1 7

Republic of the Philippines
Supreme Court
Manila

EN BANC

THE SECRETARY OF THE G.R. No. 167707
DEPARTMENT OF ENVIRONMENT
AND NATURAL RESOURCES, THE
REGIONAL EXECUTIVE Present:
DIRECTOR, DENR-REGION VI,
REGIONAL TECHNICAL PUNO, C.J.,
DIRECTOR FOR LANDS, QUISUMBING,
LANDS MANAGEMENT BUREAU, YNARES-SANTIAGO,
REGION VI PROVINCIAL CARPIO,
ENVIRONMENT AND NATURAL AUSTRIA-MARTINEZ,
RESOURCES OFFICER OF KALIBO, CORONA,
*

AKLAN, REGISTER OF DEEDS, CARPIO MORALES,
DIRECTOR OF LAND AZCUNA,
REGISTRATION AUTHORITY, TINGA,
DEPARTMENT OF TOURISM CHICO-NAZARIO,
SECRETARY, DIRECTOR OF VELASCO, JR.,
PHILIPPINE TOURISM NACHURA,
**

AUTHORITY, REYES,
Petitioners, LEONARDO-DE CASTRO, and
BRION, JJ.

- versus -

MAYOR JOSE S. YAP, LIBERTAD
TALAPIAN, MILA Y. SUMNDAD, and
ANICETO YAP, in their behalf and Promulgated:
in behalf of all those similarly situated,
Respondents. October 8, 2008

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

DR. ORLANDO SACAY and G.R. No. 173775
WILFREDO GELITO, joined by
THE LANDOWNERS OF
BORACAY SIMILARLY
SITUATED NAMED IN A LIST,
ANNEX A OF THIS PETITION,
Petitioners,

- versus -

THE SECRETARY OF THE
AND NATURAL RESOURCES, THE
REGIONAL TECHNICAL
DIRECTOR FOR LANDS, LANDS
MANAGEMENT BUREAU,
REGION VI, PROVINCIAL
ENVIRONMENT AND NATURAL
RESOURCES OFFICER, KALIBO,
AKLAN,
Respondents.

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

D E C I S I O N

REYES, R.T., J .:

AT stake in these consolidated cases is the right of the present occupants
of Boracay Island to secure titles over their occupied lands.

There are two consolidated petitions. The first is G.R. No. 167707, a
petition for review on certiorari of the Decision
[1]
of the Court of Appeals (CA)
affirming that
[2]
of the Regional Trial Court (RTC) in Kalibo, Aklan, which granted
the petition for declaratory relief filed by respondents-claimants Mayor Jose
Yap, et al. and ordered the survey of Boracay for titling purposes. The second is
G.R. No. 173775, a petition for prohibition, mandamus, and nullification of
Proclamation No. 1064
[3]
issued by President Gloria Macapagal-Arroyo classifying
Boracay into reserved forest and agricultural land.

The Antecedents

G.R. No. 167707

Boracay Island in the Municipality of Malay, Aklan, with its powdery white
sand beaches and warm crystalline waters, is reputedly a premier Philippine tourist
destination. The island is also home to 12,003 inhabitants
[4]
who live in the bone-
shaped islands three barangays.
[5]

On April 14, 1976, the Department of Environment and Natural
Resources (DENR) approved the National Reservation Survey of Boracay
Island,
[6]
which identified several lots as being occupied or claimed by named
persons.
[7]

On November 10, 1978, then President Ferdinand Marcos issued
[8]
declaring Boracay Island, among other islands, caves and
peninsulas in the Philippines, as tourist zones and marine reserves under the
administration of the Philippine Tourism Authority (PTA). President Marcos later
approved the issuance of PTA Circular 3-82
[9]
dated September 3, 1982, to
implement Proclamation No. 1801.

Claiming that Proclamation No. 1801 and PTA Circular No 3-82 precluded
them from filing an application for judicial confirmation of imperfect title or
survey of land for titling purposes, respondents-claimants
Mayor Jose S. Yap, Jr., Libertad Talapian, Mila Y. Sumndad, and Aniceto Yap
filed a petition for declaratory relief with the RTCin Kalibo, Aklan.

In their petition, respondents-claimants alleged that Proclamation No. 1801
and PTA Circular No. 3-82 raised doubts on their right to secure titles over their
occupied lands. They declared that they themselves, or through their predecessors-
in-interest, had been in open, continuous, exclusive, and notorious possession and
occupation in Boracay since June 12, 1945, or earlier since time
immemorial. They declared their lands for tax purposes and paid realty taxes on
them.
[10]

Respondents-claimants posited that Proclamation No. 1801 and its
implementing Circular did not place Boracay beyond the commerce of man. Since
the Island was classified as a tourist zone, it was susceptible of private
ownership. Under Section 48(b) of Commonwealth Act (CA) No. 141, otherwise
known as the Public Land Act, they had the right to have the lots registered in their
names through judicial confirmation of imperfect titles.

The Republic, through the Office of the Solicitor General (OSG), opposed
the petition for declaratory relief. The OSGcountered that Boracay Island was
an unclassified land of the public domain. It formed part of the mass of lands
classified as public forest, which was not available for disposition pursuant to
Section 3(a) of Presidential Decree (PD) No. 705 or the Revised Forestry
Code,
[11]
as amended.

The OSG maintained that respondents-claimants reliance on PD No. 1801
and PTA Circular No. 3-82 was misplaced. Their right to judicial confirmation of
title was governed by CA No. 141 and PD No. 705. Since Boracay Island had not
been classified as alienable and disposable, whatever possession they had cannot
ripen into ownership.

During pre-trial, respondents-claimants and the OSG stipulated on the
following facts: (1) respondents-claimants were presently in possession of parcels
of land in Boracay Island; (2) these parcels of land were planted with coconut trees
and other natural growing trees; (3) the coconut trees had heights of more or less
twenty (20) meters and were planted more or less fifty (50) years ago; and (4)
respondents-claimants declared the land they were occupying for tax purposes.
[12]

The parties also agreed that the principal issue for resolution was purely
legal: whether Proclamation No. 1801 posed any legal hindrance or impediment to
the titling of the lands in Boracay. They decided to forego with the trial and to
submit the case for resolution upon submission of their respective memoranda.
[13]

The RTC took judicial notice
[14]
that certain parcels of land
in Boracay Island, more particularly Lots 1 and 30, Plan PSU-5344, were covered
by Original Certificate of Title No. 19502 (RO 2222) in the name of the Heirs of
Ciriaco S. Tirol. These lots were involved in Civil Case Nos. 5222 and 5262 filed
before the RTC of Kalibo, Aklan.
[15]
The titles were issued on
August 7, 1933.
[16]

RTC and CA Dispositions

On July 14, 1999, the RTC rendered a decision in favor of respondents-
claimants, with a fallo reading:

WHEREFORE, in view of the foregoing, the Court declares that
Proclamation No. 1801 and PTA Circular No. 3-82 pose no legal
obstacle to the petitioners and those similarly situated to acquire title to
their lands in Boracay, in accordance with the applicable laws and in the
manner prescribed therein; and to have their lands surveyed and
approved by respondent Regional Technical Director of Lands as the
approved survey does not in itself constitute a title to the land.

SO ORDERED.
[17]

The RTC upheld respondents-claimants right to have their occupied lands
titled in their name. It ruled that neither Proclamation No. 1801 nor PTA Circular
No. 3-82 mentioned that lands in Boracay were inalienable or could not be the
subject of disposition.
[18]
The Circular itself recognized private ownership of
lands.
[19]
The trial court cited Sections 87
[20]
and 53
[21]
of the Public Land Act as
basis for acknowledging private ownership of lands in Boracay and that only those
forested areas in public lands were declared as part of the forest reserve.
[22]

The OSG moved for reconsideration but its motion was denied.
[23]
The
Republic then appealed to the CA.

On December 9, 2004, the appellate court affirmed in toto the RTC decision,
disposing as follows:

WHEREFORE, in view of the foregoing premises, judgment is
hereby rendered by us DENYING the appeal filed in this case and
AFFIRMING the decision of the lower court.
[24]

The CA held that respondents-claimants could not be prejudiced by a
declaration that the lands they occupied since time immemorial were part of a
forest reserve.

Again, the OSG sought reconsideration but it was similarly
denied.
[25]
Hence, the present petition under Rule 45.

G.R. No. 173775

On May 22, 2006, during the pendency of G.R. No. 167707, President
Gloria Macapagal-Arroyo issued Proclamation No. 1064
[26]
classifying Boracay
Island into four hundred (400) hectares of reserved forest land (protection
purposes) and six hundred twenty-eight and 96/100 (628.96) hectares of
agricultural land (alienable and disposable). The Proclamation likewise provided
for a fifteen-meter buffer zone on each side of the centerline of roads and trails,
reserved for right-of-way and which shall form part of the area reserved for forest
land protection purposes.

On August 10, 2006, petitioners-claimants Dr. Orlando Sacay,
[27]
Wilfredo
Gelito,
[28]
and other landowners
[29]
in Boracay filed with this Court an original
petition for prohibition, mandamus, and nullification of Proclamation No.
1064.
[30]
They allege that the Proclamation infringed on their prior vested rights
over portions of Boracay. They have been in continued possession of their
respective lots in Boracay since time immemorial. They have also invested
billions of pesos in developing their lands and building internationally renowned
first class resorts on their lots.
[31]

Petitioners-claimants contended that there is no need for a proclamation
reclassifying Boracay into agricultural land. Being classified as neither mineral
nor timber land, the island is deemed agricultural pursuant to the Philippine Bill of
1902 and Act No. 926, known as the first Public Land Act.
[32]
Thus, their
possession in the concept of owner for the required period entitled them to judicial
confirmation of imperfect title.

Opposing the petition, the OSG argued that petitioners-claimants do not
have a vested right over their occupied portions in the island. Boracay is an
unclassified public forest land pursuant to Section 3(a) of PD No. 705. Being
public forest, the claimed portions of the island are inalienable and cannot be the
subject of judicial confirmation of imperfect title. It is only the executive
department, not the courts, which has authority to reclassify lands of the public
domain into alienable and disposable lands. There is a need for a positive
government act in order to release the lots for disposition.

On November 21, 2006, this Court ordered the consolidation of the two
petitions as they principally involve the same issues on the land classification
of Boracay Island.
[33]

Issues

G.R. No. 167707

The OSG raises the lone issue of whether Proclamation No. 1801
and PTA Circular No. 3-82 pose any legal obstacle for respondents, and all those
similarly situated, to acquire title to their occupied lands in Boracay Island.
[34]

G.R. No. 173775

Petitioners-claimants hoist five (5) issues, namely:

I.
AT THE TIME OF THE ESTABLISHED POSSESSION OF
PETITIONERS IN CONCEPT OF OWNER OVER THEIR
RESPECTIVE AREAS IN BORACAY, SINCE TIME IMMEMORIAL
OR AT THE LATEST SINCE 30 YRS. PRIOR TO THE FILING OF
THE PETITION FOR DECLARATORY RELIEF ON NOV. 19,
1997, WERE THE AREAS OCCUPIED BY THEM PUBLIC
AGRICULTURAL LANDS AS DEFINED BY LAWS THEN ON
JUDICIAL CONFIRMATION OF IMPERFECT TITLES OR PUBLIC
FOREST AS DEFINED BY SEC. 3a, PD 705?

II.
HAVE PETITIONERS OCCUPANTS ACQUIRED PRIOR VESTED
RIGHT OF PRIVATE OWNERSHIP OVER THEIR OCCUPIED
PORTIONS OF BORACAY LAND, DESPITE THE FACT THAT
THEY HAVE NOT APPLIED YET FOR JUDICIAL
CONFIRMATION OF IMPERFECT TITLE?

III.
IS THE EXECUTIVE DECLARATION OF THEIR AREAS AS
ALIENABLE AND DISPOSABLE UNDER SEC 6, CA 141 [AN]
INDISPENSABLE PRE-REQUISITE FOR PETITIONERS TO
OBTAIN TITLE UNDER THE TORRENS SYSTEM?

IV.
IS THE ISSUANCE OF PROCLAMATION 1064 ON MAY 22, 2006,
VIOLATIVE OF THE PRIOR VESTED RIGHTS TO PRIVATE
OWNERSHIP OF PETITIONERS OVER THEIR LANDS IN
BORACAY, PROTECTED BY THE DUE PROCESS CLAUSE OF
THE CONSTITUTION OR IS PROCLAMATION 1064 CONTRARY
TO SEC. 8, CA 141, OR SEC. 4(a) OF RA 6657.

V.
CAN RESPONDENTS BE COMPELLED BY MANDAMUS TO
ALLOW THE SURVEY AND TO APPROVE THE SURVEY
PLANSFOR PURPOSES OF THE APPLICATION FOR TITLING OF
THE LANDS OF PETITIONERS IN BORACAY?
[35]
(Underscoring
supplied)

In capsule, the main issue is whether private claimants (respondents-
claimants in G.R. No. 167707 and petitioners-claimants inG.R. No. 173775) have a
right to secure titles over their occupied portions in Boracay. The twin petitions
pertain to their right, if any, to judicial confirmation of imperfect title under CA
No. 141, as amended. They do not involve their right to secure title under other
pertinent laws.

Our Ruling

Regalian Doctrine and power of the executive
to reclassify lands of the public domain

Private claimants rely on three (3) laws and executive acts in their bid for
judicial confirmation of imperfect title, namely: (a) Philippine Bill of 1902
[36]
in
relation to Act No. 926, later amended and/or superseded by Act No. 2874 and CA
No. 141;
[37]
(b) Proclamation No. 1801
[38]
issued by then President Marcos; and (c)
[39]
issued by President Gloria Macapagal-Arroyo. We shall
proceed to determine their rights to apply for judicial confirmation of imperfect
title under these laws and executive acts.

But first, a peek at the Regalian principle and the power of the executive to
reclassify lands of the public domain.

The 1935 Constitution classified lands of the public domain into agricultural,
forest or timber.
[40]
Meanwhile, the 1973 Constitution provided the following
divisions: agricultural, industrial or commercial, residential, resettlement, mineral,
timber or forest and grazing lands, and such other classes as may be provided by
law,
[41]
giving the government great leeway for classification.
[42]
Then the 1987
Constitution reverted to the 1935 Constitution classification with one addition:
national parks.
[43]
Of these, onlyagricultural lands may be alienated.
[44]
Prior to
Proclamation No. 1064 of May 22, 2006, Boracay Island had never been expressly
and administratively classified under any of these grand divisions. Boracay was an
unclassified land of the public domain.

The Regalian Doctrine dictates that all lands of the public domain belong to
the State, that the State is the source of any asserted right to ownership of land and
charged with the conservation of such patrimony.
[45]
The doctrine has been
consistently adopted under the 1935, 1973, and 1987 Constitutions.
[46]

All lands not otherwise appearing to be clearly within private ownership are
presumed to belong to the State.
[47]
Thus, all lands that have not been acquired
from the government, either by purchase or by grant, belong to the State as part of
the inalienable public domain.
[48]
Necessarily, it is up to the State to determine if
lands of the public domain will be disposed of for private ownership. The
government, as the agent of the state, is possessed of the plenary power as the
persona in law to determine who shall be the favored recipients of public lands, as
well as under what terms they may be granted such privilege, not excluding the
placing of obstacles in the way of their exercise of what otherwise would be
ordinary acts of ownership.
[49]

Our present land law traces its roots to the Regalian Doctrine. Upon the
Spanish conquest of the Philippines, ownership of all lands, territories and
possessions in the Philippines passed to the Spanish Crown.
[50]
The Regalian
doctrine was first introduced in the Philippines through the Laws of the Indies and
the Royal Cedulas, which laid the foundation that all lands that were not acquired
from the Government, either by purchase or by grant, belong to the public
domain.
[51]

The Laws of the Indies was followed by the Ley Hipotecaria or
the Mortgage Law of 1893. The Spanish Mortgage Law provided for the
systematic registration of titles and deeds as well as possessory claims.
[52]

The Royal Decree of 1894 or the Maura Law
[53]
partly amended the Spanish
Mortgage Law and the Laws of the Indies. It established possessory information as
the method of legalizing possession of vacant Crown land, under certain conditions
which were set forth in said decree.
[54]
Under Section 393 of the Maura Law,
an informacion posesoria or possessory information title,
[55]
when duly inscribed in
the Registry of Property, is converted into a title of ownership only after the lapse
of twenty (20) years of uninterrupted possession which must be actual, public, and
adverse,
[56]
from the date of its inscription.
[57]
However, possessory information
title had to be perfected one year after the promulgation of the Maura Law, or
until April 17, 1895. Otherwise, the lands would revert to the State.
[58]

In sum, private ownership of land under the Spanish regime could only be
founded on royal concessions which took various forms, namely: (1) titulo
real or royal grant; (2) concesion especial or special grant; (3) composicion
con el estado or adjustment title; (4) titulo de compra or title by purchase; and
(5) informacion posesoria or possessory information title.
[59]

The first law governing the disposition of public lands in
the Philippines under American rule was embodied in the Philippine Bill
of 1902.
[60]
By this law, lands of the public domain in the Philippine Islands were
classified into three (3) grand divisions, to wit: agricultural, mineral, and timber or
forest lands.
[61]
The act provided for, among others, the disposal of mineral lands
by means of absolute grant (freehold system) and by lease (leasehold system).
[62]
It
also provided the definition by exclusion of agricultural public
lands.
[63]
Interpreting the meaning of agricultural lands under the Philippine
Bill of 1902, the Court declared in Mapa v. Insular Government:
[64]

x x x In other words, that the phrase agricultural land as used
in Act No. 926 means those public lands acquired from Spain which
are not timber or mineral lands. x x x
[65]
(Emphasis Ours)

On February 1, 1903, the Philippine Legislature passed Act No. 496,
otherwise known as the Land Registration Act. The act established a system of
registration by which recorded title becomes absolute, indefeasible, and
imprescriptible. This is known as the Torrens system.
[66]

Concurrently, on October 7, 1903, the Philippine Commission passed Act
No. 926, which was the first Public Land Act. The Act introduced the homestead
system and made provisions for judicial and administrative confirmation of
imperfect titles and for the sale or lease of public lands. It permitted corporations
regardless of the nationality of persons owning the controlling stock to lease or
purchase lands of the public domain.
[67]
Under the Act, open, continuous,
exclusive, and notorious possession and occupation of agricultural lands for the
next ten (10) years preceding July 26, 1904 was sufficient for judicial confirmation
of imperfect title.
[68]

On November 29, 1919, Act No. 926 was superseded by Act No. 2874,
otherwise known as the second Public Land Act. This new, more comprehensive
law limited the exploitation of agricultural lands to Filipinos and Americans and
citizens of other countries which gave Filipinos the same privileges. For judicial
confirmation of title, possession and occupation en concepto dueosince time
immemorial, or since July 26, 1894, was required.
[69]

After the passage of the 1935 Constitution, CA No. 141 amended Act No.
2874 on December 1, 1936. To this day, CA No. 141, as amended, remains as the
existing general law governing the classification and disposition of lands of the
public domain other than timber and mineral lands,
[70]
and privately owned lands
which reverted to the State.
[71]

Section 48(b) of CA No. 141 retained the requirement under Act No. 2874
of possession and occupation of lands of the public domain since time immemorial
or since July 26, 1894. However, this provision was superseded by Republic Act
(RA) No. 1942,
[72]
which provided for a simple thirty-year prescriptive period for
judicial confirmation of imperfect title. The provision was last amended by PD
No. 1073,
[73]
which now provides for possession and occupation of the land applied
for since June 12, 1945, or earlier.
[74]

The issuance of PD No. 892
[75]
on February 16, 1976 discontinued the use of
Spanish titles as evidence in land registration proceedings.
[76]
Under the decree, all
holders of Spanish titles or grants should apply for registration of their lands under
Act No. 496 within six (6) months from the effectivity of the decree on February
16, 1976. Thereafter, the recording of all unregistered lands
[77]
shall be governed
by Section 194 of the Revised Administrative Code, as amended by Act No. 3344.

On June 11, 1978, Act No. 496 was amended and updated by PD No. 1529,
known as the Property Registration Decree. It was enacted to codify the various
laws relative to registration of property.
[78]
It governs registration of lands under
the Torrenssystem as well as unregistered lands, including chattel mortgages.
[79]

A positive act declaring land as alienable and disposable is required. In
keeping with the presumption of State ownership, the Court has time and again
emphasized that there must be a positive act of the government, such as an
official proclamation,
[80]
declassifying inalienable public land into disposable land
for agricultural or other purposes.
[81]
In fact, Section 8 of CA No. 141 limits
alienable or disposable lands only to those lands which have been officially
delimited and classified.
[82]

The burden of proof in overcoming the presumption of State ownership of
the lands of the public domain is on the person applying for registration (or
claiming ownership), who must prove that the land subject of the application is
alienable or disposable.
[83]
To overcome this presumption, incontrovertible
evidence must be established that the land subject of the application (or claim) is
alienable or disposable.
[84]
There must still be a positive act declaring land of the
public domain as alienable and disposable. To prove that the land subject of an
application for registration is alienable, the applicant must establish the existence
of a positive act of the government such as a presidential proclamation or an
executive order; an administrative action; investigation reports of Bureau of Lands
investigators; and a legislative act or a statute.
[85]
The applicant may also secure a
certification from the government that the land claimed to have been possessed for
the required number of years is alienable and disposable.
[86]

In the case at bar, no such proclamation, executive order, administrative
action, report, statute, or certification was presented to the Court. The records are
bereft of evidence showing that, prior to 2006, the portions of Boracay occupied by
private claimants were subject of a government proclamation that the land is
alienable and disposable. Absent such well-nigh incontrovertible evidence, the
Court cannot accept the submission that lands occupied by private claimants were
already open to disposition before 2006. Matters of land classification or
reclassification cannot be assumed. They call for proof.
[87]

Ankron and De Aldecoa did not make the whole of Boracay I sland, or
portions of it, agricultural lands. Private claimants posit that Boracay was already
an agricultural land pursuant to the old cases Ankron v. Government of the
PhilippineIslands (1919)
[88]
and De Aldecoa v. The Insular Government
(1909).
[89]
These cases were decided under the provisions of the Philippine Bill of
1902 and Act No. 926. There is a statement in these old cases that in the absence
of evidence to the contrary, that in each case the lands are agricultural lands until
the contrary is shown.
[90]

Private claimants reliance on Ankron and De Aldecoa is misplaced. These
cases did not have the effect of converting the whole of Boracay Island or portions
of it into agricultural lands. It should be stressed that the Philippine Bill of 1902
and Act No. 926 merely provided the manner through which land registration
courts would classify lands of the public domain. Whether the land would be
classified as timber, mineral, or agricultural depended on proof presented in each
case.

Ankron and De Aldecoa were decided at a time when the President of the
Philippines had no power to classify lands of the public domain into mineral,
timber, and agricultural. At that time, the courts were free to make corresponding
classifications in justiciable cases, or were vested with implicit power to do so,
depending upon the preponderance of the evidence.
[91]
This was the Courts ruling
in Heirs of the Late Spouses Pedro S. Palanca and Soterranea Rafols Vda. De
Palanca v. Republic,
[92]
in which it stated, through Justice Adolfo Azcuna, viz.:

x x x Petitioners furthermore insist that a particular land need not
be formally released by an act of the Executive before it can be deemed
open to private ownership, citing the cases of Ramos v. Director of
Lands and Ankron v. Government of the Philippine Islands.

x x x x

Petitioners reliance upon Ramos v. Director of Lands and Ankron
v. Government is misplaced. These cases were decided under the
Philippine Bill of 1902 and the first Public Land Act No. 926 enacted by
the Philippine Commission on October 7, 1926, under which there was
no legal provision vesting in the Chief Executive or President of the
Philippines the power to classify lands of the public domain into mineral,
timber and agricultural so that the courts then were free to make
corresponding classifications in justiciable cases, or were vested with
implicit power to do so, depending upon the preponderance of the
evidence.
[93]

To aid the courts in resolving land registration cases under Act No. 926, it
was then necessary to devise a presumption on land classification. Thus evolved
the dictum in Ankron that the courts have a right to presume, in the absence of
evidence to the contrary, that in each case the lands are agricultural lands until the
contrary is shown.
[94]

But We cannot unduly expand the presumption in Ankron and De Aldecoa to
an argument that all lands of the public domain had been automatically reclassified
as disposable and alienable agricultural lands. By no stretch of imagination did the
presumption convert all lands of the public domain into agricultural lands.

If We accept the position of private claimants, the Philippine Bill of 1902
and Act No. 926 would have automatically made all lands in the Philippines,
except those already classified as timber or mineral land, alienable and disposable
lands. That would take these lands out of State ownership and worse, would be
utterly inconsistent with and totally repugnant to the long-entrenched Regalian
doctrine.

The presumption in Ankron and De Aldecoa attaches only to land
registration cases brought under the provisions of Act No. 926, or more
specifically those cases dealing with judicial and administrative confirmation of
imperfect titles. The presumption applies to an applicant for judicial or
administrative conformation of imperfect title under Act No. 926. It certainly
cannot apply to landowners, such as private claimants or their predecessors-in-
interest, who failed to avail themselves of the benefits of Act No. 926. As to them,
their land remained unclassified and, by virtue of the Regalian doctrine, continued
to be owned by the State.

In any case, the assumption in Ankron and De Aldecoa was not
absolute. Land classification was, in the end, dependent on proof. If there was
proof that the land was better suited for non-agricultural uses, the courts
could adjudge it as a mineral or timber land despite the presumption. In Ankron,
this Court stated:

In the case of Jocson vs. Director of Forestry (supra), the
Attorney-General admitted in effect that whether the particular land in
question belongs to one class or another is a question of fact. The mere
fact that a tract of land has trees upon it or has mineral within it is not of
itself sufficient to declare that one is forestry land and the other, mineral
land. There must be some proof of the extent and present or future value
of the forestry and of the minerals. While, as we have just said, many
definitions have been given for agriculture, forestry, and mineral
lands, and that in each case it is a question of fact, we think it is safe to
say that in order to be forestry or mineral land the proof must show that
it is more valuable for the forestry or the mineral which it contains than
it is for agricultural purposes. (Sec. 7, Act No. 1148.) It is not sufficient
to show that there exists some trees upon the land or that it bears some
mineral. Land may be classified as forestry or mineral today, and, by
reason of the exhaustion of the timber or mineral, be classified as
agricultural land tomorrow. And vice-versa, by reason of the rapid
growth of timber or the discovery of valuable minerals, lands classified
as agricultural today may be differently classified tomorrow. Each case
must be decided upon the proof in that particular case,having
regard for its present or future value for one or the other
purposes. We believe, however, considering the fact that it is a matter
of public knowledge that a majority of the lands in the Philippine Islands
are agricultural lands that the courts have a right to presume, in the
absence of evidence to the contrary, that in each case the lands are
agricultural lands until the contrary is shown. Whatever the land
involved in a particular land registration case is forestry or mineral
land must, therefore, be a matter of proof. Its superior value for one
purpose or the other is a question of fact to be settled by the proof in
each particular case. The fact that the land is a manglar [mangrove
swamp] is not sufficient for the courts to decide whether it is
agricultural, forestry, or mineral land. It may perchance belong to one or
the other of said classes of land. The Government, in the first instance,
under the provisions of Act No. 1148, may, by reservation, decide for
itself what portions of public land shall be considered forestry land,
unless private interests have intervened before such reservation is
made. In the latter case, whether the land is agricultural, forestry, or
mineral, is a question of proof. Until private interests have intervened,
the Government, by virtue of the terms of said Act (No. 1148), may
decide for itself what portions of the public domain shall be set aside
and reserved as forestry or mineral land. (Ramos vs. Director of
Lands,39 Phil. 175; Jocson vs. Director of Forestry, supra)
[95]
(Emphasis
ours)

Since 1919, courts were no longer free to determine the classification of
lands from the facts of each case, except those that have already became private
lands.
[96]
Act No. 2874, promulgated in 1919 and reproduced in Section 6 of CA
No. 141, gave the Executive Department, through the President,
the exclusive prerogative to classify or reclassify public lands into alienable or
disposable, mineral or forest.
96-a
Since then, courts no longer had the authority,
whether express or implied, to determine the classification of lands of the public
domain.
[97]

Here, private claimants, unlike the Heirs of Ciriaco Tirol who were issued
their title in 1933,
[98]
did not present a justiciable case for determination by the land
registration court of the propertys land classification. Simply put, there was no
opportunity for the courts then to resolve if the land the Boracay occupants are
now claiming were agricultural lands. When Act No. 926 was supplanted by Act
No. 2874 in 1919, without an application for judicial confirmation having been
filed by private claimants or their predecessors-in-interest, the courts were no
longer authorized to determine the propertys land classification. Hence, private
claimants cannot bank on Act No. 926.

We note that the RTC decision
[99]
in G.R. No. 167707 mentioned Krivenko
v. Register of Deeds of Manila,
[100]
which was decided in 1947 when CA No. 141,
vesting the Executive with the sole power to classify lands of the public domain
was already in effect. Krivenko cited the old cases Mapa v. Insular
Government,
[101]
De Aldecoa v. The Insular Government,
[102]
and Ankron v.
Government of the Philippine Islands.
[103]

Krivenko, however, is not controlling here because it involved a totally
different issue. The pertinent issue in Krivenko was whether residential lots were
included in the general classification of agricultural lands; and if so, whether an
alien could acquire a residential lot. This Court ruled that as an alien, Krivenko
was prohibited by the 1935 Constitution
[104]
from acquiring agricultural land,
which included residential lots. Here, the issue is whether unclassified lands of the
public domain are automatically deemed agricultural.

Notably, the definition of agricultural public lands mentioned
in Krivenko relied on the old cases decided prior to the enactment of Act No. 2874,
including Ankron and De Aldecoa.
[105]
As We have already stated, those cases
cannot apply here, since they were decided when the Executive did not have the
authority to classify lands as agricultural, timber, or mineral.

Private claimants continued possession under Act No. 926 does not create
a presumption that the land is alienable. Private claimants also contend that their
continued possession of portions of Boracay Island for the requisite period of ten
(10) years under Act No. 926
[106]
ipso facto converted the island into private
ownership. Hence, they may apply for a title in their name.

A similar argument was squarely rejected by the Court in Collado v. Court
of Appeals.
[107]
Collado, citing the separate opinion of now Chief Justice Reynato
S. Puno in Cruz v. Secretary of Environment and Natural Resources,
107-a
ruled:

Act No. 926, the first Public Land Act, was passed
in pursuance of the provisions of the Philippine Bill of
1902. The law governed the disposition of lands of the
public domain. It prescribed rules and regulations for the
homesteading, selling and leasing of portions of the public
domain of the Philippine Islands, and prescribed the terms
and conditions to enable persons to perfect their titles to
public lands in the Islands. It also provided for the
issuance of patents to certain native settlers upon public
lands, for the establishment of town sites and sale of lots
therein, for the completion of imperfect titles, and for the
cancellation or confirmation of Spanish concessions and
grants in the Islands. In short, the Public Land Act
operated on the assumption that title to public lands in the
Philippine Islands remained in the government; and that
the governments title to public land sprung from the
Treaty of Paris and other subsequent treaties between
Spain and the United States. The term public land
referred to all lands of the public domain whose title still
remained in the government and are thrown open to private
appropriation and settlement, and excluded the patrimonial
property of the government and the friar lands.

Thus, it is plain error for petitioners to argue that under the
Philippine Bill of 1902 and Public Land Act No. 926, mere
possession by private individuals of lands creates the legal
presumption that the lands are alienable and
disposable.
[108]
(Emphasis Ours)

Except for lands already covered by existing titles, Boracay was an
unclassified land of the public domain prior to Proclamation No. 1064. Such
unclassified lands are considered public forest under PD No. 705. The
DENR
[109]
and the National Mapping and Resource Information
Authority
[110]
certify that Boracay Island is an unclassified land of the public
domain.

PD No. 705 issued by President Marcos categorized all unclassified lands
of the public domain as public forest. Section 3(a) of PD No. 705 defines a public
forest as a mass of lands of the public domain which has not been the subject of
the present system of classification for the determination of which lands are needed
for forest purpose and which are not. Applying PD No. 705, all unclassified
lands, including those in Boracay Island, are ipso facto considered public
forests. PD No. 705, however, respects titles already existing prior to its
effectivity.

The Court notes that the classification of Boracay as a forest land under PD
No. 705 may seem to be out of touch with the present realities in the
island. Boracay, no doubt, has been partly stripped of its forest cover to pave the
way for commercial developments. As a premier tourist destination for local and
foreign tourists, Boracay appears more of a commercial island resort, rather than a
forest land.

Nevertheless, that the occupants of Boracay have built multi-million peso
beach resorts on the island;
[111]
that the island has already been stripped of its forest
cover; or that the implementation of Proclamation No. 1064 will destroy the
islands tourism industry, do not negate its character as public forest.

Forests, in the context of both the Public Land Act and the
Constitution
[112]
classifying lands of the public domain into agricultural, forest or
timber, mineral lands, and national parks, do not necessarily refer to large tracts
of wooded land or expanses covered by dense growths of trees and
underbrushes.
[113]
The discussion in Heirs of Amunategui v. Director of
Forestry
[114]
is particularly instructive:

A forested area classified as forest land of the public domain does
not lose such classification simply because loggers or settlers may have
stripped it of its forest cover. Parcels of land classified as forest land
may actually be covered with grass or planted to crops
by kaingin cultivators or other farmers. Forest lands do not have to be
on mountains or in out of the way places. Swampy areas covered by
mangrove trees, nipa palms, and other trees growing in brackish or sea
water may also be classified as forest land. The classification is
descriptive of its legal nature or status and does not have to be
descriptive of what the land actually looks like. Unless and until the
land classified as forest is released in an official proclamation to that
effect so that it may form part of the disposable agricultural lands of the
public domain, the rules on confirmation of imperfect title do not
apply.
[115]
(Emphasis supplied)

There is a big difference between forest as defined in a dictionary and
forest or timber land as a classification of lands of the public domain as
appearing in our statutes. One is descriptive of what appears on the land while the
other is a legal status, a classification for legal purposes.
[116]
At any rate, the Court
is tasked to determine the legal status of Boracay Island, and not look into its
physical layout. Hence, even if its forest cover has been replaced by beach resorts,
restaurants and other commercial establishments, it has not been automatically
converted from public forest to alienable agricultural land.

Private claimants cannot rely on Proclamation No. 1801 as basis for
judicial confirmation of imperfect title. The proclamation did not convert
Boracay into an agricultural land. However, private claimants argue that
Proclamation No. 1801 issued by then President Marcos in 1978 entitles them to
judicial confirmation of imperfect title. The Proclamation classified Boracay,
among other islands, as a tourist zone. Private claimants assert that, as a tourist
spot, the island is susceptible of private ownership.

Proclamation No. 1801 or PTA Circular No. 3-82 did not convert the whole
of Boracay into an agricultural land. There is nothing in the law or the Circular
which made Boracay Island an agricultural land. The reference in Circular No. 3-
82 to private lands
[117]
and areas declared as alienable and disposable
[118]
does
not by itself classify the entire island as agricultural. Notably, Circular No. 3-82
makes reference not only to private lands and areas but also to public forested
lands. Rule VIII, Section 3 provides:

No trees in forested private lands may be cut without prior
authority from the PTA. All forested areas in public lands are declared
forest reserves. (Emphasis supplied)

Clearly, the reference in the Circular to both private and public lands merely
recognizes that the island can be classified by the Executive department pursuant
to its powers under CA No. 141. In fact, Section 5 of the Circular recognizes the
then Bureau of Forest Developments authority to declare areas in the island as
alienable and disposable when it provides:

Subsistence farming, in areas declared as alienable and disposable
by the Bureau of Forest Development.

Therefore, Proclamation No. 1801 cannot be deemed the positive act needed
to classify Boracay Island as alienable and disposable land. If President Marcos
intended to classify the island as alienable and disposable or forest, or both, he
would have identified the specific limits of each, as President Arroyo did in
Proclamation No. 1064. This was not done in Proclamation No. 1801.

The Whereas clauses of Proclamation No. 1801 also explain the rationale
behind the declaration of Boracay Island, together with other islands, caves and
peninsulas in the Philippines, as a tourist zone and marine reserve to be
administered by the PTA to ensure the concentrated efforts of the public and
private sectors in the development of the areas tourism potential with due regard
for ecological balance in the marine environment. Simply put, the proclamation is
aimed at administering the islands for tourism and ecological purposes. It does
not address the areas alienability.
[119]

More importantly, Proclamation No. 1801 covers not only Boracay Island,
but sixty-four (64) other islands, coves, and peninsulas in the Philippines, such as
Fortune and Verde Islands in Batangas, Port Galera in Oriental Mindoro, Panglao
and Balicasag Islands in Bohol, Coron Island, Puerto Princesa and surrounding
areas in Palawan, Camiguin Island in Cagayan de Oro, and Misamis Oriental, to
name a few. If the designation of Boracay Island as tourist zone makes it alienable
and disposable by virtue of Proclamation No. 1801, all the other areas mentioned
would likewise be declared wide open for private disposition. That could not have
been, and is clearly beyond, the intent of the proclamation.

I t was Proclamation No. 1064 of 2006 which positively declared part of
Boracay as alienable and opened the same to private ownership. Sections 6 and
7 of CA No. 141
[120]
provide that it is only the President, upon the recommendation
of the proper department head, who has the authority to classify the lands of the
public domain into alienable or disposable, timber and mineral lands.
[121]

In issuing Proclamation No. 1064, President Gloria Macapagal-Arroyo
merely exercised the authority granted to her to classify lands of the public
domain, presumably subject to existing vested rights. Classification of public
lands is the exclusive prerogative of the Executive Department, through the Office
of the President. Courts have no authority to do so.
[122]
Absent such classification,
the land remains unclassified until released and rendered open to disposition.
[123]

Proclamation No. 1064 classifies Boracay into 400 hectares of reserved
forest land and 628.96 hectares of agricultural land. The Proclamation likewise
provides for a 15-meter buffer zone on each side of the center line of roads and
trails, which are reserved for right of way and which shall form part of the area
reserved for forest land protection purposes.
Contrary to private claimants argument, there was nothing invalid or
irregular, much less unconstitutional, about the classification
of Boracay Island made by the President through Proclamation No. 1064. It was
within her authority to make such classification, subject to existing vested rights.

Proclamation No. 1064 does not violate the Comprehensive Agrarian
Reform Law. Private claimants further assert that Proclamation No. 1064 violates
the provision of the Comprehensive Agrarian Reform Law (CARL) or RA No.
6657 barring conversion of public forests into agricultural lands. They claim that
since Boracay is a public forest under PD No. 705, President Arroyo can no longer
convert it into an agricultural land without running afoul of Section 4(a) of RA No.
6657, thus:

SEC. 4. Scope. The Comprehensive Agrarian Reform Law of
1988 shall cover, regardless of tenurial arrangement and commodity
produced, all public and private agricultural lands as provided in
Proclamation No. 131 and Executive Order No. 229, including other
lands of the public domain suitable for agriculture.

More specifically, the following lands are covered by the
Comprehensive Agrarian Reform Program:

(a) All alienable and disposable lands of the public
domain devoted to or suitable for
agriculture. No reclassification of forest or mineral
lands to agricultural lands shall be undertaken after the
approval of this Act until Congress, taking into account
ecological, developmental and equity considerations,
shall have determined by law, the specific limits of the
public domain.

That Boracay Island was classified as a public forest under PD No. 705 did
not bar the Executive from later converting it into agricultural
land. Boracay Island still remained an unclassified land of the public domain
despite PD No. 705.

In Heirs of the Late Spouses Pedro S. Palanca and Soterranea Rafols v.
Republic,
[124]
the Court stated that unclassified lands are public forests.

While it is true that the land classification map does not
categorically state that the islands are public forests, the fact that
they were unclassified lands leads to the same result. In the absence
of the classification as mineral or timber land, the land remains
unclassified land until released and rendered open to
disposition.
[125]
(Emphasis supplied)

Moreover, the prohibition under the CARL applies only to a
reclassification of land. If the land had never been previously classified, as in
the case of Boracay, there can be no prohibited reclassification under the agrarian
law. We agree with the opinion of the Department of Justice
[126]
on this point:

Indeed, the key word to the correct application of the prohibition
in Section 4(a) is the word reclassification. Where there has been no
previous classification of public forest [referring, we repeat, to the mass
of the public domain which has not been the subject of the present
system of classification for purposes of determining which are needed
for forest purposes and which are not] into permanent forest or forest
reserves or some other forest uses under the Revised Forestry Code,
there can be no reclassification of forest lands to speak of within the
meaning of Section 4(a).

Thus, obviously, the prohibition in Section 4(a) of the CARL
against the reclassification of forest lands to agricultural lands without a
prior law delimiting the limits of the public domain, does not, and
cannot, apply to those lands of the public domain, denominated as
public forest under the Revised Forestry Code, which have not been
previously determined, or classified, as needed for forest purposes in
accordance with the provisions of the Revised Forestry Code.
[127]

Private claimants are not entitled to apply for judicial confirmation of
imperfect title under CA No. 141. Neither do they have vested rights over the
occupied lands under the said law. There are two requisites for judicial
confirmation of imperfect or incomplete title under CA No. 141, namely: (1) open,
continuous, exclusive, and notorious possession and occupation of the subject land
by himself or through his predecessors-in-interest under a bona fide claim of
ownership since time immemorial or fromJune 12, 1945; and (2) the classification
of the land as alienable and disposable land of the public domain.
[128]

As discussed, the Philippine Bill of 1902, Act No. 926, and Proclamation
No. 1801 did not convert portions of Boracay Islandinto an agricultural land. The
island remained an unclassified land of the public domain and, applying the
Regalian doctrine, is considered State property.

Private claimants bid for judicial confirmation of imperfect title, relying on
the Philippine Bill of 1902, Act No. 926, and Proclamation No. 1801, must fail
because of the absence of the second element of alienable and disposable
land. Their entitlement to a government grant under our present Public Land Act
presupposes that the land possessed and applied for is already alienable and
disposable. This is clear from the wording of the law itself.
[129]
Where the land is
not alienable and disposable, possession of the land, no matter how long, cannot
confer ownership or possessory rights.
[130]

Neither may private claimants apply for judicial confirmation of imperfect
title under Proclamation No. 1064, with respect to those lands which were
classified as agricultural lands. Private claimants failed to prove the first element
of open, continuous, exclusive, and notorious possession of their lands in Boracay
since June 12, 1945.

We cannot sustain the CA and RTC conclusion in the petition for
declaratory relief that private claimants complied with the requisite period of
possession.

The tax declarations in the name of private claimants are insufficient to
prove the first element of possession. We note that the earliest of the tax
declarations in the name of private claimants were issued in 1993. Being of recent
dates, the tax declarations are not sufficient to convince this Court that the period
of possession and occupation commenced on June 12, 1945.

Private claimants insist that they have a vested right in Boracay, having been
in possession of the island for a long time. They have invested millions of pesos in
developing the island into a tourist spot. They say their continued possession and
investments give them a vested right which cannot be unilaterally rescinded by
Proclamation No. 1064.

The continued possession and considerable investment of private claimants
do not automatically give them a vested right in Boracay. Nor do these give them
a right to apply for a title to the land they are presently occupying. This Court is
constitutionally bound to decide cases based on the evidence presented and the
laws applicable. As the law and jurisprudence stand, private claimants are
ineligible to apply for a judicial confirmation of title over their occupied portions
in Boracay even with their continued possession and considerable investment in
the island.

One Last Note

The Court is aware that millions of pesos have been invested for the
development of Boracay Island, making it a by-word in the local and international
tourism industry. The Court also notes that for a number of years, thousands of
people have called the island their home. While the Court commiserates with
private claimants plight, We are bound to apply the law strictly and
judiciously. This is the law and it should prevail. I to ang batas at ito ang dapat
umiral.

All is not lost, however, for private claimants. While they may not be
eligible to apply for judicial confirmation of imperfect title under Section 48(b) of
CA No. 141, as amended, this does not denote their automatic ouster from the
residential, commercial, and other areas they possess now classified as
agricultural. Neither will this mean the loss of their substantial investments on
their occupied alienable lands. Lack of title does not necessarily mean lack of right
to possess.

For one thing, those with lawful possession may claim good faith as builders
of improvements. They can take steps to preserve or protect their possession. For
another, they may look into other modes of applying for original registration of
title, such as by homestead
[131]
or sales patent,
[132]
subject to the conditions imposed
by law.

More realistically, Congress may enact a law to entitle private claimants to
acquire title to their occupied lots or to exempt them from certain requirements
under the present land laws. There is one such bill
[133]
now pending in the House
of Representatives. Whether that bill or a similar bill will become a law is for
Congress to decide.

In issuing Proclamation No. 1064, the government has taken the step
necessary to open up the island to private ownership. This gesture may not be
sufficient to appease some sectors which view the classification of the island
partially into a forest reserve as absurd. That the island is no longer overrun by
trees, however, does not becloud the vision to protect its remaining forest cover
and to strike a healthy balance between progress and ecology. Ecological
conservation is as important as economic progress.

To be sure, forest lands are fundamental to our nations survival. Their
promotion and protection are not just fancy rhetoric for politicians and
activists. These are needs that become more urgent as destruction of our
environment gets prevalent and difficult to control. As aptly observed by Justice
Conrado Sanchez in 1968 in Director of Forestry v. Munoz:
[134]

The view this Court takes of the cases at bar is but in adherence to
public policy that should be followed with respect to forest lands. Many
have written much, and many more have spoken, and quite often, about
the pressing need for forest preservation, conservation, protection,
development and reforestation. Not without justification. For, forests
constitute a vital segment of any country's natural resources. It is of
common knowledge by now that absence of the necessary green cover
on our lands produces a number of adverse or ill effects of serious
proportions. Without the trees, watersheds dry up; rivers and lakes which
they supply are emptied of their contents. The fish disappear. Denuded
areas become dust bowls. As waterfalls cease to function, so will
hydroelectric plants. With the rains, the fertile topsoil is washed away;
geological erosion results. With erosion come the dreaded floods that
wreak havoc and destruction to property crops, livestock, houses, and
highways not to mention precious human lives. Indeed, the foregoing
observations should be written down in a lumbermans decalogue.
[135]

WHEREFORE, judgment is rendered as follows:

1. The petition for certiorari in G.R. No. 167707 is GRANTED and the
Court of Appeals Decision in CA-G.R. CV No. 71118 REVERSED AND SET
ASIDE.

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

SO ORDERED.

THIRD DIVISION

FERNANDA ARBIAS,
Petitioner,

- versus -

THE REPUBLIC OF THE
PHILIPPINES,
Respondent.
G.R. No. 173808

Present:

YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
VELASCO,
*
and
REYES, JJ.

Promulgated:

September 17, 2008
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

D E C I S I O N

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari
[1]
filed by Fernanda Arbias seeking
to annul and set aside the Decision
[2]
and Resolution
[3]
of the Court of Appeals
dated 2 September 2005 and 19 July 2006, respectively, in CA-G.R. CV No.
72120. The appellate court, in its assailed Decision, reversed the Decision
[4]
dated
26 June 2000 of the Regional Trial Court (RTC) of Iloilo City, Branch 34, in Land
Registration Case (LRC) No. N-1025, which granted the application of petitioner
Fernanda Arbias to register the subject property under the provisions of
Presidential Decree No. 1529 (Property Registration Decree); and in its assailed
Resolution, denied petitioners Motion for Reconsideration.

The factual antecedents of the case are as follows:

On 12 March 1993, Lourdes T. Jardeleza (Jardeleza) executed a Deed of
Absolute Sale
[5]
selling to petitioner, married to Jimmy Arbias (Jimmy), a parcel of
unregistered land situated at Poblacion, Estancia, Iloilo, and identified as
Cadastral Lot No. 287 of the Estancia Cadastre (subject property), for the sum
of P33,000.00. According to the Deed, the subject property was residential and
consisted of 600 square meters, more or less.

Three years thereafter, on 17 June 1996, petitioner filed with the RTC a
verified Application for Registration of Title
[6]
over the subject property, docketed
as LRC Case No. N-1025. She attached to her application the Tracing Cloth with
Blue Print copies, the Deed of Absolute Sale involving the subject property, the
Surveyors Certification, the Technical Description of the land, and Declaration of
Real Property in the name of petitioner and her spouse Jimmy.
[7]

On 3 September 1996, the RTC transmitted the application with all the
attached documents and evidences to the Land Registration Authority
(LRA),
[8]
pursuant to the latters function as the central repository of records
relative to original registration of lands.
[9]
On 13 April 1998, the LRA submitted its
report to the RTC that petitioner had already complied with all the requirements
precedent to the publication.
[10]

Subsequently, the RTC ordered that its initial hearing of LRC Case No. N-
1025 be held on 17 February 1999.
[11]

On 6 January 1999, the respondent Republic of the Philippines, through the
Office of the Solicitor General (OSG), filed its Notice of Appearance and deputized
the City Prosecutor of Iloilo City to appear on its behalf before the RTC in LRC Case
No. N-1025. Thereafter, the respondent filed an Opposition to petitioners
application for registration of the subject property.
[12]

The RTC then ordered that its initial hearing of LRC Case No. N-1025 be re-
set on 23 July 1999.
[13]
The LRA, thus, issued on 16 March 1999 a Notice of Initial
Hearing.
[14]
The Notice of Initial Hearing was accordingly posted and
published.
[15]

At the hearing on 23 July 1999 before the RTC, petitioner took the witness
stand where she identified documentary exhibits and testified as to her purchase
of the subject property, as well as her acts of ownership and possession over the
same. The owners of the lots adjoining the subject property who attended the
hearing were Hector Tiples, who opposed the supposed area of the subject
property; and Pablo Garin, who declared that he had no objection thereto.
[16]

When its turn to present evidence came, respondent, represented by the
City Prosecutor, manifested that it had no evidence to contradict petitioners
application for registration. It merely reiterated its objection that the area of the
subject property, as stated in the Deed of Sale in favor of petitioner and the Tax
Declarations covering the property, was only 600 square meters, while the area
stated in the Cadastral Survey was 717 square meters.
[17]
The case was then
submitted for decision.

On 26 June 2000, the RTC ruled on petitioners application for
registration in this wise:

As to the issue that muniments of title and/or tax declarations and tax
receipts/payments do not constitute competent and sufficient evidence of ownership,
the same cannot hold through (sic) anymore it appearing from the records that the
muniments of titles as presented by the herein applicant are coupled with open,
adverse and continuous possession in the concept of an owner, hence, it can be given
greater weight in support of the claim for ownership. The [herein petitioner] is a private
individual who is qualified under the law being a purchaser in good faith and for
value. The adverse, open, continuous and exclusive possession of the land in the
concept of owner of the [petitioner] started as early as in 1992 when their predecessors
in interest from Lourdes Jardeleza then to the herein [petitioner] without any
disturbance of their possession as well as claim of ownership. Hence, uninterrupted
possession and claim of ownership has ripen (sic) into an incontrovertible proof in favor
of the [petitioner].

Premises considered, the Application of Petitioner Fernanda Arbias to bring Lot
287 under the operation of the Property Registration Decree is GRANTED.

Let therefore a DECREE be issued in favor of the [petitioner] Fernanda Arbias, of
legal age, married to Jimmy Arbias and a resident of Golingan St. Poblacion, Estancia,
Iloilo and after the Decree shall have been issued, the corresponding Certificate of Title
over the said parcel of land (Lot 287) shall likewise be issued in favor of the petitioner
Fernanda Arbias after the parties shall have paid all legal fees due thereon.
[18]

Respondent, through the OSG, filed with the RTC a Notice of Appeal
[19]
of
the above Decision. In its Brief
[20]
before the Court of Appeals, respondent
questioned the granting by the RTC of the application, notwithstanding the
alleged non-approval of the survey plan by the Director of the Land Management
Bureau (LMB); the defective publication of the notice of initial hearing; and the
failure of petitioner to prove the continuous, open, exclusive and notorious
possession by their predecessor-in-interest.

On 2 September 2005, the Court of Appeals rendered the assailed Decision
in which it decreed, thus:

WHEREFORE, the Decision of the trial court dated June 26, 2000 is hereby
REVERSED and SET ASIDE. Accordingly, the application for original registration of title is
hereby DISMISSED.
[21]

The appellate court declared that the Certification of the blueprint of the
subject lots survey plan issued by the Regional Technical Director of the Lands
Management Services (LMS) of the Department of Environment and Natural
Resources (DENR) was equivalent to the approval by the Director of the LMB,
inasmuch as the functions of the latter agency was already delegated to the
former. The blueprint copy of said plan was also certified
[22]
as a duly authentic,
true and correct copy of the original plan, thus, admissible for the purpose for
which it was offered.

The Court of Appeals likewise brushed aside the allegation that the Notice
of Initial Hearing posted and published was defective for having indicated therein
a much bigger area than that described in the tax declaration for the subject
property. The appellate court ruled that the property is defined by its boundaries
and not its calculated area, and measurements contained in tax declarations are
merely based on approximation, rather than computation. At any rate, the Court
of Appeals reasoned further that the discrepancy in its land area did not cast
doubt on the identity of the subject property.

It was on the issue of possession, however, that the Court of Appeals
digressed from the ruling of the RTC. The appellate court found that other than
petitioners own general statements and tax declarations, no other evidence was
presented to prove her possession of the subject property for the period required
by law. Likewise, petitioner failed to establish the classification of the subject
property as an alienable and disposable land of the public domain.

Petitioner sought reconsideration
[23]
of the afore-mentioned Decision, but
the Court of Appeals denied the same in a Resolution
[24]
dated 19 July 2006.

Petitioner now comes to us via the instant Petition, raising the following
issues:

I.

WHETHER OR NOT THE PUBLIC RESPONDENT COURT OF APPEALS ERRED IN NOT
HOLDING THAT THE OFFICE OF THE SOLICITOR GENERAL IS ESTOPPED FROM ASSAILING
THE DECISION OF THE COURT A QUO AS IT DID NOT OBJECT TO PETITIONERS EVIDENCE
AND PRESENT PROOF TO REFUTE THE SAME.

II.

WHETHER OR NOT THE PUBLIC RESPONDENT COURT OF APPEALS ERRED IN DEPARTING
FROM THE WELL SETTLED RULE THAT THE CONCLUSIONS OF THE COURT A QUO,
WHICH IS IN BEST POSITION TO OBSERVE THE DEMEANOR, CONDUCT AND ATTITUDE
OF THE WITNESS AT THE TRIAL, ARE GIVEN MORE WEIGHT AND MUCH MORE THAT
THE OFFICE OF THE SOLICITOR GENERAL DID NOT PRESENT EVIDENCE FOR THE
REPUBLIC IN THE COURT BELOW.

III.

WHETHER OR NOT THE PUBLIC RESPONDENT COURT OF APPEALS ERRED IN NOT
HOLDING THAT THE LOT IN QUESTION CEASES (sic) TO BE PUBLIC LAND IN VIEW OF
PETITIONERS AND THAT OF HER PREDECESSORS-IN-INTEREST POSSESSION EN
CONCEPTO DE DUENO FOR MORE THAN THIRTY (30) YEARS.

IV.

WHETHER OR NOT THE PUBLIC RESPONDENT COURT OF APPEALS ERRED IN
DISMISSING OUTRIGHT PETITIONERS APPLICATION FOR TITLING WITHOUT
REMANDING THE INSTANT CASE FIRST TO THE COURT A QUO FOR FURTHER
PROCEEDINGS PURSUANT TO THE RULINGS OF THIS HONORABLE COURT IN THE CASES
OF VICENTE ABAOAG VS. DIRECTOR OF LANDS, 045 Phil. 518 AND REPUBLIC OF
THE PHILIPPINES VS. HON. SOFRONIO G. SAYO ET. AL., G.R. NO. 60413, OCTOBER 31,
1990.

Petitioner ascribes error on the part of the Court of Appeals for failing to
conclude that she and her predecessor-in-interest possessed the subject property
in the concept of an owner for more than 30 years and that the said property had
already been classified as an alienable and disposable land of the public
domain. Petitioner contends that her documentary and testimonial evidence
were sufficient to substantiate the said allegations, as correctly and conclusively
pronounced by the RTC. Petitioner likewise points out that no third party
appeared before the RTC to oppose her application and possession other than
respondent. Respondent, then represented by the City Prosecutor, did not even
adduce any evidence before the RTC to rebut petitioners claims; thus,
respondent, presently represented by the OSG, is now estopped from assailing
the RTC Decision. Petitioner finally maintains that assuming her possession was
indeed not proven under the circumstances, the Court of Appeals should have
remanded the case to the trial court for further proceedings, instead of dismissing
it outright.

This Court finds the petition plainly without merit.

Under the Regalian doctrine, all lands of the public domain belong to the
State, and the State is the source of any asserted right to ownership of land and
charged with the conservation of such patrimony. This same doctrine also states
that all lands not otherwise appearing to be clearly within private ownership are
[25]
Hence, the burden of proof in overcoming
the presumption of State ownership of lands of the public domain is on the
person applying for registration. The applicant must show that the land subject of
the application is alienable or disposable.
[26]

Section 14, paragraph 1 of Presidential Decree No. 1529
[27]
states the
requirements necessary for a judicial confirmation of imperfect title to be
issued. In accordance with said provision, persons who by themselves or through
their predecessors-in-interest have been in open, continuous, exclusive and
notorious possession and occupation of alienable and disposable lands of the
public domain under a bona fide claim of ownership since 12 June 1945 or earlier,
may file in the proper trial court an application for registration of title to land,
whether personally or through their duly authorized representatives.

Hence, the applicant for registration under said statutory provision must
specifically prove: 1) possession of the subject land under a bona fide claim of
ownership from 12 June 1945 or earlier; and 2) the classification of the land as an
alienable and disposable land of the public domain.

In the case at bar, petitioner miserably failed to discharge the burden of
proof imposed on her by the law.

First, the documentary evidence that petitioner presented before the RTC
did not in any way prove the length and character of her possession and those of
her predecessor-in-interest relative to the subject property.

The Deed of Sale
[28]
merely stated that the vendor of the subject property,
Jardeleza, was the true and lawful owner of the subject property, and that she
sold the same to petitioner on 12 March 1993. The Deed did not state the
duration of time during which the vendor (or her predecessors-in-interest)
possessed the subject property in the concept of an owner.

