of Budget and Management and the Commission on Audit on the date of such contribution or transfer after making due allowances for depreciation and other deductions taking into account the loans and other liabilities of the Authority at the time of the takeover of the assets and other properties; (b) That the amount of P605 million as of December 31, 1986 representing about seventy percentum (70%) of the unremitted share of the National Government from 1983 to 1986 to be remitted to the National Treasury as provided for in Section 11 of E. O. No. 903 as amended, shall be converted into the equity of the National Government in the Authority. Thereafter, the Government contribution to the capital of the Authority shall be provided in the General Appropriations Act. Clearly, under its Charter, MIAA does not have capital stock that is divided into shares. Section 3 of the Corporation Code10 defines a stock corporation as one whose "capital stock is divided into shares and x x x authorized to distribute to the holders of such shares dividends x x x." MIAA has capital but it is not divided into shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a stock corporation. MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code defines a non-stock corporation as "one where no part of its income is distributable as dividends to its members, trustees or officers." A non-stock corporation must have members. Even if we assume that the Government is considered as the sole member of MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations cannot distribute any part of their income to their members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to the National Treasury.11 This prevents MIAA from qualifying as a non-stock corporation. Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar purposes, like trade, industry, agriculture and like chambers." MIAA is not organized for any of these purposes. MIAA, a public utility, is organized to operate an international and domestic airport for public use. Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or controlled corporation. What then is the legal status of MIAA within the National Government? MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions. MIAA is like any other government instrumentality, the only difference is that MIAA is vested with corporate powers. Section 2(10) of the Introductory Provisions of the Administrative Code defines a government "instrumentality" as follows: SEC. 2. General Terms Defined. x x x x (10) Instrumentality refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate

MIAA vs CA powers, administering special funds, and enjoying operational autonomy, usually through a charter. x x x (Emphasis supplied)
When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality exercising not only governmental but also corporate powers. Thus, MIAA exercises the governmental powers of eminent domain,12 police authority13 and the levying of fees and charges.14 At the same time, MIAA exercises "all the powers of a corporation under the Corporation Law, insofar as these powers are not inconsistent with the provisions of this Executive Order."15 Likewise, when the law makes a government instrumentality operationally autonomous, the instrumentality remains part of the National Government machinery although not integrated with the department framework. The MIAA Charter expressly states that transforming MIAA into a "separate and autonomous body"16 will make its operation more "financially viable."17 Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock corporations, which is a necessary condition before an agency or instrumentality is deemed a government-owned or controlled corporation. Examples are the Mactan International Airport Authority, the Philippine Ports Authority, the University of the Philippines and Bangko Sentral ng Pilipinas. All these government instrumentalities exercise corporate powers but they are not organized as stock or non-stock corporations as required by Section 2(13) of the Introductory Provisions of the Administrative Code. These government instrumentalities are sometimes loosely called government corporate entities. However, they are not government-owned or controlled corporations in the strict sense as understood under the Administrative Code, which is the governing law defining the legal relationship and status of government entities. A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which states: SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: xxxx (o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities and local government units.(Emphasis and underscoring supplied) Section 133(o) recognizes the basic principle that local governments cannot tax the national government, which historically merely delegated to local governments the power to tax. While the 1987 Constitution now includes taxation as one of the powers of local governments, local governments may only exercise such power "subject to such guidelines and limitations as the Congress may provide."18 When local governments invoke the power to tax on national government instrumentalities, such power is construed strictly against local governments. The rule is that a tax is never presumed and there must be clear language in the law imposing the tax. Any doubt whether a person, article or activity is taxable is resolved against taxation. This rule applies with greater force when local governments seek to tax national government instrumentalities. Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption. However, when Congress grants an exemption to a national government instrumentality from local taxation, such exemption is construed liberally in favor of the national government instrumentality. As this Court declared in Maceda v. Macaraig, Jr.: The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or its agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that has to be handled by government in the course of its operations. For these reasons, provisions granting exemptions to government agencies may be construed liberally, in favor of non tax-liability of such agencies.19

MIAA vs CA There is, moreover, no point in national and local governments taxing each other, unless a sound and compelling policy requires such transfer of public funds from one government pocket to another.
There is also no reason for local governments to tax national government instrumentalities for rendering essential public services to inhabitants of local governments. The only exception is when the legislature clearly intended to tax government instrumentalities for the delivery of essential public services for sound and compelling policy considerations. There must be express language in the law empowering local governments to tax national government instrumentalities. Any doubt whether such power exists is resolved against local governments. Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code, local governments cannot tax national government instrumentalities. As this Court held in Basco v. Philippine Amusements and Gaming Corporation: The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579) This doctrine emanates from the "supremacy" of the National Government over local governments. "Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate a federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or even to seriously burden it in the accomplishment of them." (Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied) Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may perceive to be undesirable activities or enterprise using the power to tax as "a tool for regulation" (U.S. v. Sanchez, 340 US 42). The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it. 20 2. Airport Lands and Buildings of MIAA are Owned by the Republic a. Airport Lands and Buildings are of Public Dominion The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State or the Republic of the Philippines. The Civil Code provides: ARTICLE 419. Property is either of public dominion or of private ownership. ARTICLE 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. (Emphasis supplied) ARTICLE 421. All other property of the State, which is not of the character stated in the preceding article, is patrimonial property.

MIAA vs CA ARTICLE 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.
No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like "roads, canals, rivers, torrents, ports and bridges constructed by the State," are owned by the State. The term "ports" includes seaports and airports. The MIAA Airport Lands and Buildings constitute a "port" constructed by the State. Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion and thus owned by the State or the Republic of the Philippines. The Airport Lands and Buildings are devoted to public use because they are used by the public for international and domestic travel and transportation. The fact that the MIAA collects terminal fees and other charges from the public does not remove the character of the Airport Lands and Buildings as properties for public use. The operation by the government of a tollway does not change the character of the road as one for public use. Someone must pay for the maintenance of the road, either the public indirectly through the taxes they pay the government, or only those among the public who actually use the road through the toll fees they pay upon using the road. The tollway system is even a more efficient and equitable manner of taxing the public for the maintenance of public roads. The charging of fees to the public does not determine the character of the property whether it is of public dominion or not. Article 420 of the Civil Code defines property of public dominion as one "intended for public use." Even if the government collects toll fees, the road is still "intended for public use" if anyone can use the road under the same terms and conditions as the rest of the public. The charging of fees, the limitation on the kind of vehicles that can use the road, the speed restrictions and other conditions for the use of the road do not affect the public character of the road. The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the bulk of the income that maintains the operations of MIAA. The collection of such fees does not change the character of MIAA as an airport for public use. Such fees are often termed user's tax. This means taxing those among the public who actually use a public facility instead of taxing all the public including those who never use the particular public facility. A user's tax is more equitable a principle of taxation mandated in the 1987 Constitution.21 The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport of the Philippines for both international and domestic air traffic,"22 are properties of public dominion because they are intended for public use. As properties of public dominion, they indisputably belong to the State or the Republic of the Philippines. b. Airport Lands and Buildings are Outside the Commerce of Man The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of public dominion. As properties of public dominion, the Airport Lands and Buildings are outside the commerce of man. The Court has ruled repeatedly that properties of public dominion are outside the commerce of man. As early as 1915, this Court already ruled in Municipality of Cavite v. Rojas that properties devoted to public use are outside the commerce of man, thus: According to article 344 of the Civil Code: "Property for public use in provinces and in towns comprises the provincial and town roads, the squares, streets, fountains, and public waters, the promenades, and public works of general service supported by said towns or provinces." The said Plaza Soledad being a promenade for public use, the municipal council of Cavite could not in 1907 withdraw or exclude from public use a portion thereof in order to lease it for the sole benefit of the defendant Hilaria Rojas. In leasing a portion of said plaza or public place to the defendant for private use the plaintiff municipality exceeded its authority in the exercise of its powers by executing a contract over a thing of which it could not dispose, nor is it empowered so to do. The Civil Code, article 1271, prescribes that everything which is not outside the commerce of man may be the object of a contract, and plazas and streets are outside of this commerce, as was decided by the supreme court of Spain in its decision of February 12, 1895, which says: "Communal things that cannot be sold

MIAA vs CA because they are by their very nature outside of commerce are those for public use, such as the plazas, streets, common lands, rivers, fountains, etc." (Emphasis supplied) 23
Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are outside the commerce of man: xxx Town plazas are properties of public dominion, to be devoted to public use and to be made available to the public in general. They are outside the commerce of man and cannot be disposed of or even leased by the municipality to private parties. While in case of war or during an emergency, town plazas may be occupied temporarily by private individuals, as was done and as was tolerated by the Municipality of Pozorrubio, when the emergency has ceased, said temporary occupation or use must also cease, and the town officials should see to it that the town plazas should ever be kept open to the public and free from encumbrances or illegal private constructions.24 (Emphasis supplied) The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be the subject of an auction sale.25 Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition through public or private sale. Any encumbrance, levy on execution or auction sale of any property of public dominion is void for being contrary to public policy. Essential public services will stop if properties of public dominion are subject to encumbrances, foreclosures and auction sale. This will happen if the City of Paraaque can foreclose and compel the auction sale of the 600-hectare runway of the MIAA for non-payment of real estate tax. Before MIAA can encumber26 the Airport Lands and Buildings, the President must first withdraw from public use the Airport Lands and Buildings. Sections 83 and 88 of the Public Land Law or Commonwealth Act No. 141, which "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,"27 provide: SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural Resources, the President may designate by proclamation any tract or tracts of land of the public domain as reservations for the use of the Republic of the Philippines or of any of its branches, or of the inhabitants thereof, in accordance with regulations prescribed for this purposes, or for quasi-public uses or purposes when the public interest requires it, including reservations for highways, rights of way for railroads, hydraulic power sites, irrigation systems, communal pastures or lequas communales, public parks, public quarries, public fishponds, working men's village and other improvements for the public benefit. SECTION 88. The tract or tracts of land reserved under the provisions of Section eighty-three shall be non-alienable and shall not be subject to occupation, entry, sale, lease, or other disposition until again declared alienable under the provisions of this Act or by proclamation of the President. (Emphasis and underscoring supplied) Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from public use, these properties remain properties of public dominion and are inalienable. Since the Airport Lands and Buildings are inalienable in their present status as properties of public dominion, they are not subject to levy on execution or foreclosure sale. As long as the Airport Lands and Buildings are reserved for public use, their ownership remains with the State or the Republic of the Philippines. The authority of the President to reserve lands of the public domain for public use, and to withdraw such public use, is reiterated in Section 14, Chapter 4, Title I, Book III of the Administrative Code of 1987, which states: SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government. (1) The President shall have the power to reserve for settlement or public use, and for specific public purposes, any of the lands of the public domain, the use of which is not otherwise directed by law. The reserved land shall thereafter remain subject to the specific public purpose indicated until otherwise provided by law or proclamation;

MIAA vs CA x x x x. (Emphasis supplied)

There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law or presidential proclamation from public use, they are properties of public dominion, owned by the Republic and outside the commerce of man. c. MIAA is a Mere Trustee of the Republic MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48, Chapter 12, Book I of the Administrative Code allows instrumentalities like MIAA to hold title to real properties owned by the Republic, thus: 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) For property belonging to and titled in the name of the Republic of the Philippines, by the President, unless the authority therefor is expressly vested by law in another officer. (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) In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer because even its executive head cannot sign the deed of conveyance on behalf of the Republic. Only the President of the Republic can sign such deed of conveyance.28 d. Transfer to MIAA was Meant to Implement a Reorganization The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and Buildings from the Bureau of Air Transportation of the Department of Transportation and Communications. The MIAA Charter provides: SECTION 3. Creation of the Manila International Airport Authority. x x x x The land where the Airport is presently located as well as the surrounding land area of approximately six hundred hectares, are hereby transferred, conveyed and assigned to the ownership and administration of the Authority, subject to existing rights, if any. The Bureau of Lands and other appropriate government agencies shall undertake an actual survey of the area transferred within one year from the promulgation of this Executive Order and the corresponding title to be issued in the name of the Authority. Any portion thereof shall not be disposed through sale or through any other mode unless specifically approved by the President of the Philippines. (Emphasis supplied) SECTION 22. Transfer of Existing Facilities and Intangible Assets. All existing public airport facilities, runways, lands, buildings and other property, movable or immovable, belonging to the Airport, and all assets, powers, rights, interests and privileges belonging to the Bureau of Air Transportation relating to airport works or air operations, including all equipment which are necessary for the operation of crash fire and rescue facilities, are hereby transferred to the Authority. (Emphasis supplied) SECTION 25. Abolition of the Manila International Airport as a Division in the Bureau of Air Transportation and Transitory Provisions. The Manila International Airport including the Manila Domestic Airport as a division under the Bureau of Air Transportation is hereby abolished. x x x x.

MIAA vs CA The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic receiving cash, promissory notes or even stock since MIAA is not a stock corporation.
The whereas clauses of the MIAA Charter explain the rationale for the transfer of the Airport Lands and Buildings to MIAA, thus: WHEREAS, the Manila International Airport as the principal airport of the Philippines for both international and domestic air traffic, is required to provide standards of airport accommodation and service comparable with the best airports in the world; WHEREAS, domestic and other terminals, general aviation and other facilities, have to be upgraded to meet the current and future air traffic and other demands of aviation in Metro Manila; WHEREAS, a management and organization study has indicated that the objectives of providing high standards of accommodation and service within the context of a financially viable operation, will best be achieved by a separate and autonomous body; and WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree No. 1772, the President of the Philippines is given continuing authority to reorganize the National Government, which authority includes the creation of new entities, agencies and instrumentalities of the Government[.] (Emphasis supplied) The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was not meant to transfer beneficial ownership of these assets from the Republic to MIAA. The purpose was merely to reorganize a division in the Bureau of Air Transportation into a separate and autonomous body. The Republic remains the beneficial owner of the Airport Lands and Buildings. MIAA itself is owned solely by the Republic. No party claims any ownership rights over MIAA's assets adverse to the Republic. The MIAA Charter expressly provides that the Airport Lands and Buildings "shall not be disposed through sale or through any other mode unless specifically approved by the President of the Philippines." This only means that the Republic retained the beneficial ownership of the Airport Lands and Buildings because under Article 428 of the Civil Code, only the "owner has the right to x x x dispose of a thing." Since MIAA cannot dispose of the Airport Lands and Buildings, MIAA does not own the Airport Lands and Buildings. At any time, the President can transfer back to the Republic title to the Airport Lands and Buildings without the Republic paying MIAA any consideration. Under Section 3 of the MIAA Charter, the President is the only one who can authorize the sale or disposition of the Airport Lands and Buildings. This only confirms that the Airport Lands and Buildings belong to the Republic. e. Real Property Owned by the Republic is Not Taxable Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal property owned by the Republic of the Philippines." Section 234(a) provides: SEC. 234. Exemptions from Real Property Tax. The following are exempted from payment of the real property tax: (a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person; x x x. (Emphasis supplied) This exemption should be read in relation with Section 133(o) of the same Code, which prohibits local governments from imposing "[t]axes, fees or charges of any kind on the National Government, its agencies andinstrumentalities x x x." The real properties owned by the Republic are titled either in the name of the Republic itself or in the name of

MIAA vs CA agencies or instrumentalities of the National Government. The Administrative Code allows real property owned by the Republic to be titled in the name of agencies or instrumentalities of the national government. Such real properties remain owned by the Republic and continue to be exempt from real estate tax.
The Republic may grant the beneficial use of its real property to an agency or instrumentality of the national government. This happens when title of the real property is transferred to an agency or instrumentality even as the Republic remains the owner of the real property. Such arrangement does not result in the loss of the tax exemption. Section 234(a) of the Local Government Code states that real property owned by the Republic loses its tax exemption only if the "beneficial use thereof has been granted, for consideration or otherwise, to a taxable person." MIAA, as a government instrumentality, is not a taxable person under Section 133(o) of the Local Government Code. Thus, even if we assume that the Republic has granted to MIAA the beneficial use of the Airport Lands and Buildings, such fact does not make these real properties subject to real estate tax. However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real estate tax. For example, the land area occupied by hangars that MIAA leases to private corporations is subject to real estate tax. In such a case, MIAA has granted the beneficial use of such land area for a consideration to ataxable person and therefore such land area is subject to real estate tax. In Lung Center of the Philippines v. Quezon City, the Court ruled: Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes. On the other hand, the portions of the land occupied by the hospital and portions of the hospital used for its patients, whether paying or non-paying, are exempt from real property taxes.29 3. Refutation of Arguments of Minority The minority asserts that the MIAA is not exempt from real estate tax because Section 193 of the Local Government Code of 1991 withdrew the tax exemption of "all persons, whether natural or juridical" upon the effectivity of the Code. Section 193 provides: SEC. 193. Withdrawal of Tax Exemption Privileges Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions are hereby withdrawn upon effectivity of this Code. (Emphasis supplied) The minority states that MIAA is indisputably a juridical person. The minority argues that since the Local Government Code withdrew the tax exemption of all juridical persons, then MIAA is not exempt from real estate tax. Thus, the minority declares: It is evident from the quoted provisions of the Local Government Code that the withdrawn exemptions from realty tax cover not just GOCCs, but all persons. To repeat, the provisions lay down the explicit proposition that the withdrawal of realty tax exemption applies to all persons. The reference to or the inclusion of GOCCs is only clarificatory or illustrative of the explicit provision. The term "All persons" encompasses the two classes of persons recognized under our laws, natural and juridical persons. Obviously, MIAA is not a natural person. Thus, the determinative test is not just whether MIAA is a GOCC, but whether MIAA is a juridical person at all. (Emphasis and underscoring in the original) The minority posits that the "determinative test" whether MIAA is exempt from local taxation is its status whether MIAA is a juridical person or not. The minority also insists that "Sections 193 and 234 may be examined in isolation from Section 133(o) to ascertain MIAA's claim of exemption."

