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. TAÑADA, PONCIANO BENNAGEN, JAIME TADEO, RENATO
R. CONSTANTINO, JR., F'LONG AGUSTIN M. DABIE, ROBERTO
P. AMLOY, RAQIM L. DABIE, SIMEON H. DOLOJO, IMELDA M.
GANDON, LENY B. GUSANAN, MARCELO L. GUSANAN,
QUINTOL A. LABUAYAN, LOMINGGES D. LAWAY, BENITA P.
TACUAYAN, minors JOLY L. BUGOY, represented by his
father UNDERO D. BUGOY, ROGER M. DADING, represented
by his father ANTONIO L. DADING, ROMY M. LAGARO,
represented by his father TOTING A. LAGARO, MIKENY JONG
B. LUMAYONG, represented by his father MIGUEL M.
LUMAYONG, RENE T. MIGUEL, represented by his mother
EDITHA T. MIGUEL, ALDEMAR L. SAL, represented by his
father DANNY M. SAL, DAISY RECARSE, represented by her
mother LYDIA S. SANTOS, EDWARD M. EMUY, ALAN P.
MAMPARAIR, MARIO L. MANGCAL, ALDEN S. TUSAN,
AMPARO S. YAP, VIRGILIO CULAR, MARVIC M.V.F. LEONEN,
JULIA REGINA CULAR, GIAN CARLO CULAR, VIRGILIO CULAR,
JR., represented by their father VIRGILIO CULAR, PAUL
ANTONIO P. VILLAMOR, represented by his parents JOSE
VILLAMOR and ELIZABETH PUA-VILLAMOR, ANA GININA R.
TALJA, represented by her father MARIO JOSE B. TALJA,
SHARMAINE R. CUNANAN, represented by her father
ALFREDO M. CUNANAN, ANTONIO JOSE A. VITUG III,
represented by his mother ANNALIZA A. VITUG, LEAN D.
NARVADEZ, represented by his father MANUEL E.
NARVADEZ, JR., ROSERIO MARALAG LINGATING,
represented by her father RIO OLIMPIO A. LINGATING,
MARIO JOSE B. TALJA, DAVID E. DE VERA, MARIA MILAGROS
L. SAN JOSE, SR., SUSAN O. BOLANIO, OND, LOLITA G.
DEMONTEVERDE, BENJIE L. NEQUINTO, 1 ROSE LILIA S.
ROMANO, ROBERTO S. VERZOLA, 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), 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 PARTNERSHIP FOR THE
DEVELOPMENT OF HUMAN RESOURCES IN THE RURAL
 AREAS, INC. (PHILDHRRA), WOMEN'S LEGAL BUREAU (WLB),
CENTER FOR ALTERNATIVE DEVELOPMENT INITIATIVES, INC.
(CADI), UPLAND DEVELOPMENT INSTITUTE (UDI),
KINAIYAHAN FOUNDATION, INC., SENTRO NG
ALTERNATIBONG LINGAP PANLIGAL (SALIGAN), LEGAL
RIGHTS AND NATURAL RESOURCES CENTER, INC. (LRC),
petitioners, vs. VICTOR O. RAMOS, SECRETARY, DEPARTMENT
OF ENVIRONMENT AND NATURAL RESOURCES (DENR),
HORACIO RAMOS, DIRECTOR, MINES AND GEOSCIENCES
BUREAU (MGB-DENR), RUBEN TORRES, EXECUTIVE
SECRETARY, and WMC (PHILIPPINES), INC., respondents.
4

DECISION

CARPIO-MORALES, J : p

The present petition for mandamus and prohibition assails the

constitutionality of Republic Act No. 7942, 5 otherwise known as the
PHILIPPINE MINING ACT OF 1995, along with the Implementing Rules and
Regulations issued pursuant thereto, Department of Environment and
Natural Resources (DENR) Administrative Order 96-40, and of the Financial
and Technical Assistance Agreement (FTAA) entered into on March 30, 1995
by the Republic of the Philippines and WMC (Philippines), Inc. (WMCP), a
corporation organized under Philippine laws.
On July 25, 1987, then President Corazon C. Aquino issued Executive
Order (E.O.) No. 279 6 authorizing the DENR Secretary to

accept, consider and evaluate proposals from foreign-owned

corporations or foreign investors for contracts or agreements involving
either technical or financial assistance for large-scale exploration,
development, and utilization of minerals, which, upon appropriate
recommendation of the Secretary, the President may execute with the
foreign proponent. In entering into such proposals, the President shall
consider the real contributions to the economic growth and general
welfare of the country that will be realized, as well as the development
and use of local scientific and technical resources that will be promoted
by the proposed contract or agreement. Until Congress shall determine
otherwise, large-scale mining, for purpose of this Section, shall mean
those proposals for contracts or agreements for mineral resources
exploration, development, and utilization involving a committed capital
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/transfer 11 and withdrawal, 12 and fixes their
t e r m s . 13 Similar provisions govern financial or technical assistance
agreements. 14
The law prescribes the qualifications of contractors 15 and grants them
certain rights, including timber, 16 water 17 and easement 18 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 quarry 23 and other
24 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, 29 incentives granted. 30 Aside from
penalizing certain acts, 31 the law likewise specifies grounds for the
cancellation, revocation and termination of agreements and permits. 32
On April 9, 1995, 30 days following its publication on March 10, 1995 in
Malaya and Manila Times , two newspapers of general circulation, R.A. No.
7942 took effect. 33
Shortly before the effectivity of R.A. No. 7942, however, or on March
30, 1995, the President entered into an FTAA with WMCP covering 99,387
hectares of land in South Cotabato, Sultan Kudarat, Davao del Sur and North
Cotabato. 34
On August 15, 1995, then DENR Secretary Victor O. Ramos issued
DENR Administrative Order (DAO) No. 95-23, s. 1995, otherwise known as
the Implementing Rules and Regulations of R.A. No. 7942. This was later
repealed by DAO No. 96-40, s. 1996 which was adopted on December 20,
1996.
On January 10, 1997, counsels for petitioners sent a letter to the DENR
Secretary demanding that the DENR stop the implementation of R.A. No.
7942 and DAO No. 96-40, 35 giving the DENR fifteen days from receipt 36 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
 . . . 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

. . . 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

. . . 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

. . . 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;

. . . 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

. . . 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

. . . 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)Â Permanently enjoining respondents from acting on any

application for Financial or Technical Assistance Agreements;

(b)Â Declaring the Philippine Mining Act of 1995 or Republic Act

 No. 7942 as unconstitutional and null and void;

(c)Â 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)Â Cancelling the Financial and Technical Assistance

Agreement issued to Western Mining Philippines, Inc. as
unconstitutional, illegal and null and void. 41

Impleaded as public respondents are Ruben Torres, the then Executive

Secretary, Victor O. Ramos, the then DENR Secretary, and Horacio Ramos,
Director of the Mines and Geosciences Bureau of the DENR. Also impleaded
is private respondent WMCP, which entered into the assailed FTAA with the
Philippine Government. WMCP is owned by WMC Resources International
Pty., Ltd. (WMC), "a wholly owned subsidiary of Western Mining Corporation
Holdings Limited, a publicly listed major Australian mining and exploration
company." 42 By WMCP's information, "it is a 100% owned subsidiary of WMC
LIMITED." 43
Respondents, aside from meeting petitioners' contentions, argue that
the requisites for judicial inquiry have not been met and that the petition
does not comply with the criteria for prohibition and mandamus. Additionally,
respondent WMCP argues that there has been a violation of the rule on
hierarchy of courts.cTSHaE

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 review 51 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)Â The existence of an actual and appropriate case;

(2)Â A personal and substantial interest of the party raising the

constitutional question;

(3)Â The exercise of judicial review is pleaded at the earliest

opportunity; and

(4)Â The constitutional question is the lis mota of the case. 58

Respondents claim that the first three requisites are not present.
Section 1, Article VIII of the Constitution states that "(j)udicial power
includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and enforceable." The power
of judicial review, therefore, is limited to the determination of actual cases
and controversies. 59
 An actual case or controversy means an existing case or controversy
that is appropriate or ripe for determination, not conjectural or anticipatory,
60 lest the decision of the court would amount to an advisory opinion. 61 The

power does not extend to hypothetical questions 62 since any attempt at

abstraction could only lead to dialectics and barren legal questions and to
sterile conclusions unrelated to actualities. 63
"Legal standing" or locus standi has been defined as a personal and
substantial interest in the case such that the party has sustained or will
sustain direct injury as a result of the governmental act that is being
challenged, 64 alleging more than a generalized grievance. 65 The gist of the
question of standing is whether a party alleges "such personal stake in the
outcome of the controversy as to assure that concrete adverseness which
sharpens the presentation of issues upon which the court depends for
illumination of difficult constitutional questions." 66 Unless a person is
injuriously affected in any of his constitutional rights by the operation of
statute or ordinance, he has no standing. 67
Petitioners traverse a wide range of sectors. Among them are La Bugal
B'laan Tribal Association, Inc., a farmers and indigenous people's cooperative
organized under Philippine laws representing a community actually affected
by the mining activities of WMCP, members of said cooperative, 68 as well 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

. . . . "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.[â€] (FRIEDENTHAL, KANE AND MILLER,
CIVIL PROCEDURE 328 [1985])

Standing is a special concern in constitutional law because in

some cases suits are brought not by parties who have been personally
injured by the operation of a law or by official action taken, but by
concerned citizens, taxpayers or voters who actually sue in the public
interest. Hence, the question in standing is whether such parties have
"alleged such a personal stake in the outcome of the controversy as to
assure that concrete adverseness which sharpens the presentation of
issues upon which the court so largely depends for illumination of
difficult constitutional questions." (Baker v. Carr, 369 U.S. 186, 7
L.Ed.2d 633 [1962].)

As earlier stated, petitioners meet this requirement.

The challenge against the constitutionality of R.A. No. 7942 and DAO
No. 96-40 likewise fulfills the requisites of justiciability. Although these laws
were not in force when the subject FTAA was entered into, the question as to
their validity is ripe for adjudication.
The WMCP FTAA provides:

14.3Â 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.

— . . . That the provisions of Chapter XIV on government share in
mineral production-sharing agreement and of Chapter XVI on
incentives of this Act shall immediately govern and apply to a mining
lessee or contractor unless the mining lessee or contractor indicates
his intention to the secretary in writing not to avail of said provisions . .
. Provided, finally, That such leases, production-sharing agreements,
financial or technical assistance agreements shall comply with the
applicable provisions of this Act and its implementing rules and
regulations.

As there is no suggestion that WMCP has indicated its intention not to avail
of the provisions of Chapter XVI of R.A. No. 7942, it can safely be presumed
that they apply to the WMCP FTAA.
 Misconstruing the application of the third requisite for judicial review —
that the exercise of the review is pleaded at the earliest opportunity —
WMCP points out that the petition was filed only almost two years after the
execution of the FTAA, hence, not raised at the earliest opportunity.
The third requisite should not be taken to mean that the question of
constitutionality must be raised immediately after the execution of the state
action complained of. That the question of constitutionality has not been
raised before is not a valid reason for refusing to allow it to be raised later.
73 A contrary rule would mean that a law, otherwise unconstitutional, would
lapse into constitutionality by the mere failure of the proper party to
promptly file a case to challenge the same.
PROPRIETY OF PROHIBITION AND MANDAMUS
Before the effectivity in July 1997 of the Revised Rules of Civil
Procedure, Section 2 of Rule 65 read:

SEC. 2. Petition for prohibition . — When the proceedings of any

tribunal, corporation, board, or person, whether exercising functions
judicial or ministerial, are without or in excess of its or his jurisdiction,
or with grave abuse of discretion, and there is no appeal or any other
plain, speedy, and adequate remedy in the ordinary course of law, a
person aggrieved thereby may file a verified petition in the proper
court alleging the facts with certainty and praying that judgment be
rendered commanding the defendant to desist from further proceeding
in the action or matter specified therein.

Prohibition is a preventive remedy. 74 It seeks a judgment ordering the

defendant to desist from continuing with the commission of an act perceived
to be illegal. 75
The petition for prohibition at bar is thus an appropriate remedy. While
the execution of the contract itself may be fait accompli, its implementation
is not. Public respondents, in behalf of the Government, have obligations to
fulfill under said contract. Petitioners seek to prevent them from fulfilling
such obligations on the theory that the contract is unconstitutional and,
therefore, void.
The propriety of a petition for prohibition, being upheld, discussion of
the propriety of the mandamus aspect of the petition is rendered
unnecessary.
HIERARCHY OF COURTS
The contention that the filing of this petition violated the rule on
hierarchy of courts does not likewise lie. The rule has been explained thus:

Between two courts of concurrent original jurisdiction, it is the

lower court that should initially pass upon the issues of a case. That
way, as a particular case goes through the hierarchy of courts, it is
shorn of all but the important legal issues or those of first impression,
which are the proper subject of attention to 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 . . .. 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)Â 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)Â It allows foreign-owned companies to extend both technical and
financial assistance, instead of "either technical or financial assistance."
To appreciate the import of these issues, a visit to the history of the
pertinent constitutional provision, the concepts contained therein, and the
laws enacted pursuant thereto, is in order.
Section 2, Article XII reads in full:

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

The State shall protect the nation's marine wealth in its

archipelagic waters, territorial sea, and exclusive economic zone, and
reserve its use and enjoyment exclusively to Filipino citizens.

The Congress may, by law, allow small-scale utilization of natural

resources by Filipino citizens, as well as cooperative fish farming, with
priority to subsistence fishermen and fish-workers in rivers, lakes,
bays, and lagoons.

The President may enter into agreements with foreign-owned

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

The President shall notify the Congress of every contract entered

into in accordance with this provision, within thirty days from its
execution.

THE SPANISH REGIME AND THE REGALIAN DOCTRINE

The first sentence of Section 2 embodies the Regalian doctrine or jura
regalia. Introduced by Spain into these Islands, this feudal concept is based
on the State's power of dominium, which is the capacity of the State to own
or acquire property. 79

In its broad sense, the term "jura regalia" refers to royal rights, or
those rights which the King has by virtue of his prerogatives. In Spanish
law, it refers to a right which the sovereign has over anything in which
a subject has a right of property or propriedad. These were rights
 enjoyed during feudal times by the king as the sovereign.

The theory of the feudal system was that title to all lands was
originally held by the King, and while the use of lands was granted out
to others who were permitted to hold them under certain conditions,
the King theoretically retained the title. By fiction of law, the King was
regarded as the original proprietor of all lands, and the true and only
source of title, and from him all lands were held. The theory of jura
regalia was therefore nothing more than a natural fruit of conquest. 80

The Philippines having passed to Spain by virtue of discovery and

conquest, 81 earlier Spanish decrees declared that "all lands were held from
the Crown." 82
The Regalian doctrine extends not only to land but also to "all natural
wealth that may be found in the bowels of the earth." 83 Spain, in particular,
recognized the unique value of natural resources, viewing them, especially
minerals, as an abundant source of revenue to finance its wars against other
nations. 84 Mining laws during the Spanish regime reflected this perspective.
85

THE AMERICAN OCCUPATION AND THE CONCESSION REGIME

By the Treaty of Paris of December 10, 1898, Spain ceded "the
archipelago known as the Philippine Islands" to the United States. The
Philippines was hence governed by means of organic acts that were in the
nature of charters serving as a Constitution of the occupied territory from
1900 to 1935. 86 Among the principal organic acts of the Philippines was the
Act of Congress of July 1, 1902, more commonly known as the Philippine Bill
of 1902, through which the United States Congress assumed the
administration of the Philippine Islands. 87 Section 20 of said Bill reserved the
disposition of mineral lands of the public domain from sale. Section 21
thereof allowed the free and open exploration, occupation and purchase of
mineral deposits not only to citizens of the Philippine Islands but to those of
the United States as well:

Sec. 21. That all valuable mineral deposits in public lands in the
Philippine Islands, both surveyed and unsurveyed, are hereby declared
to be free and open to exploration, occupation and purchase, and the
land on which they are found, to occupation and purchase, by citizens
of the United States or of said Islands: Provided, That when on any
lands in said Islands entered and occupied as agricultural lands under
the provisions of this Act, but not patented, mineral deposits have been
found, the working of such mineral deposits is forbidden until the
person, association, or corporation who or which has entered and is
occupying such lands shall have paid to the Government of said Islands
such additional sum or sums as will make the total amount paid for the
mineral claim or claims in which said deposits are located equal to the
amount charged by the Government for the same as mineral claims.

Unlike Spain, the United States considered natural resources as a

source of wealth for its nationals and saw fit to allow both Filipino and
American citizens to explore and exploit minerals in public lands, and to
grant patents to private mineral lands. 88 A person who acquired ownership
over a parcel of private mineral land pursuant to the laws then prevailing
could exclude other persons, even the State, from exploiting minerals within
his property. 89 Thus, earlier jurisprudence 90 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. . . . .

xxx xxx xxx.

The discovery of minerals in the ground by one who has a valid

mineral location, perfect his claim and his location, not only against
third persons but also against the Government. . . .. [Italics in the
original.]