Petitioners presentation of tax declarations of the subject property for the
years 1983, 1989, 1991 and 1994, as well as tax receipts of payment of the realty
tax due thereon, are of little evidentiary weight. Well-settled is the rule that tax
declarations and receipts are not conclusive evidence of ownership or of the right
to possess land when not supported by any other evidence.

The fact that the
disputed property may have been declared for taxation purposes in the names of
the applicants for registration or of their predecessors-in-interest does not
necessarily prove ownership. They are merely indicia of a claim of ownership.
[29]

The Survey Plan
[30]
and Technical Description
[31]
of the subject property
submitted by petitioner merely plot the location, area and boundaries
thereof. Although they help in establishing the identity of the property sought to
be registered, they are completely ineffectual in proving that petitioner and her
predecessors-in-interest actually possessed the subject property in the concept of
an owner for the necessary period.

The following testimonial evidence adduced by petitioner likewise fails to
persuade us:

Direct Examination of Fernanda Arbias:
Atty. Rey Padilla:

Q: You said you bought this property from the Spouses Jardeleza. Can you tell us
how long did they possess the subject property?

A: 30 years.

Q: And you said you bought this property sometime in the year 1993. After 1993,
do you know if anybody filed claim or ownership of the subject property?

A: No, Sir.

Q: Can you tell us if anybody disturbed your possession in the subject property?

A: No, Sir.

Q: Are you possessing the subject property in concept of the owner open and
continuous?

A: Yes, Sir.

Q: What are the improvements you introduced in the subject property?

A: I have the intention to put up my house.
[32]

Cross Examination of Fernanda Arbias:
Prosecutor Nelson Geduspan:

Q: How long have you been in open, continuous, exclusive possession of this
property?

A: Almost six (6) years.

Q: And before that it is Lourdes Jardeleza who is in open, continuous and in actual
possession of the property?

A: Yes, Sir.

Q: Of your own knowledge, aside from this predecessor Lourdes Jardeleza, has
anybody had any claim of the property?

A: No, Sir.
[33]

Quite obviously, the above-quoted statements made by petitioner during
her testimony, by themselves, are nothing more than self-serving, bereft of any
independent and objective substantiation. As correctly found by the Court of
Appeals, petitioner cannot thereby rely on her assertions to prove her claim of
possession in the concept of an owner for the period required by law. Petitioner
herself admitted that she only possessed the property for six years. The bare
claim of petitioner that the land applied for had been in the possession of her
predecessor-in-interest, Jardeleza, for 30 years, does not constitute the "well-nigh
inconvertible" and "conclusive" evidence required in land registration.
[34]

Second, neither does the evidence on record establish to our satisfaction
that the subject property has been classified as alienable and disposable. To
prove this requirement, petitioner merely points to an annotation in the lower
left portion of the blueprint of the subject property, which recites:

ALL CORNERS ARE OLD POINTS.
ALIENABLE AND DISPOSABLE PROJ. 44 BLK-1 PER LC MAP. 1020 APPROVED BY THE
DIRECTOR OF FORESTRY ON JULY 26, 1933. COORDINATES OF BLLM#1 N=1266998.39,
E=516077.19 LAT 11
o
27 27.4 N, LONG 123
o
08 9.9 E.
[35]
(Emphasis supplied.)

Petitioners reliance on the above inscription is misguided. In Menguito v.
Republic,
[36]
we held that an applicant cannot rely on the notation in the blueprint
made by a surveyor-geodetic engineer indicating that the property involved is
alienable and disposable land. We emphasized therein that

For the original registration of title, the applicant must overcome the
presumption that the land sought to be registered forms part of the public
domain. Unless public land is shown to have been reclassified or alienated to a private
person by the State, it remains part of the inalienable public domain. Indeed,
occupation thereof in the concept of owner, no matter how long, cannot ripen into
ownership and be registered as a title. To overcome such presumption,
incontrovertible evidence must be shown by the applicant. Absent such evidence, the
land sought to be registered remains inalienable.

In the present case, petitioners cite a surveyor-geodetic engineers notation x x
x indicating that the survey was inside alienable and disposable land. Such notation
does not constitute a positive government act validly changing the classification of the
land in question. Verily, a mere surveyor has no authority to reclassify lands of the
public domain. By relying solely on the said surveyors assertion, petitioners have not
sufficiently proven that the land in question has been declared alienable.
[37]

In the absence of incontrovertible evidence to prove that the subject
property is already classified as alienable and disposable, we must consider the
same as still inalienable public domain.

The fact that no third person appeared before the RTC to oppose the
petitioners application for registration is also irrelevant. The burden of proof
imposed by law on petitioner does not shift. Indeed, a person who seeks the
registration of title to a piece of land on the basis of possession by himself and his
predecessors-in-interest must prove his claim by clear and convincing
evidence,i.e., he must prove his title and should not rely on the absence or
weakness of the evidence of the oppositors.
[38]
Furthermore, the court has the
bounden duty, even in the absence of any opposition, to require the petitioner to
show, by a preponderance of evidence and by positive and absolute proof, so far
as possible, that he is the owner in fee simple of the lands which he is attempting
to register.
[39]

Petitioner cannot also invoke estoppel on the part of the OSG as to bar the
latter from challenging the decision of the RTC. In land registration cases, the
Solicitor General is not merely the principal, but the only legal counsel of the
government.
[40]
The City Prosecutor appeared as counsel for the respondent
before the RTC only after being deputized by the OSG. Being the representative of
the Republic of the Philippines, the OSG, thus, falls within the purview of the
doctrine which provides that estoppel does notoperate against the state or its
agents.
[41]
Although exceptions from this rule are allowed, as when there is
a need to uphold a policy adopted to protect the public or to protect the citizens
from dishonorable, capricious and ignoble acts by the government,
[42]
the same
are not present in the instant case. In fact, public policy demands that the
respondent, through the OSG, must deter dubious applications for registration of
real property and protect within all legal means the inalienable public domain
which rightfully belongs only to the State.

Finally, this Court cannot subscribe to the submission of the petitioner that
the Court of Appeals erred in dismissing the petitioners appeal outright instead
of remanding the same to the RTC for further proceedings. The cases cited by
petitioner, namelyAbaoag v. Director of Lands
[43]
and Republic v. Sayo,
[44]
are not
on all fours with the instant case.

In Abaoag, we remanded the case notwithstanding the failure of the
applicants to prove their entitlement to the registration of their property because
the public land laws
[45]
prevailing at that time granted a presumption of
ownership in favor of the actual occupants of the particular property and against
the State; while in Sayo, the case was ordered remanded for further proceedings
since it was proven that an invalid compromise agreement was entered into
between parties and non-parties to the land registration case, without the
participation of the Solicitor General, and that some of the parties therein failed
to adduce evidence to prove their land ownership.

None of the above circumstances appear to be present in the case
presently before us. Simply, petitioner failed to prove that she had an imperfect
title to the subject property, which could be confirmed by registration. She had
every opportunity before the RTC to present all the evidence in support of her
application for registration, and neither the Court of Appeals nor this Court has
the duty, absent any compelling reason, to grant her a second chance by
remanding the case to the RTC for further reception of evidence.

WHEREFORE, premises considered, the Petition is DENIED. The Decision of
the Court of Appeals dated 2 September 2005 in CA-G.R. CV No. 72120 is
hereby AFFIRMED. Costs against the petitioner.

SO ORDERED.

Republic of the Philippines
Supreme Court
Manila

THIRD DIVISION

NICASIO I. ALCANTARA, G.R. No. 161881
Petitioner,

- versus -

and NATURAL RESOURCES, DENR Present:
SECRETARY ELISEA G. GOZUN,
REGIONAL EXECUTIVE DIRECTOR YNARES-SANTIAGO, J.,
MUSA C. SARUANG, DENR CENRO Chairperson,
ANDREW B. PATRICIO, and AUSTRIA-MARTINEZ,
ROLANDO PAGLANGAN, ET AL., CHICO-NAZARIO,
Respondents. REYES, and
DE CASTRO,
JJ.
HEIRS OF DATU ABDUL B.
PENDATUN, represented by DATU
NASSER B. PENDATUN, AL HAJ,
HEIRS OF SABAL MULA and GAWAN
CLAN, represented by TRIBAL CHIEF-
TAIN LORETO GAWAN, Promulgated:
Respondents-Intervenors, July 31, 2008
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

D E C I S I O N

AUSTRIA-MARTINEZ, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court, seeking a reversal of the Decision
[1]
of the Court of Appeals (CA) dated September
24, 2003 which affirmed the orders of the Department of Environment and Natural
Resources (DENR), cancelling the Forest Land Grazing Lease Agreement (FLGLA)
with Nicasio A. Alcantara (petitioner), ordering him to vacate the land subject of the
cancelled FLGLA and directing the installation of members of a group composed
of Blaan and Maguindanaoans, represented by RolandoPaglangan (private respondents)
in the area; as well as the CA Resolution
[2]
dated January 23, 2004 denying petitioner's
Motion for Reconsideration.

The antecedent facts are as follows:

Petitioner is a lessee under FLGLA No. 542, issued by the DENR, of nine hundred
twenty-three (923) hectares of public forest land
[3]
(subject land) located in the vicinity
of Sitio Lanton, Barrio Apopong, General Santos City.
[4]

The subject land, however, is being claimed as the ancestral land of the
indigenous B'laan and Maguindanao people, who maintain that they and their
predecessors have been cultivating, possessing and occupying it since time
immemorial.
[5]
They claim that Christian settlers (settlers) started occupying the area only
after World War II. As a result, there was constant friction between the indigenous
inhabitants and the settlers, with the disputes, at times, erupting in
violence. Overpowered, the indigenous people eventually lost physical control of much
of the land.
[6]

Petitioner, a son of one of the settlers, used to hold a pasture permit over the
subject land, which was later on converted into FLGLA No. 542 covering the subject
property.
[7]
Petitioner claims that FLGLA No. 542 has been subsisting since 1983.
[8]

On April 10, 1990, private respondents, representing
the B'laan and Maguindanao tribes, filed a complaint
[9]
against petitioner before the
Commission on the Settlement of Land Problems (COSLAP) seeking the cancellation of
FLGLA No. 542 and the reversion of the land to the indigenous communities.
[10]

Private respondents, the Heirs of Datu Abdul B. Pendatun and the Heirs of
the Sabal Mula Gawan Clan (respondents-intervenors), claiming to represent
the Blaan and Maguindanaoan tribes, aver that they have always possessed the land
until the first settlers occupied the area.
[11]
They claim that among those who took the
land by force was petitioners predecessor, Conrado Alcantara. They narrate that in 1962,
some of their tribal leaders tried to re-take the land, but failed because the well-armed
settlers repelled them.
[12]
The incident, in fact, led to the killing of two of their leaders.
[13]

Petitioner filed an answer to the complaint questioning the authority of the
COSLAP and alleged that it was the secretary of the DENR who should have jurisdiction to
administer and dispose of public lands.
[14]
Petitioner also contended that the COSLAP
should suspend the hearing of the case, as the DENR was then hearing a similar
controversy.
[15]

In 1993, despite the pendency of the COSLAP case, and despite opposition from
private respondents, petitioner was able to renew FLGLA No. 542 when it expired that
year.
[16]
The renewal given to petitioner was for another 25 years, or until December 31,
2018.
[17]

Meanwhile, on October 29, 1997, Congress passed Republic Act No. 8371, or the
Indigenous People's Rights Act (IPRA), which was intended to recognize and promote all
the rights of the country's Indigenous Cultural Communities/Indigenous Peoples (ICCs/IPs)
within the framework of the Constitution.
[18]

On August 3, 1998, the COSLAP rendered its decision, the dispositive portion of
which reads as follows:

WHEREFORE, the foregoing considered, judgment is hereby RENDERED
in favour of the complainants and against the Respondents as follows:

1. Recommends to the Hon. Secretary of DENR the
cancellation of respondents renewed Forest Land Grazing
Lease Agreement (FLGLA) No. 542;

2. Recommending to the DENR to the immediate segregation
of the Three Hundred (300) hectares requested by
complainants from the Nine Hundred Twenty Three (923)
Hectares;

3. Recommending to the DENR to declare the entire area of
the Nine Hundred Twenty Three (923) Hectares, the
ancestral lands of the Blaans;

4. Recommending to the DENR after the Cancellation of
FLGLA No. 542, to place in possession the petitioners in order
to start cultivation and plant crops for their food and solve
the on-going famine and hunger being experience[d] at
present by the Lumads.
[19]

In addition, the COSLAP made the following factual findings:

a) The subject land is the ancestral domain of the complainant indigenous
people, whose possession was merely interrupted by the forcible and
violent takeover of outside settlers.
[20]

b) FLGLA No. 542 was issued by the DENR without giving due process to the
indigenous communities as oppositors and in violation of existing laws such
as Presidential Decree (P.D.) No. 410 and the Constitution.
[21]

The COSLAP maintained that it had jurisdiction over the case by virtue of Executive
Order (E.O.) No. 561, the law creating the COSLAP, which provides:
Sec. 3. Powers and Functions. - The Commission shall have the
following powers and functions:
x x x x
2. Refer and follow-up for immediate action by the agency having
appropriate jurisdiction any land problem or dispute referred to the
Commission: Provided, That the Commission may, in the following cases,
assume jurisdiction and resolve land problems or disputes which are critical
and explosive in nature considering, for instance, the large number of the
parties involved, the presence or emergence of social tension or unrest, or
other similar critical situations requiring immediate action:

(a) Between occupants/squatters and pasture lease agreement
holders or timber concessioners;
(b) Between occupants/squatters and government reservation
grantees;
(c) Between occupants/squatters and public land claimants or
applicants;
(d) Petitions for classification, release and/or subdivision of
lands of the public domain; and
(e) Other similar land problems of grave urgency and
magnitude.
[22]

Disagreeing with the ruling of COSLAP, petitioner filed a motion for reconsideration
of the decision, which COSLAP denied.

Petitioner then filed before the CA a petition
[23]
for certiorari under Rule 65 to
question the decision of the COSLAP. The CA, in its Decision dated June 22, 2000,
affirmed in toto the decision of the COSLAP.
[24]

Aggrieved, petitioner filed a petition for review on certiorari before the Court,
docketed as G.R. No. 145838.

The Court, in its Decision dated July 20, 2001, upheld the CA and the COSLAP,
holding that a) COSLAP had jurisdiction to decide the case; b) FLGLA No. 542 was issued in
violation of the law, and; c) the 923 hectares covered by FLGLA No. 542 were ancestral
land of the private respondents.
[25]

When the decision of the Court attained finality, private respondents filed a motion
for execution of the COSLAP's decision. Petitioner filed his opposition to the motion.

On July 29, 2002, the COSLAP issued a writ of execution of its decision, wherein it
ordered the Secretary of the DENR to implement theAugust 3, 1998 decision as affirmed
by the Supreme Court.
[26]

In a memorandum dated October 19, 2001, the Secretary of the
DENR Heherson Alvarez (Sec. Alvarez), upon receipt of the writ of execution and before
cancelling FLGLA No. 542, ordered the Office of the Regional Executive Director of DENR
Region XII, in Koronadal City, to conduct a review and investigation of FLGLA No.
542.
[27]
In compliance, the Officer in Charge (OIC)-Regional Executive Director conducted
an investigation and review of the lease under the said FLGLA. One of the participants in
the investigation was a representative of petitioner.
[28]
Following the investigation, the
team released its report,
[29]
dated February 13, 2002, which found violations by petitioner
of the terms of the FLGLA, as follows:

1. Failure to establish a food production area within the leased area;

2. Failure to undertake forage improvement within the leased area;

3. Failure to pay the full and or on time Annual Rental/User's Fee/
Government Share pursuant to section 28 and 29 of DAO No. 99-36
dated August 10, 1999 Re: Revised Rules and Regulations Governing
the Administration, Management, Development and Disposition of
Forest Lands Used for Grazing Purposes. Instead the lessee pay (sic)
a partial payment of Php18,566 per O.R. [No.] 9640117
dated December 29, 2000 and Php147,680 per O.R. [No.] 9640246
dated February 1, 2001.

4. The 7-years (sic) Grazing Management Plan for CY 1987-1993 of
the said lessee was expired. During our investigation, the lessee had
failed to present the revised 7-years [sic] Grazing Management Plan
for CY 1994-2000 and thereafter pursuant to item No. 23 of the
aforesaid contract.

5. Annual report for year 2001 submitted by the lessee revealed that
cattle stock of the leased area is only 249 heads; however, the
investigation team observed that there were an excess of cattle
stock present in the grazing area. The said excess cattle were (sic)
allegedly came from [an] adjacent ranch own (sic) by
Alejandro Alcantara.

6. The team noticed the presence of squatters within the leased area
by [a] certain Asonto et al. and Jumawan et al.

7. FLGLA no. 542 having [sic] an area of 923 hectares which exceed to
(sic) the limit of 500 hectares for individual holder [sic] pursuant to
Section 3 Article XII of [the] 1987 Philippine Constitution as
implemented by DAO No. 99-36 series of 1999.

8. Pursuant to Memorandum dated December 5, 2001 of the team
leader Wahid Amella of CLCSI No. 6 the 478.08 hectares out of the
923 hectares of the leased area is portion of PMD 5338 reverting it
to the category of Forest Land. However, no Forestry Administrative
Order issued. x x x
[30]

Thus, on August 15, 2002, Sec. Alvarez issued an order cancelling FLGLA No. 542
and subjecting the area under the DENR's authority pending final distribution to the
concerned communities by the National Commission on Indigenous Peoples (NCIP) or the
COSLAP.
[31]

Petitioner filed a motion for reconsideration of the order of cancellation. In an
order dated November 21, 2002,
[32]
Sec. Alvarez denied the motion for reconsideration
and affirmed the order of cancellation dated August 15, 2002.

On November 22, 2002, Sec. Alvarez issued a memorandum to the Regional
Executive Director of DENR Region XII, in Koronadal City, to implement the four
recommendations of the COSLAP contained in its Order dated August 3, 1998; and issue
the corresponding survey authority.
[33]

On November 26, 2002, Community Environment and Natural Resources Officer
(CENRO) Andrew B. Patricio Jr. sent a letter to petitioner, advising him to vacate and
remove all improvements in the area within 10 days from receipt of the letter.
[34]
On even
date, CENROPatricio sent another letter which amended the first letter and advised
petitioner to vacate the land immediately, instead of within 10 days as earlier advised.
[35]

On November 27, 2002, CENRO Patricio issued an Installation Order, which directed
the immediate installation and occupation of the area, covered by the cancelled FLGLA
No. 542, by the private respondents indigenous communities.
[36]

On December 3, 2002, petitioner filed a petition for certiorari before the CA,
docketed as CA G.R. SP No. 74166, praying for the annulment and setting aside of the
orders of the public respondents, enumerated as follows:

1) The Order dated August 15, 2002 by Sec. Alvarez, which cancelled the
FLGLA No. 542 issued to petitioner;

2) The Order dated November 21, 2002 by Sec. Alvarez denying
petitioner's motion for reconsideration of the order of cancellation;

3) The Memorandum dated November 22, 2002 by Sec. Alvarez which
orders Regional Office XII of the DENR to
implement COSLAP's recommendations and to issue the corresponding
survey authority;

4) The two Letters dated November 26, 2002 of CENRO Patricio ordering
petitioner to immediately vacate and remove improvements in the
subject area.

5) The Installation Order dated November 27, 2002 of
CENRO Patricio authorizing the installation and occupation of the
subject area by private respondents.

On September 24, 2003, the CA rendered its decision, dismissing the petition filed
by petitioner Alcantara and ruling that the issues and arguments it raised had all been
addressed squarely in the Supreme Court's decision in G.R. No. 145838 which upheld
the COSLAP's decision and which had long become final and executory. The CA stated
further that the petition was barred by the decision in that case, as both shared the same
parties, the same subject matter and the same cause of action.

Hence, herein petition.

Petitioner alleges that when he filed the petition for certiorari before the CA below
(CA G.R. SP No 74166), questioning the orders of respondents DENR officials, he did not
seek to have the cancellation of its FLGLA No. 542 reconsidered or reopened, precisely
because such cancellation was already covered by a final decision of the Supreme
Court. He insists that what he sought was to have a clear determination of his residual
rights after such cancellation in the context of the provisions of the IPRA Law
x x x considering that the right to 'lands of the ancestral domain' arose only in view of the
IPRA Law and cultural minorities had priorly no right to recover their ancestral lands.
[37]

Petitioner's arguments are centered on the following two main issues:

Whether petitioner may continue his enjoyment of the land up to the
expiration of FLGA No. 542, or December 31, 2018, based on his alleged
residual rights.

Whether respondents DENR officials committed grave abuse of
discretion in implementing the COSLAP's decision, which has been upheld by
the Supreme Court.

The petition lacks merit.

Petitioner may not enjoy possession
and use of the land up to the expiration
of FLGLA No. 542, or December 31,
2018, based on his alleged residual
rights.

Petitioners claim that he has residual rights to remain on the property is based on
Section 56 of the IPRA, which states:

SEC. 56. Existing Property Rights Regimes. Property rights within
the ancestral domains already existing and/or vested upon effectivity of
this Act, shall be recognized and respected.
The contention of petitioner has no merit. As stated in the Court's decision in G.R.
No. 145838,
[38]
the legal dispute surrounding petitioner's FLGLA No. 542 began in 1990,
which was before the IPRA's passage in 1997, and even before the FLGLA was renewed in
1993. Thus, the case is not covered by IPRA, but by other laws existing at the time the
COSLAP took cognizance of the case. IPRA also did not cure the legal defects and
infirmities of FLGLA No. 542, which were already the subject of controversy by the time
the law was passed.

Petitioner further calls for IPRA's application, since the right to lands of the
ancestral domain arose only in view of the IPRA Law and cultural minorities had priorly no
right to recover their ancestral lands.
[39]
Petitioner is utterly mistaken or
misinformed. Before IPRA, the right of ICCs/IPs to recover their ancestral land was
governed by Presidential Decree (P.D.) No. 410,
[40]
which declared ancestral lands of
national cultural communities as alienable and disposable, and E.O. No. 561,
[41]
which
created the COSLAP. These laws were the bases of the Court's decision in G.R. No.
145838. That the rights of most ICCs/IPs went largely unrecognized despite these laws
was not due to the laws' inadequacies, but due to government indifference and the
political inertia in their implementation.
[42]

It is also clear that when this Court, in G.R. No. 145838, declared FLGLA No. 542 as
illegal and upheld COSLAP's recommendation of its cancellation, petitioner had no right to
the land, and consequently, had no right to remain in the use and possession of the
subject land. Sec. Alvarez's cancellation of FLGLA No. 542 merely conformed with the
Courts findings. The cancellation made by the DENR merely sealed the fact that FLGLA
No. 542 should not have been issued in favour of petitioner, in the first place. The
COSLAP decision has the force and effect of a regular administrative resolution; hence, it
must be implemented and is binding on all parties to the case.
[43]

The question whether FLGLA No. 542 is valid has been settled conclusively in G.R.
No. 145838 in which the Court made the final finding that FLGLA No. 542 was issued
illegally, and that it was made in violation of prevailing laws; and that it was proper for it
to be cancelled. The Court ruled, thus:

The Court of Appeals also stated that based on the records, the land
area being claimed by private respondents belongs to the Blaan indigenous
cultural community since they have been in possession of, and have been
occupying and cultivating the same since time immemorial, a fact which has
not been disputed by petitioner. It was likewise declared by the appellate court
that FLGLA No. 542 granted to petitioner violated Section 1 of Presidential
Decree No. 410 which states that all unappropriated agricultural lands forming
part of the public domain are declared part of the ancestral lands of the
indigenous cultural groups occupying the same, and these lands are further
declared alienable and disposable, to be distributed exclusively among the
members of the indigenous cultural group concerned.

The Court finds no reason to depart from such finding by the appellate
court, it being a settled rule that findings of fact of the Court of Appeals are
binding and conclusive upon the Supreme Court absent any showing that such
findings are not supported by the evidence on record.
[44]
(Emphasis supplied)

Petitioner himself admits the finality of that decision, as he states in the petition that he
does not seek to have the cancellation of FLGLA No. 542 reconsidered or reopened,
x x x but a clear determination of his residual rights after such cancellation in the context
of the provisions of the IPRA Law. However, it appears from a reading of the entire
petition that what petitioner means by his residual rights is for him to continue enjoying
exclusive use of the land until the expiration of FLGLA No. 542 on December 31, 2018.
[45]

Again, the decision in G.R. No. 145838 brings out the futility of petitioner's
arguments. In no uncertain terms, that decision declared that FLGLA No. 542 was illegally
issued. Therefore, from that illegal issuance only flowed an invalid FLGLA, as it is
axiomatic in our legal system that acts executed against the laws are void,
[46]
and that
administrative or executive acts, orders and regulations that are contrary to the laws or
the Constitution are invalid.
[47]
Petitioner has no right or interest to speak of, because it is
also axiomatic that no vested or acquired right can arise from illegal acts or those that
infringe upon the rights of others.
[48]

Petitioner's proposition that despite the lengthy litigation that culminated in the
invalidation of FLGLA No. 542, he still has the residual right to enjoy use of the land
until December 31, 2018 is absolutely unacceptable. His stance invites anomaly at best,
or ridicule at worst, for it asks this Court to render useless its own final decision in G.R. No.
145838. It also solicits disrespect of all judicial decisions and processes. Instead of ending
the litigation, it mocks the painstaking process undertaken by the courts and
administrative agencies to arrive at the decision in that case. Petitioners alleged residual
right has no legal basis and contradicts his admission that FLGLA No. 542 has been
declared invalid by the Court in its decision in G.R. No. 145838. Petitioner has had no
residue of any right and no entitlement to the land, from the very beginning.

Petitioner's concern over his alleged rights under the IPRA have all been addressed
in G.R. No. 145838. The IPRA was enacted onOctober 29, 1997. The decision in G.R. No.
145838 was promulgated on July 20, 2001. On that later date, the Court was already
aware of IPRA; and when it rendered the decision, it could have expressly declared that
petitioner had residual rights under that law if such was the case.
[49]
The Court applied
P.D. No. 410, the law in effect before the IPRA, in finding that FLGLA No. 542 was
illegal. This finally disposes of petitioner's claim that he has rights under the IPRA.

In fact, the Court sees petitioner's filing of the present petition as outright forum-
shopping, as it seeks to revisit what has become a final and executory decision. As
explained in earlier cases, the hallmarks of forum-shopping are:

Forum-shopping exists where the elements of litis pendentia are
present, and where a final judgment in one case will amount to res judicata in
the other. Thus, there is forum-shopping when, between an action pending
before this Court and another one, there exist: a) identity of parties, or at least
such parties as represent the same interests in both actions, b) identity of
rights asserted and relief prayed for, the relief being founded on the same
facts, and c) the identity of the two preceding particulars is such that any
judgment rendered in the other action, will, regardless of which party is
successful amount to res judicata in the action under consideration; said
requisites also constitutive of the requisites for auter action pendant
or lis pendens. Another case elucidates the consequence of forum-shopping:
*W+here a litigant sues the same party against whom another action or
actions for the alleged violation of the same right and the enforcement of the
same relief is/are still pending, the defense of litis pendentia in one case is a bar
to the others; and, a final judgment in one would constitute res judicata and
thus would cause the dismissal of the rest.
[50]

Thus, when petitioner raised the issue on whether he should be allowed to remain
on the subject land until the expiration of FLGLA No. 542, based on his alleged residual
rights, he re-opened an issue already discussed and settled in an earlier case. His use of
cleverly disguised language does not hide this fact. Clearly, the Supreme Court decision,
in G.R. No. 145838, is res judicata in the present case. Therefore, his filing of the present
case despite the finality of an earlier identical case makes the present one subject to
dismissal.

It has been held that res judicata has two concepts: bar by prior judgment and
conclusiveness of judgement.
[51]
The elements under the first concept are the following:
(1) a former final judgment that was rendered on the merits;
(2) the court in the former judgment had jurisdiction over the subject matter
and the parties; and,
(3) identity of parties, subject matter and cause of action between the first and
second actions;
[52]

On the other hand, for the second concept to operate, or for there to be
conclusiveness of judgment, there must be identity of parties and subject matter in the
first and second cases, but no identity of causes of action.
[53]
If a particular point or
question is in issue in the second action, and the judgment will depend on the
determination of that particular point or question, a former judgment between the same
parties will be final and conclusive in the second if that same point or question was in
issue and adjudicated in the first suit; but the adjudication of an issue in the first case is
not conclusive of an entirely different and distinct issue arising in the second.
[54]
Under
the doctrine of conclusiveness of judgment, facts and issues actually and directly resolved
in a former suit cannot again be raised in any future case between the same parties, even
if the latter suit may involve a different claim or cause of action.
[55]

Consequently, the present petition is already barred by res judicata under the first
concept, since the first and second cases share identical parties, subject matter and cause
of action. The shared cause of action is the alleged violation of petitioner's right to remain
on the subject land until the expiry date of FLGLA No. 542 on December 31, 2018. As this
issue has been settled, there is no more reason to revisit it in the present case. There is
no reason for an illegal and cancelled FLGLA to continue in effect or confer any rights on
anyone until it expires on December 31, 2018.

Even if the Court accepts petitioner's contention that in the present case, he
introduces another cause of action, which is the alleged violation of his right to due
process by the haphazard implementation of the COSLAP decision by the respondent
DENR officials, it is severely limited by the second concept of res judicata, i.e.,
conclusiveness of judgment. Since it is now conclusive and binding in this case that FLGLA
No. 542 is illegal and should be cancelled, per the decision in G.R. No. 145838, petitioner
could no longer deny that the respondent DENR officials acted legally in cancelling FLGLA
No. 542 and in ordering petitioner to vacate the subject land. The public respondents
merely acted to implement the COSLAP decision as upheld by the Supreme Court.

Thus, petitioner is left to prove only whether the public respondents acted with
grave abuse of discretion in their execution of COSLAP'sdecision.

There was no grave abuse of discretion
in public respondents' implementation
of the COSLAP decision.

The Court finds that no grave abuse of discretion was committed by respondent
DENR officials in their implementation of the COSLAP decision.

It must be emphasized that FLGLA No. 542 is a mere license or privilege granted by
the State to petitioner for the use or exploitation of natural resources and public lands
over which the State has sovereign ownership under the Regalian Doctrine.
[56]
Like timber
or mining licenses, a forest land grazing lease agreement is a mere permit which, by
executive action, can be revoked, rescinded, cancelled, amended or modified, whenever
public welfare or public interest so requires.
[57]
The determination of what is in the public
interest is necessarily vested in the State as owner of the country's natural
resources.
[58]
Thus, a privilege or license is not in the nature of a contract that enjoys
protection under the due process and non-impairment clauses of the Constitution.
[59]
In
cases in which the license or privilege is in conflict with the people's welfare, the license or
privilege must yield to the supremacy of the latter, as well as to the police power of the
State.
[60]
Such a privilege or license is not even a property or property right, nor does it
create a vested right; as such, no irrevocable rights are created in its issuance.
[61]

FLGLA No. 542 has not only been withdrawn by executive action to further the
public welfare, it has also been declared illegal or unlawful by judicial authorities for
clearly violating actual provisions of law. Thus, the DENR was under obligation to effect
the cancellation accordingly.

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

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

In conclusion, the Court, in G.R. No. 145838, recognized the inherent right
of ICCs/IPs to recover their ancestral land from outsiders and usurpers. Seen by many as
a victory attained by the private respondents only after a long and costly effort, the Court,
as a guardian and instrument of social justice, abhors a further delay in the resolution of
this controversy and brings it to its fitting conclusion by denying the petition.

WHEREFORE, the decision appealed from is AFFIRMED. Double costs against
petitioner.

SO ORDERED.

G.R. No. 166865 March 2, 2007
ANGELITA F. BUENAVENTURA and PRECIOSA F. BUENAVENTURA, Petitioners,
vs.
REPUBLIC OF THE PHILIPPINES, Respondent.
D E C I S I O N
CHICO-NAZARIO, J .:
The case before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised
Rules of Civil Procedure seeking to annul and set aside the Decision
1
and Resolution
2
of the Court of
Appeals in CA-G.R. CV No. 72925 entitled, Angelita F. Buenaventura and Preciosa F. Buenaventura
vs. Republic of the Philippines, dated 23 August 2004 and 25 January 2005, respectively, which
granted the appeal filed by the Republic of the Philippines (Republic) and declared the parcel of land
subject matter of this Petition as public land, thus, reversing the Order
3
of the Regional Trial Court
(RTC) of Paraaque City dated 29 October 2001, which recognized and confirmed the rights of
herein petitioners Angelita F. Buenaventura (Angelita) and Preciosa F. Buenaventura (Preciosa),
over the subject property, and issued a decree of registration of the same in their favor.
The antecedent facts of the case are as follows:
Petitioners Angelita and Preciosa are the applicants for registration of title over the subject property.
They are the heirs of spouses Amado Buenaventura and Irene Flores (spouses Buenaventura) from
whom they acquired the subject property.
The facts reveal that the subject property was acquired by the spouses Buenaventura from the Heirs
of Lazaro de Leon, namely: Aurelio de Leon and his sister Rodencia Sta. Agueda even before World
War II. However, it was only on 30 January 1948 that the corresponding Deed of Sale
4
was executed
in favor of the spouses Buenaventura. After the execution of the said Deed of Sale, the spouses
Buenaventura transferred the tax declaration in their name. Consequently, Tax Declaration (T.D.)
No. 5492 covering the subject property in the names of Aurelio and Rodencia was cancelled and
T.D. No. 6103
5
was issued in the name of spouses Buenaventura.
In 1978, the spouses Buenaventura transferred, by way of Deed of Sale,
6
the subject property,
together with the adjacent property, which they previously acquired from Mariano Pascual, to their
children, among whom are herein petitioners. As a result thereof, a new tax declaration (T.D. No. A-
004-05698)
7
was issued in the name of the spouses Buenaventuras children.
Petitioners then filed an Application for Registration of Title on 5 June 2000 before the RTC of
Paraaque City of the subject property, more particularly described as Cadastral Lot No. 5001-B,
Csd-007604-000176-D, Paraaque Cadastre, located in San Dionisio, Paraaque City, with an area
of 3,520.92 square meters, more or less. Petitioners alleged that "they and their predecessors-in-
interest acquired title to the said parcel of land thru inheritance, transfer, and possession as owners
of the same since time immemorial and/or within the period provided for by law."
8

As the trial court found the application to be sufficient in form and substance, it thereby set the case
for hearing, and directed the service and publication of the notice thereof pursuant to Section 23
9
of
the Property Registration Decree (Presidential Decree No. 1529).
On 27 September 2001, when the case was called for hearing, no interested party appeared before
the trial court other than the petitioners. Consequently, petitioners proceeded to present several
documents in order to establish compliance with the jurisdictional requirements. The same were
marked and offered in evidence before the court a quo.
No formal opposition had been filed and no oppositor appeared in any of the previously set hearings
of the case; hence, petitioners counsel moved for the declaration of general default except for the
Republic. The same was granted by the court a quo. The case was then referred to a commissioner,
who directly received petitioners evidence in chief.
Petitioners presented five witnesses, namely: Aniceta C. Capiral, Engr. Teofilo R. La Guardia, Atty.
Reginald L. Hernandez, Ricardo H. Lopez, and herein petitioner Angelita, in order to establish the
fact that petitioners and their predecessors have acquired vested right over the subject property by
their open, continuous, and exclusive possession under a bona fide claim of ownership for over 50
years completely unmolested by any adverse claim, meaning, their possession of the subject
property was in the manner and for the period required by law; likewise, to prove the alienable and
disposable character of the subject property.
Other than the respective testimonies of the above-named witnesses, they also presented and
identified several documents
10
offered in evidence, which tend to establish further the following: (1)
petitioners fee simple title over the subject property; (2) the nature of the possession and occupation
of the property; (3) its classification as part of the alienable and disposable zone of the government;
and (4) the improvements introduced thereon and the taxes paid on the subject property. Said
documents were duly admitted by the trial court.
On 29 October 2001, based on the pieces of evidence presented by petitioners, the court a quo
issued an Order granting the application for registration of title of the subject property, the decretal
portion of which reads as follows:
WHEREFORE, finding the application of registration of title to the subject parcel of land, known as
Lot 5001-B Cad 299, Paraaque Cadastre, and more particularly described in approved Survey Plan
Csd 007604-000176 is hereby confirmed and ordered registered in the names of [petitioners]
Preciosa, Angelita, [and in the names of their other siblings] Crisostomo, and Alfredo, all surnamed
Buenaventura, free from all liens and encumbrances.
ONCE THIS DECISION has become final, let another one issue directing the Land Registration
Authority to issue the corresponding decree.
Let copies of this [D]ecision be furnished to the adjoining owners, Land Registration Authority, Land
Management Bureau, Office of the Solicitor General, Sec. of Public Works and Highways,
Department of Agrarian Reform, the Director, Forest Management Bureau, Chairman Metropolitan
Manila Development Authority, DENR [Department of Environment and Natural Resources], South
CENRO, Land Management Sector, City Mayor of Paraaque and Registry of Deeds, Paraaque
City.
11

Feeling aggrieved with the aforementioned Order of the trial court, the Republic appealed to the
Court of Appeals. According to the Republic, petitioners failed to prove continuous, open, exclusive
and notorious possession by their predecessors-in-interest and by themselves; hence, the trial court
erred in granting petitioners application for registration of the subject property. The Republic prayed
for the reversal of the Order of the trial court and for the dismissal of the application for registration
filed by petitioners.
On 23 August 2004, the Court of Appeals rendered a Decision in favor of the Republic, thus,
overturning the Order of the court a quo. The dispositive portion of the Decision reads as:
WHEREFORE, the appeal is GRANTED and the Decision of the Regional Trial Court, Branch 274,
Paraaque City dated October 29, 2001 is REVERSED and SET ASIDE and the parcel of land
subject matter of the application is declared public land.
12

Petitioners filed a Motion for Reconsideration of the aforesaid Decision on 20 September 2004. In a
Resolution dated 25 January 2005 rendered by the appellate court, said Motion for Reconsideration
was forthwith denied for lack of merit.
Hence, this Petition.
Petitioners raise the following issues for the resolution of this Court:
I. Whether or not the Court of Appeals erred in nullifying the Decision of the trial court
confirming petitioners title over the subject property for not being allegedly supported by
substantial evidence as required by law.
II. Whether or not the Court of Appeals gravely erred in declaring the subject property as
pubic land and ignoring petitioners evidence of over 50 year possession in the concept of an
owner and completely unmolested by any adverse claim.
In the Memorandum
13
of the petitioners, they allege that the appellate court committed grave error
when it nullified the trial courts Order dated 29 October 2001, which confirmed their title to the
subject property. Petitioners claim that contrary to the findings of the Court of Appeals that the
above-mentioned Order was not supported by evidence, the records of the case clearly speak of the
existence, not absence, of sufficient evidence to sustain the findings of the court a quo that
petitioners have established possession of the subject property in the manner and for the period
required by law, that is by open, continuous, exclusive, and notorious possession in the concept of
an owner since 12 June 1945 or earlier, to warrant the registration of their title to the subject
property.
Petitioners likewise argue that the appellate court gravely erred when it declared as public land the
subject property despite the fact that they were able to prove by clear and convincing evidence that
their possession of the subject property was indeed in the manner and within the period required by
law. Having been in possession of the subject property for more than 30 years, they have already
acquired vested right or title over the subject property by operation of law based on the period
provided for under the prevailing land registration and property laws; hence, the Decision of the
Court of Appeals is inconsistent with the facts and the law.
The Petition is meritorious.
In resolving the issues involved in the present case, there is a need for this Court to re-examine the
facts of the case for the proper determination of the issues raised herein.
As a rule, in the exercise of the Supreme Courts power of review, the Court is not a trier of facts and
does not normally undertake the re-examination of the evidence presented by the contending parties
during the trial of the case considering that the findings of fact of the Court of Appeals are conclusive
and binding on the Court.
14
However, the rule is not without exceptions. There are several recognized
exceptions
15
in which factual issues may be resolved by this Court and two of these exceptions find
application in this present case, to wit: (1) when the findings of the appellate court are contrary to
those of the trial court; and (2) when the findings of fact of the appellate court are premised on the
supposed absence of evidence but contradicted by the evidence on record.
The issues presented by petitioners will be discussed concurrently, since they are interrelated.
In the assailed Decision of the Court of Appeals, it ruled that petitioners failed to show possession
and occupation of the subject property under a bona fide claim of ownership since 12 June 1945 or
earlier as provided for in Section 14(1) of the Property Registration Decree. It further said that the
testimonial evidence presented by petitioners was not sufficient to prove petitioners possession in
the manner and within the period required by the aforesaid law because petitioners witnesses
merely testified on their familiarity with the subject property.
Section 14 of the Property Registration Decree speaks of who may apply for registration of land. The
said provision of law refers to an original registration through ordinary registration proceedings.
16
It
specifically provides:
SEC. 14. Who may apply. The following persons may file in the proper Court of First Instance [now
Regional Trial Court] an application for registration of title to land, whether personally or through their
duly authorized representatives:
(1) Those who by themselves or through their predecessors-in-interest have been in open,
continuous, exclusive and notorious possession and occupation of alienable and disposable
lands of the public domain under a bona fide claim of ownership since June 12, 1945, or
earlier.
(2) Those who have acquired ownership of private lands by prescription under the provisions
of existing laws.
From the aforesaid provisions of the Property Registration Decree, we can deduce that there are
three requisites for the filing of an application for registration of title under the first category, to wit:
(1) that the property in question is alienable and disposable land of the public domain; (2) that the
applicants by themselves or through their predecessors-in-interest have been in open, continuous,
exclusive and notorious possession and occupation; and (3) that such possession is under a bona
fide claim of ownership since 12 June 1945 or earlier.
17
The second classification relates to the
acquisition of private lands by prescription.
In the case at bar, the Republic argues, through the Office of the Solicitor General, that petitioners
own evidence tends to show that the subject property is not alienable and disposable because it was
a salt bed and a fishpond and under Section 2, Article XII of the Constitution, except for agricultural
lands, all other natural resources shall not be alienated. Likewise, under the Regalian Doctrine, all
lands not otherwise appearing to be clearly within private ownership are presumed to belong to the
State.
It is true that under the Regalian Doctrine all lands of the public domain belong to the State and all
lands not otherwise appearing to be clearly within private ownership are presumed to belong to the
State.
18
However, such presumption is not conclusive. It can be rebutted by the applicants
presentation of incontrovertible evidence showing that the land subject of the application for
registration is alienable and disposable.
19

After a thorough examination of the records of this case, this Court found out that petitioners offered
in evidence a certification
20
from the Department of Environment and Natural Resources, National
Capital Region dated 29 October 2001, to prove that the subject property was alienable and
disposable land of the public domain. The said certification contains the following statements:
This is to certify that the parcel of land as shown and described on the reverse side of this plan- Lot
5001-B, Cad-299, Paraaque Cadastre situated at San Dionisio, Paraaque City, Metro Manila
containing an area of 3,520.92 square meters as prepared by Geodetic Engineer Mariano V.
Flotildes for Amado Buenaventura, et al., was verified to be within the Alienable and Disposable
Land per L.C. Map 2623, Project No. 25 of Paraaque per Forestry Administrative Order No. 4-1141
dated January 3, 1968.
21
To our minds, the said certification is sufficient to establish the true nature or character of the subject
property. The certification enjoys a presumption of regularity in the absence of contradictory
evidence.
22
As it is, the said certification remains uncontested and even the Republic itself did not
present any evidence to refute the contents of the said certification. Therefore, the alienable and
disposable character of the questioned parcel of land has been clearly established by the evidence
of the petitioners, by 3 January 1968, at the latest.
Now, going to the requisites of open, continuous, exclusive and notorious possession and
occupation under a bona fide claim of ownership since 12 June 1945 or earlier, Republic alleges that
no sufficient evidence was adduced by petitioners to show that they and their predecessors-in-
interest have been in exclusive possession of the subject property since 12 June 1945 or earlier in
the concept of an owner, to which the Court of Appeals agreed. The Court of Appeals in its decision
said that:
Although they were able to show possession by their parents, their predecessors-in-interest, since
1948, they failed to prove the fact of possession since [12 June 1945] before the filing of the
application.
23

Emphasis should be given to the fact that the Court of Appeals, in its Decision, did not question
petitioners possession of the subject property since 1948. Verily, it even stated in the said Decision
that petitioners possession may be reckoned from 1948, the year of the execution of the Deed of
Sale. The only reason posited by the appellate court in denying the Order of the trial court which
granted the application for registration of title of the petitioners was the fact that petitioners evidence
was not sufficient to prove that their possession of the subject property was since 12 June 1945 or
earlier.
We agree with the findings of the Court of Appeals that the evidence presented by petitioners was
not enough to prove that their possession of the subject property started since 12 June 1945 or
earlier because the evidence established that the questioned parcel of land was acquired by
petitioners parents only on 30 January 1948, the date of the execution of the Deed of Absolute Sale
by its previous owners. They can neither tack their possession to that of the previous owners
because they failed to present any evidence of possession by those prior owners. Moreover,
petitioners possession of the subject property could only ripen into ownership on 3 January 1968,
when the same became alienable and disposable. "Any period of possession prior to the date when
the [s]ubject [property was] classified as alienable and disposable is inconsequential and should be
excluded from the computation of the period of possession; such possession can never ripen into
ownership and unless the land had been classified as alienable and disposable, the rules on
confirmation of imperfect title shall not apply thereto."
24

Be that as it may, this will not be an insurmountable bar to the petitioners to have the title to the
subject property registered in their names.
In the case of Republic v. Court of Appeals,
25
this Court closely examined the land registration laws
governing land registration proceedings in the Philippines. In the aforesaid case, the Court made the
following pronouncements:
When the Public Land Act was first promulgated in 1936, the period of possession deemed
necessary to vest the right to register their title to agricultural lands of the public domain commenced
from July 26, 1894. However, this period was amended by R.A. [Republic Act] No. 1942, which
provided that the bona fide claim of ownership must have been for at least thirty (30) years. Then in
1977, Section 48(b) of the Public Land Act was again amended, this time by P.D. No. 1073, which
pegged the reckoning date at June 12, 1945. This new starting point is concordant with Section
14(1) of the Property Registration Decree.
Indeed, there are no material differences between Section 14(1) of the Property Registration Decree
and Section 48(b) of the Public Land Act, as amended. True, the Public Land Act does refer to
"agricultural lands of the public domain," while the Property Registration Decree uses the term
"alienable and disposable lands of the public domain." It must be noted though that the Constitution
declares that "alienable lands of the public domain shall be limited to agricultural lands." Clearly the
subject lands under Section 48(b) of the Public Land Act and Section 14(1) of the Property
Registration Decree are of the same type.
Did the enactment of the Property Registration Decree and the amendatory P.D. No. 1073 preclude
the application for registration of alienable lands of the public domain, possession over which
commenced only after June 12, 1945? It did not, considering Section 14(2) of the Property
Registration Decree, which governs and authorizes the application of "those who have acquired
ownership of private lands by prescription under the provisions of existing laws."
26
(Emphasis
supplied.)
It becomes crystal clear from the aforesaid ruling of the Court that even if the possession of
alienable lands of the public domain commenced only after 12 June 1945, application for registration
of the said property is still possible by virtue of Section 14(2) of the Property Registration Decree
which speaks of prescription.
Under the Civil Code, prescription is one of the modes of acquiring ownership.
27
Article 1106 of the
Civil Code provides:
By prescription, one acquires ownership and other real rights through the lapse of time in the
manner and under the conditions laid down by law.
Also in Article 1113 of the Civil Code, it is provided that:
All things which are within the commerce of men are susceptible of prescription, unless otherwise
provided. Property of the State or any of its subdivision not patrimonial in character shall not be the
object of prescription.
Likewise, Article 1137 of the Civil Code states that:
Ownership and other real rights over immovables also prescribe through uninterrupted adverse
possession thereof for thirty years, without need of title or of good faith. (Emphasis supplied.)
It is well-settled that properties classified as alienable and disposable land may be converted into
private property by reason of open, continuous and exclusive possession of at least 30 years.
28
Such
property now falls within the contemplation of "private lands" under Section 14(2), over which title by
prescription can be acquired. Hence, because of Section 14(2) of Presidential Decree No. 1529,
those who are in possession of alienable and disposable land, and whose possession has been
characterized as open, continuous and exclusive for 30 years or more, may have the right to register
their title to such land despite the fact that their possession of the land commenced only after 12
June 1945.
29

The aforesaid jurisprudential rule truly demonstrates that, in the present case, while petitioners
possession over the subject property can be reckoned only on 3 January 1968, the date when
according to evidence, the subject property became alienable and disposable, they can still have the
subject property registered in their names by virtue of Section 14(2) of the Property Registration
Decree.
The records, indeed, reveal that petitioners were in possession of the subject property for more than
30 years, 32 years to be exact, reckoned from the year 1968, when the subject property was finally
declared alienable and disposable by the DENR to the time they filed an application for registration
of title over the subject property on 5 June 2000. Petitioners possession of the subject property
since 1968 has been characterized as open, continuous, exclusive and notorious possession and
occupation in the concept of an owner.
Petitioners presented as evidence their tax declarations covering the years from 1948 until the third
quarter of 2001. They also offered in evidence a certification
30
from the Office of the Treasurer of the
City of Paraaque to prove that realty taxes over the subject property had been duly paid by
petitioners. As a rule, tax declarations or realty tax payments of property are not conclusive evidence
of ownership, nevertheless, they are good indicia of possession in the concept of owner, for no one
in his right mind would be paying taxes for a property that is not in his actual or constructive
possession. They constitute at least proof that the holder has a claim of title over the property. The
voluntary declaration of a piece of property for taxation purposes manifests not only ones sincere
and honest desire to obtain title to the property and announces his adverse claim against the State
and all other interested parties, but also the intention to contribute needed revenues to the
Government. Such an act strengthens ones bona fide claim of acquisition of ownership.
31

In the same breath, it cannot be gainsaid that petitioners have been in actual possession of the
subject property since 1968, at the latest. According to the testimony of their witnesses, parts of the
subject property are planted with bananas and some vegetables, and a bamboo grove. The other
parts of the subject property were used as a fishpond, as well as devoted to salt making until
1990.
32
However, when the property was no longer suitable for agricultural purposes, for fishpond,
and for salt making because of its conversion to non-agricultural purposes consistent with the zonal
development of the area, the petitioners backfilled the subject property with gravel and sand, for
which they paid their farm helpers just compensation. Thereafter, they enclosed the property with
perimeter fence, installed guards and a caretaker to prevent potential squatters from penetrating the
area.
33
When tax declarations and receipts are coupled with actual possession, they constitute
evidence of great weight and can be the basis of a claim of ownership through prescription.
34

Conspicuously, the petitioners witnesses are one in pointing out that petitioners and their
predecessors-in-interest are the sole claimants of the subject property.
It bears stressing that the pieces of evidence submitted by petitioners are incontrovertible. No one,
not even the Republic, presented any evidence to contradict the claims of the petitioners that they
are in possession of the subject property and their possession of the same is open, continuous and
exclusive in the concept of an owner for over 30 years. Verily, even the appellate court mentioned in
its Decision that petitioners were able to show possession of the subject property as early as 1948,
the only basis for its Decision reversing the Order of the trial court being the insufficiency of the
evidence presented by petitioners to establish their possession of the subject property prior to 12
June 1945.
IN ALL, petitioners were able to prove sufficiently that they have been in possession of the subject
property for more than 30 years, which possession is characterized as open, continuous, exclusive,
and notorious, in the concept of an owner. By this, the subject alienable and disposable public land
had been effectively converted into private property over which petitioners have acquired ownership
through prescription to which they are entitled to have title through registration proceedings.
Petitioners right to have their title to the subject property registered cannot be defeated simply
because the possession of petitioners commenced on a date later than 12 June 1945, for the law
and supplementing jurisprudence amply, justly and rightfully provides the necessary remedy to what
would otherwise result in an unjust and unwarranted situation. It would be the height of injustice if
petitioners registration of title over the said property will de denied solely on that ground.
WHEREFORE, premises considered, the instant Petition is hereby GRANTED. The Decision and
Resolution of the Court of Appeals dated 23 August 2004 and 25 January 2005, respectively, are
hereby REVERSED and SET ASIDE. The Order of the trial court dated 29 October 2001 which
granted petitioners application for registration of the subject property and directing the issuance of a
decree of registration in petitioners favor once the judgment has become final and executory is
hereby REINSTATED. No costs.
SO ORDERED.

FIRST DIVISION

REPUBLIC OF THE PHILIPPINES, G.R. No. 163766
Petitioner,
Present

PANGANIBAN, C.J., Chairperson,
- versus - YNARES-SANTIAGO,
AUSTRIA-MARTINEZ,
CALLEJO, SR., and
CHICO-NAZARIO, JJ.

CANDY MAKER, INC.,
as represented by its President, Promulgated:
ONG YEE SEE,

Respondent June 22, 2006
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

D E C I S I O N

CALLEJO, SR., J.:

At bar is a Petition for Review under Rule 45 of the Rules of Court seeking
to set aside the May 21, 2004 Decision
[1]
of the Court of Appeals (CA) in CA-G.R.
CV No. 73287, which affirmed in toto the October 12, 2001 Decision
[2]
of the
Municipal Trial Court (MTC) of Taytay, Rizal in Land Registration Case No. 99-0031
declaring respondent the owner of the parcels of land designated as Lots 3138-A
and 3138-B in Plan CSD. 04-018302, Cainta-Taytay Cadastre.
Sometime in 1998, Candy Maker, Inc. decided to purchase Lot No. 3138
Cad. 688 of the Cainta-Taytay Cadastre, a parcel of land located below the
reglementary lake elevation of 12.50 meters, about 900 meters away from the
Laguna de Bay, and bounded on the southwest by the Manggahan Floodway, and
on the southeast by a legal easement.

On April 1, 1998, Geodetic Engineer Potenciano H. Fernandez, prepared
and signed a Subdivision Plan of the property for Apolonio Cruz. The property was
subdivided into two lots: Lot No. 3138-A with an area of 10,971 square meters,
and Lot No. 3138-B with an area of 239 square meters.
[3]
The technical description
of Lot No. 3138 was also prepared by Fernandez, and was approved by the
Regional Technical Director of the Bureau of Lands on April 14, 1998.
[4]

On April 29, 1999, Antonio, Eladia, and Felisa, all surnamed Cruz, executed
a Deed of Absolute Sale in favor of Candy Maker, Inc.
[5]
The buyer declared Lot
No. 3138 for taxation purposes in 1999 under Tax Declaration Nos. 004-18929,
004-18930 and 004-18931.
[6]

On June 16, 1999, Candy Maker, Inc., as applicant, filed an application with
the MTC of Taytay, Rizal, for the registration of its alleged title over Lot No. 3138-
A and Lot No. 3138-B under Presidential Decree (P.D.) No. 1529.

Acting thereon, the MTC issued an Order
[7]
on June 18, 1999 directing the
applicant to cause the publication of the notice of initial hearing and for the
Deputy Sheriff to post the same. The Administrator of the Land Registration
Authority (LRA) and the Directors of the Land Management Bureau (LMB) and
Forest Management Bureau (FMB) were also instructed to submit their respective
reports on the status of the parcels of land before the initial hearing scheduled
on October 29, 1999.

The Community Environment and Natural Resources Officer (CENRO) of
Antipolo City filed on August 18, 1999 his Report
[8]
declaring that "[t]he land falls
within the Alienable and Disposable Zone, under Land Classification Project No. 5-
A, per L.C. Map No. 639 certified released on March 11, 1927 and that the
property is the subject of CENRO Case No. 520(97) entitledPerpetua San Jose v.
Almario Cruz. On the other hand, the LRA, in its September 21, 1999
Report,
[9]
recommended the exclusion of Lot No. 3138-B on the ground that it is a
legal easement and intended for public use, hence, inalienable and indisposable.

On September 30, 1999, the Laguna Lake Development Authority (LLDA)
approved Resolution No. 113, Series of 1993, providing that untitled shoreland
areas may be leased subject to conditions enumerated therein.

The applicant filed its Amended Application
[10]
on December 15, 1999 for
the confirmation of its alleged title on Lot No. 3138, alleging therein that:

1. x x x the applicant is the President of CANDYMAKER[,] INC. and registered
owner of a parcel of land located at Panghulo Brgy. San Juan, Taytay, Rizal with an area
of TEN THOUSAND NINE HUNDRED SEVENTY ONE (10,971) square meters and as fully
described and bounded under Lot 3138-A plan CSD-04-018302[,] copy of which and the
corresponding technical descriptions are hereto attached to form parts hereof;

x x x x

8. That for Lot 3138-A the applicant hereby prays for the benefit granted under
the Land Registration Act and/or under the benefits provided for by P.D. No. 1529, as
applicant and their predecessors-in-interest have been in open, public, continuous, and
peaceful occupation and possession of the said land since time immemorial in [the]
concept of true owners and [adverse] to the whole world; x x x
[11]

On March 27, 2000, the MTC issued an Order
[12]
admitting the Amended
Application and resetting the initial hearing to June 23, 2000. However, upon the
requests of the LRA for the timely publication of the Notice of Initial Hearing in
the Official Gazette,
[13]
the court moved the hearing date to September 22,
2000,
[14]
then on January 26, 2001
[15]
and until finally, to June 15, 2001.
[16]

On July 20, 2001, the Republic of the Philippines, the LLDA filed its
Opposition
[17]
to the Amended Application in which it alleged that the lot subject
of the application for registration may not be alienated and disposed since it is
considered part of the Laguna Lake bed, a public land within its jurisdiction
pursuant to Republic Act (R.A.) No. 4850, as amended. According to the LLDA, the
projection of Lot No. 3138-A, Cad-688-D Csd-04-018302 in its topographic map
based on the Memorandum
[18]
of Engineer Christopher Pedrezuela of the
Engineering and Construction Division of the LLDA indicated that it is located
below the reglementary lake elevation of 12.50 meters referred to datum 10.00
meters below mean lower water and under Section 41(11) of R.A. No. 4850, the
property is a public land which forms part of the bed of the Laguna Lake. This
Memorandum was appended to the application.

At the hearing conducted on August 31, 2001, the applicant marked in
evidence the complementary copies of the Official Gazette and the Peoples
Tonight as Exhibits E-1 and F-1, respectively.
[19]

Except as to the LLDA and the Office of the Solicitor General (OSG), which
was represented by the duly deputized provincial prosecutor,
[20]
the court, upon
motion of the applicant, issued an Order of general default.
[21]

The applicant presented as witnesses its Treasurer, Fernando Co Siy, and
Antonio Cruz, one of the vendees.