MIAA vs CA The argument of the minority is fatally flawed. Section 193 of the Local Government Code expressly withdrew the tax exemption of all juridical persons "[u]nless otherwise provided in this Code." Now, Section 133(o) of the Local Government Code expressly provides otherwise, specifically prohibiting local governments from imposing any kind of tax on national government instrumentalities. Section 133(o) states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: xxxx (o) Taxes, fees or charges of any kinds on the National Government, its agencies and instrumentalities, and local government units. (Emphasis and underscoring supplied) By express mandate of the Local Government Code, local governments cannot impose any kind of tax on national government instrumentalities like the MIAA. Local governments are devoid of power to tax the national government, its agencies and instrumentalities. The taxing powers of local governments do not extend to the national government, its agencies and instrumentalities, "[u]nless otherwise provided in this Code" as stated in the saving clause of Section 133. The saving clause refers to Section 234(a) on the exception to the exemption from real estate tax of real property owned by the Republic. The minority, however, theorizes that unless exempted in Section 193 itself, all juridical persons are subject to tax by local governments. The minority insists that the juridical persons exempt from local taxation are limited to the three classes of entities specifically enumerated as exempt in Section 193. Thus, the minority states: x x x Under Section 193, the exemption is limited to (a) local water districts; (b) cooperatives duly registered under Republic Act No. 6938; and (c) non-stock and non-profit hospitals and educational institutions. It would be belaboring the obvious why the MIAA does not fall within any of the exempt entities under Section 193. (Emphasis supplied) The minority's theory directly contradicts and completely negates Section 133(o) of the Local Government Code. This theory will result in gross absurdities. It will make the national government, which itself is a juridical person, subject to tax by local governments since the national government is not included in the enumeration of exempt entities in Section 193. Under this theory, local governments can impose any kind of local tax, and not only real estate tax, on the national government. Under the minority's theory, many national government instrumentalities with juridical personalities will also be subject to any kind of local tax, and not only real estate tax. Some of the national government instrumentalities vested by law with juridical personalities are: Bangko Sentral ng Pilipinas,30 Philippine Rice Research Institute,31Laguna Lake Development Authority,32 Fisheries Development Authority,33 Bases Conversion Development Authority,34Philippine Ports Authority,35 Cagayan de Oro Port Authority,36 San Fernando Port Authority,37 Cebu Port Authority,38 and Philippine National Railways.39 The minority's theory violates Section 133(o) of the Local Government Code which expressly prohibits local governments from imposing any kind of tax on national government instrumentalities. Section 133(o) does not distinguish between national government instrumentalities with or without juridical personalities. Where the law does not distinguish, courts should not distinguish. Thus, Section 133(o) applies to all national government instrumentalities, with or without juridical personalities. The determinative test whether MIAA is exempt from local taxation is not whether MIAA is a juridical person, but whether it is a national government instrumentality under Section 133(o) of the Local Government Code. Section 133(o) is the specific provision of law prohibiting local governments from imposing any kind of tax on the national government, its agencies and instrumentalities. Section 133 of the Local Government Code starts with the saving clause "[u]nless otherwise provided in this Code." This means that unless the Local Government Code grants an express authorization, local governments have no power

MIAA vs CA to tax the national government, its agencies and instrumentalities. Clearly, the rule is local governments have no power to tax the national government, its agencies and instrumentalities. As an exception to this rule, local governments may tax the national government, its agencies and instrumentalities only if the Local Government Code expressly so provides.
The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of the Code, which makes the national government subject to real estate tax when it gives the beneficial use of its real properties to a taxable entity. Section 234(a) of the Local Government Code provides: SEC. 234. Exemptions from Real Property Tax The following are exempted from payment of the real property tax: (a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person. x x x. (Emphasis supplied) Under Section 234(a), real property owned by the Republic is exempt from real estate tax. The exception to this exemption is when the government gives the beneficial use of the real property to a taxable entity. The exception to the exemption in Section 234(a) is the only instance when the national government, its agencies and instrumentalities are subject to any kind of tax by local governments. The exception to the exemption applies only to real estate tax and not to any other tax. The justification for the exception to the exemption is that the real property, although owned by the Republic, is not devoted to public use or public service but devoted to the private gain of a taxable person. The minority also argues that since Section 133 precedes Section 193 and 234 of the Local Government Code, the later provisions prevail over Section 133. Thus, the minority asserts: x x x Moreover, sequentially Section 133 antecedes Section 193 and 234. Following an accepted rule of construction, in case of conflict the subsequent provisions should prevail. Therefore, MIAA, as a juridical person, is subject to real property taxes, the general exemptions attaching to instrumentalities under Section 133(o) of the Local Government Code being qualified by Sections 193 and 234 of the same law. (Emphasis supplied) The minority assumes that there is an irreconcilable conflict between Section 133 on one hand, and Sections 193 and 234 on the other. No one has urged that there is such a conflict, much less has any one presenteda persuasive argument that there is such a conflict. The minority's assumption of an irreconcilable conflict in the statutory provisions is an egregious error for two reasons. First, there is no conflict whatsoever between Sections 133 and 193 because Section 193 expressly admits its subordination to other provisions of the Code when Section 193 states "[u]nless otherwise provided in this Code." By its own words, Section 193 admits the superiority of other provisions of the Local Government Code that limit the exercise of the taxing power in Section 193. When a provision of law grants a power but withholds such power on certain matters, there is no conflict between the grant of power and the withholding of power. The grantee of the power simply cannot exercise the power on matters withheld from its power. Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local Government Units." Section 133 limits the grant to local governments of the power to tax, and not merely the exercise of a delegated power to tax. Section 133 states that the taxing powers of local governments "shall not extend to the levy" of any kind of tax on the national government, its agencies and instrumentalities. There is no clearer limitation on the taxing power than this. Since Section 133 prescribes the "common limitations" on the taxing powers of local governments, Section 133 logically prevails over Section 193 which grants local governments such taxing powers. By their very meaning and purpose, the "common limitations" on the taxing power prevail over the grant or exercise of the taxing power. If the taxing power of

MIAA vs CA local governments in Section 193 prevails over the limitations on such taxing power in Section 133, then local governments can impose any kind of tax on the national government, its agencies and instrumentalities a gross absurdity.
Local governments have no power to tax the national government, its agencies and instrumentalities, except as otherwise provided in the Local Government Code pursuant to the saving clause in Section 133 stating "[u]nless otherwise provided in this Code." This exception which is an exception to the exemption of the Republic from real estate tax imposed by local governments refers to Section 234(a) of the Code. The exception to the exemption in Section 234(a) subjects real property owned by the Republic, whether titled in the name of the national government, its agencies or instrumentalities, to real estate tax if the beneficial use of such property is given to a taxable entity. The minority also claims that the definition in the Administrative Code of the phrase "government-owned or controlled corporation" is not controlling. The minority points out that Section 2 of the Introductory Provisions of the Administrative Code admits that its definitions are not controlling when it provides: SEC. 2. General Terms Defined. Unless the specific words of the text, or the context as a whole, or a particular statute, shall require a different meaning: xxxx The minority then concludes that reliance on the Administrative Code definition is "flawed." The minority's argument is a non sequitur. True, Section 2 of the Administrative Code recognizes that a statute may require a different meaning than that defined in the Administrative Code. However, this does not automatically mean that the definition in the Administrative Code does not apply to the Local Government Code. Section 2 of the Administrative Code clearly states that "unless the specific words x x x of a particular statute shall require a different meaning," the definition in Section 2 of the Administrative Code shall apply. Thus, unless there is specific language in the Local Government Code defining the phrase "government-owned or controlled corporation" differently from the definition in the Administrative Code, the definition in the Administrative Code prevails. The minority does not point to any provision in the Local Government Code defining the phrase "government-owned or controlled corporation" differently from the definition in the Administrative Code. Indeed, there is none. The Local Government Code is silent on the definition of the phrase "government-owned or controlled corporation." The Administrative Code, however, expressly defines the phrase "government-owned or controlled corporation." The inescapable conclusion is that the Administrative Code definition of the phrase "government-owned or controlled corporation" applies to the Local Government Code. The third whereas clause of the Administrative Code states that the Code "incorporates in a unified document the major structural, functional and procedural principles and rules of governance." Thus, the Administrative Code is the governing law defining the status and relationship of government departments, bureaus, offices, agencies and instrumentalities. Unless a statute expressly provides for a different status and relationship for a specific government unit or entity, the provisions of the Administrative Code prevail. The minority also contends that the phrase "government-owned or controlled corporation" should apply only to corporations organized under the Corporation Code, the general incorporation law, and not to corporations created by special charters. The minority sees no reason why government corporations with special charters should have a capital stock. Thus, the minority declares: I submit that the definition of "government-owned or controlled corporations" under the Administrative Code refer to those corporations owned by the government or its instrumentalities which are created not by legislative enactment, but formed and organized under the Corporation Code through registration with the Securities and Exchange Commission. In short, these are GOCCs without original charters. xxxx

MIAA vs CA It might as well be worth pointing out that there is no point in requiring a capital structure for GOCCs whose full ownership is limited by its charter to the State or Republic. Such GOCCs are not empowered to declare dividends or alienate their capital shares.
The contention of the minority is seriously flawed. It is not in accord with the Constitution and existing legislations. It will also result in gross absurdities. First, the Administrative Code definition of the phrase "government-owned or controlled corporation" does not distinguish between one incorporated under the Corporation Code or under a special charter. Where the law does not distinguish, courts should not distinguish. Second, Congress has created through special charters several government-owned corporations organized as stock corporations. Prime examples are the Land Bank of the Philippines and the Development Bank of the Philippines. The special charter40 of the Land Bank of the Philippines provides: SECTION 81. Capital. The authorized capital stock of the Bank shall be nine billion pesos, divided into seven hundred and eighty million common shares with a par value of ten pesos each, which shall be fully subscribed by the Government, and one hundred and twenty million preferred shares with a par value of ten pesos each, which shall be issued in accordance with the provisions of Sections seventy-seven and eighty-three of this Code. (Emphasis supplied) Likewise, the special charter41 of the Development Bank of the Philippines provides: SECTION 7. Authorized Capital Stock Par value. The capital stock of the Bank shall be Five Billion Pesos to be divided into Fifty Million common shares with par value of P100 per share. These shares are available for subscription by the National Government. Upon the effectivity of this Charter, the National Government shall subscribe to Twenty-Five Million common shares of stock worth Two Billion Five Hundred Million which shall be deemed paid for by the Government with the net asset values of the Bank remaining after the transfer of assets and liabilities as provided in Section 30 hereof. (Emphasis supplied) Other government-owned corporations organized as stock corporations under their special charters are the Philippine Crop Insurance Corporation,42 Philippine International Trading Corporation,43 and the Philippine National Bank44 before it was reorganized as a stock corporation under the Corporation Code. All these government-owned corporations organized under special charters as stock corporations are subject to real estate tax on real properties owned by them. To rule that they are not government-owned or controlled corporations because they are not registered with the Securities and Exchange Commission would remove them from the reach of Section 234 of the Local Government Code, thus exempting them from real estate tax. Third, the government-owned or controlled corporations created through special charters are those that meet the two conditions prescribed in Section 16, Article XII of the Constitution. The first condition is that the government-owned or controlled corporation must be established for the common good. The second condition is that the government-owned or controlled corporation must meet the test of economic viability. Section 16, Article XII of the 1987 Constitution provides: SEC. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability. (Emphasis and underscoring supplied) The Constitution expressly authorizes the legislature to create "government-owned or controlled corporations" through special charters only if these entities are required to meet the twin conditions of common good and economic viability. In other words, Congress has no power to create government-owned or controlled corporations with special charters unless they are made to comply with the two conditions of common good and economic viability. The test of economic viability applies only to government-owned or controlled corporations that perform economic or commercial activities and need to compete in the market place. Being essentially economic vehicles of the State for the common good

MIAA vs CA meaning for economic development purposes these government-owned or controlled corporations with special charters are usually organized as stock corporations just like ordinary private corporations.
In contrast, government instrumentalities vested with corporate powers and performing governmental or public functions need not meet the test of economic viability. These instrumentalities perform essential public services for the common good, services that every modern State must provide its citizens. These instrumentalities need not be economically viable since the government may even subsidize their entire operations. These instrumentalities are not the "government-owned or controlled corporations" referred to in Section 16, Article XII of the 1987 Constitution. Thus, the Constitution imposes no limitation when the legislature creates government instrumentalities vested with corporate powers but performing essential governmental or public functions. Congress has plenary authority to create government instrumentalities vested with corporate powers provided these instrumentalities perform essential government functions or public services. However, when the legislature creates through special charters corporations that perform economic or commercial activities, such entities known as "government-owned or controlled corporations" must meet the test of economic viability because they compete in the market place. This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines and similar government-owned or controlled corporations, which derive their income to meet operating expenses solely from commercial transactions in competition with the private sector. The intent of the Constitution is to prevent the creation of government-owned or controlled corporations that cannot survive on their own in the market place and thus merely drain the public coffers. Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the Constitutional Commission the purpose of this test, as follows: MR. OPLE: Madam President, the reason for this concern is really that when the government creates a corporation, there is a sense in which this corporation becomes exempt from the test of economic performance. We know what happened in the past. If a government corporation loses, then it makes its claim upon the taxpayers' money through new equity infusions from the government and what is always invoked is the common good. That is the reason why this year, out of a budget of P115 billion for the entire government, about P28 billion of this will go into equity infusions to support a few government financial institutions. And this is all taxpayers' money which could have been relocated to agrarian reform, to social services like health and education, to augment the salaries of grossly underpaid public employees. And yet this is all going down the drain. Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good," this becomes a restraint on future enthusiasts for state capitalism to excuse themselves from the responsibility of meeting the market test so that they become viable. And so, Madam President, I reiterate, for the committee's consideration and I am glad that I am joined in this proposal by Commissioner Foz, the insertion of the standard of "ECONOMIC VIABILITY OR THE ECONOMIC TEST," together with the common good.45 Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his textbook The 1987 Constitution of the Republic of the Philippines: A Commentary: The second sentence was added by the 1986 Constitutional Commission. The significant addition, however, is the phrase "in the interest of the common good and subject to the test of economic viability." The addition includes the ideas that they must show capacity to function efficiently in business and that they should not go into activities which the private sector can do better. Moreover, economic viability is more than financial viability but also includes capability to make profit and generate benefits not quantifiable in financial terms.46 (Emphasis supplied) Clearly, the test of economic viability does not apply to government entities vested with corporate powers and performing essential public services. The State is obligated to render essential public services regardless of the economic viability of providing such service. The non-economic viability of rendering such essential public service does not excuse the State from withholding such essential services from the public.