The Regalian doctrine and the American system, therefore, differ in one
essential respect. Under the Regalian theory, mineral rights are not included
in a grant of land by the state; under the American doctrine, mineral rights
are included in a grant of land by the government. 91
Section 21 also made possible the concession (frequently styled
"permit", "license" or "lease") 92 system. 93 This was the traditional regime
imposed by the colonial administrators for the exploitation of natural
resources in the extractive sector (petroleum, hard minerals, timber, etc.). 94
Under the concession system, the concessionaire makes a direct equity
investment for the purpose of exploiting a particular natural resource within
a given area. 95 Thus, the concession amounts to complete control by the
concessionaire over the country's natural resource, for it is given exclusive
and plenary rights to exploit a particular resource at the point of extraction.
96 In consideration for the right to exploit a natural resource, the
concessionaire either pays rent or royalty, which is a fixed percentage of the
gross proceeds. 97
Later statutory enactments by the legislative bodies set up in the
Philippines adopted the contractual framework of the concession. 98 For
instance, Act No. 2932, 99 approved on August 31, 1920, which provided for
the exploration, location, and lease of lands containing petroleum and other
mineral oils and gas in the Philippines, and Act No. 2719, 100 approved on
May 14, 1917, which provided for the leasing and development of coal lands
in the Philippines, both utilized the concession system. 101
THE 1935 CONSTITUTION AND THE
NATIONALIZATION OF NATURAL RESOURCES
By the Act of United States Congress of March 24, 1934, popularly
known as the Tydings-McDuffie Law, the People of the Philippine Islands were
authorized to adopt a constitution. 102 On July 30, 1934, the Constitutional
Convention met for the purpose of drafting a constitution, and the
Constitution subsequently drafted was approved by the Convention on
February 8, 1935. 103 The Constitution was submitted to the President of the
United States on March 18, 1935. 104 On March 23, 1935, the President of
the United States certified that the Constitution conformed substantially with
the provisions of the Act of Congress approved on March 24, 1934. 105 On
May 14, 1935, the Constitution was ratified by the Filipino people. 106
The 1935 Constitution adopted the Regalian doctrine, declaring all
natural resources of the Philippines, including mineral lands and minerals, to
be property belonging to the State. 107 As adopted in a republican system,
the medieval concept of jura regalia is stripped of royal overtones and
ownership of the land is vested in the State. 108
Section 1, Article XIII, on Conservation and Utilization of Natural
Resources, of the 1935 Constitution provided:

SECTION 1. All agricultural, timber, and mineral lands of the

public domain, waters, minerals, coal, petroleum, and other mineral
oils, all forces of potential energy, and other natural resources of the
Philippines belong to the State, and their disposition, exploitation,
development, or utilization shall be limited to citizens of the
Philippines, or to corporations or associations at least sixty per centum
of the capital of which is owned by such citizens, subject to any
existing right, grant, lease, or concession at the time of the
inauguration of the Government established under this Constitution.
Natural resources, with the exception of public agricultural land, shall
not be alienated, and no license, concession, or lease for the
exploitation, development, or utilization of any of the natural resources
shall be granted for a period exceeding twenty-five years, except as to
water rights for irrigation, water supply, fisheries, or industrial uses
other than the development of water power, in which cases beneficial
use may be the measure and limit of the grant. AaSIET

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.
The swell of nationalism that suffused the 1935 Constitution was
radically diluted when on November 1946, the Parity Amendment, which
came in the form of an "Ordinance Appended to the Constitution," was
ratified in a plebiscite. 112 The Amendment extended, from July 4, 1946 to
July 3, 1974, the right to utilize and exploit our natural resources to citizens
of the United States and business enterprises owned or controlled, directly or
indirectly, by citizens of the United States: 113

Notwithstanding the provision of section one, Article Thirteen,

and section eight, Article Fourteen, of the foregoing Constitution,
during the effectivity of the Executive Agreement entered into by the
President of the Philippines with the President of the United States on
the fourth of July, nineteen hundred and forty-six, pursuant to the
provisions of Commonwealth Act Numbered Seven hundred and thirty-
three, but in no case to extend beyond the third of July, nineteen
hundred and seventy-four, the disposition, exploitation, development,
and utilization of all agricultural, timber, and mineral lands of the public
domain, waters, minerals, coals, petroleum, and other mineral oils, all
forces and sources of potential energy, and other natural resources of
the Philippines, and the operation of public utilities, shall, if open to any
person, be open to citizens of the United States and to all forms of
business enterprise owned or controlled, directly or indirectly, by
citizens of the United States in the same manner as to, and under the
same conditions imposed upon, citizens of the Philippines or
corporations or associations owned or controlled by citizens of the
Philippines.

The Parity Amendment was subsequently modified by the 1954

Revised Trade Agreement, also known as the Laurel-Langley Agreement,
embodied in Republic Act No. 1355. 114
THE PETROLEUM ACT OF 1949 AND THE CONCESSION SYSTEM
In the meantime, Republic Act No. 387, 115 also known as the
Petroleum Act of 1949, was approved on June 18, 1949.
The Petroleum Act of 1949 employed the concession system for the
exploitation of the nation's petroleum resources. Among the kinds of
concessions it sanctioned were exploration and exploitation concessions,
which respectively granted to the concessionaire the exclusive right to
explore for 116 or develop 117 petroleum within specified areas.
Concessions may be granted only to duly qualified persons 118 who
have sufficient finances, organization, resources, technical competence, and
skills necessary to conduct the operations to be undertaken. 119
Nevertheless, the Government reserved the right to undertake such
work itself. 120 This proceeded from the theory that all natural deposits or
occurrences of petroleum or natural gas in public and/or private lands in the
Philippines belong to the State. 121 Exploration and exploitation concessions
did not confer upon the concessionaire ownership over the petroleum lands
and petroleum deposits. 122 However, they did grant concessionaires the
right to explore, develop, exploit, and utilize them for the period and under
the conditions determined by the law. 123
Concessions were granted at the complete risk of the concessionaire;
the Government did not guarantee the existence of petroleum or undertake,
in any case, title warranty. 124
Concessionaires were required to submit information as may be
required by the Secretary of Agriculture and Natural Resources, including
reports of geological and geophysical examinations, as well as production
reports. 125 Exploration 126 and exploitation 127 concessionaires were also
required to submit work programs.
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
1/2% of the petroleum produced and saved, less that consumed in the
operations of the concessionaire. 130 Under Article 66, R.A. No. 387, the
exploitation tax may be credited against the royalties so that if the
concessionaire shall be actually producing enough oil, it would not actually
be paying the exploitation tax. 131
Failure to pay the annual exploitation tax for two consecutive years, 132
or the royalty due to the Government within one year from the date it
becomes due, 133 constituted grounds for the cancellation of the concession.
In case of delay in the payment of the taxes or royalty imposed by the law or
by the concession, a surcharge of 1% per month is exacted until the same
are paid. 134
As a rule, title rights to all equipment and structures that the
concessionaire placed on the land belong to the exploration or exploitation
concessionaire. 135 Upon termination of such concession, the concessionaire
had a right to remove the same. 136
The Secretary of Agriculture and Natural Resources was tasked with
carrying out the provisions of the law, through the Director of Mines, who
acted under the Secretary's immediate supervision and control. 137 The Act
granted the Secretary the authority to inspect any operation of the
concessionaire and to examine all the books and accounts pertaining to
operations or conditions related to payment of taxes and royalties. 138
The same law authorized the Secretary to create an Administration
Unit and a Technical Board. 139 The Administration Unit was charged, inter
alia, with the enforcement of the provisions of the law. 140 The Technical
Board had, among other functions, the duty to check on the performance of
concessionaires and to determine whether the obligations imposed by the
Act and its implementing regulations were being complied with. 141
Victorio Mario A. Dimagiba, Chief Legal Officer of the Bureau of Energy
Development, analyzed the benefits and drawbacks of the concession
system insofar as it applied to the petroleum industry:

Advantages of Concession. Whether it emphasizes income tax or

royalty, the most positive aspect of the concession system is that the
State's financial involvement is virtually risk free and administration is
simple and comparatively low in cost. Furthermore, if there is a
competitive allocation of the resource leading to substantial bonuses
and/or greater royalty coupled with a relatively high level of taxation,
revenue accruing to the State under the concession system may
compare favorably with other financial arrangements.

Disadvantages of Concession. There are, however, major

negative aspects to this system. Because the Government's role in the
traditional concession is passive, it is at a distinct disadvantage in
managing and developing policy for the nation's petroleum resource.
This is true for several reasons. First, even though most concession
agreements contain covenants requiring diligence in operations and
production, this establishes only an indirect and passive control of the
host country in resource development. Second, and more importantly,
the fact that the host country does not directly participate in resource
management decisions inhibits its ability to train and employ its
nationals in petroleum development. This factor could delay or prevent
the country from effectively engaging in the development of its
resources. Lastly, a direct role in management is usually necessary in
order to obtain a knowledge of the international petroleum industry
which is important to an appreciation of the host country's resources in
relation to those of other countries. 142

Other liabilities of the system have also been noted:

. . . 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 in 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 within the principle embodied in our
Constitution that natural resources belong to the State and shall not be
alienated, not to mention the fact that the concession was the bedrock
of the colonial system in the exploitation of natural resources. 143

Eventually, the concession system failed for reasons explained by

Dimagiba:

Notwithstanding the good intentions of the Petroleum Act of

1949, the concession system could not have properly spurred
sustained oil exploration activities in the country, since it assumed that
such a capital-intensive, high risk venture could be successfully
undertaken by a single individual or a small company. In effect,
concessionaires' funds were easily exhausted. Moreover, since the
concession system practically closed its doors to interested foreign
investors, local capital was stretched to the limits. The old system also
failed to consider the highly sophisticated technology and expertise
required, which would be available only to multinational companies.
144

A shift to a new regime for the development of natural resources thus

seemed imminent.
PRESIDENTIAL DECREE NO. 87, THE 1973 CONSTITUTION
AND THE SERVICE CONTRACT SYSTEM
The promulgation on December 31, 1972 of Presidential Decree No. 87,
145otherwise 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. 161 Article XIV on the National
Economy and Patrimony contained provisions similar to the 1935
Constitution with regard to Filipino participation in the nation's natural
resources. Section 8, Article XIV thereof provides:

Sec. 8. All lands of the public domain, waters, minerals, coal,
petroleum and other mineral oils, all forces of potential energy,
fisheries, wildlife, and other natural resources of the Philippines belong
to the State. With the exception of agricultural, industrial or
commercial, residential and resettlement lands of the public domain,
natural resources shall not be alienated, and no license, concession, or
lease for the exploration, development, exploitation, or utilization of
any of the natural resources shall be granted for a period exceeding
twenty-five years, renewable for not more than twenty-five years,
except as to water rights for irrigation, water supply, fisheries, or
industrial uses other than the development of water power, in which
cases beneficial use may be the measure and limit of the grant.

While Section 9 of the same Article maintained the Filipino-only policy

in the enjoyment of natural resources, it also allowed Filipinos, upon
authority of the Batasang Pambansa, to enter into service contracts with any
person or entity for the exploration or utilization of natural resources.

Sec. 9. The disposition, exploration, development, exploitation,

or utilization of any of the natural resources of the Philippines shall be
limited to citizens, or to corporations or associations at least sixty per
centum of which is owned by such citizens. The Batasang Pambansa, in
the national interest, may allow such citizens, corporations or
associations to enter into service contracts for financial, technical,
management, or other forms of assistance with any person or entity for
the exploration, or utilization of any of the natural resources. Existing
valid and binding service contracts for financial, technical,
management, or other forms of assistance are hereby recognized as
such. [Emphasis supplied.]

The concept of service contracts, according to one delegate, was

borrowed from the methods followed by India, Pakistan and especially
Indonesia in the exploration of petroleum and mineral oils. 162 The provision
allowing such contracts, according to another, was intended to "enhance the
proper development of our natural resources since Filipino citizens lack the
needed capital and technical know-how which are essential in the proper
exploration, development and exploitation of the natural resources of the
country." 163
The original idea was to authorize the government, not private entities,
to enter into service contracts with foreign entities. 164 As finally approved,
however, a citizen or private entity could be allowed by the National
Assembly to enter into such service contract. 165 The prior approval of the
National Assembly was deemed sufficient to protect the national interest. 166
Notably, none of the laws allowing service contracts were passed by the
Batasang Pambansa. Indeed, all of them were enacted by presidential
decree. aSDHCT

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. 704 170 (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. 705 172 (THE REVISED FORESTRY CODE OF THE
PHILIPPINES), approved on May 19, 1975, allowed "forest products licensees,
lessees, or permitees to enter into service contracts for financial, technical,
management, or other forms of assistance . . . with any foreign person or
entity for the exploration, development, exploitation or utilization of the
forest resources." 173
Yet another law allowing service contracts, this time for geothermal
resources, was Presidential Decree No. 1442, 174 which was signed into law
on June 11, 1978. Section 1 thereof authorized the Government to enter into
service contracts for the exploration, exploitation and development of
geothermal resources with a foreign contractor who must be technically and
financially capable of undertaking the operations required in the service
contract.
Thus, virtually the entire range of the country's natural resources —
from petroleum and minerals to geothermal energy, from public lands and
forest resources to fishery products — was well covered by apparent legal
authority to engage in the direct participation or involvement of foreign
persons or corporations (otherwise disqualified) in the exploration and
utilization of natural resources through service contracts. 175
THE 1987 CONSTITUTION AND TECHNICAL
OR FINANCIAL ASSISTANCE AGREEMENTS
After the February 1986 Edsa Revolution, Corazon C. Aquino took the
reins of power under a revolutionary government. On March 25, 1986,
President Aquino issued Proclamation No. 3, 176 promulgating the Provisional
Constitution, more popularly referred to as the Freedom Constitution. By
authority of the same Proclamation, the President created a Constitutional
Commission (CONCOM) to draft a new constitution, which took effect on the
date of its ratification on February 2, 1987. 177
The 1987 Constitution retained the Regalian doctrine. The first
sentence of Section 2, Article XII states: "All lands of the public domain,
waters, minerals, coal, petroleum, and other mineral oils, all forces of
potential energy, fisheries, forests or timber, wildlife, flora and fauna, and
other natural resources are owned by the State."
Like the 1935 and 1973 Constitutions before it, the 1987 Constitution,
in the second sentence of the same provision, prohibits the alienation of
natural resources, except agricultural lands.
The third sentence of the same paragraph is new: "The exploration,
development and utilization of natural resources shall be under the full
control and supervision of the State." The constitutional policy of the State's
"full control and supervision" over natural resources proceeds from the
concept of jura regalia, as well as the recognition of the importance of the
country's natural resources, not only for national economic development, but
also for its security and national defense. 178 Under this provision, the State
assumes "a more dynamic role" in the exploration, development and
utilization of natural resources. 179
 Conspicuously absent in Section 2 is the provision in the 1935 and
1973 Constitutions authorizing the State to grant licenses, concessions, or
leases for the exploration, exploitation, development, or utilization of natural
resources. By such omission, the utilization of inalienable lands of public
domain through "license, concession or lease" is no longer allowed under the
1987 Constitution. 180
Having omitted the provision on the concession system, Section 2
proceeded to introduce "unfamiliar language": 181

The State may directly undertake such activities or it may enter

into co-production, joint venture, or production-sharing agreements
with Filipino citizens, or corporations or associations at least sixty per
centum of whose capital is owned by such citizens.

Consonant with the State's "full supervision and control" over natural
resources, Section 2 offers the State two "options." 182 One, the State may
directly undertake these activities itself; or two, it may enter into co-
production, joint venture, or production-sharing agreements with Filipino
citizens, or entities at least 60% of whose capital is owned by such citizens.
A third option is found in the third paragraph of the same section:

The Congress may, by law, allow small-scale utilization of natural

resources by Filipino citizens, as well as cooperative fish farming, with
priority to subsistence fishermen and fish-workers in rivers, lakes,
bays, and lagoons.

While the second and third options are limited only to Filipino citizens
or, in the case of the former, to corporations or associations at least 60% of
the capital of which is owned by Filipinos, a fourth allows the participation of
foreign-owned corporations. The fourth and fifth paragraphs of Section 2
provide:

The President may enter into agreements with foreign-owned

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

The President shall notify the Congress of every contract entered

into in accordance with this provision, within thirty days from its
execution.

Although Section 2 sanctions the participation of foreign-owned

corporations in the exploration, development, and utilization of natural
resources, it imposes certain limitations or conditions to agreements with
such corporations.
First, the parties to FTAAs. Only the President, in behalf of the State,
may enter into these agreements, and only with corporations. By contrast,
under the 1973 Constitution, a Filipino citizen, corporation or association
may enter into a service contract with a "foreign person or entity."
Second, the size of the activities: only large-scale exploration,
development, and utilization is allowed. The term "large-scale usually refers
to very capital-intensive activities." 183
Third, the natural resources subject of the activities is restricted to
minerals, petroleum and other mineral oils, the intent being to limit service
contracts to those areas where Filipino capital may not be sufficient. 184
Fourth, consistency with the provisions of statute. The agreements
must be in accordance with the terms and conditions provided by law.
Fifth, Section 2 prescribes certain standards for entering into such
agreements. The agreements must be based on real contributions to
economic growth and general welfare of the country.
Sixth, the agreements must contain rudimentary stipulations for the
promotion of the development and use of local scientific and technical
resources.
Seventh, the notification requirement. The President shall notify
Congress of every financial or technical assistance agreement entered into
within thirty days from its execution.
Finally, the scope of the agreements. While the 1973 Constitution
referred to "service contracts for financial, technical, management, or other
forms of assistance" the 1987 Constitution provides for "agreements . . .
involving either financial or technical assistance." It bears noting that the
phrases "service contracts" and "management or other forms of assistance"
in the earlier constitution have been omitted.
By virtue of her legislative powers under the Provisional Constitution,
185 President Aquino, on July 10, 1987, signed into law E.O. No. 211
prescribing the interim procedures in the processing and approval of
applications for the exploration, development and utilization of minerals. The
omission in the 1987 Constitution of the term "service contracts"
notwithstanding, the said E.O. still referred to them in Section 2 thereof:

Sec. 2. Applications for the exploration, development and

utilization of natural resources, including renewal applications and
applications for approval of operating agreements and mining service
contracts, shall be accepted and processed and may be approved . . ..
[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)Â The State may enter into co-production, joint venture or
production-sharing agreements with Filipino citizens or qualified
corporations.
(3)Â Congress may, by law, allow small-scale utilization of natural
resources by Filipino citizens.
(4)Â For the large-scale exploration, development and utilization of
minerals, petroleum and other mineral oils, the President may enter into
agreements with foreign-owned corporations involving technical or financial
assistance. 186
Except to charge the Mines and Geosciences Bureau of the DENR with
performing researches and surveys, 187 and a passing mention of
government-owned or controlled corporations, 188 R.A. No. 7942 does not
specify how the State should go about the first mode. The third mode, on the
other hand, is governed by Republic Act No. 7076 189 (the People's Small-
Scale Mining Act of 1991) and other pertinent laws. 190 R.A. No. 7942
primarily concerns itself with the second and fourth modes.
Mineral production sharing, co-production and joint venture
agreements are collectively classified by R.A. No. 7942 as "mineral
agreements." 191 The Government participates the least in a mineral
production sharing agreement (MPSA). In an MPSA, the Government grants
the contractor 192 the exclusive right to conduct mining operations within a
contract area 193 and shares in the gross 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's enjoys the
greatest participation, the Government and the JVA contractor organize a
company with both parties having equity shares. 200 Aside from earnings in
equity, the Government in a JVA is also entitled to a share in the gross
output. 201 The Government may enter into a CA 202 or JVA 203 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 to 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 . . .. 206