Cruz testified that his grandparents owned the property,
[22]
and after their
demise, his parents, the spouses Apolonio Cruz and Aquilina Atanacio Cruz,
inherited the lot;
[23]
he and his father had cultivated the property since 1937,
planting palay during the rainy season and vegetables during the dry season; his
father paid the realty taxes on the property,
[24]
and he (Cruz) continued paying the
taxes after his fathers death.
[25]
Cruz insisted that he was the rightful claimant
and owner of the property.

Sometime in the 1980s, Apolonio Cruz executed an extrajudicial deed of
partition in which the property was adjudicated to Antonio Cruz and his sisters,
Felisa and Eladia, to the exclusion of their five (5) other siblings who were given
other properties as their shares.
[26]
He did not know why his ancestors failed to
have the property titled under the Torrens system of registration.
[27]
He left
the Philippines and stayed in Saudi Arabia from 1973 to 1983.
[28]
Aside from this,
he hired the services of an upahan to cultivate the property.
[29]
The property is
about 3 kilometers from the Laguna de Bay, and is usually flooded when it
rains.
[30]

Fernando Co Siy testified that the applicant acquired Lot No. 3138 from
siblings Antonio, Eladia and Felisa,
[31]
who had possessed it since 1945;
[32]
that
after paying the real estate taxes due thereon,
[33]
it caused the survey of the
lot;
[34]
that possession thereof has been peaceful
[35]
and none of the former
owners claims any right against it;
[36]
neither the applicant nor its predecessors-in-
interest received information from any government agency that the lot is a public
land;
[37]
the subject lot is 3 kms. away from Laguna de Bay,
[38]
above its elevation
and that of the nearby road;
[39]
the property is habitable
[40]
and was utilized as a
riceland at the time it was sold by the former owners;
[41]
and that he was aware
that a legal easement is affecting the lot and is willing to annotate it in the land
title.
[42]

On cross-examination by the LLDA counsel, Siy admitted that his knowledge
as to the distance of the lot with respect to the Laguna de Bay came from
somebody residing in Taytay and also from an adjacent owner of the lot;
[43]
that
the lot is submerged in water since there is no land fill yet;
[44]
and that no
improvements had been introduced to the property.
[45]

The LLDA moved for a joint ocular inspection of the parcels of land in order
to determine its exact elevation.
[46]
OnSeptember 14, 2001, a Survey Team of the
Engineering and Construction Division of the LLDA, composed of Ramon D.
Magalonga, Virgilio M. Polanco, and Renato Q. Medenilla, conducted an actual
ground survey of the property. The team used a total station and digital survey
instrument to measure the elevation of the ground in reference to the elevation
of the lake water. A representative of the applicant witnessed the survey. The
team found that the lot is below the prescribed elevation of 12.50 m. and thus
part of the bed of the lake; as such, it could not be titled to the applicant. The
team also reported that the property is adjacent to the highway from the
Manggahan Floodway to Angono, Rizal. The LLDA moved that the application be
withdrawn, appending thereto a copy of the Survey Report.
[47]

The LLDA did not offer any testimonial and documentary evidence and
agreed to submit the case for decision based on its Opposition.

On October 12, 2001, the MTC rendered a Decision granting the application
for registration over the lots. The dispositive portion of the decision reads:

WHEREFORE, premises considered[,] the court hereby rendered judgment
confirming title of the applicants over the real property denominated as Lot 3138-A Csd-
04-018302 of Cad-688-D Cainta-Taytay Cadastre; Lot 3138-B Csd-04-018302 of Cad 688-
D Cainta-Taytay Cadastre.
[48]

On appeal to the CA, the petitioner contended that the MTC did not acquire
jurisdiction over the application for registration since the actual copies of the
Official Gazette (O.G.) where the notice of hearing was published were not
adduced in evidence; the applicant likewise failed to establish exclusive
ownership over the subject property in the manner prescribed by law. The
petitioner argued further that the requirements of Section 23, par. 1 of P.D. No.
1529,
[49]
as amended, are mandatory and jurisdictional, and that failure to
observe such requirements has a fatal effect on the whole proceedings.
Citing Republic of the Philippines v. Court of Appeals
[50]
and Register of Deeds of
Malabon v. RTC, Malabon, MM, Br. 170,
[51]
the Republic averred that a mere
certificate of publication is inadequate proof of the jurisdictional fact of
publication because the actual copies of the O.G. must be presented at the initial
hearing of the case. Moreover, witnesses were not presented to prove specific
acts to show that the applicant and his predecessors-in-interest have been in
exclusive, open, continuous, and adverse possession of the subject lots in the
concept of the owner since June 12, 1945 or earlier, in accordance with Sec. 14,
par. 1 of P.D. No. 1529.
[52]
It noted that the testimonies of the applicants
witnesses are more of conclusions of law rather than factual evidence of
ownership. Other than the general statement that they planted rice and
vegetables on the subject lots, their possession could properly be characterized as
mere casual cultivation since they failed to account for its exclusive utilization
since 1945 or earlier. After stressing that tax declarations are not conclusive
proof of ownership, it concluded that the subject lots rightfully belong to the
State under the Regalian doctrine.
[53]

The applicant averred in its Appellees Brief
[54]
that it had marked in
evidence the actual copy of the O.G. where the notice of initial hearing was
published; in fact, the MTC Decision stated that the copy of the O.G. containing
the notice was referred to as Exhibit E-1. Moreover, Sec. 14, par. 1 of P.D. 1529
is inapplicable since it speaks of possession and occupation of alienable and
disposable lands of the public domain. Instead, par. 4 of the same
section
[55]
should govern because the subject parcels of land are lands of private
ownership, having being acquired through purchase from its predecessors-in-
interest, who, in turn, inherited the same from their parents. It pointed out that
there were no adverse claims of interest or right by other private persons and
even government agencies like the Province of Rizal. Lastly, while tax declarations
and tax receipts do not constitute evidence of ownership, they are
nonetheless prima facie evidence of possession.

On May 21, 2004, the appellate court rendered judgment which dismissed
the appeal and affirmed in toto the Decision of the MTC,
[56]
holding that the copy
of the O.G., where the notice was published, was marked as Exhibit E-1 during
the initial hearing. On the issue of ownership over the subject lots, the CA upheld
the applicants claim that the parcels of land were alienable and not part of the
public domain, and that it had adduced preponderant evidence to prove that its
predecessors had been tilling the land since 1937, during which palay and
vegetables were planted. In fact, before the lots were purchased, the applicant
verified their ownership with the assessors office, and thereafter caused the
property to be surveyed; after the lots were acquired in 1999 and a survey was
caused by the applicant, no adverse claims were filed by third persons. Further,
the CA ruled that tax declarations or tax receipts are good indicia of possession in
the concept of the owner, which constitute at least positive and strong indication
that the taxpayer concerned has made a claim either to the title or to the
possession of the property.

The Republic, now petitioner, filed the instant Petition for Review on the
following issues:

A.
WHETHER THE LAND IN QUESTION MAYBE THE SUBJECT OF REGISTRATION.

B.
WHETHER THE COURT A QUO ACQUIRED JURISDICTION OVER THE RES CONSIDERING ITS
INALIENABLE CHARACTER.

C.
WHETHER THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURTS FINDING
THAT RESPONDENT COMPLIED WITH THE LEGAL REQUIREMENTS ON POSSESSION AS
MANDATED BY SECTION 14 OF P.D. NO. 1529.
[57]

Petitioner asserts that the Engineers Survey Report
[58]
and the Laguna de
Bay Shoreland Survey
[59]
both show that Lot No. 3138-A is located below the
reglementary lake elevation, hence, forms part of the Laguna Lake bed. It insists
that the property belongs to the public domain as classified under Article 502 of
the Civil Code.
[60]
Citing the ruling of this Court in Bernardo v.
Tiamson,
[61]
petitioner avers that the subject lot is incapable of private
appropriation since it is a public land owned by the State under the Regalian
doctrine. On this premise, petitioner avers that the MTC did not acquire
jurisdiction over the subject matter, and as a consequence, its decision is null and
void.

Petitioner maintains that respondent failed to present incontrovertible
evidence to warrant the registration of the property in its name as owner. The
testimonies of the two witnesses only proved that the possession of the land may
be characterized as mere casual cultivation; they failed to prove that its
predecessors occupied the land openly, continuously, exclusively, notoriously and
adversely in the concept of owner since June 12, 1945 or earlier.

On the other hand, respondent argues that the Engineers Survey Report
and the Laguna de Bay Shoreland Survey have no probative value because they
were neither offered nor admitted in evidence by the MTC. It
points out that petitioner failed to invoke these reports in the appellate court.
It was only when the petition was filed with this Court that the respondent
learned of its existence. Petitioners reliance on the reports/survey is merely an
afterthought. The case of Bernardo v. Tiamson is irrelevant because the factual
issues are different from those of this case.

On April 28, 2005, respondent filed a Manifestation
[62]
with this Court,
appending thereto the report
[63]
conducted by the survey team of the LLDA
Engineering and Construction Division on April 12, 2005. It stated that the 10,971
sq m property subject of the case is below the 12.5 elevation, and that the profile
distance of the property from the actual lake waters is about 900 m. to 1 km.

The issues in this case are the following: (1) whether the MTC had
jurisdiction over the amended application; (2) whether the property subject of the
amended application is alienable and disposable property of the State, and, if so,
(3) whether respondent adduced the requisite quantum of evidence to prove its
ownership over the property under Section 14 of P.D. 1529.

The petition is meritorious.

On the first issue, we find and so rule that the MTC acquired jurisdiction
over respondents application for registration since a copy of the O.G. containing
the notice of hearing was marked and adduced in evidence as Exhibit E-1. The
representative of the OSG was present during the hearing and interposed his
objection thereto.

On the second and third issues, we find and so rule that the property
subject of this application was alienable and disposable public agricultural land
until July 18, 1966. However, respondent failed to prove that it possesses
registerable title over the property.

Section 48(b) of Commonwealth Act No. 141, as amended by R.A. No. 1942,
reads:

Section 48. The following described citizens of the Philippines, occupying lands of
the public domain or claiming to own any such lands or an interest therein, but whose
titles have not been perfected or completed, nay apply to the Court of First Instance of
the province where the land is located for confirmation of their claims and the issuance
of a certificate of title therefor, under the Land Registration Act, to wit:

(b) Those who by themselves or through their predecessors in-interest
have been in open, continuous, exclusive, and notorious possession and
occupation of agricultural lands of the public domain, under a bona
fide claim of acquisition of ownership, for at least thirty years
immediately preceding the filing of the application for confirmation of
title except when prevented by war or force majeure. These shall be
conclusively presumed to have performed all the conditions essential to
a Government grant and shall be entitled to a certificate of title under
the provisions of this chapter.

This provision was further amended by P.D. No. 1073 by substituting the phrase
for at least thirty years with since June 12, 1945; thus:

Sec. 4. The provisions of Section 48(b) and Section 48(c), Chapter VIII, of the
Public Land Act are hereby amended in the sense that these provisions shall apply only
to alienable and disposable lands of the public domain which have been in open,
continuous, exclusive and notorious possession, and occupation by the applicant himself
or through his predecessor-in-interest, under a bona fide claim of acquisition of
ownership, since June 12, 1945.

Section 14(1) of P.D. No. 1529, otherwise known as the Property
Registration Decree, provides:

SEC. 14. Who may apply. The following persons may file in the proper Court of
First Instance [now Regional Trial Court] an application for registration of title to land,
whether personally or through their duly authorized representatives:

(1) Those who by themselves or through their predecessors-in-
interest have been in open, continuous, exclusive and notorious
possession and occupation of alienable and disposable lands of the
public domain under a bona fide claim of ownershipsince June 12,
1945, or earlier (emphasis supplied).

Applicants for confirmation of imperfect title must, therefore, prove the
following: (a) that the land forms part of the disposable and alienable agricultural
lands of the public domain; and (b) that they have been in open, continuous,
exclusive, and notorious possession and occupation of the same under a bona
fide claim of ownership either since time immemorial or since June 12, 1945.
[64]

Under the Regalian doctrine, all lands not otherwise appearing to be clearly
within private ownership are presumed to belong to the State. The presumption
is that lands of whatever classification belong to the State.
[65]
Unless public land is
shown to have been reclassified as alienable or disposable to a private person by
the State, it remains part of the inalienable public domain. Property of the public
domain is beyond the commerce of man and not susceptible of private
appropriation and acquisitive prescription. Occupation thereof in the concept of
owner no matter how long cannot ripen into ownership and be registered as a
title.
[66]
The statute of limitations with regard to public agricultural lands does not
operate against the State unless the occupant proves possession and occupation
of the same after a claim of ownership for the required number of years to
constitute a grant from the State.
[67]

No public land can be acquired by private persons without any grant from
the government, whether express or implied. It is indispensable that there be a
showing of a title from the State.
[68]
The rationale for the period since time
immemorial or since June 12, 1945 lies in the presumption that the land applied
for pertains to the State, and that the occupants or possessor claim an interest
thereon only by virtue of their imperfect title as continuous, open and notorious
possession.
A possessor of real property may acquire ownership thereof through
acquisitive prescription. In Alba Vda. de Raz v. Court of Appeals,
[69]
the Court
declared that:

x x x *W+hile Art. 1134 of the Civil Code provides that (o)wnership and other real rights
over immovable property are acquired by ordinary prescription through possession of
ten years, this provision of law must be read in conjunction with Art. 1117 of the same
Code. This article states that x x x (o)rdinary acquisitive prescription of things requires
possession in good faith and with just title for the time fixed by law. Hence, a
prescriptive title to real estate is not acquired by mere possession thereof under claim of
ownership for a period of ten years unless such possession was acquired con justo titulo
y buena fe (with color of title and good faith). The good faith of the possessor consists
in the reasonable belief that the person from whom he received the thing was the
owner thereof, and could transmit his ownership. For purposes of prescription, there is
just title when the adverse claimant came into possession of the property through one
of the recognized modes of acquisition of ownership or other real rights but the grantor
was not the owner or could not transmit any right.
[70]

To prove that the land subject of an application for registration is alienable,
an applicant must conclusively establish the existence of a positive act of the
government such as a presidential proclamation or an executive order, or
administrative action, investigation reports of the Bureau of Lands investigator or
a legislative act or statute.
[71]
Until then, the rules on confirmation of imperfect
title do not apply. A certification of the Community Environment and Natural
Resources Officer in the Department of Environment and Natural Resources
stating that the land subject of an application is found to be within the alienable
and disposable site per a land classification project map is sufficient evidence to
show the real character of the land subject of the application.
[72]

The applicant is burdened to offer proof of specific acts of ownership to
substantiate the claim over the land.
[73]
Actual possession consists in the
manifestation of acts of dominion over it of such a nature as a party would
actually exercise over his own property.
[74]
A mere casual cultivation of portions of
the land by the claimant does not constitute sufficient basis for a claim of
ownership; such possession is not exclusive and notorious as to give rise to a
presumptive grant from the State.
[75]

In this case, the evidence on record shows that the property is alienable
agricultural land. Romeo Cadano of the Community Environment and Natural
Resources Office, Antipolo Rizal, certified that the property falls within the
Alienable and Disposable zone, under Land Classification Project No. 5-A, per L.C.
Map No. 639 certified released on March 11, 1927.
[76]
However, under R.A. No.
4850 which was approved on July 18, 1966, lands located at and below the
maximum lake level of elevation of the Laguna de Bay are public lands which
form part of the bed of said lake. Such lands denominated as lakeshore areas are
linear strips of open space designed to separate incompatible element or uses, or
to control pollution/nuisance, and for identifying and defining development areas
or zone. Such areas of the lake with an approximate total area of 14,000 hectares
form a strip of the lakebed along its shores alternately submerged or exposed by
the annual rising and lowering of the lake water. They have environmental
ecological significance and actual potential economic benefits.

Under Section 1 of the law, the national policy of the State is to promote
and accelerate the development and balanced growth of the Laguna Lake area
and the surrounding provinces, cities and towns within the context of the national
and regional plans and policies for social and economic development and to carry
out the development of the Laguna Lake region with due regard and adequate
provisions for environmental management and control, preservation of the
quality of human life and ecological systems,
and the prevention of undue ecological disturbances, deterioration and pollution.
The rapid expansion of Metropolitan Manila, the suburbs and the lakeshore
town of Laguna de Bay, combined with current and prospective uses of the lake
for municipal-industrial water supply, irrigation, fisheries, and the like, created
deep concern on the part of the Government and the general public over the
environmental impact of such development, on the water quality and ecology of
the lake and its related river systems. The inflow of polluted water from
the Pasig River, industrial, domestic and agricultural wastes from developed areas
around the lake and the increasing urbanization have induced the deterioration of
the lake, and that water quality studies have shown that the lake will deteriorate
further if steps are not taken to check the same. The floods in the Metropolitan
Manila area and the lakeshore towns are also influenced by the hydraulic system
of the Laguna de Bay, and any scheme of controlling the floods will necessarily
involve the lake and its river systems.

This prompted then President Ferdinand E. Marcos to issue on October 17,
1978 P.D. 813 amending Rep. Act No. 4850. Under Section 6 of the law, the LLDA
is empowered to issue such rules and regulations as may be necessary to
effectively carry out the policies and programs therein provided including the
policies and projects of the LLDA, subject to the approval of the National
Economic Development Authority.

In 1996, the Board of Directors of LLDA approved Resolution No. 113, series
of 1996 relating to the Environmental Uses Fee Systems and Approval of the Work
and Financial Plan for its operationalization in the Laguna de Bay Basin. Section 5
of the Resolution provides that the LLDA as a matter of policy is to maintain all
shoreland areas lying below elevation 12.50 meters as buffer zone in consonance
with the LLDA policies, plans programs for the improvement of the water quality
and pollution and conservation of the water resources of the Laguna de Bay.

As gleaned from the Survey Report of Magalonga, Polanco and Medenilla of
the LLDA based on the ocular inspection datedSeptember 14, 2001 as well as the
Memorandum of Engineer Christopher Pedrezuela, the property is located below
the reglementary level of 12.50 m.; hence, part of the bed of the Laguna de Bay,
and, as such, is public land. Although the Report and Memorandum were not
offered as evidence in the MTC, the respondent admitted in its Manifestation in
this Court that the property is situated below the 12.50 elevation based on the
survey of Magalonga, Polanco and Medenilla, the same survey team who
conducted an ocular inspection of the property on April 12, 2005, which thus
confirmed the September 14, 2001 survey report. This is a judicial admission in
the course of judicial proceedings which is binding on it.
[77]

Under R.A. No. 4850 and the issuances of LLDA, registerable rights
acquired by occupants before the effectivity of the law are recognized. However,
the respondent failed to adduce proof that its predecessors-in-interest had
acquired registerable title over the property before July 18, 1966:

First. Cruz failed to prove how his parents acquired ownership of the
property, and even failed to mention the names of his grandparents. He likewise
failed to present his fathers death certificate to support his claim that the latter
died in 1980. There is likewise no evidence when his mother died.

Second. Cruz also failed to adduce in evidence the extrajudicial partition
allegedly executed by his parents in 1980 where the property was supposedly
deeded to him and his sisters, Felisa and Eladia, to the exclusion of their five
siblings.

Third. Cruz claimed that he and his parents cultivated the property and
planted palay and vegetables, and that they had been paying the realty taxes over
the property before his parents died. However, no tax declarations under the
names of the spouses Apolonio Cruz and/or Eladia Cruz and his siblings were
presented, or realty tax receipts evidencing payment of such
taxes. Indeed, while tax receipts and tax payment receipts themselves do not
convincingly prove title to the land,
[78]
these are good indicia of possession in the
concept of an owner, for no one in his right mind would pay taxes for a property
that is not in his actual or, at least, constructive possession.
[79]
While tax receipts
and declarations are not incontrovertible evidence of ownership, they constitute,
at the least, proof that the holder has a claim of title over the property,
particularly when accompanied by proof of actual possession of property.
[80]
The
voluntary declaration of a piece of property for taxation purposes not only
manifests ones sincere and honest desire to obtain title to the property, but also
announces an adverse claim against the State and all other interested parties with
an intention to contribute needed revenues to the government. Such an act
strengthens ones bona fide claim of acquisition of ownership.
[81]

Fourth. When he testified on October 5, 2001, Antonio Cruz declared that
he was 74 years old.
[82]
He must have been born in 1927, and was thus merely
10 years old in 1937. It is incredible that, at that age, he was already cultivating
the property with his father. Moreover, no evidence was presented to prove how
many cavans of palay were planted on the property, as well as the extent of such
cultivation, in order to support the claim of possession with a bona fide claim of
ownership.

Fifth. Cruz testified that he hired a worker upahan to help him cultivate
the property. He, however, failed to state the name of the worker or to even
present him as witness for the respondent.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The decision
of the Court of Appeals in CA-G.R. CV No. 73278 is SET ASIDE. The Municipal Trial
Court of Taytay, Rizal is
DIRECTED to dismiss the application for registration of respondent Candymaker,
Inc. in Land Registration Case No. 99-0031. No costs.

FIRST DIVISION
[G.R. No. 129682. March 21, 2002]
NESTOR PAGKATIPUNAN and ROSALINA MAAGAS-
PAGKATIPUNAN, petitioners, vs. THE COURT OF APPEALS and
REPUBLIC OF THE PHILIPPINES, respondents.
D E C I S I O N
YNARES-SANTIAGO, J .:
This is a petition for review of the decision
[1]
of the Court of Appeals nullifying
the decision of the Court of First Instance of Gumaca, Quezon
[2]
which confirmed
petitioners title over the lots subject of the instant petition. Petitioners further seek to
annul and set aside the resolutions
[3]
of the Court of Appeals denying their urgent
motion to recall the judgment entered
[4]
in the land registration case.
The antecedent facts are as follows:
Sometime in November 1960, petitioners predecessors-in-interest, spouses
Getulio Pagkatipunan and Lucrecia Esquires, filed with the Court of First Instance of
Gumaca, Quezon an application for judicial confirmation and registration of their title
to Lots 1 and 2 of Plan Psu-174406 and Lots 1 and 2 of Plan Psu-112066, all located
in San Narciso, Quezon.
[5]

On May 4, 1961, the Court of First Instance entered an order of default against the
whole world, except spouses Felicisimo Almace and Teodulo Medenilla who were
given ten (10) days to file their written opposition as regards Lot No. 2 of Plan Psu-
174406. Upon motion of petitioners predecessors, Lot No. 2 of Plan Psu-174406 was
removed from the coverage of the application. The remaining parcel of land covered
by Lot No. 1 has an area of 3,804.261 square meters.
On June 15, 1967, the Court of First Instance promulgated a decision confirming
petitioners title to the property. On October 23, 1967, OCT No. O-12665 was issued
in the name of petitioners.
Almost eighteen (18) years later, or on September 12, 1985, the Republic of the
Philippines filed with the Intermediate Appellate Court an action to declare the
proceedings in LRC Case No. 91-G, LRC Record No. N-19930 before the Court of
First Instance of Gumaca, Quezon null and void, and to cancel Original Certificate of
Title No. 0-12665 and titles derived therefrom as null and void, to direct the register
of deeds to annul said certificates of title, and to confirm the subject land as part of the
public domain.
[6]

The Republic claimed that at the time of filing of the land registration case and of
rendition of the decision on June 15, 1967, the subject land was classified as
timberland under LC Project No. 15-B of San Narciso, Quezon, as shown in BF Map
No. LC-1180; hence inalienable and not subject to registration. Moreover,
petitioners title thereto can not be confirmed for lack of showing of possession and
occupation of the land in the manner and for the length of time required by Section
48(b), Commonwealth Act No. 141, as amended. Neither did petitioners have any fee
simple title which may be registered under Act No. 496, as amended. Consequently,
the Court of First Instance did not acquire jurisdiction over the res and any
proceedings had therein were null and void.
[7]

On the other hand, petitioners raised the special defenses of indefeasibility of title
and res judicata. They argued that due to the lapse of a considerable length of time,
the judgment of the Court of First Instance of Quezon in the land registration case has
become final and conclusive against the Republic. Moreover, the action for reversion
of the land to the public domain is barred by prior judgment.
[8]

In a decision promulgated on June 27, 1986, the Intermediate Appellate Court
held that the land in question was forestral land; hence not registrable. There was no
evidence on record to show that the land was actually and officially delimited and
classified as alienable or disposable land of the public domain. Therefore, the Court
of First Instance did not acquire jurisdiction to take cognizance of the application for
registration and to decide the same. Consequently, the action to declare null and void
the June 15, 1967 decision for lack of jurisdiction did not prescribe. The dispositive
portion of the appellate courts decision reads:
WHEREFORE, judgment is rendered in favor of petitioner and against respondents,
and as prayed for:
(a) The Decision dated June 15, 1967 in LRC Case No. 91-G, LRC Record No. N-
19930 is hereby declared null and void, and accordingly set aside;
(b) Original Certificate of Title No. O-12665, and Transfer Certificates of Title
Nos. T-84439, T-93857 and T-117618 deriving therefrom, as well as any other
derivative titles, are declared null and void;
(c) The respondent Register of Deeds for Quezon Province is ordered to cancel said
titles; and
(d) The parcels of land covered thereby are ordered reverted to the State.
Without pronouncement as to costs.
[9]

On July 16, 1986, petitioners moved for the reconsideration of the afore-cited
decision
[10]
reiterating that the land in question was agricultural because it was
possessed and cultivated as such long before its classification as timberland by the
Bureau of Forestry in 1955. Petitioners and their predecessors-in-interest have been in
open, continuous, exclusive, notorious possession and occupation of said land for
agricultural and cattle raising purposes as far back as the Spanish regime. Following
the doctrine in Oracoy v. Director of Lands,
[11]
private interest had intervened and
petitioners acquired vested rights which can no longer be impaired by the subsequent
classification of the land as timberland by the Director of Forestry.
On August 20, 1986, the appellate court denied the motion for reconsideration for
lack of merit.
[12]
On December 12, 1986, the decision of June 27, 1986 attained finality
and judgment was entered in the book of entries of judgments.
[13]

On April 2, 1987, petitioners filed an urgent motion to set aside entry of judgment
on the ground that Atty. Cirilo E. Doronila, petitioners counsel of record, was not
furnished a copy of the resolution denying the motion for reconsideration.
[14]
In the
absence of such notice, the decision of the appellate court did not become final and
executory.
On October 22, 1987, the Court of Appeals set aside and lifted the entry of
judgment in CA-G. R. SP No. 07115 and directed the clerk of court to furnish
petitioners counsel a copy of the August 20, 1986 resolution.
[15]

For petitioners inaction despite service of the August 20, 1986 resolution, the
June 27, 1986 decision became final and executory. On March 2, 1988, entry of
judgment was again made in the land registration case.
On September 4, 1995, Atty. Doronila withdrew his appearance as counsel for
petitioners.
[16]

On April 1, 1996, petitioners, through their new counsel, Atty. George I. Howard,
filed with the Court of Appeals an urgent motion to recall the entry of
judgment,
[17]
which was denied by the appellate court on December 16, 1996.
[18]

The motion for reconsideration was likewise denied on the ground that it raised
arguments already discussed and resolved in the urgent motion to recall entry of
judgment.
[19]

Hence, the instant petition for review.
[20]

Petitioners claim that their title to the land became incontrovertible and
indefeasible one (1) year after issuance of the decree of registration. Hence, the
Republics cause of action was barred by prescription and res judicata, proceedings
having been initiated only after about 18 years from the time the decree of registration
was made. Contrary to the appellate courts findings, the land is agricultural and the
inclusion and classification thereof by the Bureau of Forestry in 1955 as timberland
can not impair the vested rights acquired by petitioners predecessors-in-interest who
have been in open, continuous, adverse and public possession of the land in question
since time immemorial and for more than thirty (30) years prior to the filing of the
application for registration in 1960. Hence, the Court of Appeals committed grave
error when it denied their motion to set aside entry of judgment in the land registration
case.
The petition lacks merit.
Unless public land is shown to have been reclassified or alienated to a private
person by the State, it remains part of the inalienable public domain. Occupation
thereof in the concept of owner, no matter how long, cannot ripen into ownership and
be registered as a title.
[21]

Evidence extant on record showed that at the time of filing of the application for
land registration and issuance of the certificate of title over the disputed land in the
name of petitioners, the same was timberland and formed part of the public domain, as
per certification issued by the Bureau of Forest Development on April 1, 1985, thus:
TO WHOM IT MAY CONCERN:
This is to certify that the tract of land situated in Vigo Cantidang, San Narciso,
Quezon, containing an area of 3,804.261 square meters as described in Transfer
Certificate of Title No. T-117618 x x x registered in the name of Spouses Nestor E.
Pagkatipunan and Rosalina Magas is verified to be within the Timberland Block -B,
Project No. 15-B of San Narciso, Quezon, certified and declared as such on August
25, 1955 per BFD Map LC-1880. The land is, therefore, within the administrative
jurisdiction and control of the Bureau of Forest Development, and not subject to
disposition under the Public Land Law.
[Sgd.]ARMANDO CRUZ
Supervising Cartographer
[22]

This fact was even admitted by petitioners during the proceedings before the
court a quo on March 10, 1986, when they confirmed that the land has been classified
as forming part of forest land, albeit only on August 25, 1955.
[23]
Since no imperfect
title can be confirmed over lands not yet classified as disposable or alienable, the title
issued to herein petitioners is considered void ab initio.
[24]

Under the Regalian doctrine, all lands of the public domain belong to the State,
and the State is the source of any asserted right to ownership in land and charged with
the conservation of such patrimony. This same doctrine also states that all lands not
otherwise appearing to be clearly within private ownership are presumed to belong to
the State.
[25]
To overcome such presumption, incontrovertible evidence must be shown
by the applicant that the land subject of the application is alienable or disposable.
[26]

In the case at bar, there was no evidence showing that the land has been
reclassified as disposable or alienable. Before any land may be declassified from the
forest group and converted into alienable or disposable land for agricultural or other
purposes, there must be a positive act from the government. Even rules on the
confirmation of imperfect titles do not apply unless and until the land classified as
forest land is released in an official proclamation to that effect so that it may form part
of the disposable agricultural lands of the public domain.
[27]
Declassification of forest
land is an express and positive act of Government.
[28]
It cannot be presumed. Neither
should it be ignored nor deemed waived.
[29]
It calls for proof.
[30]

The court a quo found registrable title in favor of petitioners based on the
Republics failure to show that the land is more valuable as forest land than for
agricultural purposes, a finding which is based on a wrong concept of what is forest
land.
There is a big difference between forest as defined in the dictionary and forest
or timber land as a classification of land of the public domain in the
Constitution. One is descriptive of what appears on the land while the other is a legal
status, a classification for legal purposes. The forest land started out as a forest or
vast tracts of wooded land with dense growths of trees and underbrush. However, the
cutting down of trees and the disappearance of virgin forest do not automatically
convert the land of the public domain from forest or timber land to alienable
agricultural land.
[31]

The classification of forest land, or any land for that matter, is descriptive of its
legal nature or status, and does not have to be descriptive of what the land actually
looks like.
[32]
A person cannot enter into forest land and by the simple act of
cultivating a portion of that land, earn credits towards an eventual confirmation of
imperfect title. The Government must first declare the forest land to be alienable and
disposable agricultural land before the year of entry, cultivation, and exclusive and
adverse possession can be counted for purposes of an imperfect title.
[33]

As ruled in the case of Heirs of Jose Amunategui v. Director of Forestry:
[34]

A forested area classified as forest land of the public domain does not lose such
classification simply because loggers or settlers may have stripped it of its forest
cover. Parcels of land classified as forest land may actually be covered with grass or
planted to crops by kaingin cultivators or other farmers. Forest lands do not have to
be on mountains or in out of the way places. Swampy areas covered by mangrove
trees, nipa palms, and other trees growing in brackish or sea water may also be
classified as forest land. The classification is descriptive of its legal nature or status
and does not have to be descriptive of what the land actually looks like. Unless and
until the land classified as forest is released in an official proclamation to that effect
so that it may form part of the disposable agricultural lands of the public domain, the
rules on confirmation of imperfect title do not apply.
Moreover, the original text of Section 48 (b), Chapter VIII of the Public Land Act,
which took effect on December 1, 1936, expressly provided that only agricultural land
of the public domain are subject to acquisitive prescription, to wit:
Section 48. x x x
(a) x x x
(b) Those who by themselves or through their predecessors-in-interest have been in
open, continuous, exclusive, and notorious possession and occupation ofagricultural
lands of the public domain, under a bona fide claim of acquisition of ownership,
except as against the Government, since July twenty-six, eighteen hundred and ninety-
four, except when prevented by war or force majeure. These shall be conclusively
presumed to have performed all the conditions essential to a Government grant and
shall be entitled to a certificate of title under the provisions of this Chapter. (Emphasis
supplied)
Thus, it is clear that the applicant must prove not only his open, continuous,
exclusive and notorious possession and occupation of the land either since time
immemorial or for the period prescribed therein, but most importantly, he must prove
that the land is alienable public land.
[35]
In the case at bar, petitioners failed to do so.
Petitioners contention that the Republic is now barred from questioning the
validity of the certificate of title issued to them considering that it took the
government almost eighteen (18) years to assail the same is erroneous. It is a basic
precept that prescription does not run against the State.
[36]
The lengthy occupation of
the disputed land by petitioners cannot be counted in their favor, as it remained part of
the patrimonial property of the State, which property, as stated earlier, is inalienable
and indisposable.
[37]

In light of the foregoing, the Court of Appeals did not err when it set aside the
June 15, 1967 decision of the court a quo and ordered that the subject lot be reverted
back to the public domain. Since the land in question is unregistrable, the land
registration court did not acquire jurisdiction over the same. Any proceedings had or
judgment rendered therein is void and is not entitled to the respect accorded to a valid
judgment.
Consequently, the Court of Appeals rightfully denied petitioners motion to set
aside the judgment rendered on December 12, 1986, in the land registration case.
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals
dated June 27, 1986 in AC-G.R. SP No. 07115, is hereby AFFIRMED in toto.
Without pronouncement as to costs.
SO ORDERED.

SECOND DIVISION

GORDOLAND DEVELOPMENT
CORP.,
Petitioner,

- versus -

G.R. No. 163757

Present:

QUISUMBING, J., Chairperson,
CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.

REPUBLIC OF THE PHILIPPINES,
Respondent.
Promulgated:

November 23, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
QUISUMBING, J .:
The instant petition assails the Decision
[1]
dated January 13, 2003 and the
Resolution
[2]
dated May 20, 2004 of the Court of Appeals in CA-G.R. CV No.
62545 which reversed and set aside the Decision
[3]
dated January 16, 1998 of the
Regional Trial Court (RTC), Branch 55, Mandaue City and denied the
corresponding motion for reconsideration, respectively.
Petitioner is engaged in the business of real property
development. On November 18, 1996, it filed with the RTC, Branch
55,Mandaue City, an application docketed as LRC Case No. N-547
[4]
for original
registration of title over eight parcels of land totaling 86,298 square meters located
in different barangays within the Municipality of Lilo-an, Cebu.
Petitioner avers it obtained title over said parcels in 1995 by virtue of several
deeds of sale and assignments of appurtenant rights from the alleged owner-
possessors whom petitioner claims had been in open, continuous, exclusive, and
notorious possession and occupation as would entitle them to acquire title by
acquisitive prescription, under Commonwealth Act No. 141,
[5]
or the Public Land
Act, in relation to Republic Act No. 496
[6]
and Presidential Decree No. 1529.
[7]

The petitioner presented (1) testimonies of its predecessors-in-interest with
respect to the eight parcels of land and (2) documentary exhibits; among them: tax
declarations, certifications from the Register of Deeds that there are no subsisting
titles over the subject properties, and certifications from the Community
Environment and Natural Resources Office (CENRO) of the Department of
Environment and Natural Resources, declaring that there are no subsisting public
land applications with respect to the same.
After submitting its formal offer of exhibits and resting its case, the
petitioner filed a Manifestation
[8]
dated November 14, 1997 with an attached
photocopy of a Certification
[9]
dated January 10, 1996 from the Cebu CENRO
declaring that,
per projection and ground verificationa tract of land with list of lot
numbers attached herewith containing an area of ONE HUNDRED THIRTY
EIGHT POINT FOUR SIX FIVE SEVEN (138.4657) hectares, more or less,
situated in the Barangay at Sta. Cruz, San Vicente and Lataban Lilo[-]an,
Cebu. As shown and described in the Sketch Plan at the back hereofThe same
was found to be:
A. Within the Alienable and Disposable Block-1, land classification
project no. 29 per LC Map no. 1391 of Lilo[-]an, Cebu. Certified
under Forestry Administrative Order No. 4-537 dated July 31, 1940;
and
x x x x
(signed) (signed)
EDUARDO M. INTING ATTY. ROGELIO C. LAGAT
Community Environment and Provincial Environment and
Natural Resources Officer Natural Resources Officer
However, the list of lot numbers referred to in the certification was not
included in the certification, nor was it attached to the Manifestation. The list was
never submitted to the trial court. The petitioners Manifestation merely informed
the court that it had failed to include the said certification in its formal offer of
exhibits, and that it was submitting the same in compliance with the requirements
of the application. Petitioner did not move to re-open the proceedings to present
the certification in evidence, have it authenticated and subjected to cross-
examination, or have it marked as an exhibit and formally offered in evidence. The
original was never submitted.
The State, through the Director of Lands, entered its formal opposition to the
application, asserting that registration should be denied on the following grounds:
1. [T]hat neither the applicant/nor his/her/their predecessors-in-interest have
been in open[,] continuous[,] ex[c]lusive[,] and notorious possession and
occupation of the land in question since June 12, 1945 or prior thereto[;]
2. [T]hat the muniment/s of title and/or tax declaration/s and tax payment/s
receipt/s of applicant/s if any, attached to or alleged in the application, do/es not
constitute competent and sufficient evidence of a bona-fide acquisition of the
lands applied for or of his/her/their open, continuous, exclusive[,] and notorious
possession and occupation[;]
3. [T]hat the claim of ownership in fee simple on the basis of Spanish Title or
grant can no longer be availed of by the applicant/s who have failed to file an
appropriate application for registration within the period of six (6) months
from February 16, 1976 as required by Presidential Decree No. 892.
[10]
From the
records, it appears that the instant application was filed on November 18, 1996[;]
That the applicant is a private corporation disqualified under the [N]ew Philippine
Constitution to hold alienable lands of the public domain
4. [T]hat the parcel/s applied for in/are portions of the public domain
belonging to the Republic of the Philippines not subject to private
appropriation.
[11]

On January 16, 1998, the trial court rendered its decision granting the
application, and directed the issuance of the respective decrees of registration for
each of the eight parcels of land, all in petitioners name.
WHEREFORE, premises con[s]idered, judgment is hereby rendered
ordering the issuance of title to the lands designated as follows:
[1.] Lot No. 4221 described in the Technical [D]escription (Exhibit L), situated
at San Vicente, Lilo-an, Cebu[,] containing an area of Ten Thousand Two Hundred
[F]orty[-][E]ight (10,248) square meters, more or less;
2. Lot No. 4222 described in the Technical Description (Exhibit T),
situated at Lataban, Lilo-an, Cebu[,] containing an area of Two Thousand [F]our
[H]undred [T]wenty-[O]ne square meters (2,421), more or less;
3. Lot No. 4242 described in the Technical Description (Exhibit AA),
situated at San Vicente, Lilo-an, Cebu, containing an area of Three Thousand Four
Hundred Twenty-Eight (3,428) square meters, more or less;
4. Lot No. 7250 described in the Technical Description (Exhibit MM),
situated at Lataban, Lilo-an, Cebu, containing an area of Forty-Six Thousand Four
Hundred Eighty-Seven (46,487) square meters, more or less;
5. Lot No. 7252 described in the Technical Description (Exhibit XX),
situated at Lataban, Lilo-an, Cebu, containing an area of Seven Thousand Nine
Hundred Thirty-Two (7,932) square meters, more or less;
6. Lot No. 7260 described in the Technical Description (Exhibit QQQ),
situated at Lataban, Lilo-an, Cebu, containing an area of Two Thousand Nine
Hundred Twenty (2,920) square meters, more or less;
7. Lot No. 7264 described in the Technical Description (Exhibit CCC),
situated at Lataban, Lilo-an, Cebu, containing an area of Two Thousand Seven
Hundred Eighty-Seven (2,787) square meters, more or less;
8. Lot No. 7269 described in the Technical Description (Exhibit III),
situated at Barangay Lataban, Lilo-an, Cebu, containing an area of Nine Thousand
Nine Hundred Seventy-Eight (9,978) square meters, more or less;
All in [f]avor and in the name of Gordoland Development Corporation, a corporation
duly organized and existing under and by virtue of Philippine Laws with address
at Suite 801, Ermita Center Building, Roxas Blvd., Manila.
Upon finality of this decision, let the corresponding decree of registration
be issued in favor of applicants in accordance with Section 39, P.D. 1529.
SO ORDERED.
[12]

The State filed its notice of appeal.
Meanwhile, on February 23, 1998, the trial court received a Report
[13]
from
the Land Registration Authority (LRA), Office of the Director, Department on
Registration, which declared that LRA was not in a position to verify whether or
not the subject lands were covered by land patents, or within the area classified as
alienable and disposable. It recommended that the Land Management Bureau
(LMB) in Manila, the CENRO and the Forest Management Bureau (FMB)
in Cebu be ordered to determine and make a finding if the lots were alienable and
disposable.
Thereafter, the trial court, acting upon the LRA report, directed the LMB,
Cebu CENRO and FMB to report on the true status of the lands.
[14]
It did not,
however, recall or suspend its judgment in the main.
On appeal, the Court of Appeals reversed the trial courts decision, upon the
following grounds:
WHEREFORE, finding merit to the appeal of [respondent] Republic of
the Philippines, the Decision rendered by the Regional Trial Court of Mandaue
City, Branch 55 dated January 16, 1998 is hereby REVERSED and SET ASIDE.
No pronouncement as to costs.
SO ORDERED.
[15]

The petitioner moved for reconsideration, but the same was denied. Hence,
the instant petition, raising the following issues:
I.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN DECLARING
THAT THE APPLICATION FOR LAND REGISTRATION AND THE
CERTIFICATION OF NON-FORUM SHOPPING WERE DEFECTIVE FOR
LACK OF AUTHORITY FROM THE CORPORATIONS BOARD OF
DIRECTORS.
II.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN FINDING THAT
PETITIONER FAILED TO PROVE THAT THE SUBJECT PROPERTIES WERE
ALIENABLE AND DISPOSABLE PUBLIC LAND.
III.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN FINDING THAT
PETITIONER AND ITS PREDECESSOR[S]-IN-INTEREST FAILED TO
COMPLY WITH THE 30-YEAR POSSESSION REQUIRED BY LAW.
[16]

Stated simply, the petitioner raises the following issues, to wit: (1) whether
or not its petition for registration is defective; (2) whether or not the subject parcels
of land are alienable and disposable; and (3) whether or not petitioners
predecessors-in-interest were in open, continuous, exclusive and notorious
possession of the properties for a period of at least 30 years.
Petitioner contends that its petition for registration is not defective because the
Rules of Court is not applicable in land registration cases,
[17]
the parcels of land are
alienable and disposable as can be readily gleaned from the annexes to its
application,
[18]
and it presented more than enough documentary and testimonial
evidence to show possession of the subject parcels of land in the nature and duration
required by law, even going way back to World War II.
[19]

On the other hand, respondent contends that petitioners petition for
registration is defective because Atty. Goering G.C.Paderanga, petitioners counsel,
was not authorized by petitioners board of directors to file the application and sign
the certification on non-forum shopping.
[20]
Respondent also contends that petitioner
failed to prove that the subject lands were alienable and disposable public
lands,
[21]
and to present convincing proof that it and its predecessors-in-interest had
been in open, continuous, exclusive and notorious possession of the subject lands in
the concept of an owner for more than 30 years.
[22]

Anent the first issue, this Court has consistently held that the requirement
regarding verification of a pleading is formal, not jurisdictional. Such requirement is
a condition affecting the form of the pleading; non-compliance with this requirement
does not necessarily render the pleading fatally defective. Verification is simply
intended to secure an assurance that the allegations in the pleading are true and
correct and not the product of the imagination or a matter of speculation, and that the
pleading is filed in good faith.
[23]
Further, the purpose of the aforesaid certification
is to prohibit and penalize the evils of forum-shopping. Considering that later on
Atty. Paderangas authority to sign the verification and certificate of non-
forum shopping was ratified
[24]
by the board, there is no circumvention of
the aforestated objectives.
We now go to the second issue. At the outset we note that this issue
involves a question of fact. As a general rule, this Court does not resolve questions
of fact in a petition for review under Rule 45 of the 1997 Rules of Civil
Procedure. When supported by substantial evidence, the findings of fact of the
Court of Appeals are conclusive and binding on the parties and are
not reviewable by this Court, unless the case falls under any of the following
recognized exceptions:
(1) When the conclusion is a finding grounded entirely on speculation, surmises
and conjectures;
(2) When the inference made is manifestly mistaken, absurd or impossible;
(3) Where there is a grave abuse of discretion;
(4) When the judgment is based on a misapprehension of facts;
(5) When the findings of fact are conflicting;
(6) When the Court of Appeals, in making its findings, went beyond the issues
of the case and the same is contrary to the admissions of both appellant
and appellee;
(7) When the findings are contrary to those of the trial court;
(8) When the findings of fact are conclusions without citation of specific
evidence on which they are based;
(9) When the facts set forth in the petition as well as in the petitioners main
and reply briefs are not disputed by the respondents; and
(10) When the findings of fact of the Court of Appeals are premised on the
supposed absence of evidence and contradicted by the evidence on
record.
[25]

Exception (7) as quoted above is present in this case. In its decision the trial
court found that the subject parcels of land were within the alienable and
disposable land of the public domain. On the other hand, the Court of Appeals
found that petitioner had not been able to prove that the subject parcels of land
were indeed alienable and disposable.
[26]

A review of the records shows that the conclusions of the Court of Appeals
are well-founded. There is no evidence on record showing that the subject lots
have already been classified as alienable and disposable.
The CENRO certifications offered in evidence by petitioner, particularly
exhibits DD, OO, ZZ and SSS only similarly, except as to the lot
numbers, state:

This is to certify that according to the records available in this office, Lot Nos.
4221, 7264, 7260, 7270 and 4325, Pls-823, Liloan, Cebu are not covered by any
subsisting public land application.
[27]

There is no mention in any of these certifications that the subject lots are within the
alienable and disposable land of the public domain.
The photocopy of a Certification dated January 10, 1996 from
the Cebu CENRO, attached to petitioners Manifestation before the trial court,
cannot be given any probative value. As suitably explained by the Court of Appeals:
What was attached to the Manifestation quoted above is merely a
photocopy of the Certification dated January 10, 1996 without the list of lot
numbers attached thereto. It does not appear that said Certification was ever
utilized by Gordoland in support of its application, neither was the original copy
or certified true copy thereof ever presented nor submitted to the lower court to
form part of the records of the case. It was not marked and formally offered in
evidence. Evidence not formally offered before the trial court cannot be
considered on appeal, for to consider them at such stage will deny the other
parties their right to rebut them. (Ong v. Court of Appeals, 301 SCRA 387
[1997]). The reason for the rule prohibiting the admission of evidence that has
not been formally offered is to afford the other party the chance to object to their
admissibility (OngChia v. Republic, 328 SCRA 749 [2000]).
It is true that the trial court had noted the said Certification in its
questioned decision of January 16, 1998. Thus:
In resolving the Opposition interposed by the State,And as
certified to by the CENRO, these lots are already within the alienable and
disposable land of the public domain and therefore susceptible to private
appropriation.
Verily, the trial court just adopted entirely the statements embodied in the
said Certification, a photocopied document, which had not been formally offered
in evidence, without inquiring into the supposed attachments thereto, without
examining the contents thereof, and without verifying whether such Certification
really pertained to the lands in question. The trial court simply could not
ascertain such facts, for nowhere in the records can be found the alleged
attachments.
[28]

It must be stressed that incontrovertible evidence must be presented to
establish that the land subject of the application is alienable and disposable.
[29]

In view of the lack of sufficient evidence showing that the subject lots were
already classified as alienable and disposable lands of the government, and when
they were so classified, there is no reference point for counting adverse possession
for purposes of an imperfect title. The Government must first declare the land to
be alienable and disposable agricultural land before the year of entry, cultivation,
and exclusive and adverse possession can be counted for purposes of an imperfect
title.
[30]
Consequently, there is no point in discussing the third issue on the length
of petitioners possession.
In conclusion, we see no reason to disturb the findings of the Court of
Appeals, which we find supported by evidence on record. In our considered view,
the Court of Appeals correctly held that:
The facts and circumstances in the record render untenable
that Gordoland had performed all the conditions essential to reinforce its
application for registration under the Property Registration Decree.
The Court is of the opinion, and so finds, that subject Lot No. 4221, Lot
No. 4222, Lot No. 4242, Lot No. 7250, Lot No. 7252, Lot No. 7260, Lot No.
7264, and Lot No. 7269 form part of the public domain not registrable in the
name of Gordoland. To reiterate, under the Regaliandoctrine, all lands belong to
the State. Unless alienated in accordance with law, it retains its basic rights over
the same as dominus.
[31]

WHEREFORE, the instant petition is DENIED for lack of merit. The
Decision and the Resolution dated January 13, 2003and May 20, 2004,
respectively, of the Court of Appeals which reversed and set aside the Decision
dated January 16, 1998 of the Regional Trial Court, Branch 55, Mandaue City, are
hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.

REPUBLIC OF THE PHILIPPINES, G.R. No. 151910
Petitioner,
Present:

PUNO, C.J., Chairperson,
- versus - SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
GARCIA, JJ.
LUDOLFO V. MUOZ,
Respondent. Promulgated:

October 15, 2007
x ---------------------------------------------------------------------------------------- x

DECISION

AZCUNA, J.:

Before this Court is a Petition for Review on Certiorari, under Rule 45 of
the 1997 Rules of Civil Procedure, seeking to set aside the August 29, 2001
Decision
[1]
of the Court of Appeals (CA) in CA-G.R. CV No. 58170, as well as its
January 29, 2002 Resolution, which affirmed the October 3, 1997 Decision
[2]
of the
Regional Trial Court (RTC) of Ligao, Albay, Branch 13, granting the application
for land registration of respondent Ludolfo V. Muoz.

The following facts prompted the present controversy.

On June 14, 1996, respondent filed an Application for Registration of Title
of a parcel of residential land before the RTC of Ligao, Albay containing an area
of 1,986 square meters situated, bounded, and described as follows:

A PARCEL OF LAND (Lot No. 2276 of the Cadastral Survey of Ligao)
with the building and improvements thereon, situated in the Barrio of
Bagonbayan, Municipality of Ligao, Province of Albay. Bounded on the S.,
along line 1-2, by Lot No. 2277, Ligao Cadastre; on the W., along Line 2-3, by
Mabini Street; on the N., and E., along lines 3-4-5-6-4-7, by Lot 2284; and on the
S., along line 7-8, by Lot 2281; and along line 8-1, by Lot 2278 all of Ligao
Cadastre, containing an area of ONE THOUSAND NINE HUNDRED EIGHTY
SIX (1,986) square meters.
[3]

In his application for registration, respondent averred that no mortgage or
encumbrance of any kind affects his property and that no other person has an
interest, legal or equitable, on the subject lot. Respondent further declared that the
property was acquired by donation inter vivos, executed by the spouses Apolonio
R. Muoz and Anastacia Vitero on November 18, 1956, and that the spouses and
their predecessors-in-interest have been in possession thereof since time
immemorial for more than 70 years.

On November 7, 1996, petitioner Republic of the Philippines, through the
Office of the Solicitor General (OSG), opposed the application on the following
grounds:

(1) That neither the applicant nor his predecessors-in-interest have
been in open, continuous, exclusive and notorious possession and occupation of
the land in question since June 12, 1945 or prior thereto (Sec. 48[b], C.A. 141 as
amended by P.D. 1073).

(2) That the muniment/s of title and/or the tax payment/s receipt/s of
application/s, if any, attached to or alleged in the application, do not constitute
competent and sufficient evidence of a bona fide acquisition of the lands
acquired for or his open, continuous, exclusive and notorious possession and
occupation thereof in the concept of owner since June 12, 1945 or prior thereto.
Said muniment/s of title as well as the title do not appear to be genuine and that
the tax declaration/s and/or tax payment receipt/s indicate the pretended
possession of application to be of recent vintage.

(3) That the claim of ownership in fee simple on the basis of Spanish
title or grant can no longer be availed of by the applicant who has failed to file an
appropriate application for registration within the period of six (6) months from
February 16, 1976 as required by P.D. No. 892. From the records, it appears that
the instant application was recently filed.

(4) That the parcel applied for is part of the public domain belonging
to the Republic of the Philippines not subject to private appropriation.

(5) That this application was filed beyond December 31, 1987, the
period set forth under Sec. 2, P.D. No. 1073 and therefore, is filed out of time.
[4]

In respondents Answer to Opposition, he professed that the land in question
is a residential lot originally owned and possessed by Paulino Pulvinar and
Geronimo Lozada. Sometime in April 1917, Pulvinar sold his share of the
unregistered land to the spouses Muoz and Vitero, respondents parents. In June
1920, Lozada likewise sold his remaining part to the parents of respondent.
Thereafter, the ownership and possession of the property were consolidated by the
spouses and declared for taxation purposes in the name of Muoz in 1920.
Furthermore, it was stated that during the cadastral survey conducted in Ligao,
Albay in 1928, the land was designated as Lot No. 2276, as per Survey
Notification Card issued to Muoz dated October 2, 1928. Finally, respondent
contended that from 1920 up to 1996, the time of application, the land taxes for the
property had been fully paid.

On February 6, 1997, an Order of General Default
[5]
was entered by the trial
court against the whole world except for the government and a certain Alex
Vasquez, who appeared during the scheduled initial hearing stating that he would
file an opposition to the application.
In the Opposition
[6]
filed by Vasquez dated February 19, 1997, he declared
that he owns parcels of land, Lot Nos. 2284-A-2 and 2275, adjoining that of the
subject matter of the application. He added that certain portions of his lands are
included in the application as respondents concrete fence is found within the area
of his lots.

Respondent, in his answer to the opposition,
[7]
alleged that his property,
Lot No. 2276, is covered by a technical description, duly certified correct by the
Bureau of Lands and approved for registration by the Land Registration Authority
(LRA), which specified the exact areas and boundaries of Lot No. 2276. Granting
that there is an encroachment to the oppositors adjoining land, respondent
reasoned that it is not for the court a quo, sitting as a Land Registration Court, to
entertain the opposition because the case should be ventilated in a separate
proceeding as an ordinary civil case.

During the trial, respondent was presented as the sole witness. Respondent,
who was 81 years old at that time, testified that he acquired the property in 1956
when his parents donated the same to him.
[8]
He presented as Exhibit H
[9]
Tax
Declaration No. 048-0267, evidencing the payment of realty taxes for Lot No.
2276 in 1997. A Certification from the Office of the Municipal Treasurer
[10]
was
likewise introduced by the respondent showing the payment of real estate taxes
from 1956 up to the year 1997. He further declared that the property is a residential
land with improvements such as a house made of solid materials and fruit-bearing
trees. In 1957, respondent told the court that he constructed a concrete wall
surrounding the entire property. Respondent also narrated that he grew up on the
subject lot and spent his childhood days in the area.
[11]

On cross-examination, respondent claimed that he has six brothers and
sisters, none of whom are claiming any interest over the property.
[12]

On June 16, 1997, the trial court noted
[13]
a Report
[14]
submitted by the
Director of Lands, which informed the court that as per records of the Land
Management Bureau in Manila, Lot No. 2276, CAD-239 is covered by Free Patent
Application No. 10-2-664 of Anastacia Vitero.

The RTC rendered a Decision dated October 3, 1997 granting the
application for registration. The dispositive portion of the decision reads:

WHEREFORE, decision is hereby rendered finding the petitioner
entitled to registration. Accordingly, after the finality of this decision, let a
decree and, thereafter the corresponding certificate of title over Lot No. 2276 of
the Ligao Cadastre as delimited by the Technical Description, Annex A-2 of the
application, together with the improvements thereon, issue in the name of
LUDOLFO Y. MUOZ, of legal age, Filipino citizen, married to JOSEFINA
PALENCIA, of Mabini Street, Barangay Tinago, Municipality of Ligao,
Province of Albay.

Conformably with the above findings, as prayed for by the Director,
Department of Registration, Land Registration Authority in his Report dated
March 6, 1997, the application, if any, in Cad. Case No. 53, Cadastral Record
No. 1404 is hereby ordered dismissed.

The opposition of Alex Vasquez for lack of merit is hereby ordered
dismissed.

Let copy of this Decision be furnished the Office of the Solicitor
General, Provincial Prosecutor of Albay, Oppositor Alez Vasquez and Petitioner.

SO ORDERED.
[15]

On appeal, petitioner argued that the trial court did not acquire jurisdiction
over the subject lot because: (1) the notice of initial hearing was not timely filed;
(2) the applicant failed to present the original tracing cloth plan of the property
sought to be registered during the trial; and (3) the applicant failed to present
evidence that the land is alienable and disposable.

Subsequently, the CA affirmed the decision of the court a quo. The
appellate court explained that there was conclusive proof that the jurisdictional
requirement of due notice had been complied with as mandated under Section 24
of Presidential Decree No. 1529. Furthermore, the failure to present in evidence the
tracing cloth plan of the subject property did not deprive the lower court of its
jurisdiction to act on the application in question. Lastly, the CA ruled that
respondent need not adduce documentary proof that the disputed property had been
declared alienable and disposable for the simple reason that the lot had once been
covered by free patent application; hence, this alone is conclusive evidence that the
property was already declared by the government as open for public disposition.

The petitioner, through the OSG, raises the following grounds for the
petition:

I.
THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE TRIAL
COURT HAS NOT ACQUIRED JURISDICTION OVER THE CASE.

II.
PRIVATE RESPONDENT HAS NOT PROVEN BY COMPETENT
EVIDENCE THAT THE PROPERTY IS ALIENABLE AND DISPOSABLE
PROPERTY OF THE PUBLIC DOMAIN.
[16]

Anent the first issue, petitioner maintains that the failure to present the
original tracing cloth plan is a fatal omission which necessarily affected the trial
courts jurisdiction to proceed with the case.