MIAA vs CA However, government-owned or controlled corporations with special charters, organized essentially for economic or commercial objectives, must meet the test of economic viability. These are the government-owned or controlled corporations that are usually organized under their special charters as stock corporations, like the Land Bank of the Philippines and the Development Bank of the Philippines. These are the government-owned or controlled corporations, along with government-owned or controlled corporations organized under the Corporation Code, that fall under the definition of "government-owned or controlled corporations" in Section 2(10) of the Administrative Code.
The MIAA need not meet the test of economic viability because the legislature did not create MIAA to compete in the market place. MIAA does not compete in the market place because there is no competing international airport operated by the private sector. MIAA performs an essential public service as the primary domestic and international airport of the Philippines. The operation of an international airport requires the presence of personnel from the following government agencies: 1. The Bureau of Immigration and Deportation, to document the arrival and departure of passengers, screening out those without visas or travel documents, or those with hold departure orders; 2. The Bureau of Customs, to collect import duties or enforce the ban on prohibited importations; 3. The quarantine office of the Department of Health, to enforce health measures against the spread of infectious diseases into the country; 4. The Department of Agriculture, to enforce measures against the spread of plant and animal diseases into the country; 5. The Aviation Security Command of the Philippine National Police, to prevent the entry of terrorists and the escape of criminals, as well as to secure the airport premises from terrorist attack or seizure; 6. The Air Traffic Office of the Department of Transportation and Communications, to authorize aircraft to enter or leave Philippine airspace, as well as to land on, or take off from, the airport; and 7. The MIAA, to provide the proper premises such as runway and buildings for the government personnel, passengers, and airlines, and to manage the airport operations. All these agencies of government perform government functions essential to the operation of an international airport. MIAA performs an essential public service that every modern State must provide its citizens. MIAA derives its revenues principally from the mandatory fees and charges MIAA imposes on passengers and airlines. The terminal fees that MIAA charges every passenger are regulatory or administrative fees47 and not income from commercial transactions. MIAA falls under the definition of a government instrumentality under Section 2(10) of the Introductory Provisions of the Administrative Code, which provides: SEC. 2. General Terms Defined. x x x x (10) Instrumentality refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. x x x (Emphasis supplied) The fact alone that MIAA is endowed with corporate powers does not make MIAA a government-owned or controlled corporation. Without a change in its capital structure, MIAA remains a government instrumentality under Section 2(10) of the Introductory Provisions of the Administrative Code. More importantly, as long as MIAA renders essential public services, it need not comply with the test of economic viability. Thus, MIAA is outside the scope of the phrase "government-owned or controlled corporations" under Section 16, Article XII of the 1987 Constitution.

MIAA vs CA The minority belittles the use in the Local Government Code of the phrase "government-owned or controlled corporation" as merely "clarificatory or illustrative." This is fatal. The 1987 Constitution prescribes explicit conditions for the creation of "government-owned or controlled corporations." The Administrative Code defines what constitutes a "government-owned or controlled corporation." To belittle this phrase as "clarificatory or illustrative" is grave error.
To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of the Introductory Provisions of the Administrative Code because it is not organized as a stock or non-stock corporation. Neither is MIAA a government-owned or controlled corporation under Section 16, Article XII of the 1987 Constitution because MIAA is not required to meet the test of economic viability. MIAA is a government instrumentality vested with corporate powers and performing essential public services pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. As a government instrumentality, MIAA is not subject to any kind of tax by local governments under Section 133(o) of the Local Government Code. The exception to the exemption in Section 234(a) does not apply to MIAA because MIAA is not a taxable entity under the Local Government Code. Such exception applies only if the beneficial use of real property owned by the Republic is given to a taxable entity. Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are properties of public dominion. Properties of public dominion are owned by the State or the Republic. Article 420 of the Civil Code provides: 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. (Emphasis supplied) The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands and Buildings of MIAA are intended for public use, and at the very least intended for public service. Whether intended for public use or public service, the Airport Lands and Buildings are properties of public dominion. As properties of public dominion, the Airport Lands and Buildings are owned by the Republic and thus exempt from real estate tax under Section 234(a) of the Local Government Code. 4. Conclusion Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which governs the legal relation and status of government units, agencies and offices within the entire government machinery, MIAA is a government instrumentality and not a government-owned or controlled corporation. Under Section 133(o) of the Local Government Code, MIAA as a government instrumentality is not a taxable person because it is not subject to "[t]axes, fees or charges of any kind" by local governments. The only exception is when MIAA leases its real property to a "taxable person" as provided in Section 234(a) of the Local Government Code, in which case the specific real property leased becomes subject to real estate tax. Thus, only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Paraaque. Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use, are properties of public dominion and thus owned by the State or the Republic of the Philippines. Article 420 specifically mentions "ports x x x constructed by the State," which includes public airports and seaports, as properties of public dominion and owned by the Republic. As properties of public dominion owned by the Republic, there is no doubt whatsoever that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code. This Court has also repeatedly ruled that properties of public dominion are not subject to execution or foreclosure sale. WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court of Appeals of 5 October 2001 and 27 September 2002 in CA-G.R. SP No. 66878. We DECLARE the Airport Lands and Buildings of the Manila International Airport Authority EXEMPT from the real estate tax imposed by the City of Paraaque. We declare VOID all the real estate tax assessments, including the final notices of real estate tax delinquencies, issued by the City of

MIAA vs CA Paraaque on the Airport Lands and Buildings of the Manila International Airport Authority, except for the portions that the Manila International Airport Authority has leased to private parties. We also declareVOID the assailed auction sale, and all its effects, of the Airport Lands and Buildings of the Manila International Airport Authority.
No costs. SO ORDERED.

Liban vs. Gordon

EN BANC [G. R. No. 175352, January 18, 2011] DANTE V. LIBAN, REYNALDO M. BERNARDO AND SALVADOR M. VIARI, PETITIONERS, VS. RICHARD J. GORDON, RESPONDENT. PHILIPPINE NATIONAL RED CROSS, INTERVENOR. RESOLUTION
LEONARDO-DE CASTRO, J.: This resolves the Motion for Clarification and/or for Reconsideration[1] filed on August 10, 2009 by respondent Richard J. Gordon (respondent) of the Decisionpromulgated by this Court on July 15, 2009 (the Decision), the Motion for Partial Reconsideration[2] filed on August 27, 2009 by movant-intervenor Philippine National Red Cross (PNRC), and the latter's Manifestation and Motion to Admit Attached Position Paper[3] filed on December 23, 2009. In the Decision,[4] the Court held that respondent did not forfeit his seat in the Senate when he accepted the chairmanship of the PNRC Board of Governors, as "the office of the PNRC Chairman is not a government office or an office in a government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution."[5] The Decision, however, further declared void the PNRC Charter "insofar as it creates the PNRC as a private corporation" and consequently ruled that "the PNRC should incorporate under the Corporation Code and register with the Securities and Exchange Commission if it wants to be a private corporation."[6] The dispositive portion of the Decision reads as follows: WHEREFORE, we declare that the office of the Chairman of the Philippine National Red Cross is not a government office or an office in a government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution. We also declare that Sections 1, 2, 3, 4(a), 5, 6, 7, 8, 9, 10, 11, 12, and 13 of the Charter of the Philippine National Red Cross, or Republic Act No. 95, as amended by Presidential Decree Nos. 1264 and 1643, are VOID because they create the PNRC as a private corporation or grant it corporate powers.[7] In his Motion for Clarification and/or for Reconsideration, respondent raises the following grounds: (1) as the issue of constitutionality of Republic Act (R.A.) No. 95 was not raised by the parties, the Court went beyond the case in deciding such issue; and (2) as the Court decided that Petitioners did not have standing to file the instant Petition, the pronouncement of the Court on the validity of R.A. No. 95 should be considered obiter.[8] Respondent argues that the validity of R.A. No. 95 was a non-issue; therefore, it was unnecessary for the Court to decide on that question. Respondent cites Laurel v. Garcia,[9] wherein the Court said that it "will not pass upon a constitutional question although properly presented by the record if the case can be disposed of on some other ground" and goes on to claim that since this Court, in the Decision, disposed of the petition on some other ground, i.e., lack of standing of petitioners, there was no need for it to delve into the validity of R.A. No. 95, and the rest of the judgment should be deemed obiter. In its Motion for Partial Reconsideration, PNRC prays that the Court sustain the constitutionality of its Charter on the following grounds: A. THE ASSAILED DECISION DECLARING UNCONSTITUTIONAL REPUBLIC ACT NO. 95 AS AMENDED DEPRIVED INTERVENOR PNRC OF ITS CONSTITUTIONAL RIGHT TO DUE PROCESS. 1. 2. INTERVENOR PNRC WAS NEVER A PARTY TO THE INSTANT CONTROVERSY. THE CONSTITUTIONALITY OF REPUBLIC ACT NO. 95, AS AMENDED WAS NEVER AN ISSUE IN THIS CASE.

B.

THE CURRENT CHARTER OF PNRC IS PRESIDENTIAL DECREE NO. 1264 AND NOT REPUBLIC ACT NO. 95. PRESIDENTIAL DECREE NO. 1264 WAS NOT A CREATION OF CONGRESS.

Liban vs. Gordon

C. PNRC'S STRUCTURE IS SUI GENERIS; IT IS A CLASS OF ITS OWN. WHILE IT IS PERFORMING HUMANITARIAN FUNCTIONS AS AN AUXILIARY TO GOVERNMENT, IT IS A NEUTRAL ENTITY SEPARATE AND INDEPENDENT OF GOVERNMENT CONTROL, YET IT DOES NOT QUALIFY AS STRICTLY PRIVATE IN CHARACTER.

In his Comment and Manifestation[10] filed on November 9, 2009, respondent manifests: (1) that he agrees with the position taken by the PNRC in its Motion for Partial Reconsideration dated August 27, 2009; and (2) as of the writing of said Comment and Manifestation, there was pending before the Congress of the Philippines a proposed bill entitled "An Act Recognizing the PNRC as an Independent, Autonomous, Non-Governmental Organization Auxiliary to the Authorities of the Republic of the Philippines in the Humanitarian Field, to be Known as The Philippine Red Cross."[11] After a thorough study of the arguments and points raised by the respondent as well as those of movant-intervenor in their respective motions, we have reconsidered our pronouncements in our Decision dated July 15, 2009 with regard to the nature of the PNRC and the constitutionality of some provisions of the PNRC Charter, R.A. No. 95, as amended. As correctly pointed out in respondent's Motion, the issue of constitutionality of R.A. No. 95 was not raised by the parties, and was not among the issues defined in the body of the Decision; thus, it was not the very lis mota of the case. We have reiterated the rule as to when the Court will consider the issue of constitutionality inAlvarez v. PICOP Resources, Inc.,[12] thus: This Court will not touch the issue of unconstitutionality unless it is the very lis mota. It is a well-established rule that a court should not pass upon a constitutional question and decide a law to be unconstitutional or invalid, unless such question is raised by the parties and that when it is raised, if the record also presents some other ground upon which the court may [rest] its judgment, that course will be adopted and the constitutional question will be left for consideration until such question will be unavoidable.[13] Under the rule quoted above, therefore, this Court should not have declared void certain sections of R.A. No. 95, as amended by Presidential Decree (P.D.) Nos. 1264 and 1643, the PNRC Charter. Instead, the Court should have exercised judicial restraint on this matter, especially since there was some other ground upon which the Court could have based its judgment. Furthermore, the PNRC, the entity most adversely affected by this declaration of unconstitutionality, which was not even originally a party to this case, was being compelled, as a consequence of the Decision, to suddenly reorganize and incorporate under the Corporation Code, after more than sixty (60) years of existence in this country. Its existence as a chartered corporation remained unchallenged on ground of unconstitutionality notwithstanding that R.A. No. 95 was enacted on March 22, 1947 during the effectivity of the 1935 Constitution, which provided for a proscription against the creation of private corporations by special law, to wit: SEC. 7. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations, unless such corporations are owned and controlled by the Government or any subdivision or instrumentality thereof. (Art. XIV, 1935 Constitution.) Similar provisions are found in Article XIV, Section 4 of the 1973 Constitution and Article XII, Section 16 of the 1987 Constitution. The latter reads: SECTION 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability. Since its enactment, the PNRC Charter was amended several times, particularly on June 11, 1953, August 16, 1971, December 15, 1977, and October 1, 1979, by virtue of R.A. No. 855, R.A. No. 6373, P.D. No. 1264, and P.D. No. 1643, respectively. The passage of several laws relating to the PNRC's corporate existence notwithstanding the effectivity of the constitutional proscription on the creation of private corporations by law, is a recognition that the PNRC is not strictly in the nature of a private corporation contemplated by the aforesaid constitutional ban. A closer look at the nature of the PNRC would show that there is none like it not just in terms of structure, but also in terms of history, public service and official status accorded to it by the State and the international community. There is merit in PNRC's contention that its structure is sui generis.