The fourth mode involves "financial or technical assistance

agreements." An FTAA is defined as "a contract involving financial or
technical assistance for large-scale exploration, development, and utilization
of natural resources." 207 Any qualified person with technical and financial
capability to undertake large-scale exploration, development, and utilization
of natural resources in the Philippines may enter into such agreement
directly with the Government through the DENR. 208 For the purpose of
granting an FTAA, a legally organized foreign-owned corporation (any
corporation, partnership, association, or cooperative duly registered in
accordance with law in which less than 50% of the capital is owned by
Filipino citizens) 209 is deemed a "qualified person." 210
Other than the difference in contractors' qualifications, the principal
distinction between mineral agreements and FTAAs is the maximum contract
area to which a qualified person may hold or be granted. 211 "Large-scale"
under R.A. No. 7942 is determined by the size of the contract area, as
opposed to the amount invested (US $50,000,000.00), which was the
standard under E.O. 279.
Like a CA or a JVA, an FTAA is subject to negotiation. 212 The
Government's contributions, in the form of taxes, in an FTAA is identical to
its contributions in the two mineral agreements, save that in an FTAA:

The collection of Government share in financial or technical

 assistance agreement shall commence after the financial or technical
assistance agreement contractor has fully recovered its pre-operating
expenses, exploration, and development expenditures, inclusive. 213

III
Having examined the history of the constitutional provision and
statutes enacted pursuant thereto, a consideration of the substantive issues
presented by the petition is now in order.
THE EFFECTIVITY OF EXECUTIVE ORDER NO. 279
Petitioners argue that E.O. No. 279, the law in force when the WMC
FTAA was executed, did not come into effect.
E.O. No. 279 was signed into law by then President Aquino on July 25,
1987, two days before the opening of Congress on July 27, 1987. 214 Section
8 of the E.O. states that the same "shall take effect immediately." This
provision, according to petitioners, runs counter to Section 1 of E.O. No. 200,
215 which provides:

SECTION 1. Laws shall take effect after fifteen days following
the completion of their publication either in the Official Gazette or in a
newspaper of general circulation in the Philippines, unless it is
otherwise provided. 216 [Emphasis supplied.] TCHEDA

On that premise, petitioners contend that E.O. No. 279 could have only
taken effect fifteen days after its publication at which time Congress had
already convened and the President's power to legislate had ceased.
Respondents, on the other hand, counter that the validity of E.O. No.
279 was settled in Miners Association of the Philippines v. Factoran, supra .
This is of course incorrect for the issue in Miners Association was not the
validity of E.O. No. 279 but that of DAO Nos. 57 and 82 which were issued
pursuant thereto.
Nevertheless, petitioners' contentions have no merit.
It bears noting that there is nothing in E.O. No. 200 that prevents a law
from taking effect on a date other than — even before — the 15-day period
after its publication. Where a law provides for its own date of effectivity,
such date prevails over that prescribed by E.O. No. 200. Indeed, this is the
very essence of the phrase "unless it is otherwise provided" in Section 1
thereof. Section 1, E.O. No. 200, therefore, applies only when a statute does
not provide for its own date of effectivity.
What is mandatory under E.O. No. 200, and what due process requires,
as this Court held in Tañada v. Tuvera, 217 is the publication of the law for

without such notice and publication, there would be no basis for

the application of the maxim "ignorantia legis n[eminem] excusat." It
would be the height of injustice to punish or otherwise burden a citizen
for the transgression of a law of which he had no notice whatsoever,
not even a constructive one.
 While the effectivity clause of E.O. No. 279 does not require its
publication, it is not a ground for its invalidation since the Constitution, being
"the fundamental, paramount and supreme law of the nation," is deemed
written in the law. 218 Hence, the due process clause, 219 which, so Tañada
held, mandates the publication of statutes, is read into Section 8 of E.O. No.
279. Additionally, Section 1 of E.O. No. 200 which provides for publication
"either in the Official Gazette or in a newspaper of general circulation in the
Philippines," finds suppletory application. It is significant to note that E.O. No.
279 was actually published in the Official Gazette 220 on August 3, 1987.
From a reading then of Section 8 of E.O. No. 279, Section 1 of E.O. No.
200, and Tañada v . Tuvera , this Court holds that E.O. No. 279 became
effective immediately upon its publication in the Official Gazette on August
3, 1987.
That such effectivity took place after the convening of the first
Congress is irrelevant. At the time President Aquino issued E.O. No. 279 on
July 25, 1987, she was still validly exercising legislative powers under the
Provisional Constitution. 221 Article XVIII (Transitory Provisions) of the 1987
Constitution explicitly states:

Sec. 6. The incumbent President shall continue to exercise

legislative powers until the first Congress is convened.

The convening of the first Congress merely precluded the exercise of

legislative powers by President Aquino; it did not prevent the effectivity of
laws she had previously enacted.
There can be no question, therefore, that E.O. No. 279 is an effective,
and a validly enacted, statute.
THE CONSTITUTIONALITY OF THE WMCP FTAA
Petitioners submit that, in accordance with the text of Section 2, Article
XII of the Constitution, FTAAs should be limited to " technical or financial
assistance" only. They observe, however, that, contrary to the language of
the Constitution, the WMCP FTAA allows WMCP, a fully foreign-owned mining
corporation, to extend more than mere financial or technical assistance to
the State, for it permits WMCP to manage and operate every aspect of the
mining activity. 222
Petitioners' submission is well-taken. It is a cardinal rule in the
interpretation of constitutions that the instrument must be so construed as
to give effect to the intention of the people who adopted it. 223 This intention
is to be sought in the constitution itself, and the apparent meaning of the
words is to be taken as expressing it, except in cases where that assumption
would lead to absurdity, ambiguity, or contradiction. 224 What the
Constitution says according to the text of the provision, therefore, compels
acceptance and negates the power of the courts to alter it, based on the
postulate that the framers and the people mean what they say. 225
Accordingly, following the literal text of the Constitution, assistance
accorded by foreign-owned corporations in the large-scale exploration,
development, and utilization of petroleum, minerals and mineral oils should
be limited to "technical" or "financial" assistance only.
WMCP nevertheless submits that the word "technical" in the fourth
paragraph of Section 2 of E.O. No. 279 encompasses a "broad number of
possible services," perhaps, "scientific and/or technological in basis." 226 It
thus posits that it may also well include "the area of management or
operations . . . so long as such assistance requires specialized knowledge or
skills, and are related to the exploration, development and utilization of
mineral resources." 227
This Court is not persuaded. As priorly pointed out, the phrase
"management or other forms of assistance" in the 1973 Constitution was
deleted in the 1987 Constitution, which allows only "technical or financial
assistance." Casus omisus pro omisso habendus est. A person, object or
thing omitted from an enumeration must be held to have been omitted
intentionally. 228 As will be shown later, the management or operation of
mining activities by foreign contractors, which is the primary feature of
service contracts, was precisely the evil that the drafters of the 1987
Constitution sought to eradicate.
Respondents insist that "agreements involving technical or financial
assistance" is just another term for service contracts. They contend that the
proceedings of the CONCOM indicate "that although the terminology 'service
contract' was avoided [by the Constitution], the concept it represented was
not." They add that "[t]he concept is embodied in the phrase 'agreements
involving financial or technical assistance.'" 229 And point out how members
of the CONCOM referred to these agreements as "service contracts." For
instance:

SR. TAN. Am I correct in thinking that the only difference

between these future service contracts and the past service contracts
under Mr. Marcos is the general law to be enacted by the legislature
and the notification of Congress by the President? That is the only
difference, is it not?

MR. VILLEGAS. That is right.

SR. TAN. So those are the safeguards?

MR. VILLEGAS. Yes. There was no law at all governing service contracts
before.

SR. TAN. Thank you, Madam President. 230 [Emphasis supplied.]

WMCP also cites the following statements of Commissioners Gascon,

Garcia, Nolledo and Tadeo who alluded to service contracts as they
explained their respective votes in the approval of the draft Article:

MR. GASCON. Mr. Presiding Officer, I vote no primarily because of

two reasons: One, the provision on service contracts. I felt that if we
would constitutionalize any provision on service contracts, this should
always be with the concurrence of Congress and not guided only by a
general law to be promulgated by Congress. . . . 231 [Emphasis
supplied.]

xxx xxx xxx.

MR. GARCIA. Thank you.

I vote no. . . ..

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 xxx 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 or 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.

xxx xxx xxx.

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.]

xxx xxx xxx.

MR. TADEO. Nais ko lamang ipaliwanag ang aking boto.

Matapos suriin ang kalagayan ng Pilipinas, ang saligang suliranin,

pangunahin ang salitang "imperyalismo." Ang ibig sabihin nito ay ang
sistema ng lipunang pinaghaharian ng iilang monopolyong kapitalista
at ang salitang "imperyalismo" ay buhay na buhay sa National
Economy and Patrimony na nating ginawa. Sa pamamagitan ng
salitang "based on," naroroon na ang free trade sapagkat tayo ay
mananatiling tagapagluwas ng hilaw na sangkap at tagaangkat ng
yaring produkto. Pangalawa, naroroon pa rin ang parity rights, ang
service contract, ang 60-40 equity sa natural resources. Habang
naghihirap ang sambayanang Pilipino, ginagalugad naman ng mga
 dayuhan, ang ating likas na yaman. Kailan man ang Article on National
Economy and Patrimony ay hindi nagpaalis sa pagkaalipin ng ating
ekonomiya sa kamay ng mga dayuhan . Ang solusyon sa suliranin ng
bansa ay dalawa lamang: ang pagpapatupad ng tunay na reporma sa
lupa at ang national industrialization. Ito ang tinatawag naming
pagsikat ng araw sa Silangan. Ngunit ang mga landlords and big
businessmen at ang mga komprador ay nagsasabi na ang free trade na
ito, ang kahulugan para sa amin, ay ipinipilit sa ating sambayanan na
ang araw ay sisikat sa Kanluran. Kailan man hindi puwedeng sumikat
ang araw sa Kanluran. I vote no. 234 [Emphasis supplied.]

This Court is likewise not persuaded.

As earlier noted, the phrase "service contracts" has been deleted in the
1987 Constitution's Article on National Economy and Patrimony. If the
CONCOM intended to retain the concept of service contracts under the 1973
Constitution, it could have simply adopted the old terminology ("service
contracts") instead of employing new and unfamiliar terms ("agreements . . .
involving either technical or financial assistance"). Such a difference
between the language of a provision in a revised constitution and that of a
similar provision in the preceding constitution is viewed as indicative of a
difference in purpose. 235 If, as respondents suggest, the concept of
"technical or financial assistance" agreements is identical to that of "service
contracts," the CONCOM would not have bothered to fit the same dog with a
new collar. To uphold respondents' theory would reduce the first to a mere
euphemism for the second and render the change in phraseology
meaningless.
An examination of the reason behind the change confirms that
technical or financial assistance agreements are not synonymous to service
contracts.

[T]he Court in construing a Constitution should bear in mind the

object sought to be accomplished by its adoption, and the evils, if any,
sought to be prevented or remedied. A doubtful provision will be
examined in light of the history of the times, and the condition and
circumstances under which the Constitution was framed. The object is
to ascertain the reason which induced the framers of the Constitution
to enact the particular provision and the purpose sought to be
accomplished thereby, in order to construe the whole as to make the
words consonant to that reason and calculated to effect that purpose.
236

As the following question of Commissioner Quesada and Commissioner

Villegas' answer shows, the drafters intended to do away with service
contracts which were used to circumvent the capitalization (60%-40%)
requirement:

MS. QUESADA. The 1973 Constitution used the words "service

contracts." In this particular Section 3, is there a safeguard against the
possible control of foreign interests if the Filipinos go into co-production
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 has been introduced — and this, of course
can be refined — is found in Section 3, lines 25 to 30, where Congress
will have to concur with the President on any agreement entered into
between a foreign-owned corporation and the government involving
technical or financial assistance for large-scale exploration,
development and utilization of natural resources. 237 [Emphasis
supplied.]

In a subsequent discussion, Commissioner Villegas allayed the fears of

Commissioner Quesada regarding the participation of foreign interests in
Philippine natural resources, which was supposed to be restricted to
Filipinos.

MS. QUESADA. Another point of clarification is the phrase "and

utilization of natural resources shall be under the full control and
supervision of the State." In the 1973 Constitution, this was limited to
citizens of the Philippines; but it was removed and substituted by "shall
be under the full control and supervision of the State." Was the concept
changed so that these particular resources would be limited to citizens
of the Philippines? Or would these resources only be under the full
control and supervision of the State; meaning, noncitizens would have
access to these natural resources? Is that the understanding?

MR. VILLEGAS. No, Mr. Vice-President, if the Commissioner reads

the next sentence, it states:

Such activities may be directly undertaken by the State, or

it may enter into co-production, joint venture, production-sharing
agreements with Filipino citizens.

So we are still limiting it only to Filipino citizens.

xxx xxx xxx.

MS. QUESADA. Going back to Section 3, the section suggest 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, production-sharing
agreements with . . . corporations or associations at least sixty
per cent of whose voting stock or controlling interest is owned by
such citizens.

Lines 25 to 30, on the other hand, suggest that in the large-scale

exploration, development and utilization of natural resources, the
President with the concurrence of Congress may enter into agreements
with foreign-owned corporations even for technical or financial
assistance.

I wonder if this part of Section 3 contradicts the second part. I am

raising this point for fear that foreign investors will use their enormous
 capital resources to facilitate the actual exploitation or exploration,
development and effective disposition of our natural resources to the
detriment of Filipino investors. I am not saying that we should not
consider borrowing money from foreign sources. What I refer to is that
foreign interest should be allowed to participate only to the extent that
they lend us money and give us technical assistance with the
appropriate government permit. In this way, we can insure the
enjoyment of our natural resources by our own people.

MR. VILLEGAS. Actually, the second provision about the President

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

If the Commissioner will remember, this removes the possibility

for service contracts which we said yesterday were avenues used in
the previous regime to go around the 60-40 requirement. 238
[Emphasis supplied.]

The present Chief Justice, then a member of the CONCOM, also

referred to this limitation in scope in proposing an amendment to the 60-40
requirement:

MR. DAVIDE. May I be allowed to explain the proposal?

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

President.

MR. DAVIDE. It will not take three minutes.

The Commission had just approved the Preamble. In the

Preamble we clearly stated that the Filipino people are sovereign and
that one of the objectives for the creation or establishment of a
government is to conserve and develop the national patrimony. The
implication is that the national patrimony or our natural resources are
exclusively reserved for the Filipino people . No alien must be allowed
to enjoy, exploit and develop our natural resources. As a matter of fact,
that principle proceeds from the fact that our natural resources are
gifts from God to the Filipino people and it would be a breach of that
special blessing from God if we will allow aliens to exploit our natural
resources.

I voted in favor of the Jamir proposal because it is not really

exploitation that we granted to the alien corporations but only for them
to render financial or technical assistance.It is not for them to enjoy our
natural resources. Madam President, our natural resources are
depleting; our population is increasing by leaps and bounds. Fifty years
from now, if we will allow these aliens to exploit our natural resources,
there will be no more natural resources for the next generations of
Filipinos. It may last long if we will begin now. Since 1935 the aliens
have been allowed to enjoy to a certain extent the exploitation of our
natural resources, and we became victims of foreign dominance and
control. The aliens are interested in coming to the Philippines because
 they would like to enjoy the bounty of nature exclusively intended for
Filipinos by God.

And so I appeal to all, for the sake of the future generations, that
if we have to pray in the Preamble "to preserve and develop the
national patrimony for the sovereign Filipino people and for the
generations to come," we must at this time decide once and for all that
our natural resources must be reserved only to Filipino citizens.

Thank you. 239 [Emphasis supplied.]

The opinion of another member of the CONCOM is persuasive 240 and

leaves no doubt as to the intention of the framers to eliminate service
contracts altogether. He writes:

Paragraph 4 of Section 2 specifies large-scale, capital-intensive,

highly technological undertakings for which the President may enter
into contracts with foreign-owned corporations, and enunciates strict
conditions that should govern such contracts. . . ..