It bears stressing that the constructive seizure of land accomplished by
posting of notices and processes upon all persons mentioned in notices by means of
publication and sending copies to said persons by registered mail in effect gives
the court jurisdiction over the lands sought to be registered.
[17]

While petitioner correctly contends that the submission in evidence of the
original tracing cloth plan is a mandatory and even a jurisdictional requirement,
this Court has recognized instances of substantial compliance with this rule.
[18]
It is
true that the best evidence to identify a piece of land for registration purposes is the
original tracing cloth plan from the Bureau of Lands, but blueprint copies and other
evidence could also provide sufficient identification.
[19]
In the present application
for registration, respondent submitted, among other things, the following
supporting documents: (1) a blueprint copy of the survey plan
[20]
approved by the
Bureau of Lands; and (2) the technical descriptions
[21]
duly verified and approved
by the Director of Lands.

The Court held in Recto v. Republic
[22]
that the blueprint copy of the cloth
plan together with the lots technical description duly certified as to their
correctness by the Bureau of Lands are adequate to identify the land applied for
registration, thus

On the first challenge, the petitioner invokes the case of Director of
Lands v. Reyes, where it was held that the original tracing cloth plan of the land
applied for which must be approved by the Director of Lands was a statutory
requirement of mandatory character for the identification of the land sought to
be registered. As what was submitted was not the tracing cloth plan but only the
blueprint copy of the survey plan, the respondent court should have rejected the
same as insufficient.

We disagree with this contention. The Court of Appeals was correct when
it observed that in that case the applicant in effect had not submitted anything at
all to identify the subject property because the blueprint presented lacked the
approval of the Director of Lands. By contrast

In the present case, there was considerable compliance
with the requirement of the law as the subject property was
sufficiently identified with the presentation of blueprint copy of
Plan AS-06-000002 (San Pedro v. Director of Lands, CA-G.R.
No. 65332-R, May 28, 1981). It should be noted in this
connection that the Bureau of Lands has certified to the
correctness of the blueprint copy of the plan including the
technical description that go with it. Hence, we cannot ignore the
fact, absent in the Reyes case, that applicant has provided ample
evidence to establish the identity of the subject
property. (Emphasis supplied)

x x x.
[23]

Moreover, if the survey plan is approved by the Director of Lands and its
correctness has not been overcome by clear, strong and convincing evidence, the
presentation of the tracing cloth plan may be dispensed with.
[24]
All the evidence
on record sufficiently identified the property as the one applied for by respondent,
and containing the corresponding metes and bounds as well as area. Consequently,
the original tracing cloth plan need not be presented in evidence.
[25]

Anent the second issue, petitioner stresses that in proving the alienable and
disposable nature of the property, there has to be a certification from the
Department of Environment and Natural Resources and Community Environment
and Natural Resources Office (CENRO).

The CA is of the opinion that respondent need not adduce documentary
proofs that the disputed property has been declared alienable and disposable
because of the fact that it had once been covered by Free Patent Application No.
10-2-664 in the name of respondents mother, which was unfortunately not acted
upon by the proper authorities. The CA declares that this is proof enough that the
property was declared by the government as open for public disposition. This
contention was adopted by the respondent both in his Comment and Memorandum
filed before the Court.

Notwithstanding all the foregoing, the Court cannot sustain the argument of
respondent that the subject property was already declared alienable and disposable
land.

Petitioner is correct when it remarked that it was erroneous for the appellate
court to assume that the property in question is alienable and disposable based only
on the Report dated May 21, 1997 of the Director of Lands indicating that the
land involved in said case described as Lot 2276, CAD-239 is covered by Free
Patent Application No. 10-2-664 of Anastacia Vitero.

It must be pointed out that in its Report
[26]
dated March 6, 1997, the LRA
stated that:

3. This Authority is not in a position to verify whether or not the
parcel of land subject of registration is already covered by land
patent, previously approved isolated survey and is within forest zone.

WHEREFORE, to avoid duplication in the issuance of titles covering the
same parcel of land and the issuance of titles for lands within the forest zone
which have not been released and classified as alienable, the foregoing is
respectfully submitted to the Honorable Court with therecommendation that
the Lands Management Bureau, Manila, Community Environment and
Natural Resources Office, Lands Management Sector and Forest
Management Bureau, all in Legazpi City, be ordered to submit a report to
the Court on the status of the land applied for, to determine whether or not
said land or any portion thereof, is already covered by land patent,
previously approved isolated survey and is within the forest zone and that
should the instant application be given due course, the application in Cad. Case
No. 53, Cadastral Record No. 1404 with respect to Lot 2276 be dismissed.
[27]

Noteworthy is the fact that neither the Director of Lands nor the LRA
attested that the land subject of this proceeding is alienable or disposable.

For clarity, applications for confirmation of imperfect title must be able to
prove the following: (1) that the land forms part of the alienable and disposable
agricultural lands of the public domain; and (2) that they have been in open,
continuous, exclusive and notorious possession and occupation of the same under a
bona fide claim of ownership either since time immemorial or since June 12,
1945.
[28]

Commonwealth Act No. 141, also known as the Public Land Act, remains to
this day the existing general law governing the classification and disposition of
lands of the public domain, other than timber and mineral lands.
[29]
Section 6 of
CA No. 141empowers the President to classify lands of the public domain
into alienable and disposable lands of the public domain, which prior to such
classification are inalienable and outside the commerce of man. Section 7 of CA
No. 141 authorizes the President to declare what lands are open to disposition or
concession. Section 8 of CA No. 141 states that the government can declare open
for disposition or concession only lands that are officially delimited and
classified.

Under the Regalian doctrine embodied in our Constitution, all lands of the
public domain belong to the State, which is the source of any asserted right to
ownership of land. Therefore, all lands not appearing to be clearly within private
ownership are presumed to belong to the State. Accordingly, public lands not
shown to have been reclassified or released as alienable agricultural land or
alienated to a private person by the State remain part of the alienable public
domain.
[30]

As already well-settled in jurisprudence, no public land can be acquired by
private persons without any grant, express or implied, from the government; and it
is indispensable that the person claiming title to public land should show that his
title was acquired from the State or any other mode of acquisition recognized by
law.
[31]
To prove that the land subject of an application for registration is alienable,
the applicant must establish the existence of a positive act of the government such
as a presidential proclamation or an executive order; an administrative action;
investigation reports of Bureau of Lands investigators; and a legislative act or a
statute.
[32]
The applicant may also secure a certification from the Government that
the land applied for is alienable and disposable.
[33]

In the present case, respondent failed to submit a certification from the
proper government agency to prove that the land subject for registration is indeed
alienable and disposable. A CENRO certificate, which respondent failed to secure,
could have evidenced the alienability of the land involved.

Considering that respondent has failed to convince this Court of the
alienable and disposable character of the land applied for, the Court cannot
approve the application for registration.

WHEREFORE, the instant petition is GRANTED. Accordingly,
the decision dated August 29, 2001 of the Court of Appeals in CA-G.R. CV
No. 58170, as reiterated in its resolution of January 29, 2002,
is REVERSED and SET ASIDE, and the application for registration filed by
respondent Ludolfo V. Muoz is DENIED.

No costs.

SO ORDERED.

SECOND DIVISION

RURAL BANK OF ANDA, INC.,
Petitioner,

- versus -

ROMAN CATHOLIC
ARCHBISHOP OF LINGAYEN-
DAGUPAN,
Respondent.
G.R. No. 155051

Present:

QUISUMBING, J.,
Chairperson,
CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.

Promulgated:

May 29, 2007
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

D E C I S I O N

CARPIO, J .:

The Case

This is a petition for review
[1]
of the Decision
[2]
dated 15 October 2001 and
the Resolution dated 23 August 2002 of the Court of Appeals in CA-G.R. CV No.
66478.

The Facts

The lot in dispute, Cadastral Lot 736 (Lot 736), is located in the Poblacion of
Binmaley, Pangasinan. Lot 736 has a total area of about 1,300 square meters and is
part of Lot 3. Cadastral Lot 737 and Lot 739 also form part of Lot 3. Cadastral Lot
737 is known as Imeldas Park, while on Lot 739 is a waiting shed for commuters.
Lot 3 is bounded on the north by Lot 1 of Plan II-5201-A and on the south by the
national road. In front of Lot 736 is the building of Mary Help of Christians
Seminary (seminary) which is on Lot 1.

Lot 1 of Plan II-5201-A, which adjoins Lot 3 on the north, is titled in the
name of respondent Roman Catholic Archbishop of Lingayen (respondent) under
Transfer Certificate of Title No. 6375 (TCT 6375). An annotation on TCT 6375
states that the ownership of Lot 3 is being claimed by both respondent and the
Municipality of Binmaley.

In 1958, the Rector of the seminary ordered the construction of the fence
separating Lot 736 from the national road to prevent the caretelas from parking
because the smell of horse manure was already bothering the priests living in the
seminary.
[3]
The concrete fence enclosing Lot 736 has openings in the east, west,
and center and has no gate. People can pass through Lot 736 at any time of the
day.
[4]

On 22 December 1997, the Sangguniang Bayan of Binmaley, Pangasinan,
passed and approved Resolution Nos. 104
[5]
and 105.
[6]
Resolution No. 104
converted Lot 736 from an institutional lot to a commercial lot. Resolution No.
105 authorized the municipal mayor to enter into a contract of lease for 25 years
with the Rural Bank of Anda over a portion of Lot 736 with an area of 252 square
meters.
[7]

In December 1997, Fr. Arenos, the director of the seminary, discovered that
a sawali fence was being constructed enclosing a portion of Lot 736. In January
1998, the Municipal Mayor of Binmaley, Rolando Domalanta (Mayor Domalanta),
came to the seminary to discuss the situation. Mayor Domalanta and Fr. Arenos
agreed that the construction of the building for the Rural Bank of Anda should be
stopped.

On 24 March 1998, respondent requested Mayor Domalanta to remove the
sawali fence and restore the concrete fence. On20 May 1998, Mayor Domalanta
informed respondent that the construction of the building of the Rural Bank of
Anda would resume but that he was willing to discuss with respondent to resolve
the problem concerning Lot 736.

On 1 June 1998, respondent filed a complaint for Abatement of Illegal
Constructions, Injunction and Damages with Writ of Preliminary Injunction in the
Regional Trial Court of Lingayen, Pangasinan. On 24 August 1998, the trial court
ordered the issuance of a writ of preliminary injunction.

On 4 January 2000, the trial court rendered a decision, the dispositive
portion of which reads:

WHEREFORE, in the light of the foregoing, judgment is hereby
rendered in favor of the plaintiff [Roman Catholic Archbishop of
Lingayen-Dagupan]:

1. Making the writ of preliminary injunction permanent;

2. Ordering the defendants to cause to be restored the concrete
wall with iron railings, to cause to be removed the sawali
fence, both at the expense of the defendants, jointly and
severally, and

3. Condemning the defendants to pay jointly and severally, to the
plaintiff the amount of P25,000.00 as litigation expenses,
attorneys fees in the amount of P50,000.00 and the costs of
this suit.

SO ORDERED.
[8]

On appeal, the Court of Appeals affirmed the decision with the modification
that the awards of litigation expenses, attorneys fees, and costs should be deleted.
The Court of Appeals subsequently denied the motion for reconsideration of
the Municipality ofBinmaley and the Rural Bank of Anda.

The Ruling of the Trial Court

The trial court found that Lot 736 is not covered by any Torrens title either
in the name of respondent or in the name of theMunicipality of Binmaley. The
trial court held that Lot 736 is public in nature. Since Lot 736 is property of public
dominion, it is outside the commerce of man. Thus, the Sangguniang Bayan of
Binmaley, Pangasinan exceeded its authority when it adopted Resolution Nos. 104
and 105 converting Lot 736 from an institutional lot to a commercial lot and
authorizing the municipal mayor to enter into a contract of lease for 25 years with
the Rural Bank of Anda over a 252 square meter portion of Lot 736 .

The Ruling of the Court of Appeals

The Court of Appeals agreed with the trial court that Lot 736 is property of
public dominion and is used by the public as a pathway. Respondent and the
Municipality of Binmaley are mere claimants with no sufficient evidence to prove
their ownership ofLot 736. The Court of Appeals held that property of public
dominion is intended for the common welfare and cannot be the object of
appropriation either by the state or by private persons. Since Lot 736 is for public
use, it is a property of public dominion and it is not susceptible of private
ownership. Thus, Resolution Nos. 104 and 105 are void for being enacted beyond
the powers of the Sangguniang Bayan of Binmaley. The contract of lease between
the Municipality of Binmaley and the Rural Bank of Anda is therefore void.

The Court of Appeals also ruled that since neither the respondent nor
the Municipality of Binmaley owns Lot 736, there is no basis for the monetary
awards granted by the trial court.

The Issue

The issue in this case is whether Resolution Nos. 104 and 105 of
the Sangguniang Bayan of Binmaley are valid.

The Ruling of the Court

The petition has no merit.

Both respondent and the Municipality of Binmaley admit that they do not
have title over Lot 736. The Assistant Chief of the Aggregate Survey Section of
the Land Management Services in Region I testified that no document of
ownership for Lot 736 was ever presented to their office.
[9]

Respondent claims Lot 736 based on its alleged open, continuous, adverse,
and uninterrupted possession of Lot 736. However, the records reveal otherwise.
Even the witnesses for respondent testified that Lot 736 was used by the people as
pathway, parking space, and playground.
[10]

On the other hand, the Municipality of Binmaley alleged that it is the sole
claimant of Lot 736 based on the Property Identification Map, Tax Mapping
Control Roll of the Municipality of Binmaley, and the Lot Data Computation in the
name of the Municipality of Binmaley. However, these documents merely show
that the Municipality of Binmaley is a mere claimant of Lot 736. In fact, the chief
of Survey Division of the Department of Environment and Natural Resources, San
Fernando City, La Union testified that the cadastral survey
[11]
of Lot 736, which
was surveyed for the Municipality of Binmaley in 1989, had not been
approved.
[12]
The cadastral survey was based on the Lot Data Computation
[13]
of
Lot 736 which was likewise contracted by the Municipality of Binmaley in 1989.

The records show that Lot 736 is used as a pathway going to the school, the
seminary, or the church, which are all located on lots adjoined to Lot 736.
[14]
Lot
736 was also used for parking and playground.
[15]
In other words, Lot 736 was used
by the public in general.

Both respondent and the Municipality of Binmaley failed to prove their right
over Lot 736. Since Lot 736 has never been acquired by anyone through purchase
or grant or any other mode of acquisition, Lot 736 remains part of the public
domain and is owned by the state. As held in Hong Hok v. David:
[16]

There being no evidence whatever that the property in question was ever
acquired by the applicants or their ancestors either by composition title
from the Spanish Government or by possessory information title or by
any other means for the acquisition of public lands, the property must be
held to be public domain. For it is well settled that no public land can be
acquired by private persons without any grant, express or implied, from
the government. It is indispensable then that there be a showing of a
title from the state or any other mode of acquisition recognized by law.
The most recent restatement of the doctrine, found in an opinion of
Justice J.B.L. Reyes follows: The applicant, having failed to establish
his right or title over the northern portion of Lot No. 463 involved in the
present controversy, and there being no showing that the same has been
acquired by any private person from the Government, either by purchase
or by grant, the property is and remains part of the public domain.

This is in accordance with the Regalian doctrine which holds that the state
owns all lands and waters of the public domain.
[17]
Thus, under Article XII, Section
2 of the Constitution: 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.

Municipal corporations cannot appropriate to themselves public or
government lands without prior grant from the government.
[18]
Since Lot 736 is
owned by the state, the Sangguniang Bayan of Binmaley exceeded its authority in
passing Resolution Nos. 104 and 105. Thus, Resolution Nos. 104 and 105 are void
and consequently, the contract of lease between the Municipality of Binmaley and
the Rural Bank of Anda over a portion of Lot 736 is also void.

WHEREFORE, we DENY the petition. We AFFIRM the Decision dated
15 October 2001 and the Resolution dated 23 August 2002 of the Court of
Appeals.

SO ORDERED.

G.R. No. 134209 January 24, 2006
REPUBLIC OF THE PHILIPPINES, Petitioner,
vs.
CELESTINA NAGUIAT, Respondent.
D E C I S I O N
GARCIA, J .:
Before the Court is this petition for review under Rule 45 of the Rules of Court seeking the reversal
of the Decision
1
dated May 29, 1998 of the Court of Appeals (CA) in CA-G.R. CV No. 37001 which
affirmed an earlier decision
2
of the Regional Trial Court at Iba, Zambales, Branch 69 in Land
Registration Case No. N-25-1.
The decision under review recites the factual backdrop, as follows:
This is an application for registration of title to four (4) parcels of land located in Panan, Botolan,
Zambales, more particularly described in the amended application filed by Celestina Naguiat on 29
December 1989 with the Regional Trial Court of Zambales, Branch 69. Applicant [herein respondent]
alleges, inter alia, that she is the owner of the said parcels of land having acquired them by purchase
from the LID Corporation which likewise acquired the same from Demetria Calderon, Josefina
Moraga and Fausto Monje and their predecessors-in-interest who have been in possession thereof
for more than thirty (30) years; and that to the best of her knowledge, said lots suffer no mortgage or
encumbrance of whatever kind nor is there any person having any interest, legal or equitable, or in
possession thereof.
On 29 June 1990, the Republic of the Philippines [herein petitioner]. . . filed an opposition to the
application on the ground that neither the applicant nor her predecessors-in interest have been in
open, continuous, exclusive and notorious possession and occupation of the lands in question since
12 June 1945 or prior thereto; that the muniments of title and tax payment receipts of applicant do
not constitute competent and sufficient evidence of a bona-fide acquisition of the lands applied for or
of his open, continuous, exclusive and notorious possession and occupation thereof in the concept
of (an) owner; that the applicants claim of ownership in fee simple on the basis of Spanish title or
grant can no longer be availed of . . .; and that the parcels of land applied for are part of the public
domain belonging to the Republic of the Philippines not subject to private appropriation.
On 15 October 1990, the lower court issued an order of general default as against the whole world,
with the exception of the Office of the Solicitor General, and proceeded with the hearing of this
registration case.
After she had presented and formally offered her evidence . . . applicant rested her case. The
Solicitor General, thru the Provincial Prosecutor, interposed no objection to the admission of the
exhibits. Later . . . the Provincial Prosecutor manifest (sic) that the Government had no evidence to
adduce.
3

In a decision
4
dated September 30, 1991, the trial court rendered judgment for herein respondent
Celestina Naguiat, adjudicating unto her the parcels of land in question and decreeing the
registration thereof in her name, thus:
WHEREFORE, premises considered, this Court hereby adjudicates the parcels of land situated in
Panan, Botolan, Zambales, appearing on Plan AP-03-003447 containing an area of 3,131 square
meters, appearing on Plan AP-03-003446 containing an area of 15,322 containing an area of 15,387
square meters to herein applicant Celestina T. Naguiat, of legal age, Filipino citizen, married to
Rommel Naguiat and a resident of Angeles City, Pampanga together with all the improvements
existing thereon and orders and decrees registration in her name in accordance with Act No. 496,
Commonwealth Act No. 14, [should be 141] as amended, and Presidential Decree No. 1529. This
adjudication, however, is subject to the various easements/reservations provided for under pertinent
laws, presidential decrees and/or presidential letters of instructions which should be annotated/
projected on the title to be issued. And once this decision becomes final, let the corresponding
decree of registration be immediately issued. (Words in bracket added)
With its motion for reconsideration having been denied by the trial court, petitioner Republic went on
appeal to the CA in CA-G.R. CV No. 37001.
As stated at the outset hereof, the CA, in the herein assailed decision of May 29, 1998, affirmed that
of the trial court, to wit:
WHEREFORE, premises considered, the decision appealed from is hereby AFFIRMED.
SO ORDERED.
Hence, the Republics present recourse on its basic submission that the CAs decision "is not in
accordance with law, jurisprudence and the evidence, since respondent has not established with the
required evidence her title in fee simple or imperfect title in respect of the subject lots which would
warrant their registration under (P.D. 1529 or Public Land Act (C.A.) 141." In particular, petitioner
Republic faults the appellate court on its finding respecting the length of respondents occupation of
the property subject of her application for registration and for not considering the fact that she has
not established that the lands in question have been declassified from forest or timber zone to
alienable and disposable property.
Public forest lands or forest reserves, unless declassified and released by positive act of the
Government so that they may form part of the disposable agricultural lands of the public domain, are
not capable of private appropriation.
5
As to these assets, the rules on confirmation of imperfect title
do not apply.
6
Given this postulate, the principal issue to be addressed turns on the question of
whether or not the areas in question have ceased to have the status of forest or other inalienable
lands of the public domain.
Forests, in the context of both the Public Land Act
7
and the Constitution
8
classifying lands of the
public domain into "agricultural, forest or timber, mineral lands and national parks," do not
necessarily refer to a large tract of wooded land or an expanse covered by dense growth of trees
and underbrush. As we stated in Heirs of Amunategui
9
-
A forested area classified as forest land of the public domain does not lose such classification simply
because loggers or settlers have stripped it of its forest cover. Parcels of land classified as forest
land may actually be covered with grass or planted to crops by kaingin cultivators or other farmers.
"Forest lands" do not have to be on mountains or in out of the way places. xxx. The classification is
merely descriptive of its legal nature or status and does not have to be descriptive of what the land
actually looks like. xxx
Under Section 2, Article XII of the Constitution,
10
which embodies the Regalian doctrine, all lands of
the public domain belong to the State the source of any asserted right to ownership of land.
11
All
lands not appearing to be clearly of private dominion presumptively belong to the
State.
12
Accordingly, public lands not shown to have been reclassified or released as alienable
agricultural land or alienated to a private person by the State remain part of the inalienable public
domain.
13
Under Section 6 of the Public Land Act, the prerogative of classifying or reclassifying lands
of the public domain, i.e., from forest or mineral to agricultural and vice versa, belongs to the
Executive Branch of the government and not the court.
14
Needless to stress, the onus to overturn, by
incontrovertible evidence, the presumption that the land subject of an application for registration is
alienable or disposable rests with the applicant.
15

In the present case, the CA assumed that the lands in question are already alienable and
disposable. Wrote the appellate court:
The theory of [petitioner] that the properties in question are lands of the public domain cannot be
sustained as it is directly against the above doctrine. Said doctrine is a reaffirmation of the principle
established in the earlier cases . . . that open, exclusive and undisputed possession of alienable
public land for period prescribed by law creates the legal fiction whereby the land, upon completion
of the requisite period, ipso jure and without the need of judicial or other sanction, ceases to be
public land and becomes private property . (Word in bracket and underscoring added.)
The principal reason for the appellate courts disposition, finding a registerable title for respondent, is
her and her predecessor-in-interests open, continuous and exclusive occupation of the subject
property for more than 30 years. Prescinding from its above assumption and finding, the appellate
court went on to conclude, citing Director of Lands vs. Intermediate Appellate Court
(IAC)
16
and Herico vs. DAR,
17
among other cases, that, upon the completion of the requisite period of
possession, the lands in question cease to be public land and become private property.
Director of Lands, Herico and the other cases cited by the CA are not, however, winning cards for
the respondent, for the simple reason that, in said cases, the disposable and alienable nature of the
land sought to be registered was established, or, at least, not put in issue. And there lies the
difference.
Here, respondent never presented the required certification from the proper government agency or
official proclamation reclassifying the land applied for as alienable and disposable. Matters of land
classification or reclassification cannot be assumed. It calls for proof.
18
Aside from tax receipts,
respondent submitted in evidence the survey map and technical descriptions of the lands, which,
needless to state, provided no information respecting the classification of the property. As the Court
has held, however, these documents are not sufficient to overcome the presumption that the land
sought to be registered forms part of the public domain.
19

It cannot be overemphasized that unwarranted appropriation of public lands has been a notorious
practice resorted to in land registration cases.
20
For this reason, the Court has made it a point to
stress, when appropriate, that declassification of forest and mineral lands, as the case may be, and
their conversion into alienable and disposable lands need an express and positive act from the
government.
21

The foregoing considered, the issue of whether or not respondent and her predecessor-in-interest
have been in open, exclusive and continuous possession of the parcels of land in question is now of
little moment. For, unclassified land, as here, cannot be acquired by adverse occupation or
possession; occupation thereof in the concept of owner, however long, cannot ripen into private
ownership and be registered as title.
22

WHEREFORE, the instant petition is GRANTED and the assailed decision dated May 29, 1998 of
the Court of Appeals in CA-G.R. CV No. 37001 is REVERSED and SET ASIDE. Accordingly,
respondents application for original registration of title in Land Registration Case No. N-25-1 of the
Regional Trial Court at Iba, Zambales, Branch 69, is DENIED.
No costs.
Petitioner,

-versus-

G.R. No. 171631

Present:

CARPIO, J., Chairperson,
CARPIO-MORALES,
*

PERALTA,
ABAD, and
MENDOZA, JJ.

AVELINO R. DELA PAZ, ARSENIO R.
DELA PAZ, JOSE R. DELA PAZ,and
GLICERIO R. DELA PAZ, represented by
JOSE R. DELA PAZ,
Respondents.

Promulgated:

November 15, 2010
x-----------------------------------------------------------------------------------------x

DECISION

PERALTA, J.:

Before this Court is a petition for review on certiorari under Rule 45 of the
Rules of Court seeking to set aside the Decision
[1]
of the Court of Appeals (CA),
dated February 15, 2006, in CA-G.R. CV No. 84206, which affirmed the
Decision
[2]
of the Regional Trial Court (RTC) of Pasig City, Branch 167, in LRC
Case No. N-11514, granting respondents application for registration and
confirmation of title over a parcel of land located in Barangay Ibayo, Napindan,
Taguig, Metro Manila.
The factual milieu of this case is as follows:

On November 13, 2003, respondents Avelino R. dela Paz, Arsenio R. dela
Paz, Jose R. dela Paz, and Glicerio R. dela Paz, represented by Jose R. dela Paz
(Jose), filed with the RTC of Pasig City an application for registration of
land
[3]
under Presidential Decree No. 1529 (PD 1529) otherwise known as
the Property Registration Decree. The application covered a parcel of land with
an area of 25,825 square meters, situated at Ibayo, Napindan, Taguig, Metro
Manila, described under survey Plan Ccn-00-000084, (Conversion Consolidated
plan of Lot Nos. 3212 and 3234, MCADM 590-D, Taguig Cadastral Mapping).
Together with their application for registration, respondents submitted the
following documents: (1) Special power of attorney showing that the respondents
authorized Jose dela Paz to file the application; (2) Conversion Consolidated plan
of Lot Nos. 3212 and 3234, MCADM 590-D, Taguig Cadastral Mapping (Ccn-00-
000084) with the annotation that the survey is inside L.C. Map No. 2623 Proj. No.
27-B classified as alienable/disposable by the Bureau of Forest Development,
Quezon City on January 03, 1968; (3) Technical Descriptions of Ccn-00-000084;
(4) Geodetic Engineer's Certificate; (5) Tax Declaration No. FL-018-01466;
(6) Salaysay ng Pagkakaloob dated June 18, 1987; (7) Sinumpaang Pahayag sa
Paglilipat sa Sarili ng mga Pagaari ng Namatay dated March 10, 1979; (8)
Certification that the subject lots are not covered by any land patent or any public
land appilcation; and (9) Certification by the Office of the Treasurer, Municipality
of Taguig, Metro Manila, that the tax on the real property for the year 2003 has
been paid.

Respondents alleged that they acquired the subject property, which is an
agricultural land, by virtue of Salaysay ng Pagkakaloob
[4]
dated June 18, 1987,
executed by their parents Zosimo dela Paz and Ester dela Paz (Zosimo and Ester),
who earlier acquired the said property from their deceased parent Alejandro dela
Paz (Alejandro) by virtue of a Sinumpaang Pahayag sa Paglilipat sa Sarili ng mga
Pag-aari ng Namatay
[5]
dated March 10, 1979. In their application, respondents
claimed that they are co-owners of the subject parcel of land and they have been
in continuous, uninterrupted, open, public, adverse possession of the same, in the
concept of owner since they acquired it in 1987. Respondents further averred
that by way of tacking of possession, they, through their predecessors-in-interest
have been in open, public, adverse, continuous, and uninterrupted possession of
the same, in the concept of an owner even before June 12, 1945, or for a period
of more than fifty (50) years since the filing of the application of registration with
the trial court. They maintained that the subject property is classified as alienable
and disposable land of the public domain.

The case was set for initial hearing on April 30, 2004. On said date,
respondents presented documentary evidence to prove compliance with the
jurisdictional requirements of the law.

Petitioner Republic of the Philippines (Republic), through the Office of the
Solicitor General (OSG), opposed the application for registration on the following
grounds, among others: (1) that neither the applicants nor their predecessors-in-
interest have been in open, continuous, exclusive and notorious possession and
occupation of the land in question for a period of not less than thirty (30) years;
(2) that the muniments of title, and/or the tax declarations and tax payments
receipts of applicants, if any, attached to or alleged in the application, do not
constitute competent and sufficient evidence of bona fide acquisition of the land
applied for; and (3) that the parcel of land applied for is a portion of public
domain belonging to the Republic not subject to private appropriation. Except for
the Republic, there was no other oppositor to the application.

On May 5, 2004, the trial court issued an Order of General Default
[6]
against
the whole world except as against the Republic. Thereafter, respondents
presented their evidence in support of their application.

In its Decision dated November 17, 2004, the RTC granted respondents'
application for registration of the subject property. The dispositive portion of the
decision states:

WHEREFORE, affirming the order of general default hereto entered, judgment is
hereby rendered AFFIRMING and CONFIRMING the title of AVELINO R. DELA PAZ,
Arsenio R. dela Paz, Jose R. dela Paz and Glicerio R. dela Paz, all married and residents
of and with postal address at No. 65 Ibayo, Napindan, Taguig, Metro Manila, over a
parcel of land described and bounded under Plan Ccn-00-000084 (consolidation of Lots
No. 3212 and 3234, Mcadm-590-D, Taguig, Cadastral Mapping, containing Twenty-Five
Thousand Eight Hundred Twenty-Five (25,825) Square Meters, more or less, situated at
Barangay Ibayo, Napindan, Taguig, Metro Manila, under the operation of P.D. 1529,
otherwise known as the Property Registration Decree.

After the decision shall have been become final and executory and, upon
payment of all taxes and other charges due on the land, the order for the issuance of a
decree of registration shall be accordingly undertaken.

SO ORDERED.
[7]

Aggrieved by the Decision, petitioner filed a Notice of Appeal.
[8]
The CA, in
its Decision dated February 15, 2006, dismissed the appeal and affirmed the
decision of the RTC. The CA ruled that respondents were able to show that they
have been in continuous, open, exclusive and notorious possession of the subject
property through themselves and their predecessors-in-interest. The CA found
that respondents acquired the subject land from their predecessors-in-interest,
who have been in actual, continuous, uninterrupted, public and adverse
possession in the concept of an owner since time immemorial. The CA, likewise,
held that respondents were able to present sufficient evidence to establish that
the subject property is part of the alienable and disposable lands of the public
domain. Hence, the instant petition raising the following grounds:
I
THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURT'S ORDER GRANTING
RESPONDENTS' APPLICATION FOR REGISTRATION OF THE SUBJECT LOT CONSIDERING
THAT THE EVIDENCE ON RECORD FAILED TO ESTABLISH THAT RESPONDENTS HAVE BEEN
IN OPEN, CONTINUOUS, EXCLUSIVE AND NOTORIOUS POSSESSION OF THE SUBJECT LOT
IN THE CONCEPT OF AN OWNER.

II
THE COURT OF APPEALS ERRED IN ORDERING THE REGISTRATION OF THE SUBJECT LOT
IN RESPONDENTS' NAME CONSIDERING THAT NO EVIDENCE WAS FORMALLY OFFERED
TO PROVE THAT THE SAME IS WITHIN THE ALIENABLE AND DISPOSABLE AREA OF THE
PUBLIC DOMAIN.
[9]

In its Memorandum, petitioner claims that the CA's findings that
respondents and their predecessors-in-interest have been in open, uninterrupted,
public, and adverse possession in the concept of owners, for more than fifty years
or even before June 12, 1945, was unsubstantiated. Respondents failed to show
actual or constructive possession and occupation over the subject land in the
concept of an owner. Respondents also failed to establish that the subject
property is within the alienable and disposable portion of the public domain. The
subject property remained to be owned by the State under the Regalian Doctrine.

In their Memorandum, respondents alleged that they were able to present
evidence of specific acts of ownership showing open, notorious, continuous and
adverse possession and occupation in the concept of an owner of the subject
land. To prove their continuous and uninterrupted possession of the subject land,
they presented several tax declarations, dated 1949, 1966, 1974, 1979, 1980,
1985, 1991, 1994 and 2000, issued in the name of their predecessors-in-interest.
In addition, respondents presented a tax clearance issued by the Treasurer's
Office of the City of Taguig to show that they are up to date in their payment of
real property taxes. Respondents maintain that the annotations appearing on the
survey plan of the subject land serves as sufficient proof that the land is within
the alienable and disposable portion of the public domain. Finally, respondents
assert that the issues raised by the petitioner are questions of fact which the
Court should not consider in a petition for review under Rule 45.

The petition is meritorious.

In petitions for review on certiorari under Rule 45 of the Revised Rules
of Court, this Court is limited to reviewing only errors of law, not of fact, unless
the factual findings complained of are devoid of support by the evidence on record,
or the assailed judgment is based on a misapprehension of facts.
[10]
It is not the
function of this Court to analyze or weigh evidence all over again, unless there is a
showing that the findings of the lower court are totally devoid of support or are
glaringly erroneous as to constitute palpable error or grave abuse of discretion.
[11]

In the present case, the records do not support the findings made by the CA
that the subject land is part of the alienable and disposable portion of the public
domain.

Section 14 (1) of PD 1529, otherwise known as the Property Registration
Decree provides:

SEC. 14. Who may apply. - The following persons may file in the proper
Court of First Instance an application for registration of title to land, whether
personally or through their duly authorized representatives:

(1) Those who by themselves or through their predecessors-
in-interest have been in open, continuous, exclusive and notorious
possession and occupation of alienable and disposable lands of the
public domain under a bona fide claim of ownership since June 12,
1945, or earlier.

From the foregoing, respondents need to prove that (1) the land forms part
of the alienable and disposable land of the public domain; and (2) they, by
themselves or through their predecessors-in-interest, have been in open,
continuous, exclusive, and notorious possession and occupation of the subject
land under a bona fide claim of ownership from June 12, 1945 or earlier.
[12]
These
the respondents must prove by no less than clear, positive and convincing
evidence.
[13]

Under the Regalian doctrine, which is embodied in our Constitution, all
lands of the public domain belong to the State, which is the source of any asserted
right to any ownership of land. All lands not appearing to be clearly within private
ownership are presumed to belong to the State. Accordingly, public lands not
shown to have been reclassified or released as alienable agricultural land, or
alienated to a private person by the State, remain part of the inalienable public
domain.
[14]
The burden of proof in overcoming the presumption of State ownership
of the lands of the public domain is on the person applying for registration (or
claiming ownership), who must prove that the land subject of the application
is alienable or disposable. To overcome this
presumption, incontrovertible evidence must be established that the land subject of
the application (or claim) is alienable ordisposable.
[15]

To support its contention that the land subject of the application for
registration is alienable, respondents presented survey Plan Ccn-00-
000084
[16]
(Conversion Consolidated plan of Lot Nos. 3212 & 3234, MCADM
590-D, Taguig Cadastral Mapping) prepared by Geodetic Engineer Arnaldo C.
Torres with the following annotation:

This survey is inside L.C. Map No. 2623 Proj. No. 27-B clasified as
alienable/disposable by the Bureau of Forest Development, Quezon City on Jan. 03,
1968.

Respondents' reliance on the afore-mentioned annotation is misplaced.
In Republic v. Sarmiento,
[17]
the Court ruled that the notation of the
surveyor-geodetic engineer on the blue print copy of the conversion and
subdivision plan approved by the Department of Environment and Natural
Resources (DENR) Center, that this survey is inside the alienable and disposable
area, Project No. 27-B. L.C. Map No. 2623, certified on January 3, 1968 by the
Bureau of Forestry, is insufficient and does not constitute incontrovertible
evidence to overcome the presumption that the land remains part of the inalienable
public domain.

Further, in Republic v. Tri-plus Corporation,
[18]
the Court held that:

In the present case, the only evidence to prove the character of the subject
lands as required by law is the notation appearing in the Advance Plan stating in
effect that the said properties are alienable and disposable. However, this is hardly
the kind of proof required by law. To prove that the land subject of an application
for registration is alienable, an applicant must establish the existence of a positive
act of the government, such as a presidential proclamation or an executive order,
an administrative action, investigation reports of Bureau of Lands investigators,
and a legislative act or statute. The applicant may also secure a certification from
the Government that the lands applied for are alienable and disposable. In the case
at bar, while the Advance Plan bearing the notation was certified by the Lands
Management Services of the DENR, the certification refers only to the technical
correctness of the survey plotted in the said plan and has nothing to do whatsoever
with the nature and character of the property surveyed. Respondents failed to
submit a certification from the proper government agency to prove that the lands
subject for registration are indeed alienable and disposable.

Furthermore, in Republic of the Philippines v. Rosila Roche,
[19]
the Court held
that the applicant bears the burden of proving the status of the land. In this
connection, the Court has held that he must present a certificate of land
classification status issued by the Community Environment and Natural Resources
Office (CENRO), or the Provincial Environment and Natural Resources Office
(PENRO) of the DENR. He must also prove that the DENR Secretary had approved
the land classification and released the land as alienable and disposable, and that
it is within the approved area per verification through survey by the CENRO or
PENRO. Further, the applicant must present a copy of the original classification
approved by the DENR Secretary and certified as true copy by the legal custodian
of the official records. These facts must be established by the applicant to prove
that the land is alienable and disposable.

Clearly, the surveyor's annotation presented by respondents is not the kind
of proof required by law to prove that the subject land falls within the alienable
and disposable zone. Respondents failed to submit a certification from the
proper government agency to establish that the subject land are part of the
alienable and disposable portion of the public domain. In the absence of
incontrovertible evidence to prove that the subject property is already classified
as alienable and disposable, we must consider the same as still inalienable public
domain.
[20]

Anent respondents possession and occupation of the subject property, a
reading of the records failed to show that the respondents by themselves or
through their predecessors-in-interest possessed and occupied the subject land
since June 12, 1945 or earlier.

The evidence submitted by respondents to prove their possession and
occupation over the subject property consists of the testimonies of Jose and
Amado Geronimo (Amado), the tenant of the adjacent lot. However, their
testimonies failed to establish respondents predecessors-in-interest' possession
and occupation of subject property since June 12, 1945 or earlier. Jose, who was
born on March 19, 1939,
[21]
testified that since he attained the age of reason he
already knew that the land subject of this case belonged to them.
[22]
Amado
testified that he was a tenant of the land adjacent to the subject property since
1950,
[23]
and on about the same year, he knew that the respondents were
occupying the subject land.
[24]

Jose and Amado's testimonies consist merely of general statements with no
specific details as to when respondents' predecessors-in-interest began actual
occupancy of the land subject of this case. While Jose testified that the subject land
was previously owned by their parents Zosimo and Ester, who earlier inherited the
property from their parent Alejandro, no clear evidence was presented to show
Alejandro's mode of acquisition of ownership and that he had been in possession of
the same on or before June 12, 1945, the period of possession required by law. It is
a rule that general statements that are mere conclusions of law and not factual proof
of possession are unavailing and cannot suffice.
[25]
An applicant in a land
registration case cannot just harp on mere conclusions of law to embellish the
application but must impress thereto the facts and circumstances evidencing the
alleged ownership and possession of the land.
[26]

Respondents earliest evidence can be traced back to a tax declaration
issued in the name of their predecessors-in-interest only in the year 1949. At best,
respondents can only prove possession since said date. What is required is open,
exclusive, continuous and notorious possession by respondents and their
predecessors-in-interest, under a bona fide claim of ownership, since June 12,
1945 or earlier.
[27]
Respondents failed to explain why, despite their claim that their
predecessors-in interest have possessed the subject properties in the concept of
an owner even before June 12, 1945, it was only in 1949 that their predecessors-
in-interest started to declare the same for purposes of taxation. Well settled is the
rule that tax declarations and receipts are not conclusive evidence ofownership or
of the right to possess land when not supported by any other evidence.

The fact
that the disputed property may have been declared for taxation purposes in the
names of the applicants for registration or of their predecessors-in-interest does
not necessarily prove ownership. They are merely indicia of a claim
of ownership.
[28]

The foregoing pieces of evidence, taken together, failed to paint a clear
picture that respondents by themselves or through their predecessors-in-interest
have been in open, exclusive, continuous and notorious possession and
occupation of the subject land, under a bona fide claim of ownership since June
12, 1945 or earlier.

Evidently, since respondents failed to prove that (1) the subject property was
classified as part of the disposable and alienable land of the public domain; and (2)
they and their predecessors-in-interest have been in open, continuous, exclusive,
and notorious possession and occupation thereof under a bonafide claim of
ownership since June 12, 1945 or earlier, their application for confirmation and
registration of the subject property under PD 1529 should be denied.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals
dated February 15, 2006, in CA-G.R. CV No. 84206, affirming the Decision of the
Regional Trial Court of Pasig City, Branch 167, in LRC Case No. N-11514,
isREVERSED and SET ASIDE. The application for registration and confirmation of
title filed by respondents Avelino R. dela Paz, Arsenio R. dela Paz, Jose R. dela Paz,
and Glicerio R. dela Paz, as represented by Jose R. dela Paz, over a parcel of land,
with a total area of twenty-five thousand eight hundred twenty-five (25,825)
square meters situated at Barangay Ibayo, Napindan, Taguig, Metro Manila,
is DENIED.

SO ORDERED.
[G.R. No. 135385. December 6, 2000]
ISAGANI CRUZ and CESAR EUROPA, petitioners, vs. SECRETARY OF
ENVIRONMENT AND NATURAL RESOURCES, SECRETARY OF
BUDGET AND MANAGEMENT and CHAIRMAN and
COMMISSIONERS OF THE NATIONAL COMMISSION ON
INDIGENOUS PEOPLES, respondents.
HON. JUAN M .FLAVIER, HON. PONCIANO BENNAGEN, BAYANI
ASCARRAGA, EDTAMI MANSAYANGAN, BASILIO WANDAG,
EVELYN DUNUAN, YAOM TUGAS, ALFREMO CARPIANO,
LIBERATO A. GABIN, MATERNIDAD M. COLAS, NARCISA M.
DALUPINES, BAI KIRAM-CONNIE SATURNO, BAE MLOMO-
BEATRIZ T. ABASALA, DATU BALITUNGTUNG-ANTONIO D.
LUMANDONG, DATU MANTUMUKAW TEOFISTO SABASALES,
DATU EDUAARDO BANDA, DATU JOEL UNAD, DATU RAMON
BAYAAN, TIMUAY JOSE ANOY, TIMUAY MACARIO D.
SALACAO, TIMUAY EDWIN B. ENDING, DATU SAHAMPONG
MALANAW VI, DATU BEN PENDAO CABIGON, BAI NANAPNAY-
LIZA SAWAY, BAY INAY DAYA-MELINDA S. REYMUNDO, BAI
TINANGHAGA HELINITA T. PANGAN, DATU MAKAPUKAW
ADOLINO L. SAWAY, DATU MAUDAYAW-CRISPEN SAWAY,
VICKY MAKAY, LOURDES D. AMOS, GILBERT P. HOGGANG,
TERESA GASPAR, MANUEL S. ONALAN, MIA GRACE L. GIRON,
ROSEMARIE G. PE, BENITO CARINO, JOSEPH JUDE
CARANTES, LYNETTE CARANTES-VIVAL, LANGLEY SEGUNDO,
SATUR S. BUGNAY, CARLING DOMULOT, ANDRES
MENDIOGRIN, LEOPOLDO ABUGAN, VIRGILIO CAYETANO,
CONCHITA G. DESCAGA, LEVY ESTEVES, ODETTE G.
ESTEVEZ, RODOLFO C. AGUILAR, MAURO VALONES, PEPE H.
ATONG, OFELIA T. DAVI, PERFECTO B. GUINOSAO, WALTER N.
TIMOL, MANUEL T. SELEN, OSCAR DALUNHAY, RICO O.
SULATAN, RAFFY MALINDA, ALFREDO ABILLANOS, JESSIE
ANDILAB, MIRLANDO H. MANGKULINTAS, SAMIE SATURNO,
ROMEO A. LINDAHAY, ROEL S. MANSANG-CAGAN, PAQUITO S.
LIESES, FILIPE G. SAWAY, HERMINIA S. SAWAY, JULIUS S.
SAWAY, LEONARDA SAWAY, JIMMY UGYUB, SALVADOR
TIONGSON, VENANCIO APANG, MADION MALID, SUKIM MALID,
NENENG MALID, MANGKATADONG AUGUSTO DIANO,
JOSEPHINE M. ALBESO, MORENO MALID, MARIO MANGCAL,
FELAY DIAMILING, SALOME P. SARZA, FELIPE P. BAGON,
SAMMY SALNUNGAN, ANTONIO D. EMBA, NORMA
MAPANSAGONOS, ROMEO SALIGA, SR., JERSON P. GERADA,
RENATO T. BAGON, JR., SARING MASALONG, SOLEDAD M.
GERARDA, ELIZABETH L. MENDI, MORANTE S. TIWAN, DANILO
M. MALUDAO, MINORS MARICEL MALID, represented by her
father CORNELIO MALID, MARCELINO M. LADRA, represented
by her father MONICO D. LADRA, JENNYLYN MALID,
represented by her father TONY MALID, ARIEL M.
EVANGELISTA, represented by her mother LINAY BALBUENA,
EDWARD M. EMUY, SR., SUSAN BOLANIO, OND, PULA BATO
BLAAN TRIBAL FARMERS ASSOCIATION, INTER-PEOPLES
EXCHANGE, INC. and GREEN FORUM-WESTERN
VISAYAS, intervenors.
COMMISSION ON HUMAN RIGHTS, intervenor.
IKALAHAN INDIGENOUS PEOPLE and HARIBON FOUNDATION FOR
THE CONSERVATION OF NATURAL RESOURCES,
INC., intervenor.
R E S O L U T I O N
PER CURIAM:
Petitioners Isagani Cruz and Cesar Europa brought this suit for prohibition and
mandamus as citizens and taxpayers, assailing the constitutionality of certain provisions
of Republic Act No. 8371 (R.A. 8371), otherwise known as the Indigenous Peoples
Rights Act of 1997 (IPRA), and its Implementing Rules and Regulations (Implementing
Rules).
In its resolution of September 29, 1998, the Court required respondents to
comment.
[1]
In compliance, respondents Chairperson and Commissioners of the National
Commission on Indigenous Peoples (NCIP), the government agency created under the
IPRA to implement its provisions, filed on October 13, 1998 their Comment to the
Petition, in which they defend the constitutionality of the IPRA and pray that the petition
be dismissed for lack of merit.
On October 19, 1998, respondents Secretary of the Department of Environment and
Natural Resources (DENR) and Secretary of the Department of Budget and
Management (DBM) filed through the Solicitor General a consolidated Comment. The
Solicitor General is of the view that the IPRA is partly unconstitutional on the ground
that it grants ownership over natural resources to indigenous peoples and prays that the
petition be granted in part.
On November 10, 1998, a group of intervenors, composed of Sen. Juan Flavier,
one of the authors of the IPRA, Mr. Ponciano Bennagen, a member of the 1986
Constitutional Commission, and the leaders and members of 112 groups of indigenous
peoples (Flavier, et. al), filed their Motion for Leave to Intervene. They join the NCIP in
defending the constitutionality of IPRA and praying for the dismissal of the petition.
On March 22, 1999, the Commission on Human Rights (CHR) likewise filed a
Motion to Intervene and/or to Appear as Amicus Curiae. The CHR asserts that IPRA is
an expression of the principle of parens patriae and that the State has the responsibility
to protect and guarantee the rights of those who are at a serious disadvantage like
indigenous peoples. For this reason it prays that the petition be dismissed.
On March 23, 1999, another group, composed of the Ikalahan Indigenous People
and the Haribon Foundation for the Conservation of Natural Resources, Inc. (Haribon,
et al.), filed a motion to Intervene with attached Comment-in-Intervention. They agree
with the NCIP and Flavier, et al. that IPRA is consistent with the Constitution and pray
that the petition for prohibition and mandamus be dismissed.
The motions for intervention of the aforesaid groups and organizations were
granted.
Oral arguments were heard on April 13, 1999. Thereafter, the parties and
intervenors filed their respective memoranda in which they reiterate the arguments
adduced in their earlier pleadings and during the hearing.
Petitioners assail the constitutionality of the following provisions of the IPRA and its
Implementing Rules on the ground that they amount to an unlawful deprivation of the
States ownership over lands of the public domain as well as minerals and other natural
resources therein, in violation of the regalian doctrine embodied in Section 2, Article XII
of the Constitution:
(1) Section 3(a) which defines the extent and coverage of ancestral domains, and
Section 3(b) which, in turn, defines ancestral lands;
(2) Section 5, in relation to section 3(a), which provides that ancestral domains
including inalienable public lands, bodies of water, mineral and other resources
found within ancestral domains are private but community property of the
indigenous peoples;
(3) Section 6 in relation to section 3(a) and 3(b) which defines the composition of
ancestral domains and ancestral lands;
(4) Section 7 which recognizes and enumerates the rights of the indigenous peoples
over the ancestral domains;
(5) Section 8 which recognizes and enumerates the rights of the indigenous peoples
over the ancestral lands;
(6) Section 57 which provides for priority rights of the indigenous peoples in the
harvesting, extraction, development or exploration of minerals and other natural
resources within the areas claimed to be their ancestral domains, and the right to
enter into agreements with nonindigenous peoples for the development and
utilization of natural resources therein for a period not exceeding 25 years,
renewable for not more than 25 years; and
(7) Section 58 which gives the indigenous peoples the responsibility to maintain,
develop, protect and conserve the ancestral domains and portions thereof which are
found to be necessary for critical watersheds, mangroves, wildlife sanctuaries,
wilderness, protected areas, forest cover or reforestation.
[2]

Petitioners also content that, by providing for an all-encompassing definition of
ancestral domains and ancestral lands which might even include private lands found
within said areas, Sections 3(a) and 3(b) violate the rights of private landowners.
[3]

In addition, petitioners question the provisions of the IPRA defining the powers and
jurisdiction of the NCIP and making customary law applicable to the settlement of
disputes involving ancestral domains and ancestral lands on the ground that these
provisions violate the due process clause of the Constitution.
[4]

These provisions are:
(1) sections 51 to 53 and 59 which detail the process of delineation and recognition of
ancestral domains and which vest on the NCIP the sole authority to delineate
ancestral domains and ancestral lands;
(2) Section 52[i] which provides that upon certification by the NCIP that a particular
area is an ancestral domain and upon notification to the following officials, namely,
the Secretary of Environment and Natural Resources, Secretary of Interior and
Local Governments, Secretary of Justice and Commissioner of the National
Development Corporation, the jurisdiction of said officials over said area terminates;
(3) Section 63 which provides the customary law, traditions and practices of
indigenous peoples shall be applied first with respect to property rights, claims of
ownership, hereditary succession and settlement of land disputes, and that any
doubt or ambiguity in the interpretation thereof shall be resolved in favor of the
indigenous peoples;
(4) Section 65 which states that customary laws and practices shall be used to resolve
disputes involving indigenous peoples; and
(5) Section 66 which vests on the NCIP the jurisdiction over all claims and disputes
involving rights of the indigenous peoples.
[5]

Finally, petitioners assail the validity of Rule VII, Part II, Section 1 of the NCIP
Administrative Order No. 1, series of 1998, which provides that the administrative
relationship of the NCIP to the Office of the President is characterized as a lateral but
autonomous relationship for purposes of policy and program coordination. They
contend that said Rule infringes upon the Presidents power of control over executive
departments under Section 17, Article VII of the Constitution.
[6]

Petitioners pray for the following:
(1) A declaration that Sections 3, 5, 6, 7, 8, 52[I], 57, 58, 59, 63, 65 and 66 and other
related provisions of R.A. 8371 are unconstitutional and invalid;
(2) The issuance of a writ of prohibition directing the Chairperson and Commissioners
of the NCIP to cease and desist from implementing the assailed provisions of R.A.
8371 and its Implementing Rules;
(3) The issuance of a writ of prohibition directing the Secretary of the Department of
Environment and Natural Resources to cease and desist from implementing
Department of Environment and Natural Resources Circular No. 2, series of 1998;
(4) The issuance of a writ of prohibition directing the Secretary of Budget and
Management to cease and desist from disbursing public funds for the
implementation of the assailed provisions of R.A. 8371; and
(5) The issuance of a writ of mandamus commanding the Secretary of Environment
and Natural Resources to comply with his duty of carrying out the States
constitutional mandate to control and supervise the exploration, development,
utilization and conservation of Philippine natural resources.
[7]

After due deliberation on the petition, the members of the Court voted as follows:
Seven (7) voted to dismiss the petition. Justice Kapunan filed an opinion, which the
Chief Justice and Justices Bellosillo, Quisumbing, and Santiago join, sustaining the
validity of the challenged provisions of R.A. 8371. Justice Puno also filed a separate
opinion sustaining all challenged provisions of the law with the exception of Section 1,
Part II, Rule III of NCIP Administrative Order No. 1, series of 1998, the Rules and
Regulations Implementing the IPRA, and Section 57 of the IPRA which he contends
should be interpreted as dealing with the large-scale exploitation of natural resources
and should be read in conjunction with Section 2, Article XII of the 1987
Constitution. On the other hand, Justice Mendoza voted to dismiss the petition solely
on the ground that it does not raise a justiciable controversy and petitioners do not have
standing to question the constitutionality of R.A. 8371.
Seven (7) other members of the Court voted to grant the petition. Justice
Panganiban filed a separate opinion expressing the view that Sections 3 (a)(b), 5, 6, 7
(a)(b), 8, and related provisions of R.A. 8371 are unconstitutional. He reserves
judgment on the constitutionality of Sections 58, 59, 65, and 66 of the law, which he
believes must await the filing of specific cases by those whose rights may have been
violated by the IPRA. Justice Vitug also filed a separate opinion expressing the view
that Sections 3(a), 7, and 57 of R.A. 8371 are unconstitutional. Justices Melo, Pardo,
Buena, Gonzaga-Reyes, and De Leon join in the separate opinions of Justices
Panganiban and Vitug.
As the votes were equally divided (7 to 7) and the necessary majority was not
obtained, the case was redeliberated upon. However, after redeliberation, the voting
remained the same. Accordingly, pursuant to Rule 56, Section 7 of the Rules of Civil
Procedure, the petition is DISMISSED.
Attached hereto and made integral parts thereof are the separate opinions of
Justices Puno, Vitug, Kapunan, Mendoza, and Panganiban.
SO ORDERED.
Davide, Jr., C.J., Bellosillo, Melo, Quisumbing, Pardo, Buena, Gonzaga-Reyes,
Ynares-Santiago, and De Leon, Jr., JJ., concur.
Puno, Vitug, Kapunan, Mendoza and Panganiban JJ., see separate opinion

SAAD AGRO-INDUSTRIES, INC., G.R. No. 152570
Petitioner,
Present:

QUISUMBING, J.,
Chairperson,
- versus - CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.
Respondent.
x------------------------------------------------x Promulgated:

PEDRO URGELLO, September 27, 2006
Intervenor-Appellant.

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

D E C I S I O N

TINGA, J.:

The instant petition for review assails the Decision and Resolution of the
Court of Appeals dated 18 July 2001 and 18 March 2002 in CA-G.R. CV No. 64097,
reversing and setting aside the Decision of the Regional Trial Court of Cebu,
Branch 11, CebuCity in Civil Case No. CEB-17173.

The antecedents follow.

On 18 October 1967, Socorro Orcullo (Orcullo) filed her application for Free
Patent for Lot No. 1434 of Cad-315-D, a parcel of land with an area of 12.8477
hectares located in Barangay Abugon, Sibonga, Cebu. Thereafter, on 14 February
1971, the Secretary of Agriculture and Natural Resources issued Free Patent No.
473408 for Lot No. 1434, while the Registry of Deeds for the Province of
Cebu issued Original Certificate of Title (OCT) No. 0-6667 over the said
lot.
[1]
Subsequently, the subject lot was sold
[2]
to SAAD Agro- Industries,
Inc. (petitioner) by one of Orcullos heirs.

Sometime in 1995, the Republic of the Philippines, through the Solicitor
General, filed a complaint
[3]
for annulment of title and reversion of the lot
covered by Free Patent No. 473408 and OCT No. 0-6667 and reversion of Lot No.
1434 of Cad-315-D to the mass of the public domain, on the ground that the
issuance of the said free patent and title for Lot No. 1434 was irregular and
erroneous, following the discovery that the lot is allegedly part of the timberland
and forest reserve of Sibonga, Cebu. The discovery was made after Pedro
Urgello filed a letter-complaint with the Regional Executive

Director of the Forest Management Sector, Department of Environment and
Natural Resources (DENR) Region VII, Cebu City, about the alleged illegal cutting
of mangrove trees and construction of dikes within the area covered by Urgellos
Fishpond Lease Agreement.
[4]
On 14 July 1995, Urgello filed a complaint-in-
intervention against the heirs of Orcullo, adopting the allegations
of respondent.
[5]
However, the heirs failed to file their answer to the complaint
and were thus declared in default.
[6]

In its Decision
[7]
dated 15 May 1999, the trial court dismissed the
complaint, finding that respondent failed to show that the subject lot is part of
the timberland or forest reserve or that it has been classified as such before the
issuance of the free patent and the original title. According to the trial court, the
issuance of the free patent and title was regular and in order, and must be
accorded full faith. Considering the validity of the free patent and the OCT,
petitioners purchase of the property was also declared legal and valid. The trial
court also denied the complaint-in-intervention filed by Urgello.