Liban vs. Gordon

The PNRC succeeded the chapter of the American Red Cross which was in existence in the Philippines since 1917. It was created by an Act of Congress after the Republic of the Philippines became an independent nation on July 6, 1946 and proclaimed on February 14, 1947 its adherence to the Convention of Geneva of July 29, 1929 for the Amelioration of the Condition of the Wounded and Sick of Armies in the Field (the "Geneva Red Cross Convention"). By that action the Philippines indicated its desire to participate with the nations of the world in mitigating the suffering caused by war and to establish in the Philippines a voluntary organization for that purpose and like other volunteer organizations established in other countries which have ratified the Geneva Conventions, to promote the health and welfare of the people in peace and in war.[14] The provisions of R.A. No. 95, as amended by R.A. Nos. 855 and 6373, and further amended by P.D. Nos. 1264 and 1643, show the historical background and legal basis of the creation of the PNRC by legislative fiat, as a voluntary organization impressed with public interest. Pertinently R.A. No. 95, as amended by P.D. 1264, provides: WHEREAS, during the meeting in Geneva, Switzerland, on 22 August 1894, the nations of the world unanimously agreed to diminish within their power the evils inherent in war; WHEREAS, more than one hundred forty nations of the world have ratified or adhered to the Geneva Conventions of August 12, 1949 for the Amelioration of the Condition of the Wounded and Sick of Armed Forces in the Field and at Sea, The Prisoners of War, and The Civilian Population in Time of War referred to in this Charter as the Geneva Conventions; WHEREAS, the Republic of the Philippines became an independent nation on July 4, 1946, and proclaimed on February 14, 1947 its adherence to the Geneva Conventions of 1929, and by the action, indicated its desire to participate with the nations of the world in mitigating the suffering caused by war and to establish in the Philippines a voluntary organization for that purpose as contemplated by the Geneva Conventions; WHEREAS, there existed in the Philippines since 1917 a chapter of the American National Red Cross which was terminated in view of the independence of the Philippines; and WHEREAS, the volunteer organizations established in other countries which have ratified or adhered to the Geneva Conventions assist in promoting the health and welfare of their people in peace and in war, and through their mutual assistance and cooperation directly and through their international organizations promote better understanding and sympathy among the people of the world; NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me by the Constitution as Commander-in-Chief of all the Armed Forces of the Philippines and pursuant to Proclamation No. 1081 dated September 21, 1972, and General Order No. 1 dated September 22, 1972, do hereby decree and order that Republic Act No. 95, Charter of the Philippine National Red Cross (PNRC) as amended by Republic Acts No. 855 and 6373, be further amended as follows: Section 1. There is hereby created in the Republic of the Philippines a body corporate and politic to be the voluntary organization officially designated to assist the Republic of the Philippines in discharging the obligations set forth in the Geneva Conventions and to perform such other duties as are inherent upon a national Red Cross Society. The national headquarters of this Corporation shall be located in Metropolitan Manila. (Emphasis supplied.) The significant public service rendered by the PNRC can be gleaned from Section 3 of its Charter, which provides: Section 3. That the purposes of this Corporation shall be as follows: (a) To provide volunteer aid to the sick and wounded of armed forces in time of war, in accordance with the spirit of and under the conditions prescribed by the Geneva Conventions to which the Republic of the Philippines proclaimed its adherence; (b) For the purposes mentioned in the preceding sub-section, to perform all duties devolving upon the Corporation as a result of the adherence of the Republic of the Philippines to the said Convention; (c) To act in matters of voluntary relief and in accordance with the authorities of the armed forces as a medium of communication between people of the Republic of the Philippines and their Armed Forces, in time of peace and in time of war, and to act in such matters between similar national societies of other governments and the Governments and people and the Armed Forces of the Republic of the Philippines;

Liban vs. Gordon

(d) To establish and maintain a system of national and international relief in time of peace and in time of war and apply the same in meeting and emergency needs caused by typhoons, flood, fires, earthquakes, and other natural disasters and to devise and carry on measures for minimizing the suffering caused by such disasters; (e) To devise and promote such other services in time of peace and in time of war as may be found desirable in improving the health, safety and welfare of the Filipino people; (f) To devise such means as to make every citizen and/or resident of the Philippines a member of the Red Cross. The PNRC is one of the National Red Cross and Red Crescent Societies, which, together with the International Committee of the Red Cross (ICRC) and the IFRC and RCS, make up the International Red Cross and Red Crescent Movement (the Movement). They constitute a worldwide humanitarian movement, whose mission is: [T]o prevent and alleviate human suffering wherever it may be found, to protect life and health and ensure respect for the human being, in particular in times of armed conflict and other emergencies, to work for the prevention of disease and for the promotion of health and social welfare, to encourage voluntary service and a constant readiness to give help by the members of the Movement, and a universal sense of solidarity towards all those in need of its protection and assistance.[15] The PNRC works closely with the ICRC and has been involved in humanitarian activities in the Philippines since 1982. Among others, these activities in the country include: 1. 2. 3. 4. Giving protection and assistance to civilians displaced or otherwise affected by armed clashes between the government and armed opposition groups, primarily in Mindanao; Working to minimize the effects of armed hostilities and violence on the population; Visiting detainees; and Promoting awareness of international humanitarian law in the public and private sectors.[16]

National Societies such as the PNRC act as auxiliaries to the public authorities of their own countries in the humanitarian field and provide a range of services including disaster relief and health and social programmes. The International Federation of Red Cross (IFRC) and Red Crescent Societies (RCS) Position Paper,[17] submitted by the PNRC, is instructive with regard to the elements of the specific nature of the National Societies such as the PNRC, to wit: National Societies, such as the Philippine National Red Cross and its sister Red Cross and Red Crescent Societies, have certain specificities deriving from the 1949 Geneva Convention and the Statutes of the International Red Cross and Red Crescent Movement (the Movement). They are also guided by the seven Fundamental Principles of the Red Cross and Red Crescent Movement: Humanity, Impartiality, Neutrality, Independence, Voluntary Service, Unity and Universality. A National Society partakes of a sui generis character. It is a protected component of the Red Cross movement under Articles 24 and 26 of the First Geneva Convention, especially in times of armed conflict. These provisions require that the staff of a National Society shall be respected and protected in all circumstances. Such protection is not ordinarily afforded by an international treaty to ordinary private entities or even non-governmental organisations (NGOs). This sui generis character is also emphasized by the Fourth Geneva Convention which holds that an Occupying Power cannot require any change in the personnel or structure of a National Society. National societies are therefore organizations that are directly regulated by international humanitarian law, in contrast to other ordinary private entities, including NGOs. xxxx In addition, National Societies are not only officially recognized by their public authorities as voluntary aid societies, auxiliary to the public authorities in the humanitarian field, but also benefit from recognition at the International level. This is considered to be an element distinguishing National Societies from other organisations (mainly NGOs) and other forms of humanitarian response. x x x. No other organisation belongs to a world-wide Movement in which all Societies have equal status and share equal responsibilities and duties in helping each other. This is considered to be the essence of the Fundamental Principle of

Liban vs. Gordon

Universality. Furthermore, the National Societies are considered to be auxiliaries to the public authorities in the humanitarian field. x x x. The auxiliary status of [a] Red Cross Society means that it is at one and the same time a private institution and a public service organization because the very nature of its work implies cooperation with the authorities, a link with the State. In carrying out their major functions, Red Cross Societies give their humanitarian support to official bodies, in general having larger resources than the Societies, working towards comparable ends in a given sector. x x x No other organization has a duty to be its government's humanitarian partner while remaining independent.[18](Emphases ours.) It is in recognition of this sui generis character of the PNRC that R.A. No. 95 has remained valid and effective from the time of its enactment in March 22, 1947 under the 1935 Constitution and during the effectivity of the 1973 Constitution and the 1987 Constitution. The PNRC Charter and its amendatory laws have not been questioned or challenged on constitutional grounds, not even in this case before the Court now. In the Decision, the Court, citing Feliciano v. Commission on Audit,[19] explained that the purpose of the constitutional provision prohibiting Congress from creating private corporations was to prevent the granting of special privileges to certain individuals, families, or groups, which were denied to other groups. Based on the above discussion, it can be seen that the PNRC Charter does not come within the spirit of this constitutional provision, as it does not grant special privileges to a particular individual, family, or group, but creates an entity that strives to serve the common good. Furthermore, a strict and mechanical interpretation of Article XII, Section 16 of the 1987 Constitution will hinder the State in adopting measures that will serve the public good or national interest. It should be noted that a special law, R.A. No. 9520, the Philippine Cooperative Code of 2008, and not the general corporation code, vests corporate power and capacities upon cooperatives which are private corporations, in order to implement the State's avowed policy. In the Decision of July 15, 2009, the Court recognized the public service rendered by the PNRC as the government's partner in the observance of its international commitments, to wit: The PNRC is a non-profit, donor-funded, voluntary, humanitarian organization, whose mission is to bring timely, effective, and compassionate humanitarian assistance for the most vulnerable without consideration of nationality, race, religion, gender, social status, or political affiliation. The PNRC provides six major services: Blood Services, Disaster Management, Safety Services, Community Health and Nursing, Social Services and Voluntary Service. The Republic of the Philippines, adhering to the Geneva Conventions, established the PNRC as a voluntary organization for the purpose contemplated in the Geneva Convention of 27 July 1929. x x x.[20](Citations omitted.) So must this Court recognize too the country's adherence to the Geneva Convention and respect the unique status of the PNRC in consonance with its treaty obligations. The Geneva Convention has the force and effect of law.[21] Under the Constitution, the Philippines adopts the generally accepted principles of international law as part of the law of the land.[22] This constitutional provision must be reconciled and harmonized with Article XII, Section 16 of the Constitution, instead of using the latter to negate the former. By requiring the PNRC to organize under the Corporation Code just like any other private corporation, the Decision of July 15, 2009 lost sight of the PNRC's special status under international humanitarian law and as an auxiliary of the State, designated to assist it in discharging its obligations under the Geneva Conventions. Although the PNRC is called to be independent under its Fundamental Principles, it interprets such independence as inclusive of its duty to be the government's humanitarian partner. To be recognized in the International Committee, the PNRC must have an autonomous status, and carry out its humanitarian mission in a neutral and impartial manner. However, in accordance with the Fundamental Principle of Voluntary Service of National Societies of the Movement, the PNRC must be distinguished from private and profit-making entities. It is the main characteristic of National Societies that they "are not inspired by the desire for financial gain but by individual commitment and devotion to a humanitarian purpose freely chosen

Liban vs. Gordon

or accepted as part of the service that National Societies through its volunteers and/or members render to the Community."[23] The PNRC, as a National Society of the International Red Cross and Red Crescent Movement, can neither "be classified as an instrumentality of the State, so as not to lose its character of neutrality" as well as its independence, nor strictly as a private corporation since it is regulated by international humanitarian law and is treated as anauxiliary of the State.[24] Based on the above, the sui generis status of the PNRC is now sufficiently established. Although it is neither a subdivision, agency, or instrumentality of the government, nor a government-owned or -controlled corporation or a subsidiary thereof, as succinctly explained in the Decision of July 15, 2009, so much so that respondent, under the Decision, was correctly allowed to hold his position as Chairman thereof concurrently while he served as a Senator, such a conclusion doesnot ipso facto imply that the PNRC is a "private corporation" within the contemplation of the provision of the Constitution, that must be organized under the Corporation Code. As correctly mentioned by Justice Roberto A. Abad, the sui generis character of PNRC requires us to approach controversies involving the PNRC on a case-to-case basis. In sum, the PNRC enjoys a special status as an important ally and auxiliary of the government in the humanitarian field in accordance with its commitments under international law. This Court cannot all of a sudden refuse to recognize its existence, especially since the issue of the constitutionality of the PNRC Charter was never raised by the parties. It bears emphasizing that the PNRC has responded to almost all national disasters since 1947, and is widely known to provide a substantial portion of the country's blood requirements. Its humanitarian work is unparalleled. The Court should not shake its existence to the core in an untimely and drastic manner that would not only have negative consequences to those who depend on it in times of disaster and armed hostilities but also have adverse effects on the image of the Philippines in the international community. The sections of the PNRC Charter that were declared void must therefore stay. WHEREFORE, premises considered, respondent Richard J. Gordon's Motion for Clarification and/or for Reconsideration and movant-intervenor PNRC's Motion for Partial Reconsideration of the Decision in G.R. No. 175352 dated July 15, 2009 are GRANTED. The constitutionality of R.A. No. 95, as amended, the charter of the Philippine National Red Cross, was not raised by the parties as an issue and should not have been passed upon by this Court. The structure of the PNRC is sui generis being neither strictly private nor public in nature. R.A. No. 95 remains valid and constitutional in its entirety. The dispositive portion of the Decision should therefore be MODIFIED by deleting the second sentence, to now read as follows: WHEREFORE, we declare that the office of the Chairman of the Philippine National Red Cross is not a government office or an office in a government-owned or controlled corporation for purposes of the prohibition in Section 13, Article VI of the 1987 Constitution. SO ORDERED.

Boy Scouts of the Philippines vs. CoA

EN BANC

BOY SCOUTS OF PHILIPPINES, Petitioner,

THE

G.R. No. 177131 Present:

- versus -

CORONA, C.J., CARPIO, CARPIO MORALES, VELASCO, JR., NACHURA, LEONARDO-DE CASTRO, BRION, PERALTA, BERSAMIN, DEL CASTILLO, ABAD, VILLARAMA, JR., PEREZ, MENDOZA, and SERENO, JJ.

COMMISSION ON AUDIT, Respondent. Promulgated:

June 7, 2011 x--------------------------------------------------x

DECISION

Boy Scouts of the Philippines vs. CoA

LEONARDO-DE CASTRO, J.:

The jurisdiction of the Commission on Audit (COA) over the Boy Scouts of the Philippines (BSP) is the subject matter of this controversy that reached us via petition for prohibition[1] filed by the BSP under Rule 65 of the 1997 Rules of Court. In this petition, the BSP seeks that the COA be prohibited from implementing its June 18, 2002 Decision,[2] its February 21, 2007 Resolution,[3] as well as all other issuances arising therefrom, and that all of the foregoing be rendered null and void. [4] Antecedent Facts and Background of the Case This case arose when the COA issued Resolution No. 99-011[5] on August 19, 1999 (the COA Resolution), with the subject Defining the Commissions policy with respect to the audit of the Boy Scouts of the Philippines. In its whereas clauses, the COA Resolution stated that the BSP was created as a public corporation under Commonwealth Act No. 111, as amended by Presidential Decree No. 460 and Republic Act No. 7278; that in Boy Scouts of the Philippines v. National Labor Relations Commission,[6] the Supreme Court ruled that the BSP, as constituted under its charter, was a government-controlled corporation within the meaning of Article IX(B)(2)(1) of the Constitution; and that the BSP is appropriately regarded as a government instrumentality under the 1987 Administrative Code.[7] The COA Resolution also cited its constitutional mandate under Section 2(1), Article IX (D). Finally, the COA Resolution reads:
NOW THEREFORE, in consideration of the foregoing premises, the COMMISSION PROPER HAS RESOLVED, AS IT DOES HEREBY RESOLVE, to conduct an annual financial audit of the Boy Scouts of the Philippines in accordance with generally accepted auditing standards, and express an opinion on whether the financial statements which include the Balance Sheet, the Income Statement and the Statement of Cash Flows present fairly its financial position and results of operations. xxxx BE IT RESOLVED FURTHERMORE, that for purposes of audit supervision, the Boy Scouts of the Philippines shall be classified among the government corporations belonging to the Educational, Social, Scientific, Civic and Research Sector under the Corporate Audit Office I, to be audited, similar to the subsidiary corporations, by employing the team audit approach.[8] (Emphases supplied.)

Boy Scouts of the Philippines vs. CoA

The BSP sought reconsideration of the COA Resolution in a letter[9] dated November 26, 1999 signed by the BSP National President Jejomar C. Binay, who is now the Vice President of the Republic, wherein he wrote:
It is the position of the BSP, with all due respect, that it is not subject to the Commissions jurisdiction on the following grounds: 1. We reckon that the ruling in the case of Boy Scouts of the Philippines vs. National Labor Relations Commission, et al. (G.R. No. 80767) classifying the BSP as a government-controlled corporation is anchored on the substantial Government participation in the National Executive Board of the BSP. It is to be noted that the case was decided when the BSP Charter is defined by Commonwealth Act No. 111 as amended by Presidential Decree 460. However, may we humbly refer you to Republic Act No. 7278 which amended the BSPs charter after the cited case was decided. The most salient of all amendments in RA No. 7278 is the alteration of the composition of the National Executive Board of the BSP. The said RA virtually eliminated the substantial government participation in the National Executive Board by removing: (i) the President of the Philippines and executive secretaries, with the exception of the Secretary of Education, as members thereof; and (ii) the appointment and confirmation power of the President of the Philippines, as Chief Scout, over the members of the said Board. The BSP believes that the cited case has been superseded by RA 7278. Thereby weakening the cases conclusion that the BSP is a government-controlled corporation (sic). The 1987 Administrative Code itself, of which the BSP vs. NLRC relied on for some terms, defines government-owned and controlled corporations as agencies organized as stock or non-stock corporations which the BSP, under its present charter, is not. Also, the Government, like in other GOCCs, does not have funds invested in the BSP. What RA 7278 only provides is that the Government or any of its subdivisions, branches, offices, agencies and instrumentalities can from time to time donate and contribute funds to the BSP. xxxx Also the BSP respectfully believes that the BSP is not appropriately regarded as a government instrumentality under the 1987 Administrative Code as stated in the COA resolution. As defined by Section 2(10) of the said code, instrumentality refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. The BSP is not an entity administering special funds. It is not even included in the DECS National Budget. x x x It may be argued also that the BSP is not an agency of the Government. The 1987 Administrative Code, merely referred the BSP as an attached agency of the DECS as distinguished from an actual line agency of departments that are included in the National Budget.