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:
        Â
   PROPOSED   Â
   RESOLUTION NO. 496   Â
DRAFT OF THE UP OF THE ARTICLE XII OF THE
LAW CONSTITUTION CONSTITUTIONAL 1987 CONSTITUTION
PROJECTÂ COMMISSIONÂ Â Â Â
        Â
 SEC. All lands of the  SEC. 3.All lands of the  SEC. 2. All lands of the
1.
public domain, waters, public domain, waters, public domain, waters,
minerals, minerals, minerals,
coal, petroleum and other coal, petroleum and other coal, petroleum, and other
mineral
mineral oils, all forces of oils, all forces of potential mineral oils, all forces of
energy,
potential energy, fisheries, fisheries, forests, flora and potential energy, fisheries,
fauna,
flora and fauna and other and other natural resources forests or timber, wildlife,
are flora
natural resources of the owned by the State. With and fauna, and other natural
the
Philippines are owned by exception of agricultural resources are owned by the
lands,
the State. With the all other natural resources State. With the exception of
exception shall
of agricultural lands, all not be alienated. The agricultural lands, all other
other exploration,
natural resources shall not development, and natural resources shall not
be utilization of be
alienated. The exploration, natural resources shall be alienated. The exploration,
under
development and the full control and development, and utilization
utilization supervision of
of natural resources shall of the State. Such activities natural resources shall be
be may under
under the full control and be directly undertaken by the full control and
the supervision
supervision of the State. State, or it may enter into of the State. The State may
Such
activities may be directly co-production, joint venture,directly undertake such
activities
undertaken by the state, or production-sharing or it may enter into co-
agreements
it may enter into co- with Filipino citizens or production, joint venture, or
production,
joint venture, production corporations or associations production-sharing
at agreementsÂ
sharing agreements with least sixty per cent of with Filipino citizens, or
whose
Filipino citizens or voting stock or controlling corporations or associations
corporations at
or associations sixty per interest is owned by such least sixty per centum of
cent whose
of whose voting stock or citizens. Such agreements capital is owned by such
shall
controlling interest is be for a period of twenty- citizens. Such agreements
owned five may
by such citizens for a years, renewable for not be for a period not
period more exceeding
of not more than twenty- than twenty-five years, and twenty-five years, renewable
five for
years, renewable for not under such terms and not more than twenty-five
more
than twenty-five years and conditions
as may be provided by law. years,
and under such terms and
In
under such terms and cases of water rights for conditions as may be
provided
conditions as may be irrigation, water supply, by law. In case of water
provided fisheries rights
by law. In case as to water or industrial uses other thanfor irrigation, water, supply,
the
rights for irrigation, water development for water fisheries, or industrial uses
power,
supply, fisheries, or beneficial use may be the other than the development
industrial of
uses other than the measure and limit of the water power, beneficial use
grant. may
development of water    be the measure and limit of
power, the
beneficial use may be the    grant. Â
measure and limit of the      Â
grant.
       Â
       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.
    Â
The National Assembly may The Congress may by  The Congress may, by
law allow
by law allow small scale small-scale utilization of law, allow small-scale
natural utilization
utilization of natural resources by Filipino of natural resources by
resources citizens, Filipino
by Filipino citizens. as well as cooperative fish citizens, as well as
cooperative
   farming in rivers, lakes, fish farming, with priority
bays, toÂ
   and  subsistence fishermen and
lagoons. fish-
      workers in rivers, lakes,
bays,
      and Â
lagoons.
     Â
 The National  The President with the  The President may
Assembly,
may by two-thirds vote of concurrence of Congress, enter into agreements with
all by
its members by special law special law, shall provide foreign-owned
 the corporationsÂ
provide the terms and terms and conditions under involving either technical or
conditions under which a which a foreign-owned financial assistance for
large-
foreign-owned corporation corporation may enter into scale exploration,
development,
may enter into agreements agreements with the and utilization of minerals,
government
with the government involving either technical or petroleum, and other
involving mineral
either technical or financial financial assistance for oils according to the general
large-
assistance for large-scale scale exploration, terms and conditions
development, provided
exploration, development, and utilization of natural by law, based on real
or
utilization of natural resources. [Emphasis contributions to the
resources. supplied.] economic
[Emphasis supplied.] Â Â Â 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.]
       Â
       The President shall
      notify the Congress of every
      contract entered into in
      accordance with this
      provision, within thirty days
      from its execution.
The insights of the proponents of the U.P. Law draft are, therefore,
instructive in interpreting the phrase "technical or financial assistance."
In his position paper entitled Service Contracts: Old Wine in New
Bottles?, Professor Pacifico A. Agabin, who was a member of the working
group that prepared the U.P. Law draft, criticized service contracts for they
"lodge exclusive management and control of the enterprise to the service
contractor, which is reminiscent of the old concession regime. Thus,
notwithstanding the provision of the Constitution that natural resources
belong to the State, and that these shall not be alienated, the service
contract system renders nugatory the constitutional provisions cited." 244 He
elaborates:

Looking at the Philippine model, we can discern the following

vestiges of the concession regime, thus:

1. Bidding of a selected area, or leasing the choice of the area

 to the interested party and then negotiating the terms and conditions
of the contract; (Sec. 5, P.D. 87)

2. Management of the enterprise vested on the contractor,

including operation of the field if petroleum is discovered; (Sec. 8, P.D.
87)

3. Control of production and other matters such as expansion

and development; (Sec. 8) aSEDHC

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 . . .. 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:

. . . 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 or foreign interests. In
such a case, the citizenship requirement is completely set aside,
permitting foreign corporations to obtain actual possession, control,
and [enjoyment] of the country's natural resources. 246 [Emphasis
supplied.]

Accordingly, Professor Agabin recommends that:

Recognizing the service contract for what it is, we have to

expunge it from the Constitution and reaffirm ownership over our
natural resources. That is the only way we can exercise effective
control over our natural resources.

This should not mean complete isolation of the country's natural

resources from foreign investment. Other contract forms which are less
derogatory to our sovereignty and control over natural resources — like
technical assistance agreements, financial assistance [agreements],
co-production agreements, joint ventures, production-sharing — could
still be utilized and adopted without violating constitutional provisions.
In other words, we can adopt contract forms which recognize and
assert our sovereignty and ownership over natural resources, and
where the foreign entity is just a pure contractor instead of the
beneficial owner of our economic resources. 247 [Emphasis supplied.]

Still another member of the working group, Professor Eduardo Labitag,

proposed that:

2. Service contracts as practiced under the 1973 Constitution

should be discouraged, instead the government may be allowed,
subject to authorization by special law passed by an extraordinary
majority to enter into either technical or financial assistance. This is
justified by the fact that as presently worded in the 1973 Constitution,
a service contract gives full control over the contract area to the
service contractor, for him to work, manage and dispose of the
proceeds or production. It was a subterfuge to get around the
nationality requirement of the constitution. 248 [Emphasis supplied.]

In the annotations on the proposed Article on National Economy and

Patrimony, the U.P. Law draft summarized the rationale therefor, thus:

5. The last paragraph is a modification of the service contract

provision found in Section 9, Article XIV of the 1973 Constitution as
amended. This 1973 provision shattered the framework of nationalism
in our fundamental law (see Magallona, "Nationalism and its
Subversion in the Constitution"). Through the service contract, the
1973 Constitution had legitimized that which was prohibited under the
1935 constitution — the exploitation of the country's natural resources
by foreign nationals. Through the service contract, acts prohibited by
 the Anti-Dummy Law were recognized as legitimate arrangements.
Service contracts lodge exclusive management and control of the
enterprise to the service contractor, not unlike the old concession
regime where the concessionaire had complete control over the
country's natural resources, having been given exclusive and plenary
rights to exploit a particular resource and, in effect, having been
assured of ownership of that resource at the point of extraction (see
Agabin, "Service Contracts: Old Wine in New Bottles"). Service
contracts, hence, are antithetical to the principle of sovereignty over
our natural resources, as well as the constitutional provision on
nationalization or Filipinization of the exploitation of our natural
resources.

Under the proposed provision, only technical assistance or

financial assistance agreements may be entered into, and only for
large-scale activities. These are contract forms which recognize and
assert our sovereignty and ownership over natural resources since the
foreign entity is just a pure contractor and not a beneficial owner of
our economic resources. The proposal recognizes the need for capital
and technology to develop our natural resources without sacrificing our
sovereignty and control over such resources by the safeguard of a
special law which requires two-thirds vote of all the members of the
Legislature. This will ensure that such agreements will be debated upon
exhaustively and thoroughly in the National Assembly to avert
prejudice to the nation. 249 [Emphasis supplied.]

The U.P. Law draft proponents viewed service contracts under the 1973
Constitution as grants of beneficial ownership of the country's natural
resources to foreign owned corporations. While, in theory, the State owns
these natural resources — and Filipino citizens, their beneficiaries — service
contracts actually vested foreigners with the right to dispose, explore for,
develop, exploit, and utilize the same. Foreigners, not Filipinos, became the
beneficiaries of Philippine natural resources. This arrangement is clearly
incompatible with the constitutional ideal of nationalization of natural
resources, with the Regalian doctrine, and on a broader perspective, with
Philippine sovereignty.
The proponents nevertheless acknowledged the need for capital and
technical know-how in the large-scale exploitation, development and
utilization of natural resources — the second paragraph of the proposed draft
itself being an admission of such scarcity. Hence, they recommended a
compromise to reconcile the nationalistic provisions dating back to the 1935
Constitution, which reserved all natural resources exclusively to Filipinos,
and the more liberal 1973 Constitution, which allowed foreigners to
participate in these resources through service contracts. Such a compromise
called for the adoption of a new system in the exploration, development, and
utilization of natural resources in the form of technical agreements or
financial agreements which, necessarily, are distinct concepts from service
contracts.
The replacement of "service contracts" with "agreements . . . involving
either technical or financial assistance," as well as the deletion of the phrase
"management or other forms of assistance," assumes greater significance
when note is taken that the U.P. Law draft proposed other equally crucial
changes that were obviously heeded by the CONCOM. These include the
abrogation of the concession system and the adoption of new "options" for
the State in the exploration, development, and utilization of natural
resources. The proponents deemed these changes to be more consistent
with the State's ownership of, and its "full control and supervision" (a phrase
also employed by the framers) over, such resources. The Project explained:

3. In line with the State ownership of natural resources, the

State should take a more active role in the exploration, development,
and utilization of natural resources, than the present practice of
granting licenses, concessions, or leases — hence the provision that
said activities shall be under the full control and supervision of the
State. There are three major schemes by which the State could
undertake these activities: first, directly by itself; second, by virtue of
co-production, joint venture, production sharing agreements with
Filipino citizens or corporations or associations sixty per cent (60%) of
the voting stock or controlling interests of which are owned by such
citizens; or third, with a foreign-owned corporation, in cases of large-
scale exploration, development, or utilization of natural resources
through agreements involving either technical or financial assistance
only. . . ..

At present, under the licensing concession or lease schemes, the

government benefits from such benefits only through fees, charges, ad
valorem taxes and income taxes of the exploiters of our natural
resources. Such benefits are very minimal compared with the
enormous profits reaped by theses licensees, grantees,
concessionaires. Moreover, some of them disregard the conservation of
natural resources and do not protect the environment from
degradation. The proposed role of the State will enable it to a greater
share in the profits — it can also actively husband its natural resources
and engage in developmental programs that will be beneficial to them.

4. Aside from the three major schemes for the exploration,
development, and utilization of our natural resources, the State may,
by law, allow Filipino citizens to explore, develop, utilize natural
resources in small-scale. This is in recognition of the plight of marginal
fishermen, forest dwellers, gold panners, and others similarly situated
who exploit our natural resources for their daily sustenance and
survival. 250

Professor Agabin, in particular, after taking pains to illustrate the

similarities between the two systems, concluded that the service contract
regime was but a "rehash" of the concession system. "Old wine in new
bottles," as he put it. The rejection of the service contract regime, therefore,
is in consonance with the abolition of the concession system.
In light of the deliberations of the CONCOM, the text of the
Constitution, and the adoption of other proposed changes, there is no doubt
that the framers considered and shared the intent of the U.P. Law
proponents in employing the phrase "agreements . . . involving either
technical or financial assistance."
While certain commissioners may have mentioned the term "service
contracts" during the CONCOM deliberations, they may not have been
necessarily referring to the concept of service contracts under the 1973
Constitution. As noted earlier, "service contracts" is a term that assumes
different meanings to different people. 251 The commissioners may have
been using the term loosely, and not in its technical and legal sense, to refer,
in general, to agreements concerning natural resources entered into by the
Government with foreign corporations. These loose statements do not
necessarily translate to the adoption of the 1973 Constitution provision
allowing service contracts.
It is true that, as shown in the earlier quoted portions of the
proceedings in CONCOM, in response to Sr. Tan's question, Commissioner
Villegas commented that, other than congressional notification, the only
difference between "future" and "past" "service contracts" is the
requirement of a general law as there were no laws previously authorizing
the same. 252 However, such remark is far outweighed by his more
categorical statement in his exchange with Commissioner Quesada that the
draft article "does not permit foreign investors to participate" in the nation's
natural resources — which was exactly what service contracts did — except
to provide "technical or financial assistance." 253
In the case of the other commissioners, Commissioner Nolledo himself
clarified in his work that the present charter prohibits service contracts. 254
Commissioner Gascon was not totally averse to foreign participation, but
favored stricter restrictions in the form of majority congressional
concurrence. 255 On the other hand, Commissioners Garcia and Tadeo may
have veered to the extreme side of the spectrum and their objections may
be interpreted as votes against any foreign participation in our natural
resources whatsoever.
WMCP cites Opinion No. 75, s. 1987, 256 and Opinion No. 175, s. 1990
257 of the Secretary of Justice, expressing the view that a financial or
technical assistance agreement "is no different in concept" from the service
contract allowed under the 1973 Constitution. This Court is not, however,
bound by this interpretation. When an administrative or executive agency
renders an opinion or issues a statement of policy, it merely interprets a pre-
existing law; and the administrative interpretation of the law is at best
advisory, for it is the courts that finally determine what the law means. 258
In any case, the constitutional provision allowing the President to enter
into FTAAs with foreign-owned corporations is an exception to the rule that
participation in the nation's natural resources is reserved exclusively to
Filipinos. Accordingly, such provision must be construed strictly against their
enjoyment by non-Filipinos. As Commissioner Villegas emphasized, the
provision is "very restrictive." 259 Commissioner Nolledo also remarked that
"entering into service contracts is an exception to the rule on protection of
natural resources for the interest of the nation and, therefore, being an
exception, it should be subject, whenever possible, to stringent rules." 260
Indeed, exceptions should be strictly but reasonably construed; they extend
only so far as their language fairly warrants and all doubts should be
resolved in favor of the general provision rather than the exception. 261
With the foregoing discussion in mind, this Court finds that R.A. No.
7942 is invalid insofar as said Act authorizes service contracts. Although the
statute employs the phrase "financial and technical agreements" in
accordance with the 1987 Constitution, it actually treats these agreements
as service contracts that grant beneficial ownership to foreign contractors
contrary to the fundamental law.
Section 33, which is found under Chapter VI (Financial or Technical
Assistance Agreement) of R.A. No. 7942 states:

SEC. 33. Eligibility. — Any qualified person with technical and

financial capability to undertake large-scale exploration, development,
and utilization of mineral resources in the Philippines may enter into a
financial or technical assistance agreement directly with the
Government through the Department. [Emphasis supplied.]

"Exploration," as defined by R.A. No. 7942,

means the searching or prospecting for mineral resources by

geological, geochemical or geophysical surveys, remote sensing, test
pitting, trenching, drilling, shaft sinking, tunneling or any other means
for the purpose of determining the existence, extent, quantity and
quality thereof and the feasibility of mining them for profit. 262

A legally organized foreign-owned corporation may be granted an

exploration permit, 263 which vests it with the right to conduct exploration for
all minerals in specified areas, 264 i.e., to enter, occupy and explore the
same. 265 Eventually, the foreign-owned corporation, as such permittee, may
apply for a financial and technical assistance agreement. 266
"Development" is

the work undertaken to explore and prepare an ore body or a

mineral deposit for hiring, including the construction of necessary
infrastructure and related facilities. 267

"Utilization" "means the extraction or disposition of minerals." 268 A

stipulation that the proponent shall dispose of the minerals and byproducts
produced at the highest price and more advantageous terms and conditions
as provided for under the implementing rules and regulations is required to
be incorporated in every FTAA. 269
A foreign-owned/-controlled corporation may likewise be granted a
mineral processing permit. 270 "Mineral processing" is the milling,
beneficiation or upgrading of ores or minerals and rocks or by similar means
to convert the same into marketable products. 271
An FTAA contractor makes a warranty that the mining operations shall
be conducted in accordance with the provisions of R.A. No. 7942 and its
implementing rules 272 and for work programs and minimum expenditures
and commitments. 273 And it obliges itself to furnish the Government records
of geologic, accounting, and other relevant data for its mining operation. 274
"Mining operation," as the law defines it, means mining activities
involving exploration, feasibility, development, utilization, and processing.
275

The underlying assumption in all these provisions is that the foreign

contractor manages the mineral resources, just like the foreign contractor in
a service contract.
Furthermore, Chapter XII of the Act grants foreign contractors in FTAAs
the same auxiliary mining rights that it grants contractors in mineral
agreements (MPSA, CA and JV). 276 Parenthetically, Sections 72 to 75 use the
term "contractor," without distinguishing between FTAA and mineral
agreement contractors. And so does "holders of mining rights" in Section 76.
A foreign contractor may even convert its FTAA into a mineral agreement if
the economic viability of the contract area is found to be inadequate to
justify large-scale mining operations, 277 provided that it reduces its equity
in the corporation, partnership, association or cooperative to forty percent
(40%). 278
Finally, under the Act, an FTAA contractor warrants that it "has or has
access to all the financing, managerial, and technical expertise. . . ." 279 This
suggests that an FTAA contractor is bound to provide some management
assistance — a form of assistance that has been eliminated and, therefore,
proscribed by the present Charter. cAHDES

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)Â 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)Â 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)Â Section 33, which prescribes the eligibility of a contractor in a
financial or technical assistance agreement;
 (4)Â Section 35, 281 which enumerates the terms and conditions for
every financial or technical assistance agreement;
(5)Â 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)Â Section 56, 283 which authorizes the issuance of a mineral
processing permit to a contractor in a financial and technical assistance
agreement;
The following provisions of the same Act are likewise void as they are
dependent on the foregoing provisions and cannot stand on their own:
(1)Â 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)Â to extract and carry away any Mineral samples from the Contract
area for the purpose of conducting tests and studies in respect
thereof;

(c)Â 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)Â have the right of possession of the Contract Area, with full right of
ingress and egress and the right to occupy the same, subject to
the provisions of Presidential Decree No. 512 (if applicable) and
not be prevented from entry into private lands by surface owners
and/or occupants thereof when prospecting, exploring and
exploiting for minerals therein;

xxx xxx xxx

(f)Â to construct roadways, mining, drainage, power generation and

transmission facilities and all other types of works on the
Contract Area;

(g)Â to erect, install or place any type of improvements, supplies,

machinery and other equipment relating to the Mining
Operations and to use, sell or otherwise dispose of, modify,
remove or diminish any and all parts thereof;

(h)Â 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 xxx xxx

(l)Â 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;

xxx xxx xxx. 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.

