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Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. 143855 September 21, 2010

REPRESENTATIVES GERARDO S. ESPINA, ORLANDO FUA, JR., PROSPERO AMATONG, ROBERT ACES. BARBERS, RAUL M. GONZALES, PROSPERO PICHAY, JUAN MIGUEL ZUBIRI and FRANKLINBAUTISTA,Petitioners,vs.HON. RONALDO ZAMORA, JR. (Executive Secretary), HON. MAR ROXAS (Secretary of Trade andIndustry), HON. FELIPE MEDALLA (Secretary of National Economic and Development Authority), GOV.RAFAEL BUENAVENTURA (Bangko Sentral ng Pilipinas) and HON. LILIA BAUTISTA (Chairman,Securities and Exchange Commission), Respondents.

D E C I S I O N

ABAD, J .:

This case calls upon the Court to exercise its power of judicial review and determine the constitutionality of theRetail Trade Liberalization Act of 2000, which has been assailed as in breach of the constitutional mandate forthe development of a self-reliant and independent national economy effectively controlled by Filipinos.

The Facts and the Case

1. On March 7, 2000 President Joseph E. Estrada signed into law Republic Act (R.A.) 8762, also knownas the Retail Trade Liberalization Act of 2000. It expressly repealed R.A. 1180 , which absolutely prohibited foreign nationals from engaging in the retail trade business. R.A. 8762 now allows them todo so under four categories:

Category A Less thanUS$2,500,000.00

Exclusively for Filipino citizens andcorporations wholly owned by Filipino citizens.

Category B US$2,500,000.00 up but lessthan US$7,500,000.00

For the first two years of R.A. 8762’seffectivity, foreign ownership is allowed up to60%. After the two-year period, 100% foreignequity shall be allowed.

Category C US$7,500,000.00 or more May be wholly owned by foreigners. Foreigninvestments for establishing a store inCategories B and C shall not be less than theequivalent in Philippine Pesos ofUS$830,000.00.

Category D US$250,000.00 per store offoreign enterprisesspecializing in high-end orluxury products

May be wholly owned by foreigners.

2. R.A. 8762 also allows natural-born Filipino citizens, who had lost their citizenship and now reside in thePhilippines, to engage in the retail trade business with the same rights as Filipino citizens.

3. On October 11, 2000 petitioners ***Magtanggol T. Gunigundo I, Michael T. Defensor, Gerardo S.Espina, Benjamin S. Lim, Orlando Fua, Jr., Prospero Amatong, Sergio Apostol, Robert Ace S. Barbers,Enrique Garcia, Jr., Raul M. Gonzales, Jaime Jacob, Apolinario Lozada, Jr., Leonardo Montemayor, Ma.Elena Palma-Gil, Prospero Pichay, Juan Miguel Zubiri and Franklin Bautista, all members of the House

of Representatives, f i led th e present pet i t ion, assai ling the cons t i tut ional i ty of R.A. 8762 on thefo l lowing grounds:



PETITIONERS ARGUMENT

First , the law runs afoul of Sections 9, 19, and 20 of Article II of the Constitution which enjoins theState to place the national economy under the control of Filipinos to achieve equal distribution ofopportunities, promote industrialization and full employment, and protect Filipino enterprise againstunfair competition and trade policies.

Second , the implementation of R.A. 8762 would lead to alien control of the retail trade, which takentogether with alien dominance of other areas of business, would result in the loss of effective Filipinocontrol of the economy.

Third, foreign retailers like Walmart and K-Mart would crush Filipino retailers and sari-sari storevendors, destroy self-employment, and bring about more unemployment.

Fourth, the World Bank-International Monetary Fund had improperly imposed the passage of R.A.8762 on the government as a condition for the release of certain loans.

Fifth, there is a clear and present danger that the law would promote monopolies or combinations inrestraint of trade.

Respondents Executive Secretary Ronaldo Zamora, Jr., Trade and Industry Secretary Mar Roxas, NationalEconomic and Development Authority (NEDA) Secretary Felipe Medalla, Bangko Sentral ng Pilipinas Gov.Rafael Buenaventura, and Securities and Exchange Commission Chairman Lilia Bautista countered that:

RESPONDENT ARGUMENT

First , petitioners have no legal standing to file the petition. They cannot invoke the fact that they aretaxpayers since R.A. 8762 does not involve the disbursement of public funds. Nor can they invoke thefact that they are members of Congress since they made no claim that the law infringes on their right aslegislators.

Second , the petition does not involve any justiciable controversy. Petitioners of course claim that,

as members of Congress, they represent the small retail vendors in their respective districts but thepetition does not allege that the subject law violates the rights of those vendors.

Third , petitioners have failed to overcome the presumption of constitutionality of R.A. 8762. Indeed,they could not specify how the new law violates the constitutional provisions they cite. Sections 9, 19,and 20 of Article II of the Constitution are not self-executing provisions that are judicially demandable.

Fourth, the Constitution mandates the regulation but not the prohibition of foreign investments. Itdirects Congress to reserve to Filipino citizens certain areas of investments upon the recommendation ofthe NEDA and when the national interest so dictates. But the Constitution leaves to the discretion of theCongress whether or not to make such reservation. It does not prohibit Congress from enacting lawsallowing the entry of foreigners into certain industries not reserved by the Constitution to Filipino citizens.

THE ISSUES PRESENTED

Simplified, the case presents two issues:

1. Whether or not petitioner lawmakers have the legal standing to challenge the constitutionalityof R.A. 8762; and

Held:There is no clear showing that the implementation of the Retail Trade Liberalization Actprejudices petitioners or inflicts damages on them



2. Whether or not R.A. 8762 is unconstitutional.

Held:

1. Article II of the 1987 Constitution, the declarations o f princ iples and state pol ic ies , are notself-executing. Legislative failure to pursue such policies cannot give rise to a cause ofaction in the courts.

while Section 19, Article II of the 1987 Constitution requires the development of a self-reliant andindependent national economy effectively controlled by Filipino entrepreneurs, it does notimpose a policy of Filipino monopoly of the economic environment. The objective is simplyto prohibit foreign powers or interests from maneuvering our economic policies and ensure thatFilipinos are given preference in all areas of development.

In other words, the 1987 Constitution does not rule out the entry of foreign investments,goods, and services. While it does not encourage their unlimited entry into the country, itdoes not prohibit them either . In fact, it allows an exchange on the basis of equality andreciprocity, frowning only on foreign competition that is unfair .10 The key, as in all economies inthe world, is to strike a balance between protecting local businesses and allowing the entry offoreign investments and services. 1avvphi1

2. Article XII of the 1987 Constitution lays down the ideals of economic nationalism:

(1) by expressing preference in favor of qualified Filipinos in the grant of rights, privileges andconcessions covering the national economy and patrimony and in the use of Filipino labor,domestic materials and locally-produced goods;

(2) by mandating the State to adopt measures that help make them competitive; and

(3) by requiring the State to develop a self-reliant and independent national economy effectivelycontrolled by Filipinos.8

ten.lih pwal

Section 10, Article XII of the 1987 Constitution gives Congress the discretion to reserve toFilipinos certain areas of investments upon the recommendation of the NEDA and whenthe national interest requires. Thus, Congress can determine what policy to pass and when topass it depending on the economic exigencies. It can enact laws allowing the entry of foreignersinto certain industries not reserved by the Constitution to Filipino citizens. In this case, Congresshas decided to open certain areas of the retail trade business to foreign investments instead ofreserving them exclusively to Filipino citizens. The NEDA has not opposed such policy.

3. R.A. 8762, the Retail Trade Liberalization Act, lessens the restraint on the foreigners’ rightto property or to engage in an ordinarily lawful business, i t cannot b e said that the lawamoun ts to a denial of the Fi l ipinos ’ right to property and to due process of law. Filipinoscontinue to have the right to engage in the kinds of retail business to which the law in questionhas permitted the entry of foreign investors.

4. R.A. 8762, the Retail Trade Liberalization Act, lessens the restraint on the foreigners’ rightto property or to engage in an ordinarily lawful business, i t cannot b e said that the lawamounts to a denial of the Filipinos’ right to property and to due process of law. Filipinoscontinue to have the right to engage in the kinds of retail business to which the law in questionhas permitted the entry of foreign investors.

The Court’s Ruling

One. The long settled rule is that he who challenges the validity of a law must have a standing to do so.1 Legalstanding or locus standi refers to the right of a party to come to a court of justice and make such achallenge. More particularly, standing refers to his personal and substantial interest in that he hassuffered or will suffer direct injury as a result of the passage of that law.2 To put it another way, he must

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show that he has been or is about to be denied some right or privilege to which he is lawfully entitled orthat he is about to be subjected to some burdens or penalties by reason of the law he complains of .3

Here, there is no clear showing that the implementation of the Retail Trade Liberalization Act prejudicespetitioners or inflicts damages on them, either as taxpayer s4 or as legislators.5 Still the Court will resolvethe question they raise since the rule on standing can be relaxed for nontraditional plaintiffs like ordinarycitizens, taxpayers, and legislators when as in this case the public interest so requires or the matter is oftranscendental importance, of overarching significance to society, or of paramount public interest.6

Two. Petitioners mainly argue that R.A. 8762 violates the mandate of the 1987 Constitution for the Stateto develop a self-reliant and independent national economy effectively controlled by Filipinos. Theyinvoke the provisions of the Declaration of Principles and State Policies under Article II of the 1987Constitution, which read as follows:

Section 9. The State shall promote a just and dynamic social order that will ensure the prosperity andindependence of the nation and free the people from poverty through policies that provide adequate socialservices, promote full employment, a rising standard of living, and an improved quality of life for all.

x x x x

Sect ion 19. The State shal l develop a self-rel iant and independent nat ional econ omy effect ivelycon trol led by Fi l ipinos .

Sect ion 20. The State recognizes the ind ispensable role of the private sector, encou rages private

enterpr ise, and pro vides incent ives to needed investments.

Petitioners also invoke the provisions of the National Economy and Patrimony under Article XII of the 1987Constitution, which reads:

Section 10. The Congress shall, upon recommendation of the economic and planning agency, when the nationalinterest dictates, reserve to citizens of the Philippines or to corporations or associations at least sixty per centumof whose capital is owned by such citizens, or such higher percentage as Congress may prescribe, certain areas

of investments. The Congress shall enact measures that will encourage the formation and operation ofenterprises whose capital is wholly owned by Filipinos.

In the grant of rights, privileges, and concessions covering the national economy and patrimony, the State shallgive preference to qualified Filipinos.

The State shall regulate and exercise authority over foreign investments within its national jurisdiction and inaccordance with its national goals and priorities.

x x x x

Section 12. The State shall promote the preferential use of Filipino labor, domestic materials and locally

produced goods, and adopt measures that help make them competitive.

Section 13. The State shall pursue a trade policy that serves the general welfare and utilizes all forms andarrangements of exchange on the basis of equality and reciprocity.

But, as the Court explained in Tañada v. Angara,7 the provisions of Article II of the 1987 Constitution, thedeclarations of principles and state policies, are not self-executing. Legislative failure to pursue suchpolicies cannot give rise to a cause of action in the courts.

The Court further explained in Tañada that Article XII of the 1987 Constitution lays down the ideals ofeconomic nationalism:

(1) by expressing preference in favor of qualified Filipinos in the grant of rights, privileges and concessionscovering the national economy and patrimony and in the use of Filipino labor, domestic materials and locally-produced goods;

(2) by mandating the State to adopt measures that help make them competitive; and























(3) by requiring the State to develop a self-reliant and independent national economy effectively controlled byFilipinos.8

ten.lihpwal

In other words, while Section 19, Article II of the 1987 Constitution requires the development of a self-reliant andindependent national economy effectively controlled by Filipino entrepreneurs, it does not impose a policy ofFilipino monopoly of the economic environment. The objective is simply to prohibit foreign powers orinterests from maneuvering our economic policies and ensure that Filipinos are given preference in all areas ofdevelopment.

Indeed, the 1987 Constitution takes into account the realities of the outside world as it requires the pursuit of atrade policy that serves the general welfare and utilizes all forms and arrangements of exchange on the basis ofequality and reciprocity; and speaks of industries which are competitive in both domestic and foreign markets aswell as of the protection of Filipino enterprises against unfair foreign competition and trade practices. Thus, whilethe Constitution mandates a bias in favor of Filipino goods, services, labor and enterprises, it also recognizes theneed for business exchange with the rest of the world on the bases of equality and reciprocity and limitsprotection of Filipino enterprises only against foreign competition and trade practices that are unfair .9

In other words, the 1987 Constitution does not rule out the entry of foreign investments, goods, andservices. While it does not encourage their unlimited entry into the country, it does not prohibit themeither . In fact, it allows an exchange on the basis of equality and reciprocity, frowning only on foreigncompetition that is unfair .10 The key, as in all economies in the world, is to strike a balance between protectinglocal businesses and allowing the entry of foreign investments and services.1avvphi1

More importantly, Section 10, Article XII of the 1987 Constitution gives Congress the discretion to reserveto Filipinos certain areas of investments upon the recommendation of the NEDA and when the nationalinterest requires. Thus, Congress can determine what policy to pass and when to pass it depending on theeconomic exigencies. It can enact laws allowing the entry of foreigners into certain industries not reserved by theConstitution to Filipino citizens. In this case, Congress has decided to open certain areas of the retail tradebusiness to foreign investments instead of reserving them exclusively to Filipino citizens. The NEDA has notopposed such policy.

The control and regulation of trade in the interest of the public welfare is of course an exercise of thepolice power of the State. A person’s right to property, whether he is a Filipino citizen or foreign national,cannot be taken from him without due process of law. In 1954, Congress enacted the Retail TradeNationalization Act or R.A. 1180 that restricts the retail business to Filipino citizens. In denying the petitionassailing the validity of such Act for violation of the foreigner’s right to substantive due process of law,the Supreme Court held that the law constituted a valid exercise of police power .11 The State had aninterest in preventing alien control of the retail trade and R.A. 1180 was reasonably related to thatpurpose. That law is not arbitrary.

Here, to the extent that R.A. 8762, the Retail Trade Liberalization Act, lessens the restraint on theforeigners’ right to property or to engage in an ordinarily lawful business, i t cannot b e said that the lawamounts to a denial of the Filipinos’ right to property and to due process of law. Filipinos continue to havethe right to engage in the kinds of retail business to which the law in question has permitted the entry of foreigninvestors.

Certainly, it is not within the province of the Court to inquire into the wisdom of R.A. 8762 save when it blatantlyviolates the Constitution. But as the Court has said, there is no showing that the law has contravened anyconstitutional mandate. The Court is not convinced that the implementation of R.A. 8762 would eventuallylead to alien control of the retail trade business. Petitioners have not mustered any concrete and strongargument to support its thesis. The law itself has provided strict safeguards on foreign participation in thatbusiness. Thus –

First , aliens can only engage in retail trade business subject to the categories above-enumerated;

Second , only nationals from, or juridical entities formed or incorporated in countries which allow the entry ofFilipino retailers shall be allowed to engage in retail trade business; and

Third , qualified foreign retailers shall not be allowed to engage in certain retailing activities outside theiraccredited stores through the use of mobile or rolling stores or carts, the use of sales representatives, door-to-door selling, restaurants and sari-sari stores and such other similar retailing activities.



















In sum, petitioners have not shown how the retail trade liberalization has prejudiced and can prejudice the localsmall and medium enterprises since its implementation about a decade ago.

WHEREFORE, the Court DISMISSES the petition for lack of merit. No costs.

SO ORDERED.

ROBERTO A. ABAD

Associate Justice

WE CONCUR:



G.R. No. 122156 February 3, 1997

MANILA PRINCE HOTEL petitioner,vs.GOVERNMENT SERVICE INSURANCE SYSTEM, MANILA HOTEL CORPORATION, COMMITTEE ONPRIVATIZATION and OFFICE OF THE GOVERNMENT CORPORATE COUNSEL, respondents.

BELLOSILLO, J.:

1. The FiIipino First Policy enshrined in the 1987 Constitution, i .e., in the grant of rights, privileges, andconcessions covering the national economy and patrimony, the State shall give preference to qualifiedFilipinos, 1 is in oked by

2. Petitioner ( MANILA PRINCE HOTEL (MPH) its bid to acquire 51% of the shares of the Manila HotelCorporation (MHC) which owns the historic Manila Hotel.

3. Opposing, respondents maintain that the provision is not self-executing but requires an implementinglegislation for its enforcement. Corollarily, they ask whether the 51% shares form part of the national economyand patrimony covered by the protective mantle of the Constitution.

Facts:

1. The controversy arose when respondent Government Service Insurance System (GSIS), pursuant tothe privatization program of the Philippine Government under Proclamation No. 50 dated 8 December1986 , decided to sell through public bidding 30% to 51% of the issued and outstanding shares ofrespondent MHC.

2. The winning bidder, or the eventual "strategic partner," is to provid e management expert ise and/or aninternat ional market ing/reservat ion sy stem, and f inancial support to s trengthen the prof i tabi l i ty

and performance of the Mani la Hotel . 2 3. In a close bidding held on 18 September 1995 only two (2) bidders participated:

a. petitioner Manila Prince Hotel Corporation, a Filipino corporation, which offered to buy 51% ofthe MHC or 15,300,000 shares at P41.58 per share, and

b. Renong Berhad, a Malaysian firm, with ITT-Sheraton as its hotel operator, which bid for thesame number of shares at P44.00 per share, or P2.42 more than the bid of petitioner.

Pertinent provisions of the bidding rules prepared by respondent GSIS state —

I. EXECUTION OF THE NECESSARY CONTRACTS WITH GSIS/MHC —

1. The Highest Bidder must comply with the conditions set forth below by October 23, 1995(reset to November 3, 1995) or the Highest Bidder will lose the right to purchase the Block ofShares and GSIS will instead offer the Block of Shares to the other Qualified Bidders:

a. The Highest Bidder must negotiate and execute with the GSIS/MHC theManagement Contract, International Marketing/Reservation System Contract orother type of contract specified by the Highest Bidder in its strategic plan for theManila Hotel. . . .

b. The Highest Bidder must execute the Stock Purchase and Sale Agreementwith GSIS . . . .

K. DECLARATION OF THE WINNING BIDDER/STRATEGIC PARTNER —

The Highest Bidder will be declared the Winning Bidder/Strategic Partner after the followingconditions are met:

a. Execution of the necessary contracts with GSIS/MHC not later than October23, 1995 (reset to November 3, 1995); and



b. Requisite approvals from the GSIS/MHC and COP (Committee onPrivatization)/OGCC (Office of the Government Corporate Counsel) areobtained. 3

3. Pending the declaration of Renong Berhad as the winning bidder /strategic partner and theexecution of the necessary contracts, petitioner in a letter to respondent GSIS dated 28September 1995 matched the bid price of P44.00 per share tendered by Renong Berhad. 4 In asubsequent letter dated 10 October 1995 petitioner sent a manager's check issued by Philtrust Bankfor Thirty-three Million Pesos (P33.000.000.00) as Bid Secur i ty to match the b id of the Malaysian

Group, Messrs. Renong Berhad . . . 5 which respondent GSIS refused to accept.

4. On 17 October 1995, perhaps apprehensive that respondent GSIS has disregarded the tender of thematching bid and that the sale of 51% of the MHC may be hastened by respondent GSIS andconsummated with Renong Berhad,

5. petitioner came to this Court on prohibition and mandamus . On 18 October 1995 the Courtissued a temporary restraining order enjoining respondents from perfecting andconsummating the sale to the Malaysian firm.

On 10 September 1996 the instant case was accepted by the Court En Banc after it was referred to itby the First Division. The case was then set for oral arguments with former Chief Justice Enrique M.Fernando and Fr. Joaquin G. Bernas, S.J., as amici curiae.

PETITIONER ARGUMENT

a. Petitioner invokes Sec. 10, second par., Art. XII, of the 1987 Constitution and submits thatthe Manila Hotel has been ident i f ied with the Fi l ipino nat ion and has p ract icallybecome a histor ical mo num ent which ref lects the vibrancy of Phi l ippine heri tage and

cul ture . It is a proud legacy of an earlier generation of Filipinos who believed in the nobilityand sacredness of independence and its power and capacity to release the full potential ofthe Filipino people. To al l intents and purpo ses, it has becom e a part of the nat ional

pat r imony . 6 b. Petitioner also argues that since 51% of the shares of the MHC carries with it the ownership of the

business of the hotel which is owned by respondent GSIS, a government-owned and controlledcorporation, the hotel business of respondent GSIS being a part of the tourism industry isunquestionably a part of the national economy . Thus, any transaction involving 51% of the sharesof stock of the MHC is clearly covered by the term nat ional econom y , to which Sec. 10, secondpar., Art. XII, 1987 Constitution, applies. 7

c. since Manila Hotel is part of the national patrimony and its business alsounquestionably part of the national economy. Hence, peti t ioner shou ld be preferred

after i t has m atched the bid o ffer of the Malaysian f irm .

d . For the bidding rules mandate that i f for any reason , the Highest Bidder cannot be

awarded the Block of Shares, GSIS may o ffer this to the o ther Qual i f ied Bidd ers that

have val idly subm itted bids provided that these Qual if ied Bidders are wil l ing to match

the highest bid in terms o f price per share. 8

RESPONDENT ARGUMENT

A. Sec. 10, second par., Art. XII, of the 1987 Constitution is merely a statement of principleand policy since i t is not a self-execut ing prov ision and requires implementing

legislat ion (s) . . . Thus, for the said provision to Operate, there must be existing laws "to laydown conditions under which business may be done." 9

B. granting that this provision is self-executing, Manila Hotel does no t fal l under the term

national patr imony which only refers t o 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 all marine wealth in its territorial sea, and exclusive marine zone

as cited in the first and second paragraphs of Sec. 2, Art. XII, 1987 Constitution. According torespondents, while petitioner speaks of the guests who have slept in the hotel and the eventsthat have transpired therein which make the hotel historic, these alone do not make the hotelfall under the patrimony of the nation. What is more, the mandate of the Constitution is



addressed to the State, not to respondent GSIS which possesses a personality of its ownseparate and distinct from the Philippines as a State.

C. granting that the Manila Hotel forms part of the nat ional patrimon y , the constitutionalprovision invoked is still inapplicable since what is being sold is only 51% of the outstandingshares of the corporation, not the hotel building nor the land upon which the buildingstands. Certainly, 51% of the equity of the MHC cannot be considered part ofthe nat ional patr imon y . Moreover, if the disposition of the shares of the MHC is reallycontrary to the Constitution, petitioner should have questioned it right from the beginning andnot after it had lost in the bidding.

D. Fourth, the reliance by petitioner on par. V., subpar. J. 1., of the bidding rules which providesthat if for any reason, the Highest Bidder cannot be awarded the Block of Shares, GSIS mayoffer this to the other Qualified Bidders that have validly submitted bids provided that theseQualified Bidders are willing to match the highest bid in terms of price per share, ismisplaced. Respondents postulate that the privilege of submitting a matching bid hasnot yet arisen since it only takes place i f for any reason, the Highest Bidd er cannot be

awarded the Block of Shares. Thus the submission by petitioner of a matching bid ispremature since Renong Berhad could still very well be awarded the block of shares and thecondition giving rise to the exercise of the privilege to submit a matching bid had not yet

taken place.

Finally , the prayer for prohibition grounded on grave abuse of discretion should fail sincerespondent GSIS did not exercise its discretion in a capricious, whimsical manner, and if ever itdid abuse its discretion it was not so patent and gross as to amount to an evasion of a positiveduty or a virtual refusal to perform a duty enjoined by law. Similarly, the petitionfor mandamus should fail as petitioner has no clear legal right to what it demands andrespondents do not have an imperative duty to perform the act required of them by petitioner.

Issue:

1. W/N Sec. 10, second par., Art. XII, of the 1987 Constitution is merely a statement of principle andpolicy since i t is not a self-execut ing p rovision and requires implementing.

“ in case of dou bt, the Constitu t ion sho uld be cons idered self-executing rather than non-self- executing . . . . Unless the contrary is clear ly intended, the provisions of the Constitution should beconsidered self-executing, as a contrary rule would give the legislature discretion to determine when, orwhether, they shall be effective”

Const i tu t ion is th e fundamental , paramount and s upreme law of the nat ion, i t is deemed

wri t ten in every statute and con trac t.

HELD: NO

Sec. 10, second par., Art. XII of the of the 1987 Constitution is a mandatory, positive commandwhich is complete in itself and which needs no further guidel ines or implementing laws or rules forits enforcement. From its very words the provision does not require any legislation to put it in operation.It is per se judicially enforceable When our Constitution mandates that [i]n the grant of rights, privileges,and concessions covering national economy and patrimony, the State shall give preference to qualifiedFilipinos, it means just that — qualified Filipinos shall be preferred. And when our Constitution declaresthat a right exists in certain specified circumstances an action may be maintained to enforce such rightnotwithstanding the absence of any legislation on the subject; consequently, if there is no statuteespecially enacted to enforce such constitutional right, such right enforces itself by its own inherentpotency and puissance, and from which all legislations must take their bearings. Where there is a right

there is a remedy. Ubi jus ibi remedium.



Paragraph 2 of Section 10 explicitly mandates the "Pro-Filipino" bias in all economic concerns.It is better known as the FILIPINO FIRST Policy . . . This provision was never found inprevious Constitutions . . . .

The term "qualified Filipinos" simply means that preference shall be given to thosecitizens who can make a viable contribution to the common good, because of crediblecompetence and efficiency. It certainly does NOT mandate the pampering and preferentialtreatment to Filipino citizens or organizations that are incompetent or inefficient, since such anindiscriminate preference would be counter productive and inimical to the common good.

In the granting of economic rights, privileges, and concessions, when a choice has to be madebetween a "qualified foreigner" end a "qualified Filipino," the latter shall be chosen over theformer."

Lastly, the word qualified is also determinable. Petitioner was so considered by respondent GSISand selected as one of the qualified bidders. It was pre-qualified by respondent GSIS inaccordance with its own guidelines so that the sole inference here is that petitioner has beenfound to be possessed of proven management expertise in the hotel industry, or it has significantequity ownership in another hotel company, or it has an overall management and marketingproficiency to successfully operate the Manila Hotel. 44

2. w/n Manila Hotel forms part of the nat ional patr imony ?

HELD: yes

The patrimony of the Nation that should be conserved and developed refers not only to out richnatural resources but also to the cultural heritage of out race. It also refers to our intelligence in arts,sciences and letters. Therefore, we should develop not only our lands, forests, mines and other naturalresources but also the mental ability or faculty of our people.

We agree. In its plain and ordinary meaning, the term patr imony pertains to heri tage .35

When theConstitution speaks of national patrimony, it refers not only to the natural resources of thePhilippines, as the Constitution could have very well used the term natural resources , but also tothe cul tura l h er itage of the Filipinos.

Manila Hotel has become a landmark — a living testimonial of Philippine heritage. While it wasrestrictively an American hotel when it first opened in 1912, it immediately evolved to be truly Filipino,Formerly a concourse for the elite, it has since then become the venue of various significant eventswhich have shaped Philippine history. It was called the Cultural Center of the 1930's. It was the site ofthe festivities during the inauguration of the Philippine Commonwealth. Dubbed as the Official GuestHouse of the Philippine Government . it plays host to dignitaries and official visitors who are accorded thetraditional Philippine hospitality. 36

The Manila Hotel or, for that matter, 51% of the MHC, is not just any commodity to be sold to thehighest bidder solely for the sake of privatization. We are not talking about an ordinary piece ofproperty in a commercial district. We are talking about a historic relic that has hosted many ofthe most important events in the short history of the Philippines as a nation.

We now resolve. A constitution is a system of fundamental laws for the governance and administration of anation. It is supreme, imperious, absolute and unalterable except by the authority from which it emanates. It hasbeen defined as the fundamental and paramount law of the nation. 10 It prescribes the permanent framework of asystem of government, assigns to the different departments their respective powers and duties, and establishes

certain fixed principles on which government is founded. The fundamental conception in other words is that it is asupreme law to which all other laws must conform and in accordance with which all private rights must be determinedand all public authority administered.11 Under the doctrine of constitutional supremacy, if a law or contract violatesany norm of the constitution that law or contract whether promulgated by the legislative or by the executive branch orentered into by private persons for private purposes is null and void and without any force and effect. Thus, since the



Const i tu t ion is the fundamental , paramount and s upreme law of the nat ion, i t is deemed wr i t ten in every

statute and contrac t.

Admittedly, some constitutions are merely declarations of policies and principles. Their provisions command thelegislature to enact laws and carry out the purposes of the framers who merely establish an outline ofgovernment providing for the different departments of the governmental machinery and securing certainfundamental and inalienable rights of citizens. 12 A provision which lays down a general principle, such asthose found in Art. II of the 1987 Constitution, is usually not self-executing . But a provision which is complete initself and becomes operative without the aid of supplementary or enabling legislation, or that which supplies sufficient

rule by means of which the right it grants may be enjoyed or protected, is self-executing. Thus a constitutionalprovision is self-executing i f the nature and extent of th e right conf erred and the liability imposed are fixed bythe constitution itself, so that they can be determined by an examination and construction of its terms, andthere is no language indicating that the subject is referred to the legislature for action. 13

As against constitutions of the past, modern constitutions have been generally drafted upon a different principleand have often become in effect extensive codes of laws intended to operate directly upon the people in amanner similar to that of statutory enactments, and the function of constitutional conventions has evolved intoone more like that of a legislative body. Hence, unless it is expressly provided that a legislative act isnecessary to enforce a constitutional mandate, the presumption now is that all provisions of theconstitution are self-executing If the constitutional provisions are treated as requiring legislation insteadof self-executing, the legislature would have the power to ignore and practically nullify the mandate of

the fundamental law. 14

This can be cataclysmic. That is why the prevailing view is, as it has always been, that —

. . . in case of doubt, the Constitution should be considered self-executing rather thannon-self-executing . . . . Unless the contrary is clearly intended, the provisions of theConstitution should be considered self-executing, as a contrary rule would give the legislaturediscretion to determine when, or whether, they shall be effective. These provisions would besubordinated to the will of the lawmaking body, which could make them entirely meaningless bysimply refusing to pass the needed implementing statute. 15

Respondents argue that Sec. 10, second par., Art. XII, of the 1987 Constitution is clearly not self-executing, asthey quote from discussions on the floor of the 1986 Constitutional Commission —

MR. RODRIGO. Madam President, I am asking this question as the Chairman ofthe Committee on Style. If the wording of "PREFERENCE" is given toQUALIFIED FILIPINOS," can it be understood as a preference to qualifiedFilipinos vis-a-vis Filipinos who are not qualified. So, why do we not make itclear? To qualified Filipinos as against aliens?

THE PRESIDENT. What is the question of Commissioner Rodrigo? Is it toremove the word "QUALIFIED?".

MR. RODRIGO. No, no, but say definitely "TO QUALIFIED FILIPINOS" asagainst whom? As against aliens or over aliens?

MR. NOLLEDO. Madam President, I think that is understood. We use the word"QUALIFIED" because the existing laws or prospective laws will always lay downconditions under which business may be done. For example, qualifications on thesetting up of other financial structures, et cetera (emphasis supplied byrespondents)

MR. RODRIGO. It is just a matter of style.

MR. NOLLEDO Yes, 16

Quite apparently, Sec. 10, second par., of Art XII is couched in such a way as not to make it appear that it isnon-self-executing but simply for purposes of style. But, certainly, the legislature is not precluded from enactingother further laws to enforce the constitutional provision so long as the contemplated statute squares with theConstitution. Minor details may be left to the legislature without impairing the self-executing nature ofconstitutional provisions.



In self-executing constitutional provisions, the legislature may still enact legislation to facilitate theexercise of powers directly granted by the constitution, further the operation of such a provision, prescribe apractice to be used for its enforcement, provide a convenient remedy for the protection of the rights secured orthe determination thereof, or place reasonable safeguards around the exercise of the right. The mere fact thatlegislation may supplement and add to or prescribe a penalty for the violation of a self-executing constitutionalprovision does not render such a provision ineffective in the absence of such legislation. The omission from aconstitution of any express provision for a remedy for enforcing a right or liability is not necessarily an indicationthat it was not intended to be self-executing. The rule is that a self-executing provision of the constitution doesnot necessarily exhaust legislative power on the subject, but any legislation must be in harmony with the

constitution, further the exercise of constitutional right and make it more available. 17 Subsequent legislationhowever does not necessarily mean that the subject constitutional provision is not, by itself, fully enforceable.

Respondents also argue that the non-self-executing nature of Sec. 10, second par., of Art. XII is implied from thetenor of the first and third paragraphs of the same section which undoubtedly are not self-executing. 18 Theargument is flawed. If the first and third paragraphs are not self-executing because Congress is still to enact measuresto encourage the formation and operation of enterprises fully owned by Filipinos, as in the first paragraph, and theState still needs legislation to regulate and exercise authority over foreign investments within its national jurisdiction,as in the third paragraph, then a fortiori , by the same logic, the second paragraph can only be self-executing as it doesnot by its language require any legislation in order to give preference to qualified Filipinos in the grant of rights,privileges and concessions covering the national economy and patrimony. A constitutional provision may be self-executing in one part and non-self-executing in another. 19

Even the cases cited by respondents holding that certain constitutional provisions are merely statements ofprinciples and policies, which are basically not self-executing and only placed in the Constitution as moralincentives to legislation, not as judicially enforceable rights — are simply not in point. Basco v . Philippine Amusements and Gaming Corporation 20 speaks of constitutional provisions on personal dignity, 21 the sanctity offamily life, 22 the vital role of the youth in nation-building 23 the promotion of social justice, 24 and the values ofeducation.25 Tolentino v . Secretary of Finance 26 refers to the constitutional provisions on social justice and humanrights 27 and on education. 28 Lastly, Kilosbayan, Inc . v . Morato 29 cites provisions on the promotion of generalwelfare, 30 the sanctity of family life, 31 the vital role of the youth in nation-building 32 and the promotion of total humanliberation and development.33 A reading of these provisions indeed clearly shows that they are not judiciallyenforceable constitutional rights but merely guidelines for legislation. The very terms of the provisions manifest thatthey are only principles upon which the legislations must be based. Res ipsa loquitur .

On the other hand, Sec. 10, second par., Art. XII of the of the 1987 Constitution is a mandatory, positivecommand which is complete in itself and which needs no further guidel ines or implementing laws or rules for its enforcement. From its very words the provision does not require any legislation to put it in operation. Itis per se judicially enforceable When our Constitution mandates that [i]n the grant of rights, privileges, andconcessions covering national economy and patrimony, the State shall give preference to qualified Filipinos, itmeans just that — qualified Filipinos shall be preferred. And when our Constitution declares that a right exists incertain specified circumstances an action may be maintained to enforce such right notwithstanding the absenceof any legislation on the subject; consequently, if there is no statute especially enacted to enforce suchconstitutional right, such right enforces itself by its own inherent potency and puissance, and from which alllegislations must take their bearings. Where there is a right there is a remedy. Ubi jus ibi remedium.

As regards our national patrimony , a member of the 1986 Constitutional Commission 34 explains —

The patrimony of the Nation that should be conserved and developed refers not only toout rich natural resources but also to the cultural heritage of out race. It also refers to ourintelligence in arts, sciences and letters. Therefore, we should develop not only our lands,forests, mines and other natural resources but also the mental ability or faculty of our people.

We agree. In its plain and ordinary meaning, the term patrimony pertains to heritage. 35 When theConstitution speaks of national patrimony, it refers not only to the natural resources of the Philippines, as theConstitution could have very well used the term natural resou rces , but also to the cul tura l h er i tage of theFilipinos.

Manila Hotel has become a landmark — a living testimonial of Philippine heritage. While it was restrictively an

American hotel when it first opened in 1912, it immediately evolved to be truly Filipino, Formerly a concourse forthe elite, it has since then become the venue of various significant events which have shaped Philippine history.It was called the Cultural Center of the 1930's. It was the site of the festivities during the inauguration of thePhilippine Commonwealth. Dubbed as the Official Guest House of the Philippine Government . it plays host todignitaries and official visitors who are accorded the traditional Philippine hospitality. 36



The history of the hotel has been chronicled in the book The Manila Hotel : The Heart and Memory of aCity . 37During World War II the hotel was converted by the Japanese Military Administration into a militaryheadquarters. When the American forces returned to recapture Manila the hotel was selected by the Japanesetogether with Intramuros as the two (2) places fro their final stand. Thereafter, in the 1950's and 1960's, the hotelbecame the center of political activities, playing host to almost every political convention. In 1970 the hotel reopenedafter a renovation and reaped numerous international recognitions, an acknowledgment of the Filipino talent andingenuity. In 1986 the hotel was the site of a failedcoup d' etat where an aspirant for vice-president was "proclaimed"President of the Philippine Republic.

For more than eight (8) decades Manila Hotel has bore mute witness to the triumphs and failures, loves andfrustrations of the Filipinos; its existence is impressed with public interest; its own historicity associated with ourstruggle for sovereignty, independence and nationhood. Verily, Manila Hotel has become part of our nationaleconomy and patrimony. For sure, 51% of the equity of the MHC comes within the purview of the constitutionalshelter for it comprises the majority and controlling stock, so that anyone who acquires or owns the 51% willhave actual control and management of the hotel. In this instance, 51% of the MHC cannot be disassociatedfrom the hotel and the land on which the hotel edifice stands. Consequently, we cannot sustain respondents'claim that theFilipino First Policy provision is not applicable since what is being sold is only 51% ofthe outstanding shares of the corporation, not the Hotel building nor the land upon which the building stands. 38

The argument is pure sophistry. The term qualified Filipinos as used in Our Constitution also includescorporations at least 60% of which is owned by Filipinos. This is very clear from the proceedings of the 1986

Constitutional Commission

THE PRESIDENT. Commissioner Davide is recognized.

MR. DAVIDE. I would like to introduce an amendment to the Nolledo amendment. And the amendment would consist in substituting the words "QUALIFIEDFILIPINOS" with the following: "CITIZENS OF THE PHILIPPINES ORCORPORATIONS OR ASSOCIATIONS WHOSE CAPITAL OR CONTROLLINGSTOCK IS WHOLLY OWNED BY SUCH CITIZENS.

xxx xxx xxx

MR. MONSOD. Madam President, apparently the proponent is agreeable, but wehave to raise a question. Suppose it is a corporation that is 80-percent Filipino,do we not give it preference?

MR. DAVIDE. The Nolledo amendment would refer to an individual Filipino. Whatabout a corporation wholly owned by Filipino citizens?

MR. MONSOD. At least 60 percent, Madam President.

MR. DAVIDE. Is that the intention?

MR. MONSOD. Yes, because, in fact, we would be limiting it if we say that thepreference should only be 100-percent Filipino.

MR: DAVIDE. I want to get that meaning clear because "QUALIFIED FILIPINOS"may refer only to individuals and not to juridical personalities or entities.

MR. MONSOD. We agree, Madam President. 39

xxx xxx xxx

MR. RODRIGO. Before we vote, may I request that the amendment be readagain.

MR. NOLLEDO. The amendment will read: "IN THE GRANT OF RIGHTS,PRIVILEGES AND CONCESSIONS COVERING THE NATIONAL ECONOMY AND PATRIMONY, THE STATE SHALL GIVE PREFERENCE TO QUALIFIEDFILIPINOS." And the word "Filipinos" here, as intended by the proponents, will



include not only individual Filipinos but also Filipino-controlled entities or entitiesfully-controlled by Filipinos. 40

The phrase preference to qualified Filipinos was explained thus —

MR. FOZ. Madam President, I would like to request Commissioner Nolledo toplease restate his amendment so that I can ask a question.

MR. NOLLEDO. "IN THE GRANT OF RIGHTS, PRIVILEGES ANDCONCESSIONS COVERING THE NATIONAL ECONOMY AND PATRIMONY,THE STATE SHALL GIVE PREFERENCE TO QUALIFIED FILIPINOS."

MR FOZ. In connection with that amendment, if a foreign enterprise is qualifiedand a Filipino enterprise is also qualified, will the Filipino enterprise still be givena preference?

MR. NOLLEDO. Obviously.

MR. FOZ. If the foreigner is more qualified in some aspects than the Filipinoenterprise, will the Filipino still be preferred?

MR. NOLLEDO. The answer is "yes."

MR. FOZ. Thank you, 41

Expounding further on the Filipino First Policy provision Commissioner Nolledo continues —

MR. NOLLEDO. Yes, Madam President. Instead of "MUST," it will be "SHALL — THE STATESHALL GlVE PREFERENCE TO QUALIFIED FILIPINOS. This embodies the so-called "FilipinoFirst" policy. That means that Filipinos should be given preference in the grant of concessions,privileges and rights covering the national patrimony. 42

The exchange of views in the sessions of the Constitutional Commission regarding the subject provision was stillfurther clarified by Commissioner Nolledo 43 —

Paragraph 2 of Section 10 explicitly mandates the "Pro-Filipino" bias in all economic concerns. Itis better known as the FILIPINO FIRST Policy . . . This provision was never found in previousConstitutions . . . .

The term "qualified Filipinos" simply means that preference shall be given to those citizens whocan make a viable contribution to the common good, because of credible competence andefficiency. It certainly does NOT mandate the pampering and preferential treatment to Filipinocitizens or organizations that are incompetent or inefficient, since such an indiscriminatepreference would be counter productive and inimical to the common good.

In the granting of economic rights, privileges, and concessions, when a choice has to be madebetween a "qualified foreigner" end a "qualified Filipino," the latter shall be chosen over theformer."

Lastly, the word qualified is also determinable. Petitioner was so considered by respondent GSIS and selectedas one of the qualified bidders. It was pre-qualified by respondent GSIS in accordance with its own guidelines sothat the sole inference here is that petitioner has been found to be possessed of proven management expertisein the hotel industry, or it has significant equity ownership in another hotel company, or it has an overallmanagement and marketing proficiency to successfully operate the Manila Hotel. 44

The penchant to try to whittle away the mandate of the Constitution by arguing that the subject provision is notself-executory and requires implementing legislation is quite disturbing. The attempt to violate a clearconstitutional provision — by the government itself — is only too distressing. To adopt such a line of reasoning isto renounce the duty to ensure faithfulness to the Constitution. For, even some of the provisions of theConstitution which evidently need implementing legislation have juridical life of their own and can be the sourceof a judicial remedy. We cannot simply afford the government a defense that arises out of the failure to enact



further enabling, implementing or guiding legislation. In fine, the discourse of Fr. Joaquin G. Bernas, S.J., onconstitutional government is apt —

The executive department has a constitutional duty to implement laws, including the Constitution,even before Congress acts — provided that there are discoverable legal standards for executiveaction. When the executive acts, it must be guided by its own understanding of the constitutionalcommand and of applicable laws. The responsibility for reading and understanding theConstitution and the laws is not the sole prerogative of Congress. If it were, the executive wouldhave to ask Congress, or perhaps the Court, for an interpretation every time the executive isconfronted by a constitutional command. That is not how constitutional government operates. 45

Respondents further argue that the constitutional provision is addressed to the State, not to respondent GSISwhich by itself possesses a separate and distinct personality. This argument again is at best specious. It isundisputed that the sale of 51% of the MHC could only be carried out with the prior approval of the State actingthrough respondent Committee on Privatization. As correctly pointed out by Fr. Joaquin G. Bernas, S.J., this factalone makes the sale of the assets of respondents GSIS and MHC a "state action." In constitutional jurisprudence, the acts of persons distinct from the government are considered "state action" covered by theConstitution (1) when the activity it engages in is a "public function;" (2) when the government is so significantlyinvolved with the private actor as to make the government responsible for his action; and, (3) when thegovernment has approved or authorized the action. It is evident that the act of respondent GSIS in selling 51% ofits share in respondent MHC comes under the second and third categories of "state action." Without doubt

therefore the transaction. although entered into by respondent GSIS, is in fact a transaction of the State andtherefore subject to the constitutional command. 46

When the Constitution addresses the State it refers not only to the people but also to the government aselements of the State. After all, government is composed of three (3) divisions of power — legislative, executiveand judicial. Accordingly, a constitutional mandate directed to the State is correspondingly directed to thethree(3) branches of government. It is undeniable that in this case the subject constitutional injunction isaddressed among others to the Executive Department and respondent GSIS, a government instrumentalityderiving its authority from the State.

It should be stressed that while the Malaysian firm offered the higher bid it is not yet the winning bidder. Thebidding rules expressly provide that the highest bidder shall only be declared the winning bidder after it has

negotiated and executed the necessary contracts, and secured the requisite approvals. Since the "Filipino FirstPolicy provision of the Constitution bestows preference on qualified Filipinos the mere tending of the highest bidis not an assurance that the highest bidder will be declared the winning bidder. Resultantly, respondents are notbound to make the award yet, nor are they under obligation to enter into one with the highest bidder. For inchoosing the awardee respondents are mandated to abide by the dictates of the 1987 Constitution theprovisions of which are presumed to be known to all the bidders and other interested parties.

Adhering to the doctrine of constitutional supremacy, the subject constitutional provision is, as it should be,impliedly written in the bidding rules issued by respondent GSIS, lest the bidding rules be nullified for beingviolative of the Constitution. It is a basic principle in constitutional law that all laws and contracts must conformwith the fundamental law of the land. Those which violate the Constitution lose their reason for being.

Paragraph V. J. 1 of the bidding rules provides that [if] for any reason the Highest Bidder cannot be awarded theBlock of Shares, GSIS may offer this to other Qualified Bidders that have validly submitted bids provided thatthese Qualified Bidders are willing to match the highest bid in terms of price pershare. 47 Certainly, the constitutional mandate itself is reason enough not to award the block of shares immediately tothe foreign bidder notwithstanding its submission of a higher, or even the highest, bid. In fact, we cannot conceive of astronger reason than the constitutional injunction itself.

In the instant case, where a foreign firm submits the highest bid in a public bidding concerning the grant of rights,privileges and concessions covering the national economy and patrimony, thereby exceeding the bid of aFilipino, there is no question that the Filipino will have to be allowed to match the bid of the foreign entity. And ifthe Filipino matches the bid of a foreign firm the award should go to the Filipino. It must be so if we are to givelife and meaning to the Filipino First Policy provision of the 1987 Constitution. For, while this may neither be

expressly stated nor contemplated in the bidding rules, the constitutional fiat is, omnipresent to be simplydisregarded. To ignore it would be to sanction a perilous skirting of the basic law.

This Court does not discount the apprehension that this policy may discourage foreign investors. But theConstitution and laws of the Philippines are understood to be always open to public scrutiny. These are given



factors which investors must consider when venturing into business in a foreign jurisdiction. Any persontherefore desiring to do business in the Philippines or with any of its agencies or instrumentalities is presumed toknow his rights and obligations under the Constitution and the laws of the forum.

The argument of respondents that petitioner is now estopped from questioning the sale to Renong Berhad sincepetitioner was well aware from the beginning that a foreigner could participate in the bidding is meritless.Undoubtedly, Filipinos and foreigners alike were invited to the bidding. But foreigners may be awarded the saleonly if no Filipino qualifies, or if the qualified Filipino fails to match the highest bid tendered by the foreign entity.In the case before us, while petitioner was already preferred at the inception of the bidding because of theconstitutional mandate, petitioner had not yet matched the bid offered by Renong Berhad. Thus it did not havethe right or personality then to compel respondent GSIS to accept its earlier bid. Rightly, only after it hadmatched the bid of the foreign firm and the apparent disregard by respondent GSIS of petitioner's matching biddid the latter have a cause of action.

Besides, there is no time frame for invoking the constitutional safeguard unless perhaps the award has beenfinally made. To insist on selling the Manila Hotel to foreigners when there is a Filipino group willing to match thebid of the foreign group is to insist that government be treated as any other ordinary market player, and boundby its mistakes or gross errors of judgment, regardless of the consequences to the Filipino people. Themiscomprehension of the Constitution is regrettable. Thus we would rather remedy the indiscretion while there isstill an opportunity to do so than let the government develop the habit of forgetting that the Constitution laysdown the basic conditions and parameters for its actions.

Since petitioner has already matched the bid price tendered by Renong Berhad pursuant to the bidding rules,respondent GSIS is left with no alternative but to award to petitioner the block of shares of MHC and to executethe necessary agreements and documents to effect the sale in accordance not only with the bidding guidelinesand procedures but with the Constitution as well. The refusal of respondent GSIS to execute the correspondingdocuments with petitioner as provided in the bidding rules after the latter has matched the bid of the Malaysianfirm clearly constitutes grave abuse of discretion.

The Filipino First Policy is a product of Philippine nationalism. It is embodied in the 1987 Constitution not merelyto be used as a guideline for future legislation but primarily to be enforced; so must it be enforced. This Court asthe ultimate guardian of the Constitution will never shun, under any reasonable circumstance, the duty ofupholding the majesty of the Constitution which it is tasked to defend. It is worth emphasizing that it is not the

intention of this Court to impede and diminish, much less undermine, the influx of foreign investments. Far fromit, the Court encourages and welcomes more business opportunities but avowedly sanctions the preference forFilipinos whenever such preference is ordained by the Constitution. The position of the Court on this mattercould have not been more appropriately articulated by Chief Justice Narvasa —

As scrupulously as it has tried to observe that it is not its function to substitute its judgment forthat of the legislature or the executive about the wisdom and feasibility of legislation economic innature, the Supreme Court has not been spared criticism for decisions perceived as obstacles toeconomic progress and development . . . in connection with a temporary injunction issued by theCourt's First Division against the sale of the Manila Hotel to a Malaysian Firm and its partner,certain statements were published in a major daily to the effect that injunction "againdemonstrates that the Philippine legal system can be a major obstacle to doing business here.

Let it be stated for the record once again that while it is no business of the Court to intervene incontracts of the kind referred to or set itself up as the judge of whether they are viable orattainable, it is its bounden duty to make sure that they do not violate the Constitution or thelaws, or are not adopted or implemented with grave abuse of discretion amounting to lack orexcess of jurisdiction. It will never shirk that duty, no matter how buffeted by winds of unfair andill-informed criticism. 48

Privatization of a business asset for purposes of enhancing its business viability and preventing further losses,regardless of the character of the asset, should not take precedence over non-material values. A commercial,nay even a budgetary, objective should not be pursued at the expense of national pride and dignity. For theConstitution enshrines higher and nobler non-material values. Indeed, the Court will always defer to the

Constitution in the proper governance of a free society; after all, there is nothing so sacrosanct in any economicpolicy as to draw itself beyond judicial review when the Constitution is involved. 49

Nationalism is inherent, in the very concept of the Philippines being a democratic and republican state, withsovereignty residing in the Filipino people and from whom all government authority emanates. In nationalism, the



happiness and welfare of the people must be the goal. The nation-state can have no higher purpose. Anyinterpretation of any constitutional provision must adhere to such basic concept. Protection of foreigninvestments, while laudible, is merely a policy. It cannot override the demands of nationalism. 50

The Manila Hotel or, for that matter, 51% of the MHC, is not just any commodity to be sold to the highestbidder solely for the sake of privatization. We are not talking about an ordinary piece of property in acommercial district. We are talking about a historic relic that has hosted many of the most importantevents in the short history of the Philippines as a nation. We are talking about a hotel where heads of stateswould prefer to be housed as a strong manifestation of their desire to cloak the dignity of the highest statefunction to their official visits to the Philippines. Thus the Manila Hotel has played and continues to play asignificant role as an authentic repository of twentieth century Philippine history and culture. In this sense, it hasbecome truly a reflection of the Filipino soul — a place with a history of grandeur; a most historical setting thathas played a part in the shaping of a country . 51

This Court cannot extract rhyme nor reason from the determined efforts of respondents to sell the historicallandmark — this Grand Old Dame of hotels in Asia — to a total stranger. For, indeed, the conveyance of thisepic exponent of the Filipino psyche to alien hands cannot be less than mephistophelian for it is, in whatevermanner viewed, a veritable alienation of a nation's soul for some pieces of foreign silver. And so we ask: Whatadvantage, which cannot be equally drawn from a qualified Filipino, can be gained by the Filipinos Manila Hotel— and all that it stands for — is sold to a non-Filipino? How much of national pride will vanish if the nation'scultural heritage is entrusted to a foreign entity? On the other hand, how much dignity will be preserved and

realized if the national patrimony is safekept in the hands of a qualified , zealous and well-meaning Filipino? Thisis the plain and simple meaning of the Filipino First Policy provision of the Philippine Constitution. And this Court,heeding the clarion call of the Constitution and accepting the duty of being the elderly watchman of the nation,will continue to respect and protect the sanctity of the Constitution.

WHEREFORE, respondents GOVERNMENT SERVICE INSURANCE SYSTEM, MANILA HOTELCORPORATION, COMMITTEE ON PRIVATIZATION and OFFICE OF THE GOVERNMENT CORPORATECOUNSEL are directed to CEASE and DESIST from selling 51% of the shares of the Manila Hotel Corporationto RENONG BERHAD, and to ACCEPT the matching bid of petitioner MANILA PRINCE HOTELCORPORATION to purchase the subject 51% of the shares of the Manila Hotel Corporation at P44.00 per shareand thereafter to execute the necessary clearances and to do such other acts and deeds as may be necessaryfor purpose.

SO ORDERED.

Regalado, Davide, Jr., Romero, Kapunan, Francisco and Hermosisima, Jr., JJ., concur.



G.R. No. 158540 July 8, 2004

SOUTHERN CROSS CEMENT CORPORATION, petitioner,vs.THE PHILIPPINE CEMENT MANUFACTURERS CORP., THE SECRETARY OF THE DEPARTMENT OFTRADE & INDUSTRY, THE SECRETARY OF THE DEPARTMENT OF FINANCE, and THE COMMISSIONEROF THE BUREAU OF CUSTOMS, respondents.

TINGA, J .:

"Good fences make good neighbors," so observed Robert Frost, the archetype of traditional New Englanddetachment. The Frost ethos has been heeded by nations adjusting to the effects of the liberalized globalmarket.1 The Philippines, for one, enacted Republic Act (Rep. Act) No. 8751 (on the imposition of countervailingduties), Rep. Act No. 8752 (on the imposition of anti-dumping duties) and, finally, Rep. Act No. 8800, alsoknown as the Safeguard Measures Act ("SMA")2 soon after it joined the General Agreement on Tariff andTrade (GATT) and the World Trade Organization (WTO) Agreement.3

The SMA provides the structure and mechanics for the imposition of emergency measures, including tariffs, toprotect domestic industries and producers from increased imports which inflict or could inflict serious injury onthem.4 The wisdom of the policies behind the SMA, however, is not put into question by the petition at bar. Thequestions submitted to the Court relate to the means and the procedures ordained in the law to ensure that thedetermination of the imposition or non-imposition of a safeguard measure is proper.

Antecedent Facts

1. Petit ioner Southern Cross Cement Corporation ("Southern Cross") is a domestic corporationengaged in the business of cement manufacturing, production, importation and exportation. Itsprincipal stockholders are Taiheiyo Cement Corporation and Tokuyama Corporation, purportedly thelargest cement manufacturers in Japan.5

2. Private respond ent Philippine Cement Manufacturers Corporation6 ("Philcemcor") is an associationof domestic cement manufacturers. It has eighteen (18) members,7 per Record. While Philcemcorheralds itself to be an association of domestic cement manufacturers, it appears that considerable equityholdings, if not controlling interests in at least twelve (12) of its member-corporations, were acquired bythe three largest cement manufacturers in the world, namely Financiere Lafarge S.A. of France, CemexS.A. de C.V. of Mexico, and Holcim Ltd. of Switzerland (formerly Holderbank Financiere Glaris, Ltd., thenHolderfin B.V.).8

3. On 22 May 2001, respondent Department of Trade and Indus try ("DTI") accepted an application fromPhilcemcor , alleging that the importation of gray Portland cement 9 in increased quantities has causeddeclines in domestic production, capacity utilization, market share, sales and employment; as well ascaused depressed local prices. Accordingly, Philcemcor sought the imposition at first of provisional,then later, definitive safeguard measures on the import of cement pursuant to the SMA. Philcemcorfiled the application in behalf of twelve (12) of its member-companies.10

After preliminary investigation, the Bureau of Import Services of the DTI, determined that criticalcircumstances existed justifying the imposition of provisional measures.11

4. On 7 November 2001, the DTI issued an Order ,imposing a provisional measure equivalent toTwenty Pesos and Sixty Centavos (P20.60) per forty (40) kilogram bag on all importations of grayPortland cement for a period not exceeding two hundred (200) days from the date of issuance by theBureau of Customs (BOC) of the implementing Customs Memorandum Order .12

5. The corresponding Customs Memorandum Order was issued on 10 December 2001, to take effect that same day and to remain in force for two hundred (200) days.13

6. In the meantime, the Tariff Commission, on 19 November 2001, received a request from the DTI for

a formal invest igat ion to determine wh ether or not to im pose a def ini t ive safeguard m easure on

impo rts of gray Port land cement, pursuant to Sect ion 9 of the SMA and its Implementing Rulesand Regulations. A notice of commencement of formal investigation was published in the newspapers

on 21 November 2001. Individual notices were likewise sent to concerned parties, such as Philcemcor,various importers and exporters, the Embassies of Indonesia, Japan and Taiwan, contractors/buildersassociations, industry associations, cement workers' groups, consumer groups, non-governmentorganizations and concerned government agencies.14 A preliminary conference was held on 27November 2001, attended by several concerned parties, including Southern Cross.15 Subsequently, the

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Tariff Commission received several position papers both in support and against Philcemcor'sapplication.16 The Tariff Commission also visited the corporate offices and manufacturing facilities ofeach of the applicant companies, as well as that of Southern Cross and two other cement importers.17

On 13 March 2002, the Tariff Commission issued its Formal Investigation Report ("Report"). Among the factorsstudied by the Tariff Commission in its Report were the market share of the domestic industry,18 production andsales,19 capacity utilization,20 financial performance and profitability,21 and return on sales.22 The TariffCommission arrived at the following conclusions:

1. The circumstances provided in Article XIX of GATT 1994 need not be demonstrated since the productunder consideration (gray Portland cement) is not the subject of any Philippine obligation or tariffconcession under the WTO Agreement. Nonetheless, such inquiry is governed by the national legislation(R.A. 8800) and the terms and conditions of the Agreement on Safeguards.

2. The collective output of the twelve (12) applicant companies constitutes a major proportion of the totaldomestic production of gray Portland cement and blended Portland cement.

3. Locally produced gray Portland cement and blended Portland cement (Pozzolan) are "like" to importedgray Portland cement.

4. Gray Portland cement is being imported into the Philippines in increased quantities, both in absoluteterms and relative to domestic production, starting in 2000. The increase in volume of imports is recent,sudden, sharp and significant.

5. The industry has not suffered and is not suffering significant overall impairment in its condition, i.e.,serious injury.

6. There is no threat of serious injury that is imminent from imports of gray Portland cement.

7. Causation has become moot and academic in view of the negative determination of the elements ofserious injury and imminent threat of serious injury.23

7. Accordingly, the Tariff Commission made the following recommendation, to wit:

The elements of serious injury and imminent threat of serious injury not having been established,it is hereby recommended that no def ini t ive general safeguard measure be impos ed on the

impo rtat ion of gray Port land cement .24

7. The DTI received the Report on 14 March 2002. After reviewing the report, then8. DTI Secretary Manuel Roxas II ("DTI Secretary") disagreed with the conclusion of the Tariff

Commission that there was no serious injury to the local cement industry caused by the surge ofimports.25 In view of this disagreement, the DTI requested an opinion from the Department of Justice("DOJ") on the DTI Secretary's scope of options in acting on the Commission's recommendations.Subsequently, then DOJ Secretary Hernando Perez rendered an opinion stating that Section 13 of the

SMA precluded a review by the DTI Secretary of the Tariff Commission's negative finding, or finding thata definitive safeguard measure should not be imposed.26

On 5 April 2002, the DTI Secretary promulgated a Decision. After quoting the conclusions of the TariffCommission, the DTI Secretary noted the DTI's disagreement with the conclusions. However, he also citedthe DOJ Opinion advising the

9. DTI that it was bound by the negative finding of the Tariff Commission. Thus, he ruled as follows:

The DTI has no alternative but to abide by the [Tariff] Commission's recommendations.

IN VIEW OF THE FOREGOING, and in accordance with Section 13 of RA 8800 which states:

" In the event of a negat ive f inal determinat ion; or i f the cash b ond is in excess o f the

def ini t ive safeguard du ty assessed, the Secretary shal l immediately issue, throug h the

Secretary of Finance, a wri t ten instruct ion to the Comm issioner of Customs, authorizing

the return of the cash bo nd o r the remainder thereof, as the case may be, previously















































col lected as prov isional general safeguard measure with in ten (10) days from the date a

f inal decision has been made; Provided, that the government sh al l not be l iable for any

interest on the amoun t to be returned. The Secretary shal l not accept for con siderat ion

another pet i tion from the same industry, with respect to the same impo rts of the product

under c onsiderat ion w ithin on e (1) year after the date of rendering such a decision."

The DTI hereby issues the following:

10. The application for safeguard measures against the importation of gray Portland cement filed byPHILCEMCOR (Case No. 02-2001) is hereby denied.27 (Emphasis in the original)

PETITION BEFORE COURT OF APPEALS

11. Philcemcor received a copy of the DTI Decision on 12 April 2002. Ten days later, it filed with the Courtof Appeals a Peti t ion for Cert iorar i , Prohibi t ion and Mandamu s

28 seeking to set aside theDTI Decision , as well as the Tariff Commission's Report.

12. Philcemcor likewise applied for a Tempo rary Restraining Order/Injunct ion to enjoin the DTI andthe BOC from implementing the questioned Decision and Report. It prayed that the Court of Appealsdirect the DTI Secretary to disregard the Report and to render judgment independently of the Report.Philcemcor argued that the DTI Secretary , vested as he is under the law with the power of review, is notbound to adopt the recommendations of the Tariff Commission; and, that the Report is void, as it is

predicated on a flawed framework, inconsistent inferences and erroneous methodology.29 13. On 10 June 2002, Southern Cross filed its Comment .30 It argued that the Court of Appeals had no

jurisdiction over Philcemcor's Petit ion , for it is on the Court of Tax Appeals ("CTA") that the SMAconferred jurisdiction to review rulings of the Secretary in connection with the imposition of asafeguard measure. It l ikewise argued that Philcemcor's resort to the special civil action of certiorariis improper, considering that what Philcemcor sought to rectify is an error of judgment and not anerror of jurisdiction or grave abuse of discretion, and that a petition for review with the CTA wasavailable as a plain, speedy and adequate remedy. Finally, Southern Cross echoed the DOJ Opinionthat Section 13 of the SMA precludes a review by the DTI Secretary of a negative finding of the TariffCommission.

After conducting a hearing on 19 June 2002 on Philcemcor's application for preliminary injunction,

14. the Court of Appeals' Twelfth Division31 granted the writ sought in its Resolution dated 21 June2002.32 Seven days later, on 28 June 2002, the two-hundred (200)-day period for the imposition of theprovisional measure expired. Despite the lapse of the period, the BOC continued to impose theprovisional measure on all importations of Portland cement made by Southern Cross.

15. The uninterrupted assessment of the tariff, according to Southern Cross, worked to its detrimentto the point that the continued imposition would eventually lead to its closure.33

16. Southern Cross timely filed a Motion for Reconsiderat io n of the Resolution on 9 September 2002. Alleging that Philcemcor was not entitled to provisional relief, Southern Cross likewise sought aclarificatory order as to whether the grant of the writ of preliminary injunction could extend the earlierimposition of the provisional measure beyond the two hundred (200)-day limit imposed by law. Theappeals' court failed to take immediate action on Southern Cross's motion despite the four (4) motions

for early resolution the latter filed between September of 2002 and February of 2003. After six (6)months, on 19 February 2003, the Court of Appeals directed Philcemcor to comment on SouthernCross's Motion for Reconsideration.34 After Philcemcor filed its Opposition35 on 13 March 2003, SouthernCross filed another set of four (4) motions for early resolution.

17. Despite the efforts of Southern Cross, the Court of Appeals failed to directly resolve the Mot ion

for Reconsiderat ion . Instead, on 5 June 2003, it rendered a Decision,36 granting in part Philcemcor'spetition. The appellate court ruled that it had jurisdiction over the petition for certiorari since italleged grave abuse of discretion. It refused to annul the findings of the Tariff Commission, citing therule that factual findings of administrative agencies are binding upon the courts and its corollary, thatcourts should not interfere in matters addressed to the sound discretion and coming under the specialtechnical knowledge and training of such agencies.37 Nevertheless, i

18. It held that the DTI Secretary is not bound by the factual findings of the Tariff Commission since

such findings are merely recommendatory and they fall within the ambit of the Secretary's discretionaryreview . It determined that the legislative intent is to grant the DTI Secretary the power to make a finaldecision on the Tariff Commission's recommendation.38 The dispositive portion of the Decision reads:


















































WHEREFORE, based on the foregoing premises, petitioner's prayer to set aside the findings of the TariffCommission in its assailed Report dated March 13, 2002 is DENIED. On the other hand, the assailed April 5, 2002 Decision of the Secretary of the Department of Trade and Industry is hereby SET ASIDE.Consequently, the case is REMANDED to the public respondent Secretary of Department of Trade andIndustry for a final decision in accordance with RA 8800 and its Implementing Rules and Regulations.

SO ORDERED.39

19. On 23 June 2003, Southern Cross filed the present petition, assailing the appellatecourt's Decision for departing from the accepted and usual course of judicial proceedings, andnot deciding the substantial questions in accordance with law and jurisprudence. The petitionargues in the main that the Court of Appeals has no jurisdiction over Philcemcor's petition, the properremedy being a petition for review with the CTA conformably with the SMA, and; that the factual findingsof the Tariff Commission on the existence or non-existence conditions warranting the imposition ofgeneral safeguard measures are binding upon the DTI Secretary.