Boy Scouts of the Philippines vs. CoA

The BSP believes that an attached agency is different from an agency. Agency, as defined in Section 2(4) of the Administrative Code, is defined as any of the various units of the Government including a department, bureau, office, instrumentality, government-owned or controlled corporation or local government or distinct unit therein. Under the above definition, the BSP is neither a unit of the Government; a department which refers to an executive department as created by law (Section 2[7] of the Administrative Code); nor a bureau which refers to any principal subdivision or unit of any department (Section 2[8], Administrative Code).[10]

Subsequently, requests for reconsideration of the COA Resolution were also made separately by Robert P. Valdellon, Regional Scout Director, Western Visayas Region, Iloilo City and Eugenio F. Capreso, Council Scout Executive of Calbayog City. [11] In a letter[12] dated July 3, 2000, Director Crescencio S. Sunico, Corporate Audit Officer (CAO) I of the COA, furnished the BSP with a copy of theMemorandum[13] dated June 20, 2000 of Atty. Santos M. Alquizalas, the COA General Counsel. In said Memorandum, the COA General Counsel opined that Republic Act No. 7278 did not supersede the Courts ruling in Boy Scouts of the Philippines v. National Labor Relations Commission , even though said law eliminated the substantial government participation in the selection of members of the National Executive Board of the BSP. The Memorandum further provides:
Analysis of the said case disclosed that the substantial government participation is only one (1) of the three (3) grounds relied upon by the Court in the resolution of the case. Other considerations include the character of the BSPs purposes and functions which has a public aspect and the statutory designation of the BSP as a public corporation. These grounds have not been deleted by R.A. No. 7278. On the contrary, these were strengthened as evidenced by the amendment made relative to BSPs purposes stated in Section 3 of R.A. No. 7278. On the argument that BSP is not appropriately regarded as a government instrumentality and agency of the government, such has already been answered and clarified. The Supreme Court has elucidated this matter in the BSP case when it declared that BSP is regarded as, both a government-controlled corporation with an original charter and as an instrumentality of the Government. Likewise, it is not disputed that the Administrative Code of 1987 designated the BSP as one of the attached agencies of DECS. Being an attached agency, however, it does not change its nature as a government-controlled corporation with original charter and, necessarily, subject to COA audit jurisdiction. Besides, Section 2(1), Article IX-D of the Constitution provides that COA shall have the power, authority, and duty to examine, audit and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies or instrumentalities, including government-owned or controlled corporations with original charters.[14]

Based on the Memorandum of the COA General Counsel, Director Sunico wrote:

Boy Scouts of the Philippines vs. CoA

In view of the points clarified by said Memorandum upholding COA Resolution No. 99-011, we have to comply with the provisions of the latter, among which is to conduct an annual financial audit of the Boy Scouts of the Philippines.[15]

In a letter dated November 20, 2000 signed by Director Amorsonia B. Escarda, CAO I, the COA informed the BSP that a preliminary survey of its organizational structure, operations and accounting system/records shall be conducted on November 21 to 22, 2000.[16] Upon the BSPs request, the audit was deferred for thirty (30) days. The BSP then filed a Petition for Review with Prayer for Preliminary Injunction and/or Temporary Restraining Order before the COA. This was denied by the COA in its questioned Decision, which held that the BSP is under its audit jurisdiction. The BSP moved for reconsideration but this was likewise denied under its questioned Resolution.[17] This led to the filing by the BSP of this petition for prohibition with preliminary injunction and temporary restraining order against the COA. The Issue As stated earlier, the sole issue to be resolved in this case is whether the BSP falls under the COAs audit jurisdiction.

The Parties Respective Arguments The BSP contends that Boy Scouts of the Philippines v. National Labor Relations Commission is inapplicable for purposes of determining the audit jurisdiction of the COA as the issue therein was the jurisdiction of the National Labor Relations Commission over a case for illegal dismissal and unfair labor practice filed by certain BSP employees.[18] While the BSP concedes that its functions do relate to those that the government might otherwise completely assume on its own, it avers that this alone was not determinative of the COAs audit jurisdiction over it. The BSP further avers that the Court in Boy Scouts of the Philippines v. National Labor Relations Commission simply stated x x x that in respect of functions, the BSP is akin to a public corporation but this was not synonymous to holding that the BSP is a government corporation or entity subject to audit by the COA. [19]

Boy Scouts of the Philippines vs. CoA

The BSP contends that Republic Act No. 7278 introduced crucial amendments to its charter; hence, the findings of the Court in Boy Scouts of the Philippines v. National Labor Relations Commission are no longer valid as the government has ceased to play a controlling influence in it. The BSP claims that the pronouncements of the Court therein must be taken only within the context of that case; that the Court had categorically found that its assets were acquired from the Boy Scouts of America and not from the Philippine government, and that its operations are financed chiefly from membership dues of the Boy Scouts themselves as well as from property rentals; and that the BSP may correctly be characterized as non -governmental, and hence, beyond the audit jurisdiction of the COA. It further claims that the designation by the Court of the BSP as a government agency or instrumentality is mere obiter dictum.[20] The BSP maintains that the provisions of Republic Act No. 7278 suggest that governance of BSP has come to be overwhelmingly a private affair or nature, with government participation restricted to the seat of the Secretary of Education, Culture and Sports. [21] It cites Philippine Airlines Inc. v. Commission on Audit[22] wherein the Court declared that, PAL, having ceased to be a government-owned or controlled corporation is no longer under the audit jurisdiction of the COA.[23] Claiming that the amendments introduced by Republic Act No. 7278 constituted a supervening event that changed the BSPs corporate identity in the same way that the governments privatization program changed PALs, the BSP makes the case that the government no longer has control over it; thus, the COA cannot use the Boy Scouts of the Philippines v. National Labor Relations Commission as its basis for the exercise of its jurisdiction and the issuance of COA Resolution No. 99-011.[24] The BSP further claims as follows:
It is not far-fetched, in fact, to concede that BSPs funds and assets are private in character. Unlike ordinary public corporations, such as provinces, cities, and municipalities, or governmentowned and controlled corporations, such as Land Bank of the Philippines and the Development Bank of the Philippines, the assets and funds of BSP are not derived from any government grant. For its operations, BSP is not dependent in any way on any government appropriation; as a matter of fact, it has not even been included in any appropriations for the government. To be sure, COA has not alleged, in its Resolution No. 99-011 or in the Memorandum of its General Counsel, that BSP received, receives or continues to receive assets and funds from any agency of the government. The foregoing simply point to the private nature of the funds and assets of petitioner BSP. xxxx As stated in petitioners third argument, BSPs assets and funds were never acquired from the government. Its operations are not in any way financed by the government, as BSP has never been included in any appropriations act for the government. Neither has the government invested funds with BSP. BSP, has not been, at any time, a user of government property or funds; nor have properties of the government been held in trust by BSP. This is precisely the reason why, until this time, the COA has not attempted to subject BSP to its audit jurisdiction. x x x.[25]

Boy Scouts of the Philippines vs. CoA

To summarize its other arguments, the BSP contends that it is not a government-owned or controlled corporation; neither is it an instrumentality, agency, or subdivision of the government. In its Comment,[26] the COA argues as follows:
1. The BSP is a public corporation created under Commonwealth Act No. 111 dated October 31, 1936, and whose functions relate to the fostering of public virtues of citizenship and patriotism and the general improvement of the moral spirit and fiber of the youth. The manner of creation and the purpose for which the BSP was created indubitably prove that it is a government agency. Being a government agency, the funds and property owned or held in trust by the BSP are subject to the audit authority of respondent Commission on Audit pursuant to Section 2 (1), Article IX-D of the 1987 Constitution. Republic Act No. 7278 did not change the character of the BSP as a government-owned or controlled corporation and government instrumentality.[27]

2.

3.

The COA maintains that the functions of the BSP that include, among others, the teaching to the youth of patriotism, courage, self-reliance, and kindred virtues, are undeniably sovereign functions enshrined under the Constitution and discussed by the Court in Boy Scouts of the Philippines v. National Labor Relations Commission. The COA contends that any attempt to classify the BSP as a private corporation would be incomprehensible since no less than the law which created it had designated it as a public corporation and its statutory mandate embraces performance of sovereign functions.[28] The COA claims that the only reason why the BSP employees fell within the scope of the Civil Service Commission even before the 1987 Constitution was the fact that it was a government-owned or controlled corporation; that as an attached agency of the Department of Education, Culture and Sports (DECS), the BSP is an agency of the government; and that the BSP is a chartered institution under Section 1(12) of the Revised Administrative Code of 1987, embraced under the term government instrumentality.[29] The COA concludes that being a government agency, the funds and property owned or held by the BSP are subject to the audit authority of the COA pursuant to Section 2(1), Article IX (D) of the 1987 Constitution. In support of its arguments, the COA cites The Veterans Federation of the Philippines (VFP) v. Reyes,[30] wherein the Court held that among the reasons why the VFP is a public

Boy Scouts of the Philippines vs. CoA

corporation is that its charter, Republic Act No. 2640, designates it as one. Furthermore, the COA quotes the Court as saying in that case:
In several cases, we have dealt with the issue of whether certain specific activities can be classified as sovereign functions. These cases, which deal with activities not immediately apparent to be sovereign functions, upheld the public sovereign nature of operations needed either to promote social justice or to stimulate patriotic sentiments and love of country. xxxx Petitioner claims that its funds are not public funds because no budgetary appropriations or government funds have been released to the VFP directly or indirectly from the DBM, and because VFP funds come from membership dues and lease rentals earned from administering government lands reserved for the VFP. The fact that no budgetary appropriations have been released to the VFP does not prove that it is a private corporation. The DBM indeed did not see it fit to propose budgetary appropriations to the VFP, having itself believed that the VFP is a private corporation. If the DBM, however, is mistaken as to its conclusion regarding the nature of VFP's incorporation, its previous assertions will not prevent future budgetary appropriations to the VFP. The erroneous application of the law by public officers does not bar a subsequent correct application of the law.[31] (Citations omitted.)

The COA points out that the government is not precluded by law from extending financial support to the BSP and adding to its funds, and that as a government instrumentality which continues to perform a vital function imbued with public interest and reflective of the governments policy to stimulate patriotic sentiments and love of country, the BSPs funds from whatever source are public funds, and can be used solely for public purpose in pursuance of the provisions of Republic Act No. [7278].[32] The COA claims that the fact that it has not yet audited the BSPs funds may not bar the subsequent exercise of its audit jurisdiction. The BSP filed its Reply[33] on August 29, 2007 maintaining that its statutory designation as a public corporation and the public character of its purpose and functions are not de terminative of the COAs audit jurisdiction; reiterating its stand that Boy Scouts of the Philippines v. National Labor Relations Commission is not applicable anymore because the aspect of government ownership and control has been removed by Republic Act No. 7278; and concluding that the funds and property that it either owned or held in trust are not public funds and are not subject to the COAs audit jurisdiction. Thereafter, considering the BSPs claim that it is a private corporation, this Court, in a Resolution[34] dated July 20, 2010, required the parties to file, within a period of twenty (20)

Boy Scouts of the Philippines vs. CoA

days from receipt of said Resolution, their respective comments on the issue of whether Commonwealth Act No. 111, as amended by Republic Act No. 7278, is constitutional. In compliance with the Courts resolution, the parties filed their respective Comments. In its Comment[35] dated October 22, 2010, the COA argues that the constitutionality of Commonwealth Act No. 111, as amended, is not determinative of the resolution of the present controversy on the COAs audit jurisdiction over petitioner, and in fact, the controversy may be resolved on other grounds; thus, the requisites before a judicial inquiry may be made, as set forth in Commissioner of Internal Revenue v. Court of Tax Appeals,[36] have not been fully met.[37] Moreover, the COA maintains that behind every law lies the presumption of constitutionality.[38] The COA likewise argues that contrary to the BSPs position, repeal of a law by implication is not favored.[39] Lastly, the COA claims that there was no violation of Section 16, Article XII of the 1987 Constitution with the creation or declaration of the BSP as a government corporation. Citing Philippine Society for the Prevention of Cruelty to Animals v. Commission on Audit,[40] the COA further alleges:
The true criterion, therefore, to determine whether a corporation is public or private is found in the totality of the relation of the corporation to the State. If the corporation is created by the State as the latters own agency or instrumentality to help it in carrying out its governmental functions, then that corporation is considered public; otherwise, it is private. x x x.[41]

For its part, in its Comment[42] filed on December 3, 2010, the BSP submits that its charter, Commonwealth Act No. 111, as amended by Republic Act No. 7278, is constitutional as it does not violate Section 16, Article XII of the Constitution. The BSP alleges that while [it] is not a public corporation within the purview of COAs audit jurisdiction, neither is it a private corporation created by special law falling within the ambit of the constitutional prohibition x x x.[43] The BSP further alleges:
Petitioners purpose is embodied in Section 3 of C.A. No. 111, as amended by Section 1 of R.A. No. 7278, thus: xxxx A reading of the foregoing provision shows that petitioner was created to advance the interest of the youth, specifically of young boys, and to mold them into becoming good citizens. Ultimately, the creation of petitioner redounds to the benefit, not only of those boys, but of the public good or welfare. Hence, it can be said that petitioners purpose and functions are more of a public rather than a private character. Petitioner caters to all boys who wish to join the organization without any distinction. It does not limit its membership to a particular class of boys. Petitioners members are trained in scoutcraft and taught patriotism, civic consciousness and responsibility, courage, self-reliance, discipline and kindred

Boy Scouts of the Philippines vs. CoA

virtues, and moral values, preparing them to become model citizens and outstanding leaders of the country.[44]

The BSP reiterates its stand that the public character of its purpose and functions do not place it within the ambit of the audit jurisdiction of the COA as it lacks the government ownership or control that the Constitution requires before an entity may be subject of said jurisdiction. [45] It avers that it merely stated in its Reply that the withdrawal of government control is akin to privatization, but it does not necessarily mean that petitioner is a private corporation. [46] The BSP claims that it has a unique characteristic which neither classifies it as a purely public nor a purely private corporation;[47] that it is not a quasi-public corporation; and that it may belong to a different class altogether.[48] The BSP claims that assuming arguendo that it is a private corporation, its creation is not contrary to the purpose of Section 16, Article XII of the Constitution; and that the evil sought to be avoided by said provision is inexistent in the enactment of the BSPs charter,[49] as, (i) it was not created for any pecuniary purpose; (ii) those who will primarily benefit from its creation are not its officers but its entire membership consisting of boys being trained in scoutcraft all over the country; (iii) it caters to all boys who wish to join the organization without any distinction; and (iv) it does not limit its membership to a particular class or group of boys. Thus, the enactment of its charter confers no special privilege to particular individuals, families, or groups; nor does it bring about the danger of granting undue favors to certain groups to the prejudice of others or of the interest of the country, which are the evils sought to be prevented by the constitutional provision involved.[50] Finally, the BSP states that the presumption of constitutionality of a legislative enactment prevails absent any clear showing of its repugnancy to the Constitution.[51] The Ruling of the Court After looking at the legislative history of its amended charter and carefully studying the applicable laws and the arguments of both parties, we find that the BSP is a public corporation and its funds are subject to the COAs audit jurisdiction. The BSP Charter (Commonwealth Act No. 111, approved on October 31, 1936), entitled An Act to Create a Public Corporation to be Known as the Boy Scouts of the Philippines, and to Define its Powers and Purposes created the BSP as a public corporation to serve the following public interest or purpose:

Boy Scouts of the Philippines vs. CoA

Sec. 3. The purpose of this corporation shall be to promote through organization and cooperation with other agencies, the ability of boys to do useful things for themselves and others, to train them in scoutcraft, and to inculcate in them patriotism, civic consciousness and responsibility, courage, self-reliance, discipline and kindred virtues, and moral values, using the method which are in common use by boy scouts.