. . . . Article 2 (1) of said treaty states that it applies to

investments whenever made and thus the fact that [WMCP's] FTAA was
entered into prior to the entry into force of the treaty does not preclude
the Philippine Government from protecting [WMCP's] investment in
[that] FTAA. Likewise, Article 3 (1) of the treaty provides that "Each
Party shall encourage and promote investments in its area by
investors of the other Party and shall [admit] such investments
in accordance with its Constitution, Laws, regulations and
investment policies" and in Article 3 (2), it states that "Each
Party shall ensure that investments are accorded fair and
equitable treatment." The latter stipulation indicates that it was
intended to impose an obligation upon a Party to afford fair and
equitable treatment to the investments of the other Party and that a
failure to provide such treatment by or under the laws of the Party may
constitute a breach of the treaty. Simply stated, the Philippines could
not, under said treaty, rely upon the inadequacies of its own laws to
deprive an Australian investor (like [WMCP]) of fair and equitable
treatment by invalidating [WMCP's] FTAA without likewise nullifying the
service contracts entered into before the enactment of RA 7942 such
as those mentioned in PD 87 or EO 279.

This becomes more significant in the light of the fact that

[WMCP's] FTAA was executed not by a mere Filipino citizen, but by the
Philippine Government itself, through its President no less, which, in
entering into said treaty is assumed to be aware of the existing
Philippine laws on service contracts over the exploration, development
and utilization of natural resources. The execution of the FTAA by the
Philippine Government assures the Australian Government that the
FTAA is in accordance with existing Philippine laws. 300 [Emphasis and
italics by private respondents.]

The invalidation of the subject FTAA, it is argued, would constitute a

breach of said treaty which, in turn, would amount to a violation of Section 3,
Article II of the Constitution adopting the generally accepted principles of
international law as part of the law of the land. One of these generally
accepted principles is pacta sunt servanda, which requires the performance
in good faith of treaty obligations.
Even assuming arguendo that WMCP is correct in its interpretation of
the treaty and its assertion that "the Philippines could not . . . deprive an
Australian investor (like [WMCP]) of fair and equitable treatment by
invalidating [WMCP's] FTAA without likewise nullifying the service contracts
entered into before the enactment of RA 7942 . . .," the annulment of the
FTAA would not constitute a breach of the treaty invoked. For this decision
herein invalidating the subject FTAA forms part of the legal system of the
Philippines. 301 The equal protection clause 302 guarantees that such
decision shall apply to all contracts belonging to the same class, hence,
upholding rather than violating, the "fair and equitable treatment" stipulation
in said treaty.
One other matter requires clarification. Petitioners contend that,
consistent with the provisions of Section 2, Article XII of the Constitution, the
President may enter into agreements involving "either technical or financial
assistance" only. The agreement in question, however, is a technical and
financial assistance agreement.
Petitioners' contention does not lie. To adhere to the literal language of
the Constitution would lead to absurd consequences. 303 As WMCP correctly
put it:

. . . 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 [Emphasis 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)Â The following provisions of Republic Act No. 7942:

(a)Â The proviso in Section 3 (aq),

(b)Â Section 23,

 (c)Â Section 33 to 41,

(d)Â Section 56,

(e)Â The second and third paragraphs of Section 81, and

(f)Â Section 90.

(2)Â 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)Â The Financial and Technical Assistance Agreement between

the Government of the Republic of the Philippines and WMC
Philippines, Inc. aTCAcI

SO ORDERED.
Davide, Jr., C.J., Puno, Quisumbing, Carpio, Corona, Callejo, Sr. and
Tinga, JJ., concur.
Vitug, J., see Separate Opinion.
Panganiban, J., see Separate Opinion.
Ynares-Santiago, Sandoval-Gutierrez and Austria-Martinez, JJ., join J.
Panganiban’s separate opinion.
Azcuna, J., took no part, one of the parties was a client.

Separate Opinions
VITUG, J .:
Petitioners, in the instant petition for prohibition and mandamus, assail
the constitutionality of Republic Act No. 7942, otherwise also known as the
Philippine Mining Act of 1995, as well as its Implementing Rules and
Regulations (Administrative Order [DAO] 96-40) issued by the Department of
Environment and Natural Resources, and the Financial and Technical
Assistance Agreement (FTAA) entered into pursuant to Executive Order (EO)
No. 279, by the Republic of the Philippines and Western Mining Corporation
(Philippines), Inc. (WMCP). WMCP is owned by WMC Resources International
Pty., Ltd., a wholly owned subsidiary of Western Mining Corporation Holdings
Limited, a publicly-listed major Australian mining and exploration company.
The premise for the constitutional challenge is Section 2, Article XII, of
the 1987 Constitution which provides:

"All lands of public domain, waters, minerals, coal, petroleum,

and other mineral oils, all forces of potential energy, fisheries, forests
or timber, wild life, 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. . . ..

"xxx xxx xxx.

"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."

After a careful reading of the provisions of Republic Act No. 7942, I join
the majority in invalidating the following portions of the law: a) Section 3
(aq) which considers a foreign-owned corporation itself qualified, not only to
enter into financial or technical assistance agreements, but also for an
exploration or mineral processing permit; b) Section 35 (g), (l), (m) which
state the rights and obligations of a foreign-owned corporations pursuant to
its "mining operations"; and c) Section 56 which provides that foreign-owned
or controlled corporations are eligible to be granted a mineral processing
permit.
The ponencia, so eloquently expressed and so well ratiocinated, would
also say that the Philippine Mining Act and its implementing rules or decrees
contain provisions which, in effect, authorize the Government to enter into
service contracts with foreign-owned corporations, thereby granting
beneficial ownership over natural resources to foreign contractors in violation
of the fundamental law. Thus, it would strike down Sections 3 (aq), 23, 33 to
41, 56, 81, and 90 of the statute and related sections in DAO 96-40. The
FTAA executed between the Government and WMCP is being invalidated for
being in the nature of a service contract. The ponencia posits that the
adoption of the terms "agreements . . . involving either technical or financial
assistance" in the 1987 Constitution, in lieu of "service contracts" found in
the 1973 Charter, reflects the intention of the framers to disallow the
execution of service contracts with foreign entities for the exploration,
development, exploitation and utilization of the country's natural resources.
SEHaDI

The proposition is one that I, most respectfully, cannot fully share. The
deliberations of the Constitutional Commission do not disclose, in any
evident manner, such intention on the part of the drafters, viz:

"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.

"xxx xxx xxx

"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, the 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." 1

The significance of the change in the terminology is clarified in the following
exchanges during the deliberations:

"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."

2

The Constitutional Commission has also agreed to include the

additional requirement that said agreements must be "based on real
contributions to the economic growth and general welfare of the country."
Upon the suggestion of then Commissioner Davide, the scope of "these
service contracts" has likewise been limited to large-scale exploration,
development, and utilization of minerals, petroleum, and other mineral oils.
The then Commissioner, explains: "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 . . .." 3
The majority would cite the emphatic statements of Commissioners
Villegas and Davide that the country's natural resources are exclusively
reserved for Filipino citizens 4 and that, according to Commissioner Villegas,
"the deletion of the phrase 'service contracts' (is the) 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". 5 These declarations do not necessarily
mean that the Government may no longer enter into service contracts with
foreign entities. In order to uphold and strengthen the national policy of
preserving and developing the country's natural resources exclusively for the
Filipino people, the present Constitution indeed has provided for safeguards
to prevent the execution of service contracts of the old regime, but not of
service contracts per se. It could not have been the object of the framers of
the Charter to limit the contracts which the President may enter into, to
mere "agreements for financial and technical assistance". One would take it
that the usual terms and conditions recognized and stipulated in agreements
of such nature have been contemplated. Basically, the financier and the
owner of know-how would understandably satisfy itself with the proper
implementation and the profitability of the project. It would be abnormal for
the financier and owner of the know-how not to assure itself that all the
activities needed to bring the project into fruition are properly implemented,
attended to, and carried out. Needless to say, no foreign investor would
readily lend financial or technical assistance without the proper incentives,
including fair returns, therefor.TcHCDE

The Constitution has not prohibited the State from itself exploring,
developing, or utilizing the country's natural resources, and, for this purpose,
it may, I submit, enter into the necessary agreements with individuals or
entities in the pursuit of a feasible operation.
The fundamental law is deemed written in every contract. The FTAA
entered into by the government and WMCP recognizes this vital principle.
Thus, two of the agreement's whereas clauses provide:

"WHEREAS, the 1987 Constitution of the Republic of the

Philippines provides in Article XII, Section 2 that all lands of the public
domain, waters, minerals, coal, petroleum, and other natural resources
are owned by the State, and that the exploration, development and
utilization of natural resources shall be under the full control and
supervision of the State; and

"WHEREAS, the Constitution further provides that the

Government may enter into agreements with foreign-owned
corporations involving either technical or financial assistance for large
scale exploration, development and utilization of minerals."

The assailed contract or its provisions must then be read in conformity with
abovementioned constitutional mandate. Hence, Section 10.2 (a) of the
FTAA, for instance, which states that "the Contractor shall have the exclusive
right to explore for, exploit, utilize, process, market, export and dispose of all
minerals and products and by-products thereof that may be derived or
produced from the Contract Area and to otherwise conduct Mining
Operations in the Contract Area in accordance with the terms and conditions
hereof", must be taken to mean that the foregoing rights are to be exercised
by WMCP for and in behalf of the State and that WMCP, as the Contractor,
would be bound to carry out the terms and conditions of the agreement
acting for and in behalf of the State. In exchange for the financial and
technical assistance, inclusive of its services, the Contractor enjoys an
exclusivity of the contract and a corresponding compensation therefor.
Except as so expressed elsewhere above, I see, therefore, no
constitutional impairment in the enactment of Republic Act No. 7942, as well
as its implementing rules, and in the execution by the Government of the
Financial and Technical Agreement with WMCP; and I so vote accordingly.
Just a word. While I cannot ignore an impression of the business
community that the Court is wont, at times, to interfere with the economic
decisions of Congress and the government's economic managers, I must
hasten to add, however, that in so voting as above, I have not been unduly
overwhelmed by that perception. Quite the contrary, the Court has always
proceeded with great caution, such as now, in resolving cases that could
inextricably involve policy questions thought to be best left to the technical
expertise of the legislative and executive departments.

PANGANIBAN, J .:
Petitioners challenge the constitutionality of (1) RA 7942 (The
Philippine Mining Act of 1995), (2) its Implementing Rules and Regulations
(DENR Administrative Order (DAO) 96-40); and (3) the Financial and
Technical Assistance Agreement (FTAA) dated March 30, 1995, by and
between the government and Western Mining Corporation (Phils.), Inc.
(WMCP).
Crux of the Controversy
The crux of the controversy is the fact that WMCP, at the time it
entered into the FTAA , was 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.
Petitioners thus argue that the FTAA was executed in violation of
Section 2 of Article XII of the 1987 Constitution. Allegedly, according to the
fourth paragraph thereof, FTAAs entered into by the government with
foreign-owned corporations are limited to agreements involving merely
technical or financial assistance to the State for large-scale exploration,
development and utilization of minerals, petroleum and other mineral oils.
The FTAA in question supposedly permits the foreign contractor to manage
and control the mining operations fully, and is therefore no different from
the "service contracts" that were prevalent under the martial law regime,
and that are now disallowed by Section 2 of Article XII of the present
Constitution.
On January 23, 2001, all the shares of WMC in WMCP — according to
the latter's Manifestation subsequently filed with this Court — had been sold
to Sagittarius Mines, Inc., in which 60 percent of the equity is Filipino-owned.
In the same Manifestation, the Court was further informed that the assailed
FTAA had likewise been transferred from WMCP to Sagittarius.
The well-researched ponencia of esteemed Justice Conchita Carpio-
Morales nevertheless declares that the instant case has not been rendered
moot by the FTAA's transfer to and registration in the name of a Filipino-
owned corporation, and that the validity of that transfer remains in dispute
and awaits final judicial determination. 1 It then proceeds to decide the
instant case on the assumption that WMCP remains a foreign corporation. IHCESD

Controversy Now Moot

With due respect, I believe that the Court should dismiss the Petition
on the ground of mootness. I submit that a decision on the constitutionality
issue should await the wisdom of a new day when the Court would have a
live case before it.
The nullity of the FTAA is unarguably premised upon the contractor
being a foreign corporation. Had the FTAA been originally issued to a
Filipino-owned corporation, we would have had no constitutionality issue to
speak of. Upon the other hand, conveyance of the FTAA to a Filipino
corporation can be likened to the sale of land to a foreigner who
subsequently acquires Filipino citizenship, or who later re-sells 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. 2
Since the FTAA is now to be implemented by a Filipino corporation, how
can the Court still declare it unconstitutional? The CA case 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.
Furthermore, there being no more justiciable controversy, the plea to
nullify the Mining Law has become a virtual petition for declaratory relief,
over which the Supreme Court has no original jurisdiction. 3
At bottom, I rely on the well-settled doctrine that this Court does not
decide constitutional issues, unless they are the very lis mota of the case. 4
Not Limited to Technical or Financial Assistance Only
At any rate, following the literal text of the present Constitution, 5 the
ponencia limits to strict technical or financial only the assistance to be
provided to the State by foreign-owned corporations for the large-scale
exploration, development and utilization of minerals, petroleum, and mineral
oils. Such assistance may not include "management or other forms of
assistance" or other activities associated with the "service contracts" of the
past unlamented regime. Precisely, "the management or operation of mining
activities by foreign contractors, which is the primary feature of service
contracts, was . . . the evil that the drafters of the 1987 Constitution sought
to eradicate."
Again, because of the mootness problem, it would be risky to take a
definitive position on this question. The Court would be speculating on the
contents of the FTAA of a prospective foreign company. The requirements of
"case and controversy" would be lacking. Suffice it to say, at this point, that
the issue even in a live case is not quite that easy to tackle.
First, the drafters' choice of words — their use of the phrase
"agreements . . . involving . . . technical or financial assistance" — does not
absolutely indicate the intent to exclude other modes of assistance. Rather,
the phrase signifies the possibility of the inclusion of other activities,
provided they bear some reasonable relationship to and compatibility with
financial or technical assistance.
If the intention of the drafters were strictly to confine foreign
corporations to financial or technical assistance and nothing more, I am
certain that their language would have been unmistakably restrictive and
stringent. They would have said, for example: "Foreign corporations are
prohibited from providing management or other forms of assistance," or
words to that effect. The conscious avoidance of restrictive wording
bespeaks an intent not to employ — in an exclusionary, inflexible and
limiting manner — the expression "agreements involving technical or
financial assistance."
Second , I believe the foregoing position is supported by the fact that
our present Constitution still recognizes and allows service contracts (and
has not rendered them taboo), albeit subject to several restrictions and
modifications aimed at avoiding the pitfalls of the past. Below are some
excerpts from the deliberations of the Constitutional Commission (Concom),
showing that its members discussed "technical or financial agreements" in
the same breath as "service contracts" and used the terms interchangeably:

"MR. JAMIR:

Yes, Madam President. With respect to the second paragraph of

Section 3, my amendment by substitution reads: THE PRESIDENT
MAY ENTER INTO AGREEMENTS WITH FOREIGN-OWNED
CORPORATIONS INVOLVING EITHER TECHNICAL OR FINANCIAL
ASSISTANCE FOR LARGE-SCALE EXPLORATION, DEVELOPMENT
AND UTILIZATION OF NATURAL RESOURCES ACCORDING TO THE
TERMS AND CONDITIONS PROVIDED BY LAW.

MR. VILLEGAS:

The Committee accepts the amendment. Commissioner Suarez

will give the background . . ..

MR. SUAREZ:

Thank you, Madam President . . ..

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? EITcaH

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 . . .

xxx xxx xxx

Â

THE PRESIDENT:

The amendment has been accepted by the Committee. May we

first vote on the last paragraph?

MR. GASCON:

Madam President, that is the point of my inquiry . . .

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

MR. VILLEGAS:

The Commissioner is right, Madam President.

MR. GASCON:

According to the original proposal, if the President were to enter

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

MR. VILLEGAS:

That is right.

MR. GASCON:

The proposed amendment of Commissioner Jamir is in direct

contrast to my proposed amendment, so I would like to object
and present my proposed amendment to the body . . ..

xxx xxx xxx

MR. GASCON:

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

MR. BENGZON:

The reason we made that shift is that we realized the original

proposal could breed corruption. By the way, this is not just
confined to service contracts but also to financial assistance. If
we are going to make every single contract subject to the
concurrence of Congress — which, according to the
Commissioner's amendment is the concurrence of two-thirds of
Congress voting separately — then (1) there is a very great
chance that each contract will be different from another; and (2)
there is a great temptation that it would breed corruption
because of the great lobbying that is going to happen. And we do
not want to subject our legislature to that. . . ..

MR. GASCON:

But my basic problem is that we do not know as of yet the

contents of such a general law as to how much constraints there
will be in it. And to my mind, although the committee's
contention that the regular concurrence from Congress would
 subject Congress to extensive lobbying, I think that is a risk we
will have to take since Congress is a body of representatives of
the people whose membership will be changing regularly as
there will be changing circumstances every time certain
agreements are made. It would be best then to keep in tab and
attuned to the interest of the Filipino people, whenever the
President enters into any agreement with regard to such an
important matter as technical or financial assistance for large-
scale exploration, development and utilization of natural
resources or service contracts, the people's elected
representatives should be on top of it . . .. TaEIAS

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

MR. JAMIR:

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

MR. VILLEGAS:

Yes, the Committee accepts the amendment.

xxx xxx xxx

SR. TAN:

Madam President, may I ask a question? . . . 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 . .

.

xxx xxx xxx

MR. SARMIENTO:

Maybe we can simplify my proposed amendment, so that it will

read: IT SHALL BE THE POLICY OF THE STATE TO PROMOTE,
DEVELOP AND EMPLOY LOCAL SCIENTIFIC AND TECHNOLOGICAL
RESOURCES . . .

MR. DAVIDE:

Could it not be properly, accommodated either in the Article on

Declaration of Principles and State Policies or in the Article on
Human Resources because it would not be germane to the Article
on National Economy and Patrimony which we are now treating?

MR. VILLEGAS:

I think the intention here, if I understand the amendment to the

amendment, is to make sure that when these technical and
scientific services are rendered by foreigners there would be a
deliberate attempt to develop local talents so that we are not
forever dependent on these foreigners. Am I right?

MR. DAVIDE:

So it is in relation to the service contracts? . . . Can it not be

stated that the general law providing for service contracts shall
give priority to the adjective of Commissioner Sarmiento's
amendment? It should be in the law itself.