The timely filing of Southern Cross's petition before this Court necessarily prevented the Court of AppealsDecision from becoming final.40 Yet on 25 June 2003, the DTI Secretary issued a new Decision , rulingthis time that that in light of the appellate court's Decision there was no longer any legal impediment to hisdeciding Philcemcor's application for definitive safeguard measures.41 He made a determination that, contrary tothe findings of the Tariff Commission, the local cement industry had suffered serious injury as a result ofthe import surges.42 Accordingly, he imposed a definitive safeguard measure on the importation of grayPortland cement, in the form of a definitive safeguard duty in the amount of P20.60/40 kg. bag for three years onimported gray Portland Cement.43

On 7 July 2003, Southern Cross filed with the Court a "Very Urgent Appl icat ion for a Temporary

Restraining Ord er and/or A Writ o f Prel iminary Injunc t ion " ("TRO Appl icat ion "), seeking to enjoin the DTISecretary from enforcing hisDecision of 25 June 2003 in view of the pending petition before this Court.Philcemcor filed an opposition, claiming, among others, that it is not this Court but the CTA that has jurisdictionover the application under the law.

On 1 August 2003, Southern Cross filed with the CTA a Peti tion for Review , assailing the DTI Secretary's 25June 2003 Decision which imposed the definite safeguard measure. Prescinding from this action, Philcemcorfiled with this Court a Manifestation and Motion to Dismiss in regard to Southern Cross's petition, alleging that itdeliberately and willfully resorted to forum-shopping. It points out that Southern Cross's TRO Application seeksto enjoin the DTI Secretary's second decision, while its Petition before the CTA prays for the annulment of thesame decision.44

Reiterating its Comment on Southern Cross's Petition for Review , Philcemcor also argues that the CTA, being aspecial court of limited jurisdiction, could only review the ruling of the DTI Secretary when a safeguard measureis imposed, and that the factual findings of the Tariff Commission are not binding on the DTI Secretary.45

After giving due course to Southern Cross's Petition, the Court called the case for oral argument on 18 February2004.46 At the oral argument, attended by the counsel for Philcemcor and Southern Cross and the Office of theSolicitor General, the Court simplified the issues in this wise: (i) whether the Decision of the DTI Secretary isappealable to the CTA or the Court of Appeals; (ii) assuming that the Court of Appeals has jurisdiction, whetheritsDecision is in accordance with law; and, (iii) whether a Temporary Restraining Order is warranted.47

During the oral arguments, counsel for Southern Cross manifested that due to the imposition of the generalsafeguard measures, Southern Cross was forced to cease operations in the Philippines in November of 2003.48

Propriety of the Temporary Restraining Order

Before the merits of the Petition, a brief comment on Southern Cross's application for provisional relief. It soughtto enjoin the DTI Secretary from enforcing the definitive safeguard measure he imposed in his 25 June2003Decision. The Court did not grant the provisional relief for it would be tantamount to enjoining the collection

of taxes, a peremptory judicial act which is traditionally frowned upon,

49

unless there is a clear statutory basis forit.50 In that regard, Section 218 of the Tax Reform Act of 1997 prohibits any court from granting an injunction torestrain the collection of any national internal revenue tax, fee or charge imposed by the internal revenuecode.51 A similar philosophy is expressed by Section 29 of the SMA, which states that the filing of a petition forreview before the CTA does not stop, suspend, or otherwise toll the imposition or collection of the appropriatetariff duties or the adoption of other appropriate safeguard measures.52 This evinces a clear legislative intent that


























































the imposition of safeguard measures, despite the availability of judicial review, should not be enjoinednotwithstanding any timely appeal of the imposition.

The Forum-Shopping Issue

In the same breath, we are not convinced that the allegation of forum-shopping has been duly proven, or thatsanction should befall upon Southern Cross and its counsel. The standard by Section 5, Rule 7 of the 1997Rules of Civil Procedure in order that sanction may be had is that "the acts of the party or his counsel clearlyconstitute willful and deliberate forum shopping."53 The standard implies a malicious intent to subvert proceduralrules, and such state of mind is not evident in this case.

The Jurisdictional Issue

On to the merits of the present petition.

In its assailed Decision, the Court of Appeals, after asserting only in brief that it had jurisdiction overPhilcemcor'sPetition, discussed the issue of whether or not the DTI Secretary is bound to adopt the negativerecommendation of the Tariff Commission on the application for safeguard measure. The Court of Appealsmaintained that it had jurisdiction over the petition, as it alleged grave abuse of discretion on the part of the DTISecretary, thus:

A perusal of the instant petition reveals allegations of grave abuse of discretion on the part of the DTISecretary in rendering the assailed April 5, 2002 Decision wherein it was ruled that he had no alternativebut to abide by the findings of the Commission on the matter of safeguard measures for the local cementindustry. Abuse of discretion is admittedly within the ambit of certiorari.

Grave abuse of discretion implies such capricious and whimsical exercise of judgment as is equivalent tolack of jurisdiction. It is alleged that, in the assailed Decision, the DTI Secretary gravely abused hisdiscretion in wantonly evading to discharge his duty to render an independent determination or decisionin imposing a definitive safeguard measure.54

We do not doubt that the Court of Appeals' certiorari powers extend to correcting grave abuse of discretion on

the part of an officer exercising judicial or quasi-judicial functions.55

However, the special civil action of certiorariis available only when there is no plain, speedy and adequate remedy in the ordinary course of law.56 SouthernCross relies on this limitation, stressing that Section 29 of the SMA is a plain, speedy and adequate remedy inthe ordinary course of law which Philcemcor did not avail of. The Section reads:

Section 29. Judicial Review. – Any interested party who is adversely affected by the ruling of theSecretary in connection with the imposition of a safeguard measure may file with the CTA, apetition for review of such ruling within thirty (30) days from receipt thereof. Provided, however, that thefiling of such petition for review shall not in any way stop, suspend or otherwise toll the imposition orcollection of the appropriate tariff duties or the adoption of other appropriate safeguard measures, as thecase may be.

The petition for review shall comply with the same requirements and shall follow the same rules ofprocedure and shall be subject to the same disposition as in appeals in connection with adverse rulingson tax matters to the Court of Appeals.57 (Emphasis supplied)

It is not difficult to divine why the legislature singled out the CTA as the court with jurisdiction to review the rulingof the DTI Secretary in connection with the imposition of a safeguard measure. The Court has long recognizedthe legislative determination to vest sole and exclusive jurisdiction on matters involving internal revenue andcustoms duties to such a specialized court.58 By the very nature of its function, the CTA is dedicated exclusivelyto the study and consideration of tax problems and has necessarily developed an expertise on the subject.59

At the same time, since the CTA is a court of limited jurisdiction, its jurisdiction to take cognizance of a caseshould be clearly conferred and should not be deemed to exist on mere implication.60 Concededly, Rep. Act No.

1125, the statute creating the CTA, does not extend to it the power to review decisions of the DTI Secretary inconnection with the imposition of safeguard measures.61 Of course, at that time which was before the advent oftrade liberalization the notion of safeguard measures or safety nets was not yet in vogue.







































Undeniably, however, the SMA expanded the jurisdiction of the CTA by including review of the rulings of the DTISecretary in connection with the imposition of safeguard measures. However, Philcemcor and the publicrespondents agree that the CTA has appellate jurisdiction over a decision of the DTI Secretary imposing asafeguard measure, but not when his ruling is not to impose such measure.

In a related development, Rep. Act No. 9282, enacted on 30 March 2004, expressly vests unto the CTA jurisdiction over "[d]ecisions of the Secretary of Trade and Industry, in case of nonagricultural product,commodity or article xxx involving xxx safeguard measures under Republic Act No. 8800, where either partymay appeal the decision to impose or not to impose said duties."62 Had Rep. Act No. 9282 already been inforce at the beginning of the incidents subject of this case, there would have been no need to make any deeperinquiry as to the extent of the CTA's jurisdiction. But as Rep. Act No. 9282 cannot be applied retroactively to thepresent case, the question of whether such jurisdiction extends to a decision not to impose a safeguard measurewill have to be settled principally on the basis of the SMA.

Under Section 29 of the SMA, there are three requisites to enable the CTA to acquire jurisdiction over thepetition for review contemplated therein: (i) there must be a ruling by the DTI Secretary; (ii) the petition must befiled by an interested party adversely affected by the ruling; and (iii) such ruling must be in connection with theimposition of a safeguard measure. The first two requisites are clearly present. The third requisite deservescloser scrutiny.

Contrary to the stance of the public respondents and Philcemcor, in this case where the DTI Secretary decidesnot to impose a safeguard measure, it is the CTA which has jurisdiction to review his decision. The reasons areas follows:

First. Split jurisdiction is abhorred.

Essentially, respondents' position is that judicial review of the DTI Secretary's ruling is exercised by two differentcourts, depending on whether or not it imposes a safeguard measure, and in either case the court exercising jurisdiction does so to the exclusion of the other. Thus, if the DTI decision involves the imposition of a safeguardmeasure it is the CTA which has appellate jurisdiction; otherwise, it is the Court of Appeals. Such setup is asnovel and unusual as it is cumbersome and unwise. Essentially, respondents advocate that Section 29 of theSMA has established split appellate jurisdiction over rulings of the DTI Secretary on the imposition of safeguardmeasure.

This interpretation cannot be favored, as the Court has consistently refused to sanction split jurisdiction.63 Thepower of the DTI Secretary to adopt or withhold a safeguard measure emanates from the same statutory source,and it boggles the mind why the appeal modality would be such that one appellate court is qualified if what is tobe reviewed is a positive determination, and it is not if what is appealed is a negative determination. In decidingwhether or not to impose a safeguard measure, provisional or general, the DTI Secretary would be evaluatingonly one body of facts and applying them to one set of laws. The reviewing tribunal will be called upon toexamine the same facts and the same laws, whether or not the determination is positive or negative.

In short, if we were to rule for respondents we would be confirming the exercise by two judicial bodies of jurisdiction over basically the same subject matter¾precisely the split-jurisdiction situation which is anathema tothe orderly administration of justice.64 The Court cannot accept that such was the legislative motive especiallyconsidering that the law expressly confers on the CTA, the tribunal with the specialized competence over taxand tariff matters, the role of judicial review without mention of any other court that may exercise corollary orancillary jurisdiction in relation to the SMA. The provision refers to the Court of Appeals but only in regard toprocedural rules and dispositions of appeals from the CTA to the Court of Appeals.65

The principle enunciated in Tejada v. Homestead Property Corporation66 is applicable to the case at bar:

The Court agrees with the observation of the [that] when an administrative agency or body is conferredquasi-judicial functions, all controversies relating to the subject matter pertaining to itsspecialization are deemed to be included within the jurisdiction of said administrative agency orbody. Split jurisdiction is not favored.67

Second. The interpretation of the provisions of the SMA favors vesting untrammeled appellate jurisdiction on theCTA.

A plain reading of Section 29 of the SMA reveals that Congress did not expressly bar the CTA from reviewing anegative determination by the DTI Secretary nor conferred on the Court of Appeals such review authority.


























Respondents note, on the other hand, that neither did the law expressly grant to the CTA the power to review anegative determination. However, under the clear text of the law, the CTA is vested with jurisdiction to review theruling of the DTI Secretary "in connection with the imposition of a safeguard measure." Had the law beencouched instead to incorporate the phrase "the ruling imposing a safeguard measure," then respondent's claimwould have indisputable merit. Undoubtedly, the phrase "in connection with" not only qualifies but clarifies thesucceeding phrase "imposition of a safeguard measure." As expounded later, the phrase also encompasses theopposite or converse ruling which is the non-imposition of a safeguard measure.

In the American case of Shaw v. Delta Air Lines, Inc.,68 the United States Supreme Court, in interpreting a keyprovision of the Employee Retirement Security Act of 1974, construed the phrase "relates to" in its normal sensewhich is the same as "if it has connection with or reference to."69 There is no serious dispute that the phrase "inconnection with" is synonymous to "relates to" or "reference to," and that all three phrases are broadlyexpansive. This is affirmed not just by jurisprudential fiat, but also the acquired connotative meaning of "inconnection with" in common parlance. Consequently, with the use of the phrase "in connection with," Section 29allows the CTA to review not only the ruling imposing a safeguard measure, but all other rulings related orhave reference to the application for such measure.

Now, let us determine the maximum scope and reach of the phrase "in connection with" as used in Section 29 ofthe SMA. A literalist reading or linguistic survey may not satisfy. Even the US Supreme Court in New York StateBlue Cross Plans v. Travelers Ins.70 conceded that the phrases "relate to" or "in connection with" may beextended to the farthest stretch of indeterminacy for, universally, relations or connections are infinite and stop

nowhere.71 Thus, in the case the US High Court, examining the same phrase of the same provision of lawinvolved in Shaw , resorted to looking at the statute and its objectives as the alternative to an "uncriticalliteralism."72 A similar inquiry into the other provisions of the SMA is in order to determine the scope of reviewaccorded therein to the CTA.73

The authority to decide on the safeguard measure is vested in the DTI Secretary in the case of non-agriculturalproducts, and in the Secretary of the Department of Agriculture in the case of agricultural products.74 Section 29is likewise explicit that only the rulings of the DTI Secretary or the Agriculture Secretary may be reviewed by theCTA.75 Thus, the acts of other bodies that were granted some powers by the SMA, such as the TariffCommission, are not subject to direct review by the CTA.

Under the SMA, the Department Secretary concerned is authorized to decide on several matters. Within thirty

(30) days from receipt of a petition seeking the imposition of a safeguard measure, or from the date hemademotu proprio initiation, the Secretary shall make a preliminary determination on whether the increasedimports of the product under consideration substantially cause or threaten to cause serious injury to thedomestic industry.76Such ruling is crucial since only upon the Secretary's positive preliminary determination thata threat to the domestic industry exists shall the matter be referred to the Tariff Commission for formalinvestigation, this time, to determine whether the general safeguard measure should be imposed ornot.77 Pursuant to a positive preliminary determination, the Secretary may also decide that the imposition of aprovisional safeguard measure would be warranted under Section 8 of the SMA.78 The Secretary is alsoauthorized to decide, after receipt of the report of the Tariff Commission, whether or not to impose the generalsafeguard measure, and if in the affirmative, what general safeguard measures should be applied.79 Even afterthe general safeguard measure is imposed, the Secretary is empowered to extend the safeguard measure ,80 orterminate, reduce or modify his previous rulings on the general safeguard measure.81

With the explicit grant of certain powers involving safeguard measures by the SMA on the DTI Secretary, itfollows that he is empowered to rule on several issues. These are the issues which arise in connection with, or inrelation to, the imposition of a safeguard measure. They may arise at different stages – the preliminaryinvestigation stage, the post-formal investigation stage, or the post-safeguard measure stage – yet all theseissues do become ripe for resolution because an initiatory action has been taken seeking the imposition of asafeguard measure. It is the initiatory action for the imposition of a safeguard measure that sets the wheels inmotion, allowing the Secretary to make successive rulings, beginning with the preliminary determination.

Clearly, therefore, the scope and reach of the phrase "in connection with," as intended by Congress, pertain toall rulings of the DTI Secretary or Agriculture Secretary which arise from the time an application or motu proprioinitiation for the imposition of a safeguard measure is taken. Indeed, the incidents which require

resolution come to the fore only because there is an initial application or action seeking the imposition of asafeguard measure. From the legislative standpoint, it was a matter of sense and practicality to lump up thequestions related to the initiatory application or action for safeguard measure and to assign only one court and;that is the CTA to initially review all the rulings related to such initiatory application or action. Both directionsCongress put in place by employing the phrase "in connection with" in the law.


























































Given the relative expanse of decisions subject to judicial review by the CTA under Section 29, we do not doubtthat a negative ruling refusing to impose a safeguard measure falls within the scope of its jurisdiction. On a literallevel, such negative ruling is "a ruling of the Secretary in connection with the imposition of a safeguardmeasure," as it is one of the possible outcomes that may result from the initial application or action for asafeguard measure. On a more critical level, the rulings of the DTI Secretary in connection with a safeguardmeasure, however diverse the outcome may be, arise from the same grant of jurisdiction on the DTI Secretaryby the SMA.82 The refusal by the DTI Secretary to grant a safeguard measure involves the same grant ofauthority, the same statutory prescriptions, and the same degree of discretion as the imposition by the DTISecretary of a safeguard measure.

The position of the respondents is one of "uncritical literalism"83 incongruent with the animus of the law.Moreover, a fundamentalist approach to Section 29 is not warranted, considering the absurdity of theconsequences.

Third. Interpretatio Talis In Ambiguis Semper Fienda Est, Ut Evitur Inconveniens Et Absurdum.84

Even assuming arguendo that Section 29 has not expressly granted the CTA jurisdiction to review a negativeruling of the DTI Secretary, the Court is precluded from favoring an interpretation that would causeinconvenience and absurdity.85 Adopting the respondents' position favoring the CTA's minimal jurisdiction wouldunnecessarily lead to illogical and onerous results.

Indeed, it is illiberal to assume that Congress had intended to provide appellate relief to rulings imposing asafeguard measure but not to those declining to impose the measure. Respondents might argue that the right torelief from a negative ruling is not lost since the applicant could, as Philcemcor did, question such ruling througha special civil action for certiorari under Rule 65 of the 1997 Rules of Civil Procedure, in lieu of an appeal to theCTA. Yet these two reliefs are of differing natures and gravamen. While an appeal may be predicated on errorsof fact or errors of law, a special civil action for certiorari is grounded on grave abuse of discretion or lack of orexcess of jurisdiction on the part of the decider. For a special civil action for certiorari to succeed, it is notenough that the questioned act of the respondent is wrong. As the Court clarified in Sempio v. Court of Appeals:

A tribunal, board or officer acts without jurisdiction if it/he does not have the legal power to determine thecase. There is excess of jurisdiction where, being clothed with the power to determine the case, thetribunal, board or officer oversteps its/his authority as determined by law. And there is grave abuse ofdiscretion where the tribunal, board or officer acts in a capricious, whimsical, arbitrary or despoticmanner in the exercise of his judgment as to be said to be equivalent to lack of jurisdiction. Certiorari isoften resorted to in order to correct errors of jurisdiction. Where the error is one of law or of fact, which isa mistake of judgment, appeal is the remedy.86

It is very conceivable that the DTI Secretary, after deliberate thought and careful evaluation of the evidence, mayeither make a negative preliminary determination as he is so empowered under Section 7 of the SMA, or refuseto adopt the definitive safeguard measure under Section 13 of the same law. Adopting the respondents' theory,this negative ruling is susceptible to reversal only through a special civil action for certiorari, thus depriving theaffected party the chance to elevate the ruling on appeal on the rudimentary grounds of errors in fact or in law.Instead, and despite whatever indications that the DTI Secretary acted with measure and within the bounds ofhis jurisdiction are, the aggrieved party will be forced to resort to a gymnastic exercise, contorting the straight

and narrow in an effort to discombobulate the courts into believing that what was within was actually beyond andwhat was studied and deliberate actually whimsical and capricious. What then would be the remedy of the partyaggrieved by a negative ruling that simply erred in interpreting the facts or the law? It certainly cannot be thespecial civil action for certiorari, for as the Court held in Silverio v. Court of Appeals: "Certiorari is a remedynarrow in its scope and inflexible in its character. It is not a general utility tool in the legal workshop."87

Fortunately, this theoretical quandary need not come to pass. Section 29 of the SMA is worded in such a waythat it places under the CTA's judicial review all rulings of the DTI Secretary, which are connected with theimposition of a safeguard measure. This is sound and proper in light of the specialized jurisdiction of the CTAover tax matters. In the same way that a question of whether to tax or not to tax is properly a tax matter, so is thequestion of whether to impose or not to impose a definitive safeguard measure.

On another note, the second paragraph of Section 29 similarly reveals the legislative intent that rulings of theDTI Secretary over safeguard measures should first be reviewed by the CTA and not the Court of Appeals. Itreads:



























The petition for review shall comply with the same requirements and shall follow the same rules ofprocedure and shall be subject to the same disposition as in appeals in connection with adverse rulingson tax matters to the Court of Appeals.

This is the only passage in the SMA in which the Court of Appeals is mentioned. The express wish of Congressis that the petition conform to the requirements and procedure under Rule 43 of the Rules of Civil Procedure.Since Congress mandated that the form and procedure adopted be analogous to a review of a CTA ruling by theCourt of Appeals, the legislative contemplation could not have been that the appeal be directly taken to the Courtof Appeals.

Issue of Binding Effect of Tariff Commission's Factual Determination on DTI Secretary.

The next issue for resolution is whether the factual determination made by the Tariff Commission under the SMAis binding on the DTI Secretary. Otherwise stated, the question is whether the DTI Secretary may imposegeneral safeguard measures in the absence of a positive final determination by the Tariff Commission.

The Court of Appeals relied upon Section 13 of the SMA in ruling that the findings of the Tariff Commission donot necessarily constitute a final decision. Section 13 details the procedure for the adoption of a safeguardmeasure, as well as the steps to be taken in case there is a negative final determination. The implication of theCourt of Appeals' holding is that the DTI Secretary may adopt a definitive safeguard measure, notwithstanding anegative determination made by the Tariff Commission.

Undoubtedly, Section 13 prescribes certain limitations and restrictions before general safeguard measures maybe imposed. However, the most fundamental restriction on the DTI Secretary's power in that respect iscontained in Section 5 of the SMA¾that there should first be a positive final determination of the TariffCommission¾which the Court of Appeals curiously all but ignored. Section 5 reads:

Sec. 5. Conditions for the Application of General Safeguard Measures. – The Secretary shall apply ageneral safeguard measure upon a positive final determination of the [Tariff] Commission that aproduct is being imported into the country in increased quantities, whether absolute or relative to thedomestic production, as to be a substantial cause of serious injury or threat thereof to the domesticindustry; however, in the case of non-agricultural products, the Secretary shall first establish that theapplication of such safeguard measures will be in the public interest. (emphasis supplied)

The plain meaning of Section 5 shows that it is the Tariff Commission that has the power to make a "positivefinal determination." This power lodged in the Tariff Commission, must be distinguished from the power toimpose the general safeguard measure which is properly vested on the DTI Secretary.88

All in all, there are two condition precedents that must be satisfied before the DTI Secretary may impose ageneral safeguard measure on grey Portland cement. First, there must be a positive final determination by theTariff Commission that a product is being imported into the country in increased quantities (whether absolute orrelative to domestic production), as to be a substantial cause of serious injury or threat to the domestic industry.

Second, in the case of non-agricultural products the Secretary must establish that the application of suchsafeguard measures is in the public interest.89 As Southern Cross argues, Section 5 is quite clear-cut, and it isimpossible to finagle a different conclusion even through overarching methods of statutory construction. There isno safer nor better settled canon of interpretation that when language is clear and unambiguous it must be heldto mean what it plainly expresses:90 In the quotable words of an illustrious member of this Court, thus:

[I]f a statute is clear, plain and free from ambiguity, it must be given its literal meaning and appliedwithout attempted interpretation. The verba legis or plain meaning rule rests on the valid presumptionthat the words employed by the legislature in a statute correctly express its intent or will and preclude thecourt from construing it differently. The legislature is presumed to know the meaning of the words, tohave used words advisedly, and to have expressed its intent by the use of such words as are found inthe statute.91

Moreover, Rule 5 of the Implementing Rules and Regulations of the SMA,92 which interprets Section 5 of the law,likewise requires a positive final determination on the part of the Tariff Commission before the application of thegeneral safeguard measure.























The SMA establishes a distinct allocation of functions between the Tariff Commission and the DTI Secretary.The plain meaning of Section 5 shows that it is the Tariff Commission that has the power to make a "positivefinal determination." This power, which belongs to the Tariff Commission, must be distinguished from the powerto impose general safeguard measure properly vested on the DTI Secretary. The distinction is vital, as a"positive final determination" clearly antecedes, as a condition precedent, the imposition of a general safeguardmeasure. At the same time, a positive final determination does not necessarily result in the imposition of ageneral safeguard measure. Under Section 5, notwithstanding the positive final determination of the TariffCommission, the DTI Secretary is tasked to decide whether or not that the application of the safeguardmeasures is in the public interest.

It is also clear from Section 5 of the SMA that the positive final determination to be undertaken by the TariffCommission does not entail a mere gathering of statistical data. In order to arrive at such determination, it has toestablish causal linkages from the statistics that it compiles and evaluates: after finding there is an importation inincreased quantities of the product in question, that such importation is a substantial cause of serious threat orinjury to the domestic industry.

The Court of Appeals relies heavily on the legislative record of a congressional debate during deliberations onthe SMA to assert a purported legislative intent that the findings of the Tariff Commission do not bind the DTISecretary.93 Yet as explained earlier, the plain meaning of Section 5 emphasizes that only if the TariffCommission renders a positive determination could the DTI Secretary impose a safeguard measure. Resort tothe congressional records to ascertain legislative intent is not warranted if a statute is clear, plain and free from

ambiguity. The legislature is presumed to know the meaning of the words, to have used words advisedly, and tohave expressed its intent by the use of such words as are found in the statute.94

Indeed, the legislative record, if at all to be availed of, should be approached with extreme caution, as legislativedebates and proceedings are powerless to vary the terms of the statute when the meaning is clear .95 Our holdingin Civil Liberties Union v. Executive Secretary 96 on the resort to deliberations of the constitutional convention tointerpret the Constitution is likewise appropriate in ascertaining statutory intent:

While it is permissible in this jurisdiction to consult the debates and proceedings of the constitutionalconvention in order to arrive at the reason and purpose of the resulting Constitution, resort thereto maybe had only when other guides fail as said proceedings are powerless to vary the terms of theConstitution 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 reasons for their votes, but they giveus no light as to the views of the large majority who did not talk xxx. We think it safer to construe theconstitution from what appears upon its face."97

Moreover, it is easy to selectively cite passages, sometimes out of their proper context, in order to assert amisleading interpretation. The effect can be dangerous. Minority or solitary views, anecdotal ruminations, oreven the occasional crude witticisms, may improperly acquire the mantle of legislative intent by the sole virtue oftheir publication in the authoritative congressional record. Hence, resort to legislative deliberations is allowablewhen the statute is crafted in such a manner as to leave room for doubt on the real intent of the legislature.

Section 5 plainly evinces legislative intent to restrict the DTI Secretary's power to impose a general safeguardmeasure by preconditioning such imposition on a positive determination by the Tariff Commission. Such

legislative intent should be given full force and effect, as the executive power to impose definitive safeguardmeasures is but a delegated power¾the power of taxation, by nature and by command of the fundamental law,being a preserve of the legislature.98 Section 28(2), Article VI of the 1987 Constitution confirms the delegation oflegislative power, yet ensures that the prerogative of Congress to impose limitations and restrictions on theexecutive exercise of this power:

The Congress may, by law, authorize the President to fix within specified limits, and subject to suchlimitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfagedues, and other duties or imposts within the framework of the national development program of theGovernment.99

The safeguard measures which the DTI Secretary may impose under the SMA may take the following variations,

to wit: (a) an increase in, or imposition of any duty on the imported product; (b) a decrease in or the imposition ofa tariff-rate quota on the product; (c) a modification or imposition of any quantitative restriction on the importationof the product into the Philippines; (d) one or more appropriate adjustment measures, including the provision oftrade adjustment assistance; and (e) any combination of the above-described actions. Except for the provision of






























trade adjustment assistance, the measures enumerated by the SMA are essentially imposts, which precisely arethe subject of delegation under Section 28(2), Article VI of the 1987 Constitution.100

This delegation of the taxation power by the legislative to the executive is authorized by the Constitutionitself .101 At the same time, the Constitution also grants the delegating authority (Congress) the right to imposerestrictions and limitations on the taxation power delegated to the President.102 The restrictions and limitationsimposed by Congress take on the mantle of a constitutional command, which the executive branch is obliged toobserve.

The SMA empowered the DTI Secretary, as alter ego of the President,103 to impose definitive general safeguardmeasures, which basically are tariff imposts of the type spoken of in the Constitution. However, the law did notgrant him full, uninhibited discretion to impose such measures. The DTI Secretary authority is derived from theSMA; it does not flow from any inherent executive power. Thus, the limitations imposed by Section 5 areabsolute, warranted as they are by a constitutional fiat.104

Philcemcor cites our 1912 ruling in Lamb v. Phipps105 to assert that the DTI Secretary, having the final decisionon the safeguard measure, has the power to evaluate the findings of the Tariff Commission and make anindependent judgment thereon. Given the constitutional and statutory limitations governing the present case, thecitation is misplaced. Lamb pertained to the discretion of the Insular Auditor of the Philippine Islands, whom, asthe Court recognized, "[t]he statutes of the United States require[d] xxx to exercise his judgment upon thelegality xxx [of] provisions of law and resolutions of Congress providing for the payment of money, the means ofprocuring testimony upon which he may act."106

Thus in Lamb, while the Court recognized the wide latitude of discretion that may have been vested on theInsular Auditor, it also recognized that such latitude flowed from, and is consequently limited by, statutory grant.However, in this case, the provision of the Constitution in point expressly recognizes the authority of Congress toprescribe limitations in the case of tariffs, export/import quotas and other such safeguard measures. Thus, thebroad discretion granted to the Insular Auditor of the Philippine Islands cannot be analogous to the discretion ofthe DTI Secretary which is circumscribed by Section 5 of the SMA.

For that matter, Cariño v. Commissioner on Human Rights,107 likewise cited by Philcemcor, is also inapplicableowing to the different statutory regimes prevailing over that case and the present petition. In Cariño, the Courtruled that the constitutional power of the Commission on Human Rights (CHR) to investigate human rights'violations did not extend to adjudicating claims on the merits.108 Philcemcor claims that the functions of the TariffCommission being "only investigatory," it could neither decide nor adjudicate.109

The applicable law governing the issue in Cariño is Section 18, Article XIII of the Constitution, which delineatesthe powers and functions of the CHR. The provision does not vest on the CHR the power to adjudicate cases,but only to investigate all forms of human rights violations.110 Yet, without modifying the thorough disquisition ofthe Court in Cariño on the general limitations on the investigatory power, the precedent is inapplicable becauseof the difference in the involved statutory frameworks. The Constitution does not repose binding effect on theresults of the CHR's investigation.111 On the other hand, through Section 5 of the SMA and under the authority ofSection 28(2), Article VI of the Constitution, Congress did intend to bind the DTI Secretary to the determinationmade by the Tariff Commission.112 It is of no consequence that such determination results from the exercise ofinvestigatory powers by the Tariff Commission since Congress is well within its constitutional mandate to limit

the authority of the DTI Secretary to impose safeguard measures in the manner that it sees fit.

The Court of Appeals and Philcemcor also rely on Section 13 of the SMA and Rule 13 of the SMA'sImplementing Rules in support of the view that the DTI Secretary may decide independently of the determinationmade by the Tariff Commission. Admittedly, there are certain infelicities in the language of Section 13 and Rule13. But reliance should not be placed on the textual imprecisions. Rather, Section 13 and Rule 13 must beviewed in light of the fundamental prescription imposed by Section 5. 113

Section 13 of the SMA lays down the procedure to be followed after the Tariff Commission renders its report.The provision reads in full:

SEC. 13. Adoption of Definitive Measures. — Upon its positive determination, the Commission shallrecommend to the Secretary an appropriate definitive measure, in the form of:

(a) An increase in, or imposition of, any duty on the imported product;

(b) A decrease in or the imposition of a tariff-rate quota (MAV) on the product;


























































(c) A modification or imposition of any quantitative restriction on the importation of the product into thePhilippines;

(d) One or more appropriate adjustment measures, including the provision of trade adjustmentassistance;

(e) Any combination of actions described in subparagraphs (a) to (d).

The Commission may also recommend other actions, including the initiation of international negotiationsto address the underlying cause of the increase of imports of the product, to alleviate the injury or threatthereof to the domestic industry, and to facilitate positive adjustment to import competition.

The general safeguard measure shall be limited to the extent of redressing or preventing the injury andto facilitate adjustment by the domestic industry from the adverse effects directly attributed to theincreased imports: Provided, however, That when quantitative import restrictions are used, suchmeasures shall not reduce the quantity of imports below the average imports for the three (3) precedingrepresentative years, unless clear justification is given that a different level is necessary to prevent orremedy a serious injury.

A general safeguard measure shall not be applied to a product originating from a developing country if its

share of total imports of the product is less than three percent (3%): Provided, however , That developingcountries with less than three percent (3%) share collectively account for not more than nine percent(9%) of the total imports.

The decision imposing a general safeguard measure, the duration of which is more than one (1) year,shall be reviewed at regular intervals for purposes of liberalizing or reducing its intensity. The industrybenefiting from the application of a general safeguard measure shall be required to show positiveadjustment within the allowable period. A general safeguard measure shall be terminated where thebenefiting industry fails to show any improvement, as may be determined by the Secretary.

The Secretary shall issue a written instruction to the heads of the concerned government agencies toimplement the appropriate general safeguard measure as determined by the Secretary within fifteen (15)

days from receipt of the report.

In the event of a negative final determination, or if the cash bond is in excess of the definitive safeguardduty assessed, the Secretary shall immediately issue, through the Secretary of Finance, a writteninstruction to the Commissioner of Customs, authorizing the return of the cash bond or the remainderthereof, as the case may be, previously collected as provisional general safeguard measure within ten(10) days from the date a final decision has been made: Provided, That the government shall not beliable for any interest on the amount to be returned. The Secretary shall not accept for considerationanother petition from the same industry, with respect to the same imports of the product underconsideration within one (1) year after the date of rendering such a decision.

When the definitive safeguard measure is in the form of a tariff increase, such increase shall not be

subject or limited to the maximum levels of tariff as set forth in Section 401(a) of the Tariff and CustomsCode of the Philippines.

To better comprehend Section 13, note must be taken of the distinction between the investigatory andrecommendatory functions of the Tariff Commission under the SMA.

The word "determination," as used in the SMA, pertains to the factual findings on whether there are increasedimports into the country of the product under consideration, and on whether such increased imports are asubstantial cause of serious injury or threaten to substantially cause serious injury to the domesticindustry.114The SMA explicitly authorizes the DTI Secretary to make a preliminary determination,115 and the TariffCommission to make the final determination.116 The distinction is fundamental, as these functions are notinterchangeable. The Tariff Commission makes its determination only after a formal investigation process, with

such investigation initiated only if there is a positive preliminary determination by the DTI Secretary underSection 7 of the SMA.117 On the other hand, the DTI Secretary may impose definitive safeguard measure only ifthere is a positive final determination made by the Tariff Commission.118






















In contrast, a "recommendation" is a suggested remedial measure submitted by the Tariff Commission underSection 13 after making a positive final determination in accordance with Section 5. The Tariff Commission is notempowered to make a recommendation absent a positive final determination on its part .119 Under Section 13, theTariff Commission is required to recommend to the [DTI] Secretary an "appropriate definitive measure."120 TheTariff Commission "may also recommend other actions, including the initiation of international negotiations toaddress the underlying cause of the increase of imports of the products, to alleviate the injury or threat thereof tothe domestic industry and to facilitate positive adjustment to import competition."121

The recommendations of the Tariff Commission, as rendered under Section 13, are not obligatory on the DTISecretary. Nothing in the SMA mandates the DTI Secretary to adopt the recommendations made by the TariffCommission. In fact, the SMA requires that the DTI Secretary establish that the application of such safeguardmeasures is in the public interest, notwithstanding the Tariff Commission's recommendation on the appropriatesafeguard measure based on its positive final determination.122 The non-binding force of the Tariff Commission'srecommendations is congruent with the command of Section 28(2), Article VI of the 1987 Constitution that onlythe President may be empowered by the Congress to impose appropriate tariff rates, import/export quotas andother similar measures.123 It is the DTI Secretary, as alter ego of the President, who under the SMA may imposesuch safeguard measures subject to the limitations imposed therein. A contrary conclusion would in essenceunduly arrogate to the Tariff Commission the executive power to impose the appropriate tariff measures. That iswhy the SMA empowers the DTI Secretary to adopt safeguard measures other than those recommended by theTariff Commission.

Unlike the recommendations of the Tariff Commission, its determination has a different effect on the DTISecretary. Only on the basis of a positive final determination made by the Tariff Commission under Section 5can the DTI Secretary impose a general safeguard measure. Clearly, then the DTI Secretary is bound bythedetermination made by the Tariff Commission.

Some confusion may arise because the sixth paragraph of Section 13124 uses the variant word "determined" in adifferent context, as it contemplates "the appropriate general safeguard measure as determined by the Secretarywithin fifteen (15) days from receipt of the report." Quite plainly, the word "determined" in this context pertains tothe DTI Secretary's power of choice of the appropriate safeguard measure, as opposed to the TariffCommission's power to determine the existence of conditions necessary for the imposition of any safeguardmeasure. In relation to Section 5, such choice also relates to the mandate of the DTI Secretary to establish thatthe application of safeguard measures is in the public interest, also within the fifteen (15) day period. Nothing in

Section 13 contradicts the instruction in Section 5 that the DTI Secretary is allowed to impose the generalsafeguard measures only if there is a positive determination made by the Tariff Commission.

Unfortunately, Rule 13.2 of the Implementing Rules of the SMA is captioned "Final Determination by theSecretary." The assailed Decision and Philcemcor latch on this phraseology to imply that the factualdetermination rendered by the Tariff Commission under Section 5 may be amended or reversed by the DTISecretary. Of course, implementing rules should conform, not clash, with the law that they seek to implement, fora regulation which operates to create a rule out of harmony with the statute is a nullity.125 Yet imperfectdraftsmanship aside, nothing in Rule 13.2 implies that the DTI Secretary can set aside the determination madeby the Tariff Commission under the aegis of Section 5. This can be seen by examining the specific provisions ofRule 13.2, thus:

RULE 13.2. Final Determination by the Secretary

RULE 13.2.a. Within fifteen (15) calendar days from receipt of the Report of the Commission, theSecretary shall make a decision, taking into consideration the measures recommended by theCommission.

RULE 13.2.b. If the determination is affirmative, the Secretary shall issue, within two (2) calendardays after making his decision, a written instruction to the heads of the concerned governmentagencies to immediately implement the appropriate general safeguard measure as determinedby him. Provided, however, that in the case of non-agricultural products, the Secretary shall firstestablish that the imposition of the safeguard measure will be in the public interest.

RULE 13.2.c. Within two (2) calendar days after making his decision, the Secretary shall alsoorder its publication in two (2) newspapers of general circulation. He shall also furnish a copy ofhis Order to the petitioner and other interested parties, whether affirmative or negative.(Emphasis supplied.)






























Moreover, the DTI Secretary does not have the power to review the findings of the Tariff Commission for it is notsubordinate to the Department of Trade and Industry ("DTI"). It falls under the supervision, not of the DTI nor ofthe Department of Finance (as mistakenly asserted by Southern Cross),126 but of the National EconomicDevelopment Authority, an independent planning agency of the government of co-equal rank as theDTI.127 As the supervision and control of a Department Secretary is limited to the bureaus, offices, and agenciesunder him,128 the DTI Secretary generally cannot exercise review authority over actions of the Tariff Commission.Neither does the SMA specifically authorize the DTI Secretary to alter, amend or modify in any way thedetermination made by the Tariff Commission. The most that the DTI Secretary could do to express displeasureover the Tariff Commission's actions is to ignore its recommendation, but not its determination.

The word "determination" as used in Rule 13.2 of the Implementing Rules is dissonant with the same word asemployed in the SMA, which in the latter case is undeviatingly in reference to the determination made by theTariff Commission. Beyond the resulting confusion, however, the divergent use in Rule 13.2 is explicable as theRule textually pertains to the power of the DTI Secretary to review the recommendations of the TariffCommission, not the latter's determination. Indeed, an examination of the specific provisions show that there isno real conflict to reconcile. Rule 13.2 respects the logical order imposed by the SMA. The Rule does notremove the essential requirement under Section 5 that a positive final determination be made by the TariffCommission before a definitive safeguard measure may be imposed by the DTI Secretary.

The assailed Decision characterizes the findings of the Tariff Commission as merely recommendatory and pointsto the DTI Secretary as the authority who renders the final decision.129 At the same time, Philcemcor asserts that

the Tariff Commission's functions are merely investigatory, and as such do not include the power to decide oradjudicate. These contentions, viewed in the context of the fundamental requisite set forth by Section 5, areuntenable. They run counter to the statutory prescription that a positive final determination made by the TariffCommission should first be obtained before the definitive safeguard measures may be laid down.

Was it anomalous for Congress to have provided for a system whereby the Tariff Commission may preclude theDTI, an office of higher rank, from imposing a safeguard measure? Of course, this Court does not inquire intothe wisdom of the legislature but only charts the boundaries of powers and functions set in its enactments. Butthen, it is not difficult to see the internal logic of this statutory framework.

For one, as earlier stated, the DTI cannot exercise review powers over the Tariff Commission which is not itssubordinate office.

Moreover, the mechanism established by Congress establishes a measure of check and balance involving twodifferent governmental agencies with disparate specializations. The matter of safeguard measures is of suchnational importance that a decision either to impose or not to impose then could have ruinous effects oncompanies doing business in the Philippines. Thus, it is ideal to put in place a system which affords all duedeliberation and calls to fore various governmental agencies exercising their particular specializations.

Finally, if this arrangement drawn up by Congress makes it difficult to obtain a general safeguard measure, it isbecause such safeguard measure is the exception, rather than the rule. The Philippines is obliged to observe itsobligations under the GATT, under whose framework trade liberalization, not protectionism, is laid down. Verily,the GATT actually prescribes conditions before a member-country may impose a safeguard measure. Thepertinent portion of the GATT Agreement on Safeguards reads:

2. A Member may only apply a safeguard measure to a product only if that member has determined,pursuant to the provisions set out below, that such product is being imported into its territory in suchincreased quantities, absolute or relative to domestic production, and under such conditions as to causeor threaten to cause serious injury to the domestic industry that produces like or directly competitiveproducts.130

3. (a) A Member may apply a safeguard measure only following an investigation by the competentauthorities of that Member pursuant to procedures previously established and made public inconsonance with Article X of the GATT 1994. This investigation shall include reasonable public notice toall interested parties and public hearings or other appropriate means in which importers, exporters andother interested parties could present evidence and their views, including the opportunity to respond to

the presentations of other parties and to submit their views, inter alia, as to whether or not the applicationof a safeguard measure would be in the public interest. The competent authorities shall publish a reportsetting forth their findings and reasoned conclusions reached on all pertinent issues of fact and law.131



























The SMA was designed not to contradict the GATT, but to complement it. The two requisites laid down inSection 5 for a positive final determination are the same conditions provided under the GATT Agreement onSafeguards for the application of safeguard measures by a member country. Moreover, the investigatoryprocedure laid down by the SMA conforms to the procedure required by the GATT Agreement on Safeguards.Congress has chosen the Tariff Commission as the competent authority to conduct such investigation. SouthernCross stresses that applying the provision of the GATT Agreement on Safeguards, the Tariff Commission isclearly empowered to arrive at binding conclusions.132 We agree: binding on the DTI Secretary is the TariffCommission's determinations on whether a product is imported in increased quantities, absolute or relative todomestic production and whether any such increase is a substantial cause of serious injury or threat thereof to

the domestic industry.133

Satisfied as we are with the proper statutory paradigm within which the SMA should be analyzed, the flaws in thereasoning of the Court of Appeals and in the arguments of the respondents become apparent. To betterunderstand the dynamics of the procedure set up by the law leading to the imposition of definitive safeguardmeasures, a brief step-by-step recount thereof is in order.

1. After the initiation of an action involving a general safeguard measure,134 the DTI Secretary makes apreliminary determination whether the increased imports of the product under consideration substantially causeor threaten to substantially cause serious injury to the domestic industry,135 and whether the imposition of aprovisional measure is warranted under Section 8 of the SMA.136 If the preliminary determination is negative, it isimplied that no further action will be taken on the application.

2. When his preliminary determination is positive, the Secretary immediately transmits the records covering theapplication to the Tariff Commission for immediate formal investigation.137

3. The Tariff Commission conducts its formal investigation, keyed towards making a final determination. In theprocess, it holds public hearings, providing interested parties the opportunity to present evidence or otherwise beheard.138 To repeat, Section 5 enumerates what the Tariff Commission is tasked to determine: (a) whether aproduct is being imported into the country in increased quantities, irrespective of whether the product is absoluteor relative to the domestic production; and (b) whether the importation in increased quantities is such that itcauses serious injury or threat to the domestic industry.139 The findings of the Tariff Commission as to thesematters constitute the final determination, which may be either positive or negative.

4. Under Section 13 of the SMA, if the Tariff Commission makes a positive determination, the Tariff Commission"recommends to the [DTI] Secretary an appropriate definitive measure." The Tariff Commission "may alsorecommend other actions, including the initiation of international negotiations to address the underlying cause ofthe increase of imports of the products, to alleviate the injury or threat thereof to the domestic industry, and tofacilitate positive adjustment to import competition."140

5. If the Tariff Commission makes a positive final determination, the DTI Secretary is then to decide, withinfifteen (15) days from receipt of the report, as to what appropriate safeguard measures should he impose.

6. However, if the Tariff Commission makes a negative final determination, the DTI Secretary cannot impose anydefinitive safeguard measure. Under Section 13, he is instructed instead to return whatever cash bond was paidby the applicant upon the initiation of the action for safeguard measure.

The Effect of the Court's Decision

The Court of Appeals erred in remanding the case back to the DTI Secretary, with the instruction that the DTISecretary may impose a general safeguard measure even if there is no positive final determination from theTariff Commission. More crucially, the Court of Appeals could not have acquired jurisdiction over Philcemcor'spetition for certiorari in the first place, as Section 29 of the SMA properly vests jurisdiction on the CTA.Consequently, the assailed Decision is an absolute nullity, and we declare it as such.

What is the effect of the nullity of the assailed Decision on the 5 June 2003 Decision of the DTI Secretaryimposing the general safeguard measure? We have recognized that any initial judicial review of a DTI ruling in

connection with the imposition of a safeguard measure belongs to the CTA. At the same time, the Court alsorecognizes the fundamental principle that a null and void judgment cannot produce any legal effect. There issufficient cause to establish that the 5 June 2003 Decision of the DTI Secretary resulted from the assailed Courtof Appeals Decision, even if the latter had not yet become final. Conversely, it can be concluded that it wasbecause of the putative imprimatur of the Court of Appeals' Decision that the DTI Secretary issued his rulingimposing the safeguard measure. Since the 5 June 2003 Decision derives its legal effect from the







































void Decision of the Court of Appeals, this ruling of the DTI Secretary is consequently void. The spring cannotrise higher than the source.

The DTI Secretary himself acknowledged that he drew stimulating force from the appellate court's Decision for inhis own 5 June 2003 Decision, he declared:

From the aforementioned ruling, the CA has remanded the case to the DTI Secretary for a final decision.Thus, there is no legal impediment for the Secretary to decide on the application.141

The inescapable conclusion is that the DTI Secretary needed the assailed Decision of the Court of Appeals to justify his rendering a second Decision. He explicitly invoked the Court of Appeals' Decision as basis forrendering his 5 June 2003 ruling, and implicitly recognized that without such Decision he would not have theauthority to revoke his previous ruling and render a new, obverse ruling.

It is clear then that the 25 June 2003 Decision of the DTI Secretary is a product of the void Decision, it being anattempt to carry out such null judgment. There is therefore no choice but to declare it void as well, lest wesanction the perverse existence of a fruit from a non-existent tree. It does not even matter what the disposition ofthe 25 June 2003 Decision was, its nullity would be warranted even if the DTI Secretary chose to uphold hisearlier ruling denying the application for safeguard measures.

It is also an unfortunate spectacle to behold the DTI Secretary, seeking to enforce a judicial decision which is notyet final and actually pending review on appeal. Had it been a judge who attempted to enforce a decision that isnot yet final and executory, he or she would have readily been subjected to sanction by this Court. The DTISecretary may be beyond the ambit of administrative review by this Court, but we are capacitated to allocate theboundaries set by the law of the land and to exact fealty to the legal order, especially from the instrumentalitiesand officials of government.

WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is DECLARED NULL AND VOID and SET ASIDE. The Decision of the DTI Secretary dated 25 June 2003 is also DECLARED NULL AND VOID and SET ASIDE. No Costs.

SO ORDERED.

Puno, (Chairman), Quisumbing, Austria-Martinez, and Callejo, Sr., JJ., concur.







G.R. No. 176579 June 28, 2011

WILSON P. GAMBOA, Petitioner,vs.FINANCE SECRETARY MARGARITO B. TEVES, FINANCE UNDERSECRETARY JOHN P. SEVILLA, ANDCOMMISSIONER RICARDO ABCEDE OF THE PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT(PCGG) IN THEIR CAPACITIES AS CHAIR AND MEMBERS, RESPECTIVELY, OF THE PRIVATIZATIONCOUNCIL, CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC CO., LTD. IN HIS CAPACITY AS DIRECTOROF METRO PACIFIC ASSET HOLDINGS INC., CHAIRMAN MANUEL V. PANGILINAN OF PHILIPPINELONG DISTANCE TELEPHONE COMPANY (PLDT) IN HIS CAPACITY AS MANAGING DIRECTOR OFFIRST PACIFIC CO., LTD., PRESIDENT NAPOLEON L. NAZARENO OF PHILIPPINE LONG DISTANCETELEPHONE COMPANY, CHAIR FE BARIN OF THE SECURITIES EXCHANGE COMMISSION, andPRESIDENT FRANCIS LIM OF THE PHILIPPINE STOCK EXCHANGE, Respondents.PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioners-in-Intervention.

D E C I S I O N

CARPIO, J .:

The Case

This is an original petition for prohibition, injunction, declaratory relief and declaration of nullity of the sale ofshares of stock of Philippine Telecommunications Investment Corporation (PTIC) by the government of theRepublic of the Philippines to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific CompanyLimited (First Pacific).

The Antecedents

The facts, according to

1. petitioner Wilson P. Gamboa, a stockholder of Philippine Long Distance Telephone Company (PLDT), are as follows:1

2. On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT afranchise and the right to engage in telecommunications business.3. In 1969, General Telephone and Electronics Corporation (GTE), an Amer ican company and a

major PLDT stockh older, sold 26 percent of the outstanding common shares of PLDT to PTICPhilippine Telecommunications Investment Corporation.

4. In 1977, Prime Holdings, Inc. (PHI) was incorporated by several persons, including Roland Gapud andJose Campos, Jr. Subsequent ly,

5. PHI became the owner of 111,415 shares of stock of PTIC by virtue of three Deeds of Assignmentexecuted by PTIC stockholders Ramon Cojuangco and Luis Tirso Rivilla.

6. In 1986, the 111,415 shares of stock of PTIC held by PHI were sequestered by the PresidentialCommission on Good Government (PCGG).

7. The 111,415 PTIC shares, which represent about 46.125 percent of the outstanding capital stock of

PTIC, were later declared by this Court to be owned by the Republic of the Philippines.

2

8. In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm, acquired theremaining 54 percent of the outstanding capital stock of PTIC.

9. On 20 November 2006, the Inter-Agency Privatization Council (IPC) of the Philippine Governmentannounced that it would sell the 111,415 PTIC shares, or 46.125 percent of the outstanding capital stockof PTIC, through a public bidding to be conducted on 4 December 2006. Subsequently, the publicbidding was reset to 8 December 2006, and only two bidders, Parallax Venture Fund XXVII (Parallax)and Pan-Asia Presidio Capital, submitted their bids. Parallax won with a bid of P25.6 billion orUS$510 million.

Thereafter,

10. First Pacific announced that it would exercise its right of first refusal as a PTIC stockholder andbuy the 111,415 PTIC shares by matching the bid price of Parallax. However, First Pacific failed to do soby the 1 February 2007 deadline set by IPC and instead, yielded its right to PTIC itself which was thengiven by IPC until 2 March 2007 to buy the PTIC shares.

11. On 14 February 2007, First Pacific, through its subsidiary, MPAH, entered into a Conditional Saleand Purchase Agreement of the 111,415 PTIC shares, or 46.125 percent of the outstanding capital

http://www.lawphil.net/judjuris/juri2011/jun2011/gr_176579_2011.html#fnt1










stock of PTIC, with the Philippine Government for the price of P25,217,556,000 orUS$510,580,189. The sale was completed on 28 February 2007.

12. Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of PTICshares is actually an indirect sale of 12 million shares or about 6.3 percent of the outstanding commonshares of PLDT.With the sale, First Pacific’s common shareholdings in PLDT increased from 30.7percent to 37 percent, thereby increasing the common shareholdings of foreigners in PLDT toabout 81.47 percent.

13.14. This violates Section 11, Article XII of the 1987 Philippine Constitution which limits foreign

ownership of the capital of a public utility to not more than 40 percent.3 15. On the other hand, public respondents Finance Secretary Margarito B. Teves, Undersecretary John P.

Sevilla, and PCGG Commissioner Ricardo Abcede allege the following relevant facts:16. On 9 November 1967, PTIC was incorporated and had since engaged in the business of investment

holdings.17. PTIC held 26,034,263 PLDT common shares, or 13.847 percent of the total PLDT outstanding

common shares. PHI, on the other hand, was incorporated in 1977, and became the owner of 111,415PTIC shares or 46.125 percent of the outstanding capital stock of PTIC by virtue of three Deeds of Assignment executed by Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 PTIC sharesheld by PHI were sequestered by the PCGG, and subsequently declared by this Court as part of the ill-gotten wealth of former President Ferdinand Marcos. The sequestered PTIC shares were reconveyed tothe Republic of the Philippines in accordance with this Court’s decision4 which became final and

executory on 8 August 2006.

Summary:

a. GTE sold 26 percent of the outstanding common shares of PLDT to PTICb. Prime Holdings, Inc. (PHI) became the owner of 111,415 shares of stock of PTIC by virtue of

three Deeds of Assignment executed by PTIC stockholders Ramon Cojuangco and Luis Tirso Rivilla. c. First Pacific, a Bermuda-registered, Hong Kong-based investment firm, acquired the

remaining 54 percent of the outstanding capital stock of PTIC. d. 111,415 shares of stock (46.25% ) of PTIC held by PHI were sequestered by the (PCGG).e. First Pacific (foreign Corp) as a PTIC stockholder entered into a Conditional Sale and Purchase

Agreement of the 111,415 PTIC shares, or 46.125 percent of the outstanding capital stock of

PTIC, with the Philippine Government.f. Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent ofPTIC shares is actually an indirect sale of 12 million shares or about 6.3 percent of the outstandingcommon shares of PLDT.With the sale

g. First Pacific’s common shareholdings in PLDT increased from 30.7 percent to 37 percent,thereby increasing the common shareholdings of foreigners in PLDT to about 81.47 percent.

The Philippine Government decided to sell the 111,415 PTIC shares, which represent 6.4 percent of theoutstanding common shares of stock of PLDT, and designated the Inter-Agency Privatization Council (IPC),composed of the Department of Finance and the PCGG, as the disposing entity. An invitation to bid waspublished in seven different newspapers from 13 to 24 November 2006. On 20 November 2006, a pre-bidconference was held, and the original deadline for bidding scheduled on 4 December 2006 was reset to 8

December 2006. The extension was published in nine different newspapers.

During the 8 December 2006 bidding, Parallax Capital Management LP emerged as the highest bidder with a bidof P25,217,556,000. The government notified First Pacific, the majority owner of PTIC shares, of the biddingresults and gave First Pacific until 1 February 2007 to exercise its right of first refusal in accordance with PTIC’s Articles of Incorporation. First Pacific announced its intention to match Parallax’s bid.

On 31 January 2007, the House of Representatives (HR) Committee on Good Government conducted a publichearing on the particulars of the then impending sale of the 111,415 PTIC shares. Respondents Teves andSevilla were among those who attended the public hearing. The HR Committee Report No. 2270 concluded that:

(a) the auction of the government’s 111,415 PTIC shares bore due diligence, transparency and conformity with

existing legal procedures; and

(b) First Pacific’s intended acquisition of the government’s 111,415 PTIC shares resulting in FirstPacific’s 100% ownership of PTIC will not violate the 40 percent constitutional limit on foreign ownership











of a public utility since PTIC holds only 13.847 percent of the total outstanding common shares ofPLDT.5 On 28 February 2007, First Pacific completed the acquisition of the 111,415 shares of stock of PTIC.

Respondent Manuel V. Pangilinan admits the following facts:

(a) the IPC conducted a public bidding for the sale of 111,415 PTIC shares or 46 percent of the outstandingcapital stock of PTIC (the remaining 54 percent of PTIC shares was already owned by First Pacific and itsaffiliates);

(b) Parallax offered the highest bid amounting toP25,217,556,000;

(c) pursuant to the right of first refusal in favor of PTIC and its shareholders granted in PTIC’s Articles ofIncorporation, MPAH, a First Pacific affiliate, exercised its right of first refusal by matching the highest bidoffered for PTIC shares on 13 February 2007; and (d) on 28 February 2007, the sale was consummated whenMPAH paid IPC P25,217,556,000 and the government delivered the certificates for the 111,415 PTIC shares.Respondent Pangilinan denies the other allegations of facts of petitioner.

Petition

On 28 February 2007, petitioner filed the instant petition for prohibition, injunction, declaratory relief, and

declaration of nullity of sale of the 111,415 PTIC shares.

Petitioner claims, among others, that the sale of the 111,415 PTIC shares would result in an increase in FirstPacific’s common shareholdings in PLDT from 30.7 percent to 37 percent, and this, combined with JapaneseNTT DoCoMo’s common shareholdings in PLDT, would result to a total foreign common shareholdings in PLDTof 51.56 percent which is over the 40 percent constitutional limit.6 Petitioner asserts:

If and when the sale is completed, First Pacific’s equity in PLDT will go up from 30.7 percent to 37.0 percent ofits common – or voting- stockholdings, x x x. Hence, the consummation of the sale will put the two largestforeign investors in PLDT – First Pacific and Japan’s NTT DoCoMo, which is the world’s largest wirelesstelecommunications firm, owning 51.56 percent of PLDT common equity. x x x With the completion of the sale,data culled from the official website of the New York Stock Exchange (www.nyse.com) showed that those

foreign entities, which own at least five percent of common equity, will collectively own 81.47 percent of PLDT’s common equity. x x x

x x x as the annual disclosure reports, also referred to as Form 20-K reports x x x which PLDT submitted to theNew York Stock Exchange for the period 2003-2005, revealed that First Pacific and several other foreign entitiesbreached the constitutional limit of 40 percent ownership as early as 2003. x x x"7

Petitioner raises the following issues: (1) whether the consummation of the then impending sale of 111,415 PTICshares to First Pacific violates the constitutional limit on foreign ownership of a public utility; (2) whether publicrespondents committed grave abuse of discretion in allowing the sale of the 111,415 PTIC shares to FirstPacific; and (3) whether the sale of common shares to foreigners in excess of 40 percent of the entiresubscribed common capital stock violates the constitutional limit on foreign ownership of a public utility.8

On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a Motion for Leave to Intervene and Admit Attached Petition-in-Intervention. In the Resolution of 28 August 2007, the Court granted the motion and notedthe Petition-in-Intervention.

Petitioners-in-intervention "join petitioner Wilson Gamboa x x x in seeking, among others, to enjoin and/or nullifythe sale by respondents of the 111,415 PTIC shares to First Pacific or assignee." Petitioners-in-interventionclaim that, as PLDT subscribers, they have a "stake in the outcome of the controversy x x x where the PhilippineGovernment is completing the sale of government owned assets in [PLDT], unquestionably a public utility, inviolation of the nationality restrictions of the Philippine Constitution."

The Issue

This Court is not a trier of facts. Factual questions such as those raised by petitioner ,9 which indisputablydemand a thorough examination of the evidence of the parties, are generally beyond this Court’s jurisdiction. Adhering to this well-settled principle, the Court shall confine the resolution of the instant controversy solely onthe threshold and purely legal issue of







http://www.nyse.com/




















Issue

1. whether the term "capital" in Section 11, Article XII of the Constitution refers to the total common sharesonly or to the total outstanding capital stock (combined total of common and non-voting preferred shares)of PLDT, a public utility.

The Ruling of the Court

The petition is partly meritorious.

Petit ion fo r declaratory rel ief treated as pet i t ion for mandamu s

At the outset, petitioner is faced with a procedural barrier. Among the remedies petitioner seeks, only the petitionfor prohibition is within the original jurisdiction of this court, which however is not exclusive but is concurrent withthe Regional Trial Court and the Court of Appeals. The actions for declaratory relief ,10 injunction, and annulmentof sale are not embraced within the original jurisdiction of the Supreme Court. On this ground alone, the petitioncould have been dismissed outright.

While direct resort to this Court may be justified in a petition for prohibition,11 the Court shall nevertheless refrainfrom discussing the grounds in support of the petition for prohibition since on 28 February 2007, the questioned

sale was consummated when MPAH paid IPC P25,217,556,000 and the government delivered the certificatesfor the 111,415 PTIC shares.

However, since the threshold and purely legal issue on the definition of the term "capital" in Section 11, ArticleXII of the Constitution has far-reaching implications to the national economy, the Court treats the petition fordeclaratory relief as one for mandamus.12

In Salvacion v. Central Bank of the Philippines,13 the Court treated the petition for declaratory relief as one formandamus considering the grave injustice that would result in the interpretation of a banking law. In thatcase, which involved the crime of rape committed by a foreign tourist against a Filipino minor and the executionof the final judgment in the civil case for damages on the tourist’s dollar deposit with a local bank, the Courtdeclared Section 113 of Central Bank Circular No. 960, exempting foreign currency deposits from attachment,

garnishment or any other order or process of any court, inapplicable due to the peculiar circumstances of thecase. The Court held that "injustice would result especially to a citizen aggrieved by a foreign guest like accusedx x x" that would "negate Article 10 of the Civil Code which provides that ‘in case of doubt in the interpretationor application of laws, it is presumed that the lawmaking body intended right and justice to prevail.’" TheCourt therefore required respondents Central Bank of the Philippines, the local bank, and the accused to complywith the writ of execution issued in the civil case for damages and to release the dollar deposit of the accused tosatisfy the judgment.

In Alliance of Government Workers v. Minister of Labor ,14 the Court similarly brushed aside the proceduralinfirmity of the petition for declaratory relief and treated the same as one for mandamus. In Alliance, the issuewas whether the government unlawfully excluded petitioners, who were government employees, from theenjoyment of rights to which they were entitled under the law. Specifically, the question was: "Are the branches,

agencies, subdivisions, and instrumentalities of the Government, including government owned or controlledcorporations included among the four ‘employers’ under Presidential Decree No. 851 which are required to paytheir employees x x x a thirteenth (13th) month pay x x x ?" The Constitutional principle involved therein affectedall government employees, clearly justifying a relaxation of the technical rules of procedure, and certainlyrequiring the interpretation of the assailed presidential decree.

In short, it is well-settled that this Court may treat a petition for declaratory relief as one for mandamus if theissue involved has far-reaching implications. As this Court held in Salvacion:

The Court has no original and exclusive jurisdiction over a petition for declaratory relief. However, exceptionsto this rule have been recognized. Thus, where the petition has far-reaching implications and raisesquestions that should be resolved, it may be treated as one for mandamus.15 (Emphasis supplied)

In the present case, petitioner seeks primarily the interpretation of the term "capital" in Section 11, Article XII ofthe Constitution. He prays that this Court declare that the term "capital" refers to common shares only,and that such shares constitute "the sole basis in determining foreign equity in a public utility." Petitionerfurther asks this Court to declare any ruling inconsistent with such interpretation unconstitutional.



























The interpretation of the term "capital" in Section 11, Article XII of the Constitution has far-reachingimplications to the national economy. In fact, a resolution of this issue will determine whether Filipinos aremasters, or second class citizens, in their own country. What is at stake here is whether Filipinos or foreignerswill have effect ive co ntrol of the national economy. Indeed, if ever there is a legal issue that has far-reachingimplications to the entire nation, and to future generations of Filipinos, it is the threshhold legal issue presentedin this case.

The Court first encountered the issue on the definition of the term "capital" in Section 11, Article XII of theConstitution in the case of Fernandez v. Cojuangco, docketed as G.R. No. 157360.16 That case involved thesame public utility (PLDT) and substantially the same private respondents. Despite the importance and noveltyof the constitutional issue raised therein and despite the fact that the petition involved a purely legal question,the Court declined to resolve the case on the merits, and instead denied the same for disregarding the hierarchyof courts.17 There, petitioner Fernandez assailed on a pure question of law the Regiona l Trial Court’s Decision of21 February 2003 via a petition for review under Rule 45. The Court’s Resolution, denying the petition, becamefinal on 21 December 2004.

The instant petition therefore presents the Court with another opportunity to finally settle this purely legalissuewhich is of transcendental importance to the national economy and a fundamental requirement to a faithfuladherence to our Constitution. The Court must forthwith seize such opportunity, not only for the benefit of thelitigants, but more significantly for the benefit of the entire Filipino people, to ensure, in the words of theConstitution, "a self-reliant and independent national economy effectively controlled by Filipinos."18 Besides, in

the light of vague and confusing positions taken by government agencies on this purely legal issue, present andfuture foreign investors in this country deserve, as a matter of basic fairness, a categorical ruling from this Courton the extent of their participation in the capital of public utilities and other nationalized businesses.

Despite its far-reaching implications to the national economy, this purely legal issue has remained unresolved forover 75 years since the 1935 Constitution. There is no reason for this Court to evade this ever recurringfundamental issue and delay again defining the term "capital," which appears not only in Section 11, Article XIIof the Constitution, but also in Section 2, Article XII on co-production and joint venture agreements for thedevelopment of our natural resources,19 in Section 7, Article XII on ownership of private lands,20 in Section 10, Article XII on the reservation of certain investments to Filipino citizens,21 in Section 4(2), Article XIV on theownership of educational institutions,22 and in Section 11(2), Article XVI on the ownership of advertisingcompanies.23

Petit ioner has locus standi

There is no dispute that petitioner is a stockholder of PLDT. As such, he has the right to question thesubject sale, which he claims to violate the nationality requirement prescribed in Section 11, Article XII of theConstitution. If the sale indeed violates the Constitution, then there is a possibility that PLDT’s franchise could berevoked, a dire consequence directly affecting petitioner’s interest as a stockholder.

More importantly, there is no question that the instant petition raises matters of transcendental importance to thepublic. The fundamental and threshold legal issue in this case, involving the national economy and the economicwelfare of the Filipino people, far outweighs any perceived impediment in the legal personality of the petitioner tobring this action.

