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La Bugal v.

Ramos (MR)
G.R. No. 127882 / Dec 1, 2004
Panganiban, J. / kap

Subject Matter: Classification under the civil code; By ownership; Public Dominion

Facts:
The Petition for Prohibition and Mandamus before the Court challenges the constitutionality of:
- Republic Act 7942 (The Philippine Mining Act of 1995)
- its Implementing Rules and Regulations (DENR Administrative Order [DAO] 96-40); and
- the Financial and Technical Assistance Agreement (FTAA) dated 30 March 1995, executed by the government
with Western Mining Corporation (Philippines), Inc. (WMCP).
Previous Decision (Jan. 27, 2004):
- Court en banc declared as unconstitutional certain provisions of RA 7942, DAO 96-40, as well as of the entire
FTAA executed between the government and WMCP after concluding that FTAAs are essentially service contracts
which, though permitted under the 1973 Constitution, are prohibited under the 1987 Constitution.
- struck down the FTAA for having been executed in violation of Section 2 of Article XII of the 1987 Constitution.

Service contracts are prohibited because they effectively vest on foreign entities the full management and control over
the exploitation of our natural resources, in violation of the principle of the sovereignty of the state over its own natural
resources.

DENR Secretary Victor Ramos filed separate Motions for Reconsideration.

Issues:
1. WON the case has been rendered moot by the sale of WMC shares in WMCP to Sagittarius (60 percent of
Sagittarius’ equity is owned by Filipinos 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. WON it still be proper to resolve the constitutionality of the assailed provisions of the Mining Law, DAO 96-40 and
the WMCP FTAA, if the case is rendered moot?
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?

Held:
1. Yes. Inasmuch as the FTAA has been transferred to, and is now held by, a Filipino corporation, the FTAA 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 would have been served.
2. Yes, the courts will decide a question—otherwise moot and academic—if it is “capable of repetition, yet evading
review

3. Sec. 2 of Art. XII of 1987 Constitution (reconstructed and stratified by the Court):
a. All natural resources are owned by the State. Except for agricultural lands, natural resources cannot be
alienated by the State.
b. The exploration, development and utilization (EDU) of natural resources shall be under the full control and
supervision of the State.
c. The State may undertake these EDU activities through either of the following:
i. By itself directly and solely
ii. 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
iii. Small-scale utilization of natural resources may be allowed by law in favor of Filipino citizens.
iv. 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.”

On the interpretation of the phrase “involving either technical or financial assistance”:


Petitioners insist that, applying the verba legis rule in constitutional construction, what a foreign-owned
corporation may enter into with the government is merely an agreement for either financial or technical
assistance only which excludes foreign management and operation of a mining enterprise.
Contrary to petitioner’s stance, the use of the word "involving" implies that these agreements with foreign
corporations are not limited to mere financial or technical assistance. The use of the word "involving" by the
framers of the Constitution 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," 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.

Moreover, if the real intention of the drafters was to confine foreign corporations to financial or technical
assistance and nothing more, their language would have certainly been so unmistakably restrictive and stringent
as to leave no doubt in anyone's mind about their true intent.

On the Service Contracts:


Pertinent portions of the deliberations of the members of the Constitutional Commission conclusively show that
they did not intend to ban or eradicate service contracts. Instead, they were crafting provisions to put in place
safeguards that would eliminate or minimize the abuses prevalent during the martial law regime.

Service contracts with foreign corporations as contractors are allowed as an exception to the general norm
established in the first paragraph of Section 2 of Article XII of the 1987 Constitution, i.e. reserving or limiting 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 exception was prompted by the perceived insufficiency of
Filipino capital and the felt need for foreign investments in the EDU of minerals and petroleum resources

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.

The scope of such service contracts is limited -- they are valid only in regard to minerals, petroleum and other
mineral oils, not to all natural resources.

The service contracts are subject to the following safeguards:


a. 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.
b. 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.
c. 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.

State’s Control

Under the constitutional construction principle of 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), "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.

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 business.

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).