MR. VILLEGAS:

That is why it says, 'IT SHALL BE THE POLICY OF THE STATE'

immediately following the statement about Congress.

xxx xxx xxx

THE PRESIDENT:

Does Commissioner Gascon insist on his proposed amendment?

MR. GASCON:

I objected to that amendment and after listening to it again, I feel

 that I still object on basic principles, that every service contract
to be entered into by the President should be with the
concurrence of Congress. I had earlier presented a proposed
amendment of 'CONCURRENCE OF TWO-THIRDS VOTE OF ALL
THE MEMBERS OF CONGRESS,' but at this point in time, perhaps
to simplify choices, since basically the proposal of Commissioner
Jamir is to set a general law with regard to service contracts, my
proposal is to require concurrence of Congress every time a
service contract is to be made.

THE PRESIDENT:

That is clear now. So can we proceed to vote?

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 . . . With due respect to the members of
the Committee and Commissioner Jamir, I am in favor of the
objection of Commissioner Gascon. Madam President, I was one
of those who refused to sign the 1973 Constitution, and one of
the reasons is that there were many provisions in the Transitory
Provisions therein that favored aliens. I was shocked when I read
a provision authorizing service contracts while we, in this
Constitutional Commission, provided for Filipino control of the
economy. We are, therefore, providing for exceptional instances
where aliens may circumvent Filipino control of our economy.
And one way of circumventing the rule in favor of Filipino control
of the economy is to recognize service contracts. As far as I am
concerned, if I should have my own way, I am for the complete
deletion of this provision, However, we are presenting a
compromise in the sense that we are requiring a two-thirds vote
of all the Members of Congress as a safeguard. I think we should
not mistrust the future Members of Congress by saying that the
purpose of this provision is to avoid corruption. We cannot claim
that they are less patriotic than we are. I think the Members of
this Commission should know that entering into service contracts
is an exception to the rule on protection of natural resources for
the interest of the nation, and therefore, being an exception it
should be subject whenever possible to stringent rules. It seems
to me that we are liberalizing the rules in favor of aliens.
HSaEAD

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) . . ."

The foregoing is but a small sampling of the lengthy discussions of the

constitutional commissioners on the subject of service contracts and
technical and financial assistance agreements. Quoting the rest of their
discussions would have taken up several more pages, and these have thus
been omitted for the sake of brevity. In any event, it would appear that the
members of the Concom actually had in mind the Marcos-era service
contracts that they were familiar with (but which they duly modified and
restricted so as to prevent abuses), when they were crafting and polishing
the provisions dealing with financial and/or technical assistance agreements.
These provisions ultimately became the fourth and the fifth paragraphs of
Section 2 of Article XII of the 1987 Constitution. Put differently, "technical
and financial assistance agreements" were understood by the delegates to
include service contracts duly modified to prevent abuses.
I respectfully submit that the statements of Commissioner Jose Nolledo,
quoted above, are especially pertinent, since they refer specifically to
service contracts in favor of aliens. From his perspective, it is clear to me
that the Concom discussions in their entirety had to do with service contracts
that might be given to foreign-owned corporations as exceptions to the
general principle of Filipino control of the economy.
Commissioner Nolledo sums up these statements by saying: "We are,
therefore, providing for exceptional instances where aliens may circumvent
Filipino control of our economy . And one way of circumventing the rule in
favor of Filipino control of the economy is to recognise service contracts . As
far as I am concerned, if I should have my way, I am for the complete
deletion of this provision. However, we are preventing a compromise in the
sense that we are requiring a two-thirds vote of all the Members of Congress
as a safeguard. . . . 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: . . ."
Since the drafters were referring only to service contracts to be
granted to foreigners and to nothing else, this fact necessarily implies that
we ought not treat the idea of "agreements involving either technical or
financial assistance" as having any significance or existence apart from
service contracts. In other words, in the minds of the commissioners, the
concept of technical and financial assistance agreements did not exist at all
apart from the concept of service contracts duly modified to prevent abuses.
Interpretation of the Constitution in the Light of Present-Day Realities
Tantamount to closing one's eyes to reality is the insistence that the
term "agreements involving technical or financial assistance" refers only to
purely technical or financial assistance to be rendered to the State by a
foreign corporation (and must perforce exclude management and other
forms of assistance). Nowadays, securing the kind of financial assistance
required by large-scale explorations, which involve hundreds of millions of
dollars, is not just a matter of signing a simple promissory note in favor of a
lender. Current business practices often require borrowers seeking huge
loans to allow creditors access to financial records and other data, and
probably a seat or two on the former's board of directors; or at least some
participation in certain management decisions that may have an impact on
the financial health or long-term viability of the debtor, which of course will
directly affect the latter's capacity to repay its loans. Prudent lending
practices necessitate a certain degree of involvement in the borrower's
management process.
Likewise, technical assistance, particularly in certain industries like
mining and oil exploration, would likely be from the industry's leading
players. It may involve the training of personnel and some form of
supervision and oversight with respect to the correct and proper
implementation of the technical assistance. The purpose is to ensure that
the technical assistance rendered will not go to waste, and that the lender's
business reputation and successful track record in the industry will be
adequately safeguarded. Thus the technical assistance arrangements often
necessarily include interface with the management process itself.
The mining industry is in the doldrums, precisely because of lack of
technical and financial resources in our country. If activated properly, the
industry could meaningfully contribute to our economy and lead to the
employment of many of our jobless compatriots. A hasty and premature
decision on the constitutionality of the herein FTAA and the Philippine Mining
Act could unnecessarily burden the recovery of the industry and the
employment opportunities it would likely generate.
Oral Argument Needed
Given the modern-day reality that even the World Bank (WB) and the
International Monetary Fund (IMF) do not lend on the basis merely of bare
promissory notes, but on some conditionalities designed to assure the
borrowers' financial viability, I would like to hear in an Oral Argument in a
live, not a moot, case what these international practices are and how they
impact on our constitutional restrictions. This is not to say that we should
bend our basic law; rather, we should find out what kind of FTAA provisions
are realistic vis-a-vis these international standards and our constitutional
protection. Unless there is a live FTAA, the Court would not be able to
analyze the provisions vis-a-vis the Constitution, the Mining Law and these
modern day lending practices. EAaHTI

I mentioned the WB and the IMF, not necessarily because I agree with
their oftentimes stringent policies, but because they set the standards that
international and multinational financial institutions often take bearings
from. The WB and IMF are akin (though not equivalent) to the Bangko
Sentral, which all Philippine banks must abide by. If this Court closes its
doors to these international realities and unilaterally sets up its own
concepts of strict technical and financial assistance, then it may unwittingly
make the country a virtual hermit — an economic isolationist — in the real
world of finance.
I understand that a live case, challenging the Mining Law and an FTAA
relevant thereto, is pending before the Second Division of this Court, where it
is docketed as G.R. No. 157882 ( Dipdio Earth Savers Multi-Purpose
Association v. Hon. Elisea Gozun). Can we not consolidate that case with the
current one, call an Oral Argument, and then decide the matter more
definitively? During the Oral Argument, I believe that the Court should invite
as amici curiae (1) a lawyer versed in international finance like retired Justice
Florentino P. Feliciano, (2) a representative of the Banker's Association of the
Philippines, and (3) a leader of the University of the Philippines Law
Constitution Project.
Constitutional Interpretation and the Vagaries of Contemporary Events
Finally, I believe that the Concom did not mean to tie the hands of the
President and restrict the latter only to agreements on rigid financial and
technical assistance and nothing else. The commissioners fully realized that
their work would have to withstand the test of time; that the Charter, though
crafted with the wisdom born of past experiences and lessons painfully
learned, would have to be a living document that would answer the needs of
the nation well into the future. Thus, the unerring emphasis on flexibility and
adaptability.
Commissioner Joaquin Bernas stressed that he voted in favor of the
Article, "because it is flexible enough to allow future legislators to correct
whatever mistakes we may have made." 6 Commissioner Felicitas Aquino
noted that "unlike the other articles of this Constitution, this article whether
we like it or not would have to yield to flexibility and elasticity which inheres
in the interpretation of this provision. Why? Precisely because the forces of
economics are dynamic and are perpetually in motion." 7
Along the same line, the Court, in Tañada v . Angara, 8 stressed the
need to interpret the Constitution to cover "refreshing winds of change
necessitated by unfolding events":

". . . . Constitutions are designed to meet not only the vagaries of

contemporary events. They should be interpreted to cover even future
and unknown circumstances. It is to the credit of its drafters that a
Constitution can withstand the assaults of bigots and infidels but at the
same time bend with the refreshing winds of change necessitated by
unfolding events."

Accordingly, I vote to DISMISS the Petition.

Â
Footnotes

1. Appears as "Nequito" in the caption of the Petition by "Nequinto" in the body.
(Rollo , p. 12.)

2. As appears in the body of the Petition. (Id., at 13.) The caption of the petition
does not include Louel A. Peria as one of the petitioners but the name of his
father Elpidio V. Peria appears therein.

3. Appears as "Kaisahan Tungo sa Kaunlaran ng Kanayunan at Repormang

Pansakahan (KAISAHAN)" in the caption of the Petition by " Philippine
Kaisahan Tungo sa Kaunlaran ng Kanayunan at Repormang Pansakahan
(KAISAHAN)" in the body. (Id., at 14.)

4. Erroneously designated in the Petition as "Western Mining Philippines

 Corporation." (Id., at 212.) Subsequently, WMC (Philippines), Inc. was
renamed "Tampakan Mineral Resources Corporation." (Id., at 778.)

5. An Act Instituting A New System of Mineral Resources Exploration,

Development, Utilization and Conservation.

6. Authorizing the Secretary of Environment and Natural Resources to Negotiate

and Conclude Joint Venture, Co-Production, or Production-Sharing
Agreements for the Exploration, Development and Utilization of Mineral
Resources, and Prescribing the Guidelines for such Agreements and those
Agreements involving Technical or Financial Assistance by Foreign-Owned
Corporations for Large-Scale Exploration, Development and Utilization of
Minerals.

7. Exec. Order No. 279 (1987), sec. 4.

8. Rep. Act No. 7942 (1995), sec. 15.

9. Id., sec. 26 (a)-(c).

10. Id., sec. 29.

11. Id., sec. 30.

12. Id., sec. 31.

13. Id., sec. 32.

14. Id., ch. VI.

15. Id., secs. 27 and 33 in relation to sec. 3 (aq).

16. Id., sec. 72.

17. Id., sec. 73.

18. Id., sec. 75.

19. Id., sec. 74.

20. Id., sec. 76.

21. Id., ch. XIII.

22. Id., secs. 20-22.

23. Id., secs. 43, 45.

24. Id., secs. 46-49, 51-52.

25. Id., ch. IX.

26. Id., ch. X.

27. Id., ch. XI.

28. Id., ch. XIV.

29. Id., ch. XV.

30. Id., ch. XVI.

31. Id., ch. XIX.

32. Id., ch. XVII.

33. Section 116, R.A. No. 7942 provides that the Act "shall take effect thirty (30)
days following its complete publication in two (2) newspapers of general
circulation in the Philippines."

34. WMCP FTAA, sec. 4.1.

35. Rollo , p. 22.

36. Ibid.

37. Ibid.

38. Ibid. The number has since risen to 129 applications when the petitioners filed
their Reply. (Rollo , p. 363.)

39. Id., at 22.

40. Id., at 23-24.

41. Id., at 52-53. Emphasis and italics supplied.

42. WMCP FTAA, p. 2.

43. Rollo , p. 220.

44. Id., at 754.

45. Vide Note 4.

46. Rollo , p. 754.

47. Id., at 755.

48. Id., at 761-763.

49. Id., at 764-776.

50. Id., at 782-786.

51. Docketed as C.A.-G.R. No. 74161.

52. G.R. No. 153885, entitled Lepanto Consolidated Mining Company v. WMC
Resources International Pty . Ltd., et al., decided September 24, 2003 and
G.R. No. 156214, entitled Lepanto Mining Company v. WMC Resources
International Pty. Ltd., WMC (Philippines), Inc ., Southcot Mining Corporation,
Tampakan Mining Corporation and Sagittarius Mines, Inc ., decided
September 23, 2003.

53. Section 12, Rule 43 of the Rules of Court, invoked by private respondent,
 states, "The appeal shall not stay the award, judgment, final order or
resolution sought to be reviewed unless the Court of Appeals shall direct
otherwise upon such terms as it may deem just."

54. WMCP's Reply (dated May 6, 2003) to Petitioners' Comment (to the
Manifestation and Supplemental Manifestation), p. 3.

55. Ibid.

56. Ibid.

57. WMCP’s Reply (dated May 6, 2003) to Petitioners' Comment (to the
Manifestation and Supplemental Manifestation), p. 4.

58. Philippine Constitution Association v. Enriquez, 235 SCRA 506 (1994);

National Economic Protectionism Association v. Ongpin, 171 SCRA 657
(1989); Dumlao v. COMELEC, 95 SCRA 392 (1980).

59. Dumlao v. COMELEC, supra.

60. Board of Optometry v. Colet, 260 SCRA 88 (1996).

61. Dumlao v. COMELEC, supra.

62. Subic Bay Metropolitan Authority v. Commission on Elections, 262 SCRA 492
(1996).

63. Angara v. Electoral Commission, 63 Phil. 139 (1936).

64. Integrated Bar of the Philippines v. Zamora, 338 SCRA 81, 100 (2000);
Dumlao v. COMELEC, supra; People v. Vera, 65 Phil. 56 (1937).

65. Dumlao v. COMELEC, supra.

66. Integrated Bar of the Philippines v. Zamora, supra.

67. Ermita-Malate Hotel and Motel Operators Association, Inc. v. City Mayor of
Manila¸ 21 SCRA 449 (1967).

68. Petitioners Roberto P. Amloy, Raqim L. Dabie, Simeon H. Dolojo, Imelda

Gandon, Leny B. Gusanan, Marcelo L. Gusanan, Quintol A. Labuayan,
Lomingges Laway, and Benita P. Tacuayan.

69. Petitioners F'long Agutin M. Dabie, Mario L. Mangcal, Alden S. Tusan, Sr.,
Susuan O. Bolanio, OND, Lolita G. Demonteverde, Benjie L. Nequinto, Rose
Lilia S. Romano and Amparo S. Yap.

70. Rollo , p. 6.

71. Id. at 337, citing Malabanan v. Gaw Ching, 181 SCRA 84 (1990).

72. 246 SCRA 540 (1995).

73. People v. Vera, supra.

74. Militante v. Court of Appeals, 330 SCRA 318 (2000).

75. Ibid.

76. Cruz v. Secretary of Environment and Natural Resources, 347 SCRA 128
(2000), Kapunan, J., Separate Opinion. [Emphasis supplied.]

77. Joya v. Presidential Commission on Good Government, 225 SCRA 568 (1993).

78. Integrated Bar of the Philippines v. Zamora, supra.

79. J. BERNAS, S.J., THE 1987 CONSTITUTION OF THE PHILIPPINES: A

COMMENTARY 1009 (1996).

80. Cruz v. Secretary of Environment and Natural Resources, supra, Kapunan, J.,
Separate Opinion.

81. Id., Puno, J., Separate Opinion, and Panganiban, J., Separate Opinion.

82. Cariño v. Insular Government, 212 US 449, 53 L.Ed. 595 (1909). For instance,
Law 14, Title 12, Book 4 of the Recopilacion de Leyes de las Indias
proclaimed:

   We having acquired full sovereignty over the Indies, and all lands,
territories, and possessions not heretofore ceded away by our royal
predecessors, or by us, or in our name, still pertaining to the royal crown and
patrimony, it is our will that all lands which are held without proper and true
deeds of grant be restored to us according as they belong to us, in order that
after reserving before all what to us or to our viceroys, audiencias, and
governors may seem necessary for public squares, ways, pastures, and
commons in those places which are peopled, taking into consideration not
only their present condition, but also their future and their probable increase,
and after distributing to the natives what may be necessary for tillage and
pasturage, confirming them in what they now have and giving them more if
necessary, all the rest of said lands may remain free and unencumbered for
us to dispose of as we may wish.

83. Republic v. Court of Appeals, 160 SCRA 228 (1988). It has been noted,
however, that "the prohibition in the [1935] Constitution against alienation
by the state of mineral lands and minerals is not properly a part of the
Regalian doctrine but a separate national policy designed to conserve our
mineral resources and prevent the state from being deprived of such
minerals as are essential to national defense." (A. NOBLEJAS, PHILIPPINE LAW
ON NATURAL RESOURCES 126-127 [1959 ED.], citing V. FRANCISCO, THE
NEW MINING LAW.)

84. Cruz v. Secretary of Environment and Natural Resources, supra, Kapunan, J.,
Separate Opinion, citing A. NOBLEJAS, PHILIPPINE LAW ON NATURAL
RESOURCES 6 (1961). Noblejas continues:

   Thus, they asserted their right of ownership over mines and minerals or
precious metals, golds, and silver as distinct from the right of ownership of
the land in which the minerals were found. Thus, when on a piece of land
mining was more valuable than agriculture, the sovereign retained ownership
of mines although the land has been alienated to private ownership.
Gradually, the right to the ownership of minerals was extended to base
metals. If the sovereign did not exploit the minerals, they grant or sell it as a
 right separate from the land. (Id., at 6.)

85. In the unpublished case of Lawrence v. Garduño (L-10942, quoted in V.

FRANCISCO, PHILIPPINE LAW ON NATURAL RESOURCES 14-15 [1956]), this
Court observed:

   The principle underlying Spanish legislation on mines is that these are

subject to the eminent domain of the state. The Spanish law of July 7, 1867,
amended by the law of March 4, 1868, in article 2 says: "The ownership of
the substances enumerated in the preceding article (among them those of
inflammable nature), belong[s] to the state, and they cannot be disposed of
without the government authority."

   The first Spanish mining law promulgated for these Islands (Decree of
Superior Civil Government of January 28, 1964), in its Article I, says: "The
supreme ownership of mines throughout the kingdom belong[s] to the crown
and to the king. They shall not be exploited except by persons who obtained
special grant from this superior government and by those who may secure it
thereafter, subject to this regulation."