In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring a suit on matters of transcendentalimportance to the public, thus:

In Tañada v. Tuvera, the Court asserted that when the issue concerns a public right and the object ofmandamus is to obtain the enforcement of a public duty, the people are regarded as the real parties ininterest; and because it is sufficient that petitioner is a citizen and as such is interested in the executionof the laws, he need not show that he has any legal or special interest in the result of the action. In theaforesaid case, the petitioners sought to enforce their right to be informed on matters of public concern, a rightthen recognized in Section 6, Article IV of the 1973 Constitution, in connection with the rule that laws in order tobe valid and enforceable must be published in the Official Gazette or otherwise effectively promulgated. In rulingfor the petitioners’ legal standing, the Court declared that the right they sought to be enforced ‘is a public right

recognized by no less than the fundamental law of the land.’

Legaspi v. Civil Service Commission, while reiterating Tañada, further declared that ‘when a mandamusproceeding involves the assertion of a public right, the requirement of personal interest is satisfied by







































the mere fact that petitioner is a citizen and, therefore, part of the general ‘public’ which possesses theright.’

Further, in Albano v. Reyes, we said that while expenditure of public funds may not have been involved underthe questioned contract for the development, management and operation of the Manila International ContainerTerminal, ‘public interest [was] definitely involved considering the important role [of the subject contract]. . . in the economic development of the country and the magnitude of the financial considerationinvolved.’ We concluded that, as a consequence, the disclosure provision in the Constitution would constitutesufficient authority for upholding the petitioner’s standing. (Emphasis supplied)

Clearly, since the instant petition, brought by a citizen, involves matters of transcendental public importance, thepetitioner has the requisite locus standi .

Defini t ion o f the Term "Capital" in

Section 11, Article XII of th e 1987 Con stitu tion

Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the Filipinization ofpublic utilities, to wit:

Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility

shall be granted except to citizens of the Philippines or to corporations or associations organized underthe laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shallsuch franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years.Neither shall any such franchise or right be granted except under the condition that it shall be subject toamendment, alteration, or repeal by the Congress when the common good so requires. The State shallencourage equity participation in public utilities by the general public. The participation of foreign investors in thegoverning body of any public utility enterprise shall be limited to their proportionate share in its capital, and allthe executive and managing officers of such corporation or association must be citizens of the Philippines.(Emphasis supplied)

The above provision substantially reiterates Section 5, Article XIV of the 1973 Constitution, thus:

Section 5. No franchise, certificate, or any other form of authorization for the operation of a public utilityshall be granted except to citizens of the Philippines or to corporations or associations organized underthe laws of the Philippines at least sixty per centum of the capital of which is owned by such citizens,nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fiftyyears. Neither shall any such franchise or right be granted except under the condition that it shall be subject toamendment, alteration, or repeal by the National Assembly when the public interest so requires. The State shallencourage equity participation in public utilities by the general public. The participation of foreign investors in thegoverning body of any public utility enterprise shall be limited to their proportionate share in the capital thereof.(Emphasis supplied)

The foregoing provision in the 1973 Constitution reproduced Section 8, Article XIV of the 1935 Constitution, viz :

Section 8. No franchise, certificate, or any other form of authorization for the operation of a public utilityshall be granted except to citizens of the Philippines or to corporations or other entities organized underthe laws of the Philippines sixty per centum of the capital of which is owned by citizens of thePhilippines, nor shall such franchise, certificate, or authorization be exclusive in character or for a longer periodthan fifty years. No franchise or right shall be granted to any individual, firm, or corporation, except under thecondition that it shall be subject to amendment, alteration, or repeal by the Congress when the public interest sorequires. (Emphasis supplied)

Father Joaquin G. Bernas, S.J., a leading member of the 1986 Constitutional Commission, reminds us that theFilipinization provision in the 1987 Constitution is one of the products of the spirit of nationalism whichgripped the 1935 Constitutional Convention.25

The 1987 Constitution "provides for the Filipinization of public utilities by requiring that any form ofauthorization for the operation of public utilities should be granted only to ‘citizens of the Philippines orto corporations or associations organized under the laws of the Philippines at least sixty per centum ofwhose capital is owned by such citizens.’ The provision is [an express] recognition of the sensitive andvital position of public utilities both in the national economy and for national security."26 The evidentpurpose of the citizenship requirement is to prevent aliens from assuming control of public utilities, which may be











inimical to the national interest.27 This specific provision explicitly reserves to Filipino citizens control of publicutilities, pursuant to an overriding economic goal of the 1987 Constitution: to "conserve and develop ourpatrimony"28 and ensure "a self-reliant and independent national economy effectively control led by Filipinos."29

Any citizen or juridical entity desiring to operate a public utility must therefore meet the minimum nationalityrequirement prescribed in Section 11, Article XII of the Constitution. Hence, for a corporation to be grantedauthority to operate a public utility, at least 60 percent of its "capital" must be owned by Filipino citizens.

The crux of the controversy is the definition of the term "capital." Does the term "capital" in Section 11, ArticleXII of the Constitution refer to common shares or to the total outstanding capital stock (combined total ofcommon and non-voting preferred shares)?

Petitioner submits that the 40 percent foreign equity limitation in domestic public utilities refers only tocommon shares because such shares are entitled to vote and it is through voting that control over acorporation is exercised. Petitioner posits that the term "capital" in Section 11, Article XII of the Constitutionrefers to "the ownership of common capital stock subscribed and outstanding, which class of shares alone,under the corporate set-up of PLDT, can vote and elect members of the board of directors." It is undisputed thatPLDT’s non-voting preferred shares are held mostly by Filipino citizens.30 This arose from Presidential DecreeNo. 217,31 issued on 16 June 1973 by then President Ferdinand Marcos, requiring every applicant of a PLDTtelephone line to subscribe to non-voting preferred shares to pay for the investment cost of installing thetelephone line.32

PETITIONER ARGUMENT

Petitioners-in-intervention basically reiterate petitioner’s arguments and adopt petitioner’s definition of the term"capital."33 Petitioners-in-intervention allege that "the approximate foreign ownership of common capital stock ofPLDT x x x already amounts to at least 63.54% of the total outstanding common stock," which means thatforeigners exercise significant control over PLDT, patently violating the 40 percent foreign equity limitation inpublic utilities prescribed by the Constitution.

Petitioner submits that the 40 percent foreign equity limitation in domestic public utilities refers only tocommon shares because such shares are entitled to vote and it is through voting that control over a

corporation is exercised. Petitioner posits that the term "capital" in Section 11, Article XII of the Constitutionrefers to "the ownership of common capital stock subscribed and outstanding, which class of shares alone,under the corporate set-up of PLDT, can vote and elect members of the board of directors." It is undisputed thatPLDT’s non-voting preferred shares are held mostly by Filipino citizens.30 This arose from Presidential DecreeNo. 217,31 issued on 16 June 1973 by then President Ferdinand Marcos, requiring every applicant of a PLDTtelephone line to subscribe to non-voting preferred shares to pay for the investment cost of installing thetelephone line.32

RESPONDENT ARGUMENT

Respondents, on the other hand, do not offer any definition of the term "capital" in Section 11, Article XIIof the Constitution. More importantly, private respondents Nazareno and Pangilinan of PLDT do notdispute that more than 40 percent of the common shares of PLDT are held by foreigners.

In particular, respondent Nazareno’s Memorandum, consisting of 73 pages, harps mainly on the proceduralinfirmities of the petition and the supposed violation of the due process rights of the "affected foreign commonshareholders." Respondent Nazareno does not deny petitioner’s allegation of foreigners’ dominating thecommon shareholdings of PLDT. Nazareno stressed mainly that the petition "seeks to divest foreign commonshareholders purportedly exceeding 40% of the total common shareholdings in PLDT of their ownershipover their shares." Thus, "the foreign natural and juridical PLDT shareholders must be impleaded in this suit so

that they can be heard."34 Essentially, Nazareno invokes denial of due process on behalf of the foreign commonshareholders.

While Nazareno does not introduce any definition of the term "capital," he states that "among the factualassertions that need to be established to counter petitioner’s allegations is the uniform interpretation by















































government agencies (such as the SEC), institutions and corporations (such as the Philippine NationalOil Company-Energy Development Corporation or PNOC-EDC) of including both preferred shares andcommon shares in "controlling interest" in view of testing compliance with the 40% constitutionallimitation on foreign ownership in public utilities."35

Similarly, respondent Manuel V. Pangilinan does not define the term "capital" in Section 11, Article XII of theConstitution. Neither does he ref ute petitioner’s claim of foreigners holding more than 40 percent of PLDT’scommon shares. Instead, respondent Pangilinan focuses on the procedural flaws of the petition and the allegedviolation of the due process rights of foreigners. Respondent Pangilinan emphasizes in his Memorandum (1) theabsence of this Court’s jurisdiction over the petition; (2) petitioner’s lack of standing; (3) mootness of the petition;(4) non-availability of declaratory relief; and (5) the denial of due process rights. Moreover, respondentPangilinan alleges that the issue should be whether "owners of shares in PLDT as well as owners of shares incompanies holding shares in PLDT may be required to relinquish their shares in PLDT and in those companieswithout any law requiring them to surrender their shares and also without notice and trial."

Respondent Pangilinan further asserts that "Section 11, [Article XII of the Constitution] imposes nonationality requirement on the shareholders of the utility company as a condition for keeping theirshares in the utility company." According to him, "Section 11 does not authorize taking one person’s property(the shareholder’s stock in the utility company) on the basis of another party’s alleged failure to satisfy arequirement that is a condition only for that other party’s retention of another piece of property (the utilitycompany being at least 60% Filipino-owned to keep its franchise)."36

The OSG, representing public respondents Secretary Margarito Teves, Undersecretary John P. Sevilla,Commissioner Ricardo Abcede, and Chairman Fe Barin, is likewise silent on the definition of the term "capital."In its Memorandum37 dated 24 September 2007, the OSG also limits its discussion on the supposed proceduraldefects of the petition, i.e. lack of standing, lack of jurisdiction, non-inclusion of interested parties, and lack ofbasis for injunction. The OSG does not present any definition or interpretation of the term "capital" in Section 11, Article XII of the Constitution. The OSG contends that "the petition actually partakes of a collateral attack onPLDT’s fr anchise as a public utility," which in effect requires a "full-blown trial where all the parties in interest aregiven their day in court."38

Respondent Francisco Ed Lim, impleaded as President and Chief Executive Officer of the Philippine StockExchange (PSE), does not also define the term "capital" and seeks the dismissal of the petition on the following

grounds: (1) failure to state a cause of action against Lim; (2) the PSE allegedly implemented its rules andrequired all listed companies, including PLDT, to make proper and timely disclosures; and (3) the reliefs prayedfor in the petition would adversely impact the stock market.

In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez who claimed to be a stockholder of recordof PLDT, contended that the term "capital" in the 1987 Constitution refers to shares entitled to vote or thecommon shares. Fernandez explained thus:

The forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution refersto ownership of shares of stock entitled to vote, i.e., common shares, considering that it is throughvoting that control is being exercised. x x x

Obviously, the intent of the framers of the Constitution in imposing limitations and restrictions on fullynationalized and partially nationalized activities is for Filipino nationals to be always in control of the corporationundertaking said activities. Otherwise, if the Trial Court’s ruling upholding respondents’ arguments were to begiven credence, it would be possible for the ownership structure of a public utility corporation to be divided intoone percent (1%) common stocks and ninety-nine percent (99%) preferred stocks. Following the Trial Court’sruling adopting respondents’ arguments, the common shares can be owned entirely by foreigners thus creatingan absurd situation wherein foreigners, who are supposed to be minority shareholders, control the public utilitycorporation.

x x x x

HELD:

Thus, the 40% foreign ownership limitation should be interpreted to apply to both the beneficialownership and the controlling interest.

x x x x


















Clearly, therefore, the forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitutionrefers to ownership of shares of stock entitled to vote, i.e., common shares. Furthermore, ownership of record ofshares will not suffice but it must be shown that the legal and beneficial ownership rests in the hands of Filipinocitizens. Consequently, in the case of petitioner PLDT, since it is already admitted that the voting interests offoreigners which would gain entry to petitioner PLDT by the acquisition of SMART shares through theQuestioned Transactions is equivalent to 82.99%, and the nominee arrangements between the foreign principalsand the Filipino owners is likewise admitted, there is, therefore, a violation of Section 11, Article XII of theConstitution.

Parenthetically, the Opinions dated February 15, 1988 and April 14, 1987 cited by the Trial Court to support theproposition that the meaning of the word "capital" as used in Section 11, Article XII of the Constitution allegedlyrefers to the sum total of the shares subscribed and paid-in by the shareholder and it allegedly is immaterial howthe stock is classified, whether as common or preferred, cannot stand in the face of a clear legislative policy asstated in the FIA which took effect in 1991 or way after said opinions were rendered, and as clarified by theabove-quoted Amendments. In this regard, suffice it to state that as between the law and an opinion rendered byan administrative agency, the law indubitably prevails. Moreover, said Opinions are merely advisory and cannotprevail over the clear intent of the framers of the Constitution.

In the same vein, the SEC’s construction of Section 11, Article XII of the Constitution is at best merely advisoryfor it is the courts that finally determine what a law means.39

On the other hand, respondents therein, Antonio O. Cojuangco, Manuel V. Pangilinan, Carlos A. Arellano, HelenY. Dee, Magdangal B. Elma, Mariles Cacho-Romulo, Fr. Bienvenido F. Nebres, Ray C. Espinosa, Napoleon L.Nazareno, Albert F. Del Rosario, and Orlando B. Vea, argued that the term "capital" in Section 11, Article XII ofthe Constitution includes preferred shares since the Constitution does not distinguish among classes of stock,thus:

16. The Constitution applies its foreign ownership limitation on the corporation’s "capital," withoutdistinction as to classes of shares. x x x

In this connection, the Corporation Code – which was already in force at the time the present (1987) Constitutionwas drafted – defined outstanding capital stock as follows:

Section 137. Outstanding capital stock defined. – The term "outstanding capital stock", as used in this Code,means the total shares of stock issued under binding subscription agreements to subscribers or stockholders,whether or not fully or partially paid, except treasury shares.

Section 137 of the Corporation Code also does not distinguish between common and preferred shares, norexclude either class of shares, in determining the outstanding capital stock (the "capital") of a corporation.Consequently, petitioner’s suggestion to reckon PLDT’s foreign equity only on the basis of PLDT’soutstanding common shares is without legal basis. The language of the Constitution should be understoodin the sense it has in common use.

x x x x

17. But even assuming that resort to the proceedings of the Constitutional Commission is necessary, there isnothing in the Record of the Constitutional Commission (Vol. III) – which petitioner misleadingly cited in thePetition x x x – which supports petitioner’s view that only common shares should form the basis for computing apublic utility’s foreign equity.

x x x x

18. In addition, the SEC – the government agency primarily responsible for implementing the Corporation Code,and which also has the responsibility of ensuring compliance with the Constitution’s foreign equity restrictions asregards nationalized activities x x x – has categorically ruled that both common and preferred shares areproperly considered in determining outstanding capital stock and the nationality composition thereof .40

We agree with petitioner and petitioners-in-intervention. The term "capital" in Section 11, Article XII of theConstitution refers only to shares of stock entitled to vote in the election of directors, and thus in the presentcase only to common shares,41 and not to the total outstanding capital stock comprising both common and non-voting preferred shares.















The Corporation Code of the Philippines42 classifies shares as common or preferred, thus:

Sec. 6. Classification of shares. - The shares of stock of stock corporations may be divided into classes or seriesof shares, or both, any of which classes or series of shares may have such rights, privileges or restrictions asmay be stated in the articles of incorporation: Provided, That no share may be deprived of voting rightsexcept those classified and issued as "preferred" or "redeemable" shares, unless otherwise provided inthis Code: Provided, further, That there shall always be a class or series of shares which have complete votingrights. Any or all of the shares or series of shares may have a par value or have no par value as may beprovided for in the articles of incorporation: Provided, however, That banks, trust companies, insurancecompanies, public utilities, and building and loan associations shall not be permitted to issue no-par valueshares of stock.

Preferred shares of stock issued by any corporation may be given preference in the distribution of the assets ofthe corporation in case of liquidation and in the distribution of dividends, or such other preferences as may bestated in the articles of incorporation which are not violative of the provisions of this Code: Provided, Thatpreferred shares of stock may be issued only with a stated par value. The Board of Directors, where authorizedin the articles of incorporation, may fix the terms and conditions of preferred shares of stock or any seriesthereof: Provided, That such terms and conditions shall be effective upon the filing of a certificate thereof withthe Securities and Exchange Commission.

Shares of capital stock issued without par value shall be deemed fully paid and non-assessable and the holderof such shares shall not be liable to the corporation or to its creditors in respect thereto: Provided; That shareswithout par value may not be issued for a consideration less than the value of five (P5.00) pesos per share:Provided, further, That the entire consideration received by the corporation for its no-par value shares shall betreated as capital and shall not be available for distribution as dividends.

A corporation may, furthermore, classify its shares for the purpose of insuring compliance with constitutional orlegal requirements.

Except as otherwise provided in the articles of incorporation and stated in the certificate of stock, each shareshall be equal in all respects to every other share.

Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the holdersof such shares shall nevertheless be entitled to vote on the following matters:

1. Amendment of the articles of incorporation;

2. Adoption and amendment of by-laws;

3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporateproperty;

4. Incurring, creating or increasing bonded indebtedness;

5. Increase or decrease of capital stock;

6. Merger or consolidation of the corporation with another corporation or other corporations;

7. Investment of corporate funds in another corporation or business in accordance with this Code; and

8. Dissolution of the corporation.

Except as provided in the immediately preceding paragraph, the vote necessary to approve a particularcorporate act as provided in this Code shall be deemed to refer only to stocks with voting rights.

Indisputably, one of the rights of a stockholder is the right to participate in the control or management of thecorporation.43 This is exercised through his vote in the election of directors because it is the board of directorsthat controls or manages the corporation.44 In the absence of provisions in the articles of incorporation denyingvoting rights to preferred shares, preferred shares have the same voting rights as common shares. However,preferred shareholders are often excluded from any control, that is, deprived of the right to vote in the election ofdirectors and on other matters, on the theory that the preferred shareholders are merely investors in the















corporation for income in the same manner as bondholders.45 In fact, under the Corporation Code only preferredor redeemable shares can be deprived of the right to vote.46 Common shares cannot be deprived of the right tovote in any corporate meeting, and any provision in the articles of incorporation restricting the right of commonshareholders to vote is invalid.47

Considering that common shares have voting rights which translate to control, as opposed to preferredshares which usually have no voting rights, the term "capital" in Section 11, Article XII of theConstitution refers only to common shares. However, if the preferred shares also have the right to vote in theelection of directors, then the term "capital" shall include such preferred shares because the right to participate inthe control or management of the corporation is exercised through the right to vote in the election of directors. Inshort, the term "capital" in Section 11, Article XII of the Constitution refers only to shares of stock thatcan vote in the election of directors.

This interpretation is consistent with the intent of the framers of the Constitution to place in the hands of Filipinocitizens the control and management of public utilities. As revealed in the deliberations of the ConstitutionalCommission, "capital" refers to the voting stock or controlling interest of a corporation, to wit:

MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity;namely, 60-40 in Section 3, 60-40 in Section 9 and 2/3-1/3 in Section 15.

MR. VILLEGAS. That is right.

MR. NOLLEDO. In teaching law, we are always faced with this question: "Where do we base the equityrequirement, is it on the authorized capital stock, on the subscribed capital stock, or on the paid-up capital stockof a corporation"? Will the Committee please enlighten me on this?

MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP Law Center whoprovided us a draft. The phrase that is contained here which we adopted from the UP draft is "60 percentof voting stock."

MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared delinquent,unpaid capital stock shall be entitled to vote.


MR. NOLLEDO. Thank you.

With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percentequity invests in another corporation which is permitted by the Corporation Code, does the Committee adopt thegrandfather rule?

MR. VILLEGAS. Yes, that is the understanding of the Committee.

MR. NOLLEDO. Therefore, we need additional Filipino capital?

MR. VILLEGAS. Yes.48

x x x x

MR. AZCUNA. May I be clarified as to that portion that was accepted by the Committee.

MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase "voting stock or controllinginterest."

MR. AZCUNA. Hence, without the Davide amendment, the committee report would read: "corporations or

associations at least sixty percent of whose CAPITAL is owned by such citizens."

MR. VILLEGAS. Yes.



















MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the capital to be owned bycitizens.


MR. AZCUNA. But the control can be with the foreigners even if they are the minority. Let us say 40percent of the capital is owned by them, but it is the voting capital, whereas, the Filipinos own thenonvoting shares. So we can have a situation where the corporation is controlled by foreigners despitebeing the minority because they have the voting capital. That is the anomaly that would result here.

MR. BENGZON. No, the reason we eliminated the word "stock" as stated in the 1973 and 1935Constitutions is that according to Commissioner Rodrigo, there are associations that do not havestocks. That is why we say "CAPITAL."

MR. AZCUNA. We should not eliminate the phrase "controlling interest."

MR. BENGZON. In the case of stock corporations, it is assumed.49 (Emphasis supplied)

Thus, 60 percent of the "capital" assumes, or should result in, "controlling interest" in the corporation.Reinforcing this interpretation of the term "capital," as referring to controlling interest or shares entitled to vote, is

the definition of a "Philippine national" in the Foreign Investments Act of 1991,50

to wit:

SEC. 3. Definitions. - As used in this Act:

a. The term "Philippine national" shall mean a citizen of the Philippines; or a domestic partnership or associationwholly owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines ofwhich at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and heldby citizens of the Philippines; or a corporation organized abroad and registered as doing business in thePhilippines under the Corporation Code of which one hundred percent (100%) of the capital stock outstandingand entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement orseparation benefits, where the trustee is a Philippine national and at least sixty percent (60%) of the fund willaccrue to the benefit of Philippine nationals: Provided , That where a corporation and its non-Filipino stockholders

own stocks in a Securities and Exchange Commission (SEC) registered enterprise, at least sixty percent (60%)of the capital stock outstanding and entitled to vote of each of both corporations must be owned and held bycitizens of the Philippines and at least sixty percent (60%) of the members of the Board of Directors of each ofboth corporations must be citizens of the Philippines, in order that the corporation, shall be considered a"Philippine national." (Emphasis supplied)

In explaining the definition of a "Philippine national," the Implementing Rules and Regulations of the ForeignInvestments Act of 1991 provide:

b. "Philippine national" shall mean a citizen of the Philippines or a domestic partnership or association whollyowned by the citizens of the Philippines; or a corporation organized under the laws of the Philippines ofwhich at least sixty percent [60%] of the capital stock outstanding and entitled to vote is owned and held

by citizens of the Philippines; or a trustee of funds for pension or other employee retirement or separationbenefits, where the trustee is a Philippine national and at least sixty percent [60%] of the fund will accrue to thebenefit of the Philippine nationals; Provided, that where a corporation its non-Filipino stockholders own stocks ina Securities and Exchange Commission [SEC] registered enterprise, at least sixty percent [60%] of the capitalstock outstanding and entitled to vote of both corporations must be owned and held by citizens of the Philippinesand at least sixty percent [60%] of the members of the Board of Directors of each of both corporation must becitizens of the Philippines, in order that the corporation shall be considered a Philippine national. The control testshall be applied for this purpose.

Compliance with the required Filipino ownership of a corporation shall be determined on the basis ofoutstanding capital stock whether fully paid or not, but only such stocks which are generally entitled tovote are considered.

For stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title isnot enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled withappropriate voting rights is essential. Thus, stocks, the voting rights of which have been assigned ortransferred to aliens cannot be considered held by Philippine citizens or Philippine nationals.











Individuals or juridical entities not meeting the aforementioned qualifications are considered as non-Philippine nationals. (Emphasis supplied)

Mere legal title is insufficient to meet the 60 percent Filipino-owned "capital" required in the Constitution. Fullbeneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights,is required. The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in thehands of Filipino nationals in accordance with the constitutional mandate. Otherwise, the corporation is"considered as non-Philippine national[s]."

Under Section 10, Article XII of the Constitution, Congress may "reserve to citizens of the Philippines or tocorporations or associations at least sixty per centum of whose capital is owned by such citizens, or such higherpercentage as Congress may prescribe, certain areas of investments." Thus, in numerous laws Congress hasreserved certain areas of investments to Filipino citizens or to corporations at least sixty percent of the "capital"of which is owned by Filipino citizens. Some of these laws are: (1) Regulation of Award of Government Contractsor R.A. No. 5183; (2) Philippine Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro, Small andMedium Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping Development Act or R.A. No. 7471; (5)Domestic Shipping Development Act of 2004 or R.A. No. 9295; (6) Philippine Technology Transfer Act of 2009or R.A. No. 10055; and (7) Ship Mortgage Decree or P.D. No. 1521. Hence, the term "capital" in Section 11, Article XII of the Constitution is also used in the same context in numerous laws reserving certain areas ofinvestments to Filipino citizens.

To construe broadly the term "capital" as the total outstanding capital stock, including both common and non-voting preferred shares, grossly contravenes the intent and letter of the Constitution that the "State shall developa self-reliant and independent national economy effect ively contro l led by Filipinos." A broad definitionunjustifiably disregards who owns the all-important voting stock, which necessarily equates to control of thepublic utility.

We shall illustrate the glaring anomaly in giving a broad definition to the term "capital." Let us assume that acorporation has 100 common shares owned by foreigners and 1,000,000 non-voting preferred shares owned byFilipinos, with both classes of share having a par value of one peso (P1.00) per share. Under the broad definitionof the term "capital," such corporation would be considered compliant with the 40 percent constitutional limit onforeign equity of public utilities since the overwhelming majority, or more than 99.999 percent, of the totaloutstanding capital stock is Filipino owned. This is obviously absurd.

In the example given, only the foreigners holding the common shares have voting rights in the election ofdirectors, even if they hold only 100 shares. The foreigners, with a minuscule equity of less than 0.001 percent,exercise control over the public utility. On the other hand, the Filipinos, holding more than 99.999 percent of theequity, cannot vote in the election of directors and hence, have no control over the public utility. This starklycircumvents the intent of the framers of the Constitution, as well as the clear language of the Constitution, toplace the control of public utilities in the hands of Filipinos. It also renders illusory the State policy of anindependent national economy effect ively contro l led by Filipinos.

The example given is not theoretical but can be found in the real world, and in fact exists in the present case .

Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of directors. PLDT’s Articles of Incorporation expressly state that "the holders of Serial Preferred Stock shall not be entitled tovote at any meeting of the stockholders for the election of directors or for any other purpose or otherwiseparticipate in any action taken by the corporation or its stockholders, or to receive notice of any meeting ofstockholders."51

On the other hand, holders of common shares are granted the exclusive right to vote in the election of directors.PLDT’s Articles of Incorporation52 state that "each holder of Common Capital Stock shall have one vote inrespect of each share of such stock held by him on all matters voted upon by the stockholders, and the holdersof Common Capital Stock shall have the exclusive right to vote for the election of directors and for allother purposes."53

In short, only holders of common shares can vote in the election of directors, meaning only commonshareholders exercise control over PLDT. Conversely, holders of preferred shares, who have no voting rights inthe election of directors, do not have any control over PLDT. In fact, under PLDT’s Articles of Incorporation,holders of common shares have voting rights for all purposes, while holders of preferred shares have no votingright for any purpose whatsoever.














It must be stressed, and respondents do not dispute, that foreigners hold a majority of the common shares ofPLDT. In fact, based on PLDT’s 2010 General Information Sheet (GIS),54 which is a document required to besubmitted annually to the Securities and Exchange Commission,55 foreigners hold 120,046,690 common sharesof PLDT whereas Filipinos hold only 66,750,622 common shares.56 In other words, foreigners hold 64.27% of thetotal number of PLDT’s common shares, while Filipinos hold only 35.73%. Since holding a majority of thecommon shares equates to control, it is clear that foreigners exercise control over PLDT. Such amount of controlunmistakably exceeds the allowable 40 percent limit on foreign ownership of public utilities expressly mandatedin Section 11, Article XII of the Constitution.

Moreover, the Dividend Declarations of PLDT for 2009,57 as submitted to the SEC, shows that per share theSIP58 preferred shares earn a pittance in dividends compared to the common shares. PLDT declared dividendsfor the common shares at P70.00 per share, while the declared dividends for the preferred shares amounted to ameasly P1.00 per share.59 So the preferred shares not only cannot vote in the election of directors, they alsohave very little and obviously negligible dividend earning capacity compared to common shares.

As shown in PLDT’s 2010 GIS,60 as submitted to the SEC, the par value of PLDT common shares is P5.00 pershare, whereas the par value of preferred shares is P10.00 per share. In other words, preferred shares havetwice the par value of common shares but cannot elect directors and have only 1/70 of the dividends of commonshares. Moreover, 99.44% of the preferred shares are owned by Filipinos while foreigners own only a minuscule0.56% of the preferred shares.61 Worse, preferred shares constitute 77.85% of the authorized capital stock ofPLDT while common shares constitute only 22.15%.62 This undeniably shows that beneficial interest in PLDT is

not with the non-voting preferred shares but with the common shares, blatantly violating the constitutionalrequirement of 60 percent Filipino control and Filipino beneficial ownership in a public utility.

The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands ofFilipinos in accordance with the constitutional mandate. Full beneficial ownership of 60 percent of theoutstanding capital stock, coupled with 60 percent of the voting rights, is constitutionally required for the State’sgrant of authority to operate a public utility. The undisputed fact that the PLDT preferred shares, 99.44% ownedby Filipinos, are non-voting and earn only 1/70 of the dividends that PLDT common shares earn, grossly violatesthe constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership of a public utility.

In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of thedividends, of PLDT. This directly contravenes the express command in Section 11, Article XII of the

Constitution that "[n]o franchise, certificate, or any other form of authorization for the operation of a public utilityshall be granted except to x x x corporations x x x organized under the laws of the Philippines, at least sixty percentum of whose capital is owned by such citizens x x x."

To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercisesthe soleright to vote in the election of directors, and thus exercise control over PLDT; (2) Filipinos own only35.73% of PLDT’s common shares, constituting a minority of the voting stock, and thus do not exercise controlover PLDT; (3) preferred shares, 99.44% owned by Filipinos, have no voting rights; (4) preferred shares earnonly 1/70 of the dividends that common shares earn;63 (5) preferred shares have twice the par value of commonshares; and (6) preferred shares constitute 77.85% of the authorized capital stock of PLDT and common sharesonly 22.15%. This kind of ownership and control of a public utility is a mockery of the Constitution.

Incidentally, the fact that PLDT common shares with a par value of P5.00 have a current stock market valueofP2,328.00 per share,64 while PLDT preferred shares with a par value of P10.00 per share have a current stockmarket value ranging from only P10.92 to P11.06 per share,65 is a glaring confirmation by the market that controland beneficial ownership of PLDT rest with the common shares, not with the preferred shares.

Indisputably, construing the term "capital" in Section 11, Article XII of the Constitution to include both voting andnon-voting shares will result in the abject surrender of our telecommunications industry to foreigners, amountingto a clear abdication of the State’s constitutional duty to limit control of public utilities to Filipino citizens. Such aninterpretation certainly runs counter to the constitutional provision reserving certain areas of investment toFilipino citizens, such as the exploitation of natural resources as well as the ownership of land, educationalinstitutions and advertising businesses. The Court should never open to foreign control what the Constitution hasexpressly reserved to Filipinos for that would be a betrayal of the Constitution and of the national interest. The

Court must perform its solemn duty to defend and uphold the intent and letter of the Constitution to ensure, inthe words of the Constitution, "a self-reliant and independent national economy effectively controlled byFilipinos."


















































Section 11, Article XII of the Constitution, like other provisions of the Constitution expressly reserving toFilipinosspecif ic areas of investment, such as the development of natural resources and ownership ofland, educational institutions and advertising business, is self-executing . There is no need for legislationto implement these self-executing provisions of the Constitution. The rationale why these constitutionalprovisions are self-executing was explained in Manila Prince Hotel v. GSIS,66 thus:

x x x Hence, unless it is expressly provided that a legislative act is necessary to enforce a constitutionalmandate, the presumption now is that all provisions of the constitution are self-executing. If the constitutionalprovisions are treated as requiring legislation instead of self-executing, the legislature would have the power toignore and practically nullify the mandate of the fundamental law. This can be cataclysmic. That is why theprevailing view is, as it has always been, that —

. . . in case of doubt, the Constitution should be considered self-executing rather than non-self-executing. . .

.Unless the contrary is clearly intended, the provisions of the Constitution should be considered self-executing, as a contrary rule would give the legislature discretion to determine when, or whether, theyshall be effective. These provisions would be subordinated to the will of the lawmaking body, which could makethem entirely meaningless by simply refusing to pass the needed implementing statute. (Emphasis supplied)

In Manila Prince Hotel , even the Dissenting Opinion of then Associate Justice Reynato S. Puno, later ChiefJustice, agreed that constitutional provisions are presumed to be self-executing. Justice Puno stated:

Courts as a rule consider the provisions of the Constitution as self-executing, rather than as requiring futurelegislation for their enforcement. The reason is not difficult to discern. For if they are not treated as self-executing, the mandate of the fundamental law ratified by the sovereign people can be easily ignoredand nullified by Congress. Suffused with wisdom of the ages is the unyielding rule that legislativeactions may give breath to constitutional rights but congressional inaction should not suffocate them.

Thus, we have treated as self-executing the provisions in the Bill of Rights on arrests, searches and seizures,the rights of a person under custodial investigation, the rights of an accused, and the privilege against self-incrimination. It is recognized that legislation is unnecessary to enable courts to effectuate constitutionalprovisions guaranteeing the fundamental rights of life, liberty and the protection of property. The same treatmentis accorded to constitutional provisions forbidding the taking or damaging of property for public use without justcompensation. (Emphasis supplied)

Thus, in numerous cases,67 this Court, even in the absence of implementing legislation, applied directly theprovisions of the 1935, 1973 and 1987 Constitutions limiting land ownership to Filipinos. In Soriano v. OngHoo,68this Court ruled:

x x x As the Constitution is silent as to the effects or consequences of a sale by a citizen of his land to an alien,and as both the citizen and the alien have violated the law, none of them should have a recourse against theother, and it should only be the State that should be allowed to intervene and determine what is to be done withthe property subject of the violation. We have said that what the State should do or could do in such matters is amatter of public policy, entirely beyond the scope of judicial authority. (Dinglasan, et al. vs. Lee Bun Ting, et al.,6 G. R. No. L-5996, June 27, 1956.) While the legislature has not definitely decided what policy should befollowed in cases of violations against the constitutional prohibition, courts of justice cannot go beyondby declaring the disposition to be null and void as violative of the Constitution. x x x (Emphasis supplied)

To treat Section 11, Article XII of the Constitution as not self-executing would mean that since the 1935Constitution, or over the last 75 years, not one of the constitutional provisions expressly reserving specific areasof investments to corporations, at least 60 percent of the "capital" of which is owned by Filipinos, wasenforceable. In short, the framers of the 1935, 1973 and 1987 Constitutions miserably failed to effectivelyreserve to Filipinos specific areas of investment, like the operation by corporations of public utilities, theexploitation by corporations of mineral resources, the ownership by corporations of real estate, and theownership of educational institutions. All the legislatures that convened since 1935 also miserably failed to enactlegislations to implement these vital constitutional provisions that determine who will effectively control thenational economy, Filipinos or foreigners. This Court cannot allow such an absurd interpretation of theConstitution.

This Court has held that the SEC "has both regulatory and adjudicative functions."69 Under its regulatoryfunctions, the SEC can be compelled by mandamus to perform its statutory duty when it unlawfully neglects toperform the same. Under its adjudicative or quasi-judicial functions, the SEC can be also be compelled by



















mandamus to hear and decide a possible violation of any law it administers or enforces when it is mandated bylaw to investigate such violation.1awphi1

Under Section 17(4)70 of the Corporation Code, the SEC has the regulatory function to reject or disapprove the Articles of Incorporation of any corporation where "the required percentage of ownership of the capital stockto be owned by citizens of the Philippines has not been complied with as required by existing laws orthe Constitution." Thus, the SEC is the government agency tasked with the statutory duty to enforce thenationality requirement prescribed in Section 11, Article XII of the Constitution on the ownership of public utilities.This Court, in a petition for declaratory relief that is treated as a petition for mandamus as in the present case,can direct the SEC to perform its statutory duty under the law, a duty that the SEC has apparently unlawfullyneglected to do based on the 2010 GIS that respondent PLDT submitted to the SEC.

Under Section 5(m) of the Securities Regulation Code,71 the SEC is vested with the "power and function" to"suspend or revoke, after proper notice and hearing, the franchise or certificate of registration ofcorporations, partnerships or associations, upon any of the grounds provided by law." The SEC ismandated under Section 5(d) of the same Code with the "power and function" to "investigate x x x theactivities of persons to ensure compliance" with the laws and regulations that SEC administers or enforces.The GIS that all corporations are required to submit to SEC annually should put the SEC on guard againstviolations of the nationality requirement prescribed in the Constitution and existing laws. This Court can compelthe SEC, in a petition for declaratory relief that is treated as a petition for mandamus as in the present case, tohear and decide a possible violation of Section 11, Article XII of the Constitution in view of the ownership

structure of PLDT’s voting shares, as admitted by respondents and as stated in PLDT’s 2010 GIS that PLDTsubmitted to SEC.

WHEREFORE, we PARTLY GRANT the petition and rule that the term "capital" in Section 11, Article XII of the1987 Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in thepresent case only to common shares, and not to the total outstanding capital stock (common and non-votingpreferred shares). Respondent Chairperson of the Securities and Exchange Commission is DIRECTED to applythis definition of the term "capital" in determining the extent of allowable foreign ownership in respondentPhilippine Long Distance Telephone Company, and if there is a violation of Section 11, Article XII of theConstitution, to impose the appropriate sanctions under the law.

SO ORDERED.

ANTONIO T. CARPIO Associate Justice

WE CONCUR:

G.R. No. 176579 October 9, 2012











HEIRS OF WILSON P. GAMBOA,* Petitioners,vs.FINANCE SECRETARYMARGARITO B. TEVES, FINANCE UNDERSECRETARYJOHN P. SEVILLA, ANDCOMMISSIONER RICARDO ABCEDE OF THE PRESIDENTIAL COMMISSION ON GOODGOVERNMENT(PCGG) IN THEIR CAPACITIES AS CHAIR AND MEMBERS, RESPECTIVELY, OF THEPRIVATIZATION COUNCIL, CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC CO., LTD. IN HIS CAPACITYAS DIRECTOR OF METRO PACIFIC ASSET HOLDINGS INC., CHAIRMAN MANUEL V. PANGILINAN OFPHILIPPINE LONG DISTANCE TELEPHONE COMPANY (PLDT) IN HIS CAPACITY AS MANAGINGDIRECTOR OF FIRST PACIFIC CO., LTD., PRESIDENT NAPOLEON L. NAZARENO OF PHILIPPINE LONG

DISTANCE TELEPHONE COMPANY, CHAIR FE BARIN OF THE SECURITIES AND EXCHANGECOMMISSION, and PRESIDENT FRANCIS LIM OF THE PHILIPPINE STOCK EXCHANGE, Respondents.

PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioner-in-Intervention.

R E S O L U T I O N

CARPIO, J .:

This resolves the motions for reconsideration of the 28 June 2011 Decision filed by (1) the Philippine StockExchange's (PSE) President, 1 (2) Manuel V. Pangilinan (Pangilinan),2 (3) Napoleon L. Nazareno (Nazareno),3and ( 4) the Securities and Exchange Commission (SEC)4 (collectively, movants ).

The Office of the Solicitor General (OSG) initially filed a motion for reconsideration on behalfoftheSEC,5 assailing the 28 June 2011 Decision. However, it subsequently filed a Consolidated Comment on behalfof the State,6declaring expressly that it agrees with the Court's definition of the term "capital" in Section 11, Article XII of the Constitution. During the Oral Arguments on 26 June 2012, the OSG reiterated its positionconsistent with the Court's 28 June 2011 Decision.

We deny the motions for reconsideration.

I.

Far-reaching impl icat ions o f the legal issue just i fy

treatment of p et i t ion fo r declaratory rel ief as on e for mandamus.

As we emphatically stated in the 28 June 2011 Decision, the interpretation of the term "capital" in Section 11, Article XII of the Constitution has far-reaching implications to the national economy. In fact, a resolution of thisissue will determine whether Filipinos are masters, or second-class citizens, in their own country. What is atstake here is whether Filipinos or foreigners will have effect ive con trol of the Philippine national economy.Indeed, if ever there is a legal issue that has far-reaching implications to the entire nation, and to futuregenerations of Filipinos, it is the threshold legal issue presented in this case.

Contrary to Pangilinan’s narrow view, the serious economic consequences resulting in the interpretation of theterm "capital" in Section 11, Article XII of the Constitution undoubtedly demand an immediate adjudication of thisissue. Simply put, the far-reaching implications of this issue justify the treatment of the petition as one

for mandamus.7

In Luzon Stevedoring Corp. v. Anti-Dummy Board ,8 the Court deemed it wise and expedient to resolve the casealthough the petition for declaratory relief could be outrightly dismissed for being procedurally defective. There,appellant admittedly had already committed a breach of the Public Service Act in relation to the Anti-DummyLaw since it had been employing non- American aliens long before the decision in a prior similar case. However,the main issue in Luzon Stevedoring was of transcendental importance, involving the exercise or enjoyment ofrights, franchises, privileges, properties and businesses which only Filipinos and qualified corporations couldexercise or enjoy under the Constitution and the statutes. Moreover, the same issue could be raised by appellantin an appropriate action. Thus, in Luzon Stevedoring the Court deemed it necessary to finally dispose of thecase for the guidance of all concerned, despite the apparent procedural flaw in the petition.

The circumstances surrounding the present case, such as the supposed procedural defect of the petition and thepivotal legal issue involved, resemble those in Luzon Stevedoring. Consequently, in the interest of substantial justice and faithful adherence to the Constitution, we opted to resolve this case for the guidance of the publicand all concerned parties.

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II.

No change of any long -standing rule;

thus, no redef ini t ion of th e term "capital ."

Movants contend that the term "capital" in Section 11, Article XII of the Constitution has long been settled anddefined to refer to the total outstanding shares of stock, whether voting or non-voting. In fact, movants claim thatthe SEC, which is the administrative agency tasked to enforce the 60-40 ownership requirement in favor ofFilipino citizens in the Constitution and various statutes, has consistently adopted this particular definition in itsnumerous opinions. Movants point out that with the 28 June 2011 Decision, the Court in effect introduced a"new" definition or "midstream redefinition"9 of the term "capital" in Section 11, Article XII of the Constitution.

This is egregious error.

For more than 75 years since the 1935 Constitution, the Court has not interpreted or defined the term "capital"found in various economic provisions of the 1935, 1973 and 1987 Constitutions. There has never been a judicialprecedent interpreting the term "capital" in the 1935, 1973 and 1987 Constitutions, until now. Hence, it ispatently wrong and utterly baseless to claim that the Court in defining the term "capital" in its 28 June 2011Decision modified, reversed, or set aside the purported long-standing definition of the term "capital," whichsupposedly refers to the total outstanding shares of stock, whether voting or non-voting. To repeat, until thepresent case there has never been a Court ruling categorically defining the term "capital" found in the variouseconomic provisions of the 1935, 1973 and 1987 Philippine Constitutions.

The opinions of the SEC, as well as of the Department of Justice (DOJ), on the definition of the term "capital" asreferring to both voting and non-voting shares (combined total of common and preferred shares) are, in the firstplace, conflicting and inconsistent. There is no basis whatsoever to the claim that the SEC and the DOJ haveconsistently and uniformly adopted a definition of the term "capital" contrary to the definition that this Courtadopted in its 28 June 2011 Decision.

In DOJ Opinion No. 130, s. 1985,10 dated 7 October 1985, the scope of the term "capital" in Section 9, ArticleXIV of the 1973 Constitution was raised, that is, whether the term "capital" includes "both preferred and commonstocks." The issue was raised in relation to a stock-swap transaction between a Filipino and a Japanesecorporation, both stockholders of a domestic corporation that owned lands in the Philippines. Then Minister ofJustice Estelito P. Mendoza ruled that the resulting ownership structure of the corporation wouldbeunconstitutional because 60% of the voting stock would be owned by Japanese while Filipinos would ownonly 40% of the voting stock, although when the non-voting stock is added, Filipinos would own 60% of thecombined voting and non-voting stock. This ownership structure is remarkably similar to the currentownership structure of PLDT. Minister Mendoza ruled:

x x x x

Thus, the Filipino group still owns sixty (60%) of the entire subscribed capital stock (common and preferred)while the Japanese investors control sixty percent (60%) of the common (voting) shares.

It is your position that x x x since Section 9, Article XIV of the Constitution uses the word "capital,"

which is construed "to include both preferred and common shares" and "that where the law does notdistinguish, the courts shall not distinguish."

x x x x

In light of the foregoing jurisprudence, it is my opinion that the stock-swap transaction in question may notbe constitutionally upheld. While it may be ordinary corporate practice to classify corporate shares intocommon voting shares and preferred non-voting shares, any arrangement which attempts to defeat theconstitutional purpose should be eschewed. Thus, the resultant equity arrangement which would placeownership of 60%11 of the common (voting) shares in the Japanese group, while retaining 60% of thetotal percentage of common and preferred shares in Filipino hands would amount to circumvention ofthe principle of control by Philippine stockholders that is implicit in the 60% Philippine nationality

requirement in the Constitution. (Emphasis supplied)

In short, Minister Mendoza categorically rejected the theory that the term "capital" in Section 9, Article XIV ofthe 1973 Constitution includes "both preferred and common stocks" treated as the same class of sharesregardless of differences in voting rights and privileges. Minister Mendoza stressed that the 60-40 ownershiprequirement in favor of Filipino citizens in the Constitution is not complied with unless the corporation "satisfies














the criterion of beneficial ownership" and that in applying the same "the primordial consideration is situsof control."

On the other hand, in Opinion No. 23-10 dated 18 August 2010, addressed to Castillo Laman Tan Pantaleon &San Jose, then SEC General Counsel Vernette G. Umali-Paco applied the Voting Control Test, that is, usingonly the voting stock to determine whether a corporation is a Philippine national. The Opinion states:

Applying the foregoing, particularly the Control Test, MLRC is deemed as a Philippine national because: (1)sixty percent (60%) of its outstanding capital stock ent i t led to vote is owned by a Philippine national, theTrustee; and (2) at least sixty percent (60%) of the ERF will accrue to the benefit of Philippine nationals. Stillpursuant to the Control Test, MLRC’s investment in 60% of BFDC’s outstanding capital stock ent i t led tovote shall be deemed as of Philippine nationality, thereby qualifying BFDC to own private land.

Further, under, and for purposes of, the FIA, MLRC and BFDC are both Philippine nationals, considering that:(1) sixty percent (60%) of their respective outstanding capital stock ent i t led to vote is owned by a Philippinenational (i.e., by the Trustee, in the case of MLRC; and by MLRC, in the case of BFDC); and (2) at least 60% oftheir respective board of directors are Filipino citizens. (Boldfacing and italicization supplied)

Clearly, these DOJ and SEC opinions are compatible with the Court’s interpretation of the 60-40 ownershiprequirement in favor of Filipino citizens mandated by the Constitution for certain economic activities. At the sametime, these opinions highlight the conflicting, contradictory, and inconsistent positions taken by the DOJ and theSEC on the definition of the term "capital" found in the economic provisions of the Constitution.

The opinions issued by SEC legal officers do not have the force and effect of SEC rules and regulationsbecause only the SEC en banc can adopt rules and regulations. As expressly provided in Section 4.6 of theSecurities Regulation Code,12 the SEC cannot delegate to any of its individual Commissioner or staff the powerto adopt any rule or regulation. Further, under Section 5.1 of the same Code, it is the SEC as a collegial

body , and not any of its legal officers, that is empowered to issue opin ions and approve rules andregulations. Thus:

4.6. The Commission may, for purposes of efficiency, delegate any of its functions to any department or office ofthe Commission, an individual Commissioner or staff member of the Commission exceptits review or appellateauthority and its power to adopt, alter and supplement any rule or regulation.

The Commission may review upon its own initiative or upon the petition of any interested party any action of anydepartment or office, individual Commissioner, or staff member of the Commission.

SEC. 5. Powers and Functions of the Commission.- 5.1. The Commission shall act with transparency and shallhave the powers and functions provided by this Code, Presidential Decree No. 902-A, the Corporation Code, theInvestment Houses Law, the Financing Company Act and other existing laws. Pursuant thereto the Commissionshall have, among others, the following powers and functions:

x x x x

(g) Prepare, approve, amend or repeal rules, regulations and orders, and issue opin ions and provideguidance on and supervise compliance with such rules, regulations and orders;

x x x x (Emphasis supplied)

Thus, the act of the individual Commissioners or legal officers of the SEC in issuing opinions that have the effectof SEC rules or regulations is ultra vires. Under Sections 4.6 and 5.1(g) of the Code, only the SEC en banc can"issue opinions" that have the force and effect of rules or regulations. Section 4.6 of the Code bars the SEC enbanc from delegating to any individual Commissioner or staff the power to adopt rules or regulations. In short,any opinion of individual Commissioners or SEC legal officers does not constitute a rule or regulation ofthe SEC.

The SEC admits during the Oral Arguments that only the SEC en banc , and not any of its individualcommissioners or legal staff, is empowered to issue opinions which have the same binding effect as SEC rulesand regulations, thus:

JUSTICE CARPIO:







So, under the law, it is the Commission En Banc that can issue an

SEC Opinion, correct?

COMMISSIONER GAITE:13

That’s correct, Your Honor.

JUSTICE CARPIO:

Can the Commission En Banc delegate this function to an SEC officer?

COMMISSIONER GAITE:

Yes, Your Honor, we have delegated it to the General Counsel.

JUSTICE CARPIO:

It can be delegated. What cannot be delegated by the Commission En Banc to a commissioneror an individual employee of the Commission?

COMMISSIONER GAITE:

Novel opinions that [have] to be decided by the En Banc...

JUSTICE CARPIO:

What cannot be delegated, among others, is the power to adopt or amend rules and regulations,correct?

COMMISSIONER GAITE:

That’s correct, Your Honor.

JUSTICE CARPIO:

So, you combine the two (2), the SEC officer, if delegated that power, can issue an opinionbut that opinion does not constitute a rule or regulation, correct?

COMMISSIONER GAITE:

Correct, Your Honor.

JUSTICE CARPIO:

So, all of these opinions that you mentioned they are not rules and regulations, correct?

COMMISSIONER GAITE:

They are not rules and regulations.

JUSTICE CARPIO:

If they are not rules and regulations, they apply only to that particular situation and will not

constitute a precedent, correct?

COMMISSIONER GAITE:

Yes, Your Honor .14 (Emphasis supplied)











Significantly, the SEC en banc , which is the collegial body statutorily empowered to issue rules and opinions onbehalf of the SEC, has adopted even the Grandfather Rule in determining compliance with the 60-40 ownershiprequirement in favor of Filipino citizens mandated by the Constitution for certain economic activities. Thisprevailing SEC ruling, which the SEC correctly adopted to thwart any circumvention of the required Filipino"ownership and control," is laid down in the 25 March 2010 SEC en banc ruling in Redmont ConsolidatedMines, Corp. v. McArthur Mining, Inc., et al.,15 to wit:

The avowed purpose of the Constitution is to place in the hands of Filipinos the exploitation of our naturalresources. Necessarily, therefore, the Rule interpreting the constitutional provision should not diminishthat right through the legal fiction of corporate ownership and control. But the constitutional provision, asinterpreted and practiced via the 1967 SEC Rules, has favored foreigners contrary to the command of theConstitution. Hence, the Grandfather Rule must be appl ied to accurately d etermine th e actual

part ic ipat ion, both direct and indirect, of foreigners in a co rporat ion engaged in a nat ional ized act iv i ty or

business .

Compliance with the constitutional limitation(s) on engaging in nationalized activities must be determined byascertaining if 60% of the investing corporation’s outstanding capital stock is owned by "Filipino citizens", or asinterpreted, by natural or individual Filipino citizens. If such investing corporation is in turn owned to some extentby another investing corporation, the same process must be observed. One must not stop until the citizenshipsof the individual or natural stockholders of layer after layer of investing corporations have been established, thevery essence of the Grandfather Rule.

Lastly, it was the intent of the framers of the 1987 Constitution to adopt the Grandfather Rule. In one ofthe discussions on what is now Article XII of the present Constitution, the framers made the following exchange:

MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity;namely, 60-40 in Section 3, 60-40 in Section 9, and 2/3-1/3 in Section 15.


MR. NOLLEDO. In teaching law, we are always faced with the question: ‘Where do we base the equityrequirement, is it on the authorized capital stock, on the subscribed capital stock, or on the paid-up capital stockof a corporation’? Will the Committee please enlighten me on this?

MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP Law Center whoprovided us a draft. The phrase that is contained here which we adopted from the UP draft is ‘60 percent ofvoting stock.’



MR. NOLLEDO. Thank you. With respect to an investment by one corporation in another corporation, say, a

corporation with 60-40 percent equity invests in another corporation which is permitted by the Corporation Code,does the Committee adopt the grandfather rule?



MR. VILLEGAS. Yes. (Boldfacing and underscoring supplied; italicization in the original)

This SEC en banc ruling conforms to our 28 June 2011 Decision that the 60-40 ownership requirement in favorof Filipino citizens in the Constitution to engage in certain economic activities applies not only to voting control ofthe corporation, but also to the beneficial ownership of the corporation. Thus, in our 28 June 2011 Decision

we stated:

Mere legal title is insufficient to meet the 60 percent Filipinoowned "capital" required in the Constitution. Fullbeneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of thevoting rights, is required. The legal and beneficial ownership of 60 percent of the outstanding capital stock







must rest in the hands of Filipino nationals in accordance with the constitutional mandate. Otherwise, thecorporation is "considered as non-Philippine national[s]." (Emphasis supplied)

Both the Voting Control Test and the Beneficial Ownership Test must be applied to determine whether acorporation is a "Philippine national."

The interpretation by legal officers of the SEC of the term "capital," embodied in various opinions whichrespondents relied upon, is merely preliminary and an opinion only of such officers. To repeat, any such opiniondoes not constitute an SEC rule or regulation. In fact, many of these opinions contain a disclaimer whichexpressly states: "x x x the foregoing opinion is based solely on facts disclosed in your query and relevant onlyto the particular issue raised therein and shall not be used in the nature of a standing rule binding upon theCommission in other cases whether of similar or dissimilar circumstances."16 Thus, the opinions clearlymake a caveat that they do not constitute binding precedents on any one, not even on the SEC itself.

Likewise, the opinions of the SEC en banc , as well as of the DOJ, interpreting the law are neither conclusive norcontrolling and thus, do not bind the Court. It is hornbook doctrine that any interpretation of the law thatadministrative or quasi-judicial agencies make is only preliminary, never conclusive on the Court. The power tomake a final interpretation of the law, in this case the term "capital" in Section 11, Article XII of the 1987Constitution, lies with this Court, not with any other government entity.

In his motion for reconsideration, the PSE President cites the cases of National TelecommunicationsCommission v. Court of Appeal s17 and Philippine Long Distance Telephone Company v. NationalTelecommunications Commission18 in arguing that the Court has already defined the term "capital" in Section 11, Article XII of the 1987 Constitution.19

The PSE President is grossly mistaken. In both cases of National Telecommunications v. Court of Appeal s20 andPhilippine Long Distance Telephone Company v. National Telecommunications Commission,21 theCourt did not define the term "capital" as found in Section 11, Article XII of the 1987 Constitution. In fact, thesetwo cases never mentioned, discussed or cited Section 11, Article XII of the Constitution or any of itseconomic provisions, and thus cannot serve as precedent in the interpretation of Section 11, Article XIIof the Constitution. These two cases dealt solely with the determination of the correct regulatory fees underSection 40(e) and (f) of the Public Service Act, to wit:

(e) For annual reimbursement of the expenses incurred by the Commission in the supervision of other publicservices and/or in the regulation or fixing of their rates, twenty centavos for each one hundred pesos or fractionthereof, of the capital stock subscribed or paid, or if no shares have been issued, of the capital invested, or ofthe property and equipment whichever is higher.

(f) For the issue or increase of capital stock, twenty centavos for each one hundred pesos or fraction thereof, ofthe increased capital. (Emphasis supplied)

The Court’s interpretation in these two cases of the terms "capital stock subscribed or paid," "capital stock" and"capital" does not pertain to, and cannot control, the definition of the term "capital" as used in Section 11, ArticleXII of the Constitution, or any of the economic provisions of the Constitution where the term "capital" is found.

The definition of the term "capital" found in the Constitution must not be taken out of context. A careful reading ofthese two cases reveals that the terms "capital stock subscribed or paid," "capital stock" and "capital" weredefined solely to determine the basis for computing the supervision and regulation fees under Section 40(e) and(f) of the Public Service Act.

III.

Fi l ip inizat ion o f Pub l ic Uti l i t ies

The Preamble of the 1987 Constitution, as the prologue of the supreme law of the land, embodies the ideals thatthe Constitution intends to achieve.22 The Preamble reads:

We, the sovereign Filipino people, imploring the aid of Almighty God, in order to build a just and humane society,

and establish a Government that shall embody our ideals and aspirations, promote the common good, conserveand develop our patrimony, and secure to ourselves and our posterity, the blessings of independence anddemocracy under the rule of law and a regime of truth, justice, freedom, love, equality, and peace, do ordain andpromulgate this Constitution. (Emphasis supplied)































Consistent with these ideals, Section 19, Article II of the 1987 Constitution declares as State policy thedevelopment of a national economy "effect ively control led " by Filipinos:

Section 19. The State shall develop a self-reliant and independent national economy effect ively control led by

Fi l ipinos .

Fortifying the State policy of a Filipino-controlled economy, the Constitution decrees:

Section 10. The Congress shall, upon recommendation of the economic and planning agency, when the nationalinterest dictates, reserve to citizens of the Philippines or to corporations or associations at least sixty percentum of whose capital is owned by such citizens, or such higher percentage as Congress may prescribe,certain areas of investments. The Congress shall enact measures that will encourage the formation andoperation of enterprises whose capital is wholly owned by Filipinos.

In the grant of rights, privileges, and concessions covering the national economy and patrimony, the State shallgive preference to qualified Filipinos.

The State shall regulate and exercise authority over foreign investments within its national jurisdiction and inaccordance with its national goals and priorities.23

Under Section 10, Article XII of the 1987 Constitution, Congress may "reserve to citizens of the Philippines or tocorporations or associations at least sixty per centum of whose capital is owned by such citizens, or such higherpercentage as Congress may prescribe, certain areas of investments." Thus, in numerous laws Congress hasreserved certain areas of investments to Filipino citizens or to corporations at least sixty percent of the "capital"of which is owned by Filipino citizens. Some of these laws are: (1) Regulation of Award of Government Contractsor R.A. No. 5183; (2) Philippine Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro, Small andMedium Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping Development Act or R.A. No. 7471; (5)Domestic Shipping Development Act of 2004 or R.A. No. 9295; (6) Philippine Technology Transfer Act of 2009or R.A. No. 10055; and (7) Ship Mortgage Decree or P.D. No. 1521.

With respect to public utilities, the 1987 Constitution specifically ordains:

Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utilityshall be granted except to citizens of the Philippines or to corporations or associations organized underthe laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shallsuch franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years.Neither shall any such franchise or right be granted except under the condition that it shall be subject toamendment, alteration, or repeal by the Congress when the common good so requires. The State shallencourage equity participation in public utilities by the general public. The participation of foreign investors in thegoverning body of any public utility enterprise shall be limited to their proportionate share in its capital, and allthe executive and managing officers of such corporation or association must be citizens of the Philippines.(Emphasis supplied)

This provision, which mandates the Filipinization of public utilities, requires that any form of authorization for the

operation of public utilities shall be granted only to "citizens of the Philippines or to corporations or associationsorganized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens.""The provision is [an express] recognition of the sensitive and vital position of public utilities both in thenational economy and for national security."24

The 1987 Constitution reserves the ownership and operation of public utilities exclusively to (1) Filipino citizens,or (2) corporations or associations at least 60 percent of whose "capital" is owned by Filipino citizens. Hence, inthe case of individuals, only Filipino citizens can validly own and operate a public utility. In the case ofcorporations or associations, at least 60 percent of their "capital" must be owned by Filipino citizens. In otherwords, under Section 11, Article XII of the 1987 Constitution, to own and operate a public utility acorporation’s capital must at least be 60 percent owned by Phil ippine nat ionals .

IV.Def ini t ion of " Phi l ippine National"











Pursuant to the express mandate of Section 11, Article XII of the 1987 Constitution, Congress enacted Republic Act No. 7042 or the Foreign Investments Act of 1991 (FIA), as amended, which defined a "Philippine national"as follows:

SEC. 3. Definitions. - As used in this Act:

a. The term "Philippine national" shall mean a citizen of the Philippines; or a domestic partnership or associationwholly owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines ofwhich at least sixty percent (60%) of the capital stock outstanding and ent i t led to vote is owned and heldby citizens of the Philippines; or a corporation organized abroad and registered as doing business in thePhilippines under the Corporation Code of which one hundred percent (100%) of the capital stock outstandingand entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement orseparation benefits, where the trustee is a Philippine national and at least sixty percent (60%) of the fund willaccrue to the benefit of Philippine nationals: Provided , That where a corporation and its non-Filipino stockholdersown stocks in a Securities and Exchange Commission (SEC) registered enterprise, at least sixty percent (60%)of the capital stock outstanding and entitled to vote of each of both corporations must be owned and held bycitizens of the Philippines and at least sixty percent (60%) of the members of the Board of Directors of each ofboth corporations must be citizens of the Philippines, in order that the corporation, shall be considered a"Philippine national." (Boldfacing, italicization and underscoring supplied)

Thus, the FIA clearly and unequivocally defines a "Philippine national" as a Philippine citizen, or a domesticcorporation at least "60% of the capital stock outstanding and ent i t led to v ote " is owned by Philippinecitizens.

The definition of a "Philippine national" in the FIA reiterated the meaning of such term as provided in itspredecessor statute, Executive Order No. 226 or the Omnibus Investments Code of 1987 ,25 which was issued bythen President Corazon C. Aquino. Article 15 of this Code states:

Article 15. "Philippine national" shall mean a citizen of the Philippines or a diplomatic partnership or associationwholly-owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines ofwhich at least sixty per cent (60%) of the capital stock outstanding and ent i t led to vote is owned andheld by citizens of the Philippines; or a trustee of funds for pension or other employee retirement orseparation benefits, where the trustee is a Philippine national and at least sixty per cent (60%) of the fund willaccrue to the benefit of Philippine nationals: Provided, That where a corporation and its non-Filipino stockholdersown stock in a registered enterprise, at least sixty per cent (60%) of the capital stock outstanding and entitled tovote of both corporations must be owned and held by the citizens of the Philippines and at least sixty per cent(60%) of the members of the Board of Directors of both corporations must be citizens of the Philippines in orderthat the corporation shall be considered a Philippine national. (Boldfacing, italicization and underscoringsupplied)

Under Article 48(3)26 of the Omnibus Investments Code of 1987, "no corporation x x x which is not a ‘Philippinenational’ x x x shall do business

x x x in the Philippines x x x without first securing from the Board of Investments a written certificate to the effectthat such business or economic activity x x x would not conflict with the Constitution or laws of thePhilippines."27Thus, a "non-Philippine national" cannot own and operate a reserved economic activity like apublic utility. This means, of course, that only a "Philippine national" can own and operate a public utility.

In turn, the definition of a "Philippine national" under Article 15 of the Omnibus Investments Code of 1987 was areiteration of the meaning of such term as provided in Article 14 of the Omnibus Investments Code of 1981,28 towit:

Article 14. "Philippine national" shall mean a citizen of the Philippines; or a domestic partnership or associationwholly owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines ofwhich at least sixty per cent (60%) of the capital stock outstanding and ent i t led to vote is owned andheld by citizens of the Philippines; or a trustee of funds for pension or other employee retirement orseparation benefits, where the trustee is a Philippine national and at least sixty per cent (60%) of the fund willaccrue to the benefit of Philippine nationals: Provided, That where a corporation and its non-Filipino stockholdersown stock in a registered enterprise, at least sixty per cent (60%) of the capital stock outstanding and entitled tovote of both corporations must be owned and held by the citizens of the Philippines and at least sixty per cent(60%) of the members of the Board of Directors of both corporations must be citizens of the Philippines in order




















Section 8 of the FIA enumerates the investment areas "reserved to Philippine nationals." Foreign InvestmentNegative List A consists of "areas of act iv i t ies reserved to Phi l ippine n at ionals by m andate of the

Const i tut ion and sp ecif ic laws ," where foreign equity participation in any enterprise shall be limited tothe maximum percentage expressly prescribed by the Constitution and other specific laws. In short, toown and operate a public utility in the Philippines one must be a "Philippine national" as defined in theFIA. The FIA is abundant notice to foreign investors to what extent they can invest in public utilities inthe Philippines.

To repeat, among the areas of investment covered by the Foreign Investment Negative List A is the ownershipand operation of public utilities, which the Constitution expressly reserves to Filipino citizens and to corporationsat least 60% owned by Filipino citizens. In other words, Negative List A of the FIA reserves the ownershipand operation of public utilities only to "Philippine nationals," defined in Section 3(a) of the FIA as "(1) acitizen of the Philippines; x x x or (3) a corporation organized under the laws of the Philippines of which atleast sixty percent (60%) of the capital stock outstanding and ent i t led to vote is owned and held bycitizens of the Philippines; or (4) a corporation organized abroad and registered as doing business in thePhilippines under the Corporation Code of which one hundred percent (100%) of the capital stock outstandingand entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement orseparation benefits, where the trustee is a Philippine national and at least sixty percent (60%) of the fund willaccrue to the benefit of Philippine nationals."