On appeal, the Court of Appeals in its Decision
[8]
reversed and set aside the
trial courts judgment. It held that timber or forest lands, to which the subject lot
belongs, are not subject to private ownership, unless these are first classified as
agricultural lands. Thus, absent any declassification of the subject lot from forest
to alienable and disposable land for agricultural purposes,
[9]
the officers erred in
approving Orcullos free patent application and in issuing the OCT; hence, title
to the lot must be cancelled.
[10]
Consequently, the Court of Appeals invalidated
the sale of the lot to petitioner. However, it declared that Urgellos Fishpond
Lease Agreement may continue until its expiration because lease does not pass
title to the lessee; but thereafter, the lease should not be renewed. Accordingly,
the Court of Appeals decreed:

WHEREFORE, the decision appealed from is
hereby REVERSED and SET ASIDE and another one issued
declaring Free Patent No. 473408 and the corresponding OCT [No.] 0-
6667 as NULL and VOID ab initio.

SAAD Agro-Industries, Inc. is directed to surrender the owners
duplicate copy of OCT [No.] 0-6667 to the Register of Deeds of Cebu
City.

The Register of Deeds of Cebu City is hereby ordered to cancel
OCT [No.] 0-6667 and all other transfer certificates of title that may
have been subsequently issued.

Lot No. 1434, CAD 315[-]D located at Barangay Abugon, Sibonga,
Cebu, subject matter of this case, is hereby REVERTED as part of [the]
public domain and to be classified as timberland.
[11]

Petitioners motion for reconsideration, claiming insufficiency of evidence
and failure to consider pertinent laws, proved futile as it was dismissed for lack of
merit. The Court of Appeals categorically stated that there was a preponderance
of evidence showing that the subject lot is within the timberland area.
[12]

Petitioner now claims that the Court of Appeals erred in relying on the DENR
officers testimony. It claims that the testimony was a mere opinion to the effect
that if there was no classification yet of an area, such area should be considered
as a public forest. Such opinion was premised on the officers construction of a
provision of Presidential Decree (P.D.) No. 705, otherwise known as the Revised
Forestry Code,
[13]
the pertinent portion of which reads:

Those still to be classified under the present system shall continue to
remain as part of the public forest.
[14]

Petitioner points out that P.D. No. 705 took effect on 19 May 1975, or long
after the issuance of the free patent and title in
question. Thus, the provision stating that all public lands should be considered

as part of the public forests until a land classification team has declassified
them is applicable only after the effectivity of P.D. No. 705 and cannot be made
retroactive to cover and prejudice vested rights acquired prior to the effectivity of
said law, petitioner concludes.
[15]
It adds that if the subject lot was encompassed
by the term public forest, the same should have been designated as a
Timberland Block, not as Cadastral Lot No. 1434, CAF-315-D, Sibonga
Cadastre which was the designation made by the Republic prior to 1972.
[16]

Petitioner also questions the Court of Appeals reliance on the land
classification map (L.C. Map) presented by respondent. The trial court had
previously declared L.C. Map No. 2961 as inadmissible, finding that the plaintiff
has not duly proved the authenticity and contents. According to petitioner, the
L.C. Map presented in court is neither a certified true copy nor one attested to be
a true copy by any DENR official having legal custody of the original thereof, and
thus should not have been made the basis of the cancellation of the free patent
and title.
[17]

Petitioner further contends that the projection survey conducted by the
DENR to determine if the subject lot falls within the forest area is not clear,
precise and conclusive, since the foresters who conducted the survey used a
magnetic box compass, an unreliable and inaccurate instrument, whose results
are easily affected by high tension wires and stones with iron minerals.
[18]

Finally, petitioner claims that respondent failed to overcome
the presumption of regularity of the issuance of the free patent and title in favor
of Socorro Orcullo.

In sum, petitioner asserts that respondent failed to show that the subject
lot is inside the timberland block, thereby casting doubt on the accuracy of the
survey conducted by the Bureau of Forestry and the opinions of DENR officers.
Since respondent is the original plaintiff in the reversion case, the burden is on it
to prove that the subject lot is part of the timberland block, petitioner adds.

There is merit in the petition.

Under the Regalian doctrine or jura regalia, all lands of the public domain
belong to the State, and the State is the source of any asserted right to ownership
in land and charged with the conservation of such patrimony.
[19]
Under this
doctrine, lands not otherwise appearing to be clearly within private ownership are
[20]
In instances where a parcel of land
considered to be inalienable land of the public domain is found under private
ownership, the Government is allowed by law to file an action for

reversion,
[21]
which is an action where the ultimate relief sought is to revert the
land to the government under the Regalian doctrine. Considering that the land
subject of the action originated from a grant by the government, its cancellation is
a matter between the grantor and the grantee.
[22]

It has been held that a complaint for reversion involves a serious
controversy, involving a question of fraud and misrepresentation committed
against the government and it is aimed at the return of the disputed portion of
the public domain. It seeks to cancel the original certificate of registration, and
nullify the original certificate of title, including the transfer certificate of title of
the successors-in-interest because the same were all procured through fraud and
misrepresentation.
[23]
Thus, the State, as the party alleging the fraud and
misrepresentation that attended the application of the free patent, bears that
burden of proof. Fraud and misrepresentation, as grounds for cancellation of
patent and annulment of title, should never be presumed but must be proved by
clear and convincing evidence, mere preponderance of evidence not even being
adequate.
[24]

It is but judicious to require the Government, in an action for reversion, to show
the details attending the issuance of title over the alleged inalienable land and
explain why such issuance has deprived the State of the claimed property.

In the instant case, the Solicitor General claimed that Free Patent No.
473408 and Original Certificate of Title No. 0-6667 were erroneously and
irregularly obtained as the Bureau of Lands (now Lands Management Bureau) did
not acquire jurisdiction over the land subject thereof, nor has it the power and
authority to dispose of the same through [a] free patent grant, hence, said patent
and title are null and void ab initio.
[25]
It was incumbent upon respondent to
prove that the free patent and original title were truly erroneously and irregularly
obtained. Unfortunately, respondent failed to do so.

The Court finds that the findings of the trial court rather than those of the
appellate court are more in accord with the law and jurisprudence.

In concluding that the subject parcel of land falls within the timberland or
forest reserve, the Court of Appeals relied on the testimony of Isabelo R. Montejo
that as it had remained unclassified until 1980 and consequently became
an unclassified forest zone, it was incapable of private appropriation. The
pertinent portions of Montejos testimony read:

Q: And in that particular [R]evised Forestry Code, there is that
statement that unless classified by a land classification team, an
area can never be released.
A: Yes sir.

x x x

Q: Prior to 1980, there was no classification was [sic] ever of the
lands of the public domain in the town of Sibonga?
A: Yes, sir.

Q: In other words, nobody knew in the whole DNR before and now
DENR what areas were timberland and what areas are not
timberland in the town of Sibonga prior to 1980?
A: Yes, sir, that is why the law states that if there is no classification
should be [sic] considered as the public forest in order to protect
the resources.
[26]

Obviously, respondents counsel and witness were referring to P.D. No.
705 particularly Section 13 thereof which reads:

CHAPTER II
CLASSIFICATION AND SURVEY

SEC. 13. System of Land Classification.The Department Head
shall study, devise, determine and prescribe the criteria, guidelines and
methods for the proper and accurate classification and survey of all
lands of the public domain into agricultural, industrial or commercial,
residential, settlement, mineral, timber or forest, and grazing lands, and
into such other classes as now or may hereafter be provided by law,
rules and regulations.

In the meantime, the Department Head shall simplify through
inter-bureau action the present system of determining which of the
unclassified lands of the public domain are needed for forest purposes
and declare them as permanent forest to form part of the forest
reserves. He shall declare those classified and determined not to be
needed for forest purposes as alienable and disposable lands, the
administrative jurisdiction and management of which shall be
transferred to the Bureau of Lands: Provided, That mangrove and other
swamps not needed for shore protection and suitable for fishpond
purposes shall be released to, and be placed under the administrative
jurisdiction and management of, the Bureau of Fisheries and Aquatic
Resources. Those still to be classified under the Present system shall
continue to remain as part of the public forest.(Emphasis supplied.)

Reliance on this provision is highly misplaced. P.D. No. 705 was
promulgated only on 19 May 1975, or four (4) years after the free patent and
title were awarded to Orcullo. Thus, it finds no application in the instant
case. Prior forestry laws, including P.D. No. 389,
[27]
which was revised by P.D. No.
705, does not contain a similar provision. Article 4 of the Civil Code provides that
laws shall have no retroactive effect unless the contrary is provided. The Court
does not infer any intention on the part of then President Marcos to ordain the
retroactive application of Sec. 13 of P.D. No. 705. Thus, even assuming for the
nonce that subject parcel was unclassified at the time Orcullo applied for a free
patent thereto, the fact remains that when the free patent and title were issued
thereon in 1971, respondent in essence segregated said parcel from the mass of
public domain. Thus, it can no longer be considered unclassified and forming part
of the public forest as provided in P.D. No. 705.

Respondents main basis for asserting that the subject lot is part of the
timberland or forest reserve is a purported L.C. Map No. 2961.
[28]
However, at
the hearing on 6 June 1997, the trial court denied admission of the map for the
purpose of showing that the subject lot falls within a timberland reserve after
respondent had failed to submit either a certified true copy or an official
publication thereof.
[29]
The Court observes that the document adverted to is a
mere photocopy of the purported original, and not the blue print as insisted by
respondent.
[30]
A mere photocopy does not qualify as competent evidence of the
existence of the L.C. Map. Under the best evidence rule, the original document
must be produced, except:

1. When the original has been lost or destroyed, or cannot be
produced in court, without bad faith on the part of the offeror;

2. When the original is in the custody or under the control of the party
against whom the evidence is offered, and the latter fails to produce
it after reasonable notice;

3. When the original consists of numerous accounts or other
documents which cannot be examined in court without great loss of
time and the fact sought to be established from them is only the
general result of the whole; and

4. When the original is a public record in the custody of a public officer
or is recorded in a public office.
[31]

In this case, respondent claims that the presentation of the original L.C. Map
is unnecessary since it is in the custody of a public officer or is recorded in the
public office.
[32]
Evidence, indeed, is admissible when the original of a document is
in the custody of a public officer or is recorded in a public office. However, to
prove its contents, there is a need to present a certified copy issued by the public
officer in custody thereof.
[33]
In addition, while the L.C. Map may be considered a
public document andprima facie evidence of the facts stated therein,
[34]
the map,
to be admissible for any purpose, must be evidenced by an official publication
thereof or by a copy attested by the officer having legal custody of the
record.
[35]

The rules of admissibility must be applied uniformly. The same rule holds
true when the Government is one of the parties. The Government, when it comes
to court to litigate with one of its citizens, must submit to the rules of procedure
and its rights and privileges at every stage of the proceedings are substantially in
every respect the same as those of its citizens; it cannot have a superior
advantage. This is so because when a sovereignty submits itself to the jurisdiction
of the court and participates therein, its claims and rights are justiciable by every
other principle and rule applicable to the claims and rights of the private parties
under similar circumstances.
[36]
Failure to abide by the rules on admissibility
renders the L.C. Map submitted by respondent inadmissible as proof to show
that the subject lot is part of the forest reserve.

Some officers from the CENRO office in Argao, Cebu testified that they
personally saw the subject lot and that it falls within the timberland or forest
reserve. Ultimately, however, the basis of their declaration is the L.C. Map which
respondent failed to present in accordance with the rules on admissibility. Two
foresters in fact testified that the subject lot was a mangrove area.
[37]
The
foresters who conducted the survey may have been competent and their
techniques reliable; nevertheless, the observation that mangroves grow in the
subject lot is not conclusive as to the nature of the land at present or at the time
the free patent and title were issued. Assuming that the area is covered by
mangroves when they surveyed it, there is no proof that it was not planted with
trees and crops at the time Orcullo applied for free patent. Respondent was also
unable to establish that the subject lot has very deep and muddy soil or are
mudflats, such that it is unsuitable for fruit and non-fruit bearing trees.
[38]
Yet
these are factual matters which the Court does not generally delve into. As it is, a
mere declaration from the said officers, without any other supporting evidence, is
not sufficient to establish that the area in question is part of the forest reserve.

Even assuming that the L.C. Map submitted by respondent is admissible in
evidence, still the land in question can hardly be considered part of
the timberland or forest reserve. L.C. Map No. 2961, which purports to be the
correct map of the areas demarcated as permanent forest pursuant of the
provisions of P.D. No. 705 as amended
[39]
was made only in 1980. Thus, the
delineation of the areas was made nine (9) years after Orcullo was awarded the
free patent over the subject lot.

In Republic v. Court of Appeals,
[40]
the Court, finding that the disputed land
was classified as timberland 25 years after private individuals had commenced
their continuous possession and cultivation thereof in good faith, declared that
they have the better right. The Court held:

It is not disputed that the aforesaid Land Classification Project
No. 3, classifying the 22-hectare area as timberland, was certified by the
Director of Lands only on December 22, 1924, whereas the possession
thereof by private respondents and their predecessor-in-interest
commenced as early as 1909. While the Government has the right to
classify portions of public land, the primary right of a private
individual who possessed and cultivated the land in good faith much
prior to such classification must be recognized and should not be
prejudiced by after-events which could not have been
anticipated. Thus, We have held that the Government, in the first
instance may, by reservation, decide for itself what portions of public
land shall be considered forestry land, unless private interests have
intervened before such reservation is made.
[41]

Obviously, private interests have intervened before classification was made
pursuant to P.D. No. 705. Not only has Orcullo by herself and through her
predecessors-in-interest cultivated and possessed the subject lot since 1930, a
free patent was also awarded to her and a title issued in her name as early as
1971. In fact, it appears that the issuance of the free patent and certificate of

title was regular and in order. Orcullo complied with the requisites for the
acquisition of free patent provided under Commonwealth Act No. 141 (Public
Land Act), as certified by the Director of Lands and approved by the Secretary of
Agriculture and Natural Resources.
[42]

Besides, the records do not show that respondent has considered the lot in
question as forest reserve prior to the issuance of Free Patent No. 473408 and
OCT No. 0-6667. To declare the land now as forest land on the authority of L.C.
Map No. 2961 approved only in 1980, and opinions based on the said
map, would unduly deprive petitioner of their registered property.

The Regalian doctrine is well-enshrined not only in the present Constitution,
but also in the 1935 and 1973 Constitutions. The Court has always recognized
and upheld the Regalian doctrine as the basic foundation of the State's property
regime. Nevertheless, in applying this doctrine, we must not lose sight of the fact
that in every claim or right by the Government against one of its citizens, the
paramount considerations of fairness and due process must be
observed. Respondent in this case failed to show that the subject lot is part of
timberland or forest reserve it adverted to. In the face of the uncontroverted
status of Free Patent No. 473408 and OCT No. 0-6667 as valid and regular
issuances, respondents insistence on the classification of the lot as part of the
forest reserve must be rejected.

WHEREFORE, the petition is GRANTED. The Decision of the Court of
Appeals dated 16 July 2001 and the Resolution dated 18 March 2002 are
REVERSED and SET ASIDE. The Decision of the Regional Trial Court dated 15 May
1999 dismissing the complaint for reversion and the complaint-in-intervention is
REINSTATED.
EN BANC
[G.R. No. 127882. December 1, 2004]
LA BUGAL-BLAAN TRIBAL ASSOCIATION, INC., Represented by its
Chairman FLONG MIGUEL M. LUMAYONG; WIGBERTO E.
TAADA; PONCIANO BENNAGEN; JAIME TADEO; RENATO R.
CONSTANTINO JR.; FLONG AGUSTIN M. DABIE; ROBERTO P.
AMLOY; RAQIM L. DABIE; SIMEON H. DOLOJO; IMELDA M.
GANDON; LENY B. GUSANAN; MARCELO L. GUSANAN;
QUINTOL A. LABUAYAN; LOMINGGES D. LAWAY; BENITA P.
TACUAYAN; Minors JOLY L. BUGOY, Represented by His Father
UNDERO D. BUGOY and ROGER M. DADING; Represented by
His Father ANTONIO L. DADING; ROMY M. LAGARO,
Represented by His Father TOTING A. LAGARO; MIKENY JONG
B. LUMAYONG, Represented by His Father MIGUEL M.
LUMAYONG; RENE T. MIGUEL, Represented by His Mother
EDITHA T. MIGUEL; ALDEMAR L. SAL, Represented by His
Father DANNY M. SAL; DAISY RECARSE, Represented by Her
Mother LYDIA S. SANTOS; EDWARD M. EMUY; ALAN P.
MAMPARAIR; MARIO L. MANGCAL; ALDEN S. TUSAN; AMPARO
S. YAP; VIRGILIO CULAR; MARVIC M.V.F. LEONEN; JULIA
REGINA CULAR, GIAN CARLO CULAR, VIRGILIO CULAR JR.,
Represented by Their Father VIRGILIO CULAR; PAUL ANTONIO
P. VILLAMOR, Represented by His Parents JOSE VILLAMOR and
ELIZABETH PUA-VILLAMOR; ANA GININA R. TALJA,
Represented by Her Father MARIO JOSE B. TALJA; SHARMAINE
R. CUNANAN, Represented by Her Father ALFREDO M.
CUNANAN; ANTONIO JOSE A. VITUG III, Represented by His
Mother ANNALIZA A. VITUG, LEAN D. NARVADEZ, Represented
by His Father MANUEL E. NARVADEZ JR.; ROSERIO MARALAG
LINGATING, Represented by Her Father RIO OLIMPIO A.
LINGATING; MARIO JOSE B. TALJA; DAVID E. DE VERA; MARIA
MILAGROS L. SAN JOSE; Sr. SUSAN O. BOLANIO, OND; LOLITA
G. DEMONTEVERDE; BENJIE L. NEQUINTO;
[1]
ROSE LILIA S.
ROMANO; ROBERTO S. VERZOLA; EDUARDO AURELIO C.
REYES; LEAN LOUEL A. PERIA, Represented by His Father
ELPIDIO V. PERIA;
[2]
GREEN FORUM PHILIPPINES; GREEN
FORUM WESTERN VISAYAS (GF-WV); ENVIRONMENTAL
LEGAL ASSISTANCE CENTER (ELAC); KAISAHAN TUNGO SA
KAUNLARAN NG KANAYUNAN AT REPORMANG PANSAKAHAN
(KAISAHAN);
[3]
PARTNERSHIP FOR AGRARIAN REFORM and
RURAL DEVELOPMENT SERVICES, INC. (PARRDS); PHILIPPINE
PARTNERSHIP FOR THE DEVELOPMENT OF HUMAN
RESOURCES IN THE RURAL AREAS, INC. (PHILDHRRA);
WOMENS LEGAL BUREAU (WLB); CENTER FOR ALTERNATIVE
DEVELOPMENT INITIATIVES, INC. (CADI); UPLAND
DEVELOPMENT INSTITUTE (UDI); KINAIYAHAN FOUNDATION,
INC.; SENTRO NG ALTERNATIBONG LINGAP PANLIGAL
(SALIGAN); and LEGAL RIGHTS AND NATURAL RESOURCES
CENTER, INC. (LRC), petitioners, vs. VICTOR O. RAMOS,
Secretary, Department of Environment and Natural Resources
(DENR); HORACIO RAMOS, Director, Mines and Geosciences
Bureau (MGB-DENR); RUBEN TORRES, Executive Secretary;
and WMC (PHILIPPINES), INC.,
[4]
respondents.
R E S O L U T I O N
PANGANIBAN, J .:
All mineral resources are owned by the State. Their exploration,
development and utilization (EDU) must always be subject to the full control
and supervision of the State. More specifically, given the inadequacy of
Filipino capital and technology in large-scale EDU activities, the State may
secure the help of foreign companies in all relevant matters -- especially
financial and technical assistance -- provided that, at all times, the State
maintains its right of full control. The foreign assistor or contractor assumes
all financial, technical and entrepreneurial risks in the EDU activities; hence, it
may be given reasonable management, operational, marketing, audit and
other prerogatives to protect its investments and to enable the business to
succeed.
Full control is not anathematic to day-to-day management by the
contractor, provided that the State retains the power to direct overall strategy;
and to set aside, reverse or modify plans and actions of the contractor. The
idea of full control is similar to that which is exercised by the board of directors
of a private corporation: the performance of managerial, operational, financial,
marketing and other functions may be delegated to subordinate officers or
given to contractual entities, but the board retains full residual control of the
business.
Who or what organ of government actually exercises this power of control
on behalf of the State? The Constitution is crystal clear:
thePresident. Indeed, the Chief Executive is the official constitutionally
mandated to enter into agreements with foreign owned corporations. On the
other hand, Congress may review the action of the President once it is notified
of every contract entered into in accordance with this [constitutional] provision
within thirty days from its execution. In contrast to this express mandate of
the President and Congress in the EDU of natural resources, Article XII of the
Constitution is silent on the role of the judiciary. However, should the
President and/or Congress gravely abuse their discretion in this regard, the
courts may -- in a proper case -- exercise their residual duty under Article
VIII. Clearly then, the judiciary should not inordinately interfere in the exercise
of this presidential power of control over the EDU of our natural resources.
The Constitution should be read in broad, life-giving strokes. It should not
be used to strangulate economic growth or to serve narrow, parochial
interests. Rather, it should be construed to grant the President and Congress
sufficient discretion and reasonable leeway to enable them to attract foreign
investments and expertise, as well as to secure for our people and our
posterity the blessings of prosperity and peace.
On the basis of this control standard, this Court upholds the constitutionality
of the Philippine Mining Law, its Implementing Rules and Regulations -- insofar
as they relate to financial and technical agreements -- as well as the subject
Financial and Technical Assistance Agreement (FTAA).
[5]

Background
The Petition for Prohibition and Mandamus before the Court challenges
the constitutionality of (1) Republic Act No. [RA] 7942 (The Philippine Mining
Act of 1995); (2) its Implementing Rules and Regulations (DENR
Administrative Order No. [DAO] 96-40); and (3) the FTAA dated March 30,
1995,
[6]
executed by the government with Western Mining Corporation
(Philippines), Inc. (WMCP).
[7]

On January 27, 2004, the Court en banc promulgated its Decision
[8]
granting
the Petition and declaring the unconstitutionality of certain provisions of RA 7942,
DAO 96-40, as well as of the entire FTAA executed between the government and
WMCP, mainly on the finding that FTAAs are service contracts prohibited by
the 1987 Constitution.
The Decision struck down the subject FTAA for being similar to service
contracts,
[9]
which, though permitted under the 1973 Constitution,
[10]
were
subsequently denounced for being antithetical to the principle of sovereignty over
our natural resources, because they allowed foreign control over the exploitation
of our natural resources, to the prejudice of the Filipino nation.
The Decision quoted several legal scholars and authors who had criticized
service contracts for, inter alia, vesting in the foreign
contractorexclusive management and control of the enterprise, including
operation of the field in the event petroleum was discovered; control of
production, expansion and development; nearly unfettered control over the
disposition and sale of the products discovered/extracted; effective ownership
of the natural resource at the point of extraction; and beneficial ownership of
our economic resources. According to the Decision, the 1987 Constitution
(Section 2 of Article XII) effectively banned such service contracts.
Subsequently, respondents filed separate Motions for Reconsideration. In
a Resolution dated March 9, 2004, the Court required petitioners to comment
thereon. In the Resolution of June 8, 2004, it set the case for Oral Argument
on June 29, 2004.
After hearing the opposing sides, the Court required the parties to submit
their respective Memoranda in amplification of their arguments. In a
Resolution issued later the same day, June 29, 2004, the Court noted, inter
alia, the Manifestation and Motion (in lieu of comment) filed by the Office of
the Solicitor General (OSG) on behalf of public respondents. The OSG said
that it was not interposing any objection to the Motion for Intervention filed by
the Chamber of Mines of the Philippines, Inc. (CMP) and was in fact joining
and adopting the latters Motion for Reconsideration.
Memoranda were accordingly filed by the intervenor as well as by
petitioners, public respondents, and private respondent, dwelling at length on
the three issues discussed below. Later, WMCP submitted its Reply
Memorandum, while the OSG -- in obedience to an Order of this Court -- filed
a Compliance submitting copies of more FTAAs entered into by the
government.
Three Issues Identified by the Court
During the Oral Argument, the Court identified the three issues to be
resolved in the present controversy, as follows:
1. Has the case been rendered moot by the sale of WMC shares in WMCP
to Sagittarius (60 percent of Sagittarius equity is owned by Filipinos and/or
Filipino-owned corporations while 40 percent is owned by Indophil Resources
NL, an Australian company) and by the subsequent transfer and registration
of the FTAA from WMCP to Sagittarius?
2. Assuming that the case has been rendered moot, would it still be proper
to resolve the constitutionality of the assailed provisions of the Mining Law,
DAO 96-40 and the WMCP FTAA?
3. What is the proper interpretation of the phrase Agreements Involving
Either Technical or Financial Assistance contained in paragraph 4 of Section 2
of Article XII of the Constitution?
Should the Motion for Reconsideration
Be Granted?
Respondents and intervenors Motions for Reconsideration should be
granted, for the reasons discussed below. The foregoing three issues
identified by the Court shall now be taken up seriatim.
First Issue:
Mootness
In declaring unconstitutional certain provisions of RA 7942, DAO 96-40,
and the WMCP FTAA, the majority Decision agreed with petitioners
contention that the subject FTAA had been executed in violation of Section 2
of Article XII of the 1987 Constitution. According to petitioners, the FTAAs
entered into by the government with foreign-owned corporations are limited by
the fourth paragraph of the said provision to agreements involving only
technical or financial assistance for large-scale exploration, development and
utilization of minerals, petroleum and other mineral oils. Furthermore, the
foreign contractor is allegedly permitted by the FTAA in question to fully
manage and control the mining operations and, therefore, to acquire
beneficial ownership of our mineral resources.
The Decision merely shrugged off the Manifestation by WMPC informing
the Court (1) that on January 23, 2001, WMC had sold all its shares in WMCP
to Sagittarius Mines, Inc., 60 percent of whose equity was held by Filipinos;
and (2) that the assailed FTAA had likewise been transferred from WMCP to
Sagittarius.
[11]
The ponencia declared that the instant case had not been
rendered moot by the transfer and registration of the FTAA to a Filipino-owned
corporation, and that the validity of the said transfer remained in dispute and
awaited final judicial determination.
[12]
Patently therefore, the Decision is
anchored on the assumption that WMCP had remained a foreign corporation.
The crux of this issue of mootness is the fact that WMCP, at the time it
entered into the FTAA, happened to be wholly owned by WMC Resources
International Pty., Ltd. (WMC), which in turn was a wholly owned subsidiary of
Western Mining Corporation Holdings Ltd., a publicly listed major Australian
mining and exploration company.
The nullity of the FTAA was obviously premised upon the contractor being
a foreign corporation. Had the FTAA been originally issued to a Filipino-
owned corporation, there would have been no constitutionality issue to speak
of. Upon the other hand, the conveyance of the WMCP FTAA to a Filipino
corporation can be likened to the sale of land to a foreigner who subsequently
acquires Filipino citizenship, or who later resells the same land to a Filipino
citizen. The conveyance would be validated, as the property in question
would no longer be owned by a disqualified vendee.
And, inasmuch as the FTAA is to be implemented now by a Filipino
corporation, it is no longer possible for the Court to declare it
unconstitutional. The case pending in the Court of Appeals is a dispute
between two Filipino companies (Sagittarius and Lepanto), both claiming the
right to purchase the foreign shares in WMCP. So, regardless of which side
eventually wins, the FTAA would still be in the hands of a qualified Filipino
company. Considering that there is no longer any justiciable controversy, the
plea to nullify the Mining Law has become a virtual petition for declaratory
relief, over which this Court has no original jurisdiction.
In their Final Memorandum, however, petitioners argue that the case has
not become moot, considering the invalidity of the alleged sale of the shares
in WMCP from WMC to Sagittarius, and of the transfer of the FTAA from
WMCP to Sagittarius, resulting in the change of contractor in the FTAA in
question. And even assuming that the said transfers were valid, there still
exists an actual case predicated on the invalidity of RA 7942 and its
Implementing Rules and Regulations (DAO 96-40). Presently, we shall
discuss petitioners objections to the transfer of both the shares and the
FTAA. We shall take up the alleged invalidity of RA 7942 and DAO 96-40
later on in the discussion of the third issue.
No Transgression of the Constitution
by the Transfer of the WMCP Shares
Petitioners claim, first, that the alleged invalidity of the transfer of the
WMCP shares to Sagittarius violates the fourth paragraph of Section 2 of
Article XII of the Constitution; second, that it is contrary to the provisions of the
WMCP FTAA itself; and third, that the sale of the shares is suspect and
should therefore be the subject of a case in which its validity may properly be
litigated.
On the first ground, petitioners assert that paragraph 4 of Section 2 of
Article XII permits the government to enter into FTAAs only with foreign-
owned corporations. Petitioners insist that the first paragraph of this
constitutional provision limits the participation of Filipino corporations in the
exploration, development and utilization of natural resources to only three
species of contracts -- production sharing, co-production and joint venture -- to
the exclusion of all other arrangements or variations thereof, and the WMCP
FTAA may therefore not be validly assumed and implemented by
Sagittarius. In short, petitioners claim that a Filipino corporation is not allowed
by the Constitution to enter into an FTAA with the government.
However, a textual analysis of the first paragraph of Section 2 of Article XII
does not support petitioners argument. The pertinent part of the said
provision states: Sec. 2. x x x The exploration, development and utilization of
natural resources shall be under the full control and supervision of the
State. The State may directly undertake such activities, or it may enter into
co-production, joint venture, or production-sharing agreements with Filipino
citizens, or corporations or associations at least sixty per centum of whose
capital is owned by such citizens. x x x. Nowhere in the provision is there
any express limitation or restriction insofar as arrangements other than the
three aforementioned contractual schemes are concerned.
Neither can one reasonably discern any implied stricture to that
effect. Besides, there is no basis to believe that the framers of the
Constitution, a majority of whom were obviously concerned with furthering the
development and utilization of the countrys natural resources, could have
wanted to restrict Filipino participation in that area. This point is clear,
especially in the light of the overarching constitutional principle of giving
preference and priority to Filipinos and Filipino corporations in the
development of our natural resources.
Besides, even assuming (purely for arguments sake) that a constitutional
limitation barring Filipino corporations from holding and implementing an
FTAA actually exists, nevertheless, such provision would apply only to the
transfer of the FTAA to Sagittarius, but definitely not to the sale of WMCs
equity stake in WMCP to Sagittarius. Otherwise, an unreasonable curtailment
of property rights without due process of law would ensue. Petitioners
argument must therefore fail.
FTAA Not Intended
Solely for Foreign Corporation
Equally barren of merit is the second ground cited by petitioners -- that the
FTAA was intended to apply solely to a foreign corporation, as can allegedly
be seen from the provisions therein. They manage to cite only one WMCP
FTAA provision that can be regarded as clearly intended to apply only to a
foreign contractor: Section 12, which provides for international commercial
arbitration under the auspices of the International Chamber of Commerce,
after local remedies are exhausted. This provision, however, does not
necessarily imply that the WMCP FTAA cannot be transferred to and
assumed by a Filipino corporation like Sagittarius, in which event the said
provision should simply be disregarded as a superfluity.
No Need for a Separate
Litigation of the Sale of Shares
Petitioners claim as third ground the suspicious sale of shares from
WMC to Sagittarius; hence, the need to litigate it in a separate case. Section
40 of RA 7942 (the Mining Law) allegedly requires the Presidents prior
approval of a transfer.
A re-reading of the said provision, however, leads to a different
conclusion. Sec. 40. Assignment/Transfer -- A financial or technical
assistance agreement may be assigned or transferred, in whole or in part, to a
qualified person subject to the prior approval of the President: Provided, That
the President shall notify Congress of every financial or technical assistance
agreement assigned or converted in accordance with this provision within
thirty (30) days from the date of the approval thereof.
Section 40 expressly applies to the assignment or transfer of the FTAA,
not to the sale and transfer of shares of stock in WMCP. Moreover, when the
transferee of an FTAA is another foreign corporation, there is a logical
application of the requirement of prior approval by the President of the
Republic and notification to Congress in the event of assignment or transfer of
an FTAA. In this situation, such approval and notification are appropriate
safeguards, considering that the new contractor is the subject of a foreign
government.
On the other hand, when the transferee of the FTAA happens to be
a Filipino corporation, the need for such safeguard is not critical; hence, the
lack of prior approval and notification may not be deemed fatal as to render
the transfer invalid. Besides, it is not as if approval by the President is entirely
absent in this instance. As pointed out by private respondent in its
Memorandum,
[13]
the issue of approval is the subject of one of the cases
brought by Lepanto against Sagittarius in GR No. 162331. That case involved
the review of the Decision of the Court of Appeals dated November 21, 2003
in CA-GR SP No. 74161, which affirmed the DENR Order dated December
31, 2001 and the Decision of the Office of the President dated July 23, 2002,
both approving the assignment of the WMCP FTAA to Sagittarius.
Petitioners also question the sale price and the financial capacity of the
transferee. According to the Deed of Absolute Sale dated January 23, 2001,
executed between WMC and Sagittarius, the price of the WMCP shares was
fixed at US$9,875,000, equivalent to P553 million at an exchange rate of
56:1. Sagittarius had an authorized capital stock of P250 million and a paid
up capital of P60 million. Therefore, at the time of approval of the sale by the
DENR, the debt-to-equity ratio of the transferee was over 9:1 -- hardly ideal
for an FTAA contractor, according to petitioners.
However, private respondents counter that the Deed of Sale specifically
provides that the payment of the purchase price would take placeonly after
Sagittarius commencement of commercial production from mining operations,
if at all. Consequently, under the circumstances, we believe it would not be
reasonable to conclude, as petitioners did, that the transferees high debt-to-
equity ratio per se necessarily carried negative implications for the enterprise;
and it would certainly be improper to invalidate the sale on that basis, as
petitioners propose.
FTAA Not Void,
Thus Transferrable
To bolster further their claim that the case is not moot, petitioners insist
that the FTAA is void and, hence cannot be transferred; and that its transfer
does not operate to cure the constitutional infirmity that is inherent in it; neither
will a change in the circumstances of one of the parties serve to ratify the void
contract.
While the discussion in their Final Memorandum was skimpy, petitioners in
their Comment (on the MR) did ratiocinate that this Court had declared the
FTAA to be void because, at the time it was executed with WMCP, the latter
was a fully foreign-owned corporation, in which the former vested full control
and management with respect to the exploration, development and utilization
of mineral resources, contrary to the provisions of paragraph 4 of Section 2 of
Article XII of the Constitution. And since the FTAA was per se void, no valid
right could be transferred; neither could it be ratified, so petitioners conclude.
Petitioners have assumed as fact that which has yet to be
established. First and foremost, the Decision of this Court declaring the FTAA
void has not yet become final. That was precisely the reason the Court still
heard Oral Argument in this case. Second, the FTAA does not vest in the
foreign corporation full control and supervision over the exploration,
development and utilization of mineral resources, to the exclusion of the
government. This point will be dealt with in greater detail below; but for now,
suffice it to say that a perusal of the FTAA provisions will prove that the
government has effective overall direction and control of the mining
operations, including marketing and product pricing, and that the contractors
work programs and budgets are subject to its review and approval or
disapproval.
As will be detailed later on, the government does not have to micro-
manage the mining operations and dip its hands into the day-to-day
management of the enterprise in order to be considered as having overall
control and direction. Besides, for practical and pragmatic reasons, there is a
need for government agencies to delegate certain aspects of the management
work to the contractor. Thus the basis for declaring the FTAA void still has to
be revisited, reexamined and reconsidered.
Petitioners sniff at the citation of Chavez v. Public Estates
Authority,
[14]
and Halili v. CA,
[15]
claiming that the doctrines in these cases are
wholly inapplicable to the instant case.
Chavez clearly teaches: Thus, the Court has ruled consistently that where
a Filipino citizen sells land to an alien who later sells the land to a Filipino, the
invalidity of the first transfer is corrected by the subsequent sale to a
citizen. Similarly, where the alien who buys the land subsequently acquires
Philippine citizenship, the sale is validated since the purpose of the
constitutional ban to limit land ownership to Filipinos has been achieved. In
short, the law disregards the constitutional disqualification of the buyer to hold
land if the land is subsequently transferred to a qualified party, or the buyer
himself becomes a qualified party.
[16]

In their Comment, petitioners contend that in Chavez and Halili, the object
of the transfer (the land) was not what was assailed for alleged
unconstitutionality. Rather, it was the transaction that was assailed; hence
subsequent compliance with constitutional provisions would cure its
infirmity. In contrast, in the instant case it is the FTAA itself, the object of the
transfer, that is being assailed as invalid and unconstitutional. So, petitioners
claim that the subsequent transfer of a void FTAA to a Filipino corporation
would not cure the defect.
Petitioners are confusing themselves. The present Petition has been filed,
precisely because the grantee of the FTAA was a wholly owned subsidiary of
a foreign corporation. It cannot be gainsaid that anyone would have asserted
that the same FTAA was void if it had at the outset been issued to a Filipino
corporation. The FTAA, therefore, is not per se defective or
unconstitutional. It was questioned only because it had been issued to an
allegedly non-qualified, foreign-owned corporation.
We believe that this case is clearly analogous to Halili, in which the land
acquired by a non-Filipino was re-conveyed to a qualified vendee and the
original transaction was thereby cured. Paraphrasing Halili, the same
rationale applies to the instant case: assuming arguendo the invalidity of its
prior grant to a foreign corporation, the disputed FTAA -- being now held by a
Filipino corporation -- can no longer be assailed; the objective of the
constitutional provision -- to keep the exploration, development and utilization
of our natural resources in Filipino hands -- has been served.
More accurately speaking, the present situation is one degree better than
that obtaining in Halili, in which the original sale to a non-Filipino was clearly
and indisputably violative of the constitutional prohibition and thus void ab
initio. In the present case, the issuance/grant of the subject FTAA to the then
foreign-owned WMCP was not illegal, void or unconstitutional at the time. The
matter had to be brought to court, precisely for adjudication as to whether the
FTAA and the Mining Law had indeed violated the Constitution. Since, up to
this point, the decision of this Court declaring the FTAA void has yet to
become final, to all intents and purposes, the FTAA must be deemed valid
and constitutional.
[17]

At bottom, we find completely outlandish petitioners contention that an
FTAA could be entered into by the government only with a foreign
corporation, never with a Filipino enterprise. Indeed, the nationalistic
provisions of the Constitution are all anchored on the protection of Filipino
interests. How petitioners can now argue that foreigners have the exclusive
right to FTAAs totally overturns the entire basis of the Petition -- preference for
the Filipino in the exploration, development and utilization of our natural
resources. It does not take deep knowledge of law and logic to understand
that what the Constitution grants to foreigners should be equally available to
Filipinos.
Second Issue:
Whether the Court Can Still Decide the Case,
Even Assuming It Is Moot
All the protagonists are in agreement that the Court has jurisdiction to
decide this controversy, even assuming it to be moot.
Petitioners stress the following points. First, while a case becomes moot
and academic when there is no more actual controversy between the parties
or no useful purpose can be served in passing upon the merits,
[18]
what is at
issue in the instant case is not only the validity of the WMCP FTAA, but also
the constitutionality of RA 7942 and its Implementing Rules and
Regulations. Second, the acts of private respondent cannot operate to cure
the law of its alleged unconstitutionality or to divest this Court of its jurisdiction
to decide. Third, the Constitution imposes upon the Supreme Court the duty to
declare invalid any law that offends the Constitution.
Petitioners also argue that no amendatory laws have been passed to
make the Mining Act of 1995 conform to constitutional strictures (assuming
that, at present, it does not); that public respondents will continue to
implement and enforce the statute until this Court rules otherwise; and that the
said law continues to be the source of legal authority in accepting, processing
and approving numerous applications for mining rights.
Indeed, it appears that as of June 30, 2002, some 43 FTAA applications
had been filed with the Mines and Geosciences Bureau (MGB), with an
aggregate area of 2,064,908.65 hectares -- spread over Luzon, the Visayas
and Mindanao
[19]
-- applied for. It may be a bit far-fetched to assert, as
petitioners do, that each and every FTAA that was entered into under the
provisions of the Mining Act invites potential litigation for as long as the
constitutional issues are not resolved with finality. Nevertheless, we must
concede that there exists the distinct possibility that one or more of the future
FTAAs will be the subject of yet another suit grounded on constitutional
issues.
But of equal if not greater significance is the cloud of uncertainty hanging
over the mining industry, which is even now scaring away foreign
investments. Attesting to this climate of anxiety is the fact that the Chamber
of Mines of the Philippines saw the urgent need to intervene in the case and
to present its position during the Oral Argument; and that Secretary General
Romulo Neri of the National Economic Development Authority (NEDA)
requested this Court to allow him to speak, during that Oral Argument, on the
economic consequences of the Decision of January 27, 2004.
[20]

We are convinced. We now agree that the Court must recognize the
exceptional character of the situation and the paramount public interest
involved, as well as the necessity for a ruling to put an end to the uncertainties
plaguing the mining industry and the affected communities as a result of
doubts cast upon the constitutionality and validity of the Mining Act, the
subject FTAA and future FTAAs, and the need to avert a multiplicity of
suits. Paraphrasing Gonzales v. Commission on Elections,
[21]
it is evident that
strong reasons of public policy demand that the constitutionality issue be
resolved now.
[22]

In further support of the immediate resolution of the constitutionality issue,
public respondents cite Acop v. Guingona,
[23]
to the effect that the courts will
decide a question -- otherwise moot and academic -- if it is capable of
repetition, yet evading review.
[24]
Public respondents ask the Court to avoid a
situation in which the constitutionality issue may again arise with respect to
another FTAA, the resolution of which may not be achieved until after it has
become too late for our mining industry to grow out of its infancy. They also
recall Salonga v. Cruz Pao,
[25]
in which this Court declared that (t)he Court
also has the duty to formulate guiding and controlling constitutional principles,
precepts, doctrines or rules. It has the symbolic function of educating the
bench and bar on the extent of protection given by constitutional
guarantees. x x x.
The mootness of the case in relation to the WMCP FTAA led the
undersigned ponente to state in his dissent to the Decision that there was no
more justiciable controversy and the plea to nullify the Mining Law has
become a virtual petition for declaratory relief.
[26]
The entry of the Chamber of
Mines of the Philippines, Inc., however, has put into focus the seriousness of
the allegations of unconstitutionality of RA 7942 and DAO 96-40 which
converts the case to one for prohibition
[27]
in the enforcement of the said law
and regulations.
Indeed, this CMP entry brings to fore that the real issue in this case is
whether paragraph 4 of Section 2 of Article XII of the Constitution is
contravened by RA 7942 and DAO 96-40, not whether it was violated by
specific acts implementing RA 7942 and DAO 96-40. [W]hen an act of the
legislative department is seriously alleged to have infringed the Constitution,
settling the controversy becomes the duty of this Court. By the mere
enactment of the questioned law or the approval of the challenged action, the
dispute is said to have ripened into a judicial controversy even without any
other overt act.
[28]
This ruling can be traced from Taada v. Angara,
[29]
in
which the Court said:
In seeking to nullify an act of the Philippine Senate on the ground that it contravenes
the Constitution, the petition no doubt raises a justiciable controversy. Where an
action of the legislative branch is seriously alleged to have infringed the Constitution,
it becomes not only the right but in fact the duty of the judiciary to settle the dispute.
x x x x x x x x x
As this Court has repeatedly and firmly emphasized in many cases, it will not shirk,
digress from or abandon its sacred duty and authority to uphold the Constitution in
matters that involve grave abuse of discretion brought before it in appropriate cases,
committed by any officer, agency, instrumentality or department of the
government.
[30]

Additionally, the entry of CMP into this case has also effectively forestalled
any possible objections arising from the standing or legal interest of the
original parties.
For all the foregoing reasons, we believe that the Court should proceed to
a resolution of the constitutional issues in this case.
Third Issue:
The Proper Interpretation of the Constitutional Phrase
Agreements Involving Either Technical or Financial Assistance
The constitutional provision at the nucleus of the controversy is paragraph
4 of Section 2 of Article XII of the 1987 Constitution. In order to appreciate its
context, Section 2 is reproduced in full:
Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora
and fauna, and other natural resources are owned by the State. With the exception of
agricultural lands, all other natural resources shall not be alienated. The
exploration, development and utilization of natural resources shall be under the full
control and supervision of the State. The State may directly undertake such activities,
or it may enter into co-production, joint venture or production-sharing agreements
with Filipino citizens or corporations or associations at least sixty per centum of
whose capital is owned by such citizens. Such agreements may be for a period not
exceeding twenty-five years, renewable for not more than twenty-five years, and under
such terms and conditions as may be provided by law. In cases of water rights for
irrigation, water supply, fisheries, or industrial uses other than the development of
water power, beneficial use may be the measure and limit of the grant.
The State shall protect the nations marine wealth in its archipelagic waters,
territorial sea, and exclusive economic zone, and reserve its use and enjoyment
exclusively to Filipino citizens.
The Congress may, by law, allow small-scale utilization of natural resources by
Filipino citizens, as well as cooperative fish farming, with priority to subsistence
fishermen and fish-workers in rivers, lakes, bays and lagoons.
The President may enter into agreements with foreign-owned
corporations involving either technical or financial assistance for large-scale
exploration, development, and utilization of minerals, petroleum, and other mineral
oils according to the general terms and conditions provided by law, based on real
contributions to the economic growth and general welfare of the country. In such
agreements, the State shall promote the development and use of local scientific and
technical resources.
The President shall notify the Congress of every contract entered into in accordance
with this provision, within thirty days from its execution.
[31]

No Restriction of Meaning by
a Verba Legis Interpretation
To interpret the foregoing provision, petitioners adamantly assert that the
language of the Constitution should prevail; that the primary method of
interpreting it is to seek the ordinary meaning of the words used in its
provisions. They rely on rulings of this Court, such as the following:
The fundamental principle in constitutional construction however is that the primary
source from which to ascertain constitutional intent or purpose is the language of the
provision itself. The presumption is that the words in which the constitutional
provisions are couched express the objective sought to be attained. In other
words, verba legis prevails. Only when the meaning of the words used is unclear and
equivocal should resort be made to extraneous aids of construction and
interpretation, such as the proceedings of the Constitutional Commission or
Convention to shed light on and ascertain the true intent or purpose of the provision
being construed.
[32]

Very recently, in Francisco v. The House of Representatives,
[33]
this Court
indeed had the occasion to reiterate the well-settled principles of constitutional
construction:
First, verba legis, that is, wherever possible, the words used in the Constitution must
be given their ordinary meaning except where technical terms are employed. x x x.
x x x x x x x x x
Second, where there is ambiguity, ratio legis est anima. The words of the
Constitution should be interpreted in accordance with the intent of its framers. x x x.
x x x x x x x x x
Finally, ut magis valeat quam pereat. The Constitution is to be interpreted as a
whole.
[34]

For ease of reference and in consonance with verba legis, we reconstruct
and stratify the aforequoted Section 2 as follows:
1. All natural resources are owned by the State. Except for agricultural lands, natural
resources cannot be alienated by the State.
2. The exploration, development and utilization (EDU) of natural resources shall be
under the full control and supervision of the State.
3. The State may undertake these EDU activities through either of the following:
(a) By itself directly and solely
(b) By (i) co-production; (ii) joint venture; or (iii) production sharing agreements with
Filipino citizens or corporations, at least 60 percent of the capital of which is owned
by such citizens
4. Small-scale utilization of natural resources may be allowed by law in favor of
Filipino citizens.
5. For large-scale EDU of minerals, petroleum and other mineral oils, the President
may enter into agreements with foreign-owned corporations involving either
technical or financial assistance according to the general terms and conditions
provided by law x x x.
Note that in all the three foregoing mining activities -- exploration,
development and utilization -- the State may undertake such EDU activities
by itself or in tandem with Filipinos or Filipino corporations, except in two
instances: first, in small-scale utilization of natural resources, which Filipinos
may be allowed by law to undertake; and second, in large-scale EDU of
minerals, petroleum and mineral oils, which may be undertaken by the State
via agreements with foreign-owned corporations involving either technical or
financial assistance as provided by law.
Petitioners claim that the phrase agreements x x x involving either
technical or financial assistance simply means technical assistance or
financial assistance agreements, nothing more and nothing else. They insist
that there is no ambiguity in the phrase, and that a plain reading of paragraph
4 quoted above leads to the inescapable conclusion that what a foreign-
owned corporation may enter into with the government is merely an
agreement for either financial or technical assistance only, for the large-scale
exploration, development and utilization of minerals, petroleum and other
mineral oils; such a limitation, they argue, excludes foreign management and
operation of a mining enterprise.
[35]

This restrictive interpretation, petitioners believe, is in line with the general
policy enunciated by the Constitution reserving to Filipino citizens and
corporations the use and enjoyment of the countrys natural resources. They
maintain that this Courts Decision
[36]
of January 27, 2004 correctly declared
the WMCP FTAA, along with pertinent provisions of RA 7942, void for
allowing a foreign contractor to have direct and exclusive management of a
mining enterprise. Allowing such a privilege not only runs counter to the full
control and supervision that the State is constitutionally mandated to exercise
over the exploration, development and utilization of the countrys natural
resources; doing so also vests in the foreign company beneficial ownership
of our mineral resources. It will be recalled that the Decision of January 27,
2004 zeroed in on management or other forms of assistance or other
activities associated with the service contracts of the martial law regime,
since the management or operation of mining activities by foreign
contractors, which is the primary feature of service contracts, was precisely
the evil that the drafters of the 1987 Constitution sought to eradicate.
On the other hand, the intervenor
[37]
and public respondents argue that the
FTAA allowed by paragraph 4 is not merely an agreement for supplying
limited and specific financial or technical services to the State. Rather, such
FTAA is a comprehensive agreement for the foreign-owned
corporations integrated exploration, development and utilization of mineral,
petroleum or other mineral oils on a large-scale basis. The agreement,
therefore, authorizes the foreign contractors rendition of a whole range of
integrated and comprehensive services, ranging from the discovery to the
development, utilization and production of minerals or petroleum products.
We do not see how applying a strictly literal or verba legis interpretation of
paragraph 4 could inexorably lead to the conclusions arrived at in
the ponencia. First, the drafters choice of words -- their use of the
phrase agreements x x x involving either technical or financial assistance --
does not indicate the intent to exclude other modes of assistance. The
drafters opted to use involving when they could have simply
saidagreements for financial or technical assistance, if that was their intention
to begin with. In this case, the limitation would be very clear and no further
debate would ensue.
In contrast, the use of the word involving signifies the possibility of the
inclusion of other forms of assistance or activities having to do with,
otherwise related to or compatible with financial or technical assistance. The
word involving as used in this context has three connotations that can be
differentiated thus: one, the sense of concerning, having to do with, or
affecting; two, entailing, requiring, implying or necessitating; and three,
including, containing or comprising.
[38]

Plainly, none of the three connotations convey a sense of
exclusivity. Moreover, the word involving, when understood in the sense of
including, as in including technical or financial assistance, necessarily
implies that there are activities other than those that are being included. In
other words, if an agreement includes technical or financial assistance, there
is apart from such assistance -- something else already in, and covered or
may be covered by, the said agreement.
In short, it allows for the possibility that matters, other than those explicitly
mentioned, could be made part of the agreement. Thus, we are now led to
the conclusion that the use of the word involving implies that these
agreements with foreign corporations are not limited to mere financial or
technical assistance. The difference in sense becomes very apparent when
we juxtapose agreements for technical or financial assistance against
agreements including technical or financial assistance. This much is
unalterably clear in a verba legis approach.
Second, if the real intention of the drafters was to confine foreign
corporations to financial or technical assistance and nothing more, their
language would have certainly been so unmistakably restrictive and
stringent as to leave no doubt in anyones mind about their true intent. For
example, they would have used the sentence foreign corporations
are absolutely prohibited from involvement in the management or operation
of mining or similar ventures or words of similar import. A search for such
stringent wording yields negative results. Thus, we come to the inevitable
conclusion that there was a conscious and deliberate decision to avoid
the use of restrictive wording that bespeaks an intent not to use the
expression agreements x x x involving either technical or financial
assistance in an exclusionary and limiting manner.
Deletion of Service Contracts to
Avoid Pitfalls of Previous Constitutions,
Not to Ban Service Contracts Per Se
Third, we do not see how a verba legis approach leads to the conclusion
that the management or operation of mining activities by foreign contractors,
which is the primary feature of service contracts, was precisely the evil that
the drafters of the 1987 Constitution sought to eradicate. Nowhere in the
above-quoted Section can be discerned the objective to keep out of foreign
hands the management or operation of mining activities or the plan to
eradicate service contracts as these were understood in the 1973
Constitution. Still, petitioners maintain that the deletion or omission from the
1987 Constitution of the term service contracts found in the 1973
Constitution sufficiently proves the drafters intent to exclude foreigners from
the management of the affected enterprises.
To our mind, however, such intent cannot be definitively and conclusively
established from the mere failure to carry the same expression or term over to
the new Constitution, absent a more specific, explicit and unequivocal
statement to that effect. What petitioners seek (a complete ban on foreign
participation in the management of mining operations, as previously allowed
by the earlier Constitutions) is nothing short of bringing about a momentous
sea change in the economic and developmental policies; and the
fundamentally capitalist, free-enterprise philosophy of our government. We
cannot imagine such a radical shift being undertaken by our government, to
the great prejudice of the mining sector in particular and our economy in
general, merely on the basis of the omission of the terms service
contract from or the failure to carry them over to the new Constitution. There
has to be a much more definite and even unarguable basis for such a drastic
reversal of policies.
Fourth, a literal and restrictive interpretation of paragraph 4, such as that
proposed by petitioners, suffers from certain internal logical inconsistencies
that generate ambiguities in the understanding of the provision. As the
intervenor pointed out, there has never been any constitutional or statutory
provision that reserved to Filipino citizens or corporations, at least 60 percent
of which is Filipino-owned, the rendition of financial or technical assistance to
companies engaged in mining or the development of any other natural
resource. The taking out of foreign-currency or peso-denominated loans or
any other kind of financial assistance, as well as the rendition of technical
assistance -- whether to the State or to any other entity in the Philippines --
has never been restricted in favor of Filipino citizens or corporations having a
certain minimum percentage of Filipino equity. Such a restriction would
certainly be preposterous and unnecessary. As a matter of fact, financial, and
even technical assistance, regardless of the nationality of its source, would be
welcomed in the mining industry anytime with open arms, on account of the
dearth of local capital and the need to continually update technological know-
how and improve technical skills.
There was therefore no need for a constitutional provision specifically
allowing foreign-owned corporations to render financial or technical
assistance, whether in respect of mining or some other resource development
or commercial activity in the Philippines. The last point needs to be
emphasized: if merely financial or technical assistance agreements are
allowed, there would be no need to limit them to large-scale mining
operations, as there would be far greater need for them in the smaller-
scale mining activities (and even in non-mining areas). Obviously, the
provision in question was intended to refer to agreements other than
those for mere financial or technical assistance.
In like manner, there would be no need to require the President of the
Republic to report to Congress, if only financial or technical assistance
agreements are involved. Such agreements are in the nature of foreign loans
that -- pursuant to Section 20 of Article VII
[39]
of the 1987 Constitution -- the
President may contract or guarantee, merely with the prior concurrence of the
Monetary Board. In turn, the Board is required to report to Congress within
thirty days from the end of every quarter of the calendar year, not thirty days
after the agreement is entered into.
And if paragraph 4 permits only agreements for loans and other forms of
financial, or technical assistance, what is the point of requiring that they
be based on real contributions to the economic growth and general welfare of
the country? For instance, how is one to measure and assess the real
contributions to the economic growth and general welfare of the country
that may ensue from a foreign-currency loan agreement or a technical-
assistance agreement for, say, the refurbishing of an existing power
generating plant for a mining operation somewhere in Mindanao? Such a
criterion would make more sense when applied to a major business
investment in a principal sector of the industry.
The conclusion is clear and inescapable -- a verba legis construction
shows that paragraph 4 is not to be understood as one limited only to foreign
loans (or other forms of financial support) and to technical assistance. There
is definitely more to it than that. These are provisions permitting
participation by foreign companies; requiring the Presidents report to
Congress; and using, as yardstick, contributions based on economic
growth and general welfare. These were neither accidentally inserted
into the Constitution nor carelessly cobbled together by the drafters in
lip service to shallow nationalism. The provisions patently have
significance and usefulness in a context that allows agreements with foreign
companies to include more than mere financial or technical assistance.
Fifth, it is argued that Section 2 of Article XII authorizes nothing more than
a rendition of specific and limited financial service or technical assistance by a
foreign company. This argument begs the question To whom or for whom
would it be rendered? or Who is being assisted? If the answer is The State,
then it necessarily implies that the State itself is the
one directly and solely undertaking the large-scale exploration, development
and utilization of a mineral resource, so it follows that the State must itself
bear the liability and cost of repaying the financing sourced from the foreign
lender and/or of paying compensation to the foreign entity rendering technical
assistance.
However, it is of common knowledge, and of judicial notice as well, that
the government is and has for many many years been financially strapped, to
the point that even the most essential services have suffered serious
curtailments -- education and health care, for instance, not to mention judicial
services -- have had to make do with inadequate budgetary allocations. Thus,
government has had to resort to build-operate-transfer and similar
arrangements with the private sector, in order to get vital infrastructure
projects built without any governmental outlay.
The very recent brouhaha over the gargantuan fiscal crisis or budget
deficit merely confirms what the ordinary citizen has suspected all
along. After the reality check, one will have to admit the implausibility of a
direct undertaking -- by the State itself -- of large-scale exploration,
development and utilization of minerals, petroleum and other mineral
oils. Such an undertaking entails not only humongous capital requirements,
but also the attendant risk of never finding and developing economically viable
quantities of minerals, petroleum and other mineral oils.
[40]