   Article 2 of the royal decree on ownership of mines in the Philippine

Islands, dated May 14, 1867, which was the law in force at the time of the
cession of these Islands to the Government of the United States, says: "The
ownership of the substances enumerated in the preceding article (among
them those of inflammable nature) belongs to the state, and they cannot be
disposed of without an authorization issued by the Superior Civil Governor."

   Furthermore, all those laws contained provisions regulating the manner

of prospecting, locating and exploring mines in private property by persons
other than the owner of the land as well as the granting of concessions,
which goes to show that private land did not include, without express grant,
the mines that might be found therein.

   Analogous provisions are found in the Civil Code of Spain determining

the ownership of mines. In its Article 339 (Article 420, New Civil Code)
enumerating properties of public ownership, the mines are included until
specially granted to private individuals. In its article 350 (Art. 437, New Civil
Code) declaring that the proprietor of any parcel of land is the owner of its
surface and of everything under it, an exception is made as far as mining
laws are concerned. Then in speaking of minerals, the Code in its articles 426
and 427 (Art. 519, New Civil Code) provides rules governing the digging of
pits by third persons on private-owned lands for the purpose of prospecting
for minerals.

86. Atok Big-Wedge Mining Co . v. Intermediate Appellate Court, 261 SCRA 528
(1996).

87. Ibid.

88. Cruz v. Secretary of Environment and Natural Resources, supra, Kapunan, J.,
Separate Opinion.

89. Ibid.

90. McDaniel v. Apacible and Cuisia, 42 Phil. 749 (1922).

91. NOBLEJAS, supra, at 5.

92. V. M. A. Dimagiba, Service Contract Concepts in Energy, 57 PHIL. L. J. 307,

313 (1982).

93. P. A. Agabin, Service Contracts: Old Wine in New Bottles?, in II DRAFT

PROPOSAL OF THE 1986 U.P. LAW CONSTITUTION PROJECT 3.

94. Id., at 2-3.

95. Id., at 3.

96. Ibid.

97. Ibid.

98. Ibid.

99. An Act to Provide for the Exploration, Location and Lease of Lands Containing
Petroleum and other Mineral Oils and Gas in the Philippine Islands.

100. An Act to Provide for the Leasing and Development of Coal Lands in the
Philippine Islands.

101. Agabin, supra, at 3.

102. People v. Linsangan, 62 Phil. 646 (1935).

103. Ibid.

104. Ibid.

105. Ibid.

106. Ibid.

107. Atok Big-Wedge Mining Co. v. Intermediate Appellate Court, supra.

108. BERNAS, S.J., supra, at 1009-1010, citing Lee Hong Hok v. David, 48 SCRA
372 (1972).

109. II J. ARUEGO, THE FRAMING OF THE PHILIPPINE CONSTITUTION 592 (1949).

110. Id., at 600-601.

111. Id., at 604. Delegate Aruego expounds:

   At the time of the framing of the Philippine Constitution, Filipino capital
had been known to be rather shy. Filipinos hesitated as a general rule to
invest a considerable sum of their capital for the development, exploitation,
and utilization of the natural resources of the country. They had not as yet
been so used to corporate enterprises as the peoples of the West. This
general apathy, the delegates knew, would mean the retardation of the
development of the natural resources, unless foreign capital would be
encouraged to come in and help in that development. They knew that the
nationalization of the natural resources would certainly not encourage the
investment of foreign capital into them. But there was a general feeling in
 the Convention that it was better to have such development retarded or even
postponed altogether until such time when the Filipinos would be ready and
willing to undertake it rather than permit the natural resources to be placed
under the ownership or control of foreigners in order that they might be
immediately developed, with the Filipinos of the future serving not as owners
but at most as tenants or workers under foreign masters. By all means, the
delegates believed, the natural resources should be conserved for Filipino
posterity.

   The nationalization of natural resources was also intended as an

instrument of national defense. The Convention felt that to permit foreigner
to own or control the natural resources would be to weaken the national
defense. It would be making possible the gradual extension of foreign
influence into our politics, thereby increasing the possibility of foreign
control. . . ..

   Not only these. The nationalization of the natural resources, it was

believed, would prevent making the Philippines a source of international
conflicts with the consequent danger to its internal security and
independence. For unless the natural resources were nationalized, with the
nationals of foreign countries having the opportunity to own or control them,
conflicts of interest among them might arise inviting danger to the safety
and independence of the nation. ( Id., at 605-606.)

112. Palting v. San Jose Petroleum Inc ., 18 SCRA 924 (1966); Republic v. Quasha,
46 SCRA 160 (1972).

113. Atok Big-Wedge Mining Co. v. Intermediate Appellate Court, supra.

114. Article VI thereof provided:

   1. The disposition, exploitation, development and utilization of all

agricultural, timber, and mineral lands of the public domain, waters,
minerals, coal, petroleum and other mineral oils, all forces and of sources of
potential energy, and other natural resources of either Party, and the
operation of public utilities, shall, if open to any person, be open to citizens of
the other Party and to all forms of business enterprise owned or controlled
directly or indirectly, by citizens of such other Party in the same manner as
to and under the same conditions imposed upon citizens or corporations or
associations owned or controlled by citizens of the Party granting the right.

   2. The rights provided for in Paragraph 1 may be exercised . . . in the

case of citizens of the United States, with respect to natural resources in the
public domain in the Philippines, only through the medium of a corporation
organized under the laws of the Philippines and at least 60% of the capital
stock of which is owned and controlled by citizens of the United States . . ..

   3. The United States of America reserves the rights of the several
States of the United States to limit the extent to which citizens or
corporations or associations owned or controlled by citizens of the Philippines
may engage in the activities specified in this article. The Republic of the
Philippines reserves the power to deny and of the rights specified in this
Article to citizens of the United States who are citizens of States, or to
corporations or associations at least 60% of whose capital stock or capital is
owned or controlled by citizens of States, which deny like rights to citizens of
 the Philippines, or to corporations or associations which are owned or
controlled by citizens of the Philippines . . ..

115. An Act to Promote the Exploration, Development, Exploitation, and

Utilization of the Petroleum Resources of the Philippines; to Encourage the
Conservation of such Petroleum Resources; to Authorize the Secretary of
Agriculture and Natural Resources to Create an Administration Unit and a
Technical Board in the Bureau of Mines; to Appropriate Funds therefor; and
for other purposes.

116. Rep. Act No. 387 (1949), as amended, art. 10 (b).

117. Id., art. 10 (c).

118. Id., art. 5.

119. Id., art. 31. The same provision recognized the rights of American citizens
under the Parity Amendment:

   During the effectivity and subject to the provisions of the ordinance

appended to the Constitution of the Philippines, citizens of the United States
and all forms of business enterprises owned and controlled, directly or
indirectly, by citizens of the United States shall enjoy the same rights and
obligations under the provisions of this Act 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.

120. Id., art. 10.

121. Id., art. 3.

122. Id., art. 9.

123. Ibid.

124. Rep. Act No. 387 (1949), as amended, art. 8.

125. Id., art. 25.

126. Id., art. 47.

127. Id., art. 60.

128. Id., art. 64. Article 49, R.A. No. 387 originally imposed an annual exploration
tax on exploration concessionaires but this provision was repealed by
Section 1, R.A. No. 4304.

129. FRANCISCO, supra, at 103.

130. Rep. Act No. 387 (1949), as amended, art. 65.

131. FRANCISCO, Supra, at 103.

132. Rep. Act No. 387 (1949), as amended, art. 90 (b) 3.

133. Id., art. 90 (b) 4.

134. Id., art. 93-A.

135. Id., art. 93.

136. Ibid.

137. Rep. Act No. 387 (1949), as amended, art. 94.

138. Id., art. 106.

139. Id., art. 95.

140. Ibid.

141. Rep. Act No. 387 (1949), as amended, art. 95 (e).

142. Dimagiba, supra, at 315, citing Fabrikant, Oil Discovery and Technical
Change in Southeast Asia, Legal Aspects of Production Sharing Contracts in
the Indonesian Petroleum Industry, 101-102, sections 13C.24 and 13C.25
(1972).

143. Agabin, supra, at 4.

144. Dimagiba, supra, at 318.

145. Amending Presidential Decree No. 8 issued on October 2, 1972, and

Promulgating an Amended Act to Promote the Discovery and Production of
Indigenous Petroleum and Appropriate Funds Therefor.

146. Pres. Decree No. 87 (1972), sec. 4.

147. Agabin, supra, at 6.

148. M. Magallona, Service Contracts in Philippine Natural Resources , 9 WORLD

BULL. 1, 4 (1993).

149. Pres. Decree No. 87 (1972), sec. 6.

150. Id., sec. 4.

151. Id., sec. 6.

152. Id., sec. 7.

153. Id., sec. 8.

154. Ibid.

155. Ibid.

156. Pres. Decree No. 87 (1972), sec. 9.

157. Id., sec. 12.

158. Id., sec. 13.

159. Dimagiba draws the following comparison between the service contract
scheme and the concession system:

   In both the concession system and the service contract scheme, work
and financial obligations are required of the developer. Under Republic Act
No. 387 and Presidential Decree No. 87, the concessionaire and the service
contractors are extracted certain taxes in favor of the government. In both
arrangements, the explorationist/developer is given incentives in the form of
tax exemptions in the importation or disposition of machinery, equipment,
materials and spare parts needed in petroleum operations.

   The concessionaire and the service contractor are required to keep in

their files valuable data and information and may be required to submit need
technological or accounting reports to the Government. Duly authorized
representatives of the Government could, under the law, inspect or audit the
books of accounts of the contract holder.

   In both systems, signature, discovery or production bonuses may be

given by the developer to the host Government.

   The concession system, however, differs considerably from the service

contract system in important areas of the operations. In the concession
system, the Government merely receives fixed royalty which is a certain
percentage of the crude oil produced or other units of measure, regardless of
whether the concession holder makes profits or not. This is not so in the
service contract system. A certain percentage of the gross production is set
aside for recoverable expenditures by the contractor. Of the net proceeds the
parties are entitled percentages of share that will accrue to each of them.

   In the royalty system, the concessionaire may be discouraged to

produce more for the reason that since the royalty paid to the host country is
closely linked to the volume of production, the greater the produce, the more
amount or royalty would be allocated to the Government. This is not so in the
production sharing system. The share of the Government depends largely on
the net proceeds of production after reimbursing the service contractor of its
recoverable expenses.

   As a general rule, the Government plays a passive role in the

concession system, more particularly, interested in receiving royalties from
the concessionaire. In the production-sharing arrangement, the Government
plays a more active role in the management and monitoring of oil operations
and requires the service contractor entertain obligations designed to bring
more economic and technological benefits to the host country. (Dimagiba,
supra, at 330-331.)

160. Agabin, supra, at 6.

161. The antecedents leading to the Proclamation are narrated in Javellana v.

Executive Secretary, 50 SCRA 55 (1973):

   On March 16, 1967, Congress of the Philippines passed Resolution No.
2, which was amended by Resolution No. 4, of said body, adopted on June
17, 1967, calling a convention to propose amendments to the Constitution of
the Philippines. Said Resolution No. 2, as amended, was implemented by
Republic Act No. 6132 approved on August 24, 1970, pursuant to the
 provisions of which the election of delegates to said convention was held on
November 10, 1970, and the 1971 Convention began to perform its functions
on June 1, 1971. While the Convention was in session on September 21,
1972, the President issued Proclamation No. 1081 placing the entire
Philippines under Martial Law. On November 29, 1972, the President of the
Philippines issued Presidential Decree No. 73, submitting to the Filipino
people for ratification or rejection the Constitution of the Republic of the
Philippines proposed by the 1971 Constitutional Convention, and
appropriating funds therefor, as well as setting the plebiscite for such
ratification on January 15, 1973.

   On January 17, 1973, the President issued Proclamation No. 1102
certifying and proclaiming that the Constitution proposed by the 1971
Constitutional Convention "has been ratified by an overwhelming majority of
all the votes cast by the members of all the Barangays (Citizens Assemblies)
throughout the Philippines, and has thereby come into effect."

162. BERNAS, S.J., supra, at 1016, Note 28, citing Session of November 25, 1972.

163. Agabin, supra, at 1, quoting Sanvictores, The Economic Provisions in the

1973 Constitution, in ESPIRITU, 1979 PHILCONSA READER ON
CONSTITUTIONAL AND POLICY ISSUES 449.

164. BERNAS, S.J., supra, at 1016, Note 28, citing Session of November 25, 1972.

165. Ibid.

166. Ibid.

167. Allowing Citizens of the Philippines or Corporations or Associations at least

Sixty Per Centum of the Capital of which is Owned by such Citizens to Enter
into Service Contracts with Foreign Persons, Corporations for the Exploration,
Development, Exploitation or Utilization of Lands of the Public Domain,
Amending for the purpose certain provisions of Commonwealth Act No. 141.

168. Pres. Decree No. 151 (1973), sec. 1.

169. Providing for A Modernized System of Administration and Disposition of

Mineral Lands and to Promote and Encourage the Development and
Exploitation thereof.

170. Revising and Consolidating All Laws and Decrees Affecting Fishing and
Fisheries.

171. Pres. Decree No. 704 (1975), sec. 21.

172. Revising Presidential Decree No. 389, otherwise known as The Forestry
Reform Code of the Philippines.

173. Pres. Decree No. 705 (1975), sec. 62.

174. An Act to Promote the Exploration and Development of Geothermal

Resources.

175. Magallona, supra, at 6.

176. Declaring a National Policy to Implement the Reforms Mandated by the
People, Protecting their Basic Rights, Adopting a Provisional Constitution, and
Providing for an Orderly Transition to a Government under a New
Constitution.

177. CONST., art. XVIII, sec. 27; De Leon v. Esguerra, 153 SCRA 602 (1987).

178. Miners Association of the Philippines, Inc. v. Factoran, Jr., 240 SCRA 100
(1995).

179. Ibid.

180. Ibid.

181. J. BERNAS, S.J., THE INTENT OF THE 1986 CONSTITUTION WRITERS 812
(1995).

182. Miners Association of the Philippines, Inc. v. Factoran, Jr., supra.

183. III RECORDS OF THE CONSTITUTIONAL COMMISSION 255.

184. Id., at 355-356.

185. CONST. (1986), art. II, sec. 1.

186. Cruz v. Secretary of Environment and Natural Resources, supra, Puno, J.,
Separate Opinion.

187. Rep. Act No. 7942 (1995), sec. 9.

188. SEC. 82. Allocation of Government Share. — The Government share as

referred to in the preceding sections shall be shared and allocated in
accordance with Sections 290 and 292 of Republic Act No. 7160 otherwise
known as the Local Government Code of 1991. In case the development and
utilization of mineral resources is undertaken by a government-owned or -
controlled corporation, the sharing and allocation shall be in accordance with
Sections 291 and 292 of the said Code.

189. An Act Creating A People's Small-Scale Mining Program and for other
purposes.

190. Rep. Act No. 7942 (1995), sec. 42.

191. Id., secs. 3 (ab) and 26.

192. "Contractor" means a qualified person acting alone or in consortium who is a

party to a mineral agreement or to a financial or technical assistance
agreement. (Id., sec. 3[g].)

193. "Contract area" means land or body water delineated for purposes of
exploration, development, or utilization of the minerals found therein. (Id.,
sec. 3[f].)

194. "Gross output" means the actual market value of minerals or mineral
products from its mining area as defined in the National Internal Revenue
Code (Id., sec. 3[v]).
195. Id., sec. 26 (a).

196. An Act Reducing 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.

197. Rep. Act No. 7942 (1995), sec. (80).

198. Id., Sec. 26 (b).

199. "Mineral resource" means any concentration of minerals/rocks with potential

economic value. (Id., sec. 3[ad].)

200. Id., sec. 26 (c).

201. Ibid.

202. Id., sec. 3 (h).

203. Id., sec. 3 (x).

204. Id., sec. 26, last par.

205. Id., sec. 27.

206. Id., sec. 3 (aq).

207. Id., sec. 3 (r).

208. Id., sec. 33.

209. Id., sec. 3 (t).

210. Id., sec. 3 (aq).

211. The maximum areas in cases of mineral agreements are prescribed in

Section 28 as follows:

   SEC. 28. Maximum Areas for Mineral Agreement. — The maximum

area that a qualified person may hold at any time under a mineral
agreement shall be:

   (a) Onshore, in any one province —

   (1) For individuals, ten (10) blocks; and

   (2) For partnerships, cooperatives, associations, or corporations, one

hundred (100) blocks.

   (b) Onshore, in the entire Philippines —

   (1) For individuals, twenty (20) blocks; and

   (2) For partnerships, cooperatives, associations, or corporations, two

hundred (200) blocks.

   (c) Offshore, in the entire Philippines —

    (1) For individuals, fifty (50) blocks;

   (2) For partnerships, cooperatives, associations, or corporations five

hundred (500) blocks; and

   (3) For the exclusive economic area, a larger area to be determined

by the Secretary.

   The maximum areas mentioned above that a contractor may hold

under a mineral agreement shall not include mining/quarry areas under
operating agreements between the contractor and a
claimowner/lessee/permittee/licensee entered into under Presidential Decree
No. 463.

   On the other hand, Section 34, which governs the maximum area for
FTAAs provides:

   SEC. 34. Maximum Contract Area. — The maximum contract area

that may be granted per qualified person, subject to relinquishment shall be:

   (a) 1,000 meridional blocks onshore;

   (b) 4,000 meridional blocks offshore; or

   (c) Combinations of (a) and (b) provided that it shall not exceed the
maximum limits for onshore and offshore areas.

212. Id., sec. 33.

213. Id., sec. 81.

214. Kapatiran v. Tan, 163 SCRA 371 (1988).

215. Providing for the Publication of Laws either in the Official Gazette or in a
Newspaper of General Circulation in the Philippines as a Requirement for
their Effectivity.

216. Section 1, E.O. No. 200 was subsequently incorporated in the Administrative
Code of 1987 (Executive Order No. 292 as Section 18, Chapter 5 (Operation
and Effect of Laws), Book 1 (Sovereignty and General Administration).

217. 136 SCRA 27 (1985).