Presidential Decree No. 460, approved on May 17, 1974, amended Commonwealth Act No. 111 and provided substantial changes in the BSP organizational structure. Pertinent provisions are quoted below:
Section II. Section 5 of the said Act is also amended to read as follows:

The governing body of the said corporation shall consist of a National Executive Board composed of (a) the President of the Philippines or his representative; (b) the charter and life members of the Boy Scouts of the Philippines; (c) the Chairman of the Board of Trustees of the Philippine Scouting Foundation; (d) the Regional Chairman of the Scout Regions of the Philippines; (e) the Secretary of Education and Culture, the Secretary of Social Welfare, the Secretary of National Defense, the Secretary of Labor, the Secretary of Finance, the Secretary of Youth and Sports, and the Secretary of Local Government and Community Development; (f) an equal number of individuals from the private sector; (g) the National President of the Girl Scouts of the Philippines; (h) one Scout of Senior age from each Scout Region to represent the boy membership; and (i) three representatives of the cultural minorities. Except for the Regional Chairman who shall be elected by the Regional Scout Councils during their annual meetings, and the Scouts of their respective regions, all members of the National Executive Board shall be either by appointment or cooption, subject to ratification and confirmation by the Chief Scout, who shall be the Head of State. Vacancies in the Executive Board shall be filled by a majority vote of the remaining members, subject to ratification and confirmation by the Chief Scout. The by-laws may prescribe the number of members of the National Executive Board necessary to constitute a quorum of the board, which number may be less than a majority of the whole number of the board. The National Executive Board shall have power to make and to amend the by-laws, and, by a two-thirds vote of the whole board at a meeting called for this purpose, may authorize and cause to be executed mortgages and liens upon the property of the corporation.

Subsequently, on March 24, 1992, Republic Act No. 7278 further amended Commonwealth Act No. 111 by strengthening the volunteer and democratic character of the BSP and reducing government representation in its governing body, as follows:

Boy Scouts of the Philippines vs. CoA Section 1. Sections 2 and 3 of Commonwealth Act. No. 111, as amended, is hereby amended to read as follows:

"Sec. 2. The said corporation shall have the powers of perpetual succession, to sue and be sued; to enter into contracts; to acquire, own, lease, convey and dispose of such real and personal estate, land grants, rights and choses in action as shall be necessary for corporate purposes, and to accept and receive funds, real and personal property by gift, devise, bequest or other means, to conduct fund-raising activities; to adopt and use a seal, and the same to alter and destroy; to have offices and conduct its business and affairs in Metropolitan Manila and in the regions, provinces, cities, municipalities, and barangays of the Philippines, to make and adopt by-laws, rules and regulations not inconsistent with this Act and the laws of the Philippines, and generally to do all such acts and things, including the establishment of regulations for the election of associates and successors, as may be necessary to carry into effect the provisions of this Act and promote the purposes of said corporation: Provided, That said corporation shall have no power to issue certificates of stock or to declare or pay dividends, its objectives and purposes being solely of benevolent character and not for pecuniary profit of its members.

"Sec. 3. The purpose of this corporation shall be to promote through organization and cooperation with other agencies, the ability of boys to do useful things for themselves and others, to train them in scoutcraft, and to inculcate in them patriotism, civic consciousness and responsibility, courage, self-reliance, discipline and kindred virtues, and moral values, using the method which are in common use by boy scouts."

Sec. 2. Section 4 of Commonwealth Act No. 111, as amended, is hereby repealed and in lieu thereof, Section 4 shall read as follows:

"Sec. 4. The President of the Philippines shall be the Chief Scout of the Boy Scouts of the Philippines."

Sec. 3. Sections 5, 6, 7 and 8 of Commonwealth Act No. 111, as amended, are hereby amended to read as follows:

"Sec. 5. The governing body of the said corporation shall consist of a National Executive Board , the members of which shall be Filipino citizens of good moral character. The Board shall be composed of the following:

Boy Scouts of the Philippines vs. CoA "(a) One (1) charter member of the Boy Scouts of the Philippines who shall be elected by the members of the National Council at its meeting called for this purpose;

"(b) The regional chairmen of the scout regions who shall be elected by the representatives of all the local scout councils of the region during its meeting called for this purpose: Provided, That a candidate for regional chairman need not be the chairman of a local scout council;

"(c) The Secretary of Education, Culture and Sports;

"(d) The National President of the Girl Scouts of the Philippines;

"(e) One (1) senior scout, each from Luzon, Visayas and Mindanao areas, to be elected by the senior scout delegates of the local scout councils to the scout youth forums in their respective areas, in its meeting called for this purpose, to represent the boy scout membership;

"(f) Twelve (12) regular members to be elected by the members of the National Council in its meeting called for this purpose;

"(g) At least ten (10) but not more than fifteen (15) additional members from the private sector who shall be elected by the members of the National Executive Board referred to in the immediately preceding paragraphs (a), (b), (c), (d), (e) and (f) at the organizational meeting of the newly reconstituted National Executive Board which shall be held immediately after the meeting of the National Council wherein the twelve (12) regular members and the one (1) charter member were elected.

xxxx

"Sec. 8. Any donation or contribution which from time to time may be made to the Boy Scouts of the Philippines by the Government or any of its subdivisions, branches, offices, agencies or instrumentalities or by a foreign government or by private, entities and individuals shall be expended by the National Executive Board in pursuance of this Act.

Boy Scouts of the Philippines vs. CoA

The BSP as a Public Corporation under Par. 2, Art. 2 of the Civil Code There are three classes of juridical persons under Article 44 of the Civil Code and the BSP, as presently constituted under Republic Act No. 7278, falls under the second classification. Article 44 reads:
Art. 44. The following are juridical persons:

(1) The State and its political subdivisions; (2) Other corporations, institutions and entities for public interest or purpose created by law; their personality begins as soon as they have been constituted according to law; (3) Corporations, partnerships and associations for private interest or purpose to which the law grants a juridical personality, separate and distinct from that of each shareholder, partner or member. (Emphases supplied.)

The BSP, which is a corporation created for a public interest or purpose, is subject to the law creating it under Article 45 of the Civil Code, which provides:

Art. 45. Juridical persons mentioned in Nos. 1 and 2 of the preceding article are governed by the laws creating or recognizing them. Private corporations are regulated by laws of general application on the subject. Partnerships and associations for private interest or purpose are governed by the provisions of this Code concerning partnerships. (Emphasis and underscoring supplied.)

The purpose of the BSP as stated in its amended charter shows that it was created in order to implement a State policy declared in Article II, Section 13 of the Constitution, which reads:
ARTICLE II - DECLARATION OF PRINCIPLES AND STATE POLICIES

Boy Scouts of the Philippines vs. CoA

Section 13. The State recognizes the vital role of the youth in nation-building and shall promote and protect their physical, moral, spiritual, intellectual, and social well-being. It shall inculcate in the youth patriotism and nationalism, and encourage their involvement in public and civic affairs.

Evidently, the BSP, which was created by a special law to serve a public purpose in pursuit of a constitutional mandate, comes within the class of public corporations defined by paragraph 2, Article 44 of the Civil Code and governed by the law which creates it, pursuant to Article 45 of the same Code. The BSPs Classification Under the Administrative Code of 1987 The public, rather than private, character of the BSP is recognized by the fact that, along with the Girl Scouts of the Philippines, it is classified as an attached agency of the DECS under Executive Order No. 292, or the Administrative Code of 1987, which states:
TITLE VI EDUCATION, CULTURE AND SPORTS Chapter 8 Attached Agencies SEC. 20. Attached Agencies. The following agencies are hereby attached to the Department: xxxx (12) Boy Scouts of the Philippines; (13) Girl Scouts of the Philippines.

The administrative relationship of an attached agency to the department is defined in the Administrative Code of 1987 as follows:
BOOK IV THE EXECUTIVE BRANCH Chapter 7 ADMINISTRATIVE RELATIONSHIP

Boy Scouts of the Philippines vs. CoA

SEC. 38. Definition of Administrative Relationship. Unless otherwise expressly stated in the Code or in other laws defining the special relationships of particular agencies, administrative relationships shall be categorized and defined as follows: xxxx (3) Attachment. (a) This refers to the lateral relationship between the department or its equivalent and the attached agency or corporation for purposes of policy and program coordination. The coordination may be accomplished by having the department represented in the governing board of the attached agency or corporation, either as chairman or as a member, with or without voting rights, if this is permitted by the charter; having the attached corporation or agency comply with a system of periodic reporting which shall reflect the progress of programs and projects; and having the department or its equivalent provide general policies through its representative in the board, which shall serve as the framework for the internal policies of the attached corporation or agency. (Emphasis ours.)

As an attached agency, the BSP enjoys operational autonomy, as long as policy and program coordination is achieved by having at least one representative of government in its governing board, which in the case of the BSP is the DECS Secretary. In this sense, the BSP is not under government control or supervision and control. Still this characteristic does not make the attached chartered agency a private corporation covered by the constitutional proscription in question. Art. XII, Sec. 16 of the Constitution refers to private corporations created by government for proprietary or economic/business purposes

At the outset, it should be noted that the provision of Section 16 in issue is found in Article XII of the Constitution, entitled National Economy and Patrimony. Section 1 of Article XII is quoted as follows:

SECTION 1. The goals of the national economy are a more equitable distribution of opportunities, income, and wealth; a sustained increase in the amount of goods and services produced by the nation for the benefit of the people; and an expanding productivity as the key to raising the quality of life for all, especially the underprivileged.

Boy Scouts of the Philippines vs. CoA 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.

In the pursuit of these goals, all sectors of the economy and all regions of the country shall be given optimum opportunity to develop. Private enterprises, including corporations, cooperatives, and similar collective organizations, shall be encouraged to broaden the base of their ownership.

The scope and coverage of Section 16, Article XII of the Constitution can be seen from the aforementioned declaration of state policies and goals which pertains to national economy and patrimony and the interests of the people in economic development.

Section 16, Article XII deals with the formation, organization, or regulation of private corporations,[52] which should be done through ageneral law enacted by Congress, provides for an exception, that is: if the corporation is government owned or controlled; its creation is in the interest of the common good; and it meets the test of economic viability. The rationale behind Article XII, Section 16 of the 1987 Constitution was explained in Feliciano v. Commission on Audit,[53] in the following manner:

The Constitution emphatically prohibits the creation of private corporations except by a general law applicable to all citizens. The purpose of this constitutional provision is to ban private corporations created by special charters, which historically gave certain individuals, families or groups special privileges denied to other citizens.[54] (Emphasis added.)

It may be gleaned from the above discussion that Article XII, Section 16 bans the creation of private corporations by special law. The said constitutional provision should not be construed so as to prohibit the creation of public corporations or a corporate agency or instrumentality of the government intended to serve a public interest or purpose, which should not be measured on the basis of economic viability, but according to the public interest or purpose it serves as envisioned by paragraph (2), of Article 44 of the Civil Code and the pertinent provisions of the Administrative Code of 1987.

Boy Scouts of the Philippines vs. CoA

The BSP is a Public Corporation Not Subject to the Test of Government Ownership or Control and Economic Viability The BSP is a public corporation or a government agency or instrumentality with juridical personality, which does not fall within the constitutional prohibition in Article XII, Section 16, notwithstanding the amendments to its charter. Not all corporations, which are not government owned or controlled, areipso facto to be considered private corporations as there exists another distinct class of corporations or chartered institutions which are otherwise known as public corporations. These corporations are treated by law as agencies or instrumentalities of the government which are not subject to the tests of ownership or control and economic viability but to different criteria relating to their public purposes/interests or constitutional policies and objectives and their administrative relationship to the government or any of its Departments or Offices. Classification of Corporations Under Section 16, Article XII of the Constitution on National Economy and Patrimony

The dissenting opinion of Associate Justice Antonio T. Carpio, citing a line of cases, insists that the Constitution recognizes only two classes of corporations: private corporations under a general law, and government-owned or controlled corporations created by special charters. We strongly disagree. Section 16, Article XII should not be construed so as to prohibit Congress from creating public corporations. In fact, Congress has enacted numerous laws creating public corporations or government agencies or instrumentalities vested with corporate powers. Moreover, Section 16, Article XII, which relates to National Economy and Patrimony, could not have tied the hands of Congress in creating public corporations to serve any of the constitutional policies or objectives. In his dissent, Justice Carpio contends that this ponente introduces a totally different species of corporation, which is neither a private corporation nor a government owned or controlled corporation and, in so doing, is missing the fact that the BSP, which was created as a non-stock, non-profit corporation, can only be either a private corporation or a government owned or controlled corporation. Note that in Boy Scouts of the Philippines v. National Labor Relations Commission, the BSP, under its former charter, was regarded as both a government owned or controlled corporation with original charter and a public corporation. The said case pertinently stated:

Boy Scouts of the Philippines vs. CoA

While the BSP may be seen to be a mixed type of entity, combining aspects of both public and private entities, we believe that considering the character of its purposes and its functions, the statutory designation of the BSP as "a public corporation" and the substantial participation of the Government in the selection of members of the National Executive Board of the BSP, the BSP, as presently constituted under its charter, is a government-controlled corporation within the meaning of Article IX (B) (2) (1) of the Constitution.

We are fortified in this conclusion when we note that the Administrative Code of 1987 designates the BSP as one of the attached agencies of the Department of Education, Culture and Sports ("DECS"). An "agency of the Government" is defined as referring to any of the various units of the Government including a department, bureau, office, instrumentality, government-owned or -controlled corporation, or local government or distinct unit therein. "Government instrumentality" is in turn defined in the 1987 Administrative Code in the following manner:

Instrumentality - refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy usually through a charter. This term includes regulatory agencies, chartered institutions and government-owned or controlled corporations.

The same Code describes a "chartered institution" in the following terms:

Chartered institution - refers to any agency organized or operating under a special charter, and vested by law with functions relating to specific constitutional policies or objectives. This term includes the state universities and colleges, and the monetary authority of the State.

We believe that the BSP is appropriately regarded as "a government instrumentality" under the 1987 Administrative Code.

It thus appears that the BSP may be regarded as both a "government controlled corporation with an original charter" and as an "instrumentality" of the Government within the meaning of Article IX (B) (2) (1) of the Constitution. x x x.[55] (Emphases supplied.)