It is equally difficult to imagine that such a provision restricting foreign
companies to the rendition of only financial or technical assistance to the
government was deliberately crafted by the drafters of the Constitution, who
were all well aware of the capital-intensive and technology-oriented nature of
large-scale mineral or petroleum extraction and the countrys deficiency in
precisely those areas.
[41]
To say so would be tantamount to asserting that the
provision was purposely designed to ladle the large-scale development and
utilization of mineral, petroleum and related resources with impossible
conditions; and to remain forever and permanently reserved for future
generations of Filipinos.
A More Reasonable Look
at the Charters Plain Language
Sixth, we shall now look closer at the plain language of the Charter and
examining the logical inferences. The drafters chose to emphasize and
highlight agreements x x x involving either technical or financial assistance in
relation to foreign corporations participation in large-scale EDU. The
inclusion of this clause on technical or financial assistance recognizes the
fact that foreign business entities and multinational corporations are the ones
with the resources and know-how to provide technical and/or financial
assistance of the magnitude and type required for large-scale exploration,
development and utilization of these resources.
The drafters -- whose ranks included many academicians, economists,
businessmen, lawyers, politicians and government officials -- were not
unfamiliar with the practices of foreign corporations and multinationals.
Neither were they so nave as to believe that these entities would provide
assistance without conditionalities or some quid pro quo. Definitely, as
business persons well know and as a matter of judicial notice, this matter is
not just a question of signing a promissory note or executing a technology
transfer agreement. Foreign corporations usually require that they be given a
say in the management, for instance, of day-to-day operations of the joint
venture. They would demand the appointment of their own men as, for
example, operations managers, technical experts, quality control heads,
internal auditors or comptrollers. Furthermore, they would probably require
seats on the Board of Directors -- all these to ensure the success of the
enterprise and the repayment of the loans and other financial assistance and
to make certain that the funding and the technology they supply would not go
to waste. Ultimately, they would also want to protect their business reputation
and bottom lines.
[42]

In short, the drafters will have to be credited with enough pragmatism and
savvy to know that these foreign entities will not enter into such agreements
involving assistance without requiring arrangements for the protection of their
investments, gains and benefits.
Thus, by specifying such agreements involving assistance, the drafters
necessarily gave implied assent to everything that these agreements
necessarily entailed; or that could reasonably be deemed necessary to make
them tenable and effective, including management authority with respect to
the day-to-day operations of the enterprise and measures for the protection of
the interests of the foreign corporation, PROVIDED THAT Philippine
sovereignty over natural resources and full control over the enterprise
undertaking the EDU activities remain firmly in the State.
Petitioners Theory Deflated by the
Absence of Closing-Out Rules or Guidelines
Seventh and final point regarding the plain-language approach, one of the
practical difficulties that results from it is the fact that there is nothing by way
of transitory provisions that would serve to confirm the theory that the
omission of the term service contract from the 1987 Constitution signaled the
demise of service contracts.
The framers knew at the time they were deliberating that there were
various service contracts extant and in force and effect, including those in the
petroleum industry. Many of these service contracts were long-term (25
years) and had several more years to run. If they had meant to ban service
contracts altogether, they would have had to provide for the termination or
pretermination of the existing contracts. Accordingly, they would have
supplied the specifics and the when and how of effecting the extinguishment
of these existing contracts (or at least the mechanics for determining them);
and of putting in place the means to address the just claims of the contractors
for compensation for their investments, lost opportunities, and so on, if not for
the recovery thereof.
If the framers had intended to put an end to service contracts, they would
have at least left specific instructions to Congress to deal with these closing-
out issues, perhaps by way of general guidelines and a timeline within which
to carry them out. The following are some extant examples of such transitory
guidelines set forth in Article XVIII of our Constitution:
Section 23. Advertising entities affected by paragraph (2), Section 11 of Article XVI
of this Constitution shall have five years from its ratification to comply on a
graduated and proportionate basis with the minimum Filipino ownership requirement
therein.
x x x x x x x x x
Section 25. After the expiration in 1991 of the Agreement between the Republic of
the Philippines and the United States of America concerning military bases, foreign
military bases, troops, or facilities shall not be allowed in the Philippines except
under a treaty duly concurred in by the Senate and, when the Congress so requires,
ratified by a majority of the votes cast by the people in a national referendum held for
that purpose, and recognized as a treaty by the other contracting State.
Section 26. The authority to issue sequestration or freeze orders under Proclamation
No. 3 dated March 25, 1986 in relation to the recovery of ill-gotten wealth shall
remain operative for not more than eighteen months after the ratification of this
Constitution. However, in the national interest, as certified by the President, the
Congress may extend such period.
A sequestration or freeze order shall be issued only upon showing of a prima facie
case. The order and the list of the sequestered or frozen properties shall forthwith be
registered with the proper court. For orders issued before the ratification of this
Constitution, the corresponding judicial action or proceeding shall be filed within six
months from its ratification. For those issued after such ratification, the judicial
action or proceeding shall be commenced within six months from the issuance thereof.
The sequestration or freeze order is deemed automatically lifted if no judicial action
or proceeding is commenced as herein provided.
[43]

It is inconceivable that the drafters of the Constitution would leave such an
important matter -- an expression of sovereignty as it were -- indefinitely
hanging in the air in a formless and ineffective state. Indeed, the complete
absence of even a general framework only serves to further deflate
petitioners theory, like a childs balloon losing its air.
Under the circumstances, the logical inconsistencies resulting from
petitioners literal and purely verba legis approach to paragraph 4 of Section 2
of Article XII compel a resort to other aids to interpretation.
Petitioners Posture Also Negated
by Ratio Legis Et Anima
Thus, in order to resolve the inconsistencies, incongruities and ambiguities
encountered and to supply the deficiencies of the plain-language approach,
there is a need for recourse to the proceedings of the 1986 Constitutional
Commission. There is a need for ratio legis et anima.
Service Contracts Not
Deconstitutionalized
Pertinent portions of the deliberations of the members of the Constitutional
Commission (ConCom) conclusively show that they discussedagreements
involving either technical or financial assistance in the same breadth
as service contracts and used the terms interchangeably. The following
exchange between Commissioner Jamir (sponsor of the provision) and
Commissioner Suarez irrefutably proves that the agreements involving
technical or financial assistance were none other than service contracts.
THE PRESIDENT. Commissioner Jamir is recognized. We are still on Section 3.
MR. JAMIR. Yes, Madam President. With respect to the second paragraph of Section
3, my amendment by substitution reads: THE PRESIDENT MAY ENTER INTO
AGREEMENTS WITH FOREIGN-OWNED CORPORATIONS INVOLVING
EITHER TECHNICAL OR FINANCIAL ASSISTANCE FOR LARGE-SCALE
EXPLORATION, DEVELOPMENT AND UTILIZATION OF NATURAL
RESOURCES ACCORDING TO THE TERMS AND CONDITIONS PROVIDED BY
LAW.
MR. VILLEGAS. The Committee accepts the amendment. Commissioner Suarez will
give the background.
MR. JAMIR. Thank you.
THE PRESIDENT. Commissioner Suarez is recognized.
MR. SUAREZ. Thank you, Madam President.
Will Commissioner Jamir answer a few clarificatory questions?
MR. JAMIR. Yes, Madam President.
MR. SUAREZ. This particular portion of the section has reference to what was
popularly known before as service contracts, among other things, is that
correct?
MR. JAMIR. Yes, Madam President.
MR. SUAREZ. As it is formulated, the President may enter into service contracts but
subject to the guidelines that may be promulgated by Congress?
MR. JAMIR. That is correct.
MR. SUAREZ. Therefore, that aspect of negotiation and consummation will fall on the
President, not upon Congress?
MR. JAMIR. That is also correct, Madam President.
MR. SUAREZ. Except that all of these contracts, service or otherwise, must be
made strictly in accordance with guidelines prescribed by Congress?
MR. JAMIR. That is also correct.
MR. SUAREZ. And the Gentleman is thinking in terms of a law that uniformly covers
situations of the same nature?
MR. JAMIR. That is 100 percent correct.
MR. SUAREZ. I thank the Commissioner.
MR. JAMIR. Thank you very much.
[44]

The following exchange leaves no doubt that the commissioners knew
exactly what they were dealing with: service contracts.
THE PRESIDENT. Commissioner Gascon is recognized.
MR. GASCON. Commissioner Jamir had proposed an amendment with regard to
special service contracts which was accepted by the Committee. Since the
Committee has accepted it, I would like to ask some questions.
THE PRESIDENT. Commissioner Gascon may proceed.
MR. GASCON. As it is proposed now, such service contracts will be entered into by
the President with the guidelines of a general law onservice contract to be
enacted by Congress. Is that correct?
MR. VILLEGAS. The Commissioner is right, Madam President.
MR. GASCON. According to the original proposal, if the President were to enter into a
particular agreement, he would need the concurrence of Congress. Now that it
has been changed by the proposal of Commissioner Jamir in that Congress will
set the general law to which the President shall comply, the President will,
therefore, not need the concurrence of Congress every time he enters into service
contracts. Is that correct?
MR. VILLEGAS. That is right.
MR. GASCON. The proposed amendment of Commissioner Jamir is in indirect
contrast to my proposed amendment, so I would like to object and present my
proposed amendment to the body.
x x x x x x x x x
MR. GASCON. Yes, it will be up to the body.
I feel that the general law to be set by Congress as regard service contract
agreements which the President will enter into might be too general or since we
do not know the content yet of such a law, it might be that certain agreements will
be detrimental to the interest of the Filipinos. This is in direct contrast to my
proposal which provides that there be effective constraints in the implementation
of service contracts.
So instead of a general law to be passed by Congress to serve as a guideline to the
President when entering into service contract agreements, I propose that
every service contract entered into by the President would need the concurrence
of Congress, so as to assure the Filipinos of their interests with regard to the issue
in Section 3 on all lands of the public domain. My alternative amendment, which
we will discuss later, reads: THAT THE PRESIDENT SHALL ENTER INTO SUCH
AGREEMENTS ONLY WITH THE CONCURRENCE OF TWO-THIRDS VOTE OF
ALL THE MEMBERS OF CONGRESS SITTING SEPARATELY.
x x x x x x x x x
MR. BENGZON. The reason we made that shift is that we realized the original
proposal could breed corruption. By the way, this is not just confined to service
contracts but also to financial assistance. If we are going to make every single
contract subject to the concurrence of Congress which, according to the
Commissioners amendment is the concurrence of two-thirds of Congress voting
separately then (1) there is a very great chance that each contract will be
different from another; and (2) there is a great temptation that it would breed
corruption because of the great lobbying that is going to happen. And we do not
want to subject our legislature to that.
Now, to answer the Commissioners apprehension, by general law, we do not mean
statements of motherhood. Congress can build all the restrictions that it wishes into
that general law so that every contract entered into by the President under that specific
area will have to be uniform. The President has no choice but to follow all the
guidelines that will be provided by law.
MR. GASCON. But my basic problem is that we do not know as of yet the contents of
such a general law as to how much constraints there will be in it. And to my mind,
although the Committees contention that the regular concurrence from Congress
would subject Congress to extensive lobbying, I think that is a risk we will have to
take since Congress is a body of representatives of the people whose membership
will be changing regularly as there will be changing circumstances every time
certain agreements are made. It would be best then to keep in tab and attuned to
the interest of the Filipino people, whenever the President enters into any
agreement with regard to such an important matter as technical or financial
assistance for large-scale exploration, development and utilization of natural
resources or service contracts, the peoples elected representatives should be
on top of it.
x x x x x x x x x
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
EVERYSERVICE 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.
x x x x x x x x x
SR. TAN. Madam President, may I ask a question?
THE PRESIDENT. Commissioner Tan is recognized.
SR. TAN. Am I correct in thinking that the only difference between these
future service contracts and the past service contracts under Mr. Marcos is the
general law to be enacted by the legislature and the notification of Congress by the
President? That is the only difference, is it not?
MR. VILLEGAS. That is right.
SR. TAN. So those are the safeguards.
MR. VILLEGAS. Yes. There was no law at all governing service contracts before.
SR. TAN. Thank you, Madam President.
[45]

More Than Mere Financial
and Technical Assistance
Entailed by the Agreements
The clear words of Commissioner Jose N. Nolledo quoted below explicitly
and eloquently demonstrate that the drafters knew that the agreements with
foreign corporations were going to entail not mere technical or financial
assistance but, rather, foreign investment in and management of an enterprise
involved in large-scale exploration, development and utilization of minerals,
petroleum, and other mineral oils.
THE PRESIDENT. Commissioner Nolledo is recognized.
MR. NOLLEDO. Madam President, I have the permission of the Acting Floor Leader to
speak for only two minutes in favor of the amendment of Commissioner Gascon.
THE PRESIDENT. Commissioner Nolledo may proceed.
MR. NOLLEDO. With due respect to the members of the Committee and
Commissioner Jamir, I am in favor of the objection of Commissioner Gascon.
Madam President, I was one of those who refused to sign the 1973 Constitution, and
one of the reasons is that there were many provisions in the Transitory Provisions
therein that favored aliens. I was shocked when I read a provision authorizing service
contracts while we, in this Constitutional Commission, provided for Filipino control
of the economy. We are, therefore, providing for exceptional instances where aliens
may circumvent Filipino control of our economy. And one way of circumventing the
rule in favor of Filipino control of the economy is to recognize service contracts.
As far as I am concerned, if I should have my own way, I am for the complete
deletion of this provision. However, we are presenting a compromise in the sense
that we are requiring a two-thirds vote of all the Members of Congress as a
safeguard. I think we should not mistrust the future Members of Congress by saying
that the purpose of this provision is to avoid corruption. We cannot claim that they
are less patriotic than we are. I think the Members of this Commission should know
that entering into service contracts is an exception to the rule on protection of natural
resources for the interest of the nation, and therefore, being an exception it should be
subject, whenever possible, to stringent rules. It seems to me that we are liberalizing
the rules in favor of aliens.
I say these things with a heavy heart, Madam President. I do not claim to be a
nationalist, but I love my country. Although we need investments, we must adopt
safeguards that are truly reflective of the sentiments of the people and not mere
cosmetic safeguards as they now appear in the Jamir amendment. (Applause)
Thank you, Madam President.
[46]

Another excerpt, featuring then Commissioner (now Chief Justice) Hilario
G. Davide Jr., indicates the limitations of the scope of such service contracts -
- they are valid only in regard to minerals, petroleum and other mineral oils,
not to all natural resources.
THE PRESIDENT. Commissioner Davide is recognized.
MR. DAVIDE. Thank you, Madam President. This is an amendment to the Jamir
amendment and also to the Ople amendment. I propose to delete NATURAL
RESOURCES and substitute it with the following: MINERALS, PETROLEUM
AND OTHER MINERAL OILS. On the Ople amendment, I propose to add: THE
NOTIFICATION TO CONGRESS SHALL BE WITHIN THIRTY DAYS FROM THE
EXECUTION OF THE SERVICE CONTRACT.
THE PRESIDENT. What does the Committee say with respect to the first amendment
in lieu of NATURAL RESOURCES?
MR. VILLEGAS. Could Commissioner Davide explain that?
MR. DAVIDE. Madam President, with the use of NATURAL RESOURCES here, it
would necessarily include all lands of the public domain, our marine resources,
forests, parks and so on. So we would like to limit the scope of these service
contracts to those areas really where these may be needed, the exploitation,
development and exploration of minerals, petroleum and other mineral oils. And
so, we believe that we should really, if we want to grant service contracts at all,
limit the same to only those particular areas where Filipino capital may not be
sufficient, and not to all natural resources.
MR. SUAREZ. Just a point of clarification again, Madam President. When the
Commissioner made those enumerations and specifications, I suppose he
deliberately did not include agricultural land?
MR. DAVIDE. That is precisely the reason we have to enumerate what these
resources are into which service contracts may enter. So, beyond the reach of
any service contract will be lands of the public domain, timberlands, forests,
marine resources, fauna and flora, wildlife and national parks.
[47]

After the Jamir amendment was voted upon and approved by a vote of 21
to 10 with 2 abstentions, Commissioner Davide made the following statement,
which is very relevant to our quest:
THE PRESIDENT. Commissioner Davide is recognized.
MR. DAVIDE. I am very glad that Commissioner Padilla emphasized minerals,
petroleum and mineral oils. The Commission has just approved the possible
foreign entry into the development, exploration and utilization of these minerals,
petroleum and other mineral oils by virtue of the Jamir amendment. I voted in
favor of the Jamir amendment because it will eventually give way to vesting in
exclusively Filipino citizens and corporations wholly owned by Filipino citizens the
right to utilize the other natural resources. This means that as a matter of policy,
natural resources should be utilized and exploited only by Filipino citizens or
corporations wholly owned by such citizens. But by virtue of the Jamir
amendment, since we feel that Filipino capital may not be enough for the
development and utilization of minerals, petroleum and other mineral oils, the
President can enter into service contracts with foreign corporations precisely for
the development and utilization of such resources. And so, there is nothing to fear
that we will stagnate in the development of minerals, petroleum and
mineral oils because we now allow service contracts. x x x.
[48]

The foregoing are mere fragments of the framers lengthy discussions of
the provision dealing with agreements x x x involving either technical or
financial assistance, which ultimately became paragraph 4 of Section 2 of
Article XII of the Constitution. Beyond any doubt, the members of the
ConCom were actually debating about the martial-law-era service
contracts for which they were crafting appropriate safeguards.
In the voting that led to the approval of Article XII by the ConCom, the
explanations given by Commissioners Gascon, Garcia and Tadeo indicated
that they had voted to reject this provision on account of their objections to the
constitutionalization of the service contract concept.
Mr. Gascon said, I felt that if we would constitutionalize any provision
on service contracts, this should always be with the concurrence of
Congress and not guided only by a general law to be promulgated by
Congress.
[49]
Mr. Garcia explained, Service contracts are given
constitutional legitimization in Sec. 3, even when they have been proven to be
inimical to the interests of the nation, providing, as they do, the legal loophole
for the exploitation of our natural resources for the benefit of foreign
interests.
[50]
Likewise, Mr. Tadeo cited inter alia the fact that service contracts
continued to subsist, enabling foreign interests to benefit from our natural
resources.
[51]
It was hardly likely that these gentlemen would have
objected so strenuously, had the provision called for mere technical or
financial assistance and nothing more.
The deliberations of the ConCom and some commissioners explanation of
their votes leave no room for doubt that the service contract concept precisely
underpinned the commissioners understanding of the agreements involving
either technical or financial assistance.
Summation of the
Concom Deliberations
At this point, we sum up the matters established, based on a careful
reading of the ConCom deliberations, as follows:
In their deliberations on what was to become paragraph 4, the
framers used the term service contracts in referring
toagreements x x x involving either technical or financial
assistance.
They spoke of service contracts as the concept was understood
in the 1973 Constitution.
It was obvious from their discussions that they were not about to
ban or eradicate service contracts.
Instead, they were plainly crafting provisions to put in place
safeguards that would eliminate or minimize the abuses
prevalent during the marital law regime. In brief, they were
going to permit service contracts with foreign corporations as
contractors, but with safety measures to prevent abuses, as an
exception to the general norm established in the first paragraph
of Section 2 of Article XII. This provision reserves or limits to
Filipino citizens -- and corporations at least 60 percent of which
is owned by such citizens -- the exploration, development and
utilization of natural resources.
This provision was prompted by the perceived insufficiency of
Filipino capital and the felt need for foreign investments in the
EDU of minerals and petroleum resources.
The framers for the most part debated about the sort of
safeguards that would be considered adequate and
reasonable. But some of them, having more radical leanings,
wanted to ban service contracts altogether; for them, the
provision would permit aliens to exploit and benefit from the
nations natural resources, which they felt should be reserved
only for Filipinos.
In the explanation of their votes, the individual commissioners
were heard by the entire body. They sounded off their individual
opinions, openly enunciated their philosophies, and supported or
attacked the provisions with fervor. Everyones viewpoint was
heard.
In the final voting, the Article on the National Economy and
Patrimony -- including paragraph 4 allowing service contracts
with foreign corporations as an exception to the general norm in
paragraph 1 of Section 2 of the same article -- was resoundingly
approved by a vote of 32 to 7, with 2 abstentions.
Agreements Involving Technical
or Financial Assistance Are
Service Contracts With Safeguards
From the foregoing, we are impelled to conclude that the
phrase agreements involving either technical or financial assistance, referred
to in paragraph 4, are in fact service contracts. But unlike those of the 1973
variety, the new ones are between foreign corporations acting as contractors
on the one hand; and on the other, the government as principal or owner of
the works. In the new service contracts, the foreign contractors provide
capital, technology and technical know-how, and managerial expertise in the
creation and operation of large-scale mining/extractive enterprises; and the
government, through its agencies (DENR, MGB), actively exercises control
and supervision over the entire operation.
Such service contracts may be entered into only with respect to minerals,
petroleum and other mineral oils. The grant thereof is subject to several
safeguards, among which are these requirements:
(1) The service contract shall be crafted in accordance with a general law that will
set standard or uniform terms, conditions and requirements, presumably to attain a
certain uniformity in provisions and avoid the possible insertion of terms
disadvantageous to the country.
(2) The President shall be the signatory for the government because, supposedly
before an agreement is presented to the President for signature, it will have been
vetted several times over at different levels to ensure that it conforms to law and can
withstand public scrutiny.
(3) Within thirty days of the executed agreement, the President shall report it to
Congress to give that branch of government an opportunity to look over the agreement
and interpose timely objections, if any.
Use of the Record of the
ConCom to Ascertain Intent
At this juncture, we shall address, rather than gloss over, the use of the
framers intent approach, and the criticism hurled by petitioners who quote a
ruling of this Court:
While it is permissible in this jurisdiction to consult the debates and proceedings of
the constitutional convention in order to arrive at the reason and purpose of the
resulting Constitution, resort thereto may be had only when other guides fail as said
proceedings are powerless to vary the terms of the Constitution when the meaning is
clear. Debates in the constitutional convention are of value as showing the views of
the individual members, and as indicating the reason for their votes, but they give us
no light as to the views of the large majority who did not talk, much less the mass of
our fellow citizens whose votes at the polls gave that instrument the force of
fundamental law. We think it safer to construe the constitution from what appears
upon its face. The proper interpretation therefore depends more on how it was
understood by the people adopting it than in the framers understanding thereof.
[52]

The notion that the deliberations reflect only the views of those members
who spoke out and not the views of the majority who remained silent should
be clarified. We must never forget that those who spoke out were heard by
those who remained silent and did not react. If the latter were silent because
they happened not to be present at the time, they are presumed to have read
the minutes and kept abreast of the deliberations. By remaining silent, they
are deemed to have signified their assent to and/or conformity with at least
some of the views propounded or their lack of objections thereto. It was
incumbent upon them, as representatives of the entire Filipino people, to
follow the deliberations closely and to speak their minds on the matter if they
did not see eye to eye with the proponents of the draft provisions.
In any event, each and every one of the commissioners had the
opportunity to speak out and to vote on the matter. Moreover, the individual
explanations of votes are on record, and they show where each delegate
stood on the issues. In sum, we cannot completely denigrate the value or
usefulness of the record of the ConCom, simply because certain
members chose not to speak out.
It is contended that the deliberations therein did not necessarily reflect the
thinking of the voting population that participated in the referendum and
ratified the Constitution. Verily, whether we like it or not, it is a bit too much to
assume that every one of those who voted to ratify the proposed Charter did
so only after carefully reading and mulling over it, provision by provision.
Likewise, it appears rather extravagant to assume that every one of those
who did in fact bother to read the draft Charter actually understood the import
of its provisions, much less analyzed it vis--vis the previous
Constitutions. We believe that in reality, a good percentage of those who
voted in favor of it did so more out of faith and trust. For them, it was the
product of the hard work and careful deliberation of a group of intelligent,
dedicated and trustworthy men and women of integrity and conviction, whose
love of country and fidelity to duty could not be questioned.
In short, a large proportion of the voters voted yes because the drafters,
or a majority of them, endorsed the proposed Constitution. What this fact
translates to is the inescapable conclusion that many of the voters in the
referendum did not form their own isolated judgment about the draft Charter,
much less about particular provisions therein. They only relied or fell back
and acted upon the favorable endorsement or recommendation of the framers
as a group. In other words, by voting yes, they may be deemed to have
signified their voluntary adoption of the understanding and interpretation of the
delegates with respect to the proposed Charter and its particular
provisions. If its good enough for them, its good enough for me; or, in many
instances, If its good enough for President Cory Aquino, its good enough for
me.
And even for those who voted based on their own individual
assessment of the proposed Charter, there is no evidence available to
indicate that their assessment or understanding of its provisions was in fact
different from that of the drafters. This unwritten assumption seems to be
petitioners as well. For all we know, this segment of voters must have read
and understood the provisions of the Constitution in the same way the framers
had, an assumption that would account for the favorable votes.
Fundamentally speaking, in the process of rewriting the Charter, the
members of the ConCom as a group were supposed to represent the entire
Filipino people. Thus, we cannot but regard their views as being very much
indicative of the thinking of the people with respect to the matters deliberated
upon and to the Charter as a whole.
It is therefore reasonable and unavoidable to make the following
conclusion, based on the above arguments. As written by the framers
and ratified and adopted by the people, the Constitution allows the
continued use of service contracts with foreign corporations -- as
contractors who would invest in and operate and manage extractive
enterprises, subject to the full control and supervision of the State --
sans the abuses of the past regime. The purpose is clear: to develop
and utilize our mineral, petroleum and other resources on a large scale
for the immediate and tangible benefit of the Filipino people.
In view of the foregoing discussion, we should reverse the Decision of
January 27, 2004, and in fact now hold a view different from that of the
Decision, which had these findings: (a) paragraph 4 of Section 2 of Article XII
limits foreign involvement in the local mining industry to agreements strictly for
either financial or technical assistance only; (b) the same paragraph precludes
agreements that grant to foreign corporations the management of local mining
operations, as such agreements are purportedly in the nature of service
contracts as these were understood under the 1973 Constitution; (c) these
service contracts were supposedly de-constitutionalized and proscribed by
the omission of the term service contracts from the 1987 Constitution; (d)
since the WMCP FTAA contains provisions permitting the foreign contractor to
manage the concern, the said FTAA is invalid for being a prohibited service
contract; and (e) provisions of RA 7942 and DAO 96-40, which likewise grant
managerial authority to the foreign contractor, are also invalid and
unconstitutional.
Ultimate Test: States Control
Determinative of Constitutionality
But we are not yet at the end of our quest. Far from it. It seems that we
are confronted with a possible collision of constitutional provisions. On the
one hand, paragraph 1 of Section 2 of Article XII explicitly mandates the State
to exercise full control and supervision over the exploration, development
and utilization of natural resources. On the other hand, paragraph 4 permits
safeguarded service contracts with foreign contractors. Normally, pursuant
thereto, the contractors exercise management prerogatives over the mining
operations and the enterprise as a whole. There is thus a legitimate ground to
be concerned that either the States full control and supervision may rule out
any exercise of management authority by the foreign contractor; or, the other
way around, allowing the foreign contractor full management prerogatives
may ultimately negate the States full control and supervision.
Ut Magis Valeat
Quam Pereat
Under the third principle of constitutional construction laid down
in Francisco -- ut magis valeat quam pereat -- every part of the Constitution is
to be given effect, and the Constitution is to be read and understood as a
harmonious whole. Thus, full control and supervision by the State must be
understood as one that does not preclude the legitimate exercise of
management prerogatives by the foreign contractor. Before any further
discussion, we must stress the primacy and supremacy of the principle of
sovereignty and State control and supervision over all aspects of exploration,
development and utilization of the countrys natural resources, as mandated in
the first paragraph of Section 2 of Article XII.
But in the next breadth we have to point out that full control and
supervision cannot be taken literally to mean that the State controls and
supervises everything involved, down to the minutest details, and makes all
decisions required in the mining operations. This strained concept of control
and supervision over the mining enterprise would render impossible the
legitimate exercise by the contractors of a reasonable degree of management
prerogative and authority necessary and indispensable to their proper
functioning.
For one thing, such an interpretation would discourage foreign entry into
large-scale exploration, development and utilization activities; and result in the
unmitigated stagnation of this sector, to the detriment of our nations
development. This scenario renders paragraph 4 inoperative and
useless. And as respondents have correctly pointed out, the government
does not have to micro-manage the mining operations and dip its hands into
the day-to-day affairs of the enterprise in order for it to be considered as
having full control and supervision.
The concept of control
[53]
adopted in Section 2 of Article XII must be taken
to mean less than dictatorial, all-encompassing control; but nevertheless
sufficient to give the State the power to direct, restrain, regulate and govern
the affairs of the extractive enterprises. Control by the State may be on a
macro level, through the establishment of policies, guidelines, regulations,
industry standards and similar measures that would enable the government to
control the conduct of affairs in various enterprises and restrain activities
deemed not desirable or beneficial.
The end in view is ensuring that these enterprises contribute to the
economic development and general welfare of the country, conserve the
environment, and uplift the well-being of the affected local communities. Such
a concept of control would be compatible with permitting the foreign contractor
sufficient and reasonable management authority over the enterprise it
invested in, in order to ensure that it is operating efficiently and profitably, to
protect its investments and to enable it to succeed.
The question to be answered, then, is whether RA 7942 and its
Implementing Rules enable the government to exercise that degree of
control sufficient to direct and regulate the conduct of affairs of
individual enterprises and restrain undesirable activities.
On the resolution of these questions will depend the validity and
constitutionality of certain provisions of the Philippine Mining Act of 1995 (RA
7942) and its Implementing Rules and Regulations (DAO 96-40), as well as
the WMCP FTAA.
Indeed, petitioners charge
[54]
that RA 7942, as well as its Implementing
Rules and Regulations, makes it possible for FTAA contracts to cede full
control and management of mining enterprises over to fully foreign-owned
corporations, with the result that the State is allegedly reduced to a passive
regulator dependent on submitted plans and reports, with weak review and
audit powers. The State does not supposedly act as the owner of the natural
resources for and on behalf of the Filipino people; it practically has little
effective say in the decisions made by the enterprise. Petitioners then
conclude that the law, the implementing regulations, and the WMCP FTAA
cede beneficial ownership of the mineral resources to the foreign contractor.
A careful scrutiny of the provisions of RA 7942 and its Implementing Rules
belies petitioners claims. Paraphrasing the Constitution, Section 4 of the
statute clearly affirms the States control thus:
Sec. 4. Ownership of Mineral Resources. Mineral resources are owned by the
State and the exploration, development, utilization and processing thereof shall be
under its full control and supervision. The State may directly undertake such
activities or it may enter into mineral agreements with contractors.
The State shall recognize and protect the rights of the indigenous cultural
communities to their ancestral lands as provided for by the Constitution.
The aforequoted provision is substantively reiterated in Section 2 of DAO
96-40 as follows:
Sec. 2. Declaration of Policy. All mineral resources in public and private lands
within the territory and exclusive economic zone of the Republic of the Philippines are
owned by the State. It shall be the responsibility of the State to promote their rational
exploration, development, utilization and conservation through the combined efforts
of the Government and private sector in order to enhance national growth in a way
that effectively safeguards the environment and protects the rights of affected
communities.
Sufficient Control Over Mining
Operations Vested in the State
by RA 7942 and DAO 96-40
RA 7942 provides for the States control and supervision over mining
operations. The following provisions thereof establish the mechanism of
inspection and visitorial rights over mining operations and institute reportorial
requirements in this manner:
1. Sec. 8 which provides for the DENRs power of over-all supervision
and periodic review for the conservation, management, development
and proper use of the States mineral resources;
2. Sec. 9 which authorizes the Mines and Geosciences Bureau (MGB)
under the DENR to exercise direct charge in the administration and
disposition of mineral resources, and empowers the MGB to monitor
the compliance by the contractor of the terms and conditions of the
mineral agreements, confiscate surety and performance bonds, and
deputize whenever necessary any member or unit of the Phil. National
Police, barangay, duly registered non-governmental organization (NGO)
or any qualified person to police mining activities;
3. Sec. 66 which vests in the Regional Director exclusive jurisdiction
over safety inspections of all installations, whether surface or
underground, utilized in mining operations.
4. Sec. 35, which incorporates into all FTAAs the following terms,
conditions and warranties:
(g) Mining operations shall be conducted in accordance with
the provisions of the Act and its IRR.
(h) Work programs and minimum expenditures commitments.
x x x x x x x x x
(k) Requiring proponent to effectively use appropriate anti-
pollution technology and facilities to protect the environment
and restore or rehabilitate mined-out areas.
(l) The contractors shall furnish the Government records of
geologic, accounting and other relevant data for its mining
operation, and that books of accounts and records shall be
open for inspection by the government. x x x.
(m) Requiring the proponent to dispose of the minerals at the
highest price and more advantageous terms and conditions.
(n) x x x x x x x x x
(o) Such other terms and conditions consistent with the
Constitution and with this Act as the Secretary may deem to
be for the best interest of the State and the welfare of the
Filipino people.
The foregoing provisions of Section 35 of RA 7942 are also reflected and
implemented in Section 56 (g), (h), (l), (m) and (n) of the Implementing Rules,
DAO 96-40.
Moreover, RA 7942 and DAO 96-40 also provide various stipulations
confirming the governments control over mining enterprises:
The contractor is to relinquish to the government those portions of
the contract area not needed for mining operations and not covered
by any declaration of mining feasibility (Section 35-e, RA 7942;
Section 60, DAO 96-40).
The contractor must comply with the provisions pertaining to mine
safety, health and environmental protection (Chapter XI, RA 7942;
Chapters XV and XVI, DAO 96-40).
For violation of any of its terms and conditions, government may
cancel an FTAA. (Chapter XVII, RA 7942; Chapter XXIV, DAO 96-
40).
An FTAA contractor is obliged to open its books of accounts and
records for inspection by the government (Section 56-m, DAO 96-
40).
An FTAA contractor has to dispose of the minerals and by-products
at the highest market price and register with the MGB a copy of the
sales agreement (Section 56-n, DAO 96-40).
MGB is mandated to monitor the contractors compliance with the
terms and conditions of the FTAA; and to deputize, when necessary,
any member or unit of the Philippine National Police, the barangay
or a DENR-accredited nongovernmental organization to police
mining activities (Section 7-d and -f, DAO 96-40).
An FTAA cannot be transferred or assigned without prior approval
by the President (Section 40, RA 7942; Section 66, DAO 96-40).
A mining project under an FTAA cannot proceed to the
construction/development/utilization stage, unless its Declaration of
Mining Project Feasibility has been approved by government
(Section 24, RA 7942).
The Declaration of Mining Project Feasibility filed by the contractor
cannot be approved without submission of the following documents:
1. Approved mining project feasibility study (Section 53-d,
DAO 96-40)
2. Approved three-year work program (Section 53-a-4,
DAO 96-40)
3. Environmental compliance certificate (Section 70, RA
7942)
4. Approved environmental protection and enhancement
program (Section 69, RA 7942)
5. Approval by the Sangguniang
Panlalawigan/Bayan/Barangay (Section 70, RA 7942;
Section 27, RA 7160)
6. Free and prior informed consent by the indigenous
peoples concerned, including payment of royalties
through a Memorandum of Agreement (Section 16, RA
7942; Section 59, RA 8371)
The FTAA contractor is obliged to assist in the
development of its mining community, promotion of the general
welfare of its inhabitants, and development of science and mining
technology (Section 57, RA 7942).
The FTAA contractor is obliged to submit reports (on
quarterly, semi-annual or annual basis as the case may be; per
Section 270, DAO 96-40), pertaining to the following:
1. Exploration
2. Drilling
3. Mineral resources and reserves
4. Energy consumption
5. Production
6. Sales and marketing
7. Employment
8. Payment of taxes, royalties, fees and other Government
Shares
9. Mine safety, health and environment
10. Land use
11. Social development
12. Explosives consumption
An FTAA pertaining to areas within government
reservations cannot be granted without a written clearance from the
government agencies concerned (Section 19, RA 7942; Section 54,
DAO 96-40).
An FTAA contractor is required to post a financial
guarantee bond in favor of the government in an amount equivalent
to its expenditures obligations for any particular year. This
requirement is apart from the representations and warranties of the
contractor that it has access to all the financing, managerial and
technical expertise and technology necessary to carry out the
objectives of the FTAA (Section 35-b, -e, and -f, RA 7942).
Other reports to be submitted by the contractor, as
required under DAO 96-40, are as follows: an environmental report
on the rehabilitation of the mined-out area and/or mine waste/tailing
covered area, and anti-pollution measures undertaken (Section 35-
a-2); annual reports of the mining operations and records of
geologic accounting (Section 56-m); annual progress reports and
final report of exploration activities (Section 56-2).
Other programs required to be submitted by the
contractor, pursuant to DAO 96-40, are the following: a safety and
health program (Section 144); an environmental work program
(Section 168); an annual environmental protection and
enhancement program (Section 171).
The foregoing gamut of requirements, regulations, restrictions and
limitations imposed upon the FTAA contractor by the statute and regulations
easily overturns petitioners contention. The setup under RA 7942 and DAO
96-40 hardly relegates the State to the role of a passive regulator dependent
on submitted plans and reports. On the contrary, the government agencies
concerned are empowered to approve or disapprove -- hence, to influence,
direct and change -- the various work programs and the corresponding
minimum expenditure commitments for each of the exploration, development
and utilization phases of the mining enterprise.
Once these plans and reports are approved, the contractor is bound to
comply with its commitments therein. Figures for mineral production and
sales are regularly monitored and subjected to government review, in order to
ensure that the products and by-products are disposed of at the best prices
possible; even copies of sales agreements have to be submitted to and
registered with MGB. And the contractor is mandated to open its books of
accounts and records for scrutiny, so as to enable the State to determine if the
government share has been fully paid.
The State may likewise compel the contractors compliance with
mandatory requirements on mine safety, health and environmental protection,
and the use of anti-pollution technology and facilities. Moreover, the
contractor is also obligated to assist in the development of the mining
community and to pay royalties to the indigenous peoples concerned.
Cancellation of the FTAA may be the penalty for violation of any of its
terms and conditions and/or noncompliance with statutes or regulations. This
general, all-around, multipurpose sanction is no trifling matter, especially to a
contractor who may have yet to recover the tens or hundreds of millions of
dollars sunk into a mining project.
Overall, considering the provisions of the statute and the regulations just
discussed, we believe that the State definitely possesses the means by which
it can have the ultimate word in the operation of the enterprise, set directions
and objectives, and detect deviations and noncompliance by the contractor;
likewise, it has the capability to enforce compliance and to impose sanctions,
should the occasion therefor arise.
In other words, the FTAA contractor is not free to do whatever it
pleases and get away with it; on the contrary, it will have to follow the
government line if it wants to stay in the enterprise. Ineluctably then, RA
7942 and DAO 96-40 vest in the government more than a sufficient
degree of control and supervision over the conduct of mining
operations.
Section 3(aq) of RA 7942
Not Unconstitutional
An objection has been expressed that Section 3(aq)
[55]
of RA 7942 -- which
allows a foreign contractor to apply for and hold an exploration permit -- is
unconstitutional. The reasoning is that Section 2 of Article XII of the
Constitution does not allow foreign-owned corporations to undertake mining
operations directly. They may act only as contractors of the State under an
FTAA; and the State, as the party directly undertaking exploitation of its
natural resources, must hold through the government all exploration permits
and similar authorizations. Hence, Section 3(aq), in permitting foreign-owned
corporations to hold exploration permits, is unconstitutional.
The objection, however, is not well-founded. While the Constitution
mandates the State to exercise full control and supervision over the
exploitation of mineral resources, nowhere does it require the government to
hold all exploration permits and similar authorizations. In fact, there is no
prohibition at all against foreign or local corporations or contractors holding
exploration permits. The reason is not hard to see.
Pursuant to Section 20 of RA 7942, an exploration permit merely grants to
a qualified person the right to conduct exploration for all minerals in specified
areas. Such a permit does not amount to an authorization to extract and carry
off the mineral resources that may be discovered. This phase involves
nothing but expenditures for exploring the contract area and locating the
mineral bodies. As no extraction is involved, there are no revenues or
incomes to speak of. In short, the exploration permit is an authorization for
the grantee to spend its own funds on exploration programs that are pre-
approved by the government, without any right to recover anything should no
minerals in commercial quantities be discovered. The State risks nothing and
loses nothing by granting these permits to local or foreign firms; in fact, it
stands to gain in the form of data generated by the exploration activities.
Pursuant to Section 24 of RA 7942, an exploration permit grantee who
determines the commercial viability of a mining area may, within the term of
the permit, file with the MGB a declaration of mining project feasibility
accompanied by a work program for development. The approval of the mining
project feasibility and compliance with other requirements of RA 7942 vests in
the grantee the exclusive right to an MPSA or any other mineral agreement, or
to an FTAA.
Thus, the permit grantee may apply for an MPSA, a joint venture
agreement, a co-production agreement, or an FTAA over the permit area, and
the application shall be approved if the permit grantee meets the necessary
qualifications and the terms and conditions of any such
agreement. Therefore, the contractor will be in a position to extract minerals
and earn revenues only when the MPSA or another mineral agreement, or an
FTAA, is granted. At that point, the contractors rights and obligations will be
covered by an FTAA or a mineral agreement.
But prior to the issuance of such FTAA or mineral agreement, the
exploration permit grantee (or prospective contractor) cannot yet be deemed
to have entered into any contract or agreement with the State, and the
grantee would definitely need to have some document or instrument as
evidence of its right to conduct exploration works within the specified
area. This need is met by the exploration permit issued pursuant to Sections
3(aq), 20 and 23 of RA 7942.
In brief, the exploration permit serves a practical and legitimate
purpose in that it protects the interests and preserves the rights of the
exploration permit grantee (the would-be contractor) -- foreign or local --
during the period of time that it is spending heavily on exploration
works, without yet being able to earn revenues to recoup any of its
investments and expenditures. Minus this permit and the protection it
affords, the exploration works and expenditures may end up benefiting only
claim-jumpers. Such a possibility tends to discourage investors and
contractors. Thus, Section 3(aq) of RA 7942 may not be deemed
unconstitutional.
The Terms of the WMCP FTAA
A Deference to State Control
A perusal of the WMCP FTAA also reveals a slew of stipulations providing
for State control and supervision:
1. The contractor is obligated to account for the value of production and sale of
minerals (Clause 1.4).
2. The contractors work program, activities and budgets must be approved by/on
behalf of the State (Clause 2.1).
3. The DENR secretary has the power to extend the exploration period (Clause 3.2-
a).
4. Approval by the State is necessary for incorporating lands into the FTAA contract
area (Clause 4.3-c).
5. The Bureau of Forest Development is vested with discretion in regard to
approving the inclusion of forest reserves as part of the FTAA contract area
(Clause 4.5).
6. The contractor is obliged to relinquish periodically parts of the contract area not
needed for exploration and development (Clause 4.6).
7. A Declaration of Mining Feasibility must be submitted for approval by the State
(Clause 4.6-b).
8. The contractor is obligated to report to the State its exploration activities (Clause
4.9).
9. The contractor is required to obtain State approval of its work programs for the
succeeding two-year periods, containing the proposed work activities and
expenditures budget related to exploration (Clause 5.1).
10. The contractor is required to obtain State approval for its proposed expenditures
for exploration activities (Clause 5.2).
11. The contractor is required to submit an annual report on geological, geophysical,
geochemical and other information relating to its explorations within the FTAA
area (Clause 5.3-a).
12. The contractor is to submit within six months after expiration of exploration period
a final report on all its findings in the contract area (Clause 5.3-b).
13. The contractor, after conducting feasibility studies, shall submit a declaration of
mining feasibility, along with a description of the area to be developed and mined,
a description of the proposed mining operations and the technology to be
employed, and a proposed work program for the development phase, for approval
by the DENR secretary (Clause 5.4).
14. The contractor is obliged to complete the development of the mine, including
construction of the production facilities, within the period stated in the approved
work program (Clause 6.1).
15. The contractor is obligated to submit for approval of the DENR secretary a work
program covering each period of three fiscal years (Clause 6.2).
16. The contractor is to submit reports to the DENR secretary on the production, ore
reserves, work accomplished and work in progress, profile of its work force and
management staff, and other technical information (Clause 6.3).
17. Any expansions, modifications, improvements and replacements of mining
facilities shall be subject to the approval of the secretary (Clause 6.4).
18. The State has control with respect to the amount of funds that the contractor may
borrow within the Philippines (Clause 7.2).
19. The State has supervisory power with respect to technical, financial and marketing
issues (Clause 10.1-a).
20. The contractor is required to ensure 60 percent Filipino equity in the contractor,
within ten years of recovering specified expenditures, unless not so required by
subsequent legislation (Clause 10.1).
21. The State has the right to terminate the FTAA for the contractors unremedied
substantial breach thereof (Clause 13.2);
22. The States approval is needed for any assignment of the FTAA by the contractor
to an entity other than an affiliate (Clause 14.1).
We should elaborate a little on the work programs and budgets, and what
they mean with respect to the States ability to exercise full control and
effective supervision over the enterprise. For instance, throughout the initial
five-year exploration and feasibility phase of the project, the contractor is
mandated by Clause 5.1 of the WMCP FTAA to submit a series of work
programs (copy furnished the director of MGB) to the DENR secretary
for approval. The programs will detail the contractors proposed exploration
activities and budget covering each subsequent period of two fiscal years.
In other words, the concerned government officials will be informed
beforehand of the proposed exploration activities and expenditures of the
contractor for each succeeding two-year period, with the right to
approve/disapprove them or require changes or adjustments therein if
deemed necessary.
Likewise, under Clause 5.2(a), the amount that the contractor was
supposed to spend for exploration activities during the first contract year of the
exploration period was fixed at not less than P24 million; and then for the
succeeding years, the amount shall be as agreed between the DENR
secretary and the contractor prior to the commencement of each subsequent
fiscal year. If no such agreement is arrived upon, the previous years
expenditure commitment shall apply.
This provision alone grants the government through the DENR secretary a
very big say in the exploration phase of the project. This fact is not something
to be taken lightly, considering that the government has absolutely no
contribution to the exploration expenditures or work activities and yet is given
veto power over such a critical aspect of the project. We cannot but construe
as very significant such a degree of control over the project and, resultantly,
over the mining enterprise itself.
Following its exploration activities or feasibility studies, if the contractor
believes that any part of the contract area is likely to contain an economic
mineral resource, it shall submit to the DENR secretary a declaration of
mining feasibility (per Clause 5.4 of the FTAA), together with a technical
description of the area delineated for development and production,
a description of the proposed mining operations including the technology to be
used, a work program for development, an environmental impact statement,
and a description of the contributions to the economic and general welfare of
the country to be generated by the mining operations (pursuant to Clause
5.5).
The work program for development is subject to the approval of the DENR
secretary. Upon its approval, the contractor must comply with it and complete
the development of the mine, including the construction of production facilities
and installation of machinery and equipment, within the period provided in the
approved work program for development (per Clause 6.1).
Thus, notably, the development phase of the project is likewise subject to
the control and supervision of the government. It cannot be emphasized
enough that the proper and timely construction and deployment of the
production facilities and the development of the mine are of pivotal
significance to the success of the mining venture. Any missteps here will
potentially be very costly to remedy. Hence, the submission of the work
program for development to the DENR secretary for approval is particularly
noteworthy, considering that so many millions of dollars worth of investments -
- courtesy of the contractor -- are made to depend on the States
consideration and action.
Throughout the operating period, the contractor is required to submit to the
DENR secretary for approval, copy furnished the director of MGB, work
programs covering each period of three fiscal years (per Clause 6.2). During
the same period (per Clause 6.3), the contractor is mandated to submit
various quarterly and annual reports to the DENR secretary, copy furnished
the director of MGB, on the tonnages of production in terms of ores and
concentrates, with corresponding grades, values and destinations; reports of
sales; total ore reserves, total tonnage of ores, work accomplished and work
in progress (installations and facilities related to mining operations),
investments made or committed, and so on and so forth.
Under Section VIII, during the period of mining operations, the contractor
is also required to submit to the DENR secretary (copy furnished the director
of MGB) the work program and corresponding budget for the contract area,
describing the mining operations that are proposed to be carried out during
the period covered. The secretary is, of course, entitled to grant or deny
approval of any work program or budget and/or propose revisions
thereto. Once the program/budget has been approved, the contractor shall
comply therewith.
In sum, the above provisions of the WMCP FTAA taken together, far from
constituting a surrender of control and a grant of beneficial ownership of
mineral resources to the contractor in question, bestow upon the State more
than adequate control and supervision over the activities of the
contractor and the enterprise.
No Surrender of Control
Under the WMCP FTAA
Petitioners, however, take aim at Clause 8.2, 8.3, and 8.5 of the WMCP
FTAA which, they say, amount to a relinquishment of control by the State,
since it cannot truly impose its own discretion in respect of the submitted
work programs.
8.2. The Secretary shall be deemed to have approved any Work Programme or
Budget or variation thereof submitted by the Contractor unless within sixty (60)
days after submission by the Contractor the Secretary gives notice declining
such approval or proposing a revision of certain features and specifying its
reasons therefor (the Rejection Notice).
8.3. If the Secretary gives a Rejection Notice, the Parties shall promptly meet and
endeavor to agree on amendments to the Work Programme or Budget. If the
Secretary and the Contractor fail to agree on the proposed revision within 30
days from delivery of the Rejection Notice then the Work Programme or Budget
or variation thereof proposed by the Contractor shall be deemed approved, so
as not to unnecessarily delay the performance of the Agreement.
8.4. x x x x x x x x x
8.5. So far as is practicable, the Contractor shall comply with any approved Work
Programme and Budget. It is recognized by the Secretary and the Contractor
that the details of any Work Programmes or Budgets may require changes in the
light of changing circumstances. The Contractor may make such changes
without approval of the Secretary provided they do not change the general
objective of any Work Programme, nor entail a downward variance of more than
twenty per centum (20percent) of the relevant Budget. All other variations to an
approved Work Programme or Budget shall be submitted for approval of the
Secretary.
From the provisions quoted above, petitioners generalize by asserting that
the government does not participate in making critical decisions regarding the
operations of the mining firm. Furthermore, while the State can require the
submission of work programs and budgets, the decision of the contractor will
still prevail, if the parties have a difference of opinion with regard to matters
affecting operations and management.
We hold, however, that the foregoing provisions do not manifest a
relinquishment of control. For instance, Clause 8.2 merely provides a
mechanism for preventing the business or mining operations from grinding to
a complete halt as a result of possibly over-long and unjustified delays in the
governments handling, processing and approval of submitted work programs
and budgets. Anyway, the provision does give the DENR secretary more than
sufficient time (60 days) to react to submitted work programs and budgets. It
cannot be supposed that proper grounds for objecting thereto, if any exist,
cannot be discovered within a period of two months.
On the other hand, Clause 8.3 seeks to provide a temporary, stop-gap
solution in the event a disagreement over the submitted work program or
budget arises between the State and the contractor and results in a stalemate
or impasse, in order that there will be no unreasonably long delays in the
performance of the works.
These temporary or stop-gap solutions are not necessarily evil or
wrong. Neither does it follow that the government will inexorably be aggrieved
if and when these temporary remedies come into play. First, avoidance of
long delays in these situations will undoubtedly redound to the benefit of the
State as well as the contractor. Second, who is to say that the work program
or budget proposed by the contractor and deemed approved under Clause 8.3
would not be the better or more reasonable or more effective alternative? The
contractor, being the insider, as it were, may be said to be in a better
position than the State -- an outsider looking in -- to determine what work
program or budget would be appropriate, more effective, or more suitable
under the circumstances.
All things considered, we take exception to the characterization of the
DENR secretary as a subservient nonentity whom the contractor can overrule
at will, on account of Clause 8.3. And neither is it true that under the same
clause, the DENR secretary has no authority whatsoever to disapprove the
work program. As Respondent WMCP reasoned in its Reply-Memorandum,
the State -- despite Clause 8.3 -- still has control over the contract area and it
may, as sovereign authority, prohibit work thereon until the dispute is
resolved. And ultimately, the State may terminate the agreement, pursuant to
Clause 13.2 of the same FTAA, citing substantial breach thereof. Hence, it
clearly retains full and effective control of the exploitation of the mineral
resources.
On the other hand, Clause 8.5 is merely an acknowledgment of the
parties need for flexibility, given that no one can accurately forecast under all
circumstances, or predict how situations may change. Hence, while approved
work programs and budgets are to be followed and complied with as far as
practicable, there may be instances in which changes will have to be effected,
and effected rapidly, since events may take shape and unfold with
suddenness and urgency. Thus, Clause 8.5 allows the contractor to move
ahead and make changes without the express or implicit approval of the
DENR secretary. Such changes are, however, subject to certain conditions
that will serve to limit or restrict the variance and prevent the contractor from
straying very far from what has been approved.
Clause 8.5 provides the contractor a certain amount of flexibility to meet
unexpected situations, while still guaranteeing that the approved work
programs and budgets are not abandoned altogether. Clause 8.5 does not
constitute proof that the State has relinquished control. And ultimately, should
there be disagreement with the actions taken by the contractor in this instance
as well as under Clause 8.3 discussed above, the DENR secretary may resort
to cancellation/termination of the FTAA as the ultimate sanction.
Discretion to Select Contract
Area Not an Abdication of Control
Next, petitioners complain that the contractor has full discretion to select --
and the government has no say whatsoever as to -- the parts of the contract
area to be relinquished pursuant to Clause 4.6 of the WMCP FTAA.
[56]
This
clause, however, does not constitute abdication of control. Rather, it is a
mere acknowledgment of the fact that the contractor will have determined,
after appropriate exploration works, which portions of the contract area do not
contain minerals in commercial quantities sufficient to justify developing the
same and ought therefore to be relinquished. The State cannot just substitute
its judgment for that of the contractor and dictate upon the latter which areas
to give up.
Moreover, we can be certain that the contractors self-interest will propel
proper and efficient relinquishment. According to private respondent,
[57]
a mining
company tries to relinquish as much non-mineral areas as soon as possible,
because the annual occupation fees paid to the government are based on the
total hectarage of the contract area, net of the areas relinquished. Thus, the
larger the remaining area, the heftier the amount of occupation fees to be paid by
the contractor. Accordingly, relinquishment is not an issue, given that the
contractor will not want to pay the annual occupation fees on the non-mineral
parts of its contract area. Neither will it want to relinquish promising sites, which
other contractors may subsequently pick up.
Government Not
a Subcontractor
Petitioners further maintain that the contractor can compel the government
to exercise its power of eminent domain to acquire surface areas within the
contract area for the contractors use. Clause 10.2 (e) of the WMCP FTAA
provides that the government agrees that the contractor shall (e) have the
right to require the Government at the Contractors own cost, to purchase or
acquire surface areas for and on behalf of the Contractor at such price and
terms as may be acceptable to the contractor. At the termination of this
Agreement such areas shall be sold by public auction or tender and the
Contractor shall be entitled to reimbursement of the costs of acquisition and
maintenance, adjusted for inflation, from the proceeds of sale.
According to petitioners, government becomes a subcontractor to the
contractor and may, on account of this provision, be compelled to make use
of its power of eminent domain, not for public purposes but on behalf of a
private party, i.e., the contractor. Moreover, the power of the courts to
determine the amount corresponding to the constitutional requirement of just
compensation has allegedly also been contracted away by the government,
on account of the latters commitment that the acquisition shall be at such
terms as may be acceptable to the contractor.
However, private respondent has proffered a logical explanation for the
provision.
[58]
Section 10.2(e) contemplates a situation applicable to foreign-
owned corporations. WMCP, at the time of the execution of the FTAA, was a
foreign-owned corporation and therefore not qualified to own land. As
contractor, it has at some future date to construct the infrastructure -- the mine
processing plant, the camp site, the tailings dam, and other infrastructure --
needed for the large-scale mining operations. It will then have to identify and
pinpoint, within the FTAA contract area, the particular surface areas with
favorable topography deemed ideal for such infrastructure and will need to
acquire the surface rights. The State owns the mineral deposits in the earth,
and is also qualified to own land.
Section 10.2(e) sets forth the mechanism whereby the foreign-owned
contractor, disqualified to own land, identifies to the government the specific
surface areas within the FTAA contract area to be acquired for the mine
infrastructure. The government then acquires ownership of the surface land
areas on behalf of the contractor, in order to enable the latter to proceed to
fully implement the FTAA.
The contractor, of course, shoulders the purchase price of the
land. Hence, the provision allows it, after termination of the FTAA, to be
reimbursed from proceeds of the sale of the surface areas, which the
government will dispose of through public bidding. It should be noted that this
provision will not be applicable to Sagittarius as the present FTAA contractor,
since it is a Filipino corporation qualified to own and hold land. As such, it
may therefore freely negotiate with the surface rights owners and acquire the
surface property in its own right.
Clearly, petitioners have needlessly jumped to unwarranted conclusions,
without being aware of the rationale for the said provision. That provision
does not call for the exercise of the power of eminent domain -- and
determination of just compensation is not an issue -- as much as it calls for a
qualified party to acquire the surface rights on behalf of a foreign-owned
contractor.
Rather than having the foreign contractor act through a dummy
corporation, having the State do the purchasing is a better alternative. This
will at least cause the government to be aware of such transaction/s and
foster transparency in the contractors dealings with the local property
owners. The government, then, will not act as a subcontractor of the
contractor; rather, it will facilitate the transaction and enable the parties to
avoid a technical violation of the Anti-Dummy Law.
Absence of Provision
Requiring Sale at Posted
Prices Not Problematic
The supposed absence of any provision in the WMCP FTAA directly and
explicitly requiring the contractor to sell the mineral products at posted or
market prices is not a problem. Apart from Clause 1.4 of the FTAA obligating
the contractor to account for the total value of mineral production and the sale
of minerals, we can also look to Section 35 of RA 7942, which incorporates
into all FTAAs certain terms, conditions and warranties, including the
following:
(l) The contractors shall furnish the Government records of geologic, accounting and
other relevant data for its mining operation, and thatbooks of accounts and
records shall be open for inspection by the government. x x x
(m) Requiring the proponent to dispose of the minerals at the highest price and more
advantageous terms and conditions.
For that matter, Section 56(n) of DAO 99-56 specifically obligates an
FTAA contractor to dispose of the minerals and by-products at the highest
market price and to register with the MGB a copy of the sales
agreement. After all, the provisions of prevailing statutes as well as rules and
regulations are deemed written into contracts.
Contractors Right to Mortgage
Not Objectionable Per Se
Petitioners also question the absolute right of the contractor under Clause
10.2 (l) to mortgage and encumber not only its rights and interests in the
FTAA and the infrastructure and improvements introduced, but also the
mineral products extracted. Private respondents do not touch on this matter,
but we believe that this provision may have to do with the conditions imposed
by the creditor-banks of the then foreign contractor WMCP to secure the
lendings made or to be made to the latter. Ordinarily, banks lend not only on
the security of mortgages on fixed assets, but also on encumbrances of goods
produced that can easily be sold and converted into cash that can be applied
to the repayment of loans. Banks even lend on the security of accounts
receivable that are collectible within 90 days.
[59]