218. Manila Prince Hotel v. Government Service Insurance System, 267 SCRA 408
(1997).

219. CONST., art. 3, sec. 1.

220. 83 O.G. (Suppl.) 3528-115 to 3528-117 (August 1987).

221. Miners Association of the Philippines, Inc. v. Factoran, Jr., supra.

222. Petitioners note in their Memorandum that the FTAA:

   . . . guarantees that wholly foreign owned [WMCP] entered into the
FTAA in order to facilitate "the large scale exploration, development and
 commercial exploitation of mineral deposits that may be found to exist within
the Contract area." [Section 1.1] As a contractor it also has the "exclusive
right to explore, exploit, utilize, process and dispose of all mineral products
and by-products thereof that may be derived or produced from the Contract
Area." [Section 1.3] Thus, it is divided into an "exploration and feasibility
phase" [Section 3.2 (a)] and a "construction, development and production
phase." [Section 3. 2 (b).]

   Thus, it is this wholly foreign owned corporation that, among other

things:

   (a) operates within a prescribed contract area [Section 4],

   (b). opts to apply for a Mining Production Sharing Agreement [Section

4.2],

   (c) relinquishes control over portions thereof at their own choice

[Section 4.6],

   (d) submits work programs, incurs expenditures, and makes reports

during the exploration period [Section 5],

   (e) submits a Declaration of Mining Feasibility [Sections 5.4 and 5.5],

   (f) during the development period, determines the timetable, submits

work programs, provides the reports and determines and executes
expansions, modifications, improvements and replacements of new mining
facilities within the area [Section 6],

   (g) complies with the conditions for environmental protection and

industrial safety, posts the necessary bonds and makes representations and
warranties to the government [Section 10.5].

   The contract subsists for an initial term of twenty-five (25) years from
the date of its effectivity [Section 3.1] and renewable for a further period of
twenty-five years under the same terms and conditions upon application by
private respondent [Section 3.3]. (Rollo , pp. 458–459.)

223. H. C. BLACK, HANDBOOK ON THE CONSTRUCTION AND INTERPRETATION OF

THE LAWS § 8.

224. Ibid.

225. J.M. Tuason & Co., Inc. v. Land Tenure Association, 31 SCRA 413 (1970).

226. Rollo , p. 580.

227. Ibid. Emphasis supplied.

228. People v . Manantan, 115 Phil. 657 (1962); Commission on Audit of the
Province of Cebu v. Province of Cebu, 371 SCRA 196 (2001).

229. Rollo , p. 569.

230. III Record of the Constitutional Commission 351-352.

231. V Record of the Constitutional Commission 844.

232Â Id., at 841.

233. Id., at 842.

234. Id., at 844.

235. Vide Cherey v. Long Beach, 282 NY 382, 26 NE 2d 945, 127 ALR 1210
(1940), cited in 16 Am Jur 2d Constitutional Law § 79.

236. Civil Liberties Union v. Executive Secretary, 194 SCRA 317, 325 (1991).

237. III Record of the Constitutional Commission 278.

238. Id., at 316-317.

239. III Record of the Constitutional Commission 358-359.

240. Vera v. Avelino, 77 Phil. 192 (1946).

241. J. NOLLEDO, THE NEW CONSTITUTION OF THE PHILIPPINES ANNOTATED 924-

926 (1990).

242. Resolution to Incorporate in the New Constitution an Article on National

Economy and Patrimony.

243. The Chair of the Committee on National Economy and Patrimony, alluded to
it in the discussion on the capitalization requirement:

   MR. VILLEGAS. We 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." (III Record of the Constitutional Commission 255.)

   Likewise, in explaining the reasons for the deletion of the term

"exploitation" :

   MR. VILLEGAS. Madam President, following the recommendation in the

UP draft, we omitted "exploitation" first of all because it is believed to be
subsumed under "development" and secondly because it has a derogatory
connotation. (Id., at 358.)

244. Id., at 12.

245. Id., at 15-16.

246. M. Magallona, Nationalism and Its Subversion in the Constitution 5, in II

DRAFT PROPOSAL OF THE 1986 U.P. LAW CONSTITUTION PROJECT.

247. Agabin, supra, at 16.

248. E. Labitag, Philippine Natural Resources : Some Problems and Perspectives

17 in II DRAFT PROPOSAL OF THE 1986 U.P. LAW CONSTITUTION PROJECT.

249. I DRAFT PROPOSAL OF THE 1986 U.P. LAW CONSTITUTION PROJECT 11-13.
250. Id., at 9-11. Professor Labitag also suggests that:

   . . .. The concession regime of natural resources disposition should be

discontinued. Instead the State shall enter into such arrangements and
agreements like co-production, joint ventures, etc. as shall bring about
effective control and a larger share in the proceeds, harvest or production.
(Labitag, supra, at 17.)

251. Vide Note 147.

252. Vide Note 230. The question was posed before the Jamir amendment and
subsequent proposals introducing other limitations.

   Comm. Villegas' response that there was no requirement in the 1973

Constitution for a law to govern service contracts and that, in fact, there
were then no such laws is inaccurate. The 1973 Charter required similar
legislative approval, although it did not specify the form it should take: "The
Batasang Pambansa, in the national interest, may allow such citizens. . . . to
enter into service contracts. . . ." As previously noted, however, laws
authorizing service contracts were actually enacted by presidential decree.

253. Vide Note 238.

254. Vide Note 241.

255. Vide Note 231.

256. Dated July 28, 1987.

257. Dated October 3, 1990.

258. Peralta v. Civil Service Commission, 212 SCRA 425 (1992).

259. Vide Note 238.

260. III RECORD OF THE CONSTITUTIONAL COMMISSION 354.

261. Salaysay v. Castro, 98 Phil. 364 (1956).

262. Rep. Act No. 7942 (1995), sec. 3 (q).

263. Id., sec. 3 (aq).

264. Id., sec. 20.

265. Id., sec. 23, first par.

266. Id., sec. 23, last par.

267. Id., sec. 3 (j).

268. Id., sec. 3 (az).

269. Id., sec. 35 (m).

270. Id., secs. 3 (aq) and 56.

271. Id., sec. 3 (y).

272. Id., sec. 35 (g).

273. Id., sec. 35 (h).

274. Id., sec. 35 (l).

275. Id., sec. 3 (af).

276. SEC. 72. Timber Rights. — Any provision of the law to the contrary
notwithstanding, a contractor may be granted a right to cut trees or timber
within his mining areas as may be necessary for his mining operations
subject to forestry laws, rules and regulations: Provided, That if the land
covered by the mining area is already covered by existing timber
concessions, the volume of timber needed and the manner of cutting and
removal thereof shall be determined by the mines regional director, upon
consultation with the contractor, the timber concessionaire/permittee and the
Forest Management Bureau of the Department: Provided, further, That in
case of disagreement between the contractor and the timber concessionaire,
the matter shall be submitted to the Secretary whose decision shall be final.
T h e contractor shall perform reforestation work within his mining area in
accordance with forestry laws, rules and regulations. [Emphasis supplied.]

   SEC. 73. Water Rights. — A contractor shall have water rights for
mining operations upon approval of application with the appropriate
government agency in accordance with existing water laws, rules and
regulations promulgated thereunder: Provided, That water rights already
granted or vested through long use, recognized and acknowledged by local
customs, laws and decisions of courts shall not thereby be impaired:
Provided, further, That the Government reserves the right to regulate water
rights and the reasonable and equitable distribution of water supply so as to
prevent the monopoly of the use thereof. [Emphasis supplied.]

   SEC. 74. Right to Possess Explosives . — A contractor/exploration

permittee shall have the right to possess and use explosives within his
contract/permit area as may be necessary for his mining operations upon
approval of an application with the appropriate government agency in
accordance with existing laws, rules and regulations promulgated
thereunder: Provided, That the Government reserves the right to regulate
and control the explosive accessories to ensure safe mining operations.
[Emphasis supplied.]

   SEC. 75. Easement Rights. — When mining areas are so situated that
for purposes of more convenient mining operations it is necessary to build,
construct or install on the mining areas or lands owned, occupied or leased
by other persons, such infrastructure as roads, railroads, mills, waste dump
sites, tailings ponds, warehouses, staging or storage areas and port facilities,
tramways, runways, airports, electric transmission, telephone or telegraph
lines, dams and their normal flood and catchment areas, sites for water
wells, ditches, canals, new river beds, pipelines, flumes, cuts, shafts, tunnels,
or mills, the contractor, upon payment of just compensation, shall be entitled
to enter and occupy said mining areas or lands. [Emphasis supplied.]

   SEC. 76. Entry into Private Lands and Concession Areas. — Subject to
 prior notification, holders of mining rights shall not be prevented from entry
into private lands and concession areas by surface owners, occupants, or
concessionaires when conducting mining operations therein: Provided, That
any damage done to the property of the surface owner, occupant, or
concessionaire as a consequence of such operations shall be properly
compensated as may be provided for in the implementing rules and
regulations: Provided, further, That to guarantee such compensation, the
person authorized to conduct mining operation shall, prior thereto, post a
bond with the regional director based on the type of properties, the
prevailing prices in and around the area where the mining operations are to
be conducted, with surety or sureties satisfactory to the regional director.
[Emphasis supplied.]

277. Id., sec. 39, first par.

278. Id., sec. 39, second par.

279. Id., sec. 35 (e).

280. SEC. 23. Rights and Obligations of the Permittee. — . . ..

   The permittee may apply for a mineral production sharing agreement,

joint venture agreement, co-production agreement or financial or technical
assistance agreement over the permit area, which application shall be
granted if the permittee meets the necessary qualifications and the terms
and conditions of any such agreement: Provided That the exploration period
covered by the exploration period of the mineral agreement or financial or
technical assistance agreement.

281. SEC. 35. Terms and Conditions . — The following terms, conditions, and
warranties shall be incorporated in the financial or technical assistance
agreement, to wit:

   (a) A firm commitment in the form of sworn statement, of an amount

corresponding to the expenditure obligation that will be invested in the
contract area: Provided, That such amount shall be subject to changes as
may be provided for in the rules and regulations of this act;

   (b) A financial guarantee bond shall be posted in favor of the

Government in an amount equivalent to the expenditure obligation of the
applicant for any year;

   (c) Submission of proof of technical competence, such as, but not

limited to, its track record in mineral resource exploration, development, and
utilization; details of technology to be employed in the proposed operation;
and details of technical personnel to undertake the operation;

   (d) Representations and warranties that the applicant has all the
qualifications and none of the disqualifications for entering into the
agreement;

   (e) Representations and warranties that the contractor has or has

access to all the financing managerial and technical expertise and, if
circumstances demand, the technology required to promptly and effectively
carry out the objectives of the agreement with the understanding to timely
 deploy these resources under its supervision pursuant to the periodic work
programs and related budgets, when proper, providing an exploration period
up to two (2) years, extendible for another two (2) years but subject to
annual review by the Secretary in accordance with the implementing rules
and regulations of this Act, and further, subject to the relinquishment
obligations;

   (f) Representations and warranties that, except for payments for

dispositions for its equity, foreign investments in local enterprises which are
qualified for repatriation, and local supplier's credits and such other generally
accepted and permissible financial schemes for raising funds for valid
business purposes, the contractor shall not raise any form of financing from
domestic sources of funds, whether in Philippine or foreign currency, for
conducting its mining operations for and in the contract area;

   (g) The mining operations shall be conducted in accordance with the

provisions of this Act and its implementing rules and regulations;

   (h) Work programs and minimum expenditures commitments;

   (i) Preferential use of local goods and services to the maximum extent
practicable;

   (j) A stipulation that the contractors are obligated to give preference

to Filipinos in all types of mining employment for which they are qualified
and that technology shall be transferred to the same;

   (k) Requiring the proponent to effectively use appropriate anti-

pollution technology and facilities to protect the environment and to restore
or rehabilitate mined out areas and other areas affected by mine tailings and
other forms of pollution or destruction;

   (l) The contractors shall furnish the Government records of geologic,

accounting, and other relevant data for its mining operation, and that book of
accounts and records shall be open for inspection by the government;

   (m) Requiring the proponent to dispose of the minerals and

byproducts produced under a financial or technical assistance agreement at
the highest price and more advantageous terms and conditions as provided
for under the rules and regulations of this Act;

   (n) Provide for consultation and arbitration with respect to the

interpretation and implementation of the terms and conditions of the
agreements; and

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

282. SEC. 39. Option to Convert into Mineral Agreement. — The contractor has
the option to convert the financial or technical assistance agreement to a
mineral agreement at any time during the term of the agreement, if the
economic viability of the contract area is found to be inadequate to justify
large-scale mining operations, after proper notice to the Secretary as
provided for under the implementing rules and regulations; Provided, That
 the mineral agreement shall only be for the remaining period of the original
agreement.

   In the case of a foreign contractor, it shall reduce its equity to forty
percent (40%) in the corporation, partnership, association, or cooperative.
Upon compliance with this requirement by the contractor, the Secretary shall
approve the conversion and execute the mineral production-sharing
agreement.

283. SEC. 56. Eligibility of Foreign-owned/-controlled Corporation. — A foreign

owned/-controlled corporation may be granted a mineral processing permit.

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

xxx xxx xxx

   (g) "Contractor" means a qualified person acting alone or in

consortium who is a party to a mineral agreement or to a financial or
technical assistance agreement.

285. SEC. 34. Maximum Contract Area. — The maximum contract area that may
be granted per qualified person, subject to relinquishment shall be:

   (a) 1,000 meridional blocks onshore;

   (b) 4,000 meridional blocks offshore; or

   (c) Combinations of (a) and (b) provided that it shall not exceed the
maximum limits for onshore and offshore areas.

286. SEC. 36. Negotiations. — A financial or technical assistance agreement shall

be negotiated by the Department and executed and approved by the
President. The President shall notify Congress of all financial or technical
assistance agreements within thirty (30) days from execution and approval
thereof.

287. SEC. 37. Filing and Evaluation of Financial or Technical Assistance

Agreement Proposals. — All financial or technical assistance agreement
proposals shall be filed with the Bureau after payment of the required
processing fees. If the proposal is found to be sufficient and meritorious in
form and substance after evaluation, it shall be recorded with the
appropriate government agency to give the proponent the prior right to the
area covered by such proposal: Provided, That existing mineral agreements,
financial or technical assistance agreements and other mining rights are not
impaired or prejudiced thereby. The Secretary shall recommend its approval
to the President.

288. SEC. 38. Term of Financial or Technical Assistance Agreement . — A financial

or technical assistance agreement shall have a term not exceeding twenty-
five (25) years to start from the execution thereof, renewable for not more
than twenty-five (25) years under such terms and conditions as may be
provided by law.

289. 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.

290. SEC. 41. Withdrawal from Financial or Technical Assistance Agreement . —

The contractor shall manifest in writing to the Secretary his intention to
withdraw from the agreement, if in his judgment the mining project is no
longer economically feasible, even after he has exerted reasonable diligence
to remedy the cause or the situation. The Secretary may accept the
withdrawal: Provided, That the contractor has complied or satisfied all his
financial, fiscal or legal obligations.

291. SEC. 81. Government Share in Other Mineral Agreements . — . . ..

   The Government share in financial or technical assistance agreement

shall consist of, among other things, the contractor's corporate income tax,
excise tax, special allowance, withholding tax due from the contractor's
foreign stockholders arising from dividend or interest payments to the said
foreign stockholder in case of a foreign national and all such other taxes,
duties and fees as provided for under existing laws.

   The collection of Government share in financial or technical assistance

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

292. SEC. 90. Incentives. — The contractors in mineral agreements, and financial
or technical assistance agreements shall be entitled to the applicable fiscal
and non-fiscal incentives as provided for under Executive Order No. 226,
otherwise known as the Omnibus Investments Code of 1987: Provided, That
holders of exploration permits may register with the Board of Investments
and be entitled to the Fiscal incentives granted under the said Code for the
duration of the permits or extensions thereof: Provided, further, That mining
activities shall always be included in the investment priorities plan.

293. Lidasan v. Commission on Elections, 21 SCRA 496 (1967).

294. Vide also WMCP FTAA, sec. 10.2 (a).

295. WMCP, sec. 10.2.

296. Id., sec. 11.

297. Id., sec. 10.1(a).

298. Id., sec. 10.1(c).

299. Id., sec. 6.4.

300. Rollo , pp. 563-564.

301. Civil Code, art. 8.

302. Const., art III, sec. 1.

303. Vide Note 223.

304. Rollo , p. 243.

305. Civil Liberties Union v. Executive Secretary, supra.

306. Automotive Parts & Equipment Company, Inc . v. Lingad, 30 SCRA 248
(1969).

307. Ibid.

VITUG, J.:

1. III Record of the Constitutional Commission 348.

2. Id., p. 352.

3. Id., p. 355.

4. Decision, pp. 69-71.

5. Id., p. 69.

PANGANIBAN, J.:

1. That is, the Court of Appeals' resolution of the petition for review — docketed
as CA-G.R. No. 74161 and lodged by Lepanto Consolidated Mining — of the
Decision of the Office of the President, which upheld the Order of the DENR
secretary approving the transfer to, and the registration of the FTAA in the
name of, Sagittarius Mines, Inc.

2. Chavez v. Philippine Estates Authority and Amari, G.R. No. 133250, July 9,
2002, May 6, 2003 and November 11, 2003.

3. United Residents of Dominican Hill, Inc. v. Commission on the Settlement of

Land Problems, 353 SCRA 782, March 7, 2001; In Re : Saturnino V .
Bermudez , 145 SCRA 163, October 24, 1986; Darnoc Realty Development
Corp. v. Ayala Corp ., 202 Phil. 865, September 30, 1982, De la Llana v. Alba,
198 Phil. 1, March 12, 1982.

4. Mirasol v. Court of Appeals, 351 SCRA 44, February 1, 2001; Lalican v. Hon.
Vergara, 342 Phil. 485, July 31, 1997; Ty v. Trampe, 321 Phil. 103, December
1, 1995; People v. Vera, 65 Phil. 56, November 16, 1937.

5. Par. 4, Sec. 2 of Art. XII.

6. Id., p. 840.

7. Ibid.

8. 272 SCRA 18, May 2, 1997.