Boy Scouts of the Philippines vs. CoA

The existence of public or government corporate or juridical entities or chartered institutions by legislative fiat distinct from private corporations and government owned or controlled corporation is best exemplified by the 1987 Administrative Code cited above, which we quote in part:
Sec. 2. General Terms Defined. Unless the specific words of the text, or the context as a whole, or a particular statute, shall require a different meaning: xxxx (10) "Instrumentality" refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. This term includes regulatory agencies, chartered institutions and government-owned or controlled corporations. xxxx (12) "Chartered institution" refers to any agency organized or operating under a special charter, and vested by law with functions relating to specific constitutional policies or objectives. This term includes the state universities and colleges and the monetary authority of the State. (13) "Government-owned or controlled corporation" refers to any agency organized as a stock or non-stock corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) per cent of its capital stock: Provided, That governmentowned or controlled corporations may be further categorized by the Department of the Budget, the Civil Service Commission, and the Commission on Audit for purposes of the exercise and discharge of their respective powers, functions and responsibilities with respect to such corporations.

Assuming for the sake of argument that the BSP ceases to be owned or controlled by the government because of reduction of the number of representatives of the government in the BSP Board, it does not follow that it also ceases to be a government instrumentality as it still retains all the characteristics of the latter as an attached agency of the DECS under the Administrative Code. Vesting corporate powers to an attached agency or instrumentality of the government is not constitutionally prohibited and is allowed by the above-mentioned provisions of the Civil Code and the 1987 Administrative Code. Economic Viability and Ownership and Control Tests Inapplicable to Public Corporations

Boy Scouts of the Philippines vs. CoA

As presently constituted, the BSP still remains an instrumentality of the national government. It is a public corporation created by law for a public purpose, attached to the DECS pursuant to its Charter and the Administrative Code of 1987. It is not a private corporation which is required to be owned or controlled by the government and be economically viable to justify its existence under a special law.

The dissent of Justice Carpio also submits that by recognizing a new class of public corporation(s) created by special charter that will not be subject to the test of economic viability, the constitutional provision will be circumvented.

However, a review of the Record of the 1986 Constitutional Convention reveals the intent of the framers of the highest law of our land to distinguish between government corporations performing governmental functions and corporations involved in business or proprietary functions:

THE PRESIDENT. Commissioner Foz is recognized.

MR. FOZ. Madam President, I support the proposal to insert ECONOMIC VIABILITY as one of the grounds for organizing government corporations. x x x.

MR. OPLE. Madam President, the reason for this concern is really that when the government creates a corporation, there is a sense in which this corporation becomes exempt from the test of economic performance. We know what happened in the past. If a government corporation loses, then it makes its claim upon the taxpayers money through new equity infusions from the government and what is always invoked is the common good. x x x

Therefore, when we insert the phrase ECONOMIC VIABILITY together with the common good, this becomes a restraint on future enthusiasts for state capitalism to excuse themselves from the responsibility of meeting the market test so that they become viable. x x x.

Boy Scouts of the Philippines vs. CoA xxxx

THE PRESIDENT. Commissioner Quesada is recognized.

MS. QUESADA. Madam President, may we be clarified by the committee on what is meant by economic viability?

THE PRESIDENT. Please proceed.

MR. MONSOD. Economic viability normally is determined by cost-benefit ratio that takes into consideration all benefits, including economic external as well as internal benefits. These are what they call externalities in economics, so that these are not strictly financial criteria. Economic viability involves what we call economic returns or benefits of the country that are not quantifiable in financial terms. x x x.

xxxx

MS. QUESADA. So, would this particular formulation now really limit the entry of government corporations into activities engaged in by corporations?

MR. MONSOD. Yes, because it is also consistent with the economic philosophy that this Commission approved that there should be minimum government participation and intervention in the economy.

MS. QUESDA. Sometimes this Commission would just refer to Congress to provide the particular requirements when the government would get into corporations. But this time around, we specifically mentioned economic viability. x x x.

MR. VILLEGAS. Commissioner Ople will restate the reason for his introducing that amendment.

MR. OPLE. I am obliged to repeat what I said earlier in moving for this particular amendment jointly with Commissioner Foz. During the past three decades, there had been a proliferation of government

Boy Scouts of the Philippines vs. CoA corporations, very few of which have succeeded, and many of which are now earmarked by the Presidential Reorganization Commission for liquidation because they failed the economic test. x x x.

xxxx

MS. QUESADA. But would not the Commissioner say that the reason why many of the governmentowned or controlled corporations failed to come up with the economic test is due to the management of these corporations, and not the idea itself of government corporations? It is a problem of efficiency and effectiveness of management of these corporations which could be remedied, not by eliminating government corporations or the idea of getting into state-owned corporations, but improving management which our technocrats should be able to do, given the training and the experience.

MR. OPLE. That is part of the economic viability, Madam President.

MS. QUESADA. So, is the Commissioner saying then that the Filipinos will benefit more if these government-controlled corporations were given to private hands, and that there will be more goods and services that will be affordable and within the reach of the ordinary citizens?

MR. OPLE. Yes. There is nothing here, Madam President, that will prevent the formation of a government corporation in accordance with a special charter given by Congress. However, we are raising the standard a little bit so that, in the future, corporations established by the government will meet the test of the common good but within that framework we should also build a certain standard of economic viability.

xxxx

THE PRESIDENT. Commissioner Padilla is recognized.

MR. PADILLA. This is an inquiry to the committee. With regard to corporations created by a special charter for government-owned or controlled corporations, will these be in the pioneer fields or in places where the private enterprise does not or cannot enter? Or is this so general that these government corporations can compete with private corporations organized under a general law?

Boy Scouts of the Philippines vs. CoA MR. MONSOD. Madam President, x x x. There are two types of government corporations those that are involved in performing governmental functions, like garbage disposal, Manila waterworks, and so on; and those government corporations that are involved in business functions. As we said earlier, there are two criteria that should be followed for corporations that want to go into business. First is for government corporations to first prove that they can be efficient in the areas of their proper functions. This is one of the problems now because they go into all kinds of activities but are not even efficient in their proper functions. Secondly, they should not go into activities that the private sector can do better.

MR. PADILLA. There is no question about corporations performing governmental functions or functions that are impressed with public interest. But the question is with regard to matters that are covered, perhaps not exhaustively, by private enterprise. It seems that under this provision the only qualification is economic viability and common good, but shall government, through government-controlled corporations, compete with private enterprise?

MR. MONSOD. No, Madam President. As we said, the government should not engage in activities that private enterprise is engaged in and can do better. x x x.[56](Emphases supplied.)

Thus, the test of economic viability clearly does not apply to public corporations dealing with governmental functions, to which category the BSP belongs. The discussion above conveys the constitutional intent not to apply this constitutional ban on the creation of public corporations where the economic viability test would be irrelevant. The said test would only apply if the corporation is engaged in some economic activity or business function for the government.

It is undisputed that the BSP performs functions that are impressed with public interest. In fact, during the consideration of the Senate Bill that eventually became Republic Act No. 7278, which amended the BSP Charter, one of the bills sponsors, Senator Joey Lina, described the BSP as follows:

Senator Lina. Yes, I can only think of two organizations involving the masses of our youth, Mr. President, that should be given this kind of a privilege the Boy Scouts of the Philippines and the Girl Scouts of the Philippines. Outside of these two groups, I do not think there are other groups similarly situated.

Boy Scouts of the Philippines vs. CoA The Boy Scouts of the Philippines has a long history of providing value formation to our young, and considering how huge the population of the young people is, at this point in time, and also considering the importance of having an organization such as this that will inculcate moral uprightness among the young people, and further considering that the development of these young people at that tender age of seven to sixteen is vital in the development of the country producing good citizens, I believe that we can make an exception of the Boy Scouting movement of the Philippines from this general prohibition against providing tax exemption and privileges.[57]

Furthermore, this Court cannot agree with the dissenting opinion which equates the changes introduced by Republic Act No. 7278 to the BSP Charter as clear manifestation of the intent of Congress to return the BSP to the private sector. It was not the intent of Congress in enacting Republic Act No. 7278 to give up all interests in this basic youth organization, which has been its partner in forming responsible citizens for decades.

In fact, as may be seen in the deliberation of the House Bills that eventually resulted to Republic Act No. 7278, Congress worked closely with the BSP to rejuvenate the organization, to bring it back to its former glory reached under its original charter, Commonwealth Act No. 111, and to correct the perceived ills introduced by the amendments to its Charter under Presidential Decree No. 460. The BSP suffered from low morale and decrease in number because the Secretaries of the different departments in government who were too busy to attend the meetings of the BSPs National Executive Board (the Board) sent representatives who, as it turned out, changed from meeting to meeting. Thus, the Scouting Councils established in the provinces and cities were not in touch with what was happening on the national level, but they were left to implement what was decided by the Board.[58]

A portion of the legislators discussion is quoted below to clearly show their intent:

HON. DEL MAR. x x x I need not mention to you the value and the tremendous good that the Boy Scout Movement has done not only for the youth in particular but for the country in general. And that is why, if we look around, our past and present national leaders, prominent men in the various fields of endeavor, public servants in government offices, and civic leaders in the communities all over the land, and not only in our country but all over the world many if not most of them have at one time or another been beneficiaries of the Scouting Movement. And so, it is along this line, Mr. Chairman, that we would like to have the early approval of this measure if only to pay back what we owe much to the Scouting Movement. Now,

Boy Scouts of the Philippines vs. CoA

going to the meat of the matter, Mr. Chairman, if I may just the Scouting Movement was enacted into law in October 31, 1936 under Commonwealth Act No. 111. x x x [W]e were acknowledged as the third biggest scouting organization in the world x x x. And to our mind, Mr. Chairman, this erratic growth and this decrease in membership [number] is because of the bad policy measures that were enunciated with the enactment or promulgation by the President before of Presidential Decree No. 460 which we feel is the culprit of the ills that is flagging the Boy Scout Movement today. And so, this is specifically what we are attacking, Mr. Chairman, the disenfranchisement of the National Council in the election of the national board. x x x. And so, this is what we would like to be appraised of by the officers of the Boy [Scouts] of the Philippines whom we are also confident, have the best interest of the Boy Scout Movement at heart and it is in this spirit, Mr. Chairman, that we see no impediment towards working together, the Boy Scout of the Philippines officers working together with the House of Representatives in coming out with a measure that will put back the vigor and enthusiasm of the Boy Scout Movement. x x x.[59] (Emphasis ours.)

The following is another excerpt from the discussion on the House version of the bill, in the Committee on Government Enterprises:

HON. AQUINO: x x x Well, obviously, the two bills as well as the previous laws that have created the Boy Scouts of the Philippines did not provide for any direct government support by way of appropriation from the national budget to support the activities of this organization. The point here is, and at the same time they have been subjected to a governmental intervention, which to their mind has been inimical to the objectives and to the institution per se, that is why they are seeking legislative fiat to restore back the original mandate that they had under Commonwealth Act 111. Such having been the experience in the hands of government, meaning, there has been negative interference on their part and inasmuch as their mandate is coming from a legislative fiat, then shouldnt it be, this rhetorical question, shouldnt it be better for this organization to seek a mandate from, lets say, the government the Corporation Code of the Philippines and register with the SEC as non-profit non-stock corporation so that government intervention could be very very minimal. Maybe thats a rhetorical question, they may or they may not answer, ano. I dont know what would be the benefit of a charter or a mandate being provided for by way of legislation versus a registration with the SEC under the Corporation Code of the Philippines inasmuch as they dont get anything from the government anyway insofar as direct funding. In fact, the only thing that they got from government was intervention in their affairs. Maybe we can solicit some commentary comments from the resource persons. Incidentally, dont take that as an objection, Im not objecting. Im all for the objectives of these two bills. It just occurred to me that since you have had very bad experience in the hands of government and you will always be open to such possible intervention even in the future as long as you have a legislative mandate or your mandate or your charter coming from legislative action.

xxxx

MR. ESCUDERO: Mr. Chairman, there may be a disadvantage if the Boy Scouts of the Philippines will be required to register with the SEC. If we are registered with the SEC, there could be a danger of

Boy Scouts of the Philippines vs. CoA proliferation of scout organization. Anybody can organize and then register with the SEC. If there will be a proliferation of this, then the organization will lose control of the entire organization. Another disadvantage, Mr. Chairman, anybody can file a complaint in the SEC against the Boy Scouts of the Philippines and the SEC may suspend the operation or freeze the assets of the organization and hamper the operation of the organization. I dont know, Mr. Chairman, how you look at it but there could be a danger for anybody filing a complaint against the organization in the SEC and the SEC might suspend the registration permit of the organization and we will not be able to operate.

HON. AQUINO: Well, that I think would be a problem that will not be exclusive to corporations registered with the SEC because even if you are government corporation, court action may be taken against you in other judicial bodies because the SEC is simply another quasi-judicial body. But, I think, the first point would be very interesting, the first point that you raised. In effect, what you are saying is that with the legislative mandate creating your charter, in effect, you have been given some sort of a franchise with this movement.

MR. ESCUDERO: Yes.

HON. AQUINO: Exclusive franchise of that movement?

MR. ESCUDERO: Yes.

HON. AQUINO: Well, thats very well taken so I will proceed with other issues, Mr. Chairman. x x x.[60] (Emphases added.)

Therefore, even though the amended BSP charter did away with most of the governmental presence in the BSP Board, this was done to more strongly promote the BSPs objectives, which were not supported under Presidential Decree No. 460. The BSP objectives, as pointed out earlier, are consistent with the public purpose of the promotion of the well-being of the youth, the future leaders of the country. The amendments were not done with the view of changing the character of the BSP into a privatized corporation. The BSP remains an agency attached to a department of the government, the DECS, and it was not at all stripped of its public character. The ownership and control test is likewise irrelevant for a public corporation like the BSP. To reiterate, the relationship of the BSP, an attached agency, to the government, through the DECS, is defined in the Revised Administrative Code of 1987. The BSP meets the minimum statutory requirement of an attached government agency as the DECS Secretary sits at the BSP

Boy Scouts of the Philippines vs. CoA

Board ex officio, thus facilitating the policy and program coordination between the BSP and the DECS. Requisites for Declaration of Unconstitutionality Not Met in this Case The dissenting opinion of Justice Carpio improperly raised the issue of unconstitutionality of certain provisions of the BSP Charter. Even if the parties were asked to Comment on the validity of the BSP charter by the Court, this alone does not comply with the requisites for judicial review, which were clearly set forth in a recent case:
When questions of constitutional significance are raised, the Court can exercise its power of judicial review only if the following requisites are present: (1) the existence of an actual and appropriate case; (2) the existence of personal and substantial interest on the part of the party raising the constitutional question; (3) recourse to judicial review is made at the earliest opportunity; and (4) the constitutional question is the lis mota of the case.[61] (Emphasis added.)

Thus, when it comes to the exercise of the power of judicial review, the constitutional issue should be the very lis mota, or threshold issue, of the case, and that it should be raised by either of the parties. These requirements would be ignored under the dissents rather overreaching view of how this case should have been decided. True, it was the Court that asked the parties to comment, but the Court cannot be the one to raise a constitutional issue. Thus, the Court chooses to once more exhibit restraint in the exercise of its power to pass upon the validity of a law. Re: the COAs Jurisdiction

Regarding the COAs jurisdiction over the BSP, Section 8 of its amended charter allows the BSP to receive contributions or donations from the government. Section 8 reads:

Section 8. Any donation or contribution which from time to time may be made to the Boy Scouts of the Philippines by the Government or any of its subdivisions, branches, offices, agencies or instrumentalities shall be expended by the Executive Board in pursuance of this Act.