Clearly, from the effectivity of the Investment Incentives Act of 1967 to the adoption of the Omnibus Investments

Code of 1981, to the enactment of the Omnibus Investments Code of 1987, and to the passage of the presentForeign Investments Act of 1991, or for more than four decades, the statutory definition of the term"Philippine national" has been uniform and consistent: it means a Filipino citizen, or a domesticcorporation at least 60% of the vot ing stock is owned by Filipinos. Likewise, these same statutes haveuniformly and consistently required that only "Philippine nationals" could own and operate publicutilities in the Philippines. The following exchange during the Oral Arguments is revealing:

JUSTICE CARPIO:

Counsel, I have some questions. You are aware of the Foreign Investments Act of 1991, x x x? And the FIA of 1991 took effect in 1991, correct? That’s over twenty (20) years ago, correct?

COMMISSIONER GAITE:


JUSTICE CARPIO:

And Section 8 of the Foreign Investments Act of 1991 states that []only Philippine nationals canown and operate public utilities[], correct?

COMMISSIONER GAITE:

Yes, Your Honor.

JUSTICE CARPIO:

And the same Foreign Investments Act of 1991 defines a "Philippine national" either as a citizenof the Philippines, or if it is a corporation at least sixty percent (60%) of the voting stock is ownedby citizens of the Philippines, correct?

COMMISSIONER GAITE:


JUSTICE CARPIO:

And, you are also aware that under the predecessor law of the Foreign Investments Act of 1991,the Omnibus Investments Act of 1987, the same provisions apply: x x x only Philippine nationalscan own and operate a public utility and the Philippine national, if it is a corporation, x x x sixty



percent (60%) of the capital stock of that corporation must be owned by citizens of thePhilippines, correct?

COMMISSIONER GAITE:


JUSTICE CARPIO:

And even prior to the Omnibus Investments Act of 1987, under the Omnibus Investments Act of1981, the same rules apply: x x x only a Philippine national can own and operate a public utilityand a Philippine national, if it is a corporation, sixty percent (60%) of its x x x voting stock, mustbe owned by citizens of the Philippines, correct?

COMMISSIONER GAITE:


JUSTICE CARPIO:

And even prior to that, under [the]1967 Investments Incentives Act and the Foreign Company Actof 1968, the same rules applied, correct?

COMMISSIONER GAITE:


JUSTICE CARPIO:

So, for the last four (4) decades, x x x, the law has been very consistent – only a Philippinenational can own and operate a public utility, and a Philippine national, if it is acorporation, x x x at least sixty percent (60%) of the voting stock must be owned bycitizens of the Philippines, correct?

COMMISSIONER GAITE:

Correct, Your Honor .33 (Emphasis supplied)

Government agencies like the SEC cannot simply ignore Sections 3(a) and 8 of the FIA which categoricallyprescribe that certain economic activities, like the ownership and operation of public utilities, are reserved tocorporations "at least sixty percent (60%) of the capital stock outstanding and ent i t led to vote is owned andheld by citizens of the Philippines." Foreign Investment Negative List A refers to "activities reserved to Philippinenationals by mandate of the Constitution and specific laws." The FIA is the basic statute regulating foreign

investments in the Philippines. Government agencies tasked with regulating or monitoring foreigninvestments, as well as counsels of foreign investors, should start with the FIA in determining to what extent aparticular foreign investment is allowed in the Philippines. Foreign investors and their counsels who ignore theFIA do so at their own peril. Foreign investors and their counsels who rely on opinions of SEC legal officers thatobviously contradict the FIA do so also at their own peril.

Occasional opinions of SEC legal officers that obviously contradict the FIA should immediately raise a red flag.There are already numerous opinions of SEC legal officers that cite the definition of a "Philippine national" inSection 3(a) of the FIA in determining whether a particular corporation is qualified to own and operate anationalized or partially nationalized business in the Philippines. This shows that SEC legal officers are not onlyaware of, but also rely on and invoke, the provisions of the FIA in ascertaining the eligibility of a corporation toengage in partially nationalized industries. The following are some of such opinions:

1. Opinion of 23 March 1993, addressed to Mr. Francis F. How;

2. Opinion of 14 April 1993, addressed to Director Angeles T. Wong of the Philippine OverseasEmployment Administration;







3. Opinion of 23 November 1993, addressed to Messrs. Dominador Almeda and Renato S. Calma;

4. Opinion of 7 December 1993, addressed to Roco Bunag Kapunan Migallos & Jardeleza;

5. SEC Opinion No. 49-04, addressed to Romulo Mabanta Buenaventura Sayoc & De Los Angeles;

6. SEC-OGC Opinion No. 17-07, addressed to Mr. Reynaldo G. David; and

7. SEC-OGC Opinion No. 03-08, addressed to Attys. Ruby Rose J. Yusi and Rudyard S. Arbolado.

The SEC legal officers’ occasional but blatant disregard of the definition of the term "Philippine national" in theFIA signifies their lack of integrity and competence in resolving issues on the 60-40 ownership requirement infavor of Filipino citizens in Section 11, Article XII of the Constitution.

The PSE President argues that the term "Philippine national" defined in the FIA should be limited and interpretedto refer to corporations seeking to avail of tax and fiscal incentives under investment incentives laws and cannotbe equated with the term "capital" in Section 11, Article XII of the 1987 Constitution. Pangilinan similarlycontends that the FIA and its predecessor statutes do not apply to "companies which have not registered andobtained special incentives under the schemes established by those laws."

Both are desperately grasping at straws. The FIA does not grant tax or fiscal incentives to any enterprise. Taxand fiscal incentives to investments are granted separately under the Omnibus Investments Code of 1987, notunder the FIA. In fact, the FIA expressly repealed Articles 44 to 56 of Book II of the Omnibus Investments Codeof 1987, which articles previously regulated foreign investments in nationalized or partially nationalizedindustries.

The FIA is the applicable law regulating foreign investments in nationalized or partially nationalized industries.There is nothing in the FIA, or even in the Omnibus Investments Code of 1987 or its predecessor statutes, thatstates, expressly or impliedly, that the FIA or its predecessor statutes do not apply to enterprises not availing oftax and fiscal incentives under the Code. The FIA and its predecessor statutes apply to investments in alldomestic enterprises, whether or not such enterprises enjoy tax and fiscal incentives under the OmnibusInvestments Code of 1987 or its predecessor statutes. The reason is quite obvious – mere non-availment of

tax and fiscal incentives by a non-Philippine national cannot exempt it from Section 11, Article XII of theConstitution regulating foreign investments in public utilities. In fact, the Board of Investments’ Primer onInvestment Policies in the Philippines,34 which is given out to foreign investors, provides:

PART III. FOREIGN INVESTMENTS WITHOUT INCENTIVES

Investors who do not seek incentives and/or whose chosen activities do not qualify for incentives, (i.e., theactivity is not listed in the IPP, and they are not exporting at least 70% of their production) may go ahead andmake the investments without seeking incentives. They only have to be guided by the Foreign InvestmentsNegative List (FINL).

The FINL clearly defines investment areas requiring at least 60% Filipino ownership. All other areas outside of

this list are fully open to foreign investors. (Emphasis supplied)

V.

Right to elect directors, coupled with benef ic ial own ership,

translates to effect ive con trol .

The 28 June 2011 Decision declares that the 60 percent Filipino ownership required by the Constitution toengage in certain economic activities applies not only to voting control of the corporation, but also to thebeneficial ownership of the corporation. To repeat, we held:

Mere legal title is insufficient to meet the 60 percent Filipino-owned "capital" required in the Constitution. Fullbeneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the

voting rights, is required. The legal and beneficial ownership of 60 percent of the outstanding capital stockmust rest in the hands of Filipino nationals in accordance with the constitutional mandate. Otherwise, thecorporation is "considered as non-Philippine national[s]." (Emphasis supplied)







This is consistent with Section 3 of the FIA which provides that where 100% of the capital stock is held by "atrustee of funds for pension or other employee retirement or separation benefits," the trustee is a Philippinenational if "at least sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals." Likewise,Section 1(b) of the Implementing Rules of the FIA provides that "for stocks to be deemed owned and held byPhilippine citizens or Philippine nationals, mere legal title is not enough to meet the required Filipino equity. Fullbeneficial ownership of the stocks, coupled with appropriate voting rights, is essential."

Since the constitutional requirement of at least 60 percent Filipino ownership applies not only to voting control ofthe corporation but also to the beneficial ownership of the corporation, it is therefore imperative that suchrequirement apply uniformly and across the board to all classes of shares, regardless of nomenclature andcategory, comprising the capital of a corporation. Under the Corporation Code, capital stock35 consists of allclasses of shares issued to stockholders, that is, common shares as well as preferred shares, which may havedifferent rights, privileges or restrictions as stated in the articles of incorporation.36

The Corporation Code allows denial of the right to vote to preferred and redeemable shares, but disallows denialof the right to vote in specific corporate matters. Thus, common shares have the right to vote in the election ofdirectors, while preferred shares may be denied such right. Nonetheless, preferred shares, even if denied theright to vote in the election of directors, are entitled to vote on the following corporate matters: (1) amendment ofarticles of incorporation; (2) increase and decrease of capital stock; (3) incurring, creating or increasing bondedindebtedness; (4) sale, lease, mortgage or other disposition of substantially all corporate assets; (5) investmentof funds in another business or corporation or for a purpose other than the primary purpose for which the

corporation was organized; (6) adoption, amendment and repeal of by-laws; (7) merger and consolidation; and(8) dissolution of corporation.37

Since a specific class of shares may have rights and privileges or restrictions different from the rest of the sharesin a corporation, the 60-40 ownership requirement in favor of Filipino citizens in Section 11, Article XII of theConstitution must apply not only to shares with voting rights but also to shares without voting rights. Preferredshares, denied the right to vote in the election of directors, are anyway still entitled to vote on the eight specificcorporate matters mentioned above. Thus, if a corporation, engaged in a partially nationalized industry,issues a mixture of common and preferred non-voting shares, at least 60 percent of the common sharesand at least 60 percent of the preferred non-voting shares must be owned by Filipinos. Of course, if acorporation issues only a single class of shares, at least 60 percent of such shares must necessarily be ownedby Filipinos. In short, the 60-40 ownership requirement in favor of Filipino citizens must apply separately

to each class of shares, whether common, preferred non-voting, preferred voting or any other class ofshares. This uniform application of the 60-40 ownership requirement in favor of Filipino citizens clearly breatheslife to the constitutional command that the ownership and operation of public utilities shall be reservedexclusively to corporations at least 60 percent of whose capital is Filipino-owned. Applying uniformly the 60-40ownership requirement in favor of Filipino citizens to each class of shares, regardless of differences in votingrights, privileges and restrictions, guarantees effective Filipino control of public utilities, as mandated by theConstitution.

Moreover, such uniform application to each class of shares insures that the "controlling interest" in public utilitiesalways lies in the hands of Filipino citizens. This addresses and extinguishes Pangilinan’s worry that foreigners,owning most of the non-voting shares, will exercise greater control over fundamental corporate matters requiringtwo-thirds or majority vote of all shareholders.

VI.

Intent of th e framers of the Const i tut ion

While Justice Velasco quoted in his Dissenting Opinion38 a portion of the deliberations of the ConstitutionalCommission to support his claim that the term "capital" refers to the total outstanding shares of stock, whethervoting or non-voting, the following excerpts of the deliberations reveal otherwise. It is clear from the followingexchange that the term "capital" refers to controlling interest of a corporation, thus:

MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity;namely, 60-40 in Section 3, 60-40 in Section 9 and 2/3-1/3 in Section 15.


MR. NOLLEDO. In teaching law, we are always faced with this question: "Where do we base the equityrequirement, is it on the authorized capital stock, on the subscribed capital stock, or on the paid-up capital stockof a corporation"? Will the Committee please enlighten me on this?


















MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP Law Center whoprovided us a draft. The phrase that is contained here which we adopted from the UP draft is "60 percentof voting stock."



MR. NOLLEDO. Thank you.

With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percentequity invests in another corporation which is permitted by the Corporation Code, does the Committee adopt thegrandfather rule?



MR. VILLEGAS. Yes.39

x x x x

MR. AZCUNA. May I be clarified as to that portion that was accepted by the Committee.

MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase "voting stock or controllinginterest."

MR. AZCUNA. Hence, without the Davide amendment, the committee report would read: "corporations orassociations at least sixty percent of whose CAPITAL is owned by such citizens."

MR. VILLEGAS. Yes.

MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the capital to be owned bycitizens.


MR. AZCUNA. But the control can be with the foreigners even if they are the minority. Let us say 40percent of the capital is owned by them, but it is the voting capital, whereas, the Filipinos own thenonvoting shares. So we can have a situation where the corporation is controlled by foreigners despitebeing the minority because they have the voting capital. That is the anomaly that would result here.

MR. BENGZON. No, the reason we eliminated the word "stock" as stated in the 1973 and 1935Constitutions is that according to Commissioner Rodrigo, there are associations that do not havestocks. That is why we say "CAPITAL."

MR. AZCUNA. We should not eliminate the phrase "controlling interest."

MR. BENGZON. In the case of stock corporations, it is assumed.40 (Boldfacing and underscoring supplied)

Thus, 60 percent of the "capital" assumes, or should result in, a "controlling interest" in the corporation.

The use of the term "capital" was intended to replace the word "stock" because associations without stocks canoperate public utilities as long as they meet the 60-40 ownership requirement in favor of Filipino citizens

prescribed in Section 11, Article XII of the Constitution. However, this did not change the intent of the framers ofthe Constitution to reserve exclusively to Philippine nationals the "controlling interest" in public utilities.

During the drafting of the 1935 Constitution, economic protectionism was "the battle-cry of the nationalists in theConvention."41 The same battle-cry resulted in the nationalization of the public utilities.42 This is also the same



















intent of the framers of the 1987 Constitution who adopted the exact formulation embodied in the 1935 and 1973Constitutions on foreign equity limitations in partially nationalized industries.

The OSG, in its own behalf and as counsel for the State,43 agrees fully with the Court’s interpretation of the term"capital." In its Consolidated Comment, the OSG explains that the deletion of the phrase "controlling interest"and replacement of the word "stock" with the term "capital" were intended specifically to extend the scope of theentities qualified to operate public utilities to include associations without stocks. The framers’ omission of thephrase "controlling interest" did not mean the inclusion of all shares of stock, whether voting or non-voting. TheOSG reiterated essentially the Court’s declaration that the Constitution reserved exclusively to Philippine

nationals the ownership and operation of public utilities consistent with the State’s policy to "develop a self -reliant and independent national economy effect ively con trol led by Fi l ipinos ."

As we held in our 28 June 2011 Decision, to construe broadly the term "capital" as the total outstanding capitalstock, treated as a single class regardless of the actual classification of shares, grossly contravenes the intentand letter of the Constitution that the "State shall develop a self-reliant and independent nationaleconomyeffect ively co ntrol led by Filipinos." We illustrated the glaring anomaly which would result in definingthe term "capital" as the total outstanding capital stock of a corporation, treated as a single class of sharesregardless of the actual classification of shares, to wit:

Let us assume that a corporation has 100 common shares owned by foreigners and 1,000,000 non-votingpreferred shares owned by Filipinos, with both classes of share having a par value of one peso (P 1.00) pershare. Under the broad definition of the term "capital," such corporation would be considered compliant with the40 percent constitutional limit on foreign equity of public utilities since the overwhelming majority, or more than99.999 percent, of the total outstanding capital stock is Filipino owned. This is obviously absurd.

In the example given, only the foreigners holding the common shares have voting rights in the election ofdirectors, even if they hold only 100 shares. The foreigners, with a minuscule equity of less than 0.001 percent,exercise control over the public utility. On the other hand, the Filipinos, holding more than 99.999 percent of theequity, cannot vote in the election of directors and hence, have no control over the public utility. This starklycircumvents the intent of the framers of the Constitution, as well as the clear language of the Constitution, toplace the control of public utilities in the hands of Filipinos. x x x

Further, even if foreigners who own more than forty percent of the voting shares elect an all-Filipino board ofdirectors, this situation does not guarantee Filipino control and does not in any way cure the violation of theConstitution. The independence of the Filipino board members so elected by such foreign shareholders is highlydoubtful. As the OSG pointed out, quoting Justice George Sutherland’s words in Humphrey’s Executor v.US,44 "x x x it is quite evident that one who holds his office only during the pleasure of another cannot bedepended upon to maintain an attitude of independence against the latter’s will." Allowing foreign shareholdersto elect a controlling majority of the board, even if all the directors are Filipinos, grossly circumvents the letterand intent of the Constitution and defeats the very purpose of our nationalization laws.

VII.

Last sentence of Sect ion 11, Art ic le XII of th e Const i tut ion

The last sentence of Section 11, Article XII of the 1987 Constitution reads:

The participation of foreign investors in the governing body of any public utility enterprise shall be limited to theirproportionate share in its capital, and all the executive and managing officers of such corporation or associationmust be citizens of the Philippines.

During the Oral Arguments, the OSG emphasized that there was never a question on the intent of the framers ofthe Constitution to limit foreign ownership, and assure majority Filipino ownership and control of public utilities.The OSG argued, "while the delegates disagreed as to the percentage threshold to adopt, x x x the recordsshow they clearly understood that Filipino control of the public utility corporation can only be and is obtained onlythrough the election of a majority of the members of the board."

Indeed, the only point of contention during the deliberations of the Constitutional Commission on 23 August 1986was the extent of majority Filipino control of public utilities. This is evident from the following exchange:

THE PRESIDENT. Commissioner Jamir is recognized.











MR. JAMIR. Madam President, my proposed amendment on lines 20 and 21 is to delete the phrase "two thirdsof whose voting stock or controlling interest," and instead substitute the words "SIXTY PERCENT OF WHOSECAPITAL" so that the sentence will read: "No franchise, certificate, or any other form of authorization for theoperation of a public utility shall be granted except to citizens of the Philippines or to corporations or associationsorganized under the laws of the Philippines at least SIXTY PERCENT OF WHOSE CAPITAL is owned by suchcitizens."

x x x x

THE PRESIDENT: Will Commissioner Jamir first explain?

MR. JAMIR. Yes, in this Article on National Economy and Patrimony, there were two previous sections in whichwe fixed the Filipino equity to 60 percent as against 40 percent for foreigners. It is only in this Section 15 withrespect to public utilities that the committee proposal was increased to two-thirds. I think it would be better toharmonize this provision by providing that even in the case of public utilities, the minimum equity for Filipinocitizens should be 60 percent.

MR. ROMULO. Madam President.

THE PRESIDENT. Commissioner Romulo is recognized.

MR. ROMULO. My reason for supporting the amendment is based on the discussions I have had withrepresentatives of the Filipino majority owners of the international record carriers, and the subsequentmemoranda they submitted to me. x x x

Their second point is that under the Corporation Code, the management and control of a corporation is vested inthe board of directors, not in the officers but in the board of directors. The officers are only agents of the board. And they believe that with 60 percent of the equity, the Filipino majority stockholders undeniably control theboard. Only on important corporate acts can the 40-percent foreign equity exercise a veto, x x x.

x x x x45

MS. ROSARIO BRAID. Madam President.

THE PRESIDENT. Commissioner Rosario Braid is recognized.

MS. ROSARIO BRAID. Yes, in the interest of equal time, may I also read from a memorandum by thespokesman of the Philippine Chamber of Communications on why they would like to maintain the present equity,I am referring to the 66 2/3. They would prefer to have a 75-25 ratio but would settle for 66 2/3. x x x

x x x x

THE PRESIDENT. Just to clarify, would Commissioner Rosario Braid support the proposal of two-thirds ratherthan the 60 percent?

MS. ROSARIO BRAID. I have added a clause that will put management in the hands of Filipino citizens.

x x x x46

While they had differing views on the percentage of Filipino ownership of capital, it is clear that the framers of theConstitution intended public utilities to be majori ty Filipino-owned and controlled. To ensure that Filipinos controlpublic utilities, the framers of the Constitution approved, as additional safeguard, the inclusion of the lastsentence of Section 11, Article XII of the Constitution commanding that "[t]he participation of foreign investors inthe governing body of any public utility enterprise shall be limited to their proportionate share in its capital, andall the executive and managing officers of such corporation or association must be citizens of the Philippines." Inother words, the last sentence of Section 11, Article XII of the Constitution mandates that (1) the participation offoreign investors in the governing body of the corporation or association shall be limited to their proportionateshare in the capital of such entity; and (2) all officers of the corporation or association must be Filipino citizens.

Commissioner Rosario Braid proposed the inclusion of the phrase requiring the managing officers of thecorporation or association to be Filipino citizens specifically to prevent management contracts, which were











designed primarily to circumvent the Filipinization of public utilities, and to assure Filipino control of publicutilities, thus:

MS. ROSARIO BRAID. x x x They also like to suggest that we amend this provision by adding a phrase whichstates: "THE MANAGEMENT BODY OF EVERY CORPORATION OR ASSOCIATION SHALL IN ALL CASESBE CONTROLLED BY CITIZENS OF THE PHILIPPINES." I have with me their position paper.

THE PRESIDENT. The Commissioner may proceed.

MS. ROSARIO BRAID. The three major international record carriers in the Philippines, which CommissionerRomulo mentioned – Philippine Global Communications, Eastern Telecommunications, Globe Mackay Cable – are 40-percent owned by foreign multinational companies and 60-percent owned by their respective Filipinopartners. All three, however, also have management contracts with these foreign companies – Philcom withRCA, ETPI with Cable and Wireless PLC, and GMCR with ITT. Up to the present time, the general managers ofthese carriers are foreigners. While the foreigners in these common carriers are only minority owners, theforeign multinationals are the ones managing and controlling their operations by virtue of their managementcontracts and by virtue of their strength in the governing bodies of these carriers.47

x x x x

MR. OPLE. I think a number of us have agreed to ask Commissioner Rosario Braid to propose an amendmentwith respect to the operating management of public utilities, and in this amendment, we are associated with Fr.Bernas, Commissioners Nieva and Rodrigo. Commissioner Rosario Braid will state this amendment now.

Thank you.

MS. ROSARIO BRAID. Madam President.

THE PRESIDENT. This is still on Section 15.

MS. ROSARIO BRAID. Yes.

MR. VILLEGAS. Yes, Madam President.

x x x x

MS. ROSARIO BRAID. Madam President, I propose a new section to read: ‘THE MANAGEMENT BODY OFEVERY CORPORATION OR ASSOCIATION SHALL IN ALL CASES BE CONTROLLED BY CITIZENS OF THEPHILIPPINES."

This will prevent management contracts and assure control by Filipino citizens. Will the committee assureus that this amendment will insure that past activities such as management contracts will no longer be possibleunder this amendment?

x x x x

FR. BERNAS. Madam President.

THE PRESIDENT. Commissioner Bernas is recognized.

FR. BERNAS. Will the committee accept a reformulation of the first part?

MR. BENGZON. Let us hear it.

FR. BERNAS. The reformulation will be essentially the formula of the 1973 Constitution which reads: "THE

PARTICIPATION OF FOREIGN INVESTORS IN THE GOVERNING BODY OF ANY PUBLIC UTILITYENTERPRISE SHALL BE LIMITED TO THEIR PROPORTIONATE SHARE IN THE CAPITAL THEREOF AND..."







MR. VILLEGAS. "ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH CORPORATIONS AND ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES."

MR. BENGZON. Will Commissioner Bernas read the whole thing again?

FR. BERNAS. "THE PARTICIPATION OF FOREIGN INVESTORS IN THE GOVERNING BODY OF ANYPUBLIC UTILITY ENTERPRISE SHALL BE LIMITED TO THEIR PROPORTIONATE SHARE IN THE CAPITALTHEREOF..." I do not have the rest of the copy.

MR. BENGZON. "AND ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH CORPORATIONS OR ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES." Is that correct?

MR. VILLEGAS. Yes.

MR. BENGZON. Madam President, I think that was said in a more elegant language. We accept theamendment. Is that all right with Commissioner Rosario Braid?

MS. ROSARIO BRAID. Yes.

x x x x

MR. DE LOS REYES. The governing body refers to the board of directors and trustees.


MR. BENGZON. Yes, the governing body refers to the board of directors.

MR. REGALADO. It is accepted.

MR. RAMA. The body is now ready to vote, Madam President.

VOTING

x x x x

The results show 29 votes in favor and none against; so the proposed amendment is approved.

x x x x

THE PRESIDENT. All right. Can we proceed now to vote on Section 15?

MR. RAMA. Yes, Madam President.

THE PRESIDENT. Will the chairman of the committee please read Section 15?

MR. VILLEGAS. The entire Section 15, as amended, reads: "No franchise, certificate, or any other form ofauthorization for the operation of a public utility shall be granted except to citizens of the Philippines or tocorporations or associations organized under the laws of the Philippines at least 60 PERCENT OF WHOSECAPITAL is owned by such citizens." May I request Commissioner Bengzon to please continue reading.

MR. BENGZON. "THE PARTICIPATION OF FOREIGN INVESTORS IN THE GOVERNING BODY OF ANYPUBLIC UTILITY ENTERPRISE SHALL BE LIMITED TO THEIR PROPORTIONATE SHARE IN THE CAPITALTHEREOF AND ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH CORPORATIONS OR ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES."

MR. VILLEGAS. "NOR SHALL SUCH FRANCHISE, CERTIFICATE OR AUTHORIZATION BE EXCLUSIVE INCHARACTER OR FOR A PERIOD LONGER THAN TWENTY-FIVE YEARS RENEWABLE FOR NOT MORETHAN TWENTY-FIVE YEARS. Neither shall any such franchise or right be granted except under the conditionthat it shall be subject to amendment, alteration, or repeal by Congress when the common good so requires. TheState shall encourage equity participation in public utilities by the general public."



VOTING

x x x x

The results show 29 votes in favor and 4 against; Section 15, as amended, is approved.48 (Emphasis supplied)

The last sentence of Section 11, Article XII of the 1987 Constitution, particularly the provision on the limitedparticipation of foreign investors in the governing body of public utilities, is a reiteration of the last sentence of

Section 5, Article XIV of the 1973 Constitution,

49

signifying its importance in reserving ownership and control ofpublic utilities to Filipino citizens.

VIII.

The undisputed facts

There is no dispute, and respondents do not claim the contrary, that

(1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercises the sole right tovote in the election of directors, and thus foreigners control PLDT;

(2) Filipinos own only 35.73% of PLDT’s common shares, constituting a minority of the voting stock, and thus

Filipinos do not control PLDT;

(3) preferred shares, 99.44% owned by Filipinos, have no voting rights;

(4) preferred shares earn only 1/70 of the dividends that common shares earn;50

(5) preferred shares have twice the par value of common shares; and

(6) preferred shares constitute 77.85% of the authorized capital stock of PLDT and common shares only22.15%.

Despite the foregoing facts, the Court did not decide, and in fact refrained from ruling on the question of

Issue:

1. Whether PLDT violated the 60-40 ownership requirement in favor of Filipino citizens in Section11, Article XII of the 1987 Constitution. Such question indisputably calls for a presentation anddetermination of evidence through a hearing, which is generally outside the province of the Court’s jurisdiction, but well within the SEC’s statutory powers. Thus, for obvious reasons, the Court limited itsdecision on the purely legal and threshold issue on the definition of the term "capital" in Section 11, Article XII of the Constitution and directed the SEC to apply such definition in determining the exactpercentage of foreign ownership in PLDT.

IX.PLDT is not an indisp ensable party;

SEC is impleaded in this c ase.

In his petition, Gamboa prays, among others:

x x x x

5. For the Honorable Court to issue a declaratory relief that ownership of common or voting shares is the solebasis in determining foreign equity in a public utility and that any other government rulings, opinions, andregulations inconsistent with this declaratory relief be declared unconstitutional and a violation of the intent andspirit of the 1987 Constitution;

6. For the Honorable Court to declare null and void all sales of common stocks to foreigners in excess of 40percent of the total subscribed common shareholdings; and















7. For the Honorable Court to direct the Securities and Exchange Commission and Philippine StockExchange to require PLDT to make a public disclosure of all of its foreign shareholdings and their actualand real beneficial owners.

Other relief(s) just and equitable are likewise prayed for. (Emphasis supplied)

As can be gleaned from his prayer, Gamboa clearly asks this Court to compel the SEC to perform its statutoryduty to investigate whether "the required percentage of ownership of the capital stock to be owned by citizens ofthe Philippines has been complied with [by PLDT] as required by x x x the Constitution."51 Such plea clearlynegates SEC’s argument that it was not impleaded.

Granting that only the SEC Chairman was impleaded in this case, the Court has ample powers to order theSEC’s compliance with its directive contained in the 28 June 2011 Decision in view of the far -reachingimplications of this case. In Domingo v. Scheer ,52 the Court dispensed with the amendment of the pleadings toimplead the Bureau of Customs considering (1) the unique backdrop of the case; (2) the utmost need to avoidfurther delays; and (3) the issue of public interest involved. The Court held:

The Court may be curing the defect in this case by adding the BOC as party-petitioner. The petition should notbe dismissed because the second action would only be a repetition of the first. InSalvador, et al., v. Court of Appeals, et al., we held that this Court has full powers, apart from that power and authority which is inherent, toamend the processes, pleadings, proceedings and decisions by substituting as party-plaintiff the real party-in-interest. The Court has the power to avoid delay in the disposition of this case, to order its amendmentas to implead the BOC as party-respondent. Indeed, it may no longer be necessary to do so taking intoaccount the unique backdrop in this case, involving as it does an issue of public interest. After all, theOffice of the Solicitor General has represented the petitioner in the instant proceedings, as well as in theappellate court, and maintained the validity of the deportation order and of the BOC’s Omnibus Resolution. Itcannot, thus, be claimed by the State that the BOC was not afforded its day in court, simply because only thepetitioner, the Chairperson of the BOC, was the respondent in the CA, and the petitioner in the instant recourse.In Alonso v. Villamor, we had the occasion to state:

There is nothing sacred about processes or pleadings, their forms or contents. Their sole purpose is tofacilitate the application of justice to the rival claims of contending parties. They were created, not tohinder and delay, but to facilitate and promote, the administration of justice. They do not constitute the thingitself, which courts are always striving to secure to litigants. They are designed as the means best adapted toobtain that thing. In other words, they are a means to an end. When they lose the character of the one andbecome the other, the administration of justice is at fault and courts are correspondingly remiss in theperformance of their obvious duty.53(Emphasis supplied)

In any event, the SEC has expressly manifested54 that it will abide by the Court’s decision and defer tothe Court’s definition of the term "capital" in Section 11, Article XII of the Constitution. Further, the SECentered its special appearance in this case and argued during the Oral Arguments, indicating itssubmission to the Court’s jurisdiction. It is clear, therefore, that there exists no legal impediment againstthe proper and immediate implementation of the Court’s directive to the SEC.

PLDT is an indispensable party only insofar as the other issues, particularly the factual questions, areconcerned. In other words, PLDT must be impleaded in order to fully resolve the issues on (1) whether the saleof 111,415 PTIC shares to First Pacific violates the constitutional limit on foreign ownership of PLDT; (2) whetherthe sale of common shares to foreigners exceeded the 40 percent limit on foreign equity in PLDT; and (3)whether the total percentage of the PLDT common shares with voting rights complies with the 60-40 ownershiprequirement in favor of Filipino citizens under the Constitution for the ownership and operation of PLDT. Theseissues indisputably call for an examination of the parties’ respective evidence, and thus are clearly within the jurisdiction of the SEC. In short, PLDT must be impleaded, and must necessarily be heard, in the proceedingsbefore the SEC where the factual issues will be thoroughly threshed out and resolved.

Notably, the foregoing issues were left untouched by the Court. The Court did not rule on the factual issuesraised by Gamboa, except the single and purely legal issue on the definition of the term "capital" in Section 11, Article XII of the Constitution. The Court confined the resolution of the instant case to this threshold legal issue in

deference to the fact-finding power of the SEC.

Needless to state, the Court can validly, properly, and fully dispose of the fundamental legal issue in this caseeven without the participation of PLDT since defining the term "capital" in Section 11, Article XII of theConstitution does not, in any way, depend on whether PLDT was impleaded. Simply put, PLDT is not


















indispensable for a complete resolution of the purely legal question in this case.55 In fact, the Court, by treatingthe petition as one for mandamus,56 merely directed the SEC to apply the Court’s definition of the term "capital"in Section 11, Article XII of the Constitution in determining whether PLDT committed any violation of the saidconstitutional provision. The dispositive portion of the Court’s ruling is addressed not to PLDT but solelyto the SEC, which is the administrative agency tasked to enforce the 60-40 ownership requirement infavor of Filipino citizens in Section 11, Article XII of the Constitution.

Since the Court limited its resolution on the purely legal issue on the definition of the term "capital" in Section 11, Article XII of the 1987 Constitution, and directed the SEC to investigate any violation by PLDT of the 60-40ownership requirement in favor of Filipino citizens under the Constitution,57 there is no deprivation of PLDT’sproperty or denial of PLDT’s right to due process, contrary to Pangilinan and Nazareno’s misimpression. Dueprocess will be afforded to PLDT when it presents proof to the SEC that it complies, as it claims here, withSection 11, Article XII of the Constitution.

X.

Foreign Investments in the Phi l ippines

Movants fear that the 28 June 2011 Decision would spell disaster to our economy, as it may result in a suddenflight of existing foreign investors to "friendlier" countries and simultaneously deterring new foreign investors toour country. In particular, the PSE claims that the 28 June 2011 Decision may result in the following: (1) loss ofmore than P 630 billion in foreign investments in PSE-listed shares; (2) massive decrease in foreign tradingtransactions; (3) lower PSE Composite Index; and (4) local investors not investing in PSE-listed shares.58

Dr. Bernardo M. Villegas, one of the amici curiae in the Oral Arguments, shared movants’ apprehension. Withoutproviding specific details, he pointed out the depressing state of the Philippine economy compared to ourneighboring countries which boast of growing economies. Further, Dr. Villegas explained that the solution to oureconomic woes is for the government to "take-over" strategic industries, such as the public utilities sector, thus:

JUSTICE CARPIO:

I would like also to get from you Dr. Villegas if you have additional information on whether this highFDI59 countries in East Asia have allowed foreigners x x x control [of] their public utilities, so that we cancompare apples with apples.

DR. VILLEGAS:

Correct, but let me just make a comment. When these neighbors of ours find an industry strategic, their solutionis not to "Filipinize" or "Vietnamize" or "Singaporize." Their solution is to make sure that those industries arein the hands of state enterprises. So, in these countries, nationalization means the government takesover. And because their governments are competent and honest enough to the public, that is thesolution. x x x 60 (Emphasis supplied)

If government ownership of public utilities is the solution, then foreign investments in our public utilities serve nopurpose. Obviously, there can never be foreign investments in public utilities if, as Dr. Villegas claims, the

"solution is to make sure that those industries are in the hands of state enterprises." Dr. Villegas’s argument thatforeign investments in telecommunication companies like PLDT are badly needed to save our ailing economycontradicts his own theory that the solution is for government to take over these companies. Dr. Villegas isbarking up the wrong tree since State ownership of public utilities and foreign investments in such industries arediametrically opposed concepts, which cannot possibly be reconciled.

In any event, the experience of our neighboring countries cannot be used as argument to decide the presentcase differently for two reasons. First, the governments of our neighboring countries have, as claimed by Dr.Villegas, taken over ownership and control of their strategic public utilities like the telecommunications industry.Second, our Constitution has specific provisions limiting foreign ownership in public utilities which the Court issworn to uphold regardless of the experience of our neighboring countries.

In our jurisdiction, the Constitution expressly reserves the ownership and operation of public utilities to Filipinocitizens, or corporations or associations at least 60 percent of whose capital belongs to Filipinos. Following Dr.Villegas’s claim, the Philippines appears to be more liberal in allowing foreign investors to own 40 percent ofpublic utilities, unlike in other Asian countries whose governments own and operate such industries.



























XI.

Prospect ive Appl icat ion of Sanct ions

In its Motion for Partial Reconsideration, the SEC sought to clarify the reckoning period of the application andimposition of appropriate sanctions against PLDT if found violating Section 11, Article XII of the Constitution.1avvphi1

As discussed, the Court has directed the SEC to investigate and determine whether PLDT violatedSection 11, Article XII of the Constitution. Thus, there is no dispute that it is only after the SEC hasdetermined PLDT’s violation, if any exists at the time of the commencement of the administrative case orinvestigation, that the SEC may impose the statutory sanctions against PLDT. In other words, once the 28 June2011 Decision becomes final, the SEC shall impose the appropriate sanctions only if it finds after due hearingthat, at the start of the administrative case or investigation, there is an existing violation of Section 11, Article XIIof the Constitution. Under prevailing jurisprudence, public utilities that fail to comply with the nationalityrequirement under Section 11, Article XII and the FIA can cure their deficiencies prior to the start of theadministrative case or investigation.61

XII.

Final Word

Rul l ing

The Constitution expressly declares as State policy the development of an economy "effectivelycontrol led " by Filipinos. Consistent with such State policy, the Constitution explicitly reserves theownership and operation of public utilities to Philippine nationals, who are defined in the ForeignInvestments Act of 1991 as Filipino citizens, or corporations or associations at least 60 percent of whosecapital with vot ing r ights belongs to Filipinos. The FIA’s implementing rules explain that "[f]or stocks to bedeemed owned and held by Philippine citizens or Philippine nationals, mere legal title is not enough to meet therequired Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate voting rights isessential." In effect, the FIA clarifies, reiterates and confirms the interpretation that the term "capital" in Section11, Article XII of the 1987 Constitution refers toshares with vo t ing rights , as wel l as with ful l b enef ic ialownership . This is precisely because the right to vote in the election of directors, coupled with full beneficialownership of stocks, translates to effective control of a corporation.

Any other construction of the term "capital" in Section 11, Article XII of the Constitution contravenes the letterand intent of the Constitution. Any other meaning of the term "capital" openly invites alien domination ofeconomic activities reserved exclusively to Philippine nationals. Therefore, respondents’ interpretation willultimately result in handing over effective control of our national economy to foreigners in patent violation of theConstitution, making Filipinos second-class citizens in their own country.

Filipinos have only to remind themselves of how this country was exploited under the Parity Amendment, whichgave Americans the same rights as Filipinos in the exploitation of natural resources, and in the ownership andcontrol of public utilities, in the Philippines. To do this the 1935 Constitution, which contained the same 60percent Filipino ownership and control requirement as the present 1987 Constitution, had to be amended to give Americans parity rights with Filipinos. There was bitter opposition to the Parity Amendment62 and many Filipinoseagerly awaited its expiration. In late 1968, PLDT was one of the American-controlled public utilities that becameFilipino-controlled when the controlling American stockholders divested in anticipation of the expiration of theParity Amendment on 3 July 1974.63 No economic suicide happened when control of public utilities and miningcorporations passed to Filipinos’ hands upon expiration of the Parity Amendment.

Movants’ interpretation of the term "capital" would bring us back to the same evils spawned by the Parity Amendment, effect ively giving foreigners pari ty r ights w ith Fi l ipinos , but this t ime even without any

amendment to the present Const i tut ion . Worse, movants’ interpretation opens up our national economytoeffect ive con trol not only by Americans but also by all foreigners, be they Indonesians, Malaysians orChinese, even in the absence of reciprocal treaty arrangements. At least the Parity Amendment, asimplemented by the Laurel-Langley Agreement, gave the capital-starved Filipinos theoretical parity – the samerights as Americans to exploit natural resources, and to own and control public utilities, in the United States of America. Here, movants’ interpretation would effectively mean a unilateral opening up of our national economy

to all foreigners, withou t any reciprocal arrangements . That would mean that Indonesians, Malaysians andChinese nationals could effectively control our mining companies and public utilities while Filipinos, even if theyhave the capital, could not control similar corporations in these countries.















The 1935, 1973 and 1987 Constitutions have the same 60 percent Filipino ownership and control requirementfor public utilities like PLOT. Any deviation from this requirement necessitates an amendment to the Constitutionas exemplified by the Parity Amendment. This Court has no power to amend the Constitution for its power andduty is only to faithfully apply and interpret the Constitution.

WHEREFORE, we DENY the motions for reconsideration WITH FINALITY. No further pleadings shall beentertained.SO ORDERED.ANTONIO T. CARPIO Associate Justice

G.R. No. 171396 May 3, 2006



PROF. RANDOLF S. DAVID, LORENZO TAÑADA III, RONALD LLAMAS, H. HARRY L. ROQUE, JR., JOEL RUIZ BUTUYAN, ROGER R.RAYEL, GARY S. MALLARI, ROMEL REGALADO BAGARES, CHRISTOPHER F.C. BOLASTIG, Petitioners,vs.GLORIA MACAPAGAL-ARROYO, AS PRESIDENT AND COMMANDER-IN-CHIEF, EXECUTIVE SECRETARY EDUARDO ERMITA, HON.AVELINO CRUZ II, SECRETARY OF NATIONAL DEFENSE, GENERAL GENEROSO SENGA, CHIEF OF STAFF, ARMED FORCES OF THEPHILIPPINES, DIRECTOR GENERAL ARTURO LOMIBAO, CHIEF, PHILIPPINE NATIONAL POLICE, Respondents.

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G.R. No. 171409 May 3, 2006

NIÑEZ CACHO-OLIVARES AND TRIBUNE PUBLISHING CO., INC., Petitioners,vs.HONORABLE SECRETARY EDUARDO ERMITA AND HONORABLE DIRECTOR GENERAL ARTURO C. LOMIBAO, Respondents.

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G.R. No. 171485 May 3, 2006

FRANCIS JOSEPH G. ESCUDERO, JOSEPH A. SANTIAGO, TEODORO A. CASINO, AGAPITO A. AQUINO, MARIO J. AGUJA, SATUR C.OCAMPO, MUJIV S. HATAMAN, JUAN EDGARDO ANGARA, TEOFISTO DL. GUINGONA III, EMMANUEL JOSEL J. VILLANUEVA, LIZA L.MAZA, IMEE R. MARCOS, RENATO B. MAGTUBO, JUSTIN MARC SB. CHIPECO, ROILO GOLEZ, DARLENE ANTONINO-CUSTODIO,LORETTA ANN P. ROSALES, JOSEL G. VIRADOR, RAFAEL V. MARIANO, GILBERT C. REMULLA, FLORENCIO G. NOEL, ANA THERESIAHONTIVEROS-BARAQUEL, IMELDA C. NICOLAS, MARVIC M.V.F. LEONEN, NERI JAVIER COLMENARES, MOVEMENT OF CONCERNEDCITIZENS FOR CIVIL LIBERTIES REPRESENTED BY AMADO GAT INCIONG, Petitioners,

vs.EDUARDO R. ERMITA, EXECUTIVE SECRETARY, AVELINO J. CRUZ, JR., SECRETARY, DND RONALDO V. PUNO, SECRETARY, DILG,GENEROSO SENGA, AFP CHIEF OF STAFF, ARTURO LOMIBAO, CHIEF PNP,Respondents.

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G.R. No. 171483 May 3, 2006

KILUSANG MAYO UNO, REPRESENTED BY ITS CHAIRPERSON ELMER C. LABOG AND SECRETARY GENERAL JOEL MAGLUNSOD,NATIONAL FEDERATION OF LABOR UNIONS – KILUSANG MAYO UNO (NAFLU-KMU), REPRESENTED BY ITS NATIONAL PRESIDENT,JOSELITO V. USTAREZ, ANTONIO C. PASCUAL, SALVADOR T. CARRANZA, EMILIA P. DAPULANG, MARTIN CUSTODIO, JR., ANDROQUE M. TAN, Petitioners,vs.HER EXCELLENCY, PRESIDENT GLORIA MACAPAGAL-ARROYO, THE HONORABLE EXECUTIVE SECRETARY, EDUARDO ERMITA, THE

CHIEF OF STAFF, ARMED FORCES OF THE PHILIPPINES, GENEROSO SENGA, AND THE PNP DIRECTOR GENERAL, ARTUROLOMIBAO, Respondents.

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G.R. No. 171400 May 3, 2006

ALTERNATIVE LAW GROUPS, INC. (ALG), Petitioner,vs.EXECUTIVE SECRETARY EDUARDO R. ERMITA, LT. GEN. GENEROSO SENGA, AND DIRECTOR GENERAL ARTUROLOMIBAO, Respondents.

G.R. No. 171489 May 3, 2006

JOSE ANSELMO I. CADIZ, FELICIANO M. BAUTISTA, ROMULO R. RIVERA, JOSE AMOR M. AMORADO, ALICIA A. RISOS-VIDAL,FELIMON C. ABELITA III, MANUEL P. LEGASPI, J.B. JOVY C. BERNABE, BERNARD L. DAGCUTA, ROGELIO V. GARCIA ANDINTEGRATED BAR OF THE PHILIPPINES (IBP),Petitioners,vs.HON. EXECUTIVE SECRETARY EDUARDO ERMITA, GENERAL GENEROSO SENGA, IN HIS CAPACITY AS AFP CHIEF OF STAFF, ANDDIRECTOR GENERAL ARTURO LOMIBAO, IN HIS CAPACITY AS PNP CHIEF,Respondents.

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G.R. No. 171424 May 3, 2006

LOREN B. LEGARDA, Petitioner,vs.GLORIA MACAPAGAL-ARROYO, IN HER CAPACITY AS PRESIDENT AND COMMANDER-IN-CHIEF; ARTURO LOMIBAO, IN HIS CAPACITYAS DIRECTOR-GENERAL OF THE PHILIPPINE NATIONAL POLICE (PNP); GENEROSO SENGA, IN HIS CAPACITY AS CHIEF OF STAFF OFTHE ARMED FORCES OF THE PHILIPPINES (AFP); AND EDUARDO ERMITA, IN HIS CAPACITY AS EXECUTIVESECRETARY, Respondents.

D E C I S I O N



SANDOVAL-GUTIERREZ, J .:

All powers need some restraint; practical adjustments rather than rigid formula are necessary.1 Superior strength – the use of force – cannot make wrongs into rights. In this regard, the courts should be vigilant in safeguardingthe constitutional rights of the citizens, specifically their liberty.

Chief Justice Artemio V. Panganiban’s philosophy of liberty is thus most relevant. He said: "In cases involvingliberty, the scales of justice should weigh heavily against government and in favor of the poor, theoppressed, the marginalized, the dispossessed and the weak." Laws and actions that restrict fundamentalrights come to the courts "with a heavy presumption against their constitutional validity."2

FACTS:

1. These seven (7) consolidated petitions for certiorari and prohibition allege that in issuing PresidentialProclamation No. 1017 (PP 1017) and General Order No. 5 (G.O. No. 5), President Gloria Macapagal- Arroyo committed grave abuse of discretion. Petitioners contend that respondent officials of theGovernment, in their professed efforts to defend and preserve democratic institutions, are actuallytrampling upon the very freedom guaranteed and protected by the Constitution. Hence, such issuancesare void for being unconstitutional.

Once again, the Court is faced with an age-old but persistently modern problem. How does theConstitution of a free people combine the degree of l iberty , without which, law becomes tyranny, withthe degree of law , without which, liberty becomes license?3

2. On February 24, 2006, as the nation celebrated the 20th Anniversary of the Edsa People Power I ,President Arroyo issued PP 1017 declaring a state of national emergency, thus:

NOW, THEREFORE, I, Gloria Macapagal-Arroyo, President of the Republic of the Philippines and Commander-in-Chief of the Armed Forces of the Philippines, by virtue of the powers vested upon me by Section 18, Article 7of the Philippine Constitution which states that: "The President. . . whenever it becomes necessary, . . . may callout (the) armed forces to prevent or suppress. . .rebellion. . .," and in my capacity as their Commander-in-Chief, do hereby command the Armed Forces of the Philippines, to maintain law and order throughout

the Philippines, prevent or suppress all forms of lawless violence as well as any act of insurrection orrebellion and to enforce obedience to all the laws and to all decrees, orders and regulationspromulgated by me personally or upon my direction; and as provided in Section 17, Article 12 of theConstitution do hereby declare a State of National Emergency.

She cited the following facts as bases:

WHEREAS, over these past months, elements in the political opposition have conspired with authoritariansof the extreme Left represented by the NDF-CPP-NPA and the extreme Right, represented by militaryadventurists – the historical enemies of the democratic Philippine State – who are now in a tactical allianceand engaged in a concerted and systematic conspiracy, over a broad front, to bring down the duly constitutedGovernment elected in May 2004;

WHEREAS, these conspirators have repeatedly tried to bring down the President;

WHEREAS, the claims of these elements have been recklessly magnified by certain segments of thenational media;

WHEREAS, this series of actions is hurting the Philippine State – by obstructing governanceincluding hindering the growth of the economy and sabotaging the people’s confidence in governmentand their faith in the future of this country;

WHEREAS, these actions are adversely affecting the economy;

WHEREAS, these activities give totalitarian forces of both the extreme Left and extreme Right theopening to intensify their avowed aims to bring down the democratic Philippine State;

WHEREAS, Article 2, Section 4 of the our Constitution makes the defense and preservation of the democraticinstitutions and the State the primary duty of Government;

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WHEREAS, the activities above-described, their consequences, ramifications and collateral effects constituteaclear and present danger to the safety and the integrity of the Philippine State and of the Filipino people;

On the same day, the President issued G. O. No. 5 implementing PP 1017, thus:

WHEREAS, over these past months, elements in the political opposition have conspired with authoritarians ofthe extreme Left, represented by the NDF-CPP-NPA and the extreme Right, represented by military adventurists- the historical enemies of the democratic Philippine State – and who are now in a tactical alliance and engagedin a concerted and systematic conspiracy, over a broad front, to bring down the duly-constituted Governmentelected in May 2004;

WHEREAS, these conspirators have repeatedly tried to bring down our republican government;

WHEREAS, the claims of these elements have been recklessly magnified by certain segments of the nationalmedia;

WHEREAS, these series of actions is hurting the Philippine State by obstructing governance, including hinderingthe growth of the economy and sabotaging the people’s confidence in the government and their faith in thefuture of this country;

WHEREAS, these actions are adversely affecting the economy;

WHEREAS, these activities give totalitarian forces; of both the extreme Left and extreme Right the opening tointensify their avowed aims to bring down the democratic Philippine State;

WHEREAS, Article 2, Section 4 of our Constitution makes the defense and preservation of the democraticinstitutions and the State the primary duty of Government;

WHEREAS, the activities above-described, their consequences, ramifications and collateral effects constitute aclear and present danger to the safety and the integrity of the Philippine State and of the Filipino people;

WHEREAS, Proclamation 1017 date February 24, 2006 has been issued declaring a State of National

Emergency;

NOW, THEREFORE, I GLORIA MACAPAGAL-ARROYO, by virtue of the powers vested in me under theConstitution as President of the Republic of the Philippines, and Commander-in-Chief of the Republic of thePhilippines, and pursuant to Proclamation No. 1017 dated February 24, 2006, do hereby call upon the ArmedForces of the Philippines (AFP) and the Philippine National Police (PNP), to prevent and suppress acts ofterrorism and lawless violence in the country;

I hereby direct the Chief of Staff of the AFP and the Chief of the PNP, as well as the officers and men of the AFPand PNP, to immediately carry out the necessary and appropriate actions and measures to suppress andprevent acts of terrorism and lawless violence.

On March 3, 2006, exactly one week after the declaration of a state of national emergency and after all thesepetitions had been filed, the President lifted PP 1017. She issued Proclamation No. 1021 which reads:

WHEREAS, pursuant to Section 18, Article VII and Section 17, Article XII of the Constitution, Proclamation No.1017 dated February 24, 2006, was issued declaring a state of national emergency;

WHEREAS, by virtue of General Order No.5 and No.6 dated February 24, 2006, which were issued on the basisof Proclamation No. 1017, the Armed Forces of the Philippines (AFP) and the Philippine National Police (PNP),were directed to maintain law and order throughout the Philippines, prevent and suppress all form of lawlessviolence as well as any act of rebellion and to undertake such action as may be necessary;

WHEREAS, the AFP and PNP have effectively prevented, suppressed and quelled the acts lawless violenceand rebellion;

NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of the Republic of the Philippines, byvirtue of the powers vested in me by law, hereby declare that the state of national emergency has ceased toexist.



RESPONDENT ARGUMENT

In their presentation of the factual bases of PP 1017 and G.O. No. 5, respondents stated that the proximatecause behind the executive issuances was the conspiracy among some military officers, leftist insurgentsof the New People’s Army (NPA), and some members of the political opposition in a plot to unseat or assassinate President Arroyo.4 They considered the aim to oust or assassinate the President and take-overthe reigns of government as a clear and present danger.

During the oral arguments held on March 7, 2006, the Solicitor General specified the facts leading to theissuance of PP 1017 and G.O. No. 5. Significantly, there was no refutation from petitioners’ counsels.

The Solicitor General argued that the intent of the Constitution is to give full discretionary powers to thePresident in determining the necessity of calling out the armed forces. He emphasized that none of thepetitioners has shown that PP 1017 was without factual bases. While he explained that it is not respondents’task to state the facts behind the questioned Proclamation, however, they are presenting the same, narratedhereunder, for the elucidation of the issues.

On January 17, 2006, Captain Nathaniel Rabonza and First Lieutenants Sonny Sarmiento, Lawrence San Juanand Patricio Bumidang, members of the Magdalo Group indicted in the Oakwood mutiny, escaped theirdetention cell in Fort Bonifacio, Taguig City. In a public statement, they vowed to remain defiant and to eludearrest at all costs. They called upon the people to "show and proclaim our displeasure at the sham regime. Letus demonstrate our disgust, not only by going to the streets in protest, but also by wearing red bands on our leftarms." 5

On February 17, 2006, the authorities got hold of a document entitled "Oplan Hackle I " which detailedplans for bombings and attacks during the Philippine Military Academy Alumni Homecoming in BaguioCity. The plot was to assassinate selected targets including some cabinet members and President Arroyoherself .6 Upon the advice of her security, President Arroyo decided not to attend the Alumni Homecoming. Thenext day, at the height of the celebration, a bomb was found and detonated at the PMA parade ground.

On February 21, 2006, Lt. San Juan was recaptured in a communist safehouse in Batangas province. Found inhis possession were two (2) flash disks containing minutes of the meetings between members of the MagdaloGroup and the National People’s Army (NPA), a tape recorder, audio cassette cartridges, diskettes, and copiesof subversive documents.7 Prior to his arrest, Lt. San Juan announced through DZRH that the "Magdalo’s D-Daywould be on February 24, 2006, the 20th Anniversary of Edsa I."

On February 23, 2006, PNP Chief Arturo Lomibao intercepted information that members of the PNP- Special Action Force were planning to defect. Thus, he immediately ordered SAF Commanding General MarcelinoFranco, Jr. to "disavow" any defection. The latter promptly obeyed and issued a public statement: " All SAF unitsare under the effective control of responsible and trustworthy officers with proven integrity and unquestionableloyalty."

On the same day, at the house of former Congressman Peping Cojuangco, President Cory Aquino’s brother,businessmen and mid-level government officials plotted moves to bring down the Arroyo administration. Nelly

Sindayen of TIME Magazine reported that Pastor Saycon, longtime Arroyo critic, called a U.S. governmentofficial about his group’s plans if President Arroyo is ousted. Saycon also phoned a man code-named Delta.Saycon identified him as B/Gen. Danilo Lim, Commander of the Army’s elite Scout Ranger. Lim said "it was allsystems go for the planned movement against Arroyo."8

B/Gen. Danilo Lim and Brigade Commander Col. Ariel Querubin confided to Gen. Generoso Senga, Chiefof Staff of the Armed Forces of the Philippines (AFP), that a huge number of soldiers would join therallies to provide a critical mass and armed component to the Anti-Arroyo protests to be held onFebruary 24, 2005. According to these two (2) officers, there was no way they could possibly stop the soldiersbecause they too, were breaking the chain of command to join the forces foist to unseat the President. However,Gen. Senga has remained faithful to his Commander-in-Chief and to the chain of command. He immediatelytook custody of B/Gen. Lim and directed Col. Querubin to return to the Philippine Marines Headquarters in FortBonifacio.

Earlier, the CPP-NPA called for intensification of political and revolutionary work within the military and the policeestablishments in order to forge alliances with its members and key officials. NPA spokesman Gregorio "KaRoger" Rosal declared: "The Communist Party and revolutionary movement and the entire people look forward























to the possibility in the coming year of accomplishing its immediate task of bringing down the Arroyo regime; ofrendering it to weaken and unable to rule that it will not take much longer to end it ."9

On the other hand, Cesar Renerio, spokesman for the National Democratic Front (NDF) at North CentralMindanao, publicly announced: " Anti-Arroyo groups within the military and police are growing rapidly, hastenedby the economic difficulties suffered by the families of AFP officers and enlisted personnel who undertakecounter-insurgency operations in the field." He claimed that with the forces of the national democratic movement,the anti-Arroyo conservative political parties, coalitions, plus the groups that have been reinforcing since June2005, it is probable that the President’s ouster is nearing its concluding stage in the first half of 2006.

Respondents further claimed that the bombing of telecommunication towers and cell sites in Bulacan andBataan was also considered as additional factual basis for the issuance of PP 1017 and G.O. No. 5. So is theraid of an army outpost in Benguet resulting in the death of three (3) soldiers. And also the directive of theCommunist Party of the Philippines ordering its front organizations to join 5,000 Metro Manila radicals and25,000 more from the provinces in mass protests.10

By midnight of February 23, 2006, the President convened her security advisers and several cabinet members toassess the gravity of the fermenting peace and order situation. She directed both the AFP and the PNP toaccount for all their men and ensure that the chain of command remains solid and undivided. To protect theyoung students from any possible trouble that might break loose on the streets, the President suspendedclasses in all levels in the entire National Capital Region.

For their part, petitioners cited the events that followed after the issuance of PP 1017 and G.O. No. 5.

Immediately, the Office of the President announced the cancellation of all programs and activities related to the20th anniversary celebration of Edsa People Power I ; and revoked the permits to hold rallies issued earlier bythe local governments. Justice Secretary Raul Gonzales stated that political rallies, which to the President’smind were organized for purposes of destabilization, are cancelled.Presidential Chief of Staff Michael Defensorannounced that "warrantless arrests and take-over of facilities, including media, can already be implemented ."11

Undeterred by the announcements that rallies and public assemblies would not be allowed, groups ofprotesters (members of Kilusang Mayo Uno [KMU] and National Federation of Labor Unions-Kilusang MayoUno [NAFLU-KMU]), marched from various parts of Metro Manila with the intention of converging at theEDSA shrine. Those who were already near the EDSA site were violently dispersed by huge clusters of anti-riot police. The well-trained policemen used truncheons, big fiber glass shields, water cannons, and tear gas tostop and break up the marching groups, and scatter the massed participants. The same police action was usedagainst the protesters marching forward to Cubao, Quezon City and to the corner of Santolan Street and EDSA.That same evening, hundreds of riot policemen broke up an EDSA celebration rally held along Ayala Avenueand Paseo de Roxas Street in Makati City.12

According to petitioner Kilusang Mayo Uno, the police cited PP 1017 as the ground for the dispersal of theirassemblies.

During the dispersal of the rallyists along EDSA, police arrested (without warrant) petitioner Randolf S.

David, a professor at the University of the Philippines and newspaper columnist. Also arrested was hiscompanion, Ronald Llamas, president of party-list Akbayan .

At around 12:20 in the early morning of February 25, 2006, operatives of the Criminal Investigation andDetection Group (CIDG) of the PNP, on the basis of PP 1017 and G.O. No. 5, raided the Daily Tribune offices inManila. The raiding team confiscated news stories by reporters, documents, pictures, and mock-ups of theSaturday issue. Policemen from Camp Crame in Quezon City were stationed inside the editorial and businessoffices of the newspaper; while policemen from the Manila Police District were stationed outside the building.13

A few minutes after the search and seizure at the Daily Tribun e offices, the police surrounded thepremises of another pro-opposition paper, Malaya, and its sister publication, the tabloid Abante.

The raid, according to Presidential Chief of Staff Michael Defensor, is "meant to show a ‘strong presence,’to tel l media out lets not to conn ive or do anything that would h elp the rebels in bringing down this

government ." The PNP warned that it would take over any media organization that would not follow "standardsset by the government during the state of national emergency." Director General Lomibao stated that "if they donot follow the standards – and the standards are - if they would contribute to instability in the government, or ifthey do not subscribe to what is in General Order No. 5 and Proc. No. 1017 – we will recommend a























‘takeover.’" National Telecommunications’ Commissioner Ronald Solis urged television and radio networksto "cooperate" with the government for the duration of the state of national emergency. He asked for "balancedreporting" from broadcasters when covering the events surrounding the coup attempt foiled by the government.He warned that his agency will not hesitate to recommend the closure of any broadcast outfit that violates rulesset out for media coverage when the national security is threatened.14

Also, on February 25, 2006, the police arrested Congressman Crispin Beltran, representing the Anakpawis Partyand Chairman of Kilusang Mayo Uno (KMU), while leaving his farmhouse in Bulacan. The police showed awarrant for his arrest dated 1985. Beltran’s lawyer explained that the warrant, which stemmed from a case of

inciting to rebellion filed during the Marcos regime, had long been quashed. Beltran, however, is not a party inany of these petitions.

When members of petitioner KMU went to Camp Crame to visit Beltran, they were told they could not beadmitted because of PP 1017 and G.O. No. 5. Two members were arrested and detained, while the rest weredispersed by the police.

Bayan Muna Representative Satur Ocampo eluded arrest when the police went after him during a public forumat the Sulo Hotel in Quezon City. But his two drivers, identified as Roel and Art, were taken into custody.

Retired Major General Ramon Montaño, former head of the Philippine Constabulary, was arrested while with hiswife and golfmates at the Orchard Golf and Country Club in Dasmariñas, Cavite.

Attempts were made to arrest Anakpawis Representative Satur Ocampo, Representative Rafael Mariano, BayanMuna Representative Teodoro Casiño and Gabriela Representative Liza Maza. Bayan Muna RepresentativeJosel Virador was arrested at the PAL Ticket Office in Davao City. Later, he was turned over to the custody ofthe House of Representatives where the "Batasan 5" decided to stay indefinitely.

Let it be stressed at this point that the alleged violations of the rights of Representatives Beltran, SaturOcampo,et al ., are not being raised in these petitions.

On March 3, 2006, President Arroyo issued PP 1021 declaring that the state of national emergency hasceased to exist.

In the interim, these seven (7) petitions challenging the constitutionality of PP 1017 and G.O. No. 5 werefiled with this Court against the above-named respondents. Three (3) of these petitions impleaded President Arroyo as respondent.

In G.R. No. 171396, petitioners Randolf S. David, et al . assailed PP 1017 on the grounds that (1) it encroacheson the emergency powers of Congress; (2) itis a subterfuge to avoid the constitutional requirements for theimposition of martial law; and (3) it violates the constitutional guarantees of freedom of the press, of speech andof assembly.

In G.R. No. 171409, petitioners Ninez Cacho-Olivares and Tribune Publishing Co., Inc. challenged the CIDG’sact of raiding the Daily Tribune offices as a clear case of "censorship" or "prior restraint." They also claimed that

the term "emergency" refers only to tsunami, typhoon, hurricane and similar occurrences, hence, there is"absolutely no emergency " that warrants the issuance of PP 1017.

In G.R. No. 171485, petitioners herein are Representative Francis Joseph G. Escudero, and twenty one (21)other members of the House of Representatives, including Representatives Satur Ocampo, Rafael Mariano,Teodoro Casiño, Liza Maza, and Josel Virador . They asserted that PP 1017 and G.O. No. 5 constitute"usurpation of legislative powers"; "violation of freedom of expression" and "a declaration of martial law ." Theyalleged that President Arroyo "gravely abused her discretion in calling out the armed forces without clear andverifiable factual basis of the possibility of lawless violence and a showing that there is necessity to do so."

In G.R. No. 171483,petitioners KMU, NAFLU-KMU, and their members averred that PP 1017 and G.O. No. 5 areunconstitutional because (1) they arrogate unto President Arroyo the power to enact laws and decrees; (2) their

issuance was without factual basis; and (3) they violate freedom of expression and the right of the people topeaceably assemble to redress their grievances.









Army showing the growing alliance between the NPA and the military. Petitioners presented nothing to refutesuch events. Thus, absent any contrary allegations, the Court is convinced that the President was justified inissuing PP 1017 calling for military aid.

Indeed, judging the seriousness of the incidents, President Arroyo was not expected to simply fold her arms anddo nothing to prevent or suppress what she believed was lawless violence, invasion or rebellion. However, theexercise of such power or duty must not stifle liberty.

2) Whether PP 1017 and G.O. No. 5 are unconstitutional.

a. Facial Challenge

petitioners did not even attempt to show that PP 1017 is vague in all its application. Theyalso failed to establish that men of common intelligence cannot understand the meaning andapplication of PP 1017

b. Constitutional Basis

c. As Applied Challenge

A. PROCEDURAL

First, we must resolve the procedural roadblocks.

I - Moot and Academic Principle

One of the greatest contributions of the American system to this country is the concept of judicial reviewenunciated in Marbury v. Madison.21 This concept rests on the extraordinary simple foundation --

The Constitution is the supreme law. It was ordained by the people, the ultimate source of all political authority. Itconfers limited powers on the national government. x x x If the government consciously or unconsciouslyoversteps these limitations there must be some authority competent to hold it in control, to thwart itsunconstitutional attempt, and thus to vindicate and preserve inviolate the will of the people asexpressed in the Constitution. This power the courts exercise. This is the beginning and the end of thetheory of judicial review.22

But the power of judicial review does not repose upon the courts a "self-starting capacity."23 Courts may exercisesuch power only when the following requisites are present: first, there must be an actual case orcontroversy;second, petitioners have to raise a question of constitutionality; third, the constitutional questionmust be raised at the earliest opportunity; and fourth, the decision of the constitutional question must benecessary to the determination of the case itself .24

Respondents maintain that the first and second requisites are absent, hence, we shall limit our discussionthereon.