It is not uncommon to find that a debtor corporation has executed deeds of
assignment by way of security over the production for the next twelve
months and/or the proceeds of the sale thereof -- or the corresponding
accounts receivable, if sold on terms -- in favor of its creditor-banks. Such
deeds may include authorizing the creditors to sell the products themselves
and to collect the sales proceeds and/or the accounts receivable.
Seen in this context, Clause 10.2(l) is not something out of the ordinary or
objectionable. In any case, as will be explained below, even if it is allowed
to mortgage or encumber the mineral end-products themselves, the contractor
is not freed of its obligation to pay the government its basic and additional
shares in the net mining revenue, which is the essential thing to consider.
In brief, the alarum raised over the contractors right to mortgage the
minerals is simply unwarranted. Just the same, the contractor must account
for the value of mineral production and the sales proceeds
therefrom. Likewise, under the WMCP FTAA, the government remains
entitled to its sixty percent share in the net mining revenues of the
contractor. The latters right to mortgage the minerals does not negate the
States right to receive its share of net mining revenues.
Shareholders Free
to Sell Their Stocks
Petitioners likewise criticize Clause 10.2(k), which gives the contractor
authority to change its equity structure at any time. This provision may seem
somewhat unusual, but considering that WMCP then was 100 percent foreign-
owned, any change would mean that such percentage would either stay
unaltered or be decreased in favor of Filipino ownership. Moreover, the
foreign-held shares may change hands freely. Such eventuality is as it should
be.
We believe it is not necessary for government to attempt to limit or restrict
the freedom of the shareholders in the contractor to freely transfer, dispose of
or encumber their shareholdings, consonant with the unfettered exercise of
their business judgment and discretion. Rather, what is critical is that,
regardless of the identity, nationality and percentage ownership of the various
shareholders of the contractor -- and regardless of whether these
shareholders decide to take the company public, float bonds and other fixed-
income instruments, or allow the creditor-banks to take an equity position in
the company -- the foreign-owned contractor is always in a position to render
the services required under the FTAA, under the direction and control of the
government.
Contractors Right to Ask
For Amendment Not Absolute
With respect to Clauses 10.4(e) and (i), petitioners complain that these
provisions bind government to allow amendments to the FTAA if required by
banks and other financial institutions as part of the conditions for new
lendings. However, we do not find anything wrong with Clause 10.4(e), which
only states that if the Contractor seeks to obtain financing contemplated
herein from banks or other financial institutions, (the Government shall)
cooperate with the Contractor in such efforts provided that such financing
arrangements will in no event reduce the Contractors obligations or the
Governments rights hereunder. The colatilla obviously safeguards the
States interests; if breached, it will give the government cause to object to the
proposed amendments.
On the other hand, Clause 10.4(i) provides that the Government shall
favourably consider any request from [the] Contractor for amendments of this
Agreement which are necessary in order for the Contractor to successfully
obtain the financing. Petitioners see in this provision a complete renunciation
of control. We disagree.
The proviso does not say that the government shall grant any request for
amendment. Clause 10.4(i) only obliges the State to favorablyconsider any
such request, which is not at all unreasonable, as it is not equivalent to saying
that the government must automatically consent to it. This provision should
be read together with the rest of the FTAA provisions instituting government
control and supervision over the mining enterprise. The clause should not be
given an interpretation that enables the contractor to wiggle out of the
restrictions imposed upon it by merely suggesting that certain amendments
are requested by the lenders.
Rather, it is up to the contractor to prove to the government that the
requested changes to the FTAA are indispensable, as they enable the
contractor to obtain the needed financing; that without such contract changes,
the funders would absolutely refuse to extend the loan; that there are no other
sources of financing available to the contractor (a very unlikely scenario); and
that without the needed financing, the execution of the work programs will not
proceed. But the bottom line is, in the exercise of its power of control, the
government has the final say on whether to approve or disapprove such
requested amendments to the FTAA. In short, approval thereof is not
mandatory on the part of the government.
In fine, the foregoing evaluation and analysis of the aforementioned
FTAA provisions sufficiently overturns petitioners litany of objections
to and criticisms of the States alleged lack of control.
Financial Benefits Not
Surrendered to the Contractor
One of the main reasons certain provisions of RA 7942 were struck down
was the finding mentioned in the Decision that beneficial ownership of the
mineral resources had been conveyed to the contractor. This finding was
based on the underlying assumption, common to the said provisions, that the
foreign contractor manages the mineral resources in the same way that
foreign contractors in service contracts used to. By allowing foreign
contractors to manage or operate all the aspects of the mining operation, the
above-cited provisions of R.A. No. 7942 have in effect conveyed beneficial
ownership over the nations mineral resources to these contractors, leaving
the State with nothing but bare title thereto.
[60]
As the WMCP FTAA contained
similar provisions deemed by the ponente to be abhorrent to the Constitution,
the Decision struck down the Contract as well.
Beneficial ownership has been defined as ownership recognized by law
and capable of being enforced in the courts at the suit of the beneficial
owner.
[61]
Blacks Law Dictionary indicates that the term is used in two
senses: first, to indicate the interest of a beneficiary in trust property (also
called equitable ownership); and second, to refer to the power of a corporate
shareholder to buy or sell the shares, though the shareholder is not registered
in the corporations books as the owner.
[62]
Usually, beneficial ownership is
distinguished from naked ownership, which is the enjoyment of all the benefits
and privileges of ownership, as against possession of the bare title to
property.
An assiduous examination of the WMCP FTAA uncovers no indication that
it confers upon WMCP ownership, beneficial or otherwise, of the mining
property it is to develop, the minerals to be produced, or the proceeds of their
sale, which can be legally asserted and enforced as against the State.
As public respondents correctly point out, any interest the contractor may
have in the proceeds of the mining operation is merely the equivalent of the
consideration the government has undertaken to pay for its services. All
lawful contracts require such mutual prestations, and the WMCP FTAA is no
different. The contractor commits to perform certain services for the
government in respect of the mining operation, and in turn it is to be
compensated out of the net mining revenues generated from the sale of
mineral products. What would be objectionable is a contractual provision that
unduly benefits the contractor far in excess of the service rendered or value
delivered, if any, in exchange therefor.
A careful perusal of the statute itself and its implementing rules reveals
that neither RA 7942 nor DAO 99-56 can be said to convey beneficial
ownership of any mineral resource or product to any foreign FTAA contractor.
Equitable Sharing
of Financial Benefits
On the contrary, DAO 99-56, entitled Guidelines Establishing the Fiscal
Regime of Financial or Technical Assistance Agreements aims to ensure an
equitable sharing of the benefits derived from mineral resources. These
benefits are to be equitably shared among the government (national and
local), the FTAA contractor, and the affected communities. The purpose is to
ensure sustainable mineral resources development; and a fair, equitable,
competitive and stable investment regime for the large-scale exploration,
development and commercial utilization of minerals. The general framework
or concept followed in crafting the fiscal regime of the FTAA is based on the
principle that the government expects real contributions to the economic
growth and general welfare of the country, while the contractor expects a
reasonable return on its investments in the project.
[63]

Specifically, under the fiscal regime, the governments expectation is, inter
alia, the receipt of its share from the taxes and fees normally paid by a mining
enterprise. On the other hand, the FTAA contractor is granted by the
government certain fiscal and non-fiscal incentives
[64]
to help support the
formers cash flow during the most critical phase (cost recovery) and to make
the Philippines competitive with other mineral-producing countries. After the
contractor has recovered its initial investment, it will pay all the normal taxes
and fees comprising the basic share of the government, plus an additional
share for the government based on the options and formulae set forth in DAO
99-56.
The said DAO spells out the financial benefits the government will receive
from an FTAA, referred to as the Government Share, composed of a basic
government share and an additional government share.
The basic government share is comprised of all direct taxes, fees and
royalties, as well as other payments made by the contractor during the term of
the FTAA. These are amounts paid directly to (i) the national government
(through the Bureau of Internal Revenue, Bureau of Customs, Mines &
Geosciences Bureau and other national government agencies imposing taxes
or fees), (ii) the local government units where the mining activity is conducted,
and (iii) persons and communities directly affected by the mining project. The
major taxes and other payments constituting the basic government share are
enumerated below:
[65]

Payments to the National Government:
Excise tax on minerals - 2 percent of the gross output of mining operations
Contractor income tax - maximum of 32 percent of taxable income for
corporations
Customs duties and fees on imported capital equipment -the rate is set by the
Tariff and Customs Code (3-7 percent for chemicals; 3-10 percent for
explosives; 3-15 percent for mechanical and electrical equipment; and 3-10
percent for vehicles, aircraft and vessels
VAT on imported equipment, goods and services 10 percent of value
Royalties due the government on minerals extracted from mineral reservations,
if applicable 5 percent of the actual market value of the minerals produced
Documentary stamp tax - the rate depends on the type of transaction
Capital gains tax on traded stocks - 5 to 10 percent of the value of the shares
Withholding tax on interest payments on foreign loans -15 percent of the
amount of interest
Withholding tax on dividend payments to foreign stockholders 15 percent of
the dividend
Wharfage and port fees
Licensing fees (for example, radio permit, firearms permit, professional fees)
Other national taxes and fees.
Payments to Local Governments:
Local business tax - a maximum of 2 percent of gross sales or receipts (the
rate varies among local government units)
Real property tax - 2 percent of the fair market value of the property, based on
an assessment level set by the local government
Special education levy - 1 percent of the basis used for the real property tax
Occupation fees - PhP50 per hectare per year; PhP100 per hectare per year if
located in a mineral reservation
Community tax - maximum of PhP10,500 per year
All other local government taxes, fees and imposts as of the effective date of
the FTAA - the rate and the type depend on the local government
Other Payments:
Royalty to indigenous cultural communities, if any 1 percent of gross output
from mining operations
Special allowance - payment to claim owners and surface rights holders
Apart from the basic share, an additional government share is also
collected from the FTAA contractor in accordance with the second paragraph
of Section 81 of RA 7942, which provides that the government share shall be
comprised of, among other things, certain taxes, duties and fees. The subject
proviso reads:
The Government share in a financial or technical assistance agreement shall consist
of, among other things, the contractors corporate income tax, excise tax, special
allowance, withholding tax due from the contractors foreign stockholders arising
from dividend or interest payments to the said foreign stockholder in case of a foreign
national, and all such other taxes, duties and fees as provided for under existing
laws. (Bold types supplied.)
The government, through the DENR and the MGB, has interpreted the
insertion of the phrase among other things as signifying that the government
is entitled to an additional government share to be paid by the contractor
apart from the basic share, in order to attain a fifty-fifty sharing of net
benefits from mining.
The additional government share is computed by using one of three
options or schemes presented in DAO 99-56: (1) a fifty-fifty sharing in the
cumulative present value of cash flows; (2) the share based on excess profits;
and (3) the sharing based on the cumulative net mining revenue. The
particular formula to be applied will be selected by the contractor, with a
written notice to the government prior to the commencement of the
development and construction phase of the mining project.
[66]

Proceeds from the government shares arising from an FTAA contract are
distributed to and received by the different levels of government in the
following proportions:
National Government 50 percent
Provincial Government 10 percent
Municipal Government 20 percent
Affected Barangays 20 percent
The portion of revenues remaining after the deduction of the basic and
additional government shares is what goes to the contractor.
Governments Share in an
FTAA Not Consisting Solely
of Taxes, Duties and Fees
In connection with the foregoing discussion on the basic and additional
government shares, it is pertinent at this juncture to mention the criticism
leveled at the second paragraph of Section 81 of RA 7942, quoted
earlier. The said proviso has been denounced, because, allegedly, the
States share in FTAAs with foreign contractors has been limited to taxes, fees
and duties only; in effect, the State has been deprived of ashare in the after-
tax income of the enterprise. In the face of this allegation, one has to consider
that the law does not define the term among other things; and the Office of the
Solicitor General, in its Motion for Reconsideration, appears to have
erroneously claimed that the phrase refers to indirect taxes.
The law provides no definition of the term among other things, for the
reason that Congress deliberately avoided setting unnecessary limitations as
to what may constitute compensation to the State for the exploitation and use
of mineral resources. But the inclusion of that phrase clearly and
unmistakably reveals the legislative intent to have the State collect more than
just the usual taxes, duties and fees. Certainly, there is nothing in that phrase
-- or in the second paragraph of Section 81 -- that would suggest that such
phrase should be interpreted as referring only to taxes, duties, fees and the
like.
Precisely for that reason, to fulfill the legislative intent behind the inclusion
of the phrase among other things in the second paragraph of Section
81,
[67]
the DENR structured and formulated in DAO 99-56 the said additional
government share. Such a share was to consist not of taxes, but of a share
in the earnings or cash flows of the mining enterprise. The additional
government share was to be paid by the contractor on top of the basic share,
so as to achieve a fifty-fifty sharing -- between the government and the
contractor -- of net benefits from mining. In the Ramos-DeVera paper, the
explanation of the three options or formulas
[68]
-- presented in DAO 99-56
for the computation of the additional government share -- serves to debunk
the claim that the governments take from an FTAA consists solely of taxes,
fees and duties.
Unfortunately, the Office of the Solicitor General -- although in possession
of the relevant data -- failed to fully replicate or echo the pertinent elucidation
in the Ramos-DeVera paper regarding the three schemes or options
for computing the additional government share presented in DAO 99-56. Had
due care been taken by the OSG, the Court would have been duly apprised of
the real nature and particulars of the additional share.
But, perhaps, on account of the esoteric discussion in the Ramos-DeVera
paper, and the even more abstruse mathematical jargon employed in DAO
99-56, the OSG omitted any mention of the three options. Instead, the OSG
skipped to a side discussion of the effect ofindirect taxes, which had nothing
at all to do with the additional government share, to begin with. Unfortunately,
this move created the wrong impression, pointed out in Justice Antonio T.
Carpios Opinion, that the OSG had taken the position that the additional
government share consisted of indirect taxes.
In any event, what is quite evident is the fact that the additional
government share, as formulated, has nothing to do with taxes -- direct or
indirect -- or with duties, fees or charges. To repeat, it is over and above the
basic government share composed of taxes and duties. Simply put, the
additional share may be (a) an amount that will result in a 50-50 sharing of the
cumulative present value of the cash flows
[69]
of the enterprise; (b) an amount
equivalent to 25 percent of the additional or excess profits of the enterprise,
reckoned against a benchmark return on investments; or (c) an amount that
will result in a fifty-fifty sharing of the cumulative net mining revenue from the
end of the recovery period up to the taxable year in question. The contractor
is required to select one of the three options or formulae for computing the
additional share, an option it will apply to all of its mining operations.
As used above, net mining revenue is defined as the gross output from
mining operations for a calendar year, less deductible expenses (inclusive of
taxes, duties and fees). Such revenue would roughly be equivalent to
taxable income or income before income tax. Definitely, as compared with,
say, calculating the additional government share on the basis of net income
(after income tax), the net mining revenue is a better and much more
reasonable basis for such computation, as it gives a truer picture of the
profitability of the company.
To demonstrate that the three options or formulations will operate as
intended, Messrs. Ramos and de Vera also performed some quantifications of
the government share via a financial modeling of each of the three options
discussed above. They found that the government would get the highest
share from the option that is based on the net mining revenue, as compared
with the other two options, considering only the basic and the additional
shares; and that, even though production rate decreases, the government
share will actually increase when the net mining revenue and the additional
profit-based options are used.
Furthermore, it should be noted that the three options or formulae do not
yet take into account the indirect taxes
[70]
and other financial contributions
[71]
of
mining projects. These indirect taxes and other contributions are real and
actual benefits enjoyed by the Filipino people and/or government. Now, if
some of the quantifiable items are taken into account in the computations, the
financial modeling would show that the total government share increases to
60 percent or higher -- in one instance, as much as 77 percent and even 89
percent -- of the net present value of total benefits from the project. As noted
in the Ramos-DeVera paper, these results are not at all shabby, considering
that the contractor puts in all the capital requirements and assumes all the
risks, without the government having to contribute or risk anything.
Despite the foregoing explanation, Justice Carpio still insisted during the
Courts deliberations that the phrase among other things refers only to taxes,
duties and fees. We are bewildered by his position. On the one hand, he
condemns the Mining Law for allegedly limiting the governments benefits only
to taxes, duties and fees; and on the other, he refuses to allow the State to
benefit from the correct and proper interpretation of the DENR/MGB. To
remove all doubts then, we hold that the States share is not limited to taxes,
duties and fees only and that the DENR/MGB interpretation of the
phrase among other things is correct. Definitely, this DENR/MGB
interpretation is not only legally sound, but also greatly advantageous to the
government.
One last point on the subject. The legislature acted judiciously in not
defining the terms among other things and, instead, leaving it to the agencies
concerned to devise and develop the various modes of arriving at a
reasonable and fair amount for the additional government share. As can be
seen from DAO 99-56, the agencies concerned did an admirable job of
conceiving and developing not just one formula, but three different formulae
for arriving at the additional government share. Each of these options is quite
fair and reasonable; and, as Messrs. Ramos and De Vera stated, other
alternatives or schemes for a possible improvement of the fiscal regime for
FTAAs are also being studied by the government.
Besides, not locking into a fixed definition of the term among other
things will ultimately be more beneficial to the government, as it will have that
innate flexibility to adjust to and cope with rapidly changing circumstances,
particularly those in the international markets. Such flexibility is especially
significant for the government in terms of helping our mining enterprises
remain competitive in world markets despite challenging and shifting
economic scenarios.
In conclusion, we stress that we do not share the view that in FTAAs
with foreign contractors under RA 7942, the governments share is
limited to taxes, fees and duties. Consequently, we find the attacks on
the second paragraph of Section 81 of RA 7942 totally unwarranted.
Collections Not Made Uncertain
by the Third Paragraph of Section 81
The third or last paragraph of Section 81
[72]
provides that the government
share in FTAAs shall be collected when the contractor shall have recovered
its pre-operating expenses and exploration and development
expenditures. The objection has been advanced that, on account of the
proviso, the collection of the States share is not even certain, as there is no
time limit in RA 7942 for this grace period or recovery period.
We believe that Congress did not set any time limit for the grace period,
preferring to leave it to the concerned agencies, which are, on account of their
technical expertise and training, in a better position to determine the
appropriate durations for such recovery periods. After all, these recovery
periods are determined, to a great extent, by technical and technological
factors peculiar to the mining industry. Besides, with developments and
advances in technology and in the geosciences, we cannot discount the
possibility of shorter recovery periods. At any rate, the concerned agencies
have not been remiss in this area. The 1995 and 1996 Implementing Rules
and Regulations of RA 7942 specify that the period of recovery, reckoned
from the date of commercial operation, shall be for a period not exceeding five
years, or until the date of actualrecovery, whichever comes earlier.
Approval of Pre-Operating
Expenses Required by RA 7942
Still, RA 7942 is criticized for allegedly not requiring government approval
of pre-operating, exploration and development expenses of the foreign
contractors, who are in effect given unfettered discretion to determine the
amounts of such expenses. Supposedly, nothing prevents the contractors
from recording such expenses in amounts equal to the mining revenues
anticipated for the first 10 or 15 years of commercial production, with the
result that the share of the State will be zero for the first 10 or 15
years. Moreover, under the circumstances, the government would be unable
to say when it would start to receive its share under the FTAA.
We believe that the argument is based on incorrect information as well as
speculation. Obviously, certain crucial provisions in the Mining Law were
overlooked. Section 23, dealing with the rights and obligations of the
exploration permit grantee, states: The permittee shall undertake exploration
work on the area as specified by its permit based on an approved work
program. The next proviso reads: Any expenditure in excess of the yearly
budget of the approved work program may be carried forward and credited to
the succeeding years covering the duration of the permit. x x x. (underscoring
supplied)
Clearly, even at the stage of application for an exploration permit, the
applicant is required to submit -- for approval by the government -- a proposed
work program for exploration, containing a yearly budget of proposed
expenditures. The State has the opportunity to pass upon (and approve or
reject) such proposed expenditures, with the foreknowledge that -- if approved
-- these will subsequently be recorded as pre-operating expenses that the
contractor will have to recoup over the grace period. That is not all.
Under Section 24, an exploration permit holder who determines the
commercial viability of a project covering a mining area may, within the term of
the permit, file with the Mines and Geosciences Bureau a declaration of
mining project feasibility. This declaration is to be accompanied by a work
program for development for the Bureaus approval, the necessary prelude for
entering into an FTAA, a mineral production sharing agreement (MPSA), or
some other mineral agreement. At this stage, too, the government obviously
has the opportunity to approve or reject the proposed work program and
budgeted expenditures for development works on the project. Such
expenditures will ultimately become the pre-operating and development costs
that will have to be recovered by the contractor.
Naturally, with the submission of approved work programs and budgets for
the exploration and the development/construction phases, the government will
be able to scrutinize and approve or reject such expenditures. It will be well-
informed as to the amounts of pre-operating and other expenses that the
contractor may legitimately recover and the approximate period of time
needed to effect such a recovery. There is therefore no way the contractor
can just randomly post any amount of pre-operating expenses and expect to
recover the same.
The aforecited provisions on approved work programs and budgets have
counterparts in Section 35, which deals with the terms and conditions
exclusively applicable to FTAAs. The said provision requires certain terms
and conditions to be incorporated into FTAAs; among them, a firm
commitment x x x of an amount corresponding to the expenditure obligation
that will be invested in the contract area andrepresentations and warranties
x x x to timely deploy these [financing, managerial and technical expertise and
technological] resources under its supervision pursuant to the periodic work
programs and related budgets x x x, as well as work programs and minimum
expenditures commitments. (underscoring supplied)
Unarguably, given the provisions of Section 35, the State has every
opportunity to pass upon the proposed expenditures under an FTAA
andapprove or reject them. It has access to all the information it may need in
order to determine in advance the amounts of pre-operating and
developmental expenses that will have to be recovered by the contractor and
the amount of time needed for such recovery.
In summary, we cannot agree that the third or last paragraph of
Section 81 of RA 7942 is in any manner unconstitutional.
No Deprivation of
Beneficial Rights
It is also claimed that aside from the second and the third paragraphs of
Section 81 (discussed above), Sections 80, 84 and 112 of RA 7942 also
operate to deprive the State of beneficial rights of ownership over mineral
resources; and give them away for free to private business enterprises
(including foreign owned corporations). Likewise, the said provisions have
been construed as constituting, together with Section 81, an ingenious
attempt to resurrect the old and discredited system of license, concession or
lease.
Specifically, Section 80 is condemned for limiting the States share in a
mineral production-sharing agreement (MPSA) to just the excise tax on the
mineral product. Under Section 151(A) of the Tax Code, such tax is only 2
percent of the market value of the gross output of the
minerals. The colatilla in Section 84, the portion considered offensive to the
Constitution, reiterates the same limitation made in Section 80.
[73]

It should be pointed out that Section 80 and the colatilla in Section
84 pertain only to MPSAs and have no application to FTAAs. These particular
statutory provisions do not come within the issues that were defined and
delineated by this Court during the Oral Argument -- particularly the third
issue, which pertained exclusively to FTAAs. Neither did the parties argue
upon them in their pleadings. Hence, this Court cannot make any
pronouncement in this case regarding the constitutionality of Sections 80 and
84 without violating the fundamental rules of due process. Indeed, the two
provisos will have to await another case specifically placing them in issue.
On the other hand, Section 112
[74]
is disparaged for allegedly reverting
FTAAs and all mineral agreements to the old and discredited license,
concession or lease system. This Section states in relevant part that the
provisions of Chapter XIV [which includes Sections 80 to 82]on government
share in mineral production-sharing agreement x x x shall immediately govern
and apply to a mining lessee or contractor.(underscoring supplied) This
provision is construed as signifying that the 2 percent excise tax which,
pursuant to Section 80, comprises the government share in MPSAs shall now
also constitute the government share in FTAAs -- as well as in co-production
agreements and joint venture agreements -- to the exclusion of revenues of
any other nature or from any other source.
Apart from the fact that Section 112 likewise does not come within the
issues delineated by this Court during the Oral Argument, and was never
touched upon by the parties in their pleadings, it must also be noted that the
criticism hurled against this Section is rooted in unwarranted conclusions
made without considering other relevant provisions in the statute. Whether
Section 112 may properly apply to co-production or joint venture agreements,
the fact of the matter is that it cannot be made to apply to FTAAs.
First, Section 112 does not specifically mention or refer to FTAAs; the only
reason it is being applied to them at all is the fact that it happens to use the
word contractor. Hence, it is a bit of a stretch to insist that it covers FTAAs
as well. Second, mineral agreements, of which there are three types --
MPSAs, co-production agreements, and joint venture agreements -- are
covered by Chapter V of RA 7942. On the other hand, FTAAs are covered by
and in fact are the subject of Chapter VI, an entirely different chapter
altogether. The law obviously intends to treat them as a breed apart from
mineral agreements, since Section 35 (found in Chapter VI) creates a long list
of specific terms, conditions, commitments, representations and warranties --
which have not been made applicable to mineral agreements -- to be
incorporated into FTAAs.
Third, under Section 39, the FTAA contractor is given the option to
downgrade -- to convert the FTAA into a mineral agreement at any time
during the term if the economic viability of the contract area is inadequate to
sustain large-scale mining operations. Thus, there is no reason to think that
the law through Section 112 intends to exact from FTAA contractors merely
the same government share (a 2 percent excise tax) that it apparently
demands from contractors under the three forms of mineral agreements. In
brief, Section 112 does not apply to FTAAs.
Notwithstanding the foregoing explanation, Justices Carpio and Morales
maintain that the Court must rule now on the constitutionality of Sections 80,
84 and 112, allegedly because the WMCP FTAA contains a provision which
grants the contractor unbridled and automatic authority to convert the FTAA
into an MPSA; and should such conversion happen, the State would be
prejudiced since its share would be limited to the 2 percent excise tax. Justice
Carpio adds that there are five MPSAs already signed just awaiting the
judgment of this Court on respondents and intervenors Motions for
Reconsideration. We hold however that, at this point, this argument is based
on pure speculation. The Court cannot rule on mere surmises and
hypothetical assumptions, without firm factual anchor. We repeat: basic due
process requires that we hear the parties who have a real legal interest in the
MPSAs (i.e. the parties who executed them) before these MPSAs can be
reviewed, or worse, struck down by the Court. Anything less than that
requirement would be arbitrary and capricious.
In any event, the conversion of the present FTAA into an MPSA is
problematic. First, the contractor must comply with the law, particularly
Section 39 of RA 7942; inter alia, it must convincingly show that the
economic viability of the contract is found to be inadequate to justify large-
scale mining operations; second, it must contend with the Presidents
exercise of the power of State control over the EDU of natural resources;
and third, it will have to risk a possible declaration of the unconstitutionality (in
a proper case) of Sections 80, 84 and 112.
The first requirement is not as simple as it looks. Section 39
contemplates a situation in which an FTAA has already been executed and
entered into, and is presumably being implemented, when the contractor
discovers that the mineral ore reserves in the contract area are not sufficient
to justify large-scale mining, and thus the contractor requests the conversion
of the FTAA into an MPSA. The contractor in effect needs to explain why,
despite its exploration activities, including the conduct of various geologic and
other scientific tests and procedures in the contract area, it was unable to
determine correctly the mineral ore reserves and the economic viability of the
area. The contractor must explain why, after conducting such exploration
activities, it decided to file a declaration of mining feasibility, and to apply for
an FTAA, thereby leading the State to believe that the area could sustain
large-scale mining. The contractor must justify fully why its earlier findings,
based on scientific procedures, tests and data, turned out to be wrong, or
were way off. It must likewise prove that its new findings, also based on
scientific tests and procedures, are correct. Right away, this puts the
contractors technical capabilities and expertise into serious doubt. We
wonder if anyone would relish being in this situation. The State could even
question and challenge the contractors qualification and competence to
continue the activity under an MPSA.
All in all, while there may be cogent grounds to assail the aforecited
Sections, this Court -- on considerations of due process -- cannot rule
upon them here. Anyway, if later on these Sections are declared
unconstitutional, such declaration will not affect the other portions since
they are clearly separable from the rest.
Our Mineral Resources Not
Given Away for Free by RA 7942
Nevertheless, if only to disabuse our minds, we should address the
contention that our mineral resources are effectively given away for free by
the law (RA 7942) in general and by Sections 80, 81, 84 and 112 in particular.
Foreign contractors do not just waltz into town one day and leave the next,
taking away mineral resources without paying anything. In order to get at the
minerals, they have to invest huge sums of money (tens or hundreds of
millions of dollars) in exploration works first. If the exploration proves
unsuccessful, all the cash spent thereon will not be returned to the foreign
investors; rather, those funds will have been infused into the local economy, to
remain there permanently. The benefits therefrom cannot be simply
ignored. And assuming that the foreign contractors are successful in finding
ore bodies that are viable for commercial exploitation, they do not just pluck
out the minerals and cart them off. They have first to build camp sites and
roadways; dig mine shafts and connecting tunnels; prepare tailing ponds,
storage areas and vehicle depots; install their machinery and equipment,
generator sets, pumps, water tanks and sewer systems, and so on.
In short, they need to expend a great deal more of their funds for facilities,
equipment and supplies, fuel, salaries of local labor and technical staff, and
other operating expenses. In the meantime, they also have to pay
taxes,
[75]
duties, fees, and royalties. All told, the exploration, pre-feasibility,
feasibility, development and construction phases together add up to as many
as eleven years.
[76]
The contractors have to continually shell out funds for the
duration of over a decade, before they can commence commercial production
from which they would eventually derive revenues. All that money translates
into a lot of pump-priming for the local economy.
Granted that the contractors are allowed subsequently to recover their pre-
operating expenses, still, that eventuality will happen only after they shall
have first put out the cash and fueled the economy. Moreover, in the process
of recouping their investments and costs, the foreign contractors do not
actually pull out the money from the economy. Rather, they recover or recoup
their investments out of actual commercial production by not paying a portion
of the basic government share corresponding to national taxes, along with the
additional government share, for a period of not more than five
years
[77]
counted from the commencement of commercial production.
It must be noted that there can be no recovery without commencing actual
commercial production. In the meantime that the contractors are recouping
costs, they need to continue operating; in order to do so, they have to
disburse money to meet their various needs. In short, money is continually
infused into the economy.
The foregoing discussion should serve to rid us of the mistaken belief that,
since the foreign contractors are allowed to recover their investments and
costs, the end result is that they practically get the minerals for free, which
leaves the Filipino people none the better for it.
All Businesses Entitled
to Cost Recovery
Let it be put on record that not only foreign contractors, but all
businessmen and all business entities in general, have to recoup their
investments and costs. That is one of the first things a student learns in
business school. Regardless of its nationality, and whether or not a business
entity has a five-year cost recovery period, it will -- must -- have to recoup its
investments, one way or another. This is just common business
sense. Recovery of investments is absolutely indispensable for business
survival; and business survival ensures soundness of the economy, which is
critical and contributory to the general welfare of the people. Even
government corporations must recoup their investments in order to survive
and continue in operation. And, as the preceding discussion has shown, there
is no business that gets ahead or earns profits without any cost to it.
It must also be stressed that, though the State owns vast mineral wealth,
such wealth is not readily accessible or transformable into usable and
negotiable currency without the intervention of the credible mining
companies. Those untapped mineral resources, hidden beneath tons of earth
and rock, may as well not be there for all the good they do us right now. They
have first to be extracted and converted into marketable form, and the country
needs the foreign contractors funds, technology and know-how for that.
After about eleven years of pre-operation and another five years for cost
recovery, the foreign contractors will have just broken even. Is it likely that
they would at that point stop their operations and leave? Certainly not. They
have yet to make profits. Thus, for the remainder of the contract term, they
must strive to maintain profitability. During this period, they pay the whole of
the basic government share and the additional government share which,
taken together with indirect taxes and other contributions, amount to
approximately 60 percent or more of the entire financial benefits generated by
the mining venture.
In sum, we can hardly talk about foreign contractors taking our mineral
resources for free. It takes a lot of hard cash to even begin to do what they
do. And what they do in this country ultimately benefits the local economy,
grows businesses, generates employment, and creates infrastructure, as
discussed above. Hence, we definitely disagree with the sweeping claim that
no FTAA under Section 81 will ever make any real contribution to the growth
of the economy or to the general welfare of the country. This is not a plea for
foreign contractors. Rather, this is a question of focusing the judicial spotlight
squarely on all the pertinent facts as they bear upon the issue at hand, in
order to avoid leaping precipitately to ill-conceived conclusions not solidly
grounded upon fact.
Repatriation of
After-Tax Income
Another objection points to the alleged failure of the Mining Law to ensure
real contributions to the economic growth and general welfare of the country,
as mandated by Section 2 of Article XII of the Constitution. Pursuant to
Section 81 of the law, the entire after-tax income arising from the exploitation
of mineral resources owned by the State supposedly belongs to the foreign
contractors, which will naturally repatriate the said after-tax income to their
home countries, thereby resulting in no real contribution to the economic
growth of this country. Clearly, this contention is premised on erroneous
assumptions.
First, as already discussed in detail hereinabove, the concerned agencies
have correctly interpreted the second paragraph of Section 81 of RA 7942 to
mean that the government is entitled to an additional share, to be computed
based on any one of the following factors: net mining revenues, the present
value of the cash flows, or excess profits reckoned against a benchmark rate
of return on investments. So it is not correct to say that all of the after-tax
income will accrue to the foreign FTAA contractor, as the
government effectively receives a significant portion thereof.
Second, the foreign contractors can hardly repatriate the entire after-tax
income to their home countries. Even a bit of knowledge of corporate finance
will show that it will be impossible to maintain a business as a going concern
if the entire net profit earned in any particular year will be taken out and
repatriated. The net income figure reflected in the bottom line is a mere
accounting figure not necessarily corresponding to cash in the bank, or other
quick assets. In order to produce and set aside cash in an amount equivalent
to the bottom line figure, one may need to sell off assets or immediately
collect receivables or liquidate short-term investments; but doing so may very
likely disrupt normal business operations.
In terms of cash flows, the funds corresponding to the net income as of a
particular point in time are actually in use in the normal course of business
operations. Pulling out such net income disrupts the cash flows and cash
position of the enterprise and, depending on the amount being taken out,
could seriously cripple or endanger the normal operations and financial health
of the business enterprise. In short, no sane business person, concerned
with maintaining the mining enterprise as a going concern and keeping
a foothold in its market, can afford to repatriate the entire after-tax
income to the home country.
The States Receipt of Sixty
Percent of an FTAA Contractors
After-Tax Income Not Mandatory
We now come to the next objection which runs this way: In FTAAs with a
foreign contractor, the State must receive at least 60 percent of the after-tax
income from the exploitation of its mineral resources. This share is the
equivalent of the constitutional requirement that at least 60 percent of the
capital, and hence 60 percent of the income, of mining companies should
remain in Filipino hands.
First, we fail to see how we can properly conclude that the Constitution
mandates the State to extract at least 60 percent of the after-tax income from
a mining company run by a foreign contractor. The argument is that the
Charter requires the States partner in a co-production agreement, joint
venture agreement or MPSA to be a Filipino corporation (at least 60 percent
owned by Filipino citizens).
We question the logic of this reasoning, premised on a supposedly parallel
or analogous situation. We are, after all, dealing with an essentially different
equation, one that involves different elements. The Charter did not intend
to fix an iron-clad rule on the 60 percent share, applicable to all
situations at all times and in all circumstances. If ever such was the
intention of the framers, they would have spelt it out in black and white. Verba
legis will serve to dispel unwarranted and untenable conclusions.
Second, if we would bother to do the math, we might better appreciate the
impact (and reasonableness) of what we are demanding of the foreign
contractor. Let us use a simplified illustration. Let us base it on gross
revenues of, say, P500. After deducting operating expenses, but prior to
income tax, suppose a mining firm makes a taxable income of P100. A
corporate income tax of 32 percent results in P32 of taxable income going to
the government, leaving the mining firm with P68. Government then takes 60
percent thereof, equivalent to P40.80, leaving onlyP27.20 for the mining firm.
At this point the government has pocketed P32.00 plus P40.80, or a total
of P72.80 for every P100 of taxable income, leaving the mining firm with
only P27.20. But that is not all. The government has also taken 2 percent
excise tax off the top, equivalent to another P10. Under the minimum 60
percent proposal, the government nets around P82.80 (not counting other
taxes, duties, fees and charges) from a taxable income ofP100 (assuming
gross revenues of P500, for purposes of illustration). On the other hand, the
foreign contractor, which provided all the capital, equipment and labor, and
took all the entrepreneurial risks -- receives P27.20. One cannot but wonder
whether such a distribution is even remotely equitable and reasonable,
considering the nature of the mining business. The amount of P82.80 out
of P100.00 is really a lot it does not matter that we call part of it excise
tax or income tax, and another portion thereof income from exploitation of
mineral resources. Some might think it wonderful to be able to take the lions
share of the benefits. But we have to ask ourselves if we are really serious in
attracting the investments that are the indispensable and key element in
generating the monetary benefits of which we wish to take the lions
share. Fairness is a credo not only in law, but also in business.
Third, the 60 percent rule in the petroleum industry cannot be insisted
upon at all times in the mining business. The reason happens to be the fact
that in petroleum operations, the bulk of expenditures is in exploration, but
once the contractor has found and tapped into the deposit, subsequent
investments and expenditures are relatively minimal. The crude (or gas)
keeps gushing out, and the work entailed is just a matter of piping,
transporting and storing. Not so in mineral mining. The ore body does not
pop out on its own. Even after it has been located, the contractor must
continually invest in machineries and expend funds to dig and build tunnels in
order to access and extract the minerals from underneath hundreds of tons of
earth and rock.
As already stated, the numerous intrinsic differences involved in their
respective operations and requirements, cost structures and investment
needs render it highly inappropriate to use petroleum operations FTAAs as
benchmarks for mining FTAAs. Verily, we cannot just ignore the realities of
the distinctly different situations and stubbornly insist on the minimum 60
percent.
The Mining and the Oil Industries
Different From Each Other
To stress, there is no independent showing that the taking of at least a 60
percent share in the after-tax income of a mining company operated by a
foreign contractor is fair and reasonable under most if not all
circumstances. The fact that some petroleum companies like Shell acceded
to such percentage of sharing does not ipso facto mean that it is per se
reasonable and applicable to non-petroleum situations (that is, mining
companies) as well. We can take judicial notice of the fact that there are, after
all, numerous intrinsic differences involved in their respective operations and
equipment or technological requirements, costs structures and capital
investment needs, and product pricing and markets.
There is no showing, for instance, that mining companies can readily cope
with a 60 percent government share in the same way petroleum companies
apparently can. What we have is a suggestion to enforce the 60 percent
quota on the basis of a disjointed analogy. The only factor common to the two
disparate situations is the extraction of natural resources.
Indeed, we should take note of the fact that Congress made a distinction
between mining firms and petroleum companies. In Republic Act No. 7729 --
An Act Reducing the Excise Tax Rates on Metallic and Non-Metallic
Minerals and Quarry Resources, Amending for the Purpose Section 151(a) of
the National Internal Revenue Code, as amended -- the lawmakers fixed the
excise tax rate on metallic and non-metallic minerals at two percent of the
actual market value of the annual gross output at the time of
removal. However, in the case of petroleum, the lawmakers set the excise tax
rate for the first taxable sale at fifteen percent of the fair international market
price thereof.
There must have been a very sound reason that impelled Congress to
impose two very dissimilar excise tax rate. We cannot assume, without proof,
that our honorable legislators acted arbitrarily, capriciously and whimsically in
this instance. We cannot just ignore the reality of two distinctly different
situations and stubbornly insist on going minimum 60 percent.
To repeat, the mere fact that gas and oil exploration contracts grant the
State 60 percent of the net revenues does not necessarily imply that mining
contracts should likewise yield a minimum of 60 percent for the
State. Jumping to that erroneous conclusion is like comparing apples with
oranges. The exploration, development and utilization of gas and oil are
simply different from those of mineral resources.
To stress again, the main risk in gas and oil is in the exploration. But once
oil in commercial quantities is struck and the wells are put in place, the risk is
relatively over and black gold simply flows out continuously
with comparatively less need for fresh investments and technology.
On the other hand, even if minerals are found in viable quantities, there is
still need for continuous fresh capital and expertise to dig the mineral ores
from the mines. Just because deposits of mineral ores are found in one area
is no guarantee that an equal amount can be found in the adjacent
areas. There are simply continuing risks and need for more capital, expertise
and industry all the time.
Note, however, that the indirect benefits -- apart from the cash revenues --
are much more in the mineral industry. As mines are explored and extracted,
vast employment is created, roads and other infrastructure are built, and other
multiplier effects arise. On the other hand, once oil wells start producing,
there is less need for employment. Roads and other public works need not be
constructed continuously. In fine, there is no basis for saying that government
revenues from the oil industry and from the mineral industries are to be
identical all the time.
Fourth, to our mind, the proffered minimum 60 percent suggestion tends
to limit the flexibility and tie the hands of government, ultimately hampering
the countrys competitiveness in the international market, to the detriment of
the Filipino people. This you-have-to-give-us-60-percent-of-after-tax-income-
or-we-dont-do- business-with-you approach is quite perilous. True, this
situation may not seem too unpalatable to the foreign contractor during good
years, when international market prices are up and the mining firm manages
to keep its costs in check. However, under unfavorable economic and
business conditions, with costs spiraling skywards and minerals prices
plummeting, a mining firm may consider itself lucky to make just minimal
profits.
The inflexible, carved-in-granite demand for a 60 percent government
share may spell the end of the mining venture, scare away potential investors,
and thereby further worsen the already dismal economic scenario. Moreover,
such an unbending or unyielding policy prevents the government from
responding appropriately to changing economic conditions and shifting market
forces. This inflexibility further renders our country less attractive as an
investment option compared with other countries.
And fifth, for this Court to decree imperiously that the governments share
should be not less than 60 percent of the after-tax income of FTAA
contractors at all times is nothing short of dictating upon the government. The
result, ironically, is that the State ends up losing control. To avoid
compromising the States full control and supervision over the exploitation of
mineral resources, this Court must back off from insisting upon a minimum 60
percent rule. It is sufficient that the State has the power and means, should it
so decide, to get a 60 percent share (or more) in the contractors net mining
revenues or after-tax income, or whatever other basis the government may
decide to use in reckoning its share. It is not necessary for it to do so in every
case, regardless of circumstances.
In fact, the government must be trusted, must be accorded the liberty and
the utmost flexibility to deal, negotiate and transact with contractors and third
parties as it sees fit; and upon terms that it ascertains to be most favorable or
most acceptable under the circumstances, even if it means agreeing to less
than 60 percent. Nothing must prevent the State from agreeing to a share
less than that, should it be deemed fit; otherwise the State will be deprived of
full control over mineral exploitation that the Charter has vested in it.
To stress again, there is simply no constitutional or legal provision fixing
the minimum share of the government in an FTAA at 60 percent of the net
profit. For this Court to decree such minimum is to wade into judicial
legislation, and thereby inordinately impinge on thecontrol power of the
State. Let it be clear: the Court is not against the grant of more benefits to the
State; in fact, the more the better. If during the FTAA negotiations, the
President can secure 60 percent,
[78]
or even 90 percent, then all the better for
our people. But, if under the peculiar circumstances of a specific contract, the
President could secure only 50 percent or 55 percent, so be it. Needless to
say, the President will have to report (and be responsible for) the specific
FTAA to Congress, and eventually to the people.
Finally, if it should later be found that the share agreed to is grossly
disadvantageous to the government, the officials responsible for entering into
such a contract on its behalf will have to answer to the courts for their
malfeasance. And the contract provision voided. But this Court would abuse
its own authority should it force the governments hand to adopt the 60
percent demand of some of our esteemed colleagues.
Capital and Expertise Provided,
Yet All Risks Assumed by Contractor
Here, we will repeat what has not been emphasized and appreciated
enough: the fact that the contractor in an FTAA provides all the needed
capital, technical and managerial expertise, and technology required to
undertake the project.
In regard to the WMCP FTAA, the then foreign-owned WMCP as
contractor committed, at the very outset, to make capital investments of up to
US$50 million in that single mining project. WMCP claims to have already
poured in well over P800 million into the country as of February 1998, with
more in the pipeline. These resources, valued in the tens or hundreds of
millions of dollars, are invested in a mining project that provides no assurance
whatsoever that any part of the investment will be ultimately recouped.
At the same time, the contractor must comply with legally imposed
environmental standards and the social obligations, for which it also commits
to make significant expenditures of funds. Throughout, the contractor
assumes all the risks
[79]
of the business, as mentioned earlier. These risks are
indeed very high, considering that the rate of success in exploration is
extremely low. The probability of finding any mineral or petroleum in
commercially viable quantities is estimated to be about 1:1,000 only. On that
slim chance rides the contractors hope of recouping investments and
generating profits. And when the contractor has recouped its initial
investments in the project, the government share increases to sixty percent of
net benefits -- without the State ever being in peril of incurring costs,
expenses and losses.
And even in the worst possible scenario -- an absence of commercial
quantities of minerals to justify development -- the contractor would already
have spent several million pesos for exploration works, before arriving at the
point in which it can make that determination and decide to cut its losses. In
fact, during the first year alone of the exploration period, the contractor was
already committed to spend not less than P24 million. The FTAA therefore
clearly ensures benefits for the local economy, courtesy of the contractor.
All in all, this setup cannot be regarded as disadvantageous to the
State or the Filipino people; it certainly cannot be said to convey
beneficial ownership of our mineral resources to foreign contractors.
Deductions Allowed by the
WMCP FTAA Reasonable
Petitioners question whether the States weak control might render the
sharing arrangements ineffective. They cite the so-called
suspicious deductions allowed by the WMCP FTAA in arriving at the net
mining revenue, which is the basis for computing the government share. The
WMCP FTAA, for instance, allows expenditures for development within
and outside the Contract Area relating to the Mining
Operations,
[80]
consulting fees incurred both inside and outside the
Philippines for work related directly to the Mining Operations,
[81]
and the
establishment and administration of field offices including administrative
overheads incurred within and outside the Philippines which are properly
allocatable to the Mining Operations and reasonably related to the
performance of the Contractors obligations and exercise of its rights under
this Agreement.
[82]

It is quite well known, however, that mining companies do perform some
marketing activities abroad in respect of selling their mineral products and by-
products. Hence, it would not be improper to allow the deduction
of reasonable consulting fees incurred abroad, as well as administrative
expenses and overheads related to marketing offices also located abroad --
provided that these deductions are directly related or properly allocatable to
the mining operations and reasonably related to the performance of the
contractors obligations and exercise of its rights. In any event, more facts are
needed. Until we see how these provisions actually operate, mere
suspicions will not suffice to propel this Court into taking action.
Section 7.9 of the WMCP FTAA
Invalid and Disadvantageous
Having defended the WMCP FTAA, we shall now turn to two defective
provisos. Let us start with Section 7.9 of the WMCP FTAA. While Section 7.7
gives the government a 60 percent share in the net mining revenues of
WMCP from the commencement of commercial production, Section 7.9
deprives the government of part or all of the said 60 percent. Under the latter
provision, should WMCPs foreign shareholders -- who originally owned 100
percent of the equity -- sell 60 percent or more of its outstanding capital stock
to a Filipino citizen or corporation, the State loses its right to receive its 60
percent share in net mining revenues under Section 7.7.
Section 7.9 provides:
The percentage of Net Mining Revenues payable to the Government pursuant to
Clause 7.7 shall be reduced by 1percent of Net Mining Revenues for every 1percent
ownership interest in the Contractor (i.e., WMCP) held by a Qualified Entity.
[83]

Evidently, what Section 7.7 grants to the State is taken away in the next
breath by Section 7.9 without any offsetting compensation to the State. Thus,
in reality, the State has no vested right to receive any income from the FTAA
for the exploitation of its mineral resources. Worse, it would seem that what is
given to the State in Section 7.7 is by mere tolerance of WMCPs foreign
stockholders, who can at any time cut off the governments entire 60 percent
share. They can do so by simply selling 60 percent of WMCPs outstanding
capital stock to a Philippine citizen or corporation. Moreover, the proceeds of
such sale will of course accrue to the foreign stockholders of WMCP, not to
the State.
The sale of 60 percent of WMCPs outstanding equity to a corporation that
is 60 percent Filipino-owned and 40 percent foreign-owned will still trigger the
operation of Section 7.9. Effectively, the State will lose its right to receive all
60 percent of the net mining revenues of WMCP; andforeign stockholders will
own beneficially up to 64 percent of WMCP, consisting of the remaining 40
percent foreign equity therein, plus the 24 percent pro-rata share in the buyer-
corporation.
[84]

In fact, the January 23, 2001 sale by WMCPs foreign stockholder of the
entire outstanding equity in WMCP to Sagittarius Mines, Inc. -- a domestic
corporation at least 60 percent Filipino owned -- may be deemed to have
automatically triggered the operation of Section 7.9, without need of further
action by any party, and removed the States right to receive the 60 percent
share in net mining revenues.
At bottom, Section 7.9 has the effect of depriving the State of its 60
percent share in the net mining revenues of WMCP without any offset or
compensation whatsoever. It is possible that the inclusion of the offending
provision was initially prompted by the desire to provide some form of
incentive for the principal foreign stockholder in WMCP to eventually reduce
its equity position and ultimately divest in favor of Filipino citizens and
corporations. However, as finally structured, Section 7.9 has the deleterious
effect of depriving government of the entire 60 percent share in WMCPs net
mining revenues, without any form of compensation whatsoever. Such an
outcome is completely unacceptable.
The whole point of developing the nations natural resources is to benefit
the Filipino people, future generations included. And the State as sovereign
and custodian of the nations natural wealth is mandated to protect, conserve,
preserve and develop that part of the national patrimony for their
benefit. Hence, the Charter lays great emphasis on real contributions to the
economic growth and general welfare of the country
[85]
as essential guiding
principles to be kept in mind when negotiating the terms and conditions of
FTAAs.
Earlier, we held (1) that the State must be accorded the liberty and the
utmost flexibility to deal, negotiate and transact with contractors and third
parties as it sees fit, and upon terms that it ascertains to be most favorable or
most acceptable under the circumstances, even if that should mean agreeing
to less than 60 percent; (2) that it is not necessary for the State to extract a 60
percent share in every case and regardless of circumstances; and (3) that
should the State be prevented from agreeing to a share less than 60 percent
as it deems fit, it will be deprived of the full control over mineral exploitation
that the Charter has vested in it.
That full control is obviously not an end in itself; it exists and subsists
precisely because of the need to serve and protect the national interest. In
this instance, national interest finds particular application in the protection of
the national patrimony and the development and exploitation of the countrys
mineral resources for the benefit of the Filipino people and the enhancement
of economic growth and the general welfare of the country. Undoubtedly,
such full control can be misused and abused, as we now witness.
Section 7.9 of the WMCP FTAA effectively gives away the States share of
net mining revenues (provided for in Section 7.7) without anything in
exchange. Moreover, this outcome constitutes unjust enrichment on the part
of the local and foreign stockholders of WMCP. By their mere divestment of
up to 60 percent equity in WMCP in favor of Filipino citizens and/or
corporations, the local and foreign stockholders get a windfall. Their share in
the net mining revenues of WMCP is automatically increased, without their
having to pay the government anything for it. In short, the provision in
question is without a doubt grossly disadvantageous to the government,
detrimental to the interests of the Filipino people, and violative of public policy.
Moreover, it has been reiterated in numerous decisions
[86]
that the parties
to a contract may establish any agreements, terms and conditions that they
deem convenient; but these should not be contrary to law, morals, good
customs, public order or public policy.
[87]
Being precisely violative of anti-graft
provisions and contrary to public policy, Section 7.9 must therefore be stricken
off as invalid.
Whether the government officials concerned acceded to that provision by
sheer mistake or with full awareness of the ill consequences, is of no
moment. It is hornbook doctrine that the principle of estoppel does not
operate against the government for the act of its agents,
[88]
and that it is never
estopped by any mistake or error on their part.
[89]
It is therefore possible and
proper to rectify the situation at this time. Moreover, we may also say that the
FTAA in question does not involve mere contractual rights; being impressed
as it is with public interest, the contractual provisions and stipulations must
yield to the common good and the national interest.
Since the offending provision is very much separable
[90]
from Section 7.7
and the rest of the FTAA, the deletion of Section 7.9 can be done without
affecting or requiring the invalidation of the WMCP FTAA itself. Such a
deletion will preserve for the government its due share of the benefits. This
way, the mandates of the Constitution are complied with and the interests of
the government fully protected, while the business operations of the contractor
are not needlessly disrupted.
Section 7.8(e) of the WMCP FTAA
Also Invalid and Disadvantageous
Section 7.8(e) of the WMCP FTAA is likewise invalid. It provides thus:
7.8 The Government Share shall be deemed to include all of the following sums:
(a) all Government taxes, fees, levies, costs, imposts, duties
and royalties including excise tax, corporate income tax,
customs duty, sales tax, value added tax, occupation and
regulatory fees, Government controlled price stabilization
schemes, any other form of Government backed schemes,
any tax on dividend payments by the Contractor or its
Affiliates in respect of revenues from the Mining
Operations and any tax on interest on domestic and
foreign loans or other financial arrangements or
accommodations, including loans extended to the
Contractor by its stockholders;
(b) any payments to local and regional government,
including taxes, fees, levies, costs, imposts, duties,
royalties, occupation and regulatory fees and
infrastructure contributions;
(c) any payments to landowners, surface rights holders,
occupiers, indigenous people or Claimowners;
(d) costs and expenses of fulfilling the Contractors
obligations to contribute to national development in
accordance with Clause 10.1(i) (1) and 10.1(i) (2);
(e) an amount equivalent to whatever benefits that may be
extended in the future by the Government to the
Contractor or to financial or technical assistance
agreement contractors in general;
(f) all of the foregoing items which have not previously
been offset against the Government Share in an earlier
Fiscal Year, adjusted for inflation. (underscoring
supplied)
Section 7.8(e) is out of place in the FTAA. It makes no sense why, for
instance, money spent by the government for the benefit of the contractor in
building roads leading to the mine site should still be deductible from the
States share in net mining revenues. Allowing this deduction results in
benefiting the contractor twice over. It constitutes unjust enrichment on the
part of the contractor at the expense of the government, since the latter is
effectively being made to pay twice for the same item.
[91]
For being grossly
disadvantageous and prejudicial to the government and contrary to public
policy, Section 7.8(e) is undoubtedly invalid and must be declared to be
without effect. Fortunately, this provision can also easily be stricken off
without affecting the rest of the FTAA.
Nothing Left Over
After Deductions?
In connection with Section 7.8, an objection has been raised: Specified in
Section 7.8 are numerous items of deduction from the States 60 percent
share. After taking these into account, will the State ever receive anything for
its ownership of the mineral resources?
We are confident that under normal circumstances, the answer will
be yes. If we examine the various items of deduction listed in Section 7.8 of
the WMCP FTAA, we will find that they correspond closely to the components
or elements of the basic government share established in DAO 99-56, as
discussed in the earlier part of this Opinion.
Likewise, the balance of the governments 60 percent share -- after netting
out the items of deduction listed in Section 7.8 --corresponds closely to
the additional government share provided for in DAO 99-56 which, we once
again stress, has nothing at all to do with indirect taxes. The Ramos-DeVera
paper
[92]
concisely presents the fiscal contribution of an FTAA under DAO 99-
56 in this equation:
Receipts from an FTAA = basic govt share + addl govt share
Transposed into a similar equation, the fiscal payments system from the
WMCP FTAA assumes the following formulation:
Governments 60 percent share in net mining revenues of WMCP = items listed in
Sec. 7.8 of the FTAA + balance of Govt share, payable 4 months from the end of
the fiscal year
It should become apparent that the fiscal arrangement under the WMCP
FTAA is very similar to that under DAO 99-56, with the balance of
government share payable 4 months from end of fiscal year being the
equivalent of the additional government share computed in accordance with
the net-mining-revenue-based option under DAO 99-56, as discussed
above. As we have emphasized earlier, we find each of the three options for
computing the additional government share -- as presented in DAO 99-56 --
to be sound and reasonable.
We therefore conclude that there is nothing inherently wrong in
the fiscal regime of the WMCP FTAA, and certainly nothing to warrant
the invalidation of the FTAA in its entirety.
Section 3.3 of the WMCP
FTAA Constitutional
Section 3.3 of the WMCP FTAA is assailed for violating supposed
constitutional restrictions on the term of FTAAs. The provision in question
reads:
3.3 This Agreement shall be renewed by the Government for a further
period of twenty-five (25) years under the same terms and conditions
provided that the Contractor lodges a request for renewal with the
Government not less than sixty (60) days prior to the expiry of the initial
term of this Agreement and provided that the Contractor is not in breach
of any of the requirements of this Agreement.
Allegedly, the above provision runs afoul of Section 2 of Article XII of the
1987 Constitution, which states:
Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora
and fauna, and other natural resources are owned by the State. With the exception of
agricultural lands, all other natural resources shall not be alienated. The
exploration, development and utilization of natural resources shall be under the full
control and supervision of the State. The State may directly undertake such activities,
or it may enter into co-production, joint venture or production-sharing agreements
with Filipino citizens or corporations or associations at least sixty per centum of
whose capital is owned by such citizens. Such agreements may be for a period not
exceeding twenty-five years, renewable for not more than twenty-five years, and
under such terms and conditions as may be provided by law. In cases of water rights
for irrigation, water supply, fisheries, or industrial uses other than the development of
water power, beneficial use may be the measure and limit of the grant.
The State shall protect the nations marine wealth in its archipelagic waters,
territorial sea, and exclusive economic zone, and reserve its use and enjoyment
exclusively to Filipino citizens.
The Congress may, by law, allow small-scale utilization of natural resources by
Filipino citizens, as well as cooperative fish farming, with priority to subsistence
fishermen and fish-workers in rivers, lakes, bays and lagoons.
The President may enter into agreements with foreign-owned corporations involving
either technical or financial assistance for large-scale exploration, development, and
utilization of minerals, petroleum, and other mineral oils according to the general
terms and conditions provided by law, based on real contributions to the economic
growth and general welfare of the country. In such agreements, the State shall
promote the development and use of local scientific and technical resources.
The President shall notify the Congress of every contract entered into in accordance
with this provision, within thirty days from its execution.
[93]