Boy Scouts of the Philippines vs. CoA

The sources of funds to maintain the BSP were identified before the House Committee on Government Enterprises while the bill was being deliberated, and the pertinent portion of the discussion is quoted below:

MR. ESCUDERO. Yes, Mr. Chairman. The question is the sources of funds of the organization. First, Mr. Chairman, the Boy Scouts of the Philippines do not receive annual allotment from the government. The organization has to raise its own funds through fund drives and fund campaigns or fund raising activities. Aside from this, we have some revenue producing projects in the organization that gives us funds to support the operation. x x x From time to time, Mr. Chairman, when we have special activities we request for assistance or financial assistance from government agencies, from private business and corporations, but this is only during special activities that the Boy Scouts of the Philippines would conduct during the year. Otherwise, we have to raise our own funds to support the organization.[62]

The nature of the funds of the BSP and the COAs audit jurisdiction were likewise brought up in said congressional deliberations, to wit:

HON. AQUINO: x x x Insofar as this organization being a government created organization, in fact, a government corporation classified as such, are your funds or your finances subjected to the COA audit?

MR. ESCUDERO: Mr. Chairman, we are not. Our funds is not subjected. We dont fall under the jurisdiction of the COA.

HON. AQUINO: All right, but before were you?

MR. ESCUDERO: No, Mr. Chairman.

MR. JESUS: May I? As historical backgrounder, Commonwealth Act 111 was written by then Secretary Jorge Vargas and before and up to the middle of the Martial Law years, the BSP was receiving a subsidy in the form of an annual a one draw from the Sweepstakes. And, this was the case also with the Girl Scouts at the Anti-TB, but then this was and the Boy Scouts then because of this funding partly from government was being subjected to audit in the contributions being made in the part of the Sweepstakes. But this was removed later during the Martial Law years with the creation of the Human Settlements Commission. So the situation right now is that the Boy Scouts does not receive any funding

Boy Scouts of the Philippines vs. CoA from government, but then in the case of the local councils and this legislative charter, so to speak, enables the local councils even the national headquarters in view of the provisions in the existing law to receive donations from the government or any of its instrumentalities, which would be difficult if the Boy Scouts is registered as a private corporation with the Securities and Exchange Commission. Government bodies would be estopped from making donations to the Boy Scouts, which at present is not the case because there is the Boy Scouts charter, this Commonwealth Act 111 as amended by PD 463.

xxxx

HON. AMATONG: Mr. Chairman, in connection with that.

THE CHAIRMAN: Yeah, Gentleman from Zamboanga.

HON. AMATONG: There is no auditing being made because theres no money put in the organization, but how about donated funds to this organization? What are the remedies of the donors of how will they know how their money are being spent?

MR. ESCUDERO: May I answer, Mr. Chairman?

THE CHAIRMAN: Yes, gentleman.

MR. ESCUDERO: The Boy Scouts of the Philippines has an external auditor and by the charter we are required to submit a financial report at the end of each year to the National Executive Board. So all the funds donated or otherwise is accounted for at the end of the year by our external auditor. In this case the SGV.[63]

Historically, therefore, the BSP had been subjected to government audit in so far as public funds had been infused thereto. However, this practice should not preclude the exercise of the audit jurisdiction of COA, clearly set forth under the Constitution, which pertinently provides:

Boy Scouts of the Philippines vs. CoA

Section 2. (1) The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned and controlled corporations with original charters, and on a post-audit basis: (a) constitutional bodies, commissions and offices that have been granted fiscal autonomy under this Constitution; (b) autonomous state colleges and universities; (c) other government-owned or controlled corporations with original charters and their subsidiaries; and (d) such non-governmental entities receiving subsidy or equity, directly or indirectly, from or through the Government, which are required by law of the granting institution to submit to such audit as a condition of subsidy or equity. x x x.
[64]

Since the BSP, under its amended charter, continues to be a public corporation or a government instrumentality, we come to the inevitable conclusion that it is subject to the exercise by the COA of its audit jurisdiction in the manner consistent with the provisions of the BSP Charter.

WHEREFORE, premises considered, the instant petition for prohibition is DISMISSED.

SO ORDERED.

Lambino vs. COMELEC

On 15 February 2006, the group of Raul Lambino and Erico Aumentado (Lambino Group) commenced gathering signatures for an initiative petition to change the 1987 Constitution. On 25 August 2006, the Lambino Group filed a petition with the Commission on Elections (COMELEC) to hold a plebiscite that will ratify their initiative petition under Section 5(b) and (c) and Section 7 of Republic Act No. 6735 or the Initiative and Referendum Act. The proposed changes under the petition will shift the present Bicameral-Presidential system to a Unicameral-Parliamentary form of government. The Lambino Group claims that: (a) their petition had the support of 6,327,952 individuals constituting at least 12% of all registered voters, with each legislative district represented by at least 3% of its registered voters; and (b) COMELEC election registrars had verified the signatures of the 6.3 million individuals. The COMELEC, however, denied due course to the petition for lack of an enabling law governing initiative petitions to amend the Constitution, pursuant to the Supreme Courts ruling in Santiago vs. Commission on Elections. The Lambino Group elevated the matter to the Supreme Court, which also threw out the petition. 1. The initiative petition does not comply with Section 2, Article XVII of the Constitution on direct proposal by the people Section 2, Article XVII of the Constitution is the governing provision that allows a p eoples initiative to propose amendments to the Constitution. While this provision does not expressly state that the petition must set forth the full text of the proposed amendments, the deliberations of the framers of our Constitution clearly show that: (a) the framers intended to adopt the relevant American jurisprudence on peoples initiative; and (b) in particular, the people must first see the full text of the proposed amendments before they sign, and that the people must sign on a petition containing such full text. The essence of amendments directly proposed by the people through initiative upon a petition is that the entire proposal on its face is a petition by the people. This means two essential elements must be present. First, the people must author and thus sign the entire proposal. No agent or representative can sign on their behalf. Second, as an initiative upon a petition, the proposal must be embodied in a petition. These essential elements are present only if the full text of the proposed amendments is first shown to the people who express their assent by signing such complete proposal in a petition. The full text of the proposed amendments may be either written on the face of the petition, or attached to it. If so attached, the petition must state the fact of such attachment. This is an assurance that every one of the several millions of signatories to the petition had seen the full text of the proposed amendments before not after signing. Moreover, an initiative signer must be informed at the time of signing of the nature and effect of that which is proposed and failure to do so is deceptive and misleading which renders the initiative void. In the case of the Lambino Groups petition, theres not a single word, phrase, or sentence of text of the proposed changes in the signature sheet. Neither does the signature sheet state that the text of the proposed changes is attached to it. The signature sheet merely asks a question whether the people approve a shift from the Bicameral-Presidential to the Unicameral- Parliamentary system of government. The signature sheet does not show to the people the draft of the proposed changes before they are asked to sign the signature sheet. This omission is fatal.

Lambino vs. COMELEC

An initiative that gathers signatures from the people without first showing to the people the full text of the proposed amendments is most likely a deception, and can operate as a gigantic fraud on the people. Thats why the Constitution requires that an initiative must be directly proposed by the people x x x in a petition meaning that the people must sign on a petition that contains the full text of the proposed amendments. On so vital an issue as amending the nations fundamental law, the writing of the text of the proposed amendments cannot be hidden from the people under a general or special power of attorney to unnamed, faceless, and unelected individuals. 2. The initiative violates Section 2, Article XVII of the Constitution disallowing revision through initiatives Article XVII of the Constitution speaks of three modes of amending the Constitution. The first mode is through Congress upon three-fourths vote of all its Members. The second mode is through a constitutional convention. The third mode is through a peoples initiative. Section 1 of Article XVII, referring to the first and second modes, applies to any amendment to, or revision of, this Constitution. In contrast, Section 2 of Article XVII, referring to the third mode, applies only to amendments to this Constitution. This distinction was intentional as shown by the deliberations of the Constitutional Commission. A peoples initiative to change the Constitution applies only to an amendment of the Constitution and not to its revision. In contrast, Congress or a constitutional convention can propose both amendments and revisions to the Constitution. Does the Lambino Groups initiative constitute an amendment or revision of the Constitution? Yes. By any legal test and under any jurisdiction, a shift from a Bicameral-Presidential to a Unicameral-Parliamentary system, involving the abolition of the Office of the President and the abolition of one chamber of Congress, is beyond doubt a revision, not a mere amendment. Courts have long recognized the distinction between an amendment and a revision of a constitution. Revision broadly implies a change that alters a basic principle in the constitution, like altering the principle of separation of powers or the system of checks-and-balances. There is also revision if the change alters the substantial entirety of the constitution, as when the change affects substantial provisions of the constitution. On the other hand, amendment broadly refers to a change that adds, reduces, or deletes without altering the basic principle involved. Revision generally affects several provisions of the constitution, while amendment generally affects only the specific provision being amended. Where the proposed change applies only to a specific provision of the Constitution without affecting any other section or article, the change may generally be considered an amendment and not a revision. For example, a change reducing the voting age from 18 years to 15 years is an amendment and not a revision. Similarly, a change reducing Filipino ownership of mass media companies from 100% to 60% is an amendment and not a revision. Also, a change requiring a college degree as an additional qualification for election to the Presidency is an amendment and not a revision. The changes in these examples do not entail any modification of sections or articles of the Constitution other than the specific provision being amended. These changes do not also affect the structure of government or the system of checksand-balances among or within the three branches. However, there can be no fixed rule on whether a change is an amendment or a revision. A change in a single word of one sentence of the Constitution may be a revision and not an amendment. For example, the substitution of the word republican with monarchic or theocratic in Section 1, Article II of the Constitution radically overhauls the entire structure of government and the fundamental ideological basis of the Constitution. Thus, each specific change will have to be examined case-by-case, depending on how it affects other provisions, as well as how it affects the structure of

Lambino vs. COMELEC

government, the carefully crafted system of checks-and-balances, and the underlying ideological basis of the existing Constitution. Since a revision of a constitution affects basic principles, or several provisions of a constitution, a deliberative body with recorded proceedings is best suited to undertake a revision. A revision requires harmonizing not only several provisions, but also the altered principles with those that remain unaltered. Thus, constitutions normally authorize deliberative bodies like constituent assemblies or constitutional conventions to undertake revisions. On the other hand, constitutions allow peoples initiatives, which do not have fixed and identifiable deliberative bodies or recorded proceedings, to undertake only amendments and not revisions. In California where the initiative clause allows amendments but not revisions to the constitution just like in our Constitution, courts have developed a two-part test: the quantitative test and the qualitative test. The quantitative test asks whether the proposed change is so extensive in its provisions as to change directly the substantial entirety of the constitution by the deletion or alteration of numerous existing provisions. The court examines only the number of provisions affected and does not consider the degree of the change. The qualitative test inquires into the qualitative effects of the proposed change in the constitution. The main inquiry is whether the change will accomplish such far reaching changes in the nature of our basic governmental plan as to amount to a revision. Whether there is an alteration in the structure of government is a proper subject of inquiry. Thus, a change in the nature of [the] basic governmental plan includes change in its fundamental framework or the fundamental powers of its Branches. A change in the nature of the basic governmental plan also includes changes that jeopardize the traditional form of government and the system of check and balances. Under both the quantitative and qualitative tests, the Lambino Group initiative is a revision and not merely an amendment. Quantitatively, the Lambino Group proposed changes overhaul two articles Article VI on the Legislature andArticle VII on the Executive affecting a total of 105 provisions in the entire Constitution. Qualitatively, the proposed changes alter substantially the basic plan of government, from presidential to parliamentary, and from a bicameral to a unicameral legislature. A change in the structure of government is a revision of the Constitution, as when the three great co-equal branches of government in the present Constitution are reduced into two. This alters the separation of powers in the Constitution. A shift from the present Bicameral-Presidential system to a Unicameral-Parliamentary system is a revision of the Constitution. Merging the legislative and executive branches is a radical change in the structure of government. The abolition alone of the Office of the President as the locus of Executive Power alters the separation of powers and thus constitutes a revision of the Constitution. Likewise, the abolition alone of one chamber of Congress alters the system of checks-and-balances within the legislature and constitutes a revision of the Constitution. The Lambino Group theorizes that the difference between amendment and revision is only one of procedure, not of substance. The Lambino Group posits that when a deliberative body drafts and proposes changes to the Constitution, substantive changes are called revisions because members of the deliberative body work full-time on the changes. The same substantive changes, when proposed through an initiative, are called amendments because the changes are made by ordinary people who do not make an occupation, profession, or vocation out of such endeavor. The SC, however, ruled that the express intent of the framers and the plain language of the Constitution contradict the Lambino Groups theory. Where the intent of the framers and the language of the Constitution are clear and plainly stated, courts do not deviate from such categorical intent and language.

Lambino vs. COMELEC

3. A revisit of Santiago vs. COMELEC is not necessary The petition failed to comply with the basic requirements of Section 2, Article XVII of the Constitution on the conduct and scope of a peoples initiative to amend the Constitution. There is, therefore, no need to revisit this Courts ruling in Santiago declaring RA 6735 incomplete, inadequate or wanting in essential terms and conditions to cover the system of initiative to amend the Constitution. An affirmation or reversal of Santiago will not change the outcome of the present petition. It settled that courts will not pass upon the constitutionality of a statute if the case can be resolved on some other grounds. Even assuming that RA 6735 is valid, this will not change the result here because the present petition violates Section 2, Article XVII of the Constitution, which provision must first be complied with even before complying with RA 6735. Worse, the petition violates the following provisions of RA 6735: a. Section 5(b), requiring that the people must sign the petition as signatories. The 6.3 million signatories did not sign the petition or the amended petition filed with the COMELEC. Only Attys. Lambino, Donato and Agra signed the petition and amended petition. b. Section 10(a), providing that no petition embracing more than one subject shall be submitted to the electorate. The proposed Section 4(4) of the Transitory Provisions, mandating the interim Parliament to propose further amendments or revisions to the Constitution, is a subject matter totally unrelated to the shift in the form of government.

The Supreme Court today unanimously junked another second motion to reconsider its October 25, decision on the Peoples Initiative cases. In a resolution, the Court denied petitioner Raul L. Lambinos request to be allowed to file a second motion for reconsiderat ion because it is a prohibited pleading under sec. 2, Rule 52 in relation to sec. 2, Rule 56 of the 1997 Rules of Civil Procedure, as amended. It accordingly noted without action Lambinos second motion for reconsideration, dated December 7, 2006, and said that no further pleadings will be entertained. The Court said that the second motion for reconsideration was a mere reiteration of Lambinos first motion, which the Court had already denied with finality on November 21, 2006. Likewise, the Court said that it had already denied admission of the separate second motion for reconsideration of La mbinos co-petitioner Erico B. Aumentado last December 12 and that there is no sufficient vote to grant Lambinos motion for leave to file a seco nd motion for reconsideration. On October 25, 2006, the Court, voting 8-7, upheld the Commission on Elections August 31, 2006 resolution denying due course to an initiative petition to amend the Constitution by shifting the present Bicameral-Presidential system to a Unicameral-Parliamentary form of government. The Court, through Justice Antonio T. Carpio, said This Court cannot betray its primordial duty to defend and protect the Constitution. The Constitution, which embodies the peoples sovereign will, is the bible of this Court. This Court exists to defend and protect the Constitution. To allow this constitutionally infirm initiative, propelled by deceptively gathered signatures, to alter basic principles in the Constitution is to allow a desecration of the Constitution. To allow such alteration and desecration is to lose this Courts raison detre. (Min. Res., Lambino and Aumentado v. Comelec, GR No. 174153; Binay, et al. v. Comelec, et al., GR No. 174299, January 16, 2007)