An actual case or controversy involves a conflict of legal right, an opposite legal claims susceptible of judicialresolution. It is "definite and concrete, touching the legal relations of parties having adverse legal interest;" a realand substantial controversy admitting of specific relief .25 The Solicitor General refutes the existence of suchactual case or controversy, contending that the present petitions were rendered "moot and academic" byPresident Arroyo’s issuance of PP 1021.

Such contention lacks merit.

A moot and academic case is one that ceases to present a justiciable controversy by virtue of superveningevents,26 so that a declaration thereon would be of no practical use or value.27 Generally, courts decline jurisdiction over such case28 or dismiss it on ground of mootness.29







































The Court holds that President Arroyo’s issuance of PP 1021 did not render the present petitions moot andacademic. During the eight (8) days that PP 1017 was operative, the police officers, according to petitioners,committed illegal acts in implementing it. Are PP 1017 and G.O. No. 5 constitutional or valid? Do they justifythese alleged illegal acts? These are the vital issues that must be resolved in the present petitions. It must bestressed that "an unconstitutional act is not a law, it confers no rights, it imposes no duties, it affords noprotection; it is in legal contemplation, inoperative."30

The "moot and academic" principle is not a magical formula that can automatically dissuade the courts inresolving a case. Courts will decide cases, otherwise moot and academic, if: first, there is a grave violation of theConstitution;31 second , the exceptional character of the situation and the paramount public interest isinvolved;32t hird, when constitutional issue raised requires formulation of controlling principles to guide the bench,the bar, and the public;33 and fourth, the case is capable of repetition yet evading review.34

All the foregoing exceptions are present here and justify this Court’s assumption of jurisdiction over the instantpetitions. Petitioners alleged that the issuance of PP 1017 and G.O. No. 5 violates the Constitution. There is noquestion that the issues being raised affect the public’s interest, involving as they do the people’s basic rights tofreedom of expression, of assembly and of the press. Moreover, the Court has the duty to formulate guiding andcontrolling constitutional precepts, doctrines or rules. It has the symbolic function of educating the bench and thebar, and in the present petitions, the military and the police, on the extent of the protection given byconstitutional guarantees.35 And lastly, respondents’ contested actions are capable of repetition. Certainly, thepetitions are subject to judicial review.

In their attempt to prove the alleged mootness of this case, respondents cited Chief Justice Artemio V.Panganiban’s Separate Opinion in Sanlakas v. Executive Secretary .36 However, they failed to take into accountthe Chief Justice’s very statement that an otherwise "moot" case may still be decided " provided the party raisingit in a proper case has been and/or continues to be prejudiced or damaged as a direct result of its issuance."The present case falls right within this exception to the mootness rule pointed out by the Chief Justice.

II- Legal Stand ing

In view of the number of petitioners suing in various personalities, the Court deems it imperative to have a morethan passing discussion on legal standing or locus standi.

Locus standi is defined as "a right of appearance in a court of justice on a given question."37 In private suits,standing is governed by the "real-parties-in interest" rule as contained in Section 2, Rule 3 of the 1997 Rules ofCivil Procedure, as amended. It provides that "every action must be prosecuted or defended in the name ofthe real party in interest." Accordingly, the "real-party-in interest" is "the party who stands to be benefited orinjured by the judgment in the suit or the party entitled to the avails of the suit."38 Succinctly put, theplaintiff’s standing is based on his own right to the relief sought.

The difficulty of determining locus standi arises in public suits. Here, the plaintiff who asserts a "public right" inassailing an allegedly illegal official action, does so as a representative of the general public. He may be aperson who is affected no differently from any other person. He could be suing as a "stranger," or in the categoryof a "citizen," or ‘taxpayer." In either case, he has to adequately show that he is entitled to seek judicialprotection. In other words, he has to make out a sufficient interest in the vindication of the public order and thesecuring of relief as a "citizen" or "taxpayer.

Case law in most jurisdictions now allows both "citizen" and "taxpayer" standing in public actions. The distinctionwas first laid down in Beauchamp v. Silk ,39 where it was held that the plaintiff in a taxpayer’s suit is in a differentcategory from the plaintiff in a citizen’s suit. In the former, the plaintiff is affected by the expenditure ofpublic funds, while in the latter, he is but the mere instrument of the public concern. As held by the NewYork Supreme Court in People ex rel Case v. Collins:40 "In matter of mere public right, however…the peopleare the real parties…It is at least the right, if not the duty, of every citizen to interfere and see that apublic offence be properly pursued and punished, and that a public grievance be remedied." With respectto taxpayer’s suits, Terr v. Jordan41 held that "the right of a citizen and a taxpayer to maintain an action incourts to restrain the unlawful use of public funds to his injury cannot be denied."

However, to prevent just about any person from seeking judicial interference in any official policy or act withwhich he disagreed with, and thus hinders the activities of governmental agencies engaged in public service, theUnited State Supreme Court laid down the more stringent "direct injury" test in Ex Parte Levitt ,42 laterreaffirmed inTileston v. Ullman.43 The same Court ruled that for a private individual to invoke the judicial power todetermine the validity of an executive or legislative action, he must show that he has sustained a direct injury



























































as a result of that action, and it is not sufficient that he has a general interest common to all members ofthe public.

This Court adopted the "direct injury" test in our jurisdiction. In People v. Vera,44 it held that the person whoimpugns the validity of a statute must have "a personal and substantial interest in the case such that he hassustained, or will sustain direct injury as a result." The Vera doctrine was upheld in a litany of cases, suchas,Custodio v. President of the Senate,45 Manila Race Horse Trainers’ Association v. De la Fuente,46 Pascual v.Secretary of Public Work s47 and Anti-Chinese League of the Philippines v. Felix .48

However, being a mere procedural technicality, the requirement of locus standi may be waived by the Court inthe exercise of its discretion. This was done in the 1949 Emergency Powers Cases, Araneta v.Dinglasan,49 where the "transcendental importance" of the cases prompted the Court to act liberally. Suchliberality was neither a rarity nor accidental. In Aquino v. Comelec ,50 this Court resolved to pass upon the issuesraised due to the "far-reaching implications" of the petition notwithstanding its categorical statement thatpetitioner therein had no personality to file the suit. Indeed, there is a chain of cases where this liberal policy hasbeen observed, allowing ordinary citizens, members of Congress, and civic organizations to prosecute actionsinvolving the constitutionality or validity of laws, regulations and rulings.51

Thus, the Court has adopted a rule that even where the petitioners have failed to show direct injury, they havebeen allowed to sue under the principle of "transcendental importance." Pertinent are the following cases:

(1) Chavez v. Public Estates Authority ,52 where the Court ruled that the enforcement of theconstitutional right to information and the equitable diffusion of natural resources are matters oftranscendental importance which clothe the petitioner with locus standi ;

(2 ) Bagong Alyansang Makabayan v. Zamora,53 wherein the Court held that "given the transcendentalimportance of the issues involved, the Court may relax the standing requirements and allow thesuit to prosper despite the lack of direct injury to the parties seeking judicial review" of theVisiting Forces Agreement;

(3) Lim v. Executive Secretary ,54 while the Court noted that the petitioners may not file suit in theircapacity as taxpayers absent a showing that "Balikatan 02-01" involves the exercise of Congress’ taxingor spending powers, it reiterated its ruling in Bagong Alyansang Makabayan v. Zamora,55that in casesof transcendental importance, the cases must be settled promptly and definitely and standingrequirements may be relaxed.

By way of summary, the following rules may be culled from the cases decided by this Court. Taxpayers, voters,concerned citizens, and legislators may be accorded standing to sue, provided that the following requirementsare met:

(1) the cases involve constitutional issues;

(2) for taxpayers, there must be a claim of illegal disbursement of public funds or that the tax measure isunconstitutional;

(3) for voters, there must be a showing of obvious interest in the validity of the election law in question;

(4) for concerned citizens, there must be a showing that the issues raised are of transcendentalimportance which must be settled early; and

(5) for legislators, there must be a claim that the official action complained of infringes upon theirprerogatives as legislators.

Significantly, recent decisions show a certain toughening in the Court’s attitude toward legal standing.

In Kilosbayan, Inc. v. Morato,56 the Court ruled that the status of Kilosbayan as a people’s organization does not

give it the requisite personality to question the validity of the on-line lottery contract, more so where it does notraise any issue of constitutionality. Moreover, it cannot sue as a taxpayer absent any allegation that public fundsare being misused. Nor can it sue as a concerned citizen as it does not allege any specific injury it has suffered.























































In Telecommunications and Broadcast Attorneys of the Philippines, Inc. v. Comelec ,57 the Court reiterated the"direct injury" test with respect to concerned citizens’ cases involving constitutional issues. It held that "theremust be a showing that the citizen personally suffered some actual or threatened injury arising from the allegedillegal official act."

In Lacson v. Perez ,58 the Court ruled that one of the petitioners, Laban ng Demokratikong Pilipino (LDP), is not areal party-in-interest as it had not demonstrated any injury to itself or to its leaders, members or supporters.

In Sanlakas v. Executive Secretary ,59 the Court ruled that only the petitioners who are members of Congresshave standing to sue, as they claim that the President’s declaration of a state of rebellion is a usurpation of theemergency powers of Congress, thus impairing their legislative powers. As to petitioners Sanlakas, PartidoManggagawa, and Social Justice Society , the Court declared them to be devoid of standing, equating them withthe LDP in Lacson.

Now, the application of the above principles to the present petitions.

The locus standi of petitioners in G.R. No. 171396, particularly David and Llamas, is beyond doubt. The sameholds true with petitioners in G.R. No. 171409, Cacho-Olivares and Tribune Publishing Co. Inc. They alleged"direct injury" resulting from "illegal arrest" and "unlawful search" committed by police operatives pursuant to PP1017. Rightly so, the Solicitor General does not question their legal standing.

In G.R. No. 171485, the opposition Congressmen alleged there was usurpation of legislative powers. They alsoraised the issue of whether or not the concurrence of Congress is necessary whenever the alarming powersincident to Martial Law are used. Moreover, it is in the interest of justice that those affected by PP 1017 can berepresented by their Congressmen in bringing to the attention of the Court the alleged violations of their basicrights.

In G.R. No. 171400, (ALGI), this Court applied the liberality rule in Philconsa v. Enriquez ,60 Kapatiran Ng MgaNaglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan,61 Association of Small Landowners in the Philippines, Inc.v. Secretary of Agrarian Reform,62 Basco v. Philippine Amusement and Gaming Corporation,63 and Tañada v.Tuvera,64 that when the issue concerns a public right, it is sufficient that the petitioner is a citizen and has aninterest in the execution of the laws.

In G.R. No. 171483, KMU’s assertion that PP 1017 and G.O. No. 5 violated its right to peaceful assembly maybe deemed sufficient to give it legal standing. Organizations may be granted standing to assert the rights oftheir members.65 We take judicial notice of the announcement by the Office of the President banning all ralliesand canceling all permits for public assemblies following the issuance of PP 1017 and G.O. No. 5.

In G.R. No. 171489, petitioners, Cadiz et al., who are national officers of the Integrated Bar of thePhilippines (IBP) have no legal standing, having failed to allege any direct or potential injury which the IBP asan institution or its members may suffer as a consequence of the issuance of PP No. 1017 and G.O. No. 5.In Integrated Bar of the Philippines v. Zamora,66 the Court held that the mere invocation by the IBP of its duty topreserve the rule of law and nothing more, while undoubtedly true, is not sufficient to clothe it with standing inthis case. This is too general an interest which is shared by other groups and the whole citizenry. However, in

view of the transcendental importance of the issue, this Court declares that petitioner have locus standi.

In G.R. No. 171424, Loren Legarda has no personality as a taxpayer to file the instant petition as there are noallegations of illegal disbursement of public funds. The fact that she is a former Senator is of noconsequence. She can no longer sue as a legislator on the allegation that her prerogatives as a lawmaker havebeen impaired by PP 1017 and G.O. No. 5. Her claim that she is a media personality will not likewise aid herbecause there was no showing that the enforcement of these issuances prevented her from pursuing heroccupation. Her submission that she has pending electoral protest before the Presidential Electoral Tribunal islikewise of no relevance. She has not sufficiently shown that PP 1017 will affect the proceedings or result of hercase. But considering once more the transcendental importance of the issue involved, this Court mayrelax the standing rules.

It must always be borne in mind that the question of locus standi is but corollary to the bigger question of properexercise of judicial power. This is the underlying legal tenet of the "liberality doctrine" on legal standing. It cannotbe doubted that the validity of PP No. 1017 and G.O. No. 5 is a judicial question which is of paramountimportance to the Filipino people. To paraphrase Justice Laurel, the whole of Philippine society now waits withbated breath the ruling of this Court on this very critical matter. The petitions thus call for the application of the











































"transcendental importance" doctrine, a relaxation of the standing requirements for the petitioners in the "PP1017 cases."1avvphil.net

This Court holds that all the petitioners herein have locus standi .

Incidentally, it is not proper to implead President Arroyo as respondent. Settled is the doctrine that the President,during his tenure of office or actual incumbency,67 may not be sued in any civil or criminal case, and there is noneed to provide for it in the Constitution or law. It will degrade the dignity of the high office of the President, theHead of State, if he can be dragged into court litigations while serving as such. Furthermore, it is important thathe be freed from any form of harassment, hindrance or distraction to enable him to fully attend to theperformance of his official duties and functions. Unlike the legislative and judicial branch, only one constitutesthe executive branch and anything which impairs his usefulness in the discharge of the many great andimportant duties imposed upon him by the Constitution necessarily impairs the operation of the Government.However, this does not mean that the President is not accountable to anyone. Like any other official, he remainsaccountable to the people68 but he may be removed from office only in the mode provided by law and that is byimpeachment.69

B. SUBSTANTIVE

I. Review o f Factual Bases

Petitioners maintain that PP 1017 has no factual basis. Hence, it was not "necessary" for President Arroyo toissue such Proclamation.

The issue of whether the Court may review the factual bases of the President’s exercise of his Commander -in-Chief power has reached its distilled point - from the indulgent days of Barcelon v. Baker 70 and Montenegro v.Castaneda71 to the volatile era of Lansang v. Garcia,72 Aquino, Jr. v. Enrile,73 and Garcia-Padilla v. Enrile.74 Thetug-of-war always cuts across the line defining "political questions," particularly those questions "in regard towhich full discretionary authority has been delegated to the legislative or executive branch of thegovernment."75Barcelon and Montenegro were in unison in declaring that the authority to decide whether anexigency has arisen belongs to the President and his decision is final and conclusive on thecourts. Lansang took the opposite view. There, the members of the Court were unanimous in the conviction thatthe Court has the authority to inquire into the existence of factual bases in order to determine their constitutionalsufficiency . From the principle of separation of powers, it shifted the focus to the system of checks andbalances, "under which the President is supreme, x x x only i f and when he acts within the sphereallotted to him by the Basic Law, and the authority to determine whether or not he has so acted is vestedin the Judicial Department, which in th is respect , is, in turn, constitutionally supreme ."76 In 1973, theunanimous Court of Lansang was divided in Aquino v. Enrile.77 There, the Court was almost evenly divided on theissue of whether the validity of the imposition of Martial Law is a political or justiciable question.78 Thencame Garcia-Padilla v. Enrile which greatly diluted Lansang . It declared that there is a need to re-examine thelatter case, ratiocinating that "in times of war or national emergency, the President must be given absolutecontrol for the very life of the nation and the government is in great peril. The President, it intoned, isanswerable only to his conscience, the People, and God."79

The Integrated Bar of the Philippines v. Zamora80 -- a recent case most pertinent to these cases at bar -- echoeda principle similar to Lansang. While the Court considered the President’s "calling-out" power as a discretionarypower solely vested in his wisdom, it stressed that "this does not prevent an examination of whether suchpower was exercised within permissible constitutional limits or whether it was exercised in a mannerconstituting grave abuse of discretion."This ruling is mainly a result of the Court’s reliance on Section 1, Article VIII of 1987 Constitution which fortifies the authority of the courts to determine in an appropriate actionthe validity of the acts of the political departments. Under the new definition of judicial power, the courts areauthorized not only "to settle actual controversies involving rights which are legally demandable andenforceable," but also "to determine whether or not there has been a grave abuse of discretion amountingto lack or excess of jurisdiction on the part of any branch or instrumentality of the government." Thelatter part of the authority represents a broadening of judicial power to enable the courts of justice to review whatwas before a forbidden territory, to wit, the discretion of the political departments of the government.81 It speaksof judicial prerogative not only in terms of power but also of duty.82

As to how the Court may inquire into the President’s exercise of power, Lansang adopted the test that "judicialinquiry can go no further than to satisfy the Court not that the President’s decision is correct," but that "thePresident did not act arbitrarily ." Thus, the standard laid down is not correctness, butarbitrariness.83 In Integrated Bar of the Philippines, this Court further ruled that "it is incumbent upon the



































































petitioner to show that the President’s decision is totally bereft of factual basis" and that if he fails, by wayof proof, to support his assertion, then "this Court cannot undertake an independent investigation beyondthe pleadings."

Petitioners failed to show that President Arroyo’s exercise of the calling-out power, by issuing PP 1017, is totallybereft of factual basis. A reading of the Solicitor General’s Consolidated Comment and Memorandum shows adetailed narration of the events leading to the issuance of PP 1017, with supporting reports forming part of therecords. Mentioned are the escape of the Magdalo Group, their audacious threat of the Magdalo D-Day , thedefections in the military, particularly in the Philippine Marines, and the reproving statements from thecommunist leaders. There was also the Minutes of the Intelligence Report and Security Group of the Philippine Army showing the growing alliance between the NPA and the military. Petitioners presented nothing to refutesuch events. Thus, absent any contrary allegations, the Court is convinced that the President was justified inissuing PP 1017 calling for military aid.

Indeed, judging the seriousness of the incidents, President Arroyo was not expected to simply fold her arms anddo nothing to prevent or suppress what she believed was lawless violence, invasion or rebellion. However, theexercise of such power or duty must not stifle liberty.

II. Const itution ality of PP 1017 and G.O. No. 5 Doctrines of Several Political Theorists

on the Power of the President in Times of Emergency

This case brings to fore a contentious subject -- the power of the President in times of emergency. A glimpse atthe various political theories relating to this subject provides an adequate backdrop for our ensuing discussion.

John Locke, describing the architecture of civil government, called upon the English doctrine of prerogative tocope with the problem of emergency. In times of danger to the nation, positive law enacted by the legislaturemight be inadequate or even a fatal obstacle to the promptness of action necessary to avert catastrophe. Inthese situations, the Crown retained a prerogative "power to act according to discretion for the public good,without the proscription of the law and sometimes even against it ."84 But Locke recognized that this moralrestraint might not suffice to avoid abuse of prerogative powers. Who shall judge the need for resorting to theprerogative and how may its abuse be avoided? Here, Locke readily admitted defeat, suggesting that "thepeople have no other remedy in this, as in all other cases where they have no judge on earth, but toappeal to Heaven."85

Jean-Jacques Rousseau also assumed the need for temporary suspension of democratic processes ofgovernment in time of emergency. According to him:

The inflexibility of the laws, which prevents them from adopting themselves to circumstances, may, in certaincases, render them disastrous and make them bring about, at a time of crisis, the ruin of the State…

It is wrong therefore to wish to make political institutions as strong as to render it impossible to suspend theiroperation. Even Sparta allowed its law to lapse...

If the peril is of such a kind that the paraphernalia of the laws are an obstacle to their preservation, the method isto nominate a supreme lawyer, who shall silence all the laws and suspend for a moment the sovereign authority.In such a case, there is no doubt about the general will, and it clear that the people’s first intention is that theState shall not perish.86

Rosseau did not fear the abuse of the emergency dictatorship or "supreme magistracy" as he termed it. Forhim, it would more likely be cheapened by "indiscreet use." He was unwilling to rely upon an "appeal toheaven." Instead, he relied upon a tenure of office of prescribed duration to avoid perpetuation of thedictatorship.87

John Stuart Mill concluded his ardent defense of representative government: "I am far from condemning, incases of extreme necessity, the assumption of absolute power in the form of a temporary dictatorship."88

Nicollo Machiavelli’s view of emergency powers, as one element in the whole scheme of limited government,furnished an ironic contrast to the Lockean theory of prerogative. He recognized and attempted to bridge thischasm in democratic political theory, thus:























Now, in a well-ordered society, it should never be necessary to resort to extra –constitutional measures; foralthough they may for a time be beneficial, yet the precedent is pernicious, for if the practice is once establishedfor good objects, they will in a little while be disregarded under that pretext but for evil purposes. Thus, norepublic will ever be perfect if she has not by law provided for everything, having a remedy for every emergencyand fixed rules for applying it.89

Machiavelli – in contrast to Locke, Rosseau and Mill – sought to incorporate into the constitution a regularizedsystem of standby emergency powers to be invoked with suitable checks and controls in time of national danger.He attempted forthrightly to meet the problem of combining a capacious reserve of power and speed and vigor inits application in time of emergency, with effective constitutional restraints.90

Contemporary political theorists, addressing themselves to the problem of response to emergency byconstitutional democracies, have employed the doctrine of constitutional dictatorship.91 Frederick M. Watkinssaw "no reason why absolutism should not be used as a means for the defense of liberal institutions,"provided it "serves to protect established institutions from the danger of permanent injury in a period oftemporary emergency and is followed by a prompt return to the previous forms of political life."92 Herecognized the two (2) key elements of the problem of emergency governance, as well as all constitutionalgovernance: increasing administrative powers of the executive, while at the same time "imposinglimitation upon that power ."93 Watkins placed his real faith in a scheme of constitutional dictatorship. These arethe conditions of success of such a dictatorship: "The period of dictatorship must be relativelyshort…Dictatorship should always be strictly legitimate in character…Final authority to determine the

need for dictatorship in any given case must never rest with the dictator himself …"94 and the objective ofsuch an emergency dictatorship should be "strict political conservatism."

Carl J. Friedrich cast his analysis in terms similar to those of Watkins.95 "It is a problem of concentrating power – in a government where power has consciously been divided – to cope with… situations of unprecedentedmagnitude and gravity. There must be a broad grant of powers, subject to equally strong limitations as to whoshall exercise such powers, when, for how long, and to what end."96 Friedrich, too, offered criteria for judging theadequacy of any of scheme of emergency powers, to wit: "The emergency executive must be appointed byconstitutional means – i.e., he must be legitimate; he should not enjoy power to determine the existenceof an emergency; emergency powers should be exercised under a strict time limitation; and last, theobjective of emergency action must be the defense of the constitutional order ."97

Clinton L. Rossiter, after surveying the history of the employment of emergency powers in Great Britain, France,Weimar, Germany and the United States, reverted to a description of a scheme of "constitutional dictatorship" assolution to the vexing problems presented by emergency.98 Like Watkins and Friedrich, he stated a priori theconditions of success of the "constitutional dictatorship," thus:

1) No general regime or particular institution of constitutional dictatorship should be initiated unless it isnecessary or even indispensable to the preservation of the State and its constitutional order…

2) …the decision to institute a constitutional dictatorship should never be in the hands of the man or menwho will constitute the dictator…

3) No government should initiate a constitutional dictatorship without making specific provisions for itstermination…

4) …all uses of emergency powers and all readjustments in the organization of the government shouldbe effected in pursuit of constitutional or legal requirements…

5) … no dictatorial institution should be adopted, no right invaded, no regular procedure altered anymore than is absolutely necessary for the conquest of the particular crisis . . .

6) The measures adopted in the prosecution of the a constitutional dictatorship should never bepermanent in character or effect…

7) The dictatorship should be carried on by persons representative of every part of the citizenryinterested in the defense of the existing constitutional order. . .

8) Ultimate responsibility should be maintained for every action taken under a constitutional dictatorship.. .











































9) The decision to terminate a constitutional dictatorship, like the decision to institute one should neverbe in the hands of the man or men who constitute the dictator. . .

10) No constitutional dictatorship should extend beyond the termination of the crisis for which it wasinstituted…

11) …the termination of the crisis must be followed by a complete return as possible to the political andgovernmental conditions existing prior to the initiation of the constitutional dictatorship…99

Rossiter accorded to legislature a far greater role in the oversight exercise of emergency powers than didWatkins. He would secure to Congress final responsibility for declaring the existence or termination of anemergency, and he places great faith in the effectiveness of congressional investigating committees.100

Scott and Cotter , in analyzing the above contemporary theories in light of recent experience, were one in sayingthat, "the suggestion that democracies surrender the control of government to an authoritarian ruler intime of grave danger to the nation is not based upon sound constitutional theory." To appraise emergencypower in terms of constitutional dictatorship serves merely to distort the problem and hinder realistic analysis. Itmatters not whether the term "dictator" is used in its normal sense (as applied to authoritarian rulers) or isemployed to embrace all chief executives administering emergency powers. However used, "constitutionaldictatorship" cannot be divorced from the implication of suspension of the processes of constitutionalism. Thus,they favored instead the "concept of constitutionalism" articulated by Charles H. McIlwain:

A concept of constitutionalism which is less misleading in the analysis of problems of emergency powers, andwhich is consistent with the findings of this study, is that formulated by Charles H. McIlwain. While it does not byany means necessarily exclude some indeterminate limitations upon the substantive powers of government, fullemphasis is placed upon procedural limitations, and political responsibility. McIlwain clearly recognized theneed to repose adequate power in government. And in discussing the meaning of constitutionalism, he insistedthat the historical and proper test of constitutionalism was the existence of adequate processes forkeeping government responsible. He refused to equate constitutionalism with the enfeebling of governmentby an exaggerated emphasis upon separation of powers and substantive limitations on governmental power. Hefound that the really effective checks on despotism have consisted not in the weakening of government but, butrather in the limiting of it; between which there is a great and very significant difference. In associatingconstitutionalism with "limited" as distinguished from "weak" government, McIlwain meant governmentlimited to the orderly procedure of law as opposed to the processes of force. The two fundamentalcorrelative elements of constitutionalism for which all lovers of liberty must yet fight are the legal limitsto arbitrary power and a complete political responsibility of government to the governed.101

In the final analysis, the various approaches to emergency of the above political theorists –- from Lock’s "theoryof prerogative," to Watkins’ doctrine of "constitutional dictatorship" and, eventually, to McIlwain’s "principle ofconstitutionalism" --- ultimately aim to solve one real problem in emergency governance, i.e., that of allottingincreasing areas of discretionary power to the Chief Executive, while insuring that such powers will beexercised with a sense of political responsibility and under effective limitations and checks.

Our Constitution has fairly coped with this problem. Fresh from the fetters of a repressive regime, the 1986Constitutional Commission, in drafting the 1987 Constitution, endeavored to create a government in the conceptof Justice Jackson’s "balanced power structure."102 Executive, legislative, and judicial powers are dispersed tothe President, the Congress, and the Supreme Court, respectively. Each is supreme within its own sphere. Butnone has the monopoly of power in times of emergency. Each branch is given a role to serve aslimitation or check upon the other. This system does not weaken the President, it just limits his power, usingthe language of McIlwain. In other words, in times of emergency, our Constitution reasonably demands that werepose a certain amount of faith in the basic integrity and wisdom of the Chief Executive but, at the same time, itobliges him to operate within carefully prescribed procedural limitations.

a. "Facial Challenge"

Petitioners contend that PP 1017 is void on its face because of its "overbreadth." They claim that itsenforcement encroached on both unprotected and protected rights under Section 4, Article III of theConstitution and sent a "chilling effect" to the citizens.

A facial review of PP 1017, using the overbreadth doctrine, is uncalled for.


















First and foremost , the overbreadth doctrine is an analytical tool developed for testing "on their faces"statutes infree speech cases, also known under the American Law as First Amendment cases.103

A plain reading of PP 1017 shows that it is not primarily directed to speech or even speech-related conduct. It isactually a call upon the AFP to prevent or suppress all forms of lawless violence. In United States v.Salerno,104the US Supreme Court held that "we have not recognized an ‘overbreadth’ doctrine outside thelimited context of the First Amendment" (freedom of speech).

Moreover, the overbreadth doctrine is not intended for testing the validity of a law that "reflects legitimate stateinterest in maintaining comprehensive control over harmful, constitutionally unprotected conduct." Undoubtedly,lawless violence, insurrection and rebellion are considered "harmful" and "constitutionally unprotected conduct."InBroadrick v. Oklahoma,105 it was held:

It remains a ‘matter of no little difficulty’ to determine when a law may properly be held void on its face and when‘such summary action’ is inappropriate. But the plain import of our cases is, at the very least, that facialoverbreadth adjudication is an exception to our traditional rules of practice and that its function, alimited one at the outset, attenuates as the otherwise unprotected behavior that it forbids the State tosanction moves from ‘pure speech’ toward conduct and that conduct –even if expressive – falls withinthe scope of otherwise valid criminal laws that reflect legitimate state interests in maintainingcomprehensive controls over harmful, constitutionally unprotected conduct.

Thus, claims of facial overbreadth are entertained in cases involving statutes which, by their terms, seek toregulate only "spoken words" and again, that "overbreadth claims, if entertained at all, have been curtailedwhen invoked against ordinary criminal laws that are sought to be applied to protected conduct."106Here,the incontrovertible fact remains that PP 1017 pertains to a spectrum of conduct, not free speech, which ismanifestly subject to state regulation.

Second, facial invalidation of laws is considered as "manifestly strong medicine," to be used "sparingly andonly as a last resort," and is "generally disfavored;"107 The reason for this is obvious. Embedded in thetraditional rules governing constitutional adjudication is the principle that a person to whom a law may be appliedwill not be heard to challenge a law on the ground that it may conceivably be applied unconstitutionally to others,i.e., in other situations not before the Court.108 A writer and scholar in Constitutional Law explains further:

The most distinctive feature of the overbreadth technique is that it marks an exception to some of theusual rules of constitutional litigation. Ordinarily, a particular litigant claims that a statute isunconstitutional as applied to him or her; if the litigant prevails, the courts carve away theunconstitutional aspects of the law by invalidating its improper applications on a case to case basis.Moreover, challengers to a law are not permitted to raise the rights of third parties and can only asserttheir own interests. In overbreadth analysis, those rules give way; challenges are permitted to raise therights of third parties; and the court invalidates the entire statute "on its face," not merely "as applied for" sothat the overbroad law becomes unenforceable until a properly authorized court construes it more narrowly. Thefactor that motivates courts to depart from the normal adjudicatory rules is the concern with the "chilling;"deterrent effect of the overbroad statute on third parties not courageous enough to bring suit. The Courtassumes that an overbroad law’s "very existence may cause others not before the court to refrain fromconstitutionally protected speech or expression." An overbreadth ruling is designed to remove that deterrent

effect on the speech of those third parties.

In other words, a facial challenge using the overbreadth doctrine will require the Court to examine PP 1017 andpinpoint its flaws and defects, not on the basis of its actual operation to petitioners, but on the assumption orprediction that its very existence may cause others not before the Court to refrain from constitutionallyprotected speech or expression. In Younger v. Harris,109 it was held that:

[T]he task of analyzing a proposed statute, pinpointing its deficiencies, and requiring correction of thesedeficiencies before the statute is put into effect, is rarely if ever an appropriate task for the judiciary. Thecombination of the relative remoteness of the controversy, the impact on the legislative process of therelief sought, and above all the speculative and amorphous nature of the required line-by-line analysis ofdetailed statutes,...ordinarily results in a kind of case that is wholly unsatisfactory for deciding constitutional

questions, whichever way they might be decided.

And third, a facial challenge on the ground of overbreadth is the most difficult challenge to mount successfully,since the challenger must establish that there can be no instance when the assailed law may be valid . Here,petitioners did not even attempt to show whether this situation exists.






























Petitioners likewise seek a facial review of PP 1017 on the ground of vagueness. This, too, is unwarranted.

Related to the "overbreadth" doctrine is the "void for vagueness doctrine" which holds that "a law is faciallyinvalid if men of common intelligence must necessarily guess at its meaning and differ as to itsapplication."110 It is subject to the same principles governing overbreadth doctrine. For one, it is also ananalytical tool for testing "on their faces" statutes in free speech cases. And like overbreadth, it is said that alitigant may challenge a statute on its face only if it is vague in all its possible applications. Again,petitioners did not even attempt to show that PP 1017 is vague in all its application. They also failed toestablish that men of common intelligence cannot understand the meaning and application of PP 1017.

b. Constitutional Basis of PP 1017

Now on the constitutional foundation of PP 1017.

The operative portion of PP 1017 may be divided into three important provisions, thus:

First provis ion:

"by virtue of the power vested upon me by Section 18, Artilce VII … do hereby command the Armed Forces ofthe Philippines, to maintain law and order throughout the Philippines, prevent or suppress all forms of lawless

violence as well any act of insurrection or rebellion"

Second prov is ion:

"and to enforce obedience to all the laws and to all decrees, orders and regulations promulgated by mepersonally or upon my direction;"

Third prov is ion:

"as provided in Section 17, Article XII of the Constitution do hereby declare a State of National Emergency."

First Provision: Cal l ing-out Power

The first provision pertains to the President’s calling-out power. In Sanlakas v. Executive Secretary ,111 this Court,through Mr. Justice Dante O. Tinga, held that Section 18, Article VII of the Constitution reproduced as follows:

Sec. 18. The President shall be the Commander-in-Chief of all armed forces of the Philippines and whenever itbecomes necessary, he may call out such armed forces to prevent or suppress lawless violence,invasion or rebellion. In case of invasion or rebellion, when the public safety requires it, he may, for a periodnot exceeding sixty days, suspend the privilege of the writ of habeas corpus or place the Philippines or any partthereof under martial law. Within forty-eight hours from the proclamation of martial law or the suspension of theprivilege of the writ of habeas corpus, the President shall submit a report in person or in writing to the Congress.The Congress, voting jointly, by a vote of at least a majority of all its Members in regular or special session, mayrevoke such proclamation or suspension, which revocation shall not be set aside by the President. Upon theinitiative of the President, the Congress may, in the same manner, extend such proclamation or suspension for aperiod to be determined by the Congress, if the invasion or rebellion shall persist and public safety requires it.

The Congress, if not in session, shall within twenty-four hours following such proclamation or suspension,convene in accordance with its rules without need of a call.

The Supreme Court may review, in an appropriate proceeding filed by any citizen, the sufficiency of the factualbases of the proclamation of martial law or the suspension of the privilege of the writ or the extension thereof,and must promulgate its decision thereon within thirty days from its filing.

A state of martial law does not suspend the operation of the Constitution, nor supplant the functioning of the civilcourts or legislative assemblies, nor authorize the conferment of jurisdiction on military courts and agencies overcivilians where civil courts are able to function, nor automatically suspend the privilege of the writ.

The suspension of the privilege of the writ shall apply only to persons judicially charged for rebellion or offensesinherent in or directly connected with invasion.











During the suspension of the privilege of the writ, any person thus arrested or detained shall be judiciallycharged within three days, otherwise he shall be released.

grants the President, as Commander-in-Chief, a "sequence" of graduated powers. From the most to the leastbenign, these are: the calling-out power, the power to suspend the privilege of the writ of habeas corpus, and thepower to declare Martial Law. Citing Integrated Bar of the Philippines v. Zamora,112 the Court ruled that the onlycriterion for the exercise of the calling-out power is that "whenever it becomes necessary," the President maycall the armed forces "to prevent or suppress lawless violence, invasion or rebellion." Are these conditions present in the instant cases? As stated earlier, considering the circumstances then prevailing, President Arroyofound it necessary to issue PP 1017. Owing to her Office’s vast intelligence network, she is in the best positionto determine the actual condition of the country.

Under the calling-out power, the President may summon the armed forces to aid him in suppressing lawlessviolence, invasion and rebellion. This involves ordinary police action. But every act that goes beyond thePresident’s calling-out power is considered illegal or ultra vires. For this reason, a President must be careful inthe exercise of his powers. He cannot invoke a greater power when he wishes to act under a lesser power.There lies the wisdom of our Constitution, the greater the power, the greater are the limitations.

It is pertinent to state, however, that there is a distinction between the President’s authority to declare a"state of rebellion" (in Sanlakas ) and the authority to proclaim a state of national emergency. WhilePresident Arroyo’s authority to declare a "state of rebellion" emanates from her powers as Chief Executive, the

statutory authority cited in Sanlakas was Section 4, Chapter 2, Book II of the Revised Administrative Code of1987, which provides:

SEC. 4. – Proclamations. – Acts of the President fixing a date or declaring a status or condition of public momentor interest, upon the existence of which the operation of a specific law or regulation is made to depend, shall bepromulgated in proclamations which shall have the force of an executive order.

President Arroyo’s declaration of a "state of rebellion" was merely an act declaring a status or condition of publicmoment or interest, a declaration allowed under Section 4 cited above. Such declaration, in the wordsof Sanlakas, is harmless, without legal significance, and deemed not written. In these cases, PP 1017 is morethan that. In declaring a state of national emergency, President Arroyo did not only rely on Section 18, ArticleVII of the Constitution, a provision calling on the AFP to prevent or suppress lawless violence, invasionor rebellion. She also relied on Section 17, Article XII, a provision on the State’s extraordinary power totake over privately-owned public utility and business affected with public interest. Indeed, PP 1017 callsfor the exercise of an awesome power . Obviously, such Proclamation cannot be deemed harmless, withoutlegal significance, or not written, as in the case of Sanlakas.

Some of the petitioners vehemently maintain that PP 1017 is actually a declaration of Martial Law. It is no so.What defines the character of PP 1017 are its wordings. It is plain therein that what the President invoked washer calling-out power.

The declaration of Martial Law is a "warn[ing] to citizens that the military power has been called upon by theexecutive to assist in the maintenance of law and order, and that, while the emergency lasts, they must, uponpain of arrest and punishment, not commit any acts which will in any way render more difficult the restoration oforder and the enforcement of law."113

In his "Statement before the Senate Committee on Justice" on March 13, 2006, Mr. Justice Vicente V.Mendoza,114 an authority in constitutional law, said that of the three powers of the President as Commander-in-Chief, the power to declare Martial Law poses the most severe threat to civil liberties. It is a strong medicinewhich should not be resorted to lightly. It cannot be used to stifle or persecute critics of the government. It isplaced in the keeping of the President for the purpose of enabling him to secure the people from harm and torestore order so that they can enjoy their individual freedoms. In fact, Section 18, Art. VII, provides:

A state of martial law does not suspend the operation of the Constitution, nor supplant the functioning of the civilcourts or legislative assemblies, nor authorize the conferment of jurisdiction on military courts and agencies overcivilians where civil courts are able to function, nor automatically suspend the privilege of the writ.

Justice Mendoza also stated that PP 1017 is not a declaration of Martial Law. It is no more than a call by thePresident to the armed forces to prevent or suppress lawless violence. As such, it cannot be used to justify actsthat only under a valid declaration of Martial Law can be done. Its use for any other purpose is a perversion of itsnature and scope, and any act done contrary to its command is ultra vires.















Justice Mendoza further stated that specifically, (a) arrests and seizures without judicial warrants; (b)ban on public assemblies; (c) take-over of news media and agencies and press censorship; and (d)issuance of Presidential Decrees, are powers which can be exercised by the President as Commander-in-Chief only where there is a valid declaration of Martial Law or suspension of the writ of habeascorpus .

HELD:

Based on the above disquisition, it is clear that PP 1017 is not a declaration of Martial Law. It is merely anexercise of President Arroyo’s calling-out power for the armed forces to assist her in preventing orsuppressing lawless violence.

Second Provision : "Take Care" Power

The second provision pertains to the power of the President to ensure that the laws be faithfully executed. Thisis based on Section 17, Article VII which reads:

SEC. 17. The President shall have control of all the executive departments, bureaus, and offices. He shallensure that the laws be faithfully executed.

As the Executive in whom the executive power is vested,115

the primary function of the President is to enforce thelaws as well as to formulate policies to be embodied in existing laws. He sees to it that all laws are enforced bythe officials and employees of his department. Before assuming office, he is required to take an oath oraffirmation to the effect that as President of the Philippines, he will, among others, "execute its laws."116 In theexercise of such function, the President, if needed, may employ the powers attached to his office as theCommander-in-Chief of all the armed forces of the country,117 including the Philippine National Police118 underthe Department of Interior and Local Government.119

Petitioners, especially Representatives Francis Joseph G. Escudero, Satur Ocampo, Rafael Mariano, TeodoroCasiño, Liza Maza, and Josel Virador argue that PP 1017 is unconstitutional as it arrogated upon President Arroyo the power to enact laws and decrees in violation of Section 1, Article VI of the Constitution, which veststhe power to enact laws in Congress. They assail the clause "to enforce obedience to all the laws and to all

decrees, orders and regulations promulgated by me personally or upon my direction."

\

Petitioners’ contention is understandable. A reading of PP 1017 operative clause shows that it was lifted120 fromFormer President Marcos’ Proclamation No. 1081, which partly reads:

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines by virtue of the powers vestedupon me by Article VII, Section 10, Paragraph (2) of the Constitution, do hereby place the entire Philippines asdefined in Article 1, Section 1 of the Constitution under martial law and, in my capacity as their Commander-in-Chief, do hereby command the Armed Forces of the Philippines, to maintain law and order throughoutthe Philippines, prevent or suppress all forms of lawless violence as well as any act of insurrection or

rebellion and to enforce obedience to all the laws and decrees, orders and regulations promulgated byme personally or upon my direction.

We all know that it was PP 1081 which granted President Marcos legislative power. Its enabling clausestates: "to enforce obedience to all the laws and decrees, orders and regulations promulgated by mepersonally or upon my direction." Upon the other hand, the enabling clause of PP 1017 issued by President Arroyo is: to enforce obedience to all the laws and to al l decrees, orders and regulations promulgated byme personally or upon my direction."

Is it within the domain of President Arroyo to promulgate " decrees "?

PP 1017 states in part: "to enforce obedience to all the laws and decrees x x x promulgated by me personally

or upon my direction."

The President is granted an Ordinance Power under Chapter 2, Book III of Executive Order No. 292(Administrative Code of 1987). She may issue any of the following:



























Sec. 2. Executive Orders. — Acts of the President providing for rules of a general or permanent character inimplementation or execution of constitutional or statutory powers shall be promulgated in executive orders.

Sec. 3. Administrative Orders. — Acts of the President which relate to particular aspect of governmentaloperations in pursuance of his duties as administrative head shall be promulgated in administrative orders.

Sec. 4. Proclamations. — Acts of the President fixing a date or declaring a status or condition of public momentor interest, upon the existence of which the operation of a specific law or regulation is made to depend, shall bepromulgated in proclamations which shall have the force of an executive order.

Sec. 5. Memorandum Orders. — Acts of the President on matters of administrative detail or of subordinate ortemporary interest which only concern a particular officer or office of the Government shall be embodied inmemorandum orders.

Sec. 6. Memorandum Circulars. — Acts of the President on matters relating to internal administration, which thePresident desires to bring to the attention of all or some of the departments, agencies, bureaus or offices of theGovernment, for information or compliance, shall be embodied in memorandum circulars.

Sec. 7. General or Special Orders. — Acts and commands of the President in his capacity as Commander-in-Chief of the Armed Forces of the Philippines shall be issued as general or special orders.

President Arroyo’s ordinance power is limited to the foregoing issuances. She cannot issue decrees similar tothose issued by Former President Marcos under PP 1081. Presidential Decrees are laws which are of the samecategory and binding force as statutes because they were issued by the President in the exercise of hislegislative power during the period of Martial Law under the 1973 Constitution.121

This Court rules that the assailed PP 1017 is unconstitutional insofar as it grants President Arroyo theauthority to promulgate "decrees." Legislative power is peculiarly within the province of the Legislature.Section 1, Article VI categorically states that "[t]he legislative power shall be vested in the Congress of thePhilippines which shall consist of a Senate and a House of Representatives." To be sure, neither MartialLaw nor a state of rebellion nor a state of emergency can justify President Arroyo’s exercise of legislative powerby issuing decrees.

Can President Arroyo enforce obedience to all decrees and laws through the military ?

As this Court stated earlier, President Arroyo has no authority to enact decrees. It follows that these decrees arevoid and, therefore, cannot be enforced. With respect to "laws," she cannot call the military to enforce orimplement certain laws, such as customs laws, laws governing family and property relations, laws on obligationsand contracts and the like. She can only order the military, under PP 1017, to enforce laws pertinent to itsduty to suppress lawless violence.

Third Provision: Power to Take Over

The pertinent provision of PP 1017 states:

x x x and to enforce obedience to all the laws and to all decrees, orders, and regulations promulgated by mepersonally or upon my direction; and as provided in Section 17, Article XII of the Constitution do herebydeclare a state of national emergency.

The import of this provision is that President Arroyo, during the state of national emergency under PP 1017, cancall the military not only to enforce obedience "to all the laws and to all decrees x x x" but also to act pursuant tothe provision of Section 17, Article XII which reads:

Sec. 17. In times of national emergency, when the public interest so requires, the State may, during theemergency and under reasonable terms prescribed by it, temporarily take over or direct the operation of anyprivately-owned public utility or business affected with public interest.

What could be the reason of President Arroyo in invoking the above provision when she issued PP 1017?







The answer is simple. During the existence of the state of national emergency, PP 1017 purports to grant thePresident, without any authority or delegation from Congress, to take over or direct the operation of anyprivately-owned public utility or business affected with public interest.

This provision was first introduced in the 1973 Constitution, as a product of the "martial law" thinking of the 1971Constitutional Convention.122 In effect at the time of its approval was President Marcos’ Letter of Instruction No. 2dated September 22, 1972 instructing the Secretary of National Defense to take over "the management, controland operation of the Manila Electric Company, the Philippine Long Distance Telephone Company, the NationalWaterworks and Sewerage Authority, the Philippine National Railways, the Philippine Air Lines, Air Manila (and)Filipinas Orient Airways . . . for the successful prosecution by the Government of its effort to contain, solve andend the present national emergency."

Petitioners, particularly the members of the House of Representatives, claim that President Arroyo’s inclusion ofSection 17, Article XII in PP 1017 is an encroachment on the legislature’s emergency powers.

This is an area that needs delineation.

A distinction must be drawn between the President’s authority to declare "a state of national emergency" andtoexercise emergency powers. To the first, as elucidated by the Court, Section 18, Article VII grants thePresident such power, hence, no legitimate constitutional objection can be raised. But to the second, manifoldconstitutional issues arise.

Section 23, Article VI of the Constitution reads:

SEC. 23. (1) The Congress, by a vote of two-thirds of both Houses in joint session assembled, voting separately,shall have the sole power to declare the existence of a state of war .

(2) In times of war or other national emergency, the Congress may, by law, authorize the President, for alimited period and subject to such restrictions as it may prescribe, to exercise powers necessary and proper tocarry out a declared national policy. Unless sooner withdrawn by resolution of the Congress, such powers shallcease upon the next adjournment thereof.

It may be pointed out that the second paragraph of the above provision refers not only to war but also to "othernational emergency." If the intention of the Framers of our Constitution was to withhold from the President theauthority to declare a "state of national emergency" pursuant to Section 18, Article VII (calling-out power) andgrant it to Congress (like the declaration of the existence of a state of war), then the Framers could haveprovided so. Clearly, they did not intend that Congress should first authorize the President before he can declarea "state of national emergency." The logical conclusion then is that President Arroyo could validly declare theexistence of a state of national emergency even in the absence of a Congressional enactment.

But the exercise of emergency powers, such as the taking over of privately owned public utility or businessaffected with public interest, is a different matter. This requires a delegation from Congress.

Courts have often said that constitutional provisions in pari materia are to be construed together. Otherwise

stated, different clauses, sections, and provisions of a constitution which relate to the same subject matter will beconstrued together and considered in the light of each other .123 Considering that Section 17 of Article XII andSection 23 of Article VI, previously quoted, relate to national emergencies, they must be read together todetermine the limitation of the exercise of emergency powers.

Generally, Congress is the repository of emergency powers. This is evident in the tenor of Section 23 (2), Article VI authorizing it to delegate such powers to the President. Certainly, a body cannot delegate a powernot reposed upon it. However, knowing that during grave emergencies, it may not be possible or practicable forCongress to meet and exercise its powers, the Framers of our Constitution deemed it wise to allow Congress togrant emergency powers to the President, subject to certain conditions, thus:

(1) There must be a war or other emergency.

(2) The delegation must be for a limited period only.

(3) The delegation must be subject to such restrictions as the Congress may prescribe.











(4) The emergency powers must be exercised to carry out a national policy declared by Congress.124

Section 17, Article XII must be understood as an aspect of the emergency powers clause. The taking over ofprivate business affected with public interest is just another facet of the emergency powers generally reposedupon Congress. Thus, when Section 17 states that the "the State may, during the emergency and underreasonable terms prescribed by it, temporarily take over or direct the operation of any privately ownedpublic utility or business affected with public interest," it refers to Congress, not the President. Now,whether or not the President may exercise such power is dependent on whether Congress may delegate it tohim pursuant to a law prescribing the reasonable terms thereof. Youngstown Sheet & Tube Co. et al. v.Sawyer ,125 held:

It is clear that if the President had authority to issue the order he did, it must be found in some provision of theConstitution. And it is not claimed that express constitutional language grants this power to the President. Thecontention is that presidential power should be implied from the aggregate of his powers under the Constitution.Particular reliance is placed on provisions in Article II which say that "The executive Power shall be vested in aPresident . . . .;" that "he shall take Care that the Laws be faithfully executed;" and that he "shall be Commander-in-Chief of the Army and Navy of the United States.

The order cannot properly be sustained as an exercise of the President’s military power as Commander -in-Chiefof the Armed Forces. The Government attempts to do so by citing a number of cases upholding broad powers inmilitary commanders engaged in day-to-day fighting in a theater of war. Such cases need not concern ushere.Even though "theater of war" be an expanding concept, we cannot with faithfulness to ourconstitutional system hold that the Commander-in-Chief of the Armed Forces has the ultimate power assuch to take possession of private property in order to keep labor disputes from stopping production.This is a job for the nation’s lawmakers, not for its military authorities.

Nor can the seizure order be sustained because of the several constitutional provisions that grantexecutive power to the President. In the framework of our Constitution, the President’s power to see thatthe laws are faithfully executed refutes the idea that he is to be a lawmaker. The Constitution limits hisfunctions in the lawmaking process to the recommending of laws he thinks wise and the vetoing of lawshe thinks bad. And the Constitution is neither silent nor equivocal about who shall make laws which thePresident is to execute. The first section of the first article says that "All legislative Powers hereingranted shall be vested in a Congress of the United States. . ."126

Petitioner Cacho-Olivares, et al. contends that the term "emergency" under Section 17, Article XII refers to"tsunami," "typhoon," "hurricane"and"similar occurrences." This is a limited view of "emergency."

Emergency, as a generic term, connotes the existence of conditions suddenly intensifying the degree of existingdanger to life or well-being beyond that which is accepted as normal. Implicit in this definitions are the elementsof intensity, variety, and perception.127 Emergencies, as perceived by legislature or executive in the United Satessince 1933, have been occasioned by a wide range of situations, classifiable under three (3) principalheads: a)economic,128 b) natural disaster ,129 and c) national security.130

"Emergency," as contemplated in our Constitution, is of the same breadth. It may include rebellion, economiccrisis, pestilence or epidemic, typhoon, flood, or other similar catastrophe of nationwide proportions oreffect.131This is evident in the Records of the Constitutional Commission, thus:

MR. GASCON. Yes. What is the Committee’s definition of "national emergency" which appears in Section 13,page 5? It reads:

When the common good so requires, the State may temporarily take over or direct the operation of any privatelyowned public utility or business affected with public interest.

MR. VILLEGAS. What I mean is threat from external aggression, for example, calamities or naturaldisasters.

MR. GASCON. There is a question by Commissioner de los Reyes. What about strikes and riots?

MR. VILLEGAS. Strikes, no; those would not be covered by the term "national emergency."

MR. BENGZON. Unless they are of such proportions such that they would paralyze government service.132






































x x x x x x

MR. TINGSON. May I ask the committee if "national emergency" refers to military national emergency or couldthis be economic emergency?"

MR. VILLEGAS. Yes, it could refer to both military or economic dislocations.

MR. TINGSON. Thank you very much.133

It may be argued that when there is national emergency, Congress may not be able to convene and, therefore,unable to delegate to the President the power to take over privately-owned public utility or business affected withpublic interest.

In Araneta v. Dinglasan,134 this Court emphasized that legislative power, through which extraordinary measuresare exercised, remains in Congress even in times of crisis.

"x x x

After all the criticisms that have been made against the efficiency of the system of the separation of powers, thefact remains that the Constitution has set up this form of government, with all its defects and shortcomings, in

preference to the commingling of powers in one man or group of men. The Filipino people by adoptingparliamentary government have given notice that they share the faith of other democracy-loving peoples in thissystem, with all its faults, as the ideal. The point is, under this framework of government, legislation is preservedfor Congress all the time, not excepting periods of crisis no matter how serious. Never in the history of the UnitedStates, the basic features of whose Constitution have been copied in ours, have specific functions of thelegislative branch of enacting laws been surrendered to another department – unless we regard as legislatingthe carrying out of a legislative policy according to prescribed standards; no, not even when that Republic wasfighting a total war, or when it was engaged in a life-and-death struggle to preserve the Union. The truth is thatunder our concept of constitutional government, in times of extreme perils more than in normal circumstances‘the various branches, executive, legislative, and judicial,’ given the ability to act, are called upon ‘to perform theduties and discharge the responsibilities committed to them respectively."

Following our interpretation of Section 17, Article XII, invoked by President Arroyo in issuing PP 1017, this Courtrules that such Proclamation does not authorize her during the emergency to temporarily take over or direct theoperation of any privately owned public utility or business affected with public interest without authority fromCongress.

Let it be emphasized that while the President alone can declare a state of national emergency, however, withoutlegislation, he has no power to take over privately-owned public utility or business affected with public interest.The President cannot decide whether exceptional circumstances exist warranting the take over of privately-owned public utility or business affected with public interest. Nor can he determine when such exceptionalcircumstances have ceased. Likewise, without legislation, the President has no power to point out the types ofbusinesses affected with public interest that should be taken over. In short, the President has no absoluteauthority to exercise all the powers of the State under Section 17, Article VII in the absence of an emergency

powers act passed by Congress.

c. "AS APPLIED CHALLENGE"

One of the misfortunes of an emergency, particularly, that which pertains to security, is that military necessityand the guaranteed rights of the individual are often not compatible. Our history reveals that in the crucible ofconflict, many rights are curtailed and trampled upon. Here, the right against unreasonable search andseizure; the right against warrantless arrest; and the freedom of speech, of expression, of the press, andof assemblyunder the Bill of Rights suffered the greatest blow.

Of the seven (7) petitions, three (3) indicate "direct injury."

In G.R. No. 171396, petitioners David and Llamas alleged that, on February 24, 2006, they were arrestedwithout warrants on their way to EDSA to celebrate the 20th Anniversary of People Power I. The arrestingofficers cited PP 1017 as basis of the arrest.











In G.R. No. 171409, petitioners Cacho-Olivares and Tribune Publishing Co., Inc. claimed that on February 25,2006, the CIDG operatives "raided and ransacked without warrant" their office. Three policemen were assignedto guard their office as a possible "source of destabilization." Again, the basis was PP 1017.

And in G.R. No. 171483, petitioners KMU and NAFLU-KMU et al. alleged that their members were "turned awayand dispersed" when they went to EDSA and later, to Ayala Avenue, to celebrate the 20th Anniversary of PeoplePower I .

A perusal of the "direct injuries" allegedly suffered by the said petitioners shows that they resulted fromtheimplementation, pursuant to G.O. No. 5, of PP 1017.

Can this Court adjudge as unconstitutional PP 1017 and G.O. No 5 on the basis of these illegal acts? Ingeneral,does the illegal implementation of a law render it unconstitutional?

Settled is the rule that courts are not at liberty to declare statutes invalid although they may be abused andmisabused135 and may afford an opportunity for abuse in the manner of application.136 The validity of astatute or ordinance is to be determined from its general purpose and its efficiency to accomplish the enddesired,not from its effects in a particular case.137 PP 1017 is merely an invocation of the President’s calling-out power. Its general purpose is to command the AFP to suppress all forms of lawless violence, invasion orrebellion. It had accomplished the end desired which prompted President Arroyo to issue PP 1021. But there isnothing in PP 1017 allowing the police, expressly or impliedly, to conduct illegal arrest, search or violate thecitizens’ constitutional rights.

Now, may this Court adjudge a law or ordinance unconstitutional on the ground that its implementor committedillegal acts? The answer is no. The criterion by which the validity of the statute or ordinance is to be measured isthe essential basis for the exercise of power, and not a mere incidental result arising from itsexertion.138This is logical. Just imagine the absurdity of situations when laws maybe declared unconstitutional just because the officers implementing them have acted arbitrarily. If this were so, judging from the blunderscommitted by policemen in the cases passed upon by the Court, majority of the provisions of the Revised PenalCode would have been declared unconstitutional a long time ago.

President Arroyo issued G.O. No. 5 to carry into effect the provisions of PP 1017. General orders are "acts andcommands of the President in his capacity as Commander-in-Chief of the Armed Forces of the Philippines."They are internal rules issued by the executive officer to his subordinates precisely forthe proper and efficientadministration of law. Such rules and regulations create no relation except betweenthe official who issues them and the official who receives them.139 They are based on and are the product of, arelationship in which power is their source, and obedience, their object.140 For these reasons, one requirementfor these rules to be valid is that they must be reasonable, not arbitrary or capricious.

G.O. No. 5 mandates the AFP and the PNP to immediately carry out the "necessary and appropriate actionsand measures to suppress and prevent acts of terrorism and lawless violence."

Unlike the term "lawless violence" which is unarguably extant in our statutes and the Constitution, and which isinvariably associated with "invasion, insurrection or rebellion," the phrase "acts of terrorism" is still an amorphous

and vague concept. Congress has yet to enact a law defining and punishing acts of terrorism.

In fact, this "definitional predicament" or the "absence of an agreed definition of terrorism" confronts not only ourcountry, but the international community as well. The following observations are quite apropos:

In the actual unipolar context of international relations, the "fight against terrorism" has become one of the basicslogans when it comes to the justification of the use of force against certain states and against groups operatinginternationally. Lists of states "sponsoring terrorism" and of terrorist organizations are set up and constantlybeing updated according to criteria that are not always known to the public, but are clearly determined bystrategic interests.

The basic problem underlying all these military actions – or threats of the use of force as the most recent by the

United States against Iraq – consists in the absence of an agreed definition of terrorism.

Remarkable confusion persists in regard to the legal categorization of acts of violence either by states, by armedgroups such as liberation movements, or by individuals.

























The dilemma can by summarized in the saying "One country’s terrorist is another country’s freedom fighter." Theapparent contradiction or lack of consistency in the use of the term "terrorism" may further be demonstrated bythe historical fact that leaders of national liberation movements such as Nelson Mandela in South Africa, HabibBourgouiba in Tunisia, or Ahmed Ben Bella in Algeria, to mention only a few, were originally labeled as terroristsby those who controlled the territory at the time, but later became internationally respected statesmen.

What, then, is the defining criterion for terrorist acts – the differentia specifica distinguishing those acts fromeventually legitimate acts of national resistance or self-defense?

Since the times of the Cold War the United Nations Organization has been trying in vain to reach a consensuson the basic issue of definition. The organization has intensified its efforts recently, but has been unable tobridge the gap between those who associate "terrorism" with any violent act by non-state groups againstcivilians, state functionaries or infrastructure or military installations, and those who believe in the concept of thelegitimate use of force when resistance against foreign occupation or against systematic oppression of ethnicand/or religious groups within a state is concerned.

The dilemma facing the international community can best be illustrated by reference to the contradictingcategorization of organizations and movements such as Palestine Liberation Organization (PLO) – which is aterrorist group for Israel and a liberation movement for Arabs and Muslims – the Kashmiri resistance groups – who are terrorists in the perception of India, liberation fighters in that of Pakistan – the earlier Contras inNicaragua – freedom fighters for the United States, terrorists for the Socialist camp – or, most drastically, the Afghani Mujahedeen (later to become the Taliban movement): during the Cold War period they were a group offreedom fighters for the West, nurtured by the United States, and a terrorist gang for the Soviet Union. Onecould go on and on in enumerating examples of conflicting categorizations that cannot be reconciled in any way – because of opposing political interests that are at the roots of those perceptions.

How, then, can those contradicting definitions and conflicting perceptions and evaluations of one and the samegroup and its actions be explained? In our analysis, the basic reason for these striking inconsistencies lies in thedivergent interest of states. Depending on whether a state is in the position of an occupying power or in that of arival, or adversary, of an occupying power in a given territory, the definition of terrorism will "fluctuate"accordingly. A state may eventually see itself as protector of the rights of a certain ethnic group outside itsterritory and will therefore speak of a "liberation struggle," not of "terrorism" when acts of violence by this groupare concerned, and vice-versa.

The United Nations Organization has been unable to reach a decision on the definition of terrorism exactlybecause of these conflicting interests of sovereign states that determine in each and every instance how aparticular armed movement (i.e. a non-state actor) is labeled in regard to the terrorists-freedom fighterdichotomy. A "policy of double standards" on this vital issue of international affairs has been the unavoidableconsequence.

This "definitional predicament" of an organization consisting of sovereign states – and not of peoples, in spite ofthe emphasis in the Preamble to the United Nations Charter! – has become even more serious in the presentglobal power constellation: one superpower exercises the decisive role in the Security Council, former greatpowers of the Cold War era as well as medium powers are increasingly being marginalized; and the problem hasbecome even more acute since the terrorist attacks of 11 September 2001 I the United States.141

The absence of a law defining "acts of terrorism" may result in abuse and oppression on the part of the police ormilitary. An illustration is when a group of persons are merely engaged in a drinking spree. Yet the military or thepolice may consider the act as an act of terrorism and immediately arrest them pursuant to G.O. No. 5.Obviously, this is abuse and oppression on their part. It must be remembered that an act can only be considereda crime if there is a law defining the same as such and imposing the corresponding penalty thereon.

So far, the word "terrorism" appears only once in our criminal laws, i.e., in P.D. No. 1835 dated January 16, 1981enacted by President Marcos during the Martial Law regime. This decree is entitled "Codifying The Various Lawson Anti-Subversion and Increasing The Penalties for Membership in Subversive Organizations." The word"terrorism" is mentioned in the following provision: "That one who conspires with any other person for thepurpose of overthrowing the Government of the Philippines x x x by force, violence, terrorism, x x x shall be

punished byreclusion temporal x x x."

P.D. No. 1835 was repealed by E.O. No. 167 (which outlaws the Communist Party of the Philippines) enacted byPresident Corazon Aquino on May 5, 1985. These two (2) laws, however, do not define "acts of terrorism." Sincethere is no law defining "acts of terrorism," it is President Arroyo alone, under G.O. No. 5, who has the discretion







to determine what acts constitute terrorism. Her judgment on this aspect is absolute, without restrictions.Consequently, there can be indiscriminate arrest without warrants, breaking into offices and residences, takingover the media enterprises, prohibition and dispersal of all assemblies and gatherings unfriendly to theadministration. All these can be effected in the name of G.O. No. 5. These acts go far beyond the calling-outpower of the President. Certainly, they violate the due process clause of the Constitution. Thus, this Courtdeclares that the "acts of terrorism" portion of G.O. No. 5 is unconstitutional.

Significantly, there is nothing in G.O. No. 5 authorizing the military or police to commit acts beyond whatarenecessary and appropriate to suppress and prevent lawless violence, the limitation of their authority inpursuing the Order. Otherwise, such acts are considered illegal.

We first examine G.R. No. 171396 (David et al.)

The Constitution provides that "the right of the people to be secured in their persons, houses, papers and effectsagainst unreasonable search and seizure of whatever nature and for any purpose shall be inviolable, and nosearch warrant or warrant of arrest shall issue except upon probable cause to be determined personally by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce, andparticularly describing the place to be searched and the persons or things to be seized."142 The plain import ofthe language of the Constitution is that searches, seizures and arrests are normally unreasonable unlessauthorized by a validly issued search warrant or warrant of arrest. Thus, the fundamental protection given by thisprovision is that between person and police must stand the protective authority of a magistrate clothed withpower to issue or refuse to issue search warrants or warrants of arrest.143

In the Brief Account144 submitted by petitioner David, certain facts are established: first, he was arrested withoutwarrant; second, the PNP operatives arrested him on the basis of PP 1017; third, he was brought at CampKaringal, Quezon City where he was fingerprinted, photographed and booked like a criminal suspect; fourth,hewas treated brusquely by policemen who "held his head and tried to push him" inside an unmarked car; fifth, hewas charged with Violation of Batas Pambansa Bilang No. 880145 and Inciting to Sedition; sixth, he wasdetained for seven (7) hours; and seventh,he was eventually released for insufficiency of evidence.

Section 5, Rule 113 of the Revised Rules on Criminal Procedure provides:

Sec. 5. Arrest withou t warrant; when lawful . - A peace officer or a private person may, without a warrant,arrest a person:

(a) When, in his presence, the person to be arrested has committed, is actually committing, or isattempting to commit an offense.

(b) When an offense has just been committed and he has probable cause to believe based on personalknowledge of facts or circumstances that the person to be arrested has committed it; and

x x x.

Neither of the two (2) exceptions mentioned above justifies petitioner David’s warrantless arrest. During the

inquest for the charges of inciting to sedition and violation of BP 880, all that the arresting officers couldinvoke was their observation that some rallyists were wearing t-shirts with the invective "Oust Gloria Now" andtheir erroneous assumption that petitioner David was the leader of the rally.146 Consequently, the InquestProsecutor ordered his immediate release on the ground of insufficiency of evidence. He noted that petitionerDavid was not wearing the subject t-shirt and even if he was wearing it, such fact is insufficient to charge himwith inciting to sedition. Further, he also stated that there is insufficient evidence for the charge of violation ofBP 880 as it was not even known whether petitioner David was the leader of the rally.147

But what made it doubly worse for petitioners David et al. is that not only was their right against warrantlessarrest violated, but also their right to peaceably assemble.

Section 4 of Article III guarantees:

No law shall be passed abridging the freedom of speech, of expression, or of the press, or the right of the peoplepeaceably to assemble and petition the government for redress of grievances.



