We hold that the term limitation of twenty-five years does not apply to
FTAAs. The reason is that the above provision is found within paragraph 1 of
Section 2 of Article XII, which refers to mineral agreements -- co-production
agreements, joint venture agreements and mineral production-sharing
agreements -- which the government may enter into with Filipino citizens and
corporations, at least 60 percent owned by Filipino citizens. The word such
clearly refers to these three mineral agreements -- CPAs, JVAs and MPSAs --
not to FTAAs.
Specifically, FTAAs are covered by paragraphs 4 and 5 of Section 2 of
Article XII of the Constitution. It will be noted that there are no term
limitations provided for in the said paragraphs dealing with FTAAs. This
shows that FTAAs are sui generis, in a class of their own. This omission was
obviously a deliberate move on the part of the framers. They probably
realized that FTAAs would be different in many ways from MPSAs, JVAs and
CPAs. The reason the framers did not fix term limitations applicable to FTAAs
is that they preferred to leave the matter to the discretion of the legislature
and/or the agencies involved in implementing the laws pertaining to FTAAs, in
order to give the latter enough flexibility and elbow room to meet changing
circumstances.
Note also that, as previously stated, the exploratory phrases of an FTAA
lasts up to eleven years. Thereafter, a few more years would be gobbled up
in start-up operations. It may take fifteen years before an FTAA contractor
can start earning profits. And thus, the period of 25 years may really be short
for an FTAA. Consider too that in this kind of agreement, the contractor
assumes all entrepreneurial risks. If no commercial quantities of minerals are
found, the contractor bears all financial losses. To compensate for this long
gestation period and extra business risks, it would not be totally unreasonable
to allow it to continue EDU activities for another twenty five years.
In any event, the complaint is that, in essence, Section 3.3 gives the
contractor the power to compel the government to renew the WMCP FTAA for
another 25 years and deprives the State of any say on whether to renew the
contract.
While we agree that Section 3.3 could have been worded so as to prevent
it from favoring the contractor, this provision does not violate any
constitutional limits, since the said term limitation does not apply at all to
FTAAs. Neither can the provision be deemed in any manner to be illegal, as
no law is being violated thereby. It is certainly not illegal for the government to
waive its option to refuse the renewal of a commercial contract.
Verily, the government did not have to agree to Section 3.3. It could have
said No to the stipulation, but it did not. It appears that, in the process of
negotiations, the other contracting party was able to convince the government
to agree to the renewal terms. Under the circumstances, it does not seem
proper for this Court to intervene and step in to undo what might have perhaps
been a possible miscalculation on the part of the State. If government
believes that it is or will be aggrieved by the effects of Section 3.3, the remedy
is the renegotiation of the provision in order to provide the State the option to
not renew the FTAA.
Financial Benefits for Foreigners
Not Forbidden by the Constitution
Before leaving this subject matter, we find it necessary for us to rid
ourselves of the false belief that the Constitution somehow forbids foreign-
owned corporations from deriving financial benefits from the development of
our natural or mineral resources.
The Constitution has never prohibited foreign corporations from acquiring
and enjoying beneficial interest in the development of Philippine natural
resources. The State itself need not directly undertake exploration,
development, and utilization activities. Alternatively, the Constitution
authorizes the government to enter into joint venture agreements (JVAs), co-
production agreements (CPAs) and mineral production sharing agreements
(MPSAs) with contractors who are Filipino citizens or corporations that are at
least 60 percent Filipino-owned. They may do the actual dirty work -- the
mining operations.
In the case of a 60 percent Filipino-owned corporation, the 40 percent
individual and/or corporate non-Filipino stakeholders obviously participate in
the beneficial interest derived from the development and utilization of our
natural resources. They may receive by way of dividends, up to 40 percent of
the contractors earnings from the mining project. Likewise, they may have a
say in the decisions of the board of directors, since they are entitled to
representation therein to the extent of their equity participation, which the
Constitution permits to be up to 40 percent of the contractors equity. Hence,
the non-Filipino stakeholders may in that manner also participate in the
management of the contractors natural resource development work. All of
this is permitted by our Constitution, for any natural resource, and without
limitation even in regard to the magnitude of the mining project or operations
(see paragraph 1 of Section 2 of Article XII).
It is clear, then, that there is nothing inherently wrong with or
constitutionally objectionable about the idea of foreign individuals and entities
having or enjoying beneficial interest in -- and participating in the
management of operations relative to -- the exploration, development and
utilization of our natural resources.
FTAA More Advantageous
Than Other Schemes
Like CPA, J VA and MPSA
A final point on the subject of beneficial interest. We believe the FTAA is a
more advantageous proposition for the government as compared with other
agreements permitted by the Constitution. In a CPA that the government
enters into with one or more contractors, the government shall provide inputs
to the mining operations other than the mineral resource itself.
[94]

In a JVA, a JV company is organized by the government and the
contractor, with both parties having equity shares (investments); and the
contractor is granted the exclusive right to conduct mining operations and to
extract minerals found in the area.
[95]
On the other hand, in an MPSA, the
government grants the contractor the exclusive right to conduct mining
operations within the contract area and shares in the gross output; and the
contractor provides the necessary financing, technology, management and
manpower.
The point being made here is that, in two of the three types of agreements
under consideration, the government has to ante up some risk capital for the
enterprise. In other words, government funds (public moneys) are withdrawn
from other possible uses, put to work in the venture and placed at risk in case
the venture fails. This notwithstanding, management and control of the
operations of the enterprise are -- in all three arrangements -- in the hands of
the contractor, with the government being mainly a silent partner. The three
types of agreement mentioned above apply to any natural resource, without
limitation and regardless of the size or magnitude of the project or operations.
In contrast to the foregoing arrangements, and pursuant to paragraph 4 of
Section 2 of Article XII, the FTAA is limited to large-scale projects and only for
minerals, petroleum and other mineral oils. Here, the Constitution removes
the 40 percent cap on foreign ownership and allows the foreign corporation to
own up to 100 percent of the equity. Filipino capital may not be sufficient on
account of the size of the project, so the foreign entity may have to ante up all
the risk capital.
Correlatively, the foreign stakeholder bears up to 100 percent of the risk of
loss if the project fails. In respect of the particular FTAA granted to it, WMCP
(then 100 percent foreign owned) was responsible, as contractor, for providing
the entire equity, including all the inputs for the project. It was to bear 100
percent of the risk of loss if the project failed, but its maximum potential
beneficial interest consisted only of 40 percent of the net beneficial interest,
because the other 60 percent is the share of the government, which will never
be exposed to any risk of loss whatsoever.
In consonance with the degree of risk assumed, the FTAA vested in
WMCP the day-to-day management of the mining operations. Still such
management is subject to the overall control and supervision of the State in
terms of regular reporting, approvals of work programs and budgets, and so
on.
So, one needs to consider in relative terms, the costs of inputs for, degree
of risk attendant to, and benefits derived or to be derived from a CPA, a JVA
or an MPSA vis--vis those pertaining to an FTAA. It may not be realistically
asserted that the foreign grantee of an FTAA is being unduly favored or
benefited as compared with a foreign stakeholder in a corporation holding a
CPA, a JVA or an MPSA. Seen the other way around, the government is
definitely better off with an FTAA than a CPA, a JVA or an MPSA.
Developmental Policy
on the Mining Industry
During the Oral Argument and in their Final Memorandum, petitioners
repeatedly urged the Court to consider whether mining as an industry and
economic activity deserved to be accorded priority, preference and
government support as against, say, agriculture and other activities in which
Filipinos and the Philippines may have an economic advantage. For
instance, a recent US study
[96]
reportedly examined the economic
performance of all local US counties that were dependent on mining and 20
percent of whose labor earnings between 1970 and 2000 came from mining
enterprises.
The study -- covering 100 US counties in 25 states dependent on mining --
showed that per capita income grew about 30 percent less in mining-
dependent communities in the 1980s and 25 percent less for the entire period
1980 to 2000; the level of per capita income was also lower. Therefore, given
the slower rate of growth, the gap between these and other local counties
increased.
Petitioners invite attention to the OXFAM America Reports warning to
developing nations that mining brings with it serious economic problems,
including increased regional inequality, unemployment and poverty. They
also cite the final report
[97]
of the Extractive Industries Review project
commissioned by the World Bank (the WB-EIR Report), which warns of
environmental degradation, social disruption, conflict, and uneven sharing of
benefits with local communities that bear the negative social and
environmental impact. The Report suggests that countries need to decide on
the best way to exploit their natural resources, in order to maximize the value
added from the development of their resources and ensure that they are on
the path to sustainable development once the resources run out.
Whatever priority or preference may be given to mining vis--vis other
economic or non-economic activities is a question of policy that the President
and Congress will have to address; it is not for this Court to decide. This
Court declares what the Constitution and the laws say, interprets only when
necessary, and refrains from delving into matters of policy.
Suffice it to say that the State control accorded by the Constitution over
mining activities assures a proper balancing of interests. More pointedly, such
control will enable the President to demand the best mining practices and the
use of the best available technologies to protect the environment and to
rehabilitate mined-out areas. Indeed, under the Mining Law, the government
can ensure the protection of the environment during and after mining. It can
likewise provide for the mechanisms to protect the rights of indigenous
communities, and thereby mold a more socially-responsive, culturally-
sensitive and sustainable mining industry.
Early on during the launching of the Presidential Mineral Industry
Environmental Awards on February 6, 1997, then President Fidel V. Ramos
captured the essence of balanced and sustainable mining in these words:
Long term, high profit mining translates into higher revenues for government, more
decent jobs for the population, more raw materials to feed the engines of downstream
and allied industries, and improved chances of human resource and countryside
development by creating self-reliant communities away from urban centers.
x x x x x x x x x
Against a fragile and finite environment, it is sustainability that holds the key. In
sustainable mining, we take a middle ground where both production and protection
goals are balanced, and where parties-in-interest come to terms.
Neither has the present leadership been remiss in addressing the
concerns of sustainable mining operations. Recently, on January 16, 2004
and April 20, 2004, President Gloria Macapagal Arroyo issued Executive
Orders Nos. 270 and 270-A, respectively, to promoteresponsible mineral
resources exploration, development and utilization, in order to enhance
economic growth, in a manner that adheres to the principles of sustainable
development and with due regard for justice and equity, sensitivity to the
culture of the Filipino people and respect for Philippine sovereignty.
[98]

REFUTATION OF DISSENTS
The Court will now take up a number of other specific points raised in the
dissents of Justices Carpio and Morales.
1. Justice Morales introduced us to Hugh Morgan, former president and
chief executive officer of Western Mining Corporation (WMC) and former
president of the Australian Mining Industry Council, who spearheaded the
vociferous opposition to the filing by aboriginal peoples of native title claims
against mining companies in Australia in the aftermath of the
landmark Mabo decision by the Australian High Court. According to sources
quoted by our esteemed colleague, Morgan was also a racist and a bigot. In
the course of protesting Mabo, Morgan allegedly uttered derogatory remarks
belittling the aboriginal culture and race.
An unwritten caveat of this introduction is that this Court should be careful
not to permit the entry of the likes of Hugh Morgan and his hordes of alleged
racist-bigots at WMC. With all due respect, such scare tactics should have no
place in the discussion of this case. We are deliberating on the
constitutionality of RA 7942, DAO 96-40 and the FTAA originally granted to
WMCP, which had been transferred to Sagittarius Mining, a Filipino
corporation. We are not discussing the apparition of white Anglo-Saxon
racists/bigots massing at our gates.
2. On the proper interpretation of the phrase agreements involving either
technical or financial assistance, Justice Morales points out that at times we
conveniently omitted the use of the disjunctive eitheror, which according to
her denotes restriction; hence the phrase must be deemed to connote
restriction and limitation.
But, as Justice Carpio himself pointed out during the Oral Argument, the
disjunctive phrase either technical or financial assistance would, strictly
speaking, literally mean that a foreign contractor may provide only one or the
other, but not both. And if both technical and financial assistance were
required for a project, the State would have to deal with at least two different
foreign contractors -- one for financial and the other for technical
assistance. And following on that, a foreign contractor, though very much
qualified to provide both kinds of assistance, would nevertheless be prohibited
from providing one kind as soon as it shall have agreed to provide the other.
But if the Court should follow this restrictive and literal construction, can
we really find two (or more) contractors who are willing to participate in one
single project -- one to provide the financial assistance only and the other
the technical assistance exclusively; it would be excellent if these two or
more contractors happen to be willing and are able to cooperate and work
closely together on the same project (even if they are otherwise
competitors). And it would be superb if no conflicts would arise between or
among them in the entire course of the contract. But what are the chances
things will turn out this way in the real world? To think that the framers
deliberately imposed this kind of restriction is to say that they were either
exceedingly optimistic, or incredibly nave. This begs the question -- What
laudable objective or purpose could possibly be served by such strict and
restrictive literal interpretation?
3. Citing Oposa v. Factoran Jr., Justice Morales claims that a service
contract is not a contract or property right which merits protection by the due
process clause of the Constitution, but merely a license or privilege which may
be validly revoked, rescinded or withdrawn by executive action whenever
dictated by public interest or public welfare.
Oposa cites Tan v. Director of Forestry and Ysmael v. Deputy Executive
Secretary as authority. The latter cases dealt specifically withtimber licenses
only. Oposa allegedly reiterated that a license is merely a permit or privilege
to do what otherwise would be unlawful, and is not a contract between the
authority, federal, state or municipal, granting it and the person to whom it is
granted; neither is it property or a property right, nor does it create a vested
right; nor is it taxation. Thus this Court held that the granting of license does
not create irrevocable rights, neither is it property or property rights.
Should Oposa be deemed applicable to the case at bar, on the argument
that natural resources are also involved in this situation? We do not think
so. A grantee of a timber license, permit or license agreement gets to cut the
timber already growing on the surface; it need not dig up tons of earth to get
at the logs. In a logging concession, the investment of the licensee is not as
substantial as the investment of a large-scale mining contractor. If a timber
license were revoked, the licensee packs up its gear and moves to a new area
applied for, and starts over; what it leaves behind are mainly the trails leading
to the logging site.
In contrast, the mining contractor will have sunk a great deal of money
(tens of millions of dollars) into the ground, so to speak, for exploration
activities, for development of the mine site and infrastructure, and for the
actual excavation and extraction of minerals, including the extensive tunneling
work to reach the ore body. The cancellation of the mining contract will utterly
deprive the contractor of its investments (i.e., prevent recovery of
investments), most of which cannot be pulled out.
To say that an FTAA is just like a mere timber license or permit and does
not involve contract or property rights which merit protection by the due
process clause of the Constitution, and may therefore be revoked or cancelled
in the blink of an eye, is to adopt a well-nigh confiscatory stance; at the very
least, it is downright dismissive of the property rights of businesspersons and
corporate entities that have investments in the mining industry, whose
investments, operations and expenditures do contribute to the general welfare
of the people, the coffers of government, and the strength of the
economy. Such a pronouncement will surely discourage investments (local
and foreign) which are critically needed to fuel the engine of economic growth
and move this country out of the rut of poverty. In sum, Oposa is not
applicable.
4. Justice Morales adverts to the supposedly clear intention of the
framers of the Constitution to reserve our natural resources exclusively for the
Filipino people. She then quoted from the records of the ConCom
deliberations a passage in which then Commissioner Davide explained his
vote, arguing in the process that aliens ought not be allowed to participate in
the enjoyment of our natural resources. One passage does not suffice to
capture the tenor or substance of the entire extensive deliberations of the
commissioners, or to reveal the clear intention of the framers as a group. A
re-reading of the entire deliberations (quoted here earlier) is necessary if we
are to understand the true intent of the framers.
5. Since 1935, the Filipino people, through their Constitution, have decided
that the retardation or delay in the exploration, development or utilization of
the nations natural resources is merely secondary to the protection and
preservation of their ownership of the natural resources, so says Justice
Morales, citing Aruego. If it is true that the framers of the 1987
Constitution did not care much about alleviating the retardation or delay in the
development and utilization of our natural resources, why did they bother to
write paragraph 4 at all? Were they merely paying lip service to large-scale
exploration, development and utilization? They could have just completely
ignored the subject matter and left it to be dealt with through a future
constitutional amendment. But we have to harmonize every part of the
Constitution and to interpret each provision in a manner that would give life
and meaning to it and to the rest of the provisions. It is obvious that a literal
interpretation of paragraph 4 will render it utterly inutile and inoperative.
6. According to Justice Morales, the deliberations of the Constitutional
Commission do not support our contention that the framers, by specifying
such agreements involving financial or technical assistance, necessarily gave
implied assent to everything that these agreements implicitly entailed, or that
could reasonably be deemed necessary to make them tenable and effective,
including management authority in the day-to-day operations. As proof
thereof, she quotes one single passage from the ConCom deliberations,
consisting of an exchange among Commissioners Tingson, Garcia and
Monsod.
However, the quoted exchange does not serve to contradict our argument;
it even bolsters it. Comm. Christian Monsod was quoted as saying: xxx I
think we have to make a distinction that it is not really realistic to say that we
will borrow on our own terms. Maybe we can say that we inherited unjust
loans, and we would like to repay these on terms that are not prejudicial to our
own growth. But the general statement that we should only borrow on our
own terms is a bit unrealistic. Comm. Monsod is one who knew whereof he
spoke.
7. Justice Morales also declares that the optimal time for the conversion of
an FTAA into an MPSA is after completion of the exploration phase and just
before undertaking the development and construction phase, on account of
the fact that the requirement for a minimum investment of $50 million is
applicable only during the development, construction and utilization phase, but
not during the exploration phase, when the foreign contractor need merely
comply with minimum ground expenditures. Thus by converting, the foreign
contractor maximizes its profits by avoiding its obligation to make the
minimum investment of $50 million.
This argument forgets that the foreign contractor is in the game precisely
to make money. In order to come anywhere near profitability, the contractor
must first extract and sell the mineral ore. In order to do that, it must also
develop and construct the mining facilities, set up its machineries and
equipment and dig the tunnels to get to the deposit. The contractor is thus
compelled to expend funds in order to make profits. If it decides to cut back on
investments and expenditures, it will necessarily sacrifice the pace of
development and utilization; it will necessarily sacrifice the amount of profits it
can make from the mining operations. In fact, at certain less-than-optimal
levels of operation, the stream of revenues generated may not even be
enough to cover variable expenses, let alone overhead expenses; this is a
dismal situation anyone would want to avoid. In order to make money, one
has to spend money. This truism applies to the mining industry as well.
8. Mortgaging the minerals to secure a foreign FTAA contractors
obligations is anomalous, according to Justice Morales since the contractor
was from the beginning obliged to provide all financing needed for the mining
operations. However, the mortgaging of minerals by the contractor
does not necessarily signify that the contractor is unable to provide all
financing required for the project, or that it does not have the financial
capability to undertake large-scale operations. Mortgaging of mineral
products, just like the assignment (by way of security) of manufactured goods
and goods in inventory, and the assignment of receivables, is an ordinary
requirement of banks, even in the case of clients with more than sufficient
financial resources. And nowadays, even the richest and best managed
corporations make use of bank credit facilities -- it does not necessarily signify
that they do not have the financial resources or are unable to provide the
financing on their own; it is just a manner of maximizing the use of their funds.
9. Does the contractor in reality acquire the surface rights for free, by
virtue of the fact that it is entitled to reimbursement for the costs of acquisition
and maintenance, adjusted for inflation? We think not. The reimbursement
is possible only at the end of the term of the contract, when the surface rights
will no longer be needed, and the land previously acquired will have to be
disposed of, in which case the contractor gets reimbursement from the sales
proceeds. The contractor has to pay out the acquisition price for the
land. That money will belong to the seller of the land. Only if and when the
land is finally sold off will the contractor get any reimbursement. In other
words, the contractor will have been cash-out for the entire duration of the
term of the contract -- 25 or 50 years, depending. If we calculate the cost of
money at say 12 percent per annum, that is the cost or opportunity loss to the
contractor, in addition to the amount of the acquisition price. 12 percent per
annum for 50 years is 600 percent; this, without any compounding yet. The
cost of money is therefore at least 600 percent of the original acquisition cost;
it is in addition to the acquisition cost. For free? Not by a long shot.
10. The contractor will acquire and hold up to 5,000 hectares? We doubt
it. The acquisition by the State of land for the contractor is just to enable the
contractor to establish its mine site, build its facilities, establish a tailings pond,
set up its machinery and equipment, and dig mine shafts and tunnels, etc. It
is impossible that the surface requirement will aggregate 5,000
hectares. Much of the operations will consist of the tunneling and digging
underground, which will not require possessing or using any land
surface. 5,000 hectares is way too much for the needs of a mining
operator. It simply will not spend its cash to acquire property that it will not
need; the cash may be better employed for the actual mining operations, to
yield a profit.
11. Justice Carpio claims that the phrase among other things (found in the
second paragraph of Section 81 of the Mining Act) is being incorrectly treated
as a delegation of legislative power to the DENR secretary to issue DAO 99-
56 and prescribe the formulae therein on the States share from mining
operations. He adds that the phrase among other things was not intended as
a delegation of legislative power to the DENR secretary, much less could it be
deemed a valid delegation of legislative power, since there is nothing in the
second paragraph of Section 81 which can be said to grant any delegated
legislative power to the DENR secretary. And even if there were, such
delegation would be void, for lack of any standards by which the delegated
power shall be exercised.
While there is nothing in the second paragraph of Section 81 which can
directly be construed as a delegation of legislative power to the DENR
secretary, it does not mean that DAO 99-56 is invalid per se, or that the
secretary acted without any authority or jurisdiction in issuing DAO 99-56. As
we stated earlier in our Prologue, Who or what organ of government actually
exercises this power of control on behalf of the State? The Constitution is
crystal clear: the President. Indeed, the Chief Executive is the official
constitutionally mandated to enter into agreements with foreign owned
corporations. On the other hand, Congress may review the action of the
President once it is notified of every contract entered into in accordance with
this [constitutional] provision within thirty days from its execution. It is the
President who is constitutionally mandated to enter into FTAAs with foreign
corporations, and in doing so, it is within the Presidents prerogative to
specify certain terms and conditions of the FTAAs, for example, the fiscal
regime of FTAAs -- i.e., the sharing of the net mining revenues between the
contractor and the State.
Being the Presidents alter ego with respect to the control and supervision
of the mining industry, the DENR secretary, acting for the President, is
necessarily clothed with the requisite authority and power to draw up
guidelines delineating certain terms and conditions, and specifying therein the
terms of sharing of benefits from mining, to be applicable to FTAAs in
general. It is important to remember that DAO 99-56 has been in existence
for almost six years, and has not been amended or revoked by the President.
The issuance of DAO 99-56 did not involve the exercise of delegated
legislative power. The legislature did not delegate the power to determine the
nature, extent and composition of the items that would come under the
phrase among other things. The legislatures power pertains to the imposition
of taxes, duties and fees. This power was not delegated to the DENR
secretary. But the power to negotiate and enter into FTAAs was withheld from
Congress, and reserved for the President. In determining the sharing of
mining benefits, i.e., in specifying what the phrase among other things include,
the President (through the secretary acting in his/her behalf) was not
determining the amount or rate of taxes, duties and fees, but rather the
amount of INCOME to be derived from minerals to be extracted and sold,
income which belongs to the State as owner of the mineral resources. We
may say that, in the second paragraph of Section 81, the legislature in a
sense intruded partially into the Presidents sphere of authority when the
former provided that
The Government share in financial or technical assistance agreement shall consist
of, among other things, the contractors corporate income tax, excise tax, special
allowance, withholding tax due from the contractors foreign stockholders arising
from dividend or interest payments to the said foreign stockholder in case of a foreign
national and all such other taxes, duties and fees as provided for under existing
laws. (Italics supplied)
But it did not usurp the Presidents authority since the provision merely
included the enumerated items as part of the government share, without
foreclosing or in any way preventing (as in fact Congress could not validly
prevent) the President from determining what constitutes the States
compensation derived from FTAAs. In this case, the President in effect
directed the inclusion or addition of other things, viz., INCOME for the owner
of the resources, in the governments share, while adopting the items
enumerated by Congress as part of the government share also.
12. Justice Carpios insistence on applying the ejusdem generis rule of
statutory construction to the phrase among other things is therefore useless,
and must fall by the wayside. There is no point trying to construe that phrase
in relation to the enumeration of taxes, duties and fees found in paragraph 2
of Section 81, precisely because the constitutional power to prescribe the
sharing of mining income between the State and mining companies, to
quote Justice Carpio pursuant to an FTAA is constitutionally lodged with
the President, not with Congress. It thus makes no sense to persist in
giving the phrase among other things a restricted meaning referring only to
taxes, duties and fees.
13. Strangely, Justice Carpio claims that the DENR secretary can change
the formulae in DAO 99-56 any time even without the approval of the
President, and the secretary is the sole authority to determine the amount of
consideration that the State shall receive in an FTAA, because Section 5 of
the DAO states that xxx any amendment of an FTAA other than the provision
on fiscal regime shall require the negotiation with the Negotiation Panel and
the recommendation of the Secretary for approval of the President
xxx. Allegedly, because of that provision, if an amendment in the FTAA
involves non-fiscal matters, the amendment requires approval of the
President, but if the amendment involves a change in the fiscal regime, the
DENR secretary has the final authority, and approval of the President may be
dispensed with; hence the secretary is more powerful than the President.
We believe there is some distortion resulting from the quoted provision
being taken out of context. Section 5 of DAO 99-56 reads as follows:
Section 5. Status of Existing FTAAs. All FTAAs approved prior to the effectivity
of this Administrative Order shall remain valid and be recognized by the Government:
Provided, That should a Contractor desire to amend its FTAA, it shall do so by filing a
Letter of Intent (LOI) to the Secretary thru the Director. Provided, further, That if the
Contractor desires to amend the fiscal regime of its FTAA, it may do so by seeking
for the amendment of its FTAAs whole fiscal regime by adopting the fiscal regime
provided hereof: Provided, finally, That any amendment of an FTAA other than the
provision on fiscal regime shall require the negotiation with the Negotiating Panel and
the recommendation of the Secretary for approval of the President of the Republic of
the Philippines. (underscoring supplied)
It looks like another case of misapprehension. The proviso being objected
to by Justice Carpio is actually preceded by a phrase that requires a
contractor desiring to amend the fiscal regime of its FTAA, to amend the same
by adopting the fiscal regime prescribed in DAO 99-56 -- i.e., solely in that
manner, and in no other. Obviously, since DAO 99-56 was issued by the
secretary under the authority and with the presumed approval of the
President, the amendment of an FTAA by merely adopting the fiscal
regime prescribed in said DAO 99-56 (and nothing more) need not have
the express clearance of the President anymore. It is as if the same had
been pre-approved. We cannot fathom the complaint that that makes the
secretary more powerful than the President, or that the former is trying to hide
things from the President or Congress.
14. Based on the first sentence of Section 5 of DAO 99-56, which states
[A]ll FTAAs approved prior to the effectivity of this Administrative Order shall
remain valid and be recognized by the Government, Justice Carpio
concludes that said Administrative Order allegedly exemptsFTAAs approved
prior to its effectivity -- like the WMCP FTAA -- from having to pay the State
any share from their mining income, apart from taxes, duties and fees.
We disagree. What we see in black and white is the statement that the
FTAAs approved before the DAO came into effect are to continue to be valid
and will be recognized by the State. Nothing is said about their fiscal
regimes. Certainly, there is no basis to claim that the contractors under said
FTAAs were being exempted from paying the government a share in their
mining incomes.
For the record, the WMCP FTAA is NOT and has never been exempt from
paying the government share. The WMCP FTAA has its own fiscal regime
-- Section 7.7 -- which gives the government a 60 percent share in the
net mining revenues of WMCP from the commencement of commercial
production.
For that very reason, we have never said that DAO 99-56 is the basis for
claiming that the WMCP FTAA has a consideration. Hence, we find quite out
of place Justice Carpios statement that ironically, DAO 99-56, the very
authority cited to support the claim that the WMCP FTAA has a consideration,
does not apply to the WMCP FTAA. By its own express terms, DAO 99-56
does not apply to FTAAs executed before the issuance of DAO 99-56, like the
WMCP FTAA. The majoritys position has allegedly no leg to stand on since
even DAO 99-56, assuming it is valid, cannot save the WMCP FTAA from
want of consideration. Even assuming arguendo that DAO 99-56 does not
apply to the WMCP FTAA, nevertheless, the WMCP FTAA has its own fiscal
regime, found in Section 7.7 thereof. Hence, there is no such thing as want
of consideration here.
Still more startling is this claim: The majority supposedly agrees that the
provisions of the WMCP FTAA, which grant a sham consideration to the
State, are void. Since the majority agrees that the WMCP FTAA has a sham
consideration, the WMCP FTAA thus lacks the third element of a valid
contract. The Decision should declare the WMCP FTAA void for want of
consideration unless it treats the contract as an MPSA under Section
80. Indeed the only recourse of WMCP to save the validity of its contract is to
convert it into an MPSA.
To clarify, we said that Sections 7.9 and 7.8(e) of the WMCP FTAA are
provisions grossly disadvantageous to government and detrimental to the
interests of the Filipino people, as well as violative of public policy, and must
therefore be stricken off as invalid. Since the offending provisions are very
much separable from Section 7.7 and the rest of the FTAA, the deletion of
Sections 7.9 and 7.8(e) can be done without affecting or requiring the
invalidation of the WMCP FTAA itself, and such deletion will preserve for
government its due share of the 60 percent benefits. Therefore, the WMCP
FTAA is NOT bereft of a valid consideration (assuming for the nonce that
indeed this is the consideration of the FTAA).
SUMMATION
To conclude, a summary of the key points discussed above is now in
order.
The Meaning of Agreements Involving
Either Technical or Financial Assistance
Applying familiar principles of constitutional construction to the
phrase agreements involving either technical or financial assistance, the
framers choice of words does not indicate the intent to exclude other modes
of assistance, but rather implies that there are other things being included or
possibly being made part of the agreement, apart from financial or technical
assistance. The drafters avoided the use of restrictive and stringent
phraseology; a verba legis scrutiny of Section 2 of Article XII of the
Constitution discloses not even a hint of a desire to prohibitforeign
involvement in the management or operation of mining activities, or
to eradicate service contracts. Such moves would necessarily imply an
underlying drastic shift in fundamental economic and developmental policies
of the State. That change requires a much more definite and irrefutable basis
than mere omission of the words service contract from the new Constitution.
Furthermore, a literal and restrictive interpretation of this paragraph leads
to logical inconsistencies. A constitutional provision specifically allowing
foreign-owned corporations to render financial or technical assistance in
respect of mining or any other commercial activity was clearly unnecessary;
the provision was meant to refer to more than mere financial or technical
assistance.
Also, if paragraph 4 permits only agreements for financial or technical
assistance, there would be no point in requiring that they be based on real
contributions to the economic growth and general welfare of the country. And
considering that there were various long-term service contracts still in force
and effect at the time the new Charter was being drafted, the absence of any
transitory provisions to govern the termination and closing-out of the then
existing service contracts strongly militates against the theory that the mere
omission of service contracts signaled their prohibition by the new
Constitution.
Resort to the deliberations of the Constitutional Commission is therefore
unavoidable, and a careful scrutiny thereof conclusively shows that the
ConCom members discussed agreements involving either technical or
financial assistance in the same sense as service contracts and used the
terms interchangeably. The drafters in fact knew that the agreements with
foreign corporations were going to entail not mere technical or financial
assistance but, rather, foreign investment in and management of an enterprise
for large-scale exploration, development and utilization of minerals.
The framers spoke about service contracts as the concept was understood in
the 1973 Constitution. It is obvious from their discussions that they did not intend
to ban or eradicate service contracts. Instead, they were intent on crafting
provisions to put in place safeguards that would eliminate or minimize the
abuses prevalent during the martial law regime. In brief, they were going to
permit service contracts with foreign corporations as contractors, but with
safety measures to prevent abuses, as an exception to the general norm
established in the first paragraph of Section 2 of Article XII, which reserves
or limits to Filipino citizens and corporations at least 60 percent owned by
such citizens the exploration, development and utilization of mineral or
petroleum resources. This was prompted by the perceived insufficiency of
Filipino capital and the felt need for foreign expertise in the EDU of mineral
resources.
Despite strong opposition from some ConCom members during the final
voting, the Article on the National Economy and Patrimony -- including
paragraph 4 allowing service contracts with foreign corporations as an
exception to the general norm in paragraph 1 of Section 2 of the same Article
-- was resoundingly and overwhelmingly approved.
The drafters, many of whom were economists, academicians, lawyers,
businesspersons and politicians knew that foreign entities will not enter into
agreements involving assistance without requiring measures of protection to
ensure the success of the venture and repayment of their investments, loans
and other financial assistance, and ultimately to protect the business
reputation of the foreign corporations. The drafters, by specifying such
agreements involving assistance, necessarily gave implied assent to
everything that these agreements entailed or that could reasonably be
deemed necessary to make them tenable and effective -- including
management authority with respect to the day-to-day operations of the
enterprise, and measures for the protection of the interests of the foreign
corporation, at least to the extent that they are consistent with Philippine
sovereignty over natural resources, the constitutional requirement of State
control, and beneficial ownership of natural resources remaining vested in the
State.
From the foregoing, it is clear that agreements involving either technical or
financial assistance referred to in paragraph 4 are in factservice contracts, but
such new service contracts are between foreign corporations acting as
contractors on the one hand, and on the other hand government as principal
or owner (of the works), whereby the foreign contractor provides the capital,
technology and technical know-how, and managerial expertise in the creation
and operation of the large-scale mining/extractive enterprise, and government
through its agencies (DENR, MGB) actively exercises full control and
supervision over the entire enterprise.
Such service contracts may be entered into only with respect to minerals,
petroleum and other mineral oils. The grant of such service contracts is
subject to several safeguards, among them: (1) that the service contract be
crafted in accordance with a general law setting standard or uniform terms,
conditions and requirements; (2) the President be the signatory for the
government; and (3) the President report the executed agreement to
Congress within thirty days.
Ultimate Test:
Full State Control
To repeat, the primacy of the principle of the States sovereign ownership
of all mineral resources, and its full control and supervision over all aspects of
exploration, development and utilization of natural resources must be
upheld. But full control and supervision cannot be taken literally to mean
that the State controls and supervises everything down to the minutest details
and makes all required actions, as this would render impossible the legitimate
exercise by the contractor of a reasonable degree of management prerogative
and authority, indispensable to the proper functioning of the mining
enterprise. Also, government need not micro-manage mining operations and
day-to-day affairs of the enterprise in order to be considered as exercising full
control and supervision.
Control, as utilized in Section 2 of Article XII, must be taken to mean a
degree of control sufficient to enable the State to direct, restrain, regulate and
govern the affairs of the extractive enterprises. Control by the State may be
on a macro level, through the establishment of policies, guidelines,
regulations, industry standards and similar measures that would enable
government to regulate the conduct of affairs in various enterprises,
and restrain activities deemed not desirable or beneficial, with the end in view
of ensuring that these enterprises contribute to the economic development
and general welfare of the country, conserve the environment, and uplift the
well-being of the local affected communities. Such a degree of control would
be compatible with permitting the foreign contractor sufficient and reasonable
management authority over the enterprise it has invested in, to ensure
efficient and profitable operation.
Government Granted Full Control
by RA 7942 and DAO 96-40
Baseless are petitioners sweeping claims that RA 7942 and its
Implementing Rules and Regulations make it possible for FTAA contracts to
cede full control and management of mining enterprises over to fully foreign
owned corporations. Equally wobbly is the assertion that the State is reduced
to a passive regulator dependent on submitted plans and reports, with weak
review and audit powers and little say in the decision-making of the enterprise,
for which reasons beneficial ownership of the mineral resources is allegedly
ceded to the foreign contractor.
As discussed hereinabove, the States full control and supervision over
mining operations are ensured through the following provisions in RA 7942:
Sections 8, 9, 16, 19, 24, 35[(b), (e), (f), (g), (h), (k), (l), (m) and (o)], 40, 57,
66, 69, 70, and Chapters XI and XVII; as well as the following provisions
of DAO 96-40: Sections7[(d) and (f)], 35(a-2), 53[(a-4) and (d)], 54, 56[(g), (h),
(l), (m) and (n)], 56(2), 60, 66, 144, 168, 171 and 270, and also Chapters XV,
XVI and XXIV.
Through the foregoing provisions, the government agencies concerned
are empowered to approve or disapprove -- hence, in a position to influence,
direct, and change -- the various work programs and the corresponding
minimum expenditure commitments for each of the exploration, development
and utilization phases of the enterprise. Once they have been approved, the
contractors compliance with its commitments therein will be
monitored. Figures for mineral production and sales are regularly monitored
and subjected to government review, to ensure that the products and by-
products are disposed of at the best prices; copies of sales agreements have
to be submitted to and registered with MGB.
The contractor is mandated to open its books of accounts and records for
scrutiny, to enable the State to determine that the government share has been
fully paid. The State may likewise compel compliance by the contractor with
mandatory requirements on mine safety, health and environmental protection,
and the use of anti-pollution technology and facilities. The contractor is also
obligated to assist the development of the mining community, and pay
royalties to the indigenous peoples concerned. And violation of any of the
FTAAs terms and conditions, and/or non-compliance with statutes or
regulations, may be penalized by cancellation of the FTAA. Such sanction is
significant to a contractor who may have yet to recover the tens or hundreds
of millions of dollars sunk into a mining project.
Overall, the State definitely has a pivotal say in the operation of the
individual enterprises, and can set directions and objectives, detect deviations
and non-compliances by the contractor, and enforce compliance and impose
sanctions should the occasion arise. Hence, RA 7942 and DAO 96-40 vest in
government more than a sufficient degree of control and supervision over the
conduct of mining operations.
Section 3(aq) of RA 7942 was objected to as being unconstitutional for
allowing a foreign contractor to apply for and hold an exploration
permit. During the exploration phase, the permit grantee (and prospective
contractor) is spending and investing heavily in exploration activities without
yet being able to extract minerals and generate revenues. The exploration
permit issued under Sections 3(aq), 20 and 23 of RA 7942, which allows
exploration but not extraction, serves to protect the interests and rights of the
exploration permit grantee (and would-be contractor), foreign or
local. Otherwise, the exploration works already conducted, and expenditures
already made, may end up only benefiting claim-jumpers. Thus, Section 3(aq)
of RA 7942 is not unconstitutional.
WMCP FTAA Likewise Gives the
State Full Control and Supervision
The WMCP FTAA obligates the contractor to account for the value of
production and sale of minerals (Clause 1.4); requires that the contractors
work program, activities and budgets be approved by the State (Clause 2.1);
gives the DENR secretary power to extend the exploration period (Clause 3.2-
a); requires approval by the State for incorporation of lands into the contract
area (Clause 4.3-c); requires Bureau of Forest Development approval for
inclusion of forest reserves as part of the FTAA contract area (Clause 4.5);
obligates the contractor to periodically relinquish parts of the contract area not
needed for exploration and development (Clause 4.6); requires submission of
a declaration of mining feasibility for approval by the State (Clause 4.6-b);
obligates the contractor to report to the State the results of its exploration
activities (Clause 4.9); requires the contractor to obtain State approval for its
work programs for the succeeding two year periods, containing the proposed
work activities and expenditures budget related to exploration (Clause 5.1);
requires the contractor to obtain State approval for its proposed expenditures
for exploration activities (Clause 5.2); requires the contractor to submit an
annual report on geological, geophysical, geochemical and other information
relating to its explorations within the FTAA area (Clause 5.3-a); requires the
contractor to submit within six months after expiration of exploration period a
final report on all its findings in the contract area (Clause 5.3-b); requires the
contractor after conducting feasibility studies to submit a declaration of mining
feasibility, along with a description of the area to be developed and mined, a
description of the proposed mining operations and the technology to be
employed, and the proposed work program for the development phase, for
approval by the DENR secretary (Clause 5.4); obligates the contractor to
complete the development of the mine, including construction of the
production facilities, within the period stated in the approved work program
(Clause 6.1); requires the contractor to submit for approval a work program
covering each period of three fiscal years (Clause 6.2); requires the contractor
to submit reports to the secretary on the production, ore reserves, work
accomplished and work in progress, profile of its work force and management
staff, and other technical information (Clause 6.3); subjects any expansions,
modifications, improvements and replacements of mining facilities to the
approval of the secretary (Clause 6.4); subjects to State control the amount of
funds that the contractor may borrow within the Philippines (Clause 7.2);
subjects to State supervisory power any technical, financial and marketing
issues (Clause 10.1-a); obligates the contractor to ensure 60 percent Filipino
equity in the contractor within ten years of recovering specified expenditures
unless not so required by subsequent legislation (Clause 10.1); gives the
State the right to terminate the FTAA for unremedied substantial breach
thereof by the contractor (Clause 13.2); requires State approval for any
assignment of the FTAA by the contractor to an entity other than an affiliate
(Clause 14.1).
In short, the aforementioned provisions of the WMCP FTAA, far from
constituting a surrender of control and a grant of beneficial ownership of
mineral resources to the contractor in question, vest the State with control and
supervision over practically all aspects of the operations of the FTAA
contractor, including the charging of pre-operating and operating expenses,
and the disposition of mineral products.
There is likewise no relinquishment of control on account of specific
provisions of the WMCP FTAA. Clause 8.2 provides a mechanism to prevent
the mining operations from grinding to a complete halt as a result of possible
delays of more than 60 days in the governments processing and approval of
submitted work programs and budgets. Clause 8.3 seeks to provide a
temporary, stop-gap solution in case a disagreement between the State and
the contractor (over the proposed work program or budget submitted by the
contractor) should result in a deadlock or impasse, to avoid unreasonably long
delays in the performance of the works.
The State, despite Clause 8.3, still has control over the contract area, and
it may, as sovereign authority, prohibit work thereon until the dispute is
resolved, or it may terminate the FTAA, citing substantial breach
thereof. Hence, the State clearly retains full and effective control.
Clause 8.5, which allows the contractor to make changes to approved
work programs and budgets without the prior approval of the DENR secretary,
subject to certain limitations with respect to the variance/s, merely provides
the contractor a certain amount of flexibility to meet unexpected situations,
while still guaranteeing that the approved work programs and budgets are not
abandoned altogether. And if the secretary disagrees with the actions taken
by the contractor in this instance, he may also resort to
cancellation/termination of the FTAA as the ultimate sanction.
Clause 4.6 of the WMCP FTAA gives the contractor discretion to select
parts of the contract area to be relinquished. The State is not in a position to
substitute its judgment for that of the contractor, who knows exactly which
portions of the contract area do not contain minerals in commercial quantities
and should be relinquished. Also, since the annual occupation fees paid to
government are based on the total hectarage of the contract area, net of the
areas relinquished, the contractors self-interest will assure proper and
efficient relinquishment.
Clause 10.2(e) of the WMCP FTAA does not mean that the contractor can
compel government to use its power of eminent domain. It contemplates a
situation in which the contractor is a foreign-owned corporation, hence, not
qualified to own land. The contractor identifies the surface areas needed for it
to construct the infrastructure for mining operations, and the State then
acquires the surface rights on behalf of the former. The provision does not
call for the exercise of the power of eminent domain (or determination of just
compensation); it seeks to avoid a violation of the anti-dummy law.
Clause 10.2(l) of the WMCP FTAA giving the contractor the right to
mortgage and encumber the mineral products extracted may have been a
result of conditions imposed by creditor-banks to secure the loan obligations
of WMCP. Banks lend also upon the security of encumbrances on goods
produced, which can be easily sold and converted into cash and applied to the
repayment of loans. Thus, Clause 10.2(l) is not something out of the
ordinary. Neither is it objectionable, because even though the contractor is
allowed to mortgage or encumber the mineral end-products themselves, the
contractor is not thereby relieved of its obligation to pay the government its
basic and additional shares in the net mining revenue. The contractors ability
to mortgage the minerals does not negate the States right to receive its share
of net mining revenues.
Clause 10.2(k) which gives the contractor authority to change its equity
structure at any time, means that WMCP, which was then 100 percent foreign
owned, could permit Filipino equity ownership. Moreover, what is important is
that the contractor, regardless of its ownership, is always in a position to
render the services required under the FTAA, under the direction and control
of the government.
Clauses 10.4(e) and (i) bind government to allow amendments to the
FTAA if required by banks and other financial institutions as part of the
conditions of new lendings. There is nothing objectionable here, since Clause
10.4(e) also provides that such financing arrangements should in no event
reduce the contractors obligations or the governments rights under the
FTAA. Clause 10.4(i) provides that government shall favourably consider
any request for amendments of this agreement necessary for the contractor to
successfully obtain financing. There is no renunciation of control, as the
proviso does not say that government shall automatically grant any such
request. Also, it is up to the contractor to prove the need for the requested
changes. The government always has the final say on whether to approve or
disapprove such requests.
In fine, the FTAA provisions do not reduce or abdicate State control.
No Surrender of
Financial Benefits
The second paragraph of Section 81 of RA 7942 has been denounced for
allegedly limiting the States share in FTAAs with foreign contractors to just
taxes, fees and duties, and depriving the State of a share in the after-tax
income of the enterprise. However, the inclusion of the phrase among other
things in the second paragraph of Section 81 clearly and unmistakably
reveals the legislative intent to have the State collect more than just the usual
taxes, duties and fees.
Thus, DAO 99-56, the Guidelines Establishing the Fiscal Regime of
Financial or Technical Assistance Agreements, spells out the financial
benefits government will receive from an FTAA, as consisting of not only
a basic government share, comprised of all direct taxes, fees and royalties,
as well as other payments made by the contractor during the term of the
FTAA, but also an additional government share, being a share in the
earnings or cash flows of the mining enterprise, so as to achieve a fifty-
fifty sharing of net benefits from miningbetween the government and the
contractor.
The additional government share is computed using one of three (3)
options or schemes detailed in DAO 99-56, viz., (1) the fifty-fifty sharing of
cumulative present value of cash flows; (2) the excess profit-related additional
government share; and (3) the additional sharing based on the cumulative net
mining revenue. Whichever option or computation is used, the additional
government share has nothing to do with taxes, duties, fees or charges. The
portion of revenues remaining after the deduction of the basic and additional
government shares is what goes to the contractor.
The basic government share and the additional government share do not
yet take into account the indirect taxes and other financial contributions of
mining projects, which are real and actual benefits enjoyed by the Filipino
people; if these are taken into account, total government share increases to
60 percent or higher (as much as 77 percent, and 89 percent in one instance)
of the net present value of total benefits from the project.
The third or last paragraph of Section 81 of RA 7942 is slammed for
deferring the payment of the government share in FTAAs until after the
contractor shall have recovered its pre-operating expenses, exploration and
development expenditures. Allegedly, the collection of the States share is
rendered uncertain, as there is no time limit in RA 7942 for this grace period
or recovery period. But although RA 7942 did not limit the grace period, the
concerned agencies (DENR and MGB) in formulating the 1995 and 1996
Implementing Rules and Regulations provided that the period of recovery,
reckoned from the date of commercial operation, shall be for a period not
exceeding five years, or until the date of actual recovery, whichever comes
earlier.
And since RA 7942 allegedly does not require government approval for
the pre-operating, exploration and development expenses of the foreign
contractors, it is feared that such expenses could be bloated to wipe out
mining revenues anticipated for 10 years, with the result that the States share
is zero for the first 10 years. However, the argument is based on incorrect
information.
Under Section 23 of RA 7942, the applicant for exploration permit is
required to submit a proposed work program for exploration, containing a
yearly budget of proposed expenditures, which the State passes upon and
either approves or rejects; if approved, the same will subsequently be
recorded as pre-operating expenses that the contractor will have to recoup
over the grace period.
Under Section 24, when an exploration permittee files with the MGB a
declaration of mining project feasibility, it must submit a work program for
development, with corresponding budget, for approval by the Bureau, before
government may grant an FTAA or MPSA or other mineral agreements; again,
government has the opportunity to approve or reject the proposed work
program and budgeted expenditures fordevelopment works, which will
become the pre-operating and development costs that will have to be
recovered. Government is able to know ahead of time the amounts of pre-
operating and other expenses to be recovered, and the approximate period of
time needed therefor. The aforecited provisions have counterparts in Section
35, which deals with the terms and conditions exclusively applicable to
FTAAs. In sum, the third or last paragraph of Section 81 of RA 7942 cannot
be deemed defective.
Section 80 of RA 7942 allegedly limits the States share in a mineral
production-sharing agreement (MPSA) to just the excise tax on the mineral
product, i.e., only 2 percent of market value of the minerals. The colatilla in
Section 84 reiterates the same limitation in Section 80. However, these two
provisions pertain only to MPSAs, and have no application to
FTAAs. These particular provisions do not come within the issues
defined by this Court. Hence, on due process grounds, no
pronouncement can be made in this case in respect of the
constitutionality of Sections 80 and 84.
Section 112 is disparaged for reverting FTAAs and all mineral agreements
to the old license, concession or lease system, because it allegedly
effectively reduces the government share in FTAAs to just the 2 percent
excise tax which pursuant to Section 80 comprises the government share in
MPSAs. However, Section 112 likewise does not come within the issues
delineated by this Court, and was never touched upon by the parties in their
pleadings. Moreover, Section 112 may not properly apply to FTAAs. The
mining law obviously meant to treat FTAAs as a breed apart from mineral
agreements. There is absolutely no basis to believe that the law intends to
exact from FTAA contractors merely the same government share (i.e., the 2
percent excise tax) that it apparently demands from contractors under the
three forms of mineral agreements.
While there is ground to believe that Sections 80, 84 and 112 are indeed
unconstitutional, they cannot be ruled upon here. In any event, they are
separable; thus, a later finding of nullity will not affect the rest of RA 7942.
In fine, the challenged provisions of RA 7942 cannot be said to
surrender financial benefits from an FTAA to the foreign contractors.
Moreover, there is no concrete basis for the view that, in FTAAs with a
foreign contractor, the State must receive at least 60 percent of the after-tax
income from the exploitation of its mineral resources, and that such share is
the equivalent of the constitutional requirement that at least 60 percent of the
capital, and hence 60 percent of the income, of mining companies should
remain in Filipino hands. Even if the State is entitled to a 60 percent share
from other mineral agreements (CPA, JVA and MPSA), that would not create
a parallel or analogous situation for FTAAs. We are dealing with an
essentially different equation. Here we have the old apples and oranges
syndrome.
The Charter did not intend to fix an iron-clad rule of 60 percent share,
applicable to all situations, regardless of circumstances. There is no
indication of such an intention on the part of the framers. Moreover, the terms
and conditions of petroleum FTAAs cannot serve as standards for mineral
mining FTAAs, because the technical and operational requirements, cost
structures and investment needs of off-shore petroleum exploration and
drilling companies do not have the remotest resemblance to those of on-
shore mining companies.
To take the position that governments share must be not less than 60
percent of after-tax income of FTAA contractors is nothing short of this Court
dictating upon the government. The State resultantly ends up losing
control. To avoid compromising the States full control and supervision over
the exploitation of mineral resources, there must be no attempt to impose a
minimum 60 percent rule. It is sufficient that the State has the power and
means, should it so decide, to get a 60 percent share (or greater); and it is not
necessary that the State does so inevery case.
Invalid Provisions of
the WMCP FTAA
Section 7.9 of the WMCP FTAA clearly renders illusory the States 60
percent share of WMCPs revenues. Under Section 7.9, should WMCPs
foreign stockholders (who originally owned 100 percent of the equity) sell 60
percent or more of their equity to a Filipino citizen or corporation, the State
loses its right to receive its share in net mining revenues under Section
7.7, without any offsetting compensation to the State. And what is given to
the State in Section 7.7 is by mere tolerance of WMCPs foreign
stockholders, who can at any time cut off the governments entire share by
simply selling 60 percent of WMCPs equity to a Philippine citizen or
corporation.
In fact, the sale by WMCPs foreign stockholder on January 23, 2001 of
the entire outstanding equity in WMCP to Sagittarius Mines, Inc., a domestic
corporation at least 60 percent Filipino owned, can be deemed to have
automatically triggered the operation of Section 7.9 and removed the States
right to receive its 60 percent share. Section 7.9 of the WMCP FTAA
has effectively given away the States share without anything in exchange.
Moreover, it constitutes unjust enrichment on the part of the local and
foreign stockholders in WMCP, because by the mere act of divestment, the
local and foreign stockholders get a windfall, as their share in the net mining
revenues of WMCP is automatically increased, without having to pay anything
for it.
Being grossly disadvantageous to government and detrimental to the
Filipino people, as well as violative of public policy, Section 7.9 must therefore
be stricken off as invalid. The FTAA in question does not involve mere
contractual rights but, being impressed as it is with public interest, the
contractual provisions and stipulations must yield to the common good and
the national interest. Since the offending provision is very much separable
from the rest of the FTAA, the deletion of Section 7.9 can be done without
affecting or requiring the invalidation of the entire WMCP FTAA itself.
Section 7.8(e) of the WMCP FTAA likewise is invalid, since by allowing the
sums spent by government for the benefit of the contractor to be deductible
from the States share in net mining revenues, it results in benefiting the
contractor twice over. This constitutes unjust enrichment on the part of the
contractor, at the expense of government. For being grossly disadvantageous
and prejudicial to government and contrary to public policy, Section 7.8(e)
must also be declared without effect. It may likewise be stricken off without
affecting the rest of the FTAA.
EPILOGUE
AFTER ALL IS SAID AND DONE, it is clear that there is unanimous
agreement in the Court upon the key principle that the State must exercise full
control and supervision over the exploration, development and utilization of
mineral resources.
The crux of the controversy is the amount of discretion to be accorded the
Executive Department, particularly the President of the Republic, in respect of
negotiations over the terms of FTAAs, particularly when it comes to the
government share of financial benefits from FTAAs. The Court believes that it
is not unconstitutional to allow a wide degree of discretion to the Chief
Executive, given the nature and complexity of such agreements, the
humongous amounts of capital and financing required for large-scale mining
operations, the complicated technology needed, and the intricacies of
international trade, coupled with the States need to maintain flexibility in its
dealings, in order to preserve and enhance our countrys competitiveness in
world markets.
We are all, in one way or another, sorely affected by the recently reported
scandals involving corruption in high places, duplicity in the negotiation of
multi-billion peso government contracts, huge payoffs to government officials,
and other malfeasances; and perhaps, there is the desire to see some
measures put in place to prevent further abuse. However, dictating upon
the President what minimum share to get from an FTAA is not the
solution. It sets a bad precedent since such a move institutionalizes the very
reduction if not deprivation of the States control. The remedy may be worse
than the problem it was meant to address. In any event, provisions in such
future agreements which may be suspected to be grossly disadvantageous or
detrimental to government may be challenged in court, and the culprits haled
before the bar of justice.
Verily, under the doctrine of separation of powers and due respect for co-
equal and coordinate branches of government, this Court must restrain itself
from intruding into policy matters and must allow the President and Congress
maximum discretion in using the resources of our country and in securing the
assistance of foreign groups to eradicate the grinding poverty of our people
and answer their cry for viable employment opportunities in the country.
The judiciary is loath to interfere with the due exercise by coequal
branches of government of their official functions.
[99]
As aptly spelled out seven
decades ago by Justice George Malcolm, Just as the Supreme Court, as the
guardian of constitutional rights, should not sanction usurpations by any other
department of government, so should it as strictly confine its own sphere of
influence to the powers expressly or by implication conferred on it by the
Organic Act.
[100]
Let the development of the mining industry be the
responsibility of the political branches of government. And let not this Court
interfere inordinately and unnecessarily.
The Constitution of the Philippines is the supreme law of the land. It is the
repository of all the aspirations and hopes of all the people. We fully
sympathize with the plight of Petitioner La Bugal Blaan and other tribal
groups, and commend their efforts to uplift their communities. However, we
cannot justify the invalidation of an otherwise constitutional statute along with
its implementing rules, or the nullification of an otherwise legal and binding
FTAA contract.
We must never forget that it is not only our less privileged brethren in tribal
and cultural communities who deserve the attention of this Court; rather, all
parties concerned -- including the State itself, the contractor (whether Filipino
or foreign), and the vast majority of our citizens -- equally deserve the
protection of the law and of this Court. To stress, the benefits to be derived by
the State from mining activities must ultimately serve the great majority of our
fellow citizens. They have as much right and interest in the proper and well-
ordered development and utilization of the countrys mineral resources as the
petitioners.
Whether we consider the near term or take the longer view, we cannot
overemphasize the need for an appropriate balancing of interests and
needs -- the need to develop our stagnating mining industry and extract what
NEDA Secretary Romulo Neri estimates is some US$840 billion (approx.
PhP47.04 trillion) worth of mineral wealth lying hidden in the ground, in order
to jumpstart our floundering economy on the one hand, and on the other, the
need to enhance our nationalistic aspirations, protect our indigenous
communities, and prevent irreversible ecological damage.
This Court cannot but be mindful that any decision rendered in this case
will ultimately impact not only the cultural communities which lodged the
instant Petition, and not only the larger community of the Filipino people now
struggling to survive amidst a fiscal/budgetary deficit, ever increasing prices of
fuel, food, and essential commodities and services, the shrinking value of the
local currency, and a government hamstrung in its delivery of basic services
by a severe lack of resources, but also countless future generations of
Filipinos.
For this latter group of Filipinos yet to be born, their eventual access to
education, health care and basic services, their overall level of well-being, the
very shape of their lives are even now being determined and affected partly by
the policies and directions being adopted and implemented by government
today. And in part by the this Resolution rendered by this Court today.
Verily, the mineral wealth and natural resources of this country are meant
to benefit not merely a select group of people living in the areas locally
affected by mining activities, but the entire Filipino nation, present and future,
to whom the mineral wealth really belong. This Court has therefore weighed
carefully the rights and interests of all concerned, and decided for the greater
good of the greatest number. JUSTICE FOR ALL, not just for some;
JUSTICE FOR THE PRESENT AND THE FUTURE, not just for the here and
now.
WHEREFORE, the Court RESOLVES to GRANT the respondents and the
intervenors Motions for Reconsideration; to REVERSE andSET ASIDE this
Courts January 27, 2004 Decision; to DISMISS the Petition; and to issue this
new judgment declaring CONSTITUTIONAL (1) Republic Act No. 7942 (the
Philippine Mining Law), (2) its Implementing Rules and Regulations contained
in DENR Administrative Order (DAO) No. 9640 -- insofar as they relate to
financial and technical assistance agreements referred to in paragraph 4 of
Section 2 of Article XII of the Constitution; and (3) the Financial and Technical
Assistance Agreement (FTAA) dated March 30, 1995 executed by the
government and Western Mining Corporation Philippines Inc. (WMCP), except
Sections 7.8 and 7.9 of the subject FTAA which are hereby INVALIDATED for
being contrary to public policy and for being grossly disadvantageous to the
government.
SO ORDERED.

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