"Assembly" means a right on the part of the citizens to meet peaceably for consultation in respect to publicaffairs. It is a necessary consequence of our republican institution and complements the right of speech. As inthe case of freedom of expression, this right is not to be limited, much less denied, except on a showing ofa clear and present danger of a substantive evil that Congress has a right to prevent. In other words, like otherrights embraced in the freedom of expression, the right to assemble is not subject to previous restraint orcensorship. It may not be conditioned upon the prior issuance of a permit or authorization from the governmentauthorities except, of course, if the assembly is intended to be held in a public place, a permit for the use of suchplace, and not for the assembly itself, may be validly required.

The ringing truth here is that petitioner David, et al . were arrested while they were exercising their right topeaceful assembly. They were not committing any crime, neither was there a showing of a clear and presentdanger that warranted the limitation of that right. As can be gleaned from circumstances, the charges of incitingto sedition and violation of BP 880 were mere afterthought. Even the Solicitor General, during the oralargument, failed to justify the arresting officers’ conduct. In De Jonge v. Oregon,148 it was held that peaceableassembly cannot be made a crime, thus:

Peaceable assembly for lawful discussion cannot be made a crime. The holding of meetings for peaceablepolitical action cannot be proscribed. Those who assist in the conduct of such meetings cannot be branded ascriminals on that score. The question, if the rights of free speech and peaceful assembly are not to be preserved,is not as to the auspices under which the meeting was held but as to its purpose; not as to the relations of thespeakers, but whether their utterances transcend the bounds of the freedom of speech which the Constitution

protects. If the persons assembling have committed crimes elsewhere, if they have formed or are engaged in aconspiracy against the public peace and order, they may be prosecuted for their conspiracy or other violations ofvalid laws. But it is a different matter when the State, instead of prosecuting them for such offenses,seizes upon mere participation in a peaceable assembly and a lawful public discussion as the basis for acriminal charge.

On the basis of the above principles, the Court likewise considers the dispersal and arrest of the members ofKMU et al. (G.R. No. 171483) unwarranted. Apparently, their dispersal was done merely on the basis ofMalacañang’s directive canceling all permits previously issued by local government units. This is arbitrary. Thewholesale cancellation of all permits to rally is a blatant disregard of the principle that "freedom of assembly isnot to be limited, much less denied, except on a showing of a clear and present danger of a substantiveevil that the State has a right to prevent."149 Tolerance is the rule and limitation is the exception. Only upon a

showing that an assembly presents a clear and present danger that the State may deny the citizens’ right toexercise it. Indeed, respondents failed to show or convince the Court that the rallyists committed acts amountingto lawless violence, invasion or rebellion. With the blanket revocation of permits, the distinction betweenprotected and unprotected assemblies was eliminated.

Moreover, under BP 880, the authority to regulate assemblies and rallies is lodged with the local governmentunits. They have the power to issue permits and to revoke such permits after due notice and hearing on thedetermination of the presence of clear and present danger. Here, petitioners were not even notified and heardon the revocation of their permits.150 The first time they learned of it was at the time of the dispersal. Suchabsence of notice is a fatal defect. When a person’s right is restricted by government action, it behooves ademocratic government to see to it that the restriction is fair, reasonable, and according to procedure.

G.R. No. 171409, (Cacho-Olivares, et al.) presents another facet of freedom of speech i.e., the freedom of thepress. Petitioners’ narration of facts, which the Solicitor General failed to refute, established thefollowing: first, theDaily Tribune’s offices were searched without warrant;second, the police operatives seizedseveral materials for publication; third , the search was conducted at about 1:00 o’ clock in the morning ofFebruary 25, 2006; fourth,the search was conducted in the absence of any official of the Daily Tribune exceptthe security guard of the building; and fifth, policemen stationed themselves at the vicinity of the DailyTribune offices.

Thereafter, a wave of warning came from government officials. Presidential Chief of Staff Michael Defensor wasquoted as saying that such raid was "meant to show a ‘strong presence,’ to tell media outlets not toconnive or do anything that would help the rebels in bringing down this government." Director GeneralLomibao further stated that "if they do not follow the standards –and the standards are if they would

contribute to instability in the government, or if they do not subscribe to what is in General Order No. 5and Proc. No. 1017 – we will recommend a ‘takeover .’" National Telecommunications Commissioner RonaldSolis urged television and radio networks to " cooperate " with the government for the duration of the state ofnational emergency. He warned that his agency will not hesitate to recommend the closure of any















broadcast outfit that violates rules set out for media coverage during times when the national security isthreatened.151

The search is illegal. Rule 126 of The Revised Rules on Criminal Procedure lays down the steps in the conductof search and seizure. Section 4 requires that a search warrant be issued upon probable cause in connectionwith one specific offence to be determined personally by the judge after examination under oath or affirmation ofthe complainant and the witnesses he may produce. Section 8 mandates that the search of a house, room, orany other premise be made in the presence of the lawful occupant thereof or any member of his family or inthe absence of the latter, in the presence of two (2) witnesses of sufficient age and discretion residing in thesame locality. And Section 9 states that the warrant must direct that it be served in the daytime, unless theproperty is on the person or in the place ordered to be searched, in which case a direction may be inserted that itbe served at any time of the day or night. All these rules were violated by the CIDG operatives.

Not only that, the search violated petitioners’ freedom of the press. The best gauge of a free and democraticsociety rests in the degree of freedom enjoyed by its media. In the Burgos v. Chief of Staf f 152 this Court held that--

As heretofore stated, the premises searched were the business and printing offices of the "Metropolitan Mail "and the "We Forum" newspapers. As a consequence of the search and seizure, these premises werepadlocked and sealed, with the further result that the printing and publication of said newspapers werediscontinued.

Such closure is in the nature of previous restraint or censorship abhorrent to the freedom of the pressguaranteed under the fundamental law, and constitutes a virtual denial of petitioners' freedom toexpress themselves in print. This state of being is patently anathematic to a democratic frameworkwhere a free, alert and even militant press is essential for the political enlightenment and growth of thecitizenry.

While admittedly, the Daily Tribune was not padlocked and sealed like the "Metropolitan Mail " and "We Forum"newspapers in the above case, yet it cannot be denied that the CIDG operatives exceeded their enforcementduties. The search and seizure of materials for publication, the stationing of policemen in the vicinity of the TheDaily Tribune offices, and the arrogant warning of government officials to media, are plain censorship. It is thatofficious functionary of the repressive government who tells the citizen that he may speak only if allowed to doso, and no more and no less than what he is permitted to say on pain of punishment should he be so rash as todisobey.153 Undoubtedly, the The Daily Tribune was subjected to these arbitrary intrusions because of its anti-government sentiments. This Court cannot tolerate the blatant disregard of a constitutional right even if itinvolves the most defiant of our citizens. Freedom to comment on public affairs is essential to the vitality of arepresentative democracy. It is the duty of the courts to be watchful for the constitutional rights of the citizen, andagainst any stealthy encroachments thereon. The motto should always be obsta principiis.154

Incidentally, during the oral arguments, the Solicitor General admitted that the search of the Tribune’s officesand the seizure of its materials for publication and other papers are illegal; and that the same are inadmissible"for any purpose," thus:

JUSTICE CALLEJO:

You made quite a mouthful of admission when you said that the policemen, when inspected the Tribune for thepurpose of gathering evidence and you admitted that the policemen were able to get the clippings. Is that not inadmission of the admissibility of these clippings that were taken from the Tribune?

SOLICITOR GENERAL BENIPAYO:

Under the law they would seem to be, if they were illegally seized, I think and I know, Your Honor, and these areinadmissible for any purpose.155

x x x x x x x x x

SR. ASSO. JUSTICE PUNO:























These have been published in the past issues of the Daily Tribune; all you have to do is to get those past issues.So why do you have to go there at 1 o’clock in the morning and without any search warrant? Did they becomesuddenly part of the evidence of rebellion or inciting to sedition or what?

SOLGEN BENIPAYO:

Well, it was the police that did that, Your Honor. Not upon my instructions.


Are you saying that the act of the policeman is illegal, it is not based on any law, and it is not based onProclamation 1017.

SOLGEN BENIPAYO:

It is not based on Proclamation 1017, Your Honor, because there is nothing in 1017 which says that the policecould go and inspect and gather clippings from Daily Tribune or any other newspaper.


Is it based on any law?

SOLGEN BENIPAYO:

As far as I know, no, Your Honor, from the facts, no.


So, it has no basis, no legal basis whatsoever?

SOLGEN BENIPAYO:

Maybe so, Your Honor. Maybe so, that is why I said, I don’t know if it is premature to say this, we do notcondone this. If the people who have been injured by this would want to sue them, they can sue andthere are remedies for this.156

Likewise, the warrantless arrests and seizures executed by the police were, according to the Solicitor General,illegal and cannot be condoned, thus:

CHIEF JUSTICE PANGANIBAN:

There seems to be some confusions if not contradiction in your theory.

SOLICITOR GENERAL BENIPAYO:

I don’t know whether this will clarify. The acts, the supposed illegal or unlawful acts committed on the occasionof 1017, as I said, it cannot be condoned. You cannot blame the President for, as you said, a misapplication ofthe law. These are acts of the police officers, that is their responsibility.157

The Dissenting Opinion states that PP 1017 and G.O. No. 5 are constitutional in every aspect and "should resultin no constitutional or statutory breaches if applied according to their letter."

The Court has passed upon the constitutionality of these issuances. Its ratiocination has been exhaustivelypresented. At this point, suffice it to reiterate that PP 1017 is limited to the calling out by the President of themilitary to prevent or suppress lawless violence, invasion or rebellion. When in implementing its provisions,pursuant to G.O. No. 5, the military and the police committed acts which violate the citizens’ rights under theConstitution, this Court has to declare such acts unconstitutional and illegal.

In this connection, Chief Justice Artemio V. Panganiban’s concur ring opinion, attached hereto, is considered anintegral part of this ponencia.











S U M M A T I O N

In sum, the lifting of PP 1017 through the issuance of PP 1021 – a supervening event – would have normallyrendered this case moot and academic. However, while PP 1017 was still operative, illegal acts were committedallegedly in pursuance thereof. Besides, there is no guarantee that PP 1017, or one similar to it, may not againbe issued. Already, there have been media reports on April 30, 2006 that allegedly PP 1017 would be reimposed"if the May 1 rallies" become "unruly and violent." Consequently, the transcendental issues raised by the partiesshould not be "evaded;" they must now be resolved to prevent future constitutional aberration.

The Court finds and so holds that PP 1017 is constitutional insofar as it constitutes a call by the President for the AFP to prevent or suppress lawless violence. The proclamation is sustained by Section 18, Article VII of theConstitution and the relevant jurisprudence discussed earlier. However, PP 1017’s extraneous provisions givingthe President express or implied power (1) to issue decrees; (2) to direct the AFP to enforce obedience to alllaws even those not related to lawless violence as well as decrees promulgated by the President; and (3) toimpose standards on media or any form of prior restraint on the press, are ultra vires and unconstitutional. TheCourt also rules that under Section 17, Article XII of the Constitution, the President, in the absence of alegislation, cannot take over privately-owned public utility and private business affected with public interest.

In the same vein, the Court finds G.O. No. 5 valid. It is an Order issued by the President – acting asCommander-in-Chief – addressed to subalterns in the AFP to carry out the provisions of PP 1017. Significantly,it also provides a valid standard – that the military and the police should take only the "necessary andappropriate actions and measures to suppress and prevent acts of lawless violence."But the words "actsof terrorism" found in G.O. No. 5 have not been legally defined and made punishable by Congress and shouldthus be deemed deleted from the said G.O. While "terrorism" has been denounced generally in media, no lawhas been enacted to guide the military, and eventually the courts, to determine the limits of the AFP’s authority incarrying out this portion of G.O. No. 5.

On the basis of the relevant and uncontested facts narrated earlier, it is also pristine clear that (1) thewarrantless arrest of petitioners Randolf S. David and Ronald Llamas; (2) the dispersal of the rallies andwarrantless arrest of the KMU and NAFLU-KMU members; (3) the imposition of standards on media or any priorrestraint on the press; and (4) the warrantless search of the Tribune offices and the whimsical seizures of somearticles for publication and other materials, are not authorized by the Constitution, the law and jurisprudence. Noteven by the valid provisions of PP 1017 and G.O. No. 5.

Other than this declaration of invalidity, this Court cannot impose any civil, criminal or administrative sanctionson the individual police officers concerned. They have not been individually identified and given their day incourt. The civil complaints or causes of action and/or relevant criminal Informations have not been presentedbefore this Court. Elementary due process bars this Court from making any specific pronouncement of civil,criminal or administrative liabilities.

It is well to remember that military power is a means to an end and substantive civil rights are ends inthemselves. How to give the military the power it needs to protect the Republic without unnecessarilytrampling individual rights is one of the eternal balancing tasks of a democratic state.During emergency,governmental action may vary in breadth and intensity from normal times, yet they should not be arbitrary as tounduly restrain our people’s liberty.

Perhaps, the vital lesson that we must learn from the theorists who studied the various competing politicalphilosophies is that, it is possible to grant government the authority to cope with crises without surrendering thetwo vital principles of constitutionalism: the maintenance of legal limits to arbitrary power , and politicalresponsibility of the government to the governed.158

WHEREFORE, the Petitions are partly granted. The Court rules that PP 1017 is CONSTITUTIONAL insofar as itconstitutes a call by President Gloria Macapagal-Arroyo on the AFP to prevent or suppress lawless violence.However, the provisions of PP 1017 commanding the AFP to enforce laws not related to lawless violence, aswell as decrees promulgated by the President, are declared UNCONSTITUTIONAL. In addition, the provision inPP 1017 declaring national emergency under Section 17, Article VII of the Constitutionis CONSTITUTIONAL, but such declaration does not authorize the President to take over privately-owned public

utility or business affected with public interest without prior legislation.

G.O. No. 5 is CONSTITUTIONAL since it provides a standard by which the AFP and the PNP should implementPP 1017, i.e. whatever is "necessary and appropriate actions and measures to suppress and prevent acts







of lawless violence." Considering that "acts of terrorism" have not yet been defined and made punishable bythe Legislature, such portion of G.O. No. 5 is declared UNCONSTITUTIONAL.

The warrantless arrest of Randolf S. David and Ronald Llamas; the dispersal and warrantless arrest of the KMUand NAFLU-KMU members during their rallies, in the absence of proof that these petitioners were committingacts constituting lawless violence, invasion or rebellion and violating BP 880; the imposition of standards onmedia or any form of prior restraint on the press, as well as the warrantless search of the Tribune offices andwhimsical seizure of its articles for publication and other materials, are declared UNCONSTITUTIONAL .

No costs.

SO ORDERED.

G.R. No. 155001 May 5, 2003

DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN, JOSE MARI B. REUNILLA, MANUEL ANTONIO B.BOÑE, MAMERTO S. CLARA, REUEL E. DIMALANTA, MORY V. DOMALAON, CONRADO G. DIMAANO,LOLITA R. HIZON, REMEDIOS P. ADOLFO, BIENVENIDO C. HILARIO, MIASCOR WORKERS UNION -NATIONAL LABOR UNION (MWU-NLU), and PHILIPPINE AIRLINES EMPLOYEES ASSOCIATION(PALEA),petitioners,vs.PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORTAUTHORITY, DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS and SECRETARYLEANDRO M. MENDOZA, in his capacity as Head of the Department of Transportation andCommunications, respondents,MIASCOR GROUNDHANDLING CORPORATION, DNATA-WINGS AVIATION SYSTEMS CORPORATION,MACROASIA-EUREST SERVICES, INC., MACROASIA-MENZIES AIRPORT SERVICES CORPORATION,MIASCOR CATERING SERVICES CORPORATION, MIASCOR AIRCRAFT MAINTENANCE CORPORATION,and MIASCOR LOGISTICS CORPORATION, petitioners-in-intervention,

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

G.R. No. 155547 May 5, 2003

SALACNIB F. BATERINA, CLAVEL A. MARTINEZ and CONSTANTINO G. JARAULA, petitioners,vs.PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORTAUTHORITY, DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, DEPARTMENT OFPUBLIC WORKS AND HIGHWAYS, SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of theDepartment of Transportation and Communications, and SECRETARY SIMEON A. DATUMANONG, in hiscapacity as Head of the Department of Public Works and Highways, respondents,JACINTO V. PARAS, RAFAEL P. NANTES, EDUARDO C. ZIALCITA, WILLY BUYSON VILLARAMA,



PROSPERO C. NOGRALES, PROSPERO A. PICHAY, JR., HARLIN CAST ABAYON, and BENASING O.MACARANBON, respondents-intervenors,

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

G.R. No. 155661 May 5, 2003

CEFERINO C. LOPEZ, RAMON M. SALES, ALFREDO B. VALENCIA, MA. TERESA V. GAERLAN,

LEONARDO DE LA ROSA, DINA C. DE LEON, VIRGIE CATAMIN RONALD SCHLOBOM, ANGELITOSANTOS, MA. LUISA M. PALCON and SAMAHANG MANGGAGAWA SA PALIPARAN NG PILIPINAS(SMPP), petitioners,vs.PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORTAUTHORITY, DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, SECRETARY LEANDROM. MENDOZA, in his capacity as Head of the Department of Transportation andCommunications, respondents.

PUNO, J .:

Petitioners and petitioners-in-intervention filed the instant petitions for prohibition under Rule 65 of the Revised

Rules of Court seeking to prohibit the Manila International Airport Authority (MIAA) and the Department ofTransportation and Communications (DOTC) and its Secretary from implementing the following agreementsexecuted by the Philippine Government through the DOTC and the MIAA and the Philippine International AirTerminals Co., Inc. (PIATCO): (1) the Concession Agreement signed on July 12, 1997, (2) the Amended andRestated Concession Agreement dated November 26, 1999, (3) the First Supplement to the Amended andRestated Concession Agreement dated August 27, 1999, (4) the Second Supplement to the Amended andRestated Concession Agreement dated September 4, 2000, and (5) the Third Supplement to the Amended andRestated Concession Agreement dated June 22, 2001 (collectively, the PIATCO Contracts).

The facts are as follows:

In August 1989, the DOTC engaged the services of Aeroport de Paris (ADP) to conduct a

comprehensive study of the Ninoy Aquino International Airport (NAIA) and determine whether thepresent airport can cope with the traffic development up to the year 2010. The study consisted of twoparts: first, traffic forecasts, capacity of existing facilities, NAIA future requirements, proposed masterplans and development plans; and second, presentation of the preliminary design of the passengerterminal building. The ADP submitted a Draft Final Report to the DOTC in December 1989.

Some time in 1993, six business leaders consisting of John Gokongwei, Andrew Gotianun, Henry Sy,Sr., Lucio Tan, George Ty and Alfonso Yuchengco met with then President Fidel V. Ramos to explorethe possibility of investing in the construction and operation of a new international airport terminal. Tosignify their commitment to pursue the project, they formed the Asia's Emerging Dragon Corp. (AEDC)which was registered with the Securities and Exchange Commission (SEC) on September 15, 1993.

On October 5, 1994, AEDC submitted an unsolicited proposal to the Government through theDOTC/MIAA for the development of NAIA International Passenger Terminal III (NAIA IPT III) under abuild-operate-and-transfer arrangement pursuant to RA 6957 as amended by RA 7718 (BOT Law). 1

On December 2, 1994, the DOTC issued Dept. Order No. 94-832 constituting the Prequalification Bids and Awards Committee (PBAC) for the implementation of the NAIA IPT III project.

On March 27, 1995, then DOTC Secretary Jose Garcia endorsed the proposal of AEDC to the NationalEconomic and Development Authority (NEDA). A revised proposal, however, was forwarded by the DOTC toNEDA on December 13, 1995. On January 5, 1996, the NEDA Investment Coordinating Council (NEDA ICC) – Technical Board favorably endorsed the project to the ICC – Cabinet Committee which approved the same,subject to certain conditions, on January 19, 1996. On February 13, 1996, the NEDA passed Board Resolution

No. 2 which approved the NAIA IPT III project.

On June 7, 14, and 21, 1996, DOTC/MIAA caused the publication in two daily newspapers of an invitation forcompetitive or comparative proposals on AEDC's unsolicited proposal, in accordance with Sec. 4-A of RA 6957,as amended. The alternative bidders were required to submit three (3) sealed envelopes on or before 5:00 p.m.



of September 20, 1996. The first envelope should contain the Prequalification Documents, the second envelopethe Technical Proposal, and the third envelope the Financial Proposal of the proponent.

On June 20, 1996, PBAC Bulletin No. 1 was issued, postponing the availment of the Bid Documents and thesubmission of the comparative bid proposals. Interested firms were permitted to obtain the Request for ProposalDocuments beginning June 28, 1996, upon submission of a written application and payment of a non-refundablefee of P50,000.00 (US$2,000).

The Bid Documents issued by the PBAC provided among others that the proponent must have adequatecapability to sustain the financing requirement for the detailed engineering, design, construction, operation, andmaintenance phases of the project. The proponent would be evaluated based on its ability to provide a minimumamount of equity to the project, and its capacity to secure external financing for the project.

On July 23, 1996, the PBAC issued PBAC Bulletin No. 2 inviting all bidders to a pre-bid conference on July 29,1996.

On August 16, 1996, the PBAC issued PBAC Bulletin No. 3 amending the Bid Documents. The followingamendments were made on the Bid Documents:

a. Aside from the fixed Annual Guaranteed Payment, the proponent shall include in its financial proposal

an additional percentage of gross revenue share of the Government, as follows:

i. First 5 years 5.0%

ii. Next 10 years 7.5%

iii. Next 10 years 10.0%

b. The amount of the fixed Annual Guaranteed Payment shall be subject of the price challenge.Proponent may offer an Annual Guaranteed Payment which need not be of equal amount, but paymentof which shall start upon site possession.

c. The project proponent must have adequate capability to sustain the financing requirement for the

detailed engineering, design, construction, and/or operation and maintenance phases of the project asthe case may be. For purposes of pre-qualification, this capability shall be measured in terms of:

i. Proof of the availability of the project proponent and/or the consortium to provide the minimumamount of equity for the project; and

ii. a letter testimonial from reputable banks attesting that the project proponent and/or themembers of the consortium are banking with them, that the project proponent and/or themembers are of good financial standing, and have adequate resources.

d. The basis for the prequalification shall be the proponent's compliance with the minimum technical andfinancial requirements provided in the Bid Documents and the IRR of the BOT Law. The minimum

amount of equity shall be 30% of the Project Cost.

e. Amendments to the draft Concession Agreement shall be issued from time to time. Said amendmentsshall only cover items that would not materially affect the preparation of the proponent's proposal.

On August 29, 1996, the Second Pre-Bid Conference was held where certain clarifications were made. Upon therequest of prospective bidder People's Air Cargo & Warehousing Co., Inc (Paircargo), the PBAC warranted thatbased on Sec. 11.6, Rule 11 of the Implementing Rules and Regulations of the BOT Law, only the proposed Annual Guaranteed Payment submitted by the challengers would be revealed to AEDC, and that thechallengers' technical and financial proposals would remain confidential. The PBAC also clarified that the list ofrevenue sources contained in Annex 4.2a of the Bid Documents was merely indicative and that other revenuesources may be included by the proponent, subject to approval by DOTC/MIAA. Furthermore, the PBAC clarified

that only those fees and charges denominated as Public Utility Fees would be subject to regulation, and thosecharges which would be actually deemed Public Utility Fees could still be revised, depending on the outcome ofPBAC's query on the matter with the Department of Justice.



In September 1996, the PBAC issued Bid Bulletin No. 5, entitled "Answers to the Queries of PAIRCARGO asPer Letter Dated September 3 and 10, 1996." Paircargo's queries and the PBAC's responses were as follows:

1. It is difficult for Paircargo and Associates to meet the required minimum equity requirement as prescribed in Section 8.3.4 of the Bid Documents considering that the capitalization of each membercompany is so structured to meet the requirements and needs of their current respective businessundertaking/activities. In order to comply with this equity requirement, Paircargo is requesting PBAC to just allow each member of (sic) corporation of the Joint Venture to just execute an agreement thatembodies a commitment to infuse the required capital in case the project is awarded to the Joint Ventureinstead of increasing each corporation's current authorized capital stock just for prequalification purposes.

In prequalification, the agency is interested in one's financial capability at the time of prequalification, notfuture or potential capability.

A commitment to put up equity once awarded the project is not enough to establish that "present"financial capability. However, total financial capability of all member companies of the Consortium, to beestablished by submitting the respective companies' audited financial statements, shall be acceptable.

2. At present, Paircargo is negotiating with banks and other institutions for the extension of aPerformance Security to the joint venture in the event that the Concessions Agreement (sic) is awardedto them. However, Paircargo is being required to submit a copy of the draft concession as one of thedocumentary requirements. Therefore, Paircargo is requesting that they'd (sic) be furnished copy of theapproved negotiated agreement between the PBAC and the AEDC at the soonest possible time.

A copy of the draft Concession Agreement is included in the Bid Documents. Any material changeswould be made known to prospective challengers through bid bulletins. However, a final version will beissued before the award of contract.

The PBAC also stated that it would require AEDC to sign Supplement C of the Bid Documents (Acceptance ofCriteria and Waiver of Rights to Enjoin Project) and to submit the same with the required Bid Security.

On September 20, 1996, the consortium composed of People's Air Cargo and Warehousing Co., Inc.(Paircargo), Phil. Air and Grounds Services, Inc. (PAGS) and Security Bank Corp. (Security Bank) (collectively,Paircargo Consortium) submitted their competitive proposal to the PBAC. On September 23, 1996, the PBACopened the first envelope containing the prequalification documents of the Paircargo Consortium. On thefollowing day, September 24, 1996, the PBAC prequalified the Paircargo Consortium.

On September 26, 1996, AEDC informed the PBAC in writing of its reservations as regards the PaircargoConsortium, which include:

a. The lack of corporate approvals and financial capability of PAIRCARGO;

b. The lack of corporate approvals and financial capability of PAGS;

c. The prohibition imposed by RA 337, as amended (the General Banking Act) on the amount thatSecurity Bank could legally invest in the project;

d. The inclusion of Siemens as a contractor of the PAIRCARGO Joint Venture, for prequalificationpurposes; and

e. The appointment of Lufthansa as the facility operator, in view of the Philippine requirement in theoperation of a public utility.

The PBAC gave its reply on October 2, 1996, informing AEDC that it had considered the issues raised by thelatter, and that based on the documents submitted by Paircargo and the established prequalification criteria, the

PBAC had found that the challenger, Paircargo, had prequalified to undertake the project. The Secretary of theDOTC approved the finding of the PBAC.

The PBAC then proceeded with the opening of the second envelope of the Paircargo Consortium whichcontained its Technical Proposal.



On October 3, 1996, AEDC reiterated its objections, particularly with respect to Paircargo's financial capability, inview of the restrictions imposed by Section 21-B of the General Banking Act and Sections 1380 and 1381 of theManual Regulations for Banks and Other Financial Intermediaries. On October 7, 1996, AEDC again manifestedits objections and requested that it be furnished with excerpts of the PBAC meeting and the accompanyingtechnical evaluation report where each of the issues they raised were addressed.

On October 16, 1996, the PBAC opened the third envelope submitted by AEDC and the Paircargo Consortiumcontaining their respective financial proposals. Both proponents offered to build the NAIA Passenger Terminal IIIfor at least $350 million at no cost to the government and to pay the government: 5% share in gross revenues forthe first five years of operation, 7.5% share in gross revenues for the next ten years of operation, and 10% sharein gross revenues for the last ten years of operation, in accordance with the Bid Documents. However, inaddition to the foregoing, AEDC offered to pay the government a total of P135 million as guaranteed payment for27 years while Paircargo Consortium offered to pay the government a total of P17.75 billion for the same period.

Thus, the PBAC formally informed AEDC that it had accepted the price proposal submitted by the PaircargoConsortium, and gave AEDC 30 working days or until November 28, 1996 within which to match the said bid,otherwise, the project would be awarded to Paircargo.

As AEDC failed to match the proposal within the 30-day period, then DOTC Secretary Amado Lagdameo, onDecember 11, 1996, issued a notice to Paircargo Consortium regarding AEDC's failure to match the proposal.

On February 27, 1997, Paircargo Consortium incorporated into Philippine International Airport Terminals Co.,Inc. (PIATCO).

AEDC subsequently protested the alleged undue preference given to PIATCO and reiterated its objections asregards the prequalification of PIATCO.

On April 11, 1997, the DOTC submitted the concession agreement for the second-pass approval of the NEDA-ICC.

On April 16, 1997, AEDC filed with the Regional Trial Court of Pasig a Petition for Declaration of Nullity of theProceedings, Mandamus and Injunction against the Secretary of the DOTC, the Chairman of the PBAC, the

voting members of the PBAC and Pantaleon D. Alvarez, in his capacity as Chairman of the PBAC TechnicalCommittee.

On April 17, 1997, the NEDA-ICC conducted an ad referendum to facilitate the approval, on a no-objectionbasis, of the BOT agreement between the DOTC and PIATCO. As the ad referendum gathered only four (4) ofthe required six (6) signatures, the NEDA merely noted the agreement.

On July 9, 1997, the DOTC issued the notice of award for the project to PIATCO.

On July 12, 1997, the Government, through then DOTC Secretary Arturo T. Enrile, and PIATCO, through itsPresident, Henry T. Go, signed the "Concession Agreement for the Build-Operate-and-Transfer Arrangement ofthe Ninoy Aquino International Airport Passenger Terminal III" (1997 Concession Agreement). The Government

granted PIATCO the franchise to operate and maintain the said terminal during the concession period and tocollect the fees, rentals and other charges in accordance with the rates or schedules stipulated in the 1997Concession Agreement. The Agreement provided that the concession period shall be for twenty-five (25) yearscommencing from the in-service date, and may be renewed at the option of the Government for a period notexceeding twenty-five (25) years. At the end of the concession period, PIATCO shall transfer the developmentfacility to MIAA.

On November 26, 1998, the Government and PIATCO signed an Amended and Restated Concession Agreement (ARCA). Among the provisions of the 1997 Concession Agreement that were amended by the ARCAwere: Sec. 1.11 pertaining to the definition of "certificate of completion"; Sec. 2.05 pertaining to the SpecialObligations of GRP; Sec. 3.02 (a) dealing with the exclusivity of the franchise given to the Concessionaire; Sec.4.04 concerning the assignment by Concessionaire of its interest in the Development Facility; Sec. 5.08 (c)

dealing with the proceeds of Concessionaire's insurance; Sec. 5.10 with respect to the temporary take-over ofoperations by GRP; Sec. 5.16 pertaining to the taxes, duties and other imposts that may be levied on theConcessionaire; Sec. 6.03 as regards the periodic adjustment of public utility fees and charges; the entire ArticleVIII concerning the provisions on the termination of the contract; and Sec. 10.02 providing for the venue of thearbitration proceedings in case a dispute or controversy arises between the parties to the agreement.



Subsequently, the Government and PIATCO signed three Supplements to the ARCA. The First Supplement wassigned on August 27, 1999; the Second Supplement on September 4, 2000; and the Third Supplement on June22, 2001 (collectively, Supplements).

The First Supplement to the ARCA amended Sec. 1.36 of the ARCA defining "Revenues" or "Gross Revenues";Sec. 2.05 (d) of the ARCA referring to the obligation of MIAA to provide sufficient funds for the upkeep,maintenance, repair and/or replacement of all airport facilities and equipment which are owned or operated byMIAA; and further providing additional special obligations on the part of GRP aside from those alreadyenumerated in Sec. 2.05 of the ARCA. The First Supplement also provided a stipulation as regards theconstruction of a surface road to connect NAIA Terminal II and Terminal III in lieu of the proposed access tunnelcrossing Runway 13/31; the swapping of obligations between GRP and PIATCO regarding the improvement ofSales Road; and the changes in the timetable. It also amended Sec. 6.01 (c) of the ARCA pertaining to theDisposition of Terminal Fees; Sec. 6.02 of the ARCA by inserting an introductory paragraph; and Sec. 6.02 (a)(iii) of the ARCA referring to the Payments of Percentage Share in Gross Revenues.

The Second Supplement to the ARCA contained provisions concerning the clearing, removal, demolition ordisposal of subterranean structures uncovered or discovered at the site of the construction of the terminal by theConcessionaire. It defined the scope of works; it provided for the procedure for the demolition of the saidstructures and the consideration for the same which the GRP shall pay PIATCO; it provided for time extensions,incremental and consequential costs and losses consequent to the existence of such structures; and it providedfor some additional obligations on the part of PIATCO as regards the said structures.

Finally, the Third Supplement provided for the obligations of the Concessionaire as regards the construction ofthe surface road connecting Terminals II and III.

Meanwhile, the MIAA which is charged with the maintenance and operation of the NAIA Terminals I and II, hadexisting concession contracts with various service providers to offer international airline airport services, such asin-flight catering, passenger handling, ramp and ground support, aircraft maintenance and provisions, cargohandling and warehousing, and other services, to several international airlines at the NAIA. Some of theseservice providers are the Miascor Group, DNATA-Wings Aviation Systems Corp., and the MacroAsia Group.Miascor, DNATA and MacroAsia, together with Philippine Airlines (PAL), are the dominant players in the industrywith an aggregate market share of 70%.

On September 17, 2002, the workers of the international airline service providers, claiming that they stand tolose their employment upon the implementation of the questioned agreements, filed before this Court a petitionfor prohibition to enjoin the enforcement of said agreements.2

On October 15, 2002, the service providers, joining the cause of the petitioning workers, filed a motion forintervention and a petition-in-intervention.

On October 24, 2002, Congressmen Salacnib Baterina, Clavel Martinez and Constantino Jaraula filed a similarpetition with this Court.3

On November 6, 2002, several employees of the MIAA likewise filed a petition assailing the legality of the

various agreements.

4

On December 11, 2002. another group of Congressmen, Hon. Jacinto V. Paras, Rafael P. Nantes, Eduardo C.Zialcita, Willie B. Villarama, Prospero C. Nograles, Prospero A. Pichay, Jr., Harlin Cast Abayon and Benasing O.Macaranbon, moved to intervene in the case as Respondents-Intervenors. They filed their Comment-In-Intervention defending the validity of the assailed agreements and praying for the dismissal of the petitions.

During the pendency of the case before this Court, President Gloria Macapagal Arroyo, on November 29, 2002,in her speech at the 2002 Golden Shell Export Awards at Malacañang Palace, stated that she will not "honor(PIATCO) contracts which the Executive Branch's legal offices have concluded (as) null and void."5

Respondent PIATCO filed its Comments to the present petitions on November 7 and 27, 2002. The Office of the

Solicitor General and the Office of the Government Corporate Counsel filed their respective Comments in behalfof the public respondents.

On December 10, 2002, the Court heard the case on oral argument. After the oral argument, the Court thenresolved in open court to require the parties to file simultaneously their respective Memoranda in amplification of



the issues heard in the oral arguments within 30 days and to explore the possibility of arbitration or mediation asprovided in the challenged contracts.

In their consolidated Memorandum, the Office of the Solicitor General and the Office of the GovernmentCorporate Counsel prayed that the present petitions be given due course and that judgment be rendereddeclaring the 1997 Concession Agreement, the ARCA and the Supplements thereto void for being contrary tothe Constitution, the BOT Law and its Implementing Rules and Regulations.

On March 6, 2003, respondent PIATCO informed the Court that on March 4, 2003 PIATCO commencedarbitration proceedings before the International Chamber of Commerce, International Court of Arbitration (ICC)by filing a Request for Arbitration with the Secretariat of the ICC against the Government of the Republic of thePhilippines acting through the DOTC and MIAA.

In the present cases, the Court is again faced with the task of resolving complicated issues made difficult by theirintersecting legal and economic implications. The Court is aware of the far reaching fall out effects of the rulingwhich it makes today. For more than a century and whenever the exigencies of the times demand it, this Courthas never shirked from its solemn duty to dispense justice and resolve "actual controversies involving rightswhich are legally demandable and enforceable, and to determine whether or not there has been grave abuse ofdiscretion amounting to lack or excess of jurisdiction."6 To be sure, this Court will not begin to do otherwisetoday.

We shall first dispose of the procedural issues raised by respondent PIATCO which they allege will bar theresolution of the instant controversy.

Petitioners' Legal Standing to File

the present Petitions

a. G.R. Nos. 155001 and 155661

In G.R. No. 155001 individual petitioners are employees of various service providers7 having separateconcession contracts with MIAA and continuing service agreements with various international airlines to provide

in-flight catering, passenger handling, ramp and ground support, aircraft maintenance and provisions, cargohandling and warehousing and other services. Also included as petitioners are labor unions MIASCOR WorkersUnion-National Labor Union and Philippine Airlines Employees Association. These petitioners filed the instantaction for prohibition as taxpayers and as parties whose rights and interests stand to be violated by theimplementation of the PIATCO Contracts.

Petitioners-Intervenors in the same case are all corporations organized and existing under Philippine lawsengaged in the business of providing in-flight catering, passenger handling, ramp and ground support, aircraftmaintenance and provisions, cargo handling and warehousing and other services to several international airlinesat the Ninoy Aquino International Airport. Petitioners-Intervenors allege that as tax-paying international airlineand airport-related service operators, each one of them stands to be irreparably injured by the implementation ofthe PIATCO Contracts. Each of the petitioners-intervenors have separate and subsisting concession

agreements with MIAA and with various international airlines which they allege are being interfered with andviolated by respondent PIATCO.

In G.R. No. 155661, petitioners constitute employees of MIAA and Samahang Manggagawa sa Paliparan ngPilipinas - a legitimate labor union and accredited as the sole and exclusive bargaining agent of all theemployees in MIAA. Petitioners anchor their petition for prohibition on the nullity of the contracts entered into bythe Government and PIATCO regarding the build-operate-and-transfer of the NAIA IPT III. They filed the petitionas taxpayers and persons who have a legitimate interest to protect in the implementation of the PIATCOContracts.

Petitioners in both cases raise the argument that the PIATCO Contracts contain stipulations which directlycontravene numerous provisions of the Constitution, specific provisions of the BOT Law and its Implementing

Rules and Regulations, and public policy. Petitioners contend that the DOTC and the MIAA, by entering into saidcontracts, have committed grave abuse of discretion amounting to lack or excess of jurisdiction which can beremedied only by a writ of prohibition, there being no plain, speedy or adequate remedy in the ordinary course oflaw.



In particular, petitioners assail the provisions in the 1997 Concession Agreement and the ARCA which grantPIATCO the exclusive right to operate a commercial international passenger terminal within the Island of Luzon,except those international airports already existing at the time of the execution of the agreement. The contractsfurther provide that upon the commencement of operations at the NAIA IPT III, the Government shall cause theclosure of Ninoy Aquino International Airport Passenger Terminals I and II as international passenger terminals.With respect to existing concession agreements between MIAA and international airport service providersregarding certain services or operations, the 1997 Concession Agreement and the ARCA uniformly provide thatsuch services or operations will not be carried over to the NAIA IPT III and PIATCO is under no obligation topermit such carry over except through a separate agreement duly entered into with PIATCO.8

With respect to the petitioning service providers and their employees, upon the commencement of operations ofthe NAIA IPT III, they allege that they will be effectively barred from providing international airline airport servicesat the NAIA Terminals I and II as all international airlines and passengers will be diverted to the NAIA IPT III. Thepetitioning service providers will thus be compelled to contract with PIATCO alone for such services, with noassurance that subsisting contracts with MIAA and other international airlines will be respected. Petitioningservice providers stress that despite the very competitive market, the substantial capital investments requiredand the high rate of fees, they entered into their respective contracts with the MIAA with the understanding thatthe said contracts will be in force for the stipulated period, and thereafter, renewed so as to allow each of thepetitioning service providers to recoup their investments and obtain a reasonable return thereon.

Petitioning employees of various service providers at the NAIA Terminals I and II and of MIAA on the other hand

allege that with the closure of the NAIA Terminals I and II as international passenger terminals under thePIATCO Contracts, they stand to lose employment.

The question on legal standing is whether such parties have "alleged such a personal stake in the outcome ofthe controversy as to assure that concrete adverseness which sharpens the presentation of issues upon whichthe court so largely depends for illumination of difficult constitutional questions."9 Accordingly, it has been heldthat the interest of a person assailing the constitutionality of a statute must be direct and personal. He must beable to show, not only that the law or any government act is invalid, but also that he sustained or is in imminentdanger of sustaining some direct injury as a result of its enforcement, and not merely that he suffers thereby insome indefinite way. It must appear that the person complaining has been or is about to be denied some right orprivilege to which he is lawfully entitled or that he is about to be subjected to some burdens or penalties byreason of the statute or act complained of.10

We hold that petitioners have the requisite standing. In the above-mentioned cases, petitioners have a direct andsubstantial interest to protect by reason of the implementation of the PIATCO Contracts. They stand to lose theirsource of livelihood, a property right which is zealously protected by the Constitution. Moreover, subsistingconcession agreements between MIAA and petitioners-intervenors and service contracts between internationalairlines and petitioners-intervenors stand to be nullified or terminated by the operation of the NAIA IPT III underthe PIATCO Contracts. The financial prejudice brought about by the PIATCO Contracts on petitioners andpetitioners-intervenors in these cases are legitimate interests sufficient to confer on them the requisite standingto file the instant petitions.

b. G.R. No. 155547

In G.R. No. 155547, petitioners filed the petition for prohibition as members of the House of Representatives,citizens and taxpayers. They allege that as members of the House of Representatives, they are especiallyinterested in the PIATCO Contracts, because the contracts compel the Government and/or the House ofRepresentatives to appropriate funds necessary to comply with the provisions therein.11 They cite provisions ofthe PIATCO Contracts which require disbursement of unappropriated amounts in compliance with thecontractual obligations of the Government. They allege that the Government obligations in the PIATCOContracts which compel government expenditure without appropriation is a curtailment of their prerogatives aslegislators, contrary to the mandate of the Constitution that "[n]o money shall be paid out of the treasury exceptin pursuance of an appropriation made by law."12

Standing is a peculiar concept in constitutional law because in some cases, suits are not brought by parties whohave been personally injured by the operation of a law or any other government act but by concerned citizens,

taxpayers or voters who actually sue in the public interest. Although we are not unmindful of the cases of ImusElectric Co. v. Municipality of Imus13 and Gonzales v. Raquiza14 wherein this Court held that appropriationmust be made only on amounts immediately demandable, public interest demands that we take a moreliberal view in determining whether the petitioners suing as legislators, taxpayers and citizens havelocus standi to file the instant petition. In Kilosbayan, Inc. v. Guingona,15 this Court held "[i]n line with the



liberal policy of this Court on locus standi, ordinary taxpayers, members of Congress, and even association ofplanters, and non-profit civic organizations were allowed to initiate and prosecute actions before this Court toquestion the constitutionality or validity of laws, acts, decisions, rulings, or orders of various governmentagencies or instrumentalities."16 Further, "insofar as taxpayers' suits are concerned . . . (this Court) is not devoidof discretion as to whether or not it should be entertained."17 As such ". . . even if, strictly speaking, they [thepetitioners] are not covered by the definition, it is still within the wide discretion of the Court to waive therequirement and so remove the impediment to its addressing and resolving the serious constitutional questionsraised."18 In view of the serious legal questions involved and their impact on public interest, we resolve to grantstanding to the petitioners.

Other Procedural Matters

Respondent PIATCO further alleges that this Court is without jurisdiction to review the instant cases as factualissues are involved which this Court is ill-equipped to resolve. Moreover, PIATCO alleges that submission of thiscontroversy to this Court at the first instance is a violation of the rule on hierarchy of courts. They contend thattrial courts have concurrent jurisdiction with this Court with respect to a special civil action for prohibition andhence, following the rule on hierarchy of courts, resort must first be had before the trial courts.

After a thorough study and careful evaluation of the issues involved, this Court is of the view that the crux of theinstant controversy involves significant legal questions. The facts necessary to resolve these legal questionsare well established and, hence, need not be determined by a trial court.

The rule on hierarchy of courts will not also prevent this Court from assuming jurisdiction over the cases at bar.The said rule may be relaxed when the redress desired cannot be obtained in the appropriate courts or whereexceptional and compelling circumstances justify availment of a remedy within and calling for the exercise of thisCourt's primary jurisdiction.19

It is easy to discern that exceptional circumstances exist in the cases at bar that call for the relaxation of therule. Both petitioners and respondents agree that these cases are of transcendental importance as theyinvolve the construction and operation of the country's premier international airport. Moreover, the crucial issuessubmitted for resolution are of first impression and they entail the proper legal interpretation of key provisions ofthe Constitution, the BOT Law and its Implementing Rules and Regulations. Thus, considering the nature of thecontroversy before the Court, procedural bars may be lowered to give way for the speedy disposition of theinstant cases.

Legal Effect of the Commencement

of Arbitration Proceedings by

PIATCO

There is one more procedural obstacle which must be overcome. The Court is aware that arbitrationproceedings pursuant to Section 10.02 of the ARCA have been filed at the instance of respondent PIATCO. Again, we hold that the arbitration step taken by PIATCO will not oust this Court of its jurisdiction over the cases

at bar.

In Del Monte Corporation-USA v. Court of Appeals,20 even after finding that the arbitration clause in theDistributorship Agreement in question is valid and the dispute between the parties is arbitrable, this Courtaffirmed the trial court's decision denying petitioner's Motion to Suspend Proceedings pursuant to the arbitrationclause under the contract. In so ruling, this Court held that as contracts produce legal effect between the parties,their assigns and heirs, only the parties to the Distributorship Agreement are bound by its terms, including thearbitration clause stipulated therein. This Court ruled that arbitration proceedings could be called forbut only with respect to the parties to the contract in question. Considering that there are parties to the case whoare neither parties to the Distributorship Agreement nor heirs or assigns of the parties thereto, this Court, citingits previous ruling in Salas, Jr. v. Laperal Realty Corporation,21 held that to tolerate the splitting of proceedings byallowing arbitration as to some of the parties on the one hand and trial for the others on the other hand would, in

effect, result in multiplicity of suits, duplicitous procedure and unnecessary delay.

22

Thus, we ruled that theinterest of justice would best be served if the trial court hears and adjudicates the case in a single andcomplete proceeding.

It is established that petitioners in the present cases who have presented legitimate interests in the resolutionof the controversy are not parties to the PIATCO Contracts. Accordingly, they cannot be bound by the



arbitration clause provided for in the ARCA and hence, cannot be compelled to submit to arbitrationproceedings. A speedy and decisive resolution of all the critical issues in the present controversy,including those raised by petitioners, cannot be made before an arbitral tribunal. The object of arbitrationis precisely to allow an expeditious determination of a dispute. This objective would not be met if this Court wereto allow the parties to settle the cases by arbitration as there are certain issues involving non-parties to thePIATCO Contracts which the arbitral tribunal will not be equipped to resolve.

Now, to the merits of the instant controversy.

I

Is PIATCO a qualified bidder?

Public respondents argue that the Paircargo Consortium, PIATCO's predecessor, was not a duly pre-qualifiedbidder on the unsolicited proposal submitted by AEDC as the Paircargo Consortium failed to meet the financialcapability required under the BOT Law and the Bid Documents. They allege that in computing the ability of thePaircargo Consortium to meet the minimum equity requirements for the project, the entire net worth ofSecurity Bank, a member of the consortium, should not be considered.

PIATCO relies, on the other hand, on the strength of the Memorandum dated October 14, 1996 issued by the

DOTC Undersecretary Primitivo C. Cal stating that the Paircargo Consortium is found to have a combined networth of P3,900,000,000.00, sufficient to meet the equity requirements of the project. The said Memorandumwas in response to a letter from Mr. Antonio Henson of AEDC to President Fidel V. Ramos questioning thefinancial capability of the Paircargo Consortium on the ground that it does not have the financial resources to putup the required minimum equity of P2,700,000,000.00. This contention is based on the restriction under R.A. No.337, as amended or the General Banking Act that a commercial bank cannot invest in any single enterprise in anamount more than 15% of its net worth. In the said Memorandum, Undersecretary Cal opined:

The Bid Documents, as clarified through Bid Bulletin Nos. 3 and 5, require that financial capability will beevaluated based on total financial capability of all the member companies of the [Paircargo] Consortium.In this connection, the Challenger was found to have a combined net worth of P3,926,421,242.00 thatcould support a project costing approximately P13 Billion.

It is not a requirement that the net worth must be "unrestricted." To impose that as a requirement nowwill be nothing less than unfair.

The financial statement or the net worth is not the sole basis in establishing financial capability. As statedin Bid Bulletin No. 3, financial capability may also be established by testimonial letters issued byreputable banks. The Challenger has complied with this requirement.

To recap, net worth reflected in the Financial Statement should not be taken as the amount of the moneyto be used to answer the required thirty percent (30%) equity of the challenger but rather to be used inestablishing if there is enough basis to believe that the challenger can comply with the required 30%equity. In fact, proof of sufficient equity is required as one of the conditions for award of contract (Section

12.1 IRR of the BOT Law) but not for pre-qualification (Section 5.4 of the same document).23

Under the BOT Law, in case of a build-operate-and-transfer arrangement, the contract shall be awardedto the bidder "who, having satisfied the minimum financial, technical, organizational and legalstandards" required by the law, has submitted the lowest bid and most favorable terms of theproject.24 Further, the 1994 Implementing Rules and Regulations of the BOT Law provide:

Section 5.4 Pre-qualification Requirements.

xxx xxx xxx

c. Financial Capability: The project proponent must have adequate capability to sustain the financing

requirements for the detailed engineering design, construction and/or operation and maintenancephases of the project, as the case may be. For purposes of pre-qualification, this capability shall bemeasured in terms of (i) proof of the ability of the project proponent and/or the consortium toprovide a minimum amount of equity to the project, and (ii) a letter testimonial from reputablebanks attesting that the project proponent and/or members of the consortium are banking with



them, that they are in good financial standing, and that they have adequate resources. Thegovernment agency/LGU concerned shall determine on a project-to-project basis and before pre-qualification, the minimum amount of equity needed. (emphasis supplied )

Pursuant to this provision, the PBAC issued PBAC Bulletin No. 3 dated August 16, 1996 amending the financialcapability requirements for pre-qualification of the project proponent as follows:

6. Basis of Pre-qualification

The basis for the pre-qualification shall be on the compliance of the proponent to the minimum technicaland financial requirements provided in the Bid Documents and in the IRR of the BOT Law, R.A. No.6957, as amended by R.A. 7718.

The minimum amount of equity to which the proponent's financial capability will be based shall be thirtypercent (30%) of the project cost instead of the twenty percent (20%) specified in Section 3.6.4 ofthe Bid Documents. This is to correlate with the required debt-to-equity ratio of 70:30 in Section 2.01aof the draft concession agreement. The debt portion of the project financing should not exceed 70% ofthe actual project cost.

Accordingly, based on the above provisions of law, the Paircargo Consortium or any challenger to the unsolicited

proposal of AEDC has to show that it possesses the requisite financial capability to undertake the project inthe minimum amount of 30% of the project cost through (i) proof of the ability to provide a minimum amountof equity to the project, and (ii) a letter testimonial from reputable banks attesting that the project proponent ormembers of the consortium are banking with them, that they are in good financial standing, and that they haveadequate resources.

As the minimum project cost was estimated to be US$350,000,000.00 or roughly P9,183,650,000.00,25 thePaircargo Consortium had to show to the satisfaction of the PBAC that it had the ability to provide the minimumequity for the project in the amount of at least P2,755,095,000.00.

Paircargo's Audited Financial Statements as of 1993 and 1994 indicated that it had a net worth of P2,783,592.00and P3,123,515.00 respectively.26 PAGS' Audited Financial Statements as of 1995 indicate that it has

approximately P26,735,700.00 to invest as its equity for the project.

27

Security Bank's Audited FinancialStatements as of 1995 show that it has a net worth equivalent to its capital funds in the amount ofP3,523,504,377.00.28

We agree with public respondents that with respect to Security Bank, the entire amount of its net worth couldnot be invested in a single undertaking or enterprise, whether allied or non-allied in accordance with theprovisions of R.A. No. 337, as amended or the General Banking Act:

Sec. 21-B. The provisions in this or in any other Act to the contrary notwithstanding, the Monetary Board,whenever it shall deem appropriate and necessary to further national development objectives or supportnational priority projects, may authorize a commercial bank, a bank authorized to providecommercial banking services, as well as a government-owned and controlled bank, to operate

under an expanded commercial banking authority and by virtue thereof exercise, in addition topowers authorized for commercial banks, the powers of an Investment House as provided inPresidential Decree No. 129, invest in the equity of a non-allied undertaking, or own a majority or allof the equity in a financial intermediary other than a commercial bank or a bank authorized to providecommercial banking services: Provided, That (a) the total investment in equities shall not exceed fiftypercent (50%) of the net worth of the bank; (b) the equity investment in any one enterprise whetherallied or non-allied shall not exceed fifteen percent (15%) of the net worth of the bank; (c) theequity investment of the bank, or of its wholly or majority-owned subsidiary, in a single non-alliedundertaking shall not exceed thirty-five percent (35%) of the total equity in the enterprise nor shall itexceed thirty-five percent (35%) of the voting stock in that enterprise; and (d) the equity investment inother banks shall be deducted from the investing bank's net worth for purposes of computing theprescribed ratio of net worth to risk assets.

xxx xxx xxx

Further, the 1993 Manual of Regulations for Banks provides:



SECTION X383. Other Limitations and Restrictions. — The following limitations and restrictions shallalso apply regarding equity investments of banks.

a. In any single enterprise. — The equity investments of banks in any single enterprise shall not exceedat any time fifteen percent (15%) of the net worth of the investing bank as defined in Sec. X106 andSubsec. X121.5.

Thus, the maximum amount that Security Bank could validly invest in the Paircargo Consortium is onlyP528,525,656.55, representing 15% of its entire net worth. The total net worth therefore of the PaircargoConsortium, after considering the maximum amounts that may be validly invested by each of its membersisP558,384,871.55 or only 6.08% of the project cost,29 an amount substantially less than the prescribedminimum equity investment required for the project in the amount of P2,755,095,000.00 or 30% of the projectcost.

The purpose of pre-qualification in any public bidding is to determine, at the earliest opportunity, the ability of thebidder to undertake the project. Thus, with respect to the bidder's financial capacity at the pre-qualification stage,the law requires the government agency to examine and determine the ability of the bidder to fund the entirecost of the project by considering the maximum amounts that each bidder may invest in the project at thetime of pre-qualification.

The PBAC has determined that any prospective bidder for the construction, operation and maintenance of theNAIA IPT III project should prove that it has the ability to provide equity in the minimum amount of 30% of theproject cost, in accordance with the 70:30 debt-to-equity ratio prescribed in the Bid Documents. Thus, in thecase of Paircargo Consortium, the PBAC should determine the maximum amounts that each member of theconsortium may commit for the construction, operation and maintenance of the NAIA IPT III project at the timeof pre-qualification. With respect to Security Bank, the maximum amount which may be invested by it wouldonly be 15% of its net worth in view of the restrictions imposed by the General Banking Act. Disregarding theinvestment ceilings provided by applicable law would not result in a proper evaluation of whether or not a bidderis pre-qualified to undertake the project as for all intents and purposes, such ceiling or legal restrictiondetermines the true maximum amount which a bidder may invest in the project.

Further, the determination of whether or not a bidder is pre-qualified to undertake the project requires anevaluation of the financial capacity of the said bidder at the time the bid is submitted based on the requireddocuments presented by the bidder. The PBAC should not be allowed to speculate on the future financialabilityof the bidder to undertake the project on the basis of documents submitted. This would open doors toabuse and defeat the very purpose of a public bidding. This is especially true in the case at bar which involvesthe investment of billions of pesos by the project proponent. The relevant government authority is duty-bound toensure that the awardee of the contract possesses the minimum required financial capability to complete theproject. To allow the PBAC to estimate the bidder's future financial capability would not secure the viability andintegrity of the project. A restrictive and conservative application of the rules and procedures of public bidding isnecessary not only to protect the impartiality and regularity of the proceedings but also to ensure the financialand technical reliability of the project. It has been held that:

The basic rule in public bidding is that bids should be evaluated based on the required documentssubmitted before and not after the opening of bids. Otherwise, the foundation of a fair and competitive

public bidding would be defeated. Strict observance of the rules, regulations, and guidelines of thebidding process is the only safeguard to a fair, honest and competitive public bidding.30

Thus, if the maximum amount of equity that a bidder may invest in the project at the time the bids aresubmitted falls short of the minimum amounts required to be put up by the bidder, said bidder should beproperly disqualified. Considering that at the pre-qualification stage, the maximum amounts which the PaircargoConsortium may invest in the project fell short of the minimum amounts prescribed by the PBAC, we hold thatPaircargo Consortium was not a qualified bidder. Thus the award of the contract by the PBAC to the PaircargoConsortium, a disqualified bidder, is null and void.

While it would be proper at this juncture to end the resolution of the instant controversy, as the legal effects ofthe disqualification of respondent PIATCO's predecessor would come into play and necessarily result in the

nullity of all the subsequent contracts entered by it in pursuance of the project, the Court feels that it isnecessary to discuss in full the pressing issues of the present controversy for a complete resolution thereof.

II



Is the 1997 Concession Agreement valid?

Petitioners and public respondents contend that the 1997 Concession Agreement is invalid as it containsprovisions that substantially depart from the draft Concession Agreement included in the Bid Documents. Theymaintain that a substantial departure from the draft Concession Agreement is a violation of public policy andrenders the 1997 Concession Agreement null and void.

PIATCO maintains, however, that the Concession Agreement attached to the Bid Documents is intended to beadraft, i.e., subject to change, alteration or modification, and that this intention was clear to all participants,including AEDC, and DOTC/MIAA. It argued further that said intention is expressed in Part C (6) of Bid BulletinNo. 3 issued by the PBAC which states:

6. Amendments to the Draft Concessions Agreement

Amendments to the Draft Concessions Agreement shall be issued from time to time. Said amendmentsshall only cover items that would not materially affect the preparation of the proponent's proposal.

By its very nature, public bidding aims to protect the public interest by giving the public the best possibleadvantages through open competition. Thus:

Competition must be legitimate, fair and honest. In the field of government contract law, competitionrequires, not only `bidding upon a common standard, a common basis, upon the same thing, the samesubject matter, the same undertaking,' but also that it be legitimate, fair and honest; and notdesigned to injure or defraud the government.31

An essential element of a publicly bidded contract is that all bidders must be on equal footing. Not simply interms of application of the procedural rules and regulations imposed by the relevant government agency, butmore importantly, on the contract bidded upon. Each bidder must be able to bid on the same thing. The rationaleis obvious. If the winning bidder is allowed to later include or modify certain provisions in the contract awardedsuch that the contract is altered in any material respect, then the essence of fair competition in the public biddingis destroyed. A public bidding would indeed be a farce if after the contract is awarded, the winning bidder maymodify the contract and include provisions which are favorable to it that were not previously made available to

the other bidders. Thus:

It is inherent in public biddings that there shall be a fair competition among the bidders. Thespecifications in such biddings provide the common ground or basis for the bidders. The specificationsshould, accordingly, operate equally or indiscriminately upon all bidders.32

The same rule was restated by Chief Justice Stuart of the Supreme Court of Minnesota:

The law is well settled that where, as in this case, municipal authorities can only let a contract for publicwork to the lowest responsible bidder, the proposals and specifications therefore must be so framed asto permit free and full competition. Nor can they enter into a contract with the best bidder containingsubstantial provisions beneficial to him, not included or contemplated in the terms and

specifications upon which the bids were invited.33

In fact, in the PBAC Bid Bulletin No. 3 cited by PIATCO to support its argument that the draft concessionagreement is subject to amendment, the pertinent portion of which was quoted above, the PBAC also clarifiedthat"[s]aid amendments shall only cover items that would not materially affect the preparation of theproponent's proposal."

While we concede that a winning bidder is not precluded from modifying or amending certain provisions of thecontract bidded upon, such changes must not constitute substantial or material amendments that wouldalter the basic parameters of the contract and would constitute a denial to the other bidders of theopportunity to bid on the same terms. Hence, the determination of whether or not a modification oramendment of a contract bidded out constitutes a substantial amendment rests on whether the contract, when

taken as a whole, would contain substantially different terms and conditions that would have the effect of alteringthe technical and/or financial proposals previously submitted by other bidders. The alterations and modificationsin the contract executed between the government and the winning bidder must be such as to render suchexecuted contract to be an entirely different contract from the one that was bidded upon.





(3) check-in counter fees; and

(4) Terminal Fees.

The implication of the reduced number of fees that are subject to MIAA approval is best appreciated in relation tofees included in the second category identified above. Under the 1997 Concession Agreement, fees whichPIATCO may adjust whenever it deems necessary without need for consent of DOTC/MIAA are "Non-PublicUtility Revenues" and is defined as "all other income not classified as Public Utility Revenues derived fromoperations of the Terminal and the Terminal Complex."38 Thus, under the 1997 Concession Agreement, groundhandling fees, rentals from airline offices and porterage fees are no longer subject to MIAA regulation.

Further, under Section 6.03 of the draft Concession Agreement, MIAA reserves the right to regulate (1) lobbyand vehicular parking fees and (2) other new fees and charges that may be imposed by PIATCO. Suchregulation may be made by periodic adjustment and is effective only upon written approval of MIAA. The full textof said provision is quoted below:

Section 6.03. Periodic Adjustment in Fees and Charges. Adjustments in the aircraft parking fees, aircrafttacking fees, groundhandling fees, rentals and airline offices, check-in-counter rentals and porteragefees shall be allowed only once every two years and in accordance with the Parametric Formulaattached hereto as Annex F. Provided that adjustments shall be made effective only after the writtenexpress approval of the MIAA. Provided, further, that such approval of the MIAA, shall be contingent onlyon the conformity of the adjustments with the above said parametric formula. The first adjustment shallbe made prior to the In-Service Date of the Terminal.

The MIAA reserves the right to regulate under the foregoing terms and conditions the lobby andvehicular parking fees and other new fees and charges as contemplated in paragraph 2 ofSection 6.01 if in its judgment the users of the airport shall be deprived of a free option for theservices they cover.39

On the other hand, the equivalent provision under the 1997 Concession Agreement reads:

Section 6.03 Periodic Adjustment in Fees and Charges.

xxx xxx xxx

(c) Concessionaire shall at all times be judicious in fixing fees and charges constituting Non-Public UtilityRevenues in order to ensure that End Users are not unreasonably deprived of services. While thevehicular parking fee, porterage fee and greeter/well wisher fee constitute Non-Public UtilityRevenues of Concessionaire, GRP may intervene and require Concessionaire to explain and justify the fee it may set from time to time, if in the reasonable opinion of GRP the said fees havebecome exorbitant resulting in the unreasonable deprivation of End Users of such services.40

Thus, under the 1997 Concession Agreement, with respect to (1) vehicular parking fee, (2) porterage fee and(3) greeter/well wisher fee, all that MIAA can do is to require PIATCO to explain and justify the fees set by

PIATCO. In the draft Concession Agreement, vehicular parking fee is subject to MIAA regulation and approvalunder the second paragraph of Section 6.03 thereof while porterage fee is covered by the first paragraph of thesame provision. There is an obvious relaxation of the extent of control and regulation by MIAA with respect tothe particular fees that may be charged by PIATCO.

Moreover, with respect to the third category of fees that may be imposed and collected by PIATCO, i.e., newfees and charges that may be imposed by PIATCO which have not been previously imposed or collected at theNinoy Aquino International Airport Passenger Terminal I, under Section 6.03 of the draft ConcessionAgreement MIAA has reserved the right to regulate the same under the same conditions that MIAA mayregulate fees under the first category, i.e., periodic adjustment of once every two years in accordance with aprescribed parametric formula and effective only upon written approval by MIAA. However, under the 1997Concession Agreement, adjustment of fees under the third category is not subject to MIAA regulation.

With respect to terminal fees that may be charged by PIATCO,41 as shown earlier, this was included within thecategory of "Public Utility Revenues" under the 1997 Concession Agreement. This classification is significantbecause under the 1997 Concession Agreement, "Public Utility Revenues" are subject to an "Interim Adjustment" of fees upon the occurrence of certain extraordinary events specified in the agreement.42 However,



under the draft Concession Agreement, terminal fees are not included in the types of fees that may be subjectto "Interim Adjustment."43

Finally, under the 1997 Concession Agreement, "Public Utility Revenues," except terminal fees, aredenominated in US Dollars44 while payments to the Government are in Philippine Pesos. In the draftConcession Agreement, no such stipulation was included. By stipulating that "Public Utility Revenues" will bepaid to PIATCO in US Dollars while payments by PIATCO to the Government are in Philippine currency underthe 1997 Concession Agreement, PIATCO is able to enjoy the benefits of depreciations of the Philippine Peso,while being effectively insulated from the detrimental effects of exchange rate fluctuations.

When taken as a whole, the changes under the 1997 Concession Agreement with respect to reduction in thetypes of fees that are subject to MIAA regulation and the relaxation of such regulation with respect to other feesare significant amendments that substantially distinguish the draft Concession Agreement from the 1997Concession Agreement. The 1997 Concession Agreement, in this respect, clearly gives PIATCO morefavorable terms than what was available to other bidders at the time the contract was bidded out. It is notvery difficult to see that the changes in the 1997 Concession Agreement translate to direct and concretefinancial advantages for PIATCO which were not available at the time the contract was offered for bidding. Itcannot be denied that under the 1997 Concession Agreement only "Public Utility Revenues" are subject to MIAAregulation. Adjustments of all other fees imposed and collected by PIATCO are entirely within its control.Moreover, with respect to terminal fees, under the 1997 Concession Agreement, the same is further subject to"Interim Adjustments" not previously stipulated in the draft Concession Agreement. Finally, the change in the

currency stipulated for "Public Utility Revenues" under the 1997 Concession Agreement, except terminal fees,gives PIATCO an added benefit which was not available at the time of bidding.

b. Assumption by the

Government of the liabilities of

PIATCO in the event of the latter's

default thereof

Under the draft Concession Agreement, default by PIATCO of any of its obligations to creditors who haveprovided, loaned or advanced funds for the NAIA IPT III project does not result in the assumption by theGovernment of these liabilities. In fact, nowhere in the said contract does default of PIATCO's loans figure in theagreement. Such default does not directly result in any concomitant right or obligation in favor of theGovernment.

However, the 1997 Concession Agreement provides:

Section 4.04 Assignment.

xxx xxx xxx

(b) In the event Concessionaire should default in the payment of an Attendant Liability, and the defaulthas resulted in the acceleration of the payment due date of the Attendant Liability prior to its stated dateof maturity, the Unpaid Creditors and Concessionaire shall immediately inform GRP in writing of suchdefault. GRP shall, within one hundred eighty (180) Days from receipt of the joint written notice of theUnpaid Creditors and Concessionaire, either (i) take over the Development Facility and assume the Attendant Liabilities, or (ii) allow the Unpaid Creditors, if qualified, to be substituted as concessionaireand operator of the Development Facility in accordance with the terms and conditions hereof, ordesignate a qualified operator acceptable to GRP to operate the Development Facility, likewise underthe terms and conditions of this Agreement; Provided that if at the end of the 180-day period GRP shallnot have served the Unpaid Creditors and Concessionaire written notice of its choice, GRP shall bedeemed to have elected to take over the Development Facility with the concomitant assumption of Attendant Liabilities.

(c) If GRP should, by written notice, allow the Unpaid Creditors to be substituted as concessionaire, thelatter shall form and organize a concession company qualified to take over the operation of theDevelopment Facility. If the concession company should elect to designate an operator for theDevelopment Facility, the concession company shall in good faith identify and designate a qualified





bidded out or the draft Concession Agreement. It is not difficult to see that the amendments on (1) the types offees or charges that are subject to MIAA regulation or control and the extent thereof and (2) the assumption bythe Government, under certain conditions, of the liabilities of PIATCO directly translates concrete financialadvantages to PIATCO that were previously not available during the bidding process. These amendmentscannot be taken as merely supplements to or implementing provisions of those already existing in the draftConcession Agreement. The amendments discussed above present new terms and conditions which providefinancial benefit to PIATCO which may have altered the technical and financial parameters of other bidders hadthey known that such terms were available.

III

Direct Government Guarantee

Article IV, Section 4.04(b) and (c), in relation to Article 1.06, of the 1997 Concession Agreement provides:

Section 4.04 Assignment

xxx xxx xxx

(b) In the event Concessionaire should default in the payment of an Attendant Liability, and the

default resulted in the acceleration of the payment due date of the Attendant Liability prior to its stateddate of maturity, the Unpaid Creditors and Concessionaire shall immediately inform GRP in writing ofsuch default. GRP shall within one hundred eighty (180) days from receipt of the joint written notice ofthe Unpaid Creditors and Concessionaire, either (i) take over the Development Facility and assume theAttendant Liabilities, or (ii) allow the Unpaid Creditors, if qualified to be substituted as concessionaireand operator of the Development facility in accordance with the terms and conditions hereof, ordesignate a qualified operator acceptable to GRP to operate the Development Facility, likewise underthe terms and conditions of this Agreement; Provided, that if at the end of the 180-day period GRP shallnot have served the Unpaid Creditors and Concessionaire written notice of its choice, GRP shall bedeemed to have elected to take over the Development Facility with the concomitant assumptionof Attendant Liabilities.

(c) If GRP, by written notice, allow the Unpaid Creditors to be substituted as concessionaire, the lattershall form and organize a concession company qualified to takeover the operation of the DevelopmentFacility. If the concession company should elect to designate an operator for the Development Facility,the concession company shall in good faith identify and designate a qualified operator acceptable toGRP within one hundred eighty (180) days from receipt of GRP's written notice. If the concessioncompany, acting in good faith and with due diligence, is unable to designate a qualified operator withinthe aforesaid period, then GRP shall at the end of the 180-day period take over the DevelopmentFacility and assume Attendant Liabilities.

….

Section 1.06. Attendant Liabilities

Attendant Liabilities refer to all amounts recorded and from time to time outstanding in the books ofthe Concessionaire as owing to Unpaid Creditors who have provided, loaned or advanced fundsactually used for the Project, including all interests, penalties, associated fees, charges, surcharges,indemnities, reimbursements and other related expenses, and further including amounts owed byConcessionaire to its suppliers, contractors and sub-contractors.48

It is clear from the above-quoted provisions that Government, in the event that PIATCO defaults in its loanobligations, is obligated to pay "all amounts recorded and from time to time outstanding from the books" ofPIATCO which the latter owes to its creditors.49 These amounts include "all interests, penalties, associated fees,charges, surcharges, indemnities, reimbursements and other related expenses."50 This obligation of theGovernment to pay PIATCO's creditors upon PIATCO's default would arise if the Government opts to take over

NAIA IPT III. It should be noted, however, that even if the Government chooses the second option, which is toallow PIATCO's unpaid creditors operate NAIA IPT III, the Government is still at a risk of being liable toPIATCO's creditors should the latter be unable to designate a qualified operator within the prescribed period.51 Ineffect,whatever option the Government chooses to take in the event of PIATCO's failure to fulfill its loanobligations, the Government is still at a risk of assuming PIATCO's outstanding loans. This is due to thefact that the Government would only be free from assuming PIATCO's debts if the unpaid creditors would be



able to designate a qualified operator within the period provided for in the contract. Thus, the Government'sassumption of liability is virtually out of its control. The Government under the circumstances provided for inthe 1997 Concession Agreement is at the mercy of the existence, availability and willingness of a qualifiedoperator. The above contractual provisions constitute a direct government guarantee which is prohibited by law.

One of the main impetus for the enactment of the BOT Law is the lack of government funds to construct theinfrastructure and development projects necessary for economic growth and development. This is why privatesector resources are being tapped in order to finance these projects. The BOT law allows the private sector toparticipate, and is in fact encouraged to do so by way of incentives, such as minimizing the unstable flow ofreturns,52 provided that the government would not have to unnecessarily expend scarcely available funds for theproject itself. As such, direct guarantee, subsidy and equity by the government in these projects are strictlyprohibited.53 This is but logical for if the government would in the end still be at a risk of paying the debtsincurred by the private entity in the BOT projects, then the purpose of the law is subverted.

Section 2(n) of the BOT Law defines direct guarantee as follows:

(n) Direct government guarantee — An agreement whereby the government or any of its agencies orlocal government units assume responsibility for the repayment of debt directly incurred by theproject proponent in implementing the project in case of a loan default.

Clearly by providing that the Government "assumes" the attendant liabilities, which consists of PIATCO's unpaiddebts, the 1997 Concession Agreement provided for a direct government guarantee for the debts incurred byPIATCO in the implementation of the NAIA IPT III project. It is of no moment that the relevant sections aresubsumed under the title of "assignment". The provisions providing for direct government guarantee which isprohibited by law is clear from the terms thereof.

The fact that the ARCA superseded the 1997 Concession Agreement did not cure this fatal defect. Article IV,Section 4.04(c), in relation to Article I, Section 1.06, of the ARCA provides:

Section 4.04 Security

xxx xxx xxx

(c) GRP agrees with Concessionaire (PIATCO) that it shall negotiate in good faith and enter intodirect agreement with the Senior Lenders, or with an agent of such Senior Lenders (which agreementshall be subject to the approval of the Bangko Sentral ng Pilipinas), in such form as may be reasonablyacceptable to both GRP and Senior Lenders, with regard, inter alia, to the following parameters:

xxx xxx xxx

(iv) If the Concessionaire [PIATCO] is in default under a payment obligation owed to theSenior Lenders, and as a result thereof the Senior Lenders have become entitled to acceleratethe Senior Loans, the Senior Lenders shall have the right to notify GRP of the same, and withoutprejudice to any other rights of the Senior Lenders or any Senior Lenders' agent may have

(including without limitation under security interests granted in favor of the Senior Lenders), toeither in good faith identify and designate a nominee which is qualified under sub-clause (viii)(y)below to operate the Development Facility [NAIA Terminal 3] or transfer the Concessionaire's[PIATCO] rights and obligations under this Agreement to a transferee which is qualified undersub-clause (viii) below;

xxx xxx xxx

(vi) if the Senior Lenders, acting in good faith and using reasonable efforts, are unable todesignate a nominee or effect a transfer in terms and conditions satisfactory to the SeniorLenders within one hundred eighty (180) days after giving GRP notice as referred to respectivelyin (iv) or (v) above, then GRP and the Senior Lenders shall endeavor in good faith to enter into

any other arrangement relating to the Development Facility [NAIA Terminal 3] (other than aturnover of the Development Facility [NAIA Terminal 3] to GRP) within the following one hundredeighty (180) days. If no agreement relating to the Development Facility [NAIA Terminal 3] isarrived at by GRP and the Senior Lenders within the said 180-day period, then at the end thereofthe Development Facility [NAIA Terminal 3] shall be transferred by the Concessionaire



[PIATCO] to GRP or its designee and GRP shall make a termination payment toConcessionaire [PIATCO] equal to the Appraised Value (as hereinafter defined) of theDevelopment Facility [NAIA Terminal 3] or the sum of the Attendant Liabilities, if greater .Notwithstanding Section 8.01(c) hereof, this Agreement shall be deemed terminated upon thetransfer of the Development Facility [NAIA Terminal 3] to GRP pursuant hereto;

xxx xxx xxx

Section 1.06. Attendant Liabilities

Attendant Liabilities refer to all amounts in each case supported by verifiable evidence from time totimeowed or which may become owing by Concessionaire [PIATCO] to Senior Lenders or anyother persons or entities who have provided, loaned, or advanced funds or provided financialfacilities to Concessionaire [PIATCO] for the Project [NAIA Terminal 3], including, withoutlimitation, all principal, interest, associated fees, charges, reimbursements, and other relatedexpenses (including the fees, charges and expenses of any agents or trustees of such persons orentities), whether payable at maturity, by acceleration or otherwise, and further including amounts owedby Concessionaire [PIATCO] to its professional consultants and advisers, suppliers, contractors and sub-contractors.54

It is clear from the foregoing contractual provisions that in the event that PIATCO fails to fulfill its loan obligationsto its Senior Lenders, the Government is obligated to directly negotiate and enter into an agreement relating toNAIA IPT III with the Senior Lenders, should the latter fail to appoint a qualified nominee or transferee who willtake the place of PIATCO. If the Senior Lenders and the Government are unable to enter into an agreementafter the prescribed period, the Government must then pay PIATCO, upon transfer of NAIA IPT III to theGovernment, termination payment equal to the appraised value of the project or the value of the attendantliabilities whichever is greater . Attendant liabilities as defined in the ARCA includes all amounts owed orthereafter may be owed by PIATCO not only to the Senior Lenders with whom PIATCO has defaulted in its loanobligations but to all other persons who may have loaned, advanced funds or provided any other type of financialfacilities to PIATCO for NAIA IPT III. The amount of PIATCO's debt that the Government would have to pay as aresult of PIATCO's default in its loan obligations -- in case no qualified nominee or transferee is appointed by theSenior Lenders and no other agreement relating to NAIA IPT III has been reached between the Government andthe Senior Lenders -- includes, but is not limited to, "all principal, interest, associated fees, charges,

reimbursements, and other related expenses . . . whether payable at maturity, by acceleration or otherwise."55

It is clear from the foregoing that the ARCA provides for a direct guarantee by the government to payPIATCO's loans not only to its Senior Lenders but all other entities who provided PIATCO funds orservices upon PIATCO's default in its loan obligation with its Senior Lenders. The fact that theGovernment's obligation to pay PIATCO's lenders for the latter's obligation would only arise after the SeniorLenders fail to appoint a qualified nominee or transferee does not detract from the fact that, should theconditions as stated in the contract occur, the ARCA still obligates the Government to pay any and all amountsowed by PIATCO to its lenders in connection with NAIA IPT III. Worse, the conditions that would make theGovernment liable for PIATCO's debts is triggered by PIATCO's own default of its loan obligations to its SeniorLenders to which loan contracts the Government was never a party to. The Government was not even given anoption as to what course of action it should take in case PIATCO defaulted in the payment of its senior loans.

The Government, upon PIATCO's default, would be merely notified by the Senior Lenders of the same and it isthe Senior Lenders who are authorized to appoint a qualified nominee or transferee. Should the Senior Lendersfail to make such an appointment, the Government is then automatically obligated to "directly deal andnegotiate" with the Senior Lenders regarding NAIA IPT III. The only way the Government would not be liable forPIATCO's debt is for a qualified nominee or transferee to be appointed in place of PIATCO to continue theconstruction, operation and maintenance of NAIA IPT III. This "pre-condition", however, will not take the contractout of the ambit of a direct guarantee by the government as the existence, availability and willingness of aqualified nominee or transferee is totally out of the government's control. As such the Government is virtuallyat the mercy of PIATCO (that it would not default on its loan obligations to its Senior Lenders), the SeniorLenders (that they would appoint a qualified nominee or transferee or agree to some other arrangement with theGovernment) and the existence of a qualified nominee or transferee who is able and willing to take the place ofPIATCO in NAIA IPT III.

The proscription against government guarantee in any form is one of the policy considerations behindthe BOT Law. Clearly, in the present case, the ARCA obligates the Government to pay for all loans, advancesand obligations arising out of financial facilities extended to PIATCO for the implementation of the NAIA IPT IIIproject should PIATCO default in its loan obligations to its Senior Lenders and the latter fails to appoint a



qualified nominee or transferee. This in effect would make the Government liable for PIATCO's loans should theconditions as set forth in the ARCA arise. This is a form of direct government guarantee.

The BOT Law and its implementing rules provide that in order for an unsolicited proposal for a BOT project maybe accepted, the following conditions must first be met: (1) the project involves a new concept in technologyand/or is not part of the list of priority projects, (2) no direct government guarantee, subsidy or equity isrequired, and (3) the government agency or local government unit has invited by publication other interestedparties to a public bidding and conducted the same.56 The failure to meet any of the above conditions will resultin the denial of the proposal. It is further provided that the presence of direct government guarantee, subsidy orequity will "necessarily disqualify a proposal from being treated and accepted as an unsolicited proposal."57 TheBOT Law clearly and strictly prohibits direct government guarantee, subsidy and equity in unsolicited proposalsthat the mere inclusion of a provision to that effect is fatal and is sufficient to deny the proposal. It stands toreason therefore that if a proposal can be denied by reason of the existence of direct government guarantee,then its inclusion in the contract executed after the said proposal has been accepted is likewise sufficient toinvalidate the contract itself. A prohibited provision, the inclusion of which would result in the denial of a proposalcannot, and should not, be allowed to later on be inserted in the contract resulting from the said proposal. Thebasic rules of justice and fair play alone militate against such an occurrence and must not, therefore, becountenanced particularly in this instance where the government is exposed to the risk of shouldering hundredsof million of dollars in debt.

This Court has long and consistently adhered to the legal maxim that those that cannot be done directly cannot

be done indirectly.58 To declare the PIATCO contracts valid despite the clear statutory prohibition againsta direct government guarantee would not only make a mockery of what the BOT Law seeks to prevent --which is to expose the government to the risk of incurring a monetary obligation resulting from acontract of loan between the project proponent and its lenders and to which the Government is not aparty to -- but would also render the BOT Law useless for what it seeks to achieve –- to make use of theresources of the private sector in the "financing, operation and maintenance of infrastructure anddevelopment projects"59 which are necessary for national growth and development but which thegovernment, unfortunately, could ill-afford to finance at this point in time.

IV

Temporary takeover of business affected with public interest

Article XII, Section 17 of the 1987 Constitution provides:

Section 17. In times of national emergency, when the public interest so requires, the State may, duringthe emergency and under reasonable terms prescribed by it, temporarily take over or direct the operationof any privately owned public utility or business affected with public interest.

The above provision pertains to the right of the State in times of national emergency, and in the exercise of itspolice power, to temporarily take over the operation of any business affected with public interest. In the 1986Constitutional Commission, the term "national emergency" was defined to include threat from externalaggression, calamities or national disasters, but not strikes "unless it is of such proportion that would paralyzegovernment service."60 The duration of the emergency itself is the determining factor as to how long thetemporary takeover by the government would last.61 The temporary takeover by the government extends only tothe operation of the business and not to the ownership thereof. As such the government is not required tocompensate the private entity-owner of the said business as there is no transfer of ownership, whetherpermanent or temporary. The private entity-owner affected by the temporary takeover cannot, likewise, claim justcompensation for the use of the said business and its properties as the temporary takeover by the government isin exercise of its police power and not of its power of eminent domain.

Article V, Section 5.10 (c) of the 1997 Concession Agreement provides:

Section 5.10 Temporary Take-over of operations by GRP.

….

(c) In the event the development Facility or any part thereof and/or the operations of Concessionaire orany part thereof, become the subject matter of or be included in any notice, notification, or declarationconcerning or relating to acquisition, seizure or appropriation by GRP in times of war or nationalemergency, GRP shall, by written notice to Concessionaire, immediately take over the operations of the



Terminal and/or the Terminal Complex. During such take over by GRP, the Concession Period shall besuspended; provided, that upon termination of war, hostilities or national emergency, the operations shallbe returned to Concessionaire, at which time, the Concession period shall commence to runagain.Concessionaire shall be entitled to reasonable compensation for the duration of thetemporary take over by GRP, which compensation shall take into account the reasonable cost forthe use of the Terminal and/or Terminal Complex, (which is in the amount at least equal to thedebt service requirements of Concessionaire, if the temporary take over should occur at the timewhen Concessionaire is still servicing debts owed to project lenders), any loss or damage to theDevelopment Facility, and other consequential damages. If the parties cannot agree on the reasonable

compensation of Concessionaire, or on the liability of GRP as aforesaid, the matter shall be resolved inaccordance with Section 10.01 [Arbitration]. Any amount determined to be payable by GRP toConcessionaire shall be offset from the amount next payable by Concessionaire to GRP.62

PIATCO cannot, by mere contractual stipulation, contravene the Constitutional provision on temporarygovernment takeover and obligate the government to pay "reasonable cost for the use of the Terminaland/or Terminal Complex."63 Article XII, section 17 of the 1987 Constitution envisions a situation wherein theexigencies of the times necessitate the government to "temporarily take over or direct the operation of anyprivately owned public utility or business affected with public interest." It is the welfare and interest of the publicwhich is the paramount consideration in determining whether or not to temporarily take over a particularbusiness. Clearly, the State in effecting the temporary takeover is exercising its police power. Police power is the"most essential, insistent, and illimitable of powers."64 Its exercise therefore must not be unreasonably hampered

nor its exercise be a source of obligation by the government in the absence of damage due to arbitrariness of itsexercise.65 Thus, requiring the government to pay reasonable compensation for the reasonable use of theproperty pursuant to the operation of the business contravenes the Constitution.

V

Regulation of Monopolies

A monopoly is "a privilege or peculiar advantage vested in one or more persons or companies, consisting in theexclusive right (or power) to carry on a particular business or trade, manufacture a particular article, or controlthe sale of a particular commodity."66 The 1987 Constitution strictly regulates monopolies, whether private orpublic, and even provides for their prohibition if public interest so requires. Article XII, Section 19 of the 1987

Constitution states:

Sec. 19. The state shall regulate or prohibit monopolies when the public interest so requires. Nocombinations in restraint of trade or unfair competition shall be allowed.

Clearly, monopolies are not per se prohibited by the Constitution but may be permitted to exist to aid thegovernment in carrying on an enterprise or to aid in the performance of various services and functions in theinterest of the public.67 Nonetheless, a determination must first be made as to whether public interest requiresa monopoly. As monopolies are subject to abuses that can inflict severe prejudice to the public, they are subjectto a higher level of State regulation than an ordinary business undertaking.

In the cases at bar, PIATCO, under the 1997 Concession Agreement and the ARCA, is granted the "exclusiveright to operate a commercial international passenger terminal within the Island of Luzon" at the NAIA IPTIII.68This is with the exception of already existing international airports in Luzon such as those located in theSubic Bay Freeport Special Economic Zone ("SBFSEZ"), Clark Special Economic Zone ("CSEZ") and in LaoagCity.69 As such, upon commencement of PIATCO's operation of NAIA IPT III, Terminals 1 and 2 of NAIA wouldcease to function as international passenger terminals. This, however, does not prevent MIAA to use Terminals1 and 2 as domestic passenger terminals or in any other manner as it may deem appropriate except thoseactivities that would compete with NAIA IPT III in the latter's operation as an international passengerterminal.70 The right granted to PIATCO to exclusively operate NAIA IPT III would be for a period of twenty-five(25) years from the In-Service Date71 and renewable for another twenty-five (25) years at the option of thegovernment.72 Both the 1997 Concession Agreement and the ARCA further provide that, in view of theexclusive right granted to PIATCO, the concession contracts of the service providers currently servicingTerminals 1 and 2 would no longer be renewed and those concession contracts whose expiration are

subsequent to the In-Service Date would cease to be effective on the said date.73

The operation of an international passenger airport terminal is no doubt an undertaking imbued with publicinterest. In entering into a Build –Operate-and-Transfer contract for the construction, operation and maintenanceof NAIA IPT III, the government has determined that public interest would be served better if private sector



resources were used in its construction and an exclusive right to operate be granted to the private entityundertaking the said project, in this case PIATCO. Nonetheless, the privilege given to PIATCO is subject toreasonable regulation and supervision by the Government through the MIAA, which is the government agencyauthorized to operate the NAIA complex, as well as DOTC, the department to which MIAA is attached.74

This is in accord with the Constitutional mandate that a monopoly which is not prohibited must beregulated.75While it is the declared policy of the BOT Law to encourage private sector participation by "providinga climate of minimum government regulations,"76 the same does not mean that Government must completelysurrender its sovereign power to protect public interest in the operation of a public utility as a monopoly. Theoperation of said public utility can not be done in an arbitrary manner to the detriment of the public which it seeksto serve. The right granted to the public utility may be exclusive but the exercise of the right cannot run riot.Thus, while PIATCO may be authorized to exclusively operate NAIA IPT III as an international passengerterminal, the Government, through the MIAA, has the right and the duty to ensure that it is done in accord withpublic interest. PIATCO's right to operate NAIA IPT III cannot also violate the rights of third parties.

Section 3.01(e) of the 1997 Concession Agreement and the ARCA provide:

3.01 Concession Period

xxx xxx xxx

(e) GRP confirms that certain concession agreements relative to certain services and operationscurrently being undertaken at the Ninoy Aquino International Airport passenger Terminal I have avalidity period extending beyond the In-Service Date. GRP through DOTC/MIAA, confirms thatthese services and operations shall not be carried over to the Terminal and the Concessionaire isunder no legal obligation to permit such carry-over except through a separate agreement dulyentered into with Concessionaire. In the event Concessionaire becomes involved in any litigation initiatedby any such concessionaire or operator, GRP undertakes and hereby holds Concessionaire free andharmless on full indemnity basis from and against any loss and/or any liability resulting from any suchlitigation, including the cost of litigation and the reasonable fees paid or payable to Concessionaire'scounsel of choice, all such amounts shall be fully deductible by way of an offset from any amount whichthe Concessionaire is bound to pay GRP under this Agreement.

During the oral arguments on December 10, 2002, the counsel for the petitioners-in-intervention for G.R.No. 155001 stated that there are two service providers whose contracts are still existing and whosevalidity extends beyond the In-Service Date. One contract remains valid until 2008 and the other until2010.77

We hold that while the service providers presently operating at NAIA Terminal 1 do not have an absolute right forthe renewal or the extension of their respective contracts, those contracts whose duration extends beyond NAIAIPT III's In-Service-Date should not be unduly prejudiced. These contracts must be respected not just by theparties thereto but also by third parties. PIATCO cannot, by law and certainly not by contract, render a valid andbinding contract nugatory. PIATCO, by the mere expedient of claiming an exclusive right to operate, cannotrequire the Government to break its contractual obligations to the service providers. In contrast to the arrastreand stevedoring service providers in the case of Anglo-Fil Trading Corporation v. Lazaro78 whose contractsconsist of temporary hold-over permits, the affected service providers in the cases at bar, have a valid andbinding contract with the Government, through MIAA, whose period of effectivity, as well as the other terms andconditions thereof, cannot be violated.

In fine, the efficient functioning of NAIA IPT III is imbued with public interest. The provisions of the 1997Concession Agreement and the ARCA did not strip government, thru the MIAA, of its right to supervise theoperation of the whole NAIA complex, including NAIA IPT III. As the primary government agency tasked with the job,79 it is MIAA's responsibility to ensure that whoever by contract is given the right to operate NAIA IPT III willdo so within the bounds of the law and with due regard to the rights of third parties and above all, the interest ofthe public.

VI

CONCLUSION

In sum, this Court rules that in view of the absence of the requisite financial capacity of the PaircargoConsortium, predecessor of respondent PIATCO, the award by the PBAC of the contract for the construction,



operation and maintenance of the NAIA IPT III is null and void. Further, considering that the 1997 Concession Agreement contains material and substantial amendments, which amendments had the effect of converting the1997 Concession Agreement into an entirely different agreement from the contract bidded upon, the 1997Concession Agreement is similarly null and void for being contrary to public policy. The provisions underSections 4.04(b) and (c) in relation to Section 1.06 of the 1997 Concession Agreement and Section 4.04(c) inrelation to Section 1.06 of the ARCA, which constitute a direct government guarantee expressly prohibited by,among others, the BOT Law and its Implementing Rules and Regulations are also null and void. TheSupplements, being accessory contracts to the ARCA, are likewise null and void.

WHEREFORE, the 1997 Concession Agreement, the Amended and Restated Concession Agreement and theSupplements thereto are set aside for being null and void.

SO ORDERED.

Davide, Jr., C.J., Bellosillo, Ynares-Santiago, Sandoval-Gutierrez, Austria-Martinez, Corona, and Carpio-Morales, JJ., concur.Vitug, J., see separate (dissenting) opinion.Panganiban, J., please see separate opinion.Quisumbing, J., no jurisdiction, please see separate opinion of J. Vitug in which he concurs.Carpio, J., no part.Callejo, Sr., J., also concur in the separate opinion of J. Panganiban. Azcuna, J., joins the separate opinion of J. Vitug.

G.R. No. L-39841 June 20, 1988

MARSMAN & COMPANY, INC., petitioner,vs.FIRST COCONUT CENTRAL COMPANY, INC., respondent.

Sycip, Salazar, Feliciano, Hernandez & Castillo Law Office for petitioner.

GANCAYCO, J.:

Is the sale of industrial machinery covered by the Anti-Dummy Law and the Retail Trade Nationalization Law?This is the issue in this petition for review on certiorari assailing the decision of the Court of Appeals datedSeptember 16, 1974 which reversed the decision of the Court of First Instance and the denial of a motion forreconsideration thereof.

The facts of the case as narrated in the decision of the Court of Appeals are as follows:

On January 26, 1967, the First Coconut Central Co., Inc. purchased on

installment one diesel generating unit worth P21,000.00 from Madrid Trading. Asdown payment, the defendant company paid the amount of P4,000.00 to MadridTrading which issued official receipt No. 02248. The diesel generating unit wasreceived by the defendant company on January 27, 1967 as shown by InvoiceNo. 214 (Exhibit C), where it also provided for the payment of the balance ofP17,000.00 in three (3) equal monthly installments to begin from date of delivery



with usual clause on interests and attorney's fees. As security for the satisfactionof the said obligation, a chattel mortgage (Exhibit H) over the same dieselgenerating unit was constituted by the defendant First Coconut Central Co., Inc.in favor of Madrid Trading. On January 26, 1967, Madrid Trading assigned all itsrights under the chattel mortgage to the herein plaintiff, Marsman & Company,Inc. by virtue of a Deed of Assignment (Exhibit B). On March 28, 1967, thedefendant company paid Marsman & Company, Inc. the sum of P2,000.00,leaving a balance of P15,000.00.

On September 13, 1967, the plaintiff company notified the defendant FirstCoconut Central Company, lnc. of its "long overdue and outstanding account" inthe amount of P15,000. 00. On September 25, 1967, the defendant companywrote Marsman & Company, Inc., appealing that they be given thirty (30) days tosettle the obligation, and enclosing in said letter a check for One ThousandPesos (P1,000.00). On October 30, 1967, after repeated failure by the defendantcompany to meet its obligation, plaintiff Marsman & Company, Inc. brought thisaction to recover the balance of defendant company's account in the sum ofFourteen Thousand Pesos (P14,000.00).

After hearing, the Court of First Instance of Manila, Branch II, handed down itsdecision, ordaining in its dispositive portion:

WHEREFORE, judgment is rendered in favor of the plaintiff andagainst the defendant in the amount of P14,000.00, with interestat the rate of 12% per annum from September 25, 1967, and topay attorney's fees in the amount of P2,000.00 and the costs ofthe suit.

SO ORDERED. 1

Defendant First Coconut Central Co., Inc., not satisfied with the decision of the trial court appealed to the Courtof Appeals. On September 16, 1974, the Court of Appeals rendered the decision now sought to be reviewed inthe instant petition. The decision stated that the sale in question violated Republic Act No. 1180 (the RetailTrade Nationalization Law), the dispositive portion of which reads as follows:

WHEREFORE, the appealed judgment is hereby set aside, and another one entered, dismissingthe plaintiff-appellee's complaint and the defendant- appellant's counterclaim; and ordering thedefendant-appellant to return the diesel generating unit in question to the plaintiff-appellee, andon the part of the defendant-appellant to return the amount of P7,000.00 to the plaintiff-appellee.NO PRONOUNCEMENT AS TO COSTS. 2

The above-quoted dispositive portion was, upon motion of respondent First Coconut Central Co., Inc., modifiedby the Court of Appeals in its resolution of October 15, 1974 so as to correct alleged clerical errors containedtherein. The dispositive portion of the said resolution, as modified, reads as follows:

WHEREFORE, the dispositive portion of our decision of September 16, 1974 in the above-entitled case is hereby AMENDED to read as follows:

"WHEREFORE, the appealed judgment is hereby set aside, and another one entered, dismissingthe plaintiff-appellee's complaint and the defendant- appellant's counterclaim; and ordering thedefendant-appellant to return the diesel generating unit in question to the plaintiff-appellee, andon the part of the PLAINTIFF-APPELLEE to return the amount of P7,000.00 tothe DEFENDANT- APPELLANT . NO PRONOUNCEMENT AS TO COSTS. " 3

A motion for reconsideration was filed by petitioner on October 10, 1974 but was denied by the Court of Appealsfor lack of merit in its resolution of November 26, 1974. 4 Hence, the instant petition.

Specifically, petitioner assigns the following errors:

1. THE SALE OF INDUSTRIAL MACHINERY FOR USE BY THE INDUSTRIAL PLANT DOESNOT CONSTITUTE ENGAGING IN THE RETAIL BUSINESS WITHIN THE CONTEMPLATION



OF REPUBLIC ACT NO. 1180. ACCORDINGLY, THE COURT OF APPEALS ERRED INHOLDING THAT THE SALE OF A DIESEL GENERATING SET TO RESPONDENT WAS NULL AND VOID FOR HAVING BEEN MADE IN VIOLATION OF REPUBLIC ACT NO. 1180.

II. ASSUMING ARGUENDO THAT PETITIONER IS PROHIBITED BY LAW FROM ENGAGINGIN DIRECT SELLING OF MACHINERY TO INDUSTRIAL USERS, THE CONTRACT OF SALEIN QUESTION IS NOT, BY THAT FACT ALONE, NULL AND VOID, AND THAT, ACCORDINGLY, PETITIONER IS ENTITLED TO RECOVER FROM RESPONDENT THEBALANCE OF THE PURCHASE PRICE OF THE SAID DIESEL GENERATING SET. 5

We find merit in the petition.

The Court of Appeals held that petitioner violated the Retail Trade Nationalization Law and the Anti-DummyLaw5a in its decision. Its ruling was based upon the following assumptions:

(1) The petitioner was illegaly engaged in the retail business; and

(2) The sale of a generating unit to respondent constituted retail business as defined by Republic Act No. 1180.

The said assumptions do not have any cogent basis in law. Section 4 of Republic Act No. 1180 defines retail

business as follows:

Sec. 4. As used in this Act, the term "retail business" shall mean any act, occupation or calling ofhabitually selling direct to the general public merchandise, commodities or good for consumption,but shall not include:

(a) a manufacturer, processor, laborer or worker selling to the general public the productsmanufactured, processed, or produced by him if his capital does not exceed five thousand pesos.

(b) a farmer or agriculturist selling the product of his farm.

(c) a manufacturer or processor selling to industrial and commercial users or consumers who use

the products bought by them to render service to the general public and /or to produce ormanufacture goods which are in turn sold by them.

(d) a hotel-owner or keeper operating a restaurant, irrespective of the amount of capital, providedthat the restaurant is necessarily included in, or incidental to, the hotel business. 6 (emphasissupplied.)

For a sale to be considered as retail, the following elements should concur:

(1) The seller should be habitually engaged in selling;

(2) The sale must be direct to the general public; and

(3) The object of the sale is limited to merchandise, commodities or goods for consumption.

In this case, the first two elements are present. It is the presence of the third element that must be determined.The last element refers to the subject of the retailer's activities or what he is selling, i.e., consumption goods orconsumer goods. Consumer goods may be defined as "goods which are used or bought for use primarily forpersonal, family or household purposes. Such goods are not intended for resale or further use in the productionof other products." 7 In other words, consumer goods are goods which by their very nature are ready for consumption.

Producer goods have been defined as "goods (as tools and raw material) that are factors in the production ofother goods and that satisfy wants only indirectly- called also auxiliary goods, instrumental goods, intermediate

goods."

8

They are by their very nature not sold to the public for consumption. As such, the sale of producer goodsused for industry or business is classified as a wholesale transaction. Wholesaling has been defined as "selling toretailers or jobbers rather than to consumers or a sale in large quantity to one who intends to resell." 9

In the case at bar, the article in controversy is a piece of industrial machinery—a diesel generating unit. The saidunit was purchased by respondent to be used in its coconut central and as such may be classified as "production



or producer goods." Since the diesel generating unit is not a consumer item, it necessarily does not come withinthe ambit of retail business as defined by Republic Act No. 1180. Hence, herein petitioner Marsman & Company,Inc. may engage in the business of selling producer goods. It necessarily follows that petitioner cannot be guiltyof violating the Anti- Dummy Law or of using a dummy since it is not prohibited by the Retail TradeNationalization Law from selling the diesel generating unit to herein respondent. From the foregoing, there canbe no basis in law for declaring the contract of sale as null and void.

That the sales to industrial or commercial users do not fall within the scope of the Retail Trade NationalizationLaw is further confirmed by Presidential Decree No. 714 promulgated on May 28, 1975 amending said law whenthe latter provided in its preamble that "Whereas, it is believed to be not within the intendment of saidnationalization law to include within its scope sales made to industrial or commercial users or consumers; ...."

The finding, therefore, of the respondent court and of the lower court that the petitioner was guilty of violating the Anti-Dummy Law and the Retail Trade Nationalization Law is without lawful basis. By the same token itsconclusion that the contract of sale with the respondent is void must be overturned. Petitioner's suit for therecovery of the unpaid balance of the sale of the machinery to respondent must be upheld.

WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals is set aside. Thedecision of the trial Court in favor of the petitioner and against the respondent for the amount of P14,000.00, withinterest at the rate of 12% per annum from September 25, 1967, and to pay attorney's fees in the amount ofP2,000.00, and the costs of the suit, is hereby AFFIRMED. This decision is immediately executory and nomotion for extension of time to file motion for reconsideration shall be entertained.

SO ORDERED.

Narvasa, Cruz, Grino-Aquino and Medialdea, JJ., concur.

G.R. No. L-37704 January 30, 1989

ERLINDA TALAN and YAP O. TECK alias ANTONIO YAP petitioners,vs.THE PEOPLE OF THE PHILIPPINES and THE HON. COURT OF APPEALS, respondents.

Francisco E. Antonio for petitioners.

The Solicitor General for respondents.

GRINO-AQUINO, J .:

This is a petition for review of the Court of Appeals' decision dated September 7, 1973 in CA-G.R. No. 11863,affirming the conviction of the petitioners Erlinda Talan and Yap O. Teck alias Antonio Yap, who are common-law spouses, for violation of the Retail Trade Nationalization Law (Section 2-A, Commonwealth Act 108, asamended by Section 1, Republic Act 1180).

On February 16, 1955, Erlinda Talan was granted a permit by the Office of the Mayor of Basilan City, to engage

in the sari-sari store business, with a capital of P500, principally to sell cigarettes at Balobo, Lamitan, BasilanCity.

Yap O. Teck alias Antonio Yap, is a permanent immigrant in the Philippines. He arrived here in 1947, andresided at Davao City. Later, he moved to Zamboanga and still later to Lamitan, Basilan City. He holds an I.C.R.



No. 22406 issued at Davao on December 19,1947, and an A.C.R. No. 52653 which was issued in ZamboangaCity on December 21, 1950. He appears to have returned briefly to China in 1951 and married a Chinesewoman named Ang Siok Chin in Amoy, China. However, on February 20, 1955, or only five (5) days after ErlindaTalan obtained a mayor's permit to open her sari-sari store, she and Yap O. Teck began living as husband andwife without the benefit of marriage.

On January 14, 1969, Erlinda Talan applied for, and was granted, a permit to engage in business as a generalmerchant, with a capital of P2,000.00 in the public market of Lamitan.

Shortly after it opened in 1957, Erlinda's store and other stores in Lamitan were placed under surveillance by thepolice of Basilan on suspicion of being operated in violation of the Retail Trade Nationalization Law.

During the investigation of Erlinda Talan on February 2, 1957, she signed an affidavit or sworn statement (Exh.B) admitting:

1. That Antonio Yap, a chinese national, is her common-law husband;

2. That they had been living together since February 20, 1955, and that they have one childnamed Norma Yap, and another on the way, she being pregnant at the time;

3. That she had a license for her store: Permit No. 33; O.R. No. 5537308 for Mpl. License; O.R.No. 0966081 for G.R.; O.R. No. 0966083 for B-9(a) 1957; O.R. 0553709 for Mpl. license, saltedfish; Medical Certificate No. 18, all in the name of MISS ERLINDA TALAN;

4. That she bad been occupying a stall in the public market of Lamitan since February 1955,before she became the common-law wife of ANTONIO YAP;

5. That when she was single, her store (a sari-sari store) was at Campo Tres (Bolingan), LamitanDistrict, this city. Later she transferred her store to the public market; and

6. That her sari-sari store became a general merchandise store because "my common-lawhusband helped already in putting more goods in this store" (p. 29, Appellants' Brief; p. 28,

Rollo). Her original capital of P500 increased to "more or less two thousand (P2,000.00) pesos."(Ibid.)

Based on the report of the Secret Service, the affidavit of the accused Erlinda Talan, and the evidence gatheredby the field investigator, the Prosecutor of the Anti-Dummy Board filed an information against the petitionersalleging:

... between January 20, 1959, up to the present in the District of Lamitan, BasilanCity and within the jurisdiction of this Honorable Court, the above-named accusedERLINDA TALAN, a Filipino citizen, and having in her name a license for a retailstore in Lamitan Market Site, did then and there wilfully, unlawfully, andfeloniously allowed and permitted and still allows and permits her common-law

husband and co-accused YAP O. TECK alias ANTONIO YAP, a Chinese citizen,and therefore disqualified under Section 1 of Republic Act 1180, to engagedirectly or indirectly in the retail business; as in fact said accused YAP O. TECKwithout falling within the exception provided in Section 2-A of Commonwealth Act108, wilfully, feloniously, unlawfully, and knowingly aided, assisted or abetted inthe planning, consummation or perpetration of the act of his co-accusedERLINDA TALAN, by then and there managing or otherwise taking part in themanagement, operation or control of the retail business. (pp. 13-14, Rollo.)

After trial, the court rendered judgment on October 20, 1970 finding the petitioners guilty beyond reasonabledoubt of the crime charged and sentencing each of them to suffer the penalty of imprisonment for five (5) years,with the accessory penalties of the law, and each to pay a fine of P5,000. It also ordered the deportation of the

accused Yap O. Teck immediately after the service of his sentence.

The decision was appealed by the petitioners to the Court of Appeals which on September 7, 1973 affirmed it.The accused filed a petition for review in this Court.



After deliberating on the petition, We find no reversible error in the finding of the Court of Appeals that:

... There is enough evidence of record showing that Erlinda Talan allowed Yap O. Teck toengage, at least indirectly, in the retail business, and that Yap O. Teck took part in its operation.

It appears from his own evidence that Yap O. Teck has been jobless; and that although he wasonly 38 years old in 1958, he never exerted effort to look for a job. These and the fact thatthe sari-sari store of Erlinda Talan became a General Merchant store soon after she and Yap O.Teck had started living together, lend weight to the theory of the prosecution that he did engagedirectly or indirectly in the retail business for the main support of his family. (p. 25, Rollo.)

Section 2(c) of RA 1180, as amended by RA 6084, August 4, 1969 provides that "the exercise, possession orcontrol by a Filipino citizen having a common-law relationship with an alien, of a right, privilege, property orbusiness, the exercise or enjoyment of which is expressly reserved by the Constitution or the laws to citizens ofthe Philippines, constitutes a prima facie evidence of violation of the provisions of Sec. 2-A of the Act."

While the Filipino common-law wife of a Chinese national is not barred from engaging in the retailbusiness provided she uses capital exclusively derived from her paraphernal property (Opinion No. 201, Series of1961, Secretary of Justice), it was, however, shown in this case that the capital used in the sari-sari store wasnot exclusively derived from petitioner Talan's paraphernal property. It was shown that petitioner Yap O. Teckcontributed much to the retail business of Talan, by not only providing more capital but also actively managingthe business, all in violation of the Retail Trade Nationalization Act.

On the basis of all the foregoing considerations, the Court of Appeals correctly found petitioner Erlinda Talanguilty of having unlawfully permitted her non-Filipino common-law husband Yap O. Teck to engage directly orindirectly in the retail trade business, and the latter, of having unlawfully aided, assisted or abetted the planning,consummation and perpetration of the act of his co-accused Erlinda Talan by managing or taking part in themanagement, operation and control of her retail trade business, contrary to Section 2-A of R.A. No. 1180.

WHEREFORE, the petition for review is denied. The appealed decision of the Court of Appeals in CA-G.R. No.11863 is affirmed. Costs against the petitioners.

SO ORDERED.

Narvasa, Cruz, Gancayco and Medialdea, JJ., concur.

G.R. No. 102013 October 8, 1993

DOMINGO R. DANDO, petitioner,vs.NORMAN JAMES FRASER, MARITA S. CAYMO and COURT OF APPEALS, respondents.

Domingo R. Dando for petitioner.

Roberto B. Arca for private respondent Norman James Fraser.

Manuel B. Tomacruz for private respondent Marita S. Caymo.

QUIASON, J.:

This is an appeal by certiorari under Rule 45 of the Revised Rules of Court from the decision of the Court of Appeals in CA-G.R. C.V No. 264050, entitled "DOMINGO R. DANDO v. NORMAN JAMES FRASER, et. al,reversing the decision of the Regional Trial Court, Branch 33, Siniloan, Laguna, in Civil Case No. 5-423.

It appears that on November 15, 1983, Cornelia F. Carlos sold Amelia Gayon the Argentina Club and Disco(CLUB) located at No. 2110 Roxas Boulevard, Pasay City and housed in a building leased from Dominador S.Luz.



On the same day, Gayon also executed a Deed of Trust, attesting that Gayon, as trustee, bought the CLUB,including the improvements found therein for and in behalf of respondent Norman J. Fraser from Cornelia F.Carlos for the sum of P370,000.00. The said Dead of Trust stated that respondent Fraser furnished all the fundsfor the purchase and operation of the said CLUB and that Gayon was administering, operating and holding theaforesaid CLUB for and in behalf of respondent Fraser.

On April 9, 1984, respondent Fraser sold on installment basis the said CLUB to Silverio V. Puno, Arnaldo L.Domingo and Ronald Clifton Vercoe as evidenced by a "Sale of Nightclub on Installment Basis" (Records, Vol. II,p. 235; Annex "F") for the sum of P510,000.00. However, the buyers were allowed to operate and takepossession of the said CLUB earlier or on April 1, 1984.

On or about April 10, 1984, Gayon consulted petitioner for legal advise about the moves being taken by Punoand Domingo to get the CLUB from her (TSN, June 18, 1986, p. 4). She was advised by petitioner that she hada right to possess the CLUB and must file a case against Puno, Domingo and respondent Fraser ( TSN, June18, 1986, p. 4). Furthermore, she was advised to get the CLUB by force since litigations are usually protracted(TSN, p. 5;ibid ).

Acting on petitioner's advice, Gayon, together with ten policemen, proceeded to the CLUB on April 18, 1984 andsucceeded in evicting Puno and his partners (TSN, p. 6; ibid ).

In anticipation of a case to be filed by Puno against Gayon, petitioner prepared a Deed of Sale (Records, Vol. I,p. 13; Exhibit "A") whereby Gayon allegedly sold the said CLUB to him for P350,000.00 on April 2, 1984. Saiddate was antedated to make it appear that the sale was made earlier than the one made by respondent Fraserto Puno and his partners. A receipt for the amount of P350,000.00 was likewise prepared by petitioner andsigned by Gayon.

Petitioner succeeded in convincing Gayon to allow one Mr. Fujiwara, who was supposedly interested in buyingthe CLUB, to operate it for one month on a trial basis. However, it turned out that it was petitioner himself, notMr. Fujiwara, who operated the said CLUB

Because of their forcible eviction from the CLUB, Puno and his partners filed a complaint for forcible entry withdamages and preliminary mandatory injunction against Gayon and one "Atty. Yam" with the Metropolitan TrialCourt of Pasay City. Atty. Yam happened to be a law partner of petitioner. When petitioner Puno, hemisrepresented himself as "Atty. Yam" by presenting Atty. Yam's calling card.

On December 10, 1986, the Metropolitan Trial Court of Pasay City rendered its decision ordering: (1) Gayon andall persons claiming rights under her to vacate the premises known as the Argentina Club and Disco; (2) to paythe plaintiffs the sum of P20,000.00 a month as reasonable compensation for the use and occupation of theaforesaid premises, starting April 18, 1984 until she and all persons claiming possession under her finally vacatethe premises and possession thereof was restored to plaintiffs; and (3) the sum of P5,000.00 as attorney's fees(Original Records, Vol. I, p. 98).

On December 14, 1984, pursuant to the Order of Execution issued by the Metropolitan Trial Court of Pasay City,Gayon and "Atty. Yam" (petitioner) were evicted from the Club (Original Records, Vol. I, p. 22).

Aggrieved by his eviction, petitioner filed a criminal case for estafa against respondent Fraser with the Office ofthe City Fiscal of Pasay City. He alleged that Gayon sold to him the Club and that respondent Fraser, by falselypretending to be the owner of the CLUB, was able to sell the same to the group of Puno, who in turn succeededin having him evicted from the CLUB to the Order of Execution issued by the Metropolitan Trial Court of PasayCity. The criminal case was, however, dismissed on August 22, 1986. After the reinvestigation, the complaintwas , likewise dismissed on June 11, 1985 (Rollo, p. 74; Annex "1"). A petition for review was dismissed by theDepartment of Justice (Rollo. p. 79; Annex "2").

On or about February 12, 1985, petitioner filed an "Amended Complaint for Ownership, Possession, Annulmentof Contract and Damages with prayer for Preliminary Mandatory Injunction and/or Restraining Order" againstrespondents Fraser, Puno, Domingo, Gayon, and Vercoe docketed as Civil Case No. 2588-P with the Regional

Trial Court, Pasay City, Metro Manila.

On February 12, 1985, the Regional Trial Court, Pasay City, Metro Manila granted the prayer for a writ ofpreliminary mandatory injunction. However, on March 11, 1985, the said trial court approved the counterbondfiled by respondents Fraser, et al. and dissolved the writ of preliminary mandatory injunction. Puno and his



partners were authorized to resume the operation and management of the CLUB, subject to the conditions setforth in the Order (Original Records, Vol. I, p. 173).

From the order denying his motion for reconsideration of the order dissolving the writ of preliminary mandatoryinjunction, petitioner appealed to the Court of Appeals (CA-G.R. No. 0618-SP).

The appellate court dismissed the petition on October 24, 1986.

Undaunted, petitioner filed on September 26, 1985, a complaint for a sum of money and damages withpreliminary attachment against respondents Fraser and Marita S. Caymo with the Regional Trial Court ofSiniloan, Laguna,Branch 33 and docketed as Case No. 5-423. Respondent Caymo was impleaded for allegedly being the wife ofrespondent Fraser.

Petitioner sought to collect the amount of P510,000.00, representing the purchase price of the CLUB sold byrespondent Fraser to Puno and his partners. Furthermore, petitioner sought to attach the property of respondentCaymo located at San Lorenzo Village, Makati alleging that the latter was a mere dummy of respondent Fraser.In addition thereto, petitioner sought to recover damages for his eviction from the CLUB pursuant to the decisionof the Metropolitan Trial Court of Pasay City, alleging that not being a party to the said case, he was not givenhis day in court (Original Records, Vol. I, pp. 1-9).

In his complaint, petitioner alleged that he was the owner of the CLUB, having bought the same from Gayon on April 2, 1984 as evidenced by a Deed of Sale (Original Records, Vol. I, p. 13) and a receipt (Original Records,Vol. I, p. 15).

On September 30, 1985, the trial court ordered the attachment of respondent Caymo's property located at SanLorenzo Village, Makati (Records, Vol. I, p. 39).

On June 22, 1987, the trial court rendered the questioned decision, the dispositive portion of which reads asfollows :

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants,

ordering the latter to pay jointly and severally the plaintiff the following amounts :

a) Five Hundred Ten Thousand (P510,000.00) pesos as an indemnity for the investment ofplaintiff in the Argentina Club and Disco.

b) One Million (1,000,000.00) pesos by way of moral damages.

c) Thirty Four Thousand (P34,000.00)) pesos monthly for compensatory damages fromDecember 14, 1984 up to the date of actual indemnification.

d) Seven Hundred Fifty Thousand (750,000.00) pesos as exemplary damages arising from thefraud committed by the defendants against the plaintiff.

e) One Hundred Thousand (P100,000.00) pesos as attorney's fees; and;

f) To pay the costs of the suit.

SO ORDERED. (Records, Vol. III, pp. 534- 535).

On July 7, 1987, respondents Fraser and Caymo filed a notice of Appeal which was granted by the trial court onJuly 15, 1987 (Original Records, Vol. III, pp. 538-539). On the same day, petitioner filed a Motion for Issuance ofWrit of Execution (Original Records, Vol. III, p. 543). Both respondents filed an opposition to the Motion forIssuance of Writ of Execution Pending Appeal (Original Records, Vol. III, pp. 553-579).

On August 21, 1987, the trial court issued an Omnibus Order granting petitioner's motion for issuance of writ ofexecution and denying respondents' opposition thereto and recalled its Order dated July 15, 1987 elevating therecords of the case to the Court of Appeals (Original Records, Vol. IV, p. 603).



On August 31, 1987, the trial court issued a writ of execution (Original Records, Vol. IV, p. 607).

Respondent Fraser and Caymo filed with the Court of Appeals separate petitions for certiorari with prohibitionandmandamus and restraining order docketed as CA-G.R. No. 12713 and 12718 respectively. On December 15,1987, the Court of Appeals rendered its decision, affirming the trial court's Omnibus Order granting executionpending appeal but ordered petitioner to file a good and sufficient bond in the amount of P2,000.00 in order toanswer for any damage which the respondents may suffer in the event the decision was reversed on appeal(Original Records, Vol. IV, p. 643).

On January 11, 1988, respondent Caymo filed a motion for reconsideration of the appellate court's order,granting execution pending appeal (Original Records, Vol. IV, pp. 657-659).

On January 20, 1988, a notice of sheriff's sale over the property of respondent Caymo was issued (OriginalRecords, Vol. IV, p. 672).

On January 21, 1988, respondent Caymo filed an urgent motion for status quo and motion for leave to filecounterbond (Original Records, Vol. IV, pp. 676-677).

In its Resolution dated January 22, 1988, the Court of Appeals ordered the parties to maintain the statusquo until the motion for reconsideration was resolved by it (Original Records, Vol. IV, pp. 684-685).

On April 22, 1988, the Court of Appeals resolved the motion for reconsideration ordering petitioner to increasethe bond from P2,000,000.00 to 2,800,000.00 (Original Records, Vol. IV, pp. 702-703).

On April 12, 1989, petitioner filed with the trial court a "Motion for Issuance of Order to Enforce the Writ ofExecution dated August 31, 1987" (Original Records, Vol. IV, p. 730).

On April 28, 1989 respondent Fraser filed an opposition to the aforesaid motion (Records, Vol. IV, p. 734). Onthe other hand, respondent Caymo filed a "Motion to Disapprove Bond of Plaintiff or To Allow Defendant to File aCounterbond or Supersedeas Bond" (Original Records, Vol. IV, p. 736).

On March 14, 1990, the trial court issued an order, granting petitioner's motion, which ordered the Provincial

Sheriff to enforce the writ of execution dated August 31, 1987 and to proceed with the auction sale (OriginalRecords, Vol. V, p. 921).

On April 30, 1990, petitioner as the highest bidder in the auction sale of respondent Caymo's property wasissued a Certificate of Sale (Original Records, Vol. V, p. 995).

On May 5, 1990, respondent Caymo filed a motion to elevate the records to the Court of Appeals (OriginalRecords, Vol. V, p. 992).

On May 14, 1990, petitioner filed a motion for the issuance of writ of possession, which was denied by the trialcourt on May 15, 1990. The trial court ordered the elevation of the case to the Court of Appeals (OriginalRecords, Vol. V, p. 1112).

On July 3, 1991, the Court of Appeals rendered its decision, reversing the trial court's decision and declaring nulland void the execution sale of respondent Caymo's property. The dispositive portion of said decision reads :

IN VIEW OF THE FOREGOING PREMISES, the decision appealed from is hereby REVERSEDand SET ASIDE and the execution sale of Marita Caymo's property covered by T.C.T. No.135563 is declared null and void. The complaint filed by plaintiff-appellee is hereby dismissed.Costs against plaintiff-appellee (Rollo, p. 47).

On September 23, 1991, petitioner's motion for reconsideration was denied (Rollo, p. 52).

Hence, this petition.

Petitioner raises the following assignment of errors:

I



THE COURT OF APPEALS ERRED IN CONSIDERING A MATTER NOT STATED AS AN ASSIGNED ERROR AND NOT PROPERLY ARGUED BEFORE IT.

II

THE COURT OF APPEALS ERRED IN CONSIDERING THE VALIDITY OF THE EXECUTIONSALE OF THE PROPERTY OF DEFENDANT-RESPONDENT CAYMO ALTHOUGH SUCHMATTER HAD ALREADY BEEN RESOLVED WITH FINALITY BY THE SAME COURT IN ANOTHER CASE.

III

THE COURT OF APPEALS ERRED IN REVERSING THE FINDINGS OF FACT OF THE TRIALCOURT (Rollo, p. 22).

Petitioner contends that the Court of Appeals acted beyond and in excess of its jurisdiction when it ruled on thevalidity of the execution sale of the property of respondent Caymo. Claiming that such matter was neither statedin the assignment of errors nor properly argued in respondent Caymo's brief, he invokes the rule that "no errorwhich does not affect jurisdiction over the subject matter will be considered unless stated in the assignment oferrors and properly argued in the brief, save as the Court, in its option, may notice plain errors not specified, and

also clerical errors" (Rule 51, Section 7, Rules of Court).

We disagree. Although as a general rule, the Court of Appeals may determine only such questions as those thathave been properly raised in the briefs, this rule, however, admits of exceptions.

In the cases of Maritime Agencies and Services, Inc. v . Court of Appeals, G. R. No. 77638 and Union InsuranceSociety of Canton, Ltd. v. Court of Appeals, G.R. No. 77674, 187 SCRA 346 [1990] we ruled that:

Besides, an unassigned error closely related to the error properly assigned, or upon which thedetermination of the question raised by the error properly assigned is dependent, will beconsidered by the appellate court notwithstanding the failure to assign it as error.

At any rate, the Court is clothed with ample authority to review matters, even if they are notassigned as errors in their appeal, if it finds that their consideration is necessary in arriving at adecision of the case.

In her brief, respondent Caymo raised the issue of her alleged marriage to respondent Fraser as evidenced by aphoto-copy of a marriage contract presented by petitioner. Such marriage contract became the basis for the trialcourt to conclude that respondents Caymo and Fraser were married to each other and therefore the propertyregistered in the name of respondent Caymo is a conjugal property of the spouses which may be attached.

The determination of the existence of marriage between respondent Caymo and Fraser will determine thevalidity of the attachment and execution sale made on the property registered in the name of respondent Caymoalone. Hence, the issue on the validity of the attachment and execution sale of respondent Caymo's property is

closely related to the error properly assigned, that is the existence of the marriage between respondents Caymoand Fraser.

As correctly found by the Court of Appeals, the photo-copy of an alleged marriage contract presented bypetitioner is inadmissible for to comply with Rule 132 Sections 25 and 26 of the Rules of Court (now Rule 132,Sections 24 and 25 of the 1987 Rules on Evidence). As between a photo-copy of an alleged marriage contractand a certification issued by the Local Civil Registrar of Pasay City attesting to the fact that no marriage wasofficiated by Judge Eriberto V. Loreto of the Metropolitan Trial Court of Pasay City and that no record of suchmarriage could be found in the Local Civil Registrar, the latter deserves more weight.

Having failed to prove the existence of marriage between respondent Caymo and Fraser, the attachment andeventual execution sale of the property registered in the name of respondent Caymo is therefore invalid.

Anent the second error assigned by petitioner, the petitions for certiorari with writ of prohibition filed byrespondents Caymo and Fraser with the Court of Appeals docketed as CA-G.R. nos. 12713 and 12718respectively, merely questioned the jurisdiction of the Regional Trial Court, Br. 33, Siniloan, Laguna, in grantingthe motion for execution pending appeal in Civil Case No. 5-423.



A special civil action for certiorari is an original or independent action and not a continuation or a part of the trialresulting in the rendition of the judgment complained of (Perez v. Court of Appeals, 168 SCRA 236 [1988]).Hence, no finality as to the merits of the case was made. The only issue decided by the Court of Appeals in CA-G.R. Nos. 12713 and 12718 was whether the trial court properly issued the writ of advance execution.

The third error assigned by petitioner questions the findings of the Court of Appeals as to the validity of the Deedof Trust executed by Amelia Gayon in favor of respondent Fraser.

Petitioner contends that respondent Fraser, being an Australian citizen, is precluded from owning a retailbusiness pursuant to Republic Act No. 1180, otherwise known as the Nationalization of Retail Trade Law.Indeed under said law, an alien is prohibited from engaging in the retail business (Sec. 1) which includes theoperation of a cocktail lounge with a restaurant (Sec. 4).

However, the Mayor's Permit for the operation of the Club as a cocktail lounge with a restaurant (Records, Vol. I,p. 21) was issued in favor of "Amelia Gayon."

Under Section 5 of the Nationalization of Retail Law :

Every license to engage in retail business issued in favor of any citizen of the Philippines or ofany association, partnership or corporation wholly owned by citizens of the Philippines shall be

conclusive evidence of the ownership by such citizen, association, partnership or corporation ofthe business for which the license was issued except as against the Government of the State.(Emphasis supplied).

Since the license to engage a cocktail lounge and restaurant was issued in the name of Gayon, who is a citizenof the Philippines, such license shall be conclusive evidence of Gayon's ownership of the said retail business asfar as private parties, including petitioner, are concerned.

Gayon testified that the deed of sale and receipt prepared by petitioner and signed by her were simulated, thesame having been prepared only in anticipation of the ejectment case filed by Puno against her. She also claimsthat the deed of sale and receipt were antedated to make it appear that it was made earlier than the deed of saleexecuted by respondent Fraser.

The characteristics of simulation is the fact that the apparent contract is not really desired or intended to producelegal effects nor in any way alter the judicial situation of the parties (Carino v. Court of Appeals, 152 SCRA 529[1987]).

In this case, Gayon was convinced by petitioner that she could be protected from the action to be filed againsther by Puno if she would execute a deed of sale in his favor. Thus, she even admitted to have lied in hertestimony during the ejectment case filed against her upon the instructions of petitioner.

If it were true as claimed by petitioner that he was in possession of the CLUB as early as April 1, 1984, then itwas impossible for him not to have known that Puno and his partners were in actual, physical possession of theCLUB up to April 18, 1984. Why did he not bring an ejectment case against them? If it were true that Gayon sold

to him the CLUB on April 2, 1984, why was it Gayon, instead of him, who evicted Puno on April 18, 1984? Thetruth is, he was not in possession of the CLUB on April 1, 1984 and neither was the said CLUB legally conveyedto him on April 2, 1984. He did not do anything because there was nothing for him to protect for he knew that thecontract of sale and the receipt made in his favor were merely simulated for the protection of Gayon.

WHEREFORE, the petition is hereby DENIED and the decision of the Court of Appeals is AFFIRMED.

SO ORDERED.

Cruz, Davide, Jr ., and Bellosillo, JJ., concur.

Griño-Aquino, J., is on leave.



G.R. No. L-23607 May 23, 1967

GO KA TOC SONS and CO., ETC., plaintiff-appellee,vs.RICE AND CORN BOARD, defendant-appellant.

Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General A. A. Torres, Solicitor C. S. Gaddi and Atty. A. J. Gustilo for defendant-appellant. Antonio C. Sanchez and Vicente Cabahug for plaintiff appellee.

BENGZON, J.P., J.:

Plaintiff-appellee Go Ka Toc Sons & Co. is a duly registered partnership, not wholly owned by Filipinos, engagedsince 1958 in the manufacture, processing and marketing of vegetable oil extracted from corn, rice, copra,soybean, peanuts, fish, and other vegetable products. 1äwphï1.ñët

On August 2, 1960, Republic Act 3018 was approved, Section 1 of which prohibited, among others, partnershipswhose capital was not wholly owned by citizens of the Philippines from engaging, directly or indirectly, in the riceand/or corn industry. The law was to take effect on January 1, 1951. However, Section 3 (a) allowed suchpartnerships, upon registration with the municipal treasurer, to continue business until two years from and afterJanuary 1, 1961.

SEC. 3. All such persons, associations, partnerships or corporations that have complied with the

requirements provided in Section two hereof, if they so apply, shall be allowed to continue to engage intheir respective lines of activity in the rice and to and/or corn industry only for the purpose of liquidation,as follows:



(a) Those engaged in the retail, wholesale, culture, transporting, handling, distribution or acquisition forthe purpose of trade of rice and/or corn and the by-products thereof shall be allowed to continue toengage therein for a period of two years from the date of effectivity of this Act;

x x x x x x x x x

On November 21, 1960, the newly created Rice and Corn Board1 issued Resolution No. 10, pursuant to Section6 of the law, defining the term "by product" used in the law, as follows:

By-product shall mean the secondary products resulting from the process of husking, grinding, milling,and cleaning of palay and corn, such as, but not limited to "binlid ," "darak ," "tanop," "tiktik ," "corn husk,""corn drips," and "corn meals."

And on July 10, 1961, the RICOB issued Gen. Circular No. 1, as amended, which defined the term "capitalinvestment" used in Section 3 of Republic Act 3018 which limits the maximum amount of capital investments ofalien persons and entities engaged in the rice and/or corn industry to the amount stated in their statement madepursuant to Section 2 of the law.

These two circulars have been duly published and translated into the local dialect pursuant to Section 6 ofRepublic Act 3018.

Plaintiff-appellee, having been required by agents of RICOB to register in accordance with Section 2 of the lawand the latter's resolution, dated January 3, 1961, ruling that manufacturers and/or dealers of bijon, noodle, cornstarch, gawgaw , rice wine, poultry feeds and other by products of rice and corn are covered by the law, filedaction in the Court of First Instance to declare the said law and RICOB Resolution No. 10, Nov. 21, 1960 andGen. Circular No. 1, July 10, 1961, as inapplicable to it. Pending trial on the merits, the lower court issued thewrit of preliminary injunction prayed for.

To abbreviate the proceedings, the parties entered into a stipulation of facts. Thereupon, the lower courtrendered judgment (a) declaring Republic Act 3018 not applicable to plaintiff's business; (b) declaring null andvoid RICOB's Resolution No. 10, dated November 21, 1960 and General Circular No. 10, as amended, datedJuly 10, 1961 in so far as they were and are being made applicable to plaintiff's business and (c) making and

declaring permanent and perpetual the preliminary writ of injunction issued in the case.

Not satisfied with the foregoing ruling, defendant RICOB, through the Solicitor General has taken the instantappeal to raise questions purely of law.

Admittedly, plaintiff-appellee has stopped from engaging in the purchase and sale of rice and/or corn since thelapse of the two-year period from the effectivity of the law. It has limited its activities tothe trade, processing andmanufacture of corn and rice oil from raw materials consisting of corn germ proper orembryo ("sungo") and "tahup," as well as from rice husk it secures from others who mill rice and corn. In theprocessing and manufacture of coin oil, plaintiff also produces a residue called "corn meal" or "corn meal germ"which it sells and trades. Are these activities covered by Republic Act 3018?

Section 1 of the law defines "rice and/or corn industry" as including the handling of distribution, either inwholesale or retail, and the acquisition for purpose of trade, of the by-products of rice and corn.

SECTION 1. No person who is not a citizen of the Philippines, or association, partnership or Corporation,the capital or capital stock of which is now wholly owned by citizens of the Philippines, shall directly orindirectly engage in the rice and/or corn industry except as provided in Section three of this Act.

As used in this Act , the term rice "and/or corn industry " shall mean and include the culture, milling,warehousing, transporting , exportation, importation, handling the distribution, either in wholesale or retail,the provisions of Republic Act Numbered Eleven hundred and eighty to the contrary notwithstanding, orthe acquisition for the purpose of trade of rice (husked or unhusked) or corn and the by-productsthereof :Provided , That public utilities duly licensed and registered in accordance with law may transport

corn or rice. (Emphasis supplied).

Now, "tahup," "sungo" and "rice husk," which plaintiffs acquires from rice and corn millers and from which itmanufactures the vegetable oil and produces the "corn meal" or "corn germ meal" that it subsequently distributesand sells are clearly by-products of rice and/or corn.2



Although the term "by-product" is not particularly and by specifically stated in the title of Republic Act 3018, itsinclusion in the body of the law is not invalid, as the lower court held, since it is germane to the subject matterexpressed in the title of the law.3

Neither is the statutory inclusion of said term in the definition of the phrases "rice and/or corn industry" an invalidlegislative usurpation of the court's function to interpret the laws, as the lower court also ruled. This definition ispart of the law itself.

Finally, the lower court determined the purpose and intention behind the law, thus:

x x x In the opinion of the Court, it was never the intention of the Legislature in enacting Republic Act No.3018 to include in its purpose or scope the processing of the by-products of rice and corn becauseFilipinos do not depend for their survival by eating the by-products of rice and corn. . . . .

Assuming, without admitting, that the law in question really intended to include in its object thenationalization not only of the rice and corn industry but also the trade of the by-products just mentionedabove, the business in which the plaintiff has been engaged and since December 31, 1962, as is atpresent, engaged, the Court is of the opinion that in the trade, processing, manufacture of corn and riceoil from the raw materials of corn germ proper or embryo (sungo) and tahup and from rice huskconverting the remaining parts into "corn meal" or "corn germ meal" which is traded and sold and that itacquired its raw materials from those engaged milling rice and/or corn. the said Republic Act No. 3018does not cover the plaintiff's business activities just mentioned.

This is a fair and reasonable interpretation and application of said Republic Act No. 3018, because toinclude in its control, limitation and prohibition the business of the plaintiff mentioned above, would benot only to render the said law unconstitutional for not including in its title "and the by-products thereof,"but also to unreasonably stretch out and expand the scope and intention of the law to include in itscontext the processing and extracting of oil from rice and corn and the manufacture of corn meal or corngerm meal and the selling and trading of the same.

As a logical result of this interpretation of the law spelled out by this Court, it must necessarily follow thatthe Resolution No. 10, Annex 1 and the general circular dated July 10, 1961, quoted under paragraph 3of the parties' Stipulation of Facts are hereby declared null and void in so far as they attempted toinclude in the scope of said law the defendant's business activities described above in which it engagedsince December 31, 1962, and in which it has been engaged partly engaged since its formation in 1959.

What the court a quo did was to resort to statutory construction. But this was improper as well as incorrect. Thelaw is clear in enunciating the policy that only Filipinos and associations, partnerships or corporations 100%Filipino can engage even in the trade and acquisition of the by-products of rice and/or corn. So the court's onlyduty was to apply the law as it was.4 The purpose of the Act, as expressed in the introductory note of the bill, cancontrol the language of the law only in case of ambiguity.5 There is none here. Furthermore, the court below'sinterpretation would render the statute nugatory and defeat its aims, rather than apply and effectuate itsprovisions,6 since it struck off the phrase "by-products thereof" from the text of the law.

Since plaintiff-appellee is covered by the statute, there is no necessity for an extensive discussion regarding thevalidity of Resolution No. 10 of November 21, 1960. The power and authority of appellant RICOB to issue suchrules and regulations implementing the law, proceeds from the law itself.7 Said resolution, by enumerating somespecific examples of by-products of rice and/,or corn, merely carried out the provisions of law. And the solereason why the lower court invalidated it, was its mistaken stand that the term "by-product" ought not to havebeen made a part of the statute.

The foregoing considerations render moot and academic the question regarding the validity of General CircularNo. 1 on July 10, 1961.

Wherefore, the judgment appealed from is reversed and the writ of injunction issued therein is annulled and setaside. No costs. So ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Zaldivar and Castro JJ., concur.Makalintal, J., took no part.

Footnotes



G.R. No. L-45515 October 29, 1987

ASBESTOS INTEGRATED MANUFACTURING, INC., (AIMI), petitioner,vs.HON. ELVIRO L. PERALTA, Presiding Judge, Branch XVII. Manila Court of First Instance,METROPOLITAN WATERWORKS and SEWERAGE SYSTEM (MWSS), ETERNITCORPORATION, respondents.

PADILLA, J.:

This is a petition for certiorari, with preliminary prohibitory and/or mandatory injunction, to annul and set asidethe Order issued by the respondent judge on 25 January 1977, dissolving the restraining order previously issuedin Civil Case No. 105410 Of the Court of First Instance of Manila, entitled: "Asbestos Integrated Manufacturing,Inc. (AIMI), petitioner, versus Metropolitan Waterworks and Sewerage System (MWSS), et al., respondents" aswell as the Order dated 2 February 1977, which dismissed petitioner's complaint and upheld the Order of 25January 1977.

The antecedent facts of the case are, as follows:

Petitioner Asbestos Integrated Manufacturing, Inc. (AIMI for short) is a 100% Filipino-owned and controlledmanufacturing and trading corporation, organized and existing under Philippine laws and engaged in themarketing of asbestos cement pressure pipes manufactured by Asbestos Cement Products Philippines, Inc.(ACPPI for short) which is also a 100% Filipino-owned and controlled manufacturing corporation organizedunder Philippine laws and doing business in the Philippines. 1



The respondent Eternit Corporation (Eternit, for short) is a domestic corporation, incorporated under Philippinelaws, with 90% of its capital stock, owned and controlled by aliens. 2

The respondent Sanvar Development Corporation (Sanvar, for short) is also a 100% Filipino-owned andcontrolled corporation, organized and existing under Philippine laws "to carry on and undertake any businessundertaking, transaction or operation commonly carried on or undertaken by general contractors, sub-contractors etc." and whose secondary purpose, among others, is "to engage in, operate, conduct and maintainthe business of trading (buy and sell), manufacturing or otherwise dealing in any and all kinds of commodities,wares, supplies, merchandise of whatever description and to carry on such business as wholesaler, retailer,importer, etc." 3

The respondent Metropolitan Waterworks and Sewerage System (MWSS, for short) is a government owned andcontrolled corporation.

On 18 May 1976, the MWSS, in pursuance of its interim program of construction, improvement, repair andexpansion in order to insure continuous and adequate supply of potable water to the inhabitants of Metro Manila,conducted a public bidding for its asbestos cement pipe requirements. Among those which participated were thepetitioner AIMI, and the respondent Sanvar. In the bidding conducted, Sanvar submitted a total bid price ofP373,122.30 while AIMI, submitted a total bid price of P423,913.96, which is 13.6% higher than that of theformer.4 However, no award was made since "the pipes needed for the projects mentioned in this bidding, will nowcome from the pipes to be supplied in the 27 September 1976, public bidding." 5

In the public bidding of 27 September 1976, Sanvar submitted a total bid price of P2,653,360.00 while AIMI,submitted a total bid price of P3,259,492.00, which is 22.84% higher than the bid of Sanvar. 6 As a result, thecontract to supply the asbestos cement pressure pipes was awarded to Sanvar. 7

Whereupon, AIMI, claiming that Sanvar is but a mere dealer or distributor or marketing arm of the alien-ownedEternit, filed a petition against the MWSS, Eternit and Sanvar before the Court of First Instance of Manila,docketed therein as Civil Case No. 105410, to nullify the award and to restrain the respondents from enforcingthe same. The Petitioner invoked the Retail Trade Nationalization Act (Rep. Act No. 1180), the Flag Law (Com. Act No. 138), the Anti-Dummy Act (Com. Act No. 108), and the law reserving to Filipinos and Filipino-ownedcorporations the exclusive right to enter into contracts with any government owned or controlled corporation,company, agency or municipal corporation for the supply of materials, equipment, goods, and commodities

(Rep. Act No. 5183) in support of its petition.

Finding the petition to be sufficient in form and substance, and that the acts complained of, unless restrained,would cause the petitioner great harm and irreparable injury, the trial court issued an order on 12 November1976, restraining the respondents "from entering into contract covering the public biddings on 18 May 1976 and27 September 1976, or making and accepting deliveries under any contract which may have been entered intoin the meantime, or from otherwise implementing the Board resolution of the Metropolitan Waterworks andSewerage System awarding the questioned bids in favor of defendants Sanvar Development Corporation and/orEternit Corporation, until further orders from the Court", and forthwith set the hearing on the issuance of a writ ofpreliminary injunction on 18 November 1976. 8

In the meantime, the respondents filed separate motions for the (1) dismissal of the petition; (2) lifting of the

restraining order issued, and (3) denial of the prayer for the issuance of a writ of preliminary injunction. 9

On 25 February 1977, the trial court, for reasons stated in its order of even date, lifted the restraining orderissued on 12 November 1976 and denied the motion for the issuance of a writ of preliminary injunction. 10

AIMI filed a motion for reconsideration of the order and after hearing the parties on the incident, the trial courtissued an order on 28 January 1977, giving the respondents "until Monday, 31 January 1977, within which to filetheir comment or opposition to the motion for reconsideration, subject to the condition that if no deliveries ofasbestos pipes have not (sic) yet been made, no deliveries shall commence until after this incident is finallyresolved, and that if deliveries have started, the same should be stopped in the meanwhile, and that nopayments on said deliveries shall be made until the Court will issue its order hereof which shall be not later thanWednesday, 2 February 1977." 11

On 2 February 1977, the trial court denied the motion for reconsideration and dismissed the complaint. 12

Hence, the present recourse.



On 7 February 1977, the Court issued a temporary restraining order, restraining the respondents and theirrepresentatives "from executing the covering contracts for the questioned bids of 18 May 1976 and 27September 1976 and/or from accepting any pipes deliveries from respondents Sanvar and/or Eternit under thecontract awards if such covering contracts for the two bids had in the meantime been concluded precipitatelyfollowing the afore-alleged MWSS board resolution approving the Sanvar and Eternit bids, and/or payingrespondents Sanvar and/or Eternit for pipes deliveries if these had been made, and/or from otherwiseimplementing in any way said MWSS board resolution awarding the 18 May 1976 and 27 September 1976 bidsto Eternit through Sanvar " 13

The petitioner's contention is that Sanvar is but an alter ego or the marketing arm of Eternit so that it is prohibitedby law from entering into a contract with the MWSS for the supply of asbestos cement pressure pipes:

We find, however, that the evidence presented by the petitioner is not sufficient to support the conclusion thatSanvar is an alter ego of Eternit. We quote with approval the following disquisitions of the respondent judge:

Even were the Court to go into the merits of the case, it would be difficult for it to go along withplaintiff on the latter's submission that Sanvar is an alter ego or agent of Eternit and that,although plaintiff's bid is higher than Sanvar's, the award should be given it because of the FlagLaw and other laws calculated to protect Filipino Industrialists from the cut-throat competition ofmore powerful and more financed alien enterprises. Among plaintiff's evidence on the allegedrelationship of principal and agent between Eternit and Sanvar are the dealership agreement ofthe two which describes it as "for the operation of a dealer-owned outlet for the sale of Eternitconstruction materials'"( Exhibit "A"); and portions of the Confidential Statement for DeterminingProspective Bidder's Responsibility, which is MWSS Form No. EO-4 and accomplished bySanvar (Exhibit "8"), viz: the typewritten words 'distributor of Eternit products, Eternit CorporationMandaluyong, Rizal' , supplied by Sanvar, after the words, which form part of the official form,manufacturer's exclusive agent of' (Exhibit "B-1" the phrase "distributor of Eternit Products suchas roofing material", which is descriptive of the business of Sanvar as the organization submittingthe bid (Exhibit "B-2") that which states that the bidder has been in business as "manufacturer'srepresentatiue or agent " for "2 years" (Exhibit "B-3", and that which shows that materials sold bySanvar to Rudy Pagdanganan La Paz Gaissue, Invictus Inc., and Ayala Group, all in 1975, weresupplied by Eternit (Exhibit "B-4".) In the interpretation of a contract the evident intention of theparties prevails over the words which appear contrary to it (Article 1370, Civil Code); as a general

rule that essence of a contract determines what law should apply to the relation between theparties and not what they prefer to call that relationship. (American Rubber Co. vs. Collector ofCustoms, 64 SCRA 560). To ascertain the meaning or import of a contract the whole of it, andnot mere portions thereof, must be taken into account. (Ruiz vs. Sheriff of Manila, 34 SCRA 63).What the words "dealership" and "dealer-owned" derived from "deal" which means to do adistributing or retailing business or to have intercourse on business relations (Webster's NewCollegiate Dictionary). as appearing in Exhibit "A" of the plaintiff, is clear from many explicit andunmistakable provisions spread over the entire agreement, viz: ... "the dealer shall RESELLEternit construction products PURCHASED from the company (Par 1) ... the dealer shallPURCHASE from the company his/its requirement for RESALE (Par. 3) ... all PURCHASESunder this agreement shall be paid in cash ... any loss or damage to, or deterioration of, theproducts due to any cause whatsoever occurring after delivery shall be borne by the dealer (Par.

5) ... delivery shall be deemed complete and transfer of title to products effected when theproducts are delivered to carrier... (Par 5)... nothing in this agreement shall be construed asreserving to the company any right to exercise any control over, or direct in respect the conductor management of, the business or operations of the dealer ... the entire control and direction ofsuch business and operations shall be and remains in the dealer .... the dealer shall not have anyright or authority to, and shall not, incur any debts or liabilities or enter into any contract ortransact any business whatsoever in the name of, or for, or on behalf of the company". (Par. 10,Exhibit "1-A Sanvar") "The foregoing, clear and distinct that they are, were carried out by theparties. Sanvar buying from Eternit construction materials (Exhibits " 18-B Sanvar" to "18-G-15-Sanvar") receiving them (Exhibits "18-C-14-Sanvar to 18-D Sanvar paying for them, (Exhibits"18-D Sanvar" to 18-G-5-Sanvar") and, in turn, selling them for its own account, and not in behalfof Eternit.

The letter of Romeo Fajardo, General Manager of Sanvar, to the MWSS treasurer (Exhibit "L")the letter of the regional manager of Eternit to MWSS (Exhibit "R"); and the "letter of the BranchManager of Eternit to Sanvar (Exhibit "Q"), all to the effect that Sanvar is the exclusive distributorof pipes manufactured by Eternit, do not detract a whit from Sanvar's position vis a vis Eternit, asa buyer of the products of the latter, for a buser engaged in the business of selling what he buys





registered under the laws of the Philippines, and when the bidding in question was held, bothwere habitually established in business, and engaged in the sale of the asbestos cement pipescovered by their respective bids to both Government and private entities (See documentaryevidence submitted by parties in reply to the Department's request dated January 24, 1962).Neither may, therefore, legitimately claim over the other the second type of preference grantedby Section 4 of the Flag Law (CA 138).

xxx xxx xxx

7. The professed motive for Opinion No. 263, Series of l961of this Department, which is toprevent foreign manufacturers in the Philippines from subverting the Flag Law by designatingFilipino firms as their representatives or sole distributors in Government bids, is laudable but hasno real foundation, and indeed, the danger was foreseen and provided for by the Flag Law itselfwhich, in defining a domestic entity, requires not only that the bidder is a Filipino or Philippineowned entity, but also that he must have been habitually established in business and engaged inthe sale of the commodity covered by his bid, which means that he is a bona fide businessmanor entity engaged in the line of business covered by his bid. Obviously, such a bidder cannot beconsidered a dummy or front for a foreign manufacturer. Moreover, such a Filipino bidder, beinghabitually engaged in the line of business covered by his bid, is entitled to as much protection asa Filipino manufacturer who bids directly or through a Filipino distributor.

But, even if the petitioner were to be given a preference, pursuant to the Flag Law, the petitioner would still notbe entitled to an award since its bid of P3,259,492.00, is 22.84% higher than the bid of Sanvar of P2,653,360.00.Petitioner's bid would still be higher by 7.84%, over the 15% margin or mark-up given by the Flag Law to the bidof a domestic entity over that of a non-domestic entity.

In this connection, also, we agree with MWSS that the petitioner's handwritten offer in its Bidder's Tender to theeffect that:

6. We are also willing to offer tosupply your requirements for a period of one year with anadditional discount of 10% (ten percent) from the above unit price.

is not called for in the bid and hence, may not be considered in favor of petitioner.

In view of the foregoing findings, we no longer deem it necessary to discuss the issue raised by the respondentsthat the petitioner failed to exhaust all administrative remedies before resort was made to the courts.

WHEREFORE, the petition is hereby DISMISSED. The temporary restraining order heretofore issued by theCourt is lifted and set aside. With costs against the petitioner.

SO ORDERED.

Teehankee, C.J., Yap, Fernan, Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Gancayco, Bidin,Sarmiento and Cortes, JJ., concur.

Feliciano, J., took no part.



[G.R. No. 120287. May 28, 2002]

G & S TRANSPORT CORPORATION, petitioner , vs . COURT OF APPEALS, HON.

ENRICO A. LANZANAS, TWO THOUSAND (2000) TRANSPORT

CORPORATION, NISSAN CAR LEASE PHILIPPINES, INC., MANILAINTERNATIONAL AIRPORT AUTHORITY AND GUILLERMO G.

CUNANAN, respondents .

D E C I S I O N

BELLOSILLO, J .:

This resolves the consolidated Petition for Review of the Decision of the Court of Appeals in

CA-G.R. SP No. 36345, ―Two Thousand (2000) Transport Corporation v. Hon. Guillermo L. Loja, Sr., as Judge, RTC , Manila, Branch 26, and G & S Transport Corporation,‖ and in CA-G.R. SP No. 36356, ― Nissan Car Lease Philippines, Inc. v. Hon. Guillermo L. Loja, Sr., as

Judge RTC of Manila, Branch 26, and G & S Transport Corporation,‖and Petition for Certiorari of theOrder of the Regional Trial Court, Branch 7, Manila, inCivil Case No. 95-72586, ―G & S Transport Corporation v. Manila International Airport



Authority, Guillermo G. Cunanan, Two Thousand (2000) Transport Corporation and NissanCar Lease Philippines, Inc.‖

Petitioner G & S Transport Corporation (G & S), with the name and style Avis Rent-A-Car ,was the exclusive operator of coupon taxi services at the Ninoy Aquino International Airport(NAIA) under a five (5)-year contract of concession with respondent Manila International

Airport Authority (MIAA).[1] The concession contract expired on 31 January 1994 but was

renewed by the parties on a monthly basis "until such time when a new concessionaire (shallhave been) chosen."[2] Under the arrangement, G & S was able to operate the coupon taxi serviceuninterruptedly beyond the period of five (5) years originally awarded by MIAA.

On 12 July 1994 MIAA initiated proceedings for public bidding to choose two (2)

concessionaires of the coupon taxi services at the NAIA. Five (5) firms pre-qualified to join the bidding including petitioner G & S and respondents Two Thousand (2000) Transport

Corporation (2000 TRANSPORT) and Nissan Car Lease Philippines, Inc. (NISSAN), after

complying with the terms of reference, the instructions to bidders and the invitation to bid.[3] On23 September 1994 MIAA announced the ranking of the bidders on the basis of the fares per

kilometer they each tendered -

1. Philippine International Transport

Service Cooperative . . . . . . . . . . . . . . . . P16.00/km2. 2000 Transport Cooperative . . .. . . . . . . . . . P17.00/km

3. Nissan Car Lease Philippines . . . . . . . . . . . . P18.00/km4. G&S Transport Corp. . . . . . . . . . . . . . . . . P18.50/km

5. Hyatt Transport Co., Inc. . . . . . . . . . . . . . P24.00/km[4]

The highest ranking bidder which offered the lowest rate per kilometer was Philippine

International Transport Service Cooperative but was however disqualified as the bond itsubmitted was not a cash bond as required by the bidding rules.[5] Consequently, on 5 December1994 MIAA selected 2000 TRANSPORT and NISSAN as the winning bidders and issued in

their favor the respective notice of awards of the coupon taxi service concession.[6]

On 10 January 1995 petitioner G & S filed a complaint for injunction and mandamus with

preliminary injunction and temporary restraining order against MIAA and its General Manager

Guillermo G. Cunanan, 2000 TRANSPORT and NISSAN, which was docketed as Civil Case No. 95-72586 and subsequently raffled to RTC-Br. 26, Manila. The complaint sought todisqualify 2000 TRANSPORT from the award of the concession contract for submitting

its Articles of Incorporation with the signature of one (1) of its incorporators allegedly falsifiedand its income tax returns falsely attested to by its treasurer, and for the existence of allegedlyreasonable grounds to believe that 2000 TRANSPORT was a dummy corporation for two (2)

Korean nationals. It also asserted that the concession contract should have been executed in

favor of G & S since it was more deserving than both 2000 TRANSPORT and NISSAN in termsof facilities, financial standing, organizational set-up and capability. G & S subsequently

amended the complaint to state that no new legitimate concessionaire had been properly chosenas a result of the failure of MIAA to disqualify 2000 TRANSPORT from the entire process of

selecting two (2) coupon taxi service concessionaires and to allege that G & S remained to bethe only legitimate service provider, and prayed that the month-to-month renewal of the

concession contract with G & S should instead be enforced until a more deservingconcessionaire would have been selected.

As prayed for in the complaint, the trial court issued a temporary restraining order enjoiningMIAA from awarding to 2000 TRANSPORT and NISSAN the new concessions to operate the

http://sc.judiciary.gov.ph/jurisprudence/2002/may2002/120287.htm#_edn1

























NAIA coupon taxi service and from removing G & S as such concessionaire, and thereafterscheduled for hearing the application for preliminary injunction.

Meanwhile respondents 2000 TRANSPORT and NISSAN each moved to dismiss thecomplaint for failure to state a cause of action and for improper venue and to lift the temporaryrestraining order. On 30 January 1995, after the parties were heard although the motions were

still pending, the trial court granted the writ of preliminary injunction which barred MIAA from

doing any of the acts earlier restrained.Respondents 2000 TRANSPORT and NISSAN assailed before the Court of Appeals the

issuance of the writ of preliminary injunction through their respective petitions for certiorariwith prayer for temporary restraining order and preliminary injunction under Rule 65 of

the Revised Rules of Court .[7] Respondent 2000 TRANSPORT belied the claims that it falsifiedits Articles of Incorporation and that it was a dummy corporation. On the other hand, NISSAN

alleged that the complaint of G & S did not state a cause of action since the allegations

concerned exclusively the disqualification of 2000 TRANSPORT.

On 6 February 1995 the appellate court issued a temporary restraining order prohibiting the

enforcement of the writ of preliminary injunction. While the temporary restraining order was in place, MIAA terminated the month-to-month renewal of the concession contract with G & S and

executed the concession contracts with the winning bidders 2000 TRANSPORT and NISSAN

which immediately commenced their respective coupon taxi services at the NAIA.[8] Thetemporary restraining order (issued by the Court of Appeals) had already expired when theappellate court conducted hearings on the application of 2000 TRANSPORT and NISSAN for a

writ of preliminary injunction.

On 3 March 1995, upon separate motions of 2000 TRANSPORT and NISSAN, the

presiding judge[9] of RTC-Br. 26, Manila, inhibited himself from hearing Civil Case No. 95-

72586. The case was re-raffled and in due time referred to the RTC-Br. 7 which extensivelyheard the motions to dismiss separately filed by 2000 TRANSPORT and NISSAN.

On 11 April 1995 the trial court dismissed the complaint in Civil Case No. 95-72586.[10] It

ruled that the complaint failed to state a cause of action against herein respondents and that

mandamus was unavailable to compel the award of the concession contract in favor of G & S

since such decision was discretionary upon the MIAA. On 16 June 1995 the trial court deniedreconsideration of the Order of dismissal.

On 16 May 1995 the Court of Appeals granted the petitions for certiorari of 2000

TRANSPORT and NISSAN in CA-G.R. SP No. 36345 and CA-G.R. SP No. 36356, set aside

the 30 January 1995 Order of the trial court issuing the writ of preliminary injunction, and prohibited the trial court from ―hearing and taking further cognizance of Civil Case No. 95-

72586 except to dismiss the same.‖[11] The appellate court held that the trial court gravely abusedits discretion when it issued the writ of preliminary injunction since under PD 1818 no court

would have jurisdiction to restrain the operation of a public utility and since the selection of

winning bidders was solely the discretion of the sponsoring government agency. Hence, theinstant petition for review under Rule 45 of the Revised Rules of Court assailing the 16 May

1995 Decision of the Court of Appeals, which was joined with the instant petition for certiorariunder Rule 65, seeking to nullify and set aside the 11 April 1995 Order of the trial court

dismissing Civil Case No. 95-72586.G & S argues in its petition for review that irregularities attending the bidding for the

coupon taxi service at the NAIA warranted the issuance of the writ of preliminary injunction andthat PD 1818 was not applicable to divest the trial court of jurisdiction to hear the complaint in





















Civil Case No. 95-72586. G & S asserts in its petition under Rule 65 that allegations in thecomplaint that 2000 TRANSPORT falsified its Articles of Incorporation and income tax

returns, and was a dummy corporation for two (2) Korean nationals, and that irregularitiesrigged the bidding stated fully a cause of action against 2000 TRANSPORT and NISSAN which

would have justified the disqualification of respondent 2000 TRANSPORT from the bidding

and the continuation of the month-to-month renewal of the concession contract in favor of G &S. Petitioner also justifies resorting to Rule 65 in lieu of an ordinary appeal before the Court of

Appeals to question the Order of dismissal of the trial court on grounds of expediency andnecessity for a speedier remedy than appeal and further explains that joining the petitions forreview and for certiorari in just one (1) pleading was essential to avoid conflicting rulings in

case the petitions were brought separately in different fora.

To begin with, petitioner could have joined together all his allegations of error in one petition for review under Rule 45 of the 1997 Rules of Civil Procedure since only questions of

law are raised in the instant casse. At any rate, there is nothing irregular in joining both

petitions for review (Rule 45) and certiorari (Rule 65) in one pleading for purposes of resolvingthe issues raised by petitioner G & S. This procedural step may even avoid inconsistency of

rulings which might result in case the writ of preliminary injunction is validated but the civilcase from which the writ emanated is ordered dismissed. Although a petition for review under

Rule 45 is an appeal process while a petition for certiorari under Rule 65 is an original actionand the rule is that joinder of causes of action shall not include special civil actions governed byspecial rules,[12] the conceptual and procedural differences between them are overshadowed by

the more significant probability of divergent rulings in case the two (2) petitions are not joinedwhich in the end would only cause difficulties in determining which of the conflicting decisionsshould be enforced.

For the same reason, resort to certiorari under Rule 65 before this Court in lieu of an

ordinary appeal to the Court of Appeals to assail the final Order of dismissal is fully justified bythe necessity to bring all the issues before one (1) forum to ensure harmony of rulings. It must

however be emphasized that in disposing of the issue regarding the propriety and legality ofthe Order , the applicable standard will of course be whether the trial court committed grave

abuse of discretion amounting to lack or excess of jurisdiction,[13] and the only reversible errorswill be errors of jurisdiction and not errors of judgment.[14]

We find that the trial court did not abuse its discretion in dismissing the complaint in Civil

Case No. 95-72586 for failure to state a cause of action against respondents 2000 TRANSPORT

and NISSAN. As admitted by petitioner G & S itself, the trial court used the correct

―guidelines by which the failure of the complaint to state a cause of action as a ground in amotion to dismiss must be considered.‖[15] Concededly therefore the only errors involved in this

petition are mere errors of judgment, if any, and not errors of jurisdiction for which the instant

petition would be the inappropriate mode for seeking a reversal. The allegations of errors of

judgment are in fact fairly obvious on the face of the instant petition for certiorari under Rule 65.

We nonetheless examine the Order of the trial court in the interest of justice. The

elementary test for failure to state a cause of action is whether the complaint alleges facts whichif true would justify the relief demanded. Stated otherwise, may the court render a valid

judgment upon the facts alleged therein?[16] Only ultimate facts and not legal conclusions or

evidentiary facts which in the first place should not have been alleged in the complaint areconsidered for purposes of applying the test.[17] Furthermore, actions which are prematurelycommenced would fall under the objection.[18]






























Petitioner G & S prayed for a permanent injunction to bar the award of the concessioncontract to 2000 TRANSPORT and NISSAN; a writ of mandamus compelling MIAA to grant

to it the concession contract; the disqualification of 2000 TRANSPORT from the bidding; thenullification of the entire bidding process; and the payment of damages which would of course

be a mere consequence of the other relief sought.[19] The ultimate facts supposedly justifying the

complaint for injunction and mandamus were -

15. On October 26, 1994, the Manila Standard published a news item reporting that (2000)Transport has been accused of submitting to MIAA falsified documents in connection with their

bid for the NAIA coupon taxi service. Investigating this report, plaintiff [G & S] discoveredthat on October 8, 1994, a certain Meliton Solpot had executed an Affidavit, wherein he stated

that the corporate tax returns submitted by [2000 Transport] to MIAA during the bidding are

(sic) falsified as his purported signatures thereon are (sic) not his signatures x x x x Plaintifffurther discovered that on October 25, 1994, the same Meliton Solpot executed a SwornStatement before the National Bureau of Investigation (NBI) alleging that his signatures on the

partnership annual income tax return of [2000 Transport] dated December 1993 and February 3,

1994 as well as those found in the Articles of Incorporation of [2000 Transport] on file with theSecurities and Exchange Commission are (sic) not his genuine signatures x x x x 17. In the

meantime, plaintiff [G & S] was able to secure from the SEC a copy of the Articles of

Incorporation of [2000 Transport]. In said Articles, it clearly appears that one of the alleged

incorporators is a certain Meliton Solpot. It further appears that the two (2) Koreanincorporators who appear to have subscribed to twenty percent (20%) of the authorizedcapital stock of the corporation had paid up eighty percent (80%) of the paid-in capital,thereby

indicating that in fact, and for all intents and purposes, the Korean incorporators were in controlof the corporation x x x x Moreover, plaintiff was also able to secure a copy of the GeneralInformation Sheet for 1994 filed by [2000 Transport] with the SEC which shows that Sooja Park

Lim, a Korean, is the Chairman and President of [2000 Transport] while Young Kon Jo, aKorean, is the Vice President of [2000 Transport] x x x x 23. Since [2000 Transport] was notduly qualified to participate in the bidding and has flagrantly violated the Constitution, MIAA

and Cunanan have neither factual nor legal basis to declare said defendant as one of the winning bidders, to award to said defendant, a Contract of Concession for the NAIA coupon taxi service

and allowing it to operate the said service. Furthermore, the participation of a disqualified bidder in the bidding affects the integrity of the entire bidding process and renders the sameineffective, null and void. Consequently, MIAA and Cunanan should be finally and

permanently enjoined from awarding to [2000 Transport and Nissan] a Contract of Concession

for the NAIA coupon taxi service and/or otherwise authorizing or allowing them to operate the NAIA coupon taxi service x x x x 25. While plaintiff had made the third lowest bid insofar as

the fare is concerned, it certainly is way ahead of all other bidders, insofar as the other factorsstated in the Instruction to Bidders are concerned. As the present operator and concessionaire of

the NAIA coupon taxi service for the last five (5) years, its existing facilities, financial standing,

organizational set-up, relevant experience, quality, capability and kind of services offered faroutrank any of the other bidders. Thus, assuming, without conceding, that [2000 Transport]

was not disqualified to participate in the bidding and/or the bidding process is not fatally flawed, plaintiff should be declared as one of the winning bidders based on these other factors. Theother winning bidder should be determined between [2000 Transport and Nissan] based on these

other factors.[20]

It is clear that the allegations would not call for any relief against respondent NISSAN. Thealleged defects in the bidding process center on the incapacity and fraudulent act of 2000











TRANSPORT in submitting its Articles of Incorporation with one (1) falsified signature andin being a dummy corporation for two (2) Korean nationals. Under these set of facts, we see no

basis for declaring NISSAN to be similarly disqualified or for nullifying the entire bidding process. Indeed it has not been shown that the alleged irregularities committed by 2000

TRANSPORT were induced by or participated in by any of the other bidders. No rule would

justify compromising the interests of NISSAN for an act it was not the author of or even privyto. If at all, liability should attach only to the responsible party for the alleged prejudice

sustained by G & S as a result of the anomalies described above.

Neither would the allegations authorize us to issue the writ of mandamus compelling MIAAto award the concession contract in favor of petitioner G & S. It is a settled rule that mandamus

will lie only to compel the performance of a ministerial duty but does not lie to require anyoneto fulfill contractual obligations.[21] Only such duties as are clearly and peremptorily enjoined bylaw or by reason of official station are to be enforced by the writ.[22] Whether MIAA will enter

into a contract for the provision of a coupon taxi service at the international airport is entirely

and exclusively within its corporate discretion. It does not involve a duty the performance ofwhich is enjoined by law and thus this Court cannot direct the exercise of this prerogative.

Indeed the determination of the winning bidders should be left to the sound judgment of theMIAA which is the agency in the best position to evaluate the proposals and to decide which bid

would most complement the NAIA's services. The Terms of Reference for Coupon Taxi Service

Concession observed, "[t]he professional transport service plays a very important role inenhancing and maintaining a good image of the country that will speak of trust,

honesty, efficiency and modernity."[23] In this regard only the most advantageous bids would beselected on the basis of the best bid offer in relation to the bidders’ existing facilities, financial

standing, organizational set-up, relevant experience, quality, capability and kind of services

offered.[24] The exercise of such discretion is a policy decision that necessitates such procedures

as prior inquiry, investigation, comparison, evaluation and deliberation.[25] This process wouldnecessarily entail the technical expertise of MIAA which the courts do not possess in order to

evaluate the standards affecting this matter -

x x x x courts, as a rule, refuse to interfere with proceedings undertaken by administrative bodies

or officials in the exercise of administrative functions. This is so because such bodies are

generally better equipped technically to decide administrative questions and that non-legalfactors, such as government policy on the matter, are usually involved in the decisions.[26]

Nor would the allegations, even if admitted to be true, compel a permanent restraint on the

execution of the respective concession contracts of respondents 2000 TRANSPORT and NISSAN with MIAA. In Bureau Veritas v. Office of the President [27] we ruled that "thediscretion to accept or reject a bid and award contracts is vested in the Government agencies

entrusted with that function." Furthermore, Sec. 1 of PD 1818 (the governing statute in all the

relevant dates alleged in the complaint) distinctly provides that "[n]o court in the Philippinesshall have jurisdiction to issue any restraining order, preliminary injunction x x x in any

case, dispute, or controversy involving x x x any public utility operated by the government,including among others public utilities for the transport of the goods or commodities x x x to

prohibit any person or persons x x x from proceeding with, or continuing the execution or

implementation of any such project, or the operation of such public utility, or pursuing anylawful activity necessary for such execution, implementation or operation." We stress that the

provision expressly deprives courts of jurisdiction to issue injunctive writs against the

implementation or execution of contracts for the operation of a public utility.[28] Undeniably, both



































respondent MIAA and the concession contracts it wanted to bid out involve a public utilitywhich would therefore enjoy the protective mantle of the decree.

While the rule is that courts may set aside or enjoin the award of a contract made by agovernment entity, this may be done only upon a clear showing of grave abuse ofdiscretion[29] or only in cases involving issues definitely outside the exercise of discretion in

technical cases and questions of law.[30] We however find nothing of this sort in the allegations of

petitioner G & S in Civil Case No. 95-72586. Even if admitted to be true, the allegations do notdemonstrate grave abuse of discretion nor raise issues definitely outside the exercise ofdiscretion in technical cases which would survive a motion to dismiss for failure to state causeof action and warrant a trial on the merits of the complaint.

Grave abuse of discretion implies a capricious, arbitrary and whimsical exercise of power .[31] The abuse of discretion must be patent and gross as to amount to an evasion of positive

duty or to a virtual refusal to perform a duty enjoined by law, as not to act at all in

contemplation of law, or where the power is exercised in an arbitrary and despotic manner byreason of passion or hostility.[32] In the case at bar, the allegations of G & S in the civil case do

not call for the assumption that MIAA accepted the bid of 2000 TRANSPORT and NISSAN anddeclared them winning bidders with grave abuse of discretion.

For one, the claim that 2000 TRANSPORT is a dummy corporation for two (2) Korean

nationals is a legal conclusion from allegations which would not even compel the adoption ofsuch inference -

It further appears that the two (2) Korean incorporators who appear to have subscribed to twenty percent (20%) of the authorized capital stock of the corporation had paid up eighty percent

(80%) of the paid-in capital, thereby indicating that in fact, and for all intents and purposes, the

Korean incorporators were in control of the corporation x x x x Moreover, plaintiff was alsoable to secure a copy of the General Information Sheet for 1994 filed by [2000 Transport] with

the SEC which shows that Sooja Park Lim, a Korean, is the Chairman and President of [2000Transport] while Young Kon Jo, a Korean, is the Vice President of [2000 Transport] x x x x

Judicial notice of the Articles of Incorporation referred to in the allegations and attached as

one of the annexes to the instant petition would show that the two (2) Korean nationalssubscribed to only 1,000 shares out of the total 20,000 shares, which were fully paid up by them

at P100.00 per share for P50,000.00 each.[33] On its face, the Articles of Incorporation merely

showed the subscription by the two (2) Korean nationals of only five percent (5%) of the capital

stock and the full payment thereof in the total amount of P100,000.00.Since factual premises as well as legal conclusions which by judicial notice are determined

to be false are not deemed admitted to be true for purposes of disposing of an objection on the

ground of failure to state a cause of action,[34] it was incumbent upon G & S to have allegedadditional facts from which could be inferred that 2000 TRANSPORT was truly a front of the

Korean shareholders.

In the same manner, it is irrelevant that the Korean nationals were the President and the

Vice President, respectively, of 2000 TRANSPORT as shown in the General Information Sheeton file with the Securities and Exchange Commission. What is material for purposes of stating a

cause of action are allegations showing that they were such officers during the operational stagesof the coupon taxi service. As we have held in Tatad v. Garcia[35]-





























x x x x Private respondent EDSA LRT Corporation, Ltd., to whom the contract to construct theEDSA LRT III was awarded by public respondent, is admittedly a foreign corporation "duly

incorporated and existing under the laws of Hong Kong" x x x x What private respondent ownsare the rail tracks, rolling stocks like the coaches, rail stations, terminals and the power plant, not

a public utility. While a franchise is needed to operate these facilities to serve the public, they

do not by themselves constitute a public utility. What constitutes a public utility is not theirownership but their use to serve the public x x x x The Constitution, in no uncertain terms,

requires a franchise for the operation of a public utility. However, it does not require a franchise before one can own the facilities needed to operate a public utility so long as it does not operatethem to serve the public x x x x In law, there is a clear distinction between the "operation" of a

public utility and the ownership of the facilities and equipment used to serve the public. Theexercise of the rights encompassed in ownership is limited by law so that a property cannot be

operated and used to serve the public as a public utility unless the operator has a franchise x x x

x The right to operate a public utility may exist independently and separately from theownership of the facilities thereof. One can own said facilities without operating them as a

public utility, or conversely, one may operate a public utility without owning the facilities used

to serve the public. The devotion of property to serve the public may be done by the owner or by the person in control thereof who may not necessarily be the owner thereof x x x x Indeed, a

mere owner and lessor of the facilities used by a public utility is not a public utility x x x x Even

the mere formation of a public utility corporation does not ipso facto characterize thecorporation as one operating a public utility.

Moreover, the allegations that the documents submitted by 2000 TRANSPORT,

i.e., Articles of Incorporation and income tax returns, contained one (1) falsified signature evenif admitted to be true could not be characterized as showing grave abuse of discretion on the partof MIAA in not disqualifying 2000 TRANSPORT from the bidding and in not nullifying the

bidding process. It is clear that under the Terms of Reference for Coupon Taxi ServiceConcession the required pre-qualification documents consisted of, among others, certified truecopy of the Articles of Incorporation and certified true copy of the income tax returns of the

corporation for the last two (2) years immediately preceding the date of the bidding .[36] MIAAacted within the bounds of reasonable discretion when it accepted the Articles of

Incorporation and income tax returns of 2000 TRANSPORT since they were duly verified bythe proper administrative agencies. It appears from the records that 2000 TRANSPORT hadlong been operating as a corporation engaged in common carriage so that MIAA had reasonable

ground to rely upon the documents submitted to it to prove the corporate personality and status

as public carrier of the bidder for purposes of the bidding. Moreover, because of the presumption of regular performance of powers and functions, MIAA should be deemed to have

performed its functions in accordance with law and duly considered all the relevant documents before pre-qualifying 2000 TRANSPORT.

It goes without saying that the action in Civil Case No. 95-72586 is premature and

consequently fails to state a cause of action. The allegations of the complaint therein focused onthe irregularity in the process of obtaining corporate personality, that is, the alleged falsification

of the Articles of Incorporation of 2000 TRANSPORT, and the misdeed in securing a certificateof public convenience for operating taxi services when 2000 TRANSPORT was allegedly a

dummy corporation for two (2) Korean nationals. Clearly, in the absence of any finding of

irregularity from the appropriate government agencies tasked to deal with these concerns, whichat all the times relevant to the civil case would be the Securities and ExchangeCommission [37] and the Land Transportation Franchising and Regulatory Board,[38] courts must

defer to the presumption that these agencies had performed their functions regularly. The














ultimate facts upon which depends the complaint in Civil Case No. 95-72586 would be matterswhich fall within the technical competence of government agencies over which courts could not

prematurely rule upon and enter relief as prayed for in the complaint –

In recent years, it has been the jurisprudential trend to apply the doctrine of primary jurisdictionin many cases involving matters that demand the special competence of administrativeagencies. It may occur that the Court has jurisdiction to take cognizance of a particular case,

which means that the matter involved is also judicial in character. However, if the case is suchthat its determination requires the expertise, specialized skills and knowledge of the proper

administrative bodies because technical matters or intricate questions of facts are involved, thenrelief must first be obtained in an administrative proceeding before a remedy will be supplied by

the courts even though the matter is within the proper jurisdiction of a court. This is the

doctrine of primary jurisdiction. It applies "where a claim is originally cognizable in the courts,and comes into play whenever enforcement of the claim requires the resolution of issues which,under a regulatory scheme, have been placed within the special competence of an

administrative body; in such case the judicial process is suspended pending referral of such

issues to the administrative body for its view‖ x x x x "Uniformity and consistency in theregulation of business entrusted to an administrative agency are secured, and the limited

function of review by the judiciary are more rationally exercised, by preliminary resort, for

ascertaining and interpreting the circumstances underlying legal issues, to agencies that are

better equipped than courts by specialization, by insight gained through experience, and by moreflexible procedure" x x x x[39]

The propriety of the Order of dismissal of Civil Case No. 95-72586 should render moot andacademic the instant petition for review of the Decision of the Court of Appeals in CA-G.R. SP

No. 36345, "Two Thousand (2000) Transport Corporation v. Hon. Guillermo L. Loja, Sr., as

Judge, RTC of Manila, Branch 26, and G & S Transport Corporation," and in CA-G.R. SP No.36356, " Nissan Car Lease Philippines, Inc. v. Hon. Guillermo L. Loja, Sr., as Judge, RTC of

Manila, Branch 26, and G & S Transport Corporation." It is well settled that the issue of propriety of obtaining a preliminary injunction dies with the main case from which it logically

sprang. Such a provisional remedy, like any other interlocutory order, cannot survive the maincase of which it is but an incident.[40] Indeed what more could this Court enjoin when thecomplaint has already been dismissed? To be sure, even a ruling granting the petition at bar

would not revive the civil case much less change our ruling in the petition for certiorari under

Rule 65.[41] The remedy in question is precisely termed preliminary since it is meant to restrainacts prior to the rendition of a judgment or a final order .[42]

Be that as it may, we find the assailed Decision of the Court of Appeals to be in accord withlaw and jurisprudence. For starters, it is well settled that before a writ of preliminary injunctionmay be issued, there must be a clear showing by the complainant that there exists a right to be

protected and that the acts against which the writ is to be directed are violative of establishedright.[43] In the instant case, it is an undisputed fact that the contract of petitioner G & S for

coupon taxi service with MIAA had already expired and that a new concessionaire had beenchosen. Admittedly there was no existing contractual relationship between MIAA and petitioner

G & S since the former was under no legal obligation to renew the concession

contract. Consequently petitioner had no right which needed protection by a writ of preliminary

injunction.

Furthermore, PD 1818 was clearly applicable to divest the trial court of authority to issue

the injunctive writ against the execution of the concession contracts with 2000 TRANSPORT






















and NISSAN. Their respective contracts involved public utility which were within the protective mantle of the decree. Moreover, as shown above, the issues raised in the complaint

in Civil Case No. 95-72586 did not involve matters outside the technical competence of MIAAor veritable questions of law. The contentions of petitioner G & S were precisely directed

towards urging the trial court to substitute its judgment for that of MIAA in determining to

which bidders the concession contracts should be awarded. Hence, the appellate court correctlynullified the injunctive writ on the ground that it violated PD 1818.

We also share the view of the Court of Appeals that determination of the winning bidders isa matter falling within the exclusive jurisdiction of the sponsoring government agency. While

petitioner G & S asserts that MIAA committed grave abuse of discretion in pre-qualifying 2000

TRANSPORT, there certainly was no cause of action in similarly seeking the nullification of thewinning bid of NISSAN. From the beginning, G & S had no reason to restrain NISSAN fromthe fruits of its efforts in winning the bid. Similarly, MIAA was merely relying upon

the Terms of Reference for Coupon Taxi Service Concession when it pre-qualified 2000

TRANSPORT and proceeded with the bidding, hence, MIAA could not have abused itsdiscretion in doing so. On the contrary, it would have been grave abuse of discretion if MIAA

were to suddenly abandon the Terms of Reference if only to accommodate the objections of G &S.

Be it understood that in the instant proceedings we have confined ourselves within the

parameters of the propriety of the dismissal of Civil Case No. 95-72586 and the impropriety ofthe issuance of a writ of preliminary injunction by the trial court. Hence we are not putting to

rest, indeed not by a long shot on the ground of res judicata, the contentions ardently raised by petitioner G & S on the absence of qualifications of respondent 2000 TRANSPORT as a

corporate entity to operate a public utility. In the instant case, our emphasis has been the proper

observance of the procedure in the assertion of grievances which in this regard would be to bring

up the alleged irregularities in the creation and operation of 2000 TRANSPORT to the properauthorities as discussed above.

It is important to note that the claims of petitioner G & S assume great importance whenargued in the proper forum in light of the sudden desertion by respondent 2000 TRANSPORT

from the instant proceedings without leaving word on its new address nor advice as to its newcounsel or attorney-in-fact. Without so much as a by-your-leave, 2000 TRANSPORTabandoned the instant case after filing its comment to the instant petition and ignored all court

processes requiring the submission of a memorandum in its behalf. The contemptuous conduct

of 2000 TRANSPORT has unfortunately wasted our efforts in trying to deliver the various court

orders to its address on record,[44]

and has embarrassingly caused the imposition of fine upon andthe detention of one (1) of its lawyers for direct contempt of court arising from his failure to filethe memorandum for 2000 TRANSPORT despite repeated warnings.[45]

WHEREFORE, the consolidated Petition for Review under Rule 45 and Petition for

Certiorari under Rule 65 are DENIED and DISMISSED, respectively. The Decision of theCourt of Appeals in CA-G.R. SP No. 36345, "Two Thousand (2000) Transport Corporation

v. Hon. Guillermo L. Loja, Sr., as Judge, RTC of Manila, Branch 26, and G & S TransportCorporation," and in CA-G.R. SP No. 36356, " Nissan Car Lease Philippines, Inc. v. Hon.

Guillermo L. Loja, Sr., as Judge, RTC of Manila, Branch 26, and G & S Transport

Corporation," as well as the Order of the RTC-Br. 7, Manila, in Civil Case No. 95-72586, "G &S Transport Corporation v. Manila International Airport Authority, Guillermo G. Cunanan,Two Thousand (2000) Transport Corporation and Nissan Car Lease Philippines, Inc.," is

AFFIRMED. The writ of preliminary injunction issued in Civil Case No. 95-72586 is SET











ASIDE and NULLIFIED, and Civil Case No. 95-72586 is DISMISSED without prejudice tothe filing of the appropriate complaint/action with the concerned regulatory agencies.

Let copy of this Decision be served upon the Land Transportation Franchising andRegulatory Board and the Securities and Exchange Commission for their information andappropriate action. No pronouncement as to costs.

SO ORDERED.

G.R. No. 92024 November 9, 1990

CONGRESSMAN ENRIQUE T. GARCIA (Second District of Bataan), petitioner,vs.THE BOARD OF INVESTMENTS, THE DEPARTMENT OF TRADE AND INDUSTRY, LUZONPETROCHEMICAL CORPORATION, and PILIPINAS SHELL CORPORATION, respondents.

Abraham C. La Vina for petitioner.

Sycip, Salazar, Hernandez & Gatmaitan for Luzon Petrochemical Corporation.

Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for Pilipinas Shell Petroleum Corporation.

GUTIERREZ, JR., J .:

This is a petition to annul and set aside the decision of the Board of Investments (BOI)/Department of Trade andIndustry (DTI) approving the transfer of the site of the proposed petrochemical plant from Bataan to Batangasand the shift of feedstock for that plant from naphtha only to naphtha and/or liquefied petroleum gas (LPG).

This petition is a sequel to the petition in G.R. No. 88637 entitled "Congressman Enrique T. Garcia v. the Boardof Investments", September 7, 1989, where this Court issued a decision, ordering the BOI as follows:

WHEREFORE, the petition for certiorari is granted. The Board of Investments is ordered: (1) topublish the amended application for registration of the Bataan Petrochemical Corporation, (2) toallow the petitioner to have access to its records on the original and amended applications forregistration, as a petrochemical manufacturer, of the respondent Bataan Petrochemical



Corporation, excluding, however, privileged papers containing its trade secrets and otherbusiness and financial information, and (3) to set for hearing the petitioner's opposition to theamended application in order that he may present at such hearing all the evidence in hispossession in support of his opposition to the transfer of the site of the BPC petrochemical plantto Batangas province. The hearing shall not exceed a period of ten (10) days from the date fixedby the BOI, notice of which should be served by personal service to the petitioner throughcounsel, at least three (3) days in advance. The hearings may be held from day to day for aperiod of ten (10) days without postponements. The petition for a writ of prohibition or preliminaryinjunction is denied. No costs. (Rollo, pages 450-451)

However, acting on the petitioner's motion for partial reconsideration asking that we rule on the import of P.D.Nos. 949 and 1803 and on the foreign investor's claim of right of final choice of plant site, in the light of theprovisions of the Constitution and the Omnibus Investments Code of 1987, this Court on October 24, 1989,made the observation that P.D. Nos. 949 and 1803 "do not provide that the Limay site should be the onlypetrochemical zone in the country, nor prohibit the establishment of a petrochemical plant elsewhere in thecountry, that the establishment of a petrochemical plant in Batangas does not violate P.D. No. 949 and P.D. No.1803.

Our resolution skirted the issue of whether the investor given the initial inducements and other circumstancessurrounding its first choice of plant site may change it simply because it has the final choice on the matter. TheCourt merely ruled that the petitioner appears to have lost interest in the case by his failure to appear at the

hearing that was set by the BOI after receipt of the decision, so he may be deemed to have waived the fruit ofthe judgment. On this ground, the motion for partial reconsideration was denied.

A motion for reconsideration of said resolution was filed by the petitioner asking that we resolve the basic issueof whether or not the foreign investor has the right of final choice of plant site; that the non-attendance of thepetitioner at the hearing was because the decision was not yet final and executory; and that the petitioner hadnot therefor waived the right to a hearing before the BOI.

In the Court's resolution dated January 17, 1990, we stated:

Does the investor have a "right of final choice" of plant site? Neither under the 1987 Constitutionnor in the Omnibus Investments Code is there such a 'right of final choice.' In the first place, theinvestor's choice is subject to processing and approval or disapproval by the BOI (Art. 7, ChapterII, Omnibus Investments Code). By submitting its application and amended application to the BOIfor approval, the investor recognizes the sovereign prerogative of our Government, through theBOI, to approve or disapprove the same after determining whether its proposed project will befeasible, desirable and beneficial to our country. By asking that his opposition to the LPC'samended application be heard by the BOI, the petitioner likewise acknowledges that the BOI, notthe investor, has the last word or the "final choice" on the matter.

Secondly, as this case has shown, even a choice that had been approved by the BOI may not be'final', for supervening circumstances and changes in the conditions of a place may dictate acorresponding change in the choice of plant site in order that the project will not fail. After all, ourcountry will benefit only when a project succeeds, not when it fails. (Rollo, pp. 538-539)

Nevertheless, the motion for reconsideration of the petitioner was denied.

A minority composed of Justices Melencio-Herrera, Gancayco, Sarmiento and this ponente voted to grant themotion for reconsideration stating that the hearing set by the BOI was premature as the decision of the Courtwas not yet final and executory; that as contended by the petitioner the Court must first rule on whether or notthe investor has the right of final choice of plant site for if the ruling is in the affirmative, the hearing would be auseless exercise; that in the October 19, 1989 resolution, the Court while upholding validity of the transfer of theplant site did not rule on the issue of who has the final choice; that they agree with the observation of themajority that "the investor has no final choice either under the 1987 Constitution or in the Omnibus InvestmentsCode and that it is the BOI who decides for the government" and that the plea of the petitioner should be grantedto give him the chance to show the justness of his claim and to enable the BOI to give a second hard look at the

matter.

Thus, the herein petition which relies on the ruling of the Court in the resolution of January 17, 1990 in G.R. No.88637 that the investor has no right of final choice under the 1987 Constitution and the Omnibus InvestmentsCode.



Under P.D. No. 1803 dated January 16, 1981, 576 hectares of the public domain located in Lamao, Limay,Bataan were reserved for the Petrochemical Industrial Zone under the administration, management, andownership of the Philippine National Oil Company (PNOC).

The Bataan Refining Corporation (BRC) is a wholly government owned corporation, located at Bataan. Itproduces 60% of the national output of naphtha.

Taiwanese investors in a petrochemical project formed the Bataan Petrochemical Corporation (BPC) andapplied with BOI for registration as a new domestic producer of petrochemicals. Its application specified Bataanas the plant site. One of the terms and conditions for registration of the project was the use of "naphtha cracker"and "naphtha" as feedstock or fuel for its petrochemical plant. The petrochemical plant was to be a joint venturewith PNOC. BPC was issued a certificate of registration on February 24, 1988 by BOI.

BPC was given pioneer status and accorded fiscal and other incentives by BOI, like: (1) exemption from taxeson raw materials, (2) repatriation of the entire proceeds of liquidation investments in currency originally madeand at the exchange rate obtaining at the time of repatriation; and (3) remittance of earnings on investments. Asadditional incentive, the House of Representatives approved a bill introduced by the petitioner eliminating the48%ad valorem tax on naphtha if and when it is used as raw materials in the petrochemical plant. (G.R. No.88637, September 7, 1989, pp. 2-3. Rollo, pp. 441-442)

However, in February, 1989, A.T. Chong, chairman of USI Far East Corporation, the major investor in BPC,personally delivered to Trade Secretary Jose Concepcion a letter dated January 25, 1989 advising him of BPC'sdesire to amend the original registration certification of its project by changing the job site from Limay, Bataan, toBatangas. The reason adduced for the transfer was the insurgency and unstable labor situation, and thepresence in Batangas of a huge liquefied petroleum gas (LPG) depot owned by the Philippine Shell Corporation.

The petitioner vigorously opposed the proposal and no less than President Aquino expressed her preferencethat the plant be established in Bataan in a conference with the Taiwanese investors, the Secretary of NationalDefense and The Chief of Staff of the Armed Forces.

Despite speeches in the Senate and House opposing the Transfer of the project to Batangas, BPC filed on April11, 1989 its request for approval of the amendments. Its application is as follows: "(l) increasing the investmentamount from US $220 million to US $320 million; (2) increasing the production capacity of its naphtha cracker,polythylene plant and polypropylene plant; (3) changing the feedstock from naphtha only to "naphtha and/orliquefied petroleum gas;" and (4) transferring the job site from Limay, Bataan, to Batangas. (Annex B to Petition;Rollo, p. 25)

Notwithstanding opposition from any quarters and the request of the petitioner addressed to SecretaryConcepcion to be furnished a copy of the proposed amendment with its attachments which was denied by theBOI on May 25, 1989, BOI approved the revision of the registration of BPC's petrochemical project. (Petition, Annex F; Rollo, p. 32; See pp. 4 to 6, Decision in G.R. No. 88637; supra.)

BOI Vice-Chairman Tomas I. Alcantara testifying before the Committee on Ways and Means of the Senateasserted that:

The BOI has taken a public position preferring Bataan over Batangas as the site of thepetrochemical complex, as this would provide a better distribution of industries around the MetroManila area. ... In advocating the choice of Bataan as the project site for the petrochemicalcomplex, the BOI, however, made it clear, and I would like to repeat this that the BOI made itclear in its view that the BOI or the government for that matter could only recomend as to wherethe project should be located. The BOI recognizes and respect the principle that the final chouceis still with the proponent who would in the final analysis provide the funding or risk capital for the project. (Petition, P. 13; Annex D to the petition)

This position has not been denied by BOI in its pleadings in G.R. No. 88637 and in the present petition.

Section 1, Article VIII of the 1987 Constitution provides:

SECTION 1. The judicial power shall be vested in one Supreme Court and in such lower courtsas may be established by law.



Judicial power includes the duty of the courts of justice to settle actual controversies involvingrights which are legally demandable and enforceable, and to determine whether or not there hasbeen a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of anybranch or instrumentality of the Government.

There is before us an actual controversy whether the petrochemical plant should remain in Bataan or should betransferred to Batangas, and whether its feedstock originally of naphtha only should be changed to naphthaand/or liquefied petroleum gas as the approved amended application of the BPC, now Luzon PetrochemicalCorporation (LPC), shows. And in the light of the categorical admission of the BOI that it is the investor who hasthe final choice of the site and the decision on the feedstock, whether or not it constitutes a grave abuse ofdiscretion for the BOI to yield to the wishes of the investor, national interest notwithstanding.

We rule that the Court has a constitutional duty to step into this controversy and determine the paramount issue.We grant the petition.

First , Bataan was the original choice as the plant site of the BOI to which the BPC agreed. That is why itorganized itself into a corporation bearing the name Bataan. There is available 576 hectares of public landprecisely reserved as the petrochemical zone in Limay, Bataan under P.D. No. 1803. There is no need to buyexpensive real estate for the site unlike in the proposed transfer to Batangas. The site is the result of carefulstudy long before any covetous interests intruded into the choice. The site is ideal. It is not unduly constrictedand allows for expansion. The respondents have not shown nor reiterated that the alleged peace and ordersituation in Bataan or unstable labor situation warrant a transfer of the plant site to Batangas. Certainly, thesewere taken into account when the firm named itself Bataan Petrochemical Corporation. Moreover, the evidenceproves the contrary.

Second , the BRC, a government owned Filipino corporation, located in Bataan produces 60% of the nationaloutput of naphtha which can be used as feedstock for the plant in Bataan. It can provide the feedstockrequirement of the plant. On the other hand, the country is short of LPG and there is need to import the same foruse of the plant in Batangas. The local production thereof by Shell can hardly supply the needs of theconsumers for cooking purposes. Scarce dollars will be diverted, unnecessarily, from vitally essential projects inorder to feed the furnaces of the transferred petrochemical plant.

Third , naphtha as feedstock has been exempted by law from the ad valorem tax by the approval of Republic ActNo. 6767 by President Aquino but excluding LPG from exemption from ad valorem tax. The law was enactedspecifically for the petrochemical industry. The policy determination by both Congress and the President is clear.Neither BOI nor a foreign investor should disregard or contravene expressed policy by shifting the feedstockfrom naphtha to LPG.

Fourth, under Section 10, Article XII of the 1987 Constitution, it is the duty of the State to "regulate and exerciseauthority over foreign investments within its national jurisdiction and in accordance with its national goals andpriorities." The development of a self-reliant and independent national economy effectively controlled by Filipinosis mandated in Section 19, Article II of the Constitution.

In Article 2 of the Omnibus Investments Code of 1987 "the sound development of the national economy inconsonance with the principles and objectives of economic nationalism" is the set goal of government.

Fifth, with the admitted fact that the investor is raising the greater portion of the capital for the project from localsources by way of loan which led to the so-called "petroscam scandal", the capital requirements would begreatly minimized if LPC does not have to buy the land for the project and its feedstock shall be limited tonaphtha which is certainly more economical, more readily available than LPG, and does not have to beimported.

Sixth, if the plant site is maintained in Bataan, the PNOC shall be a partner in the venture to the great benefitand advantage of the government which shall have a participation in the management of the project instead of afirm which is a huge multinational corporation.

In the light of all the clear advantages manifest in the plant's remaining in Bataan, practically nothing is shown to justify the transfer to Batangas except a near-absolute discretion given by BOI to investors not only to freelychoose the site but to transfer it from their own first choice for reasons which remain murky to say the least.

And this brings us to a prime consideration which the Court cannot rightly ignore.





certificate of registration of BPC' (now LPC) of February 24, 1988 with Bataan as the plant site and naphtha asthe feedstock is, therefore, ordered maintained.

SO ORDERED.

Cruz, Gancayco, Padilla, Bidin, Sarmiento and Medialdea, JJ., concur.

Fernan, C.J., Paras, JJ., took no part.

Feliciano, J., is on leave.

G.R. No. 127882 December 1, 2004

LA BUGAL-B'LAAN TRIBAL ASSOCIATION, INC., Represented by its Chairman F'LONG MIGUEL M.LUMAYONG; WIGBERTO E. TAÑADA; PONCIANO BENNAGEN; JAIME TADEO; RENATO R.CONSTANTINO JR.; F'LONG AGUSTIN M. DABIE; ROBERTO P. AMLOY; RAQIM L. DABIE; SIMEON H.DOLOJO; IMELDA M. GANDON; LENY B. GUSANAN; MARCELO L. GUSANAN; QUINTOL A. LABUAYAN;LOMINGGES D. LAWAY; BENITA P. TACUAYAN; Minors JOLY L. BUGOY, Represented by His FatherUNDERO 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, Representedby 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, Representedby 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; PAULANTONIO 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 HisMother ANNALIZA A. VITUG, LEAN D. NARVADEZ, Represented by His Father MANUEL E. NARVADEZJR.; ROSERIO MARALAG LINGATING, Represented by Her Father RIO OLIMPIO A. LINGATING; MARIOJOSE 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); ENVIRONMENTALLEGAL ASSISTANCE CENTER (ELAC); KAISAHAN TUNGO SA KAUNLARAN NG KANAYUNAN ATREPORMANG PANSAKAHAN (KAISAHAN);3PARTNERSHIP FOR AGRARIAN REFORM and RURALDEVELOPMENT SERVICES, INC. (PARRDS); PHILIPPINE PARTNERSHIP FOR THE DEVELOPMENT OFHUMAN RESOURCES IN THE RURAL AREAS, INC. (PHILDHRRA); WOMEN'S LEGAL BUREAU (WLB);CENTER FOR ALTERNATIVE DEVELOPMENT INITIATIVES, INC. (CADI); UPLAND DEVELOPMENT

http://www.lawphil.net/judjuris/juri2004/dec2004/gr_127882_2004.html#fnt1















The Decision struck down the subject FTAA for being similar to service contracts,9 which, though permittedunder the 1973 Constitution,10 were subsequently denounced for being antithetical to the principle of sovereigntyover 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, interalia, vesting in the foreign contractor exclusive management and control of the enterprise, including operation ofthe field in the event petroleum was discovered; control of production, expansion and development; nearlyunfettered control over the disposition and sale of the products discovered/extracted; effective ownership of thenatural resource at the point of extraction; and beneficial ownership of our economic resources. According to theDecision, 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, theCourt 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 inamplification of their arguments. In a Resolution issued later the same day, June 29, 2004, the Court noted, interalia, the Manifestation and Motion (in lieu of comment) filed by the Office of the Solicitor General (OSG) onbehalf of public respondents. The OSG said that it was not interposing any objection to the Motion forIntervention filed by the Chamber of Mines of the Philippines, Inc. (CMP) and was in fact joining and adoptingthe latter's Motion for Reconsideration.

Memoranda were accordingly filed by the intervenor as well as by petitioners, public respondents, and privaterespondent, dwelling at length on the three issues discussed below. Later, WMCP submitted its ReplyMemorandum, while the OSG -- in obedience to an Order of this Court -- filed a Compliance submitting copies ofmore FTAAs entered into by the government.

Three Issues Ident i f ied by the Court

During the Oral Argument, the Court identified the three issues to be resolved in the present controversy, asfollows:

1. Has the case been rendered moot by the sale of WMC shares in WMCP to Sagittarius (60 percent ofSagittarius' equity is owned by Filipinos and/or Filipino-owned corporations while 40 percent is owned byIndophil Resources NL, an Australian company) and by the subsequent transfer and registration of the FTAAfrom WMCP to Sagittarius?

2. Assuming that the case has been rendered moot, would it still be proper to resolve the constitutionality of theassailed 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

Assistancecontained in paragraph 4 of Section 2 of Article XII of the Constitution?

Should the Motion fo r Reconsiderat ion Be Granted?

Respondents' and intervenor's Motions for Reconsideration should be granted, for the reasons discussed below.The foregoing three issues identified by the Court shall now be taken up seriatim.

First Issue:

Mootness

In declaring unconstitutional certain provisions of RA 7942, DAO 96-40, and the WMCP FTAA, the majorityDecision 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 withforeign-owned corporations are limited by the fourth paragraph of the said provision to agreements involving onlytechnical or financial assistance for large-scale exploration, development and utilization of minerals, petroleumand 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 mineralresources.

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 byFilipinos; and (2) that the assailed FTAA had likewise been transferred from WMCP toSagittarius.11 The ponenciadeclared that the instant case had not been rendered moot by the transfer andregistration of the FTAA to a Filipino-owned corporation, and that the validity of the said transfer remained indispute and awaited final judicial determination.12 Patently therefore, the Decision is anchored on the assumptionthat WMCP had remained aforeign corporation.

The crux of this issue of mootness is the fact that WMCP, at the time it entered into the FTAA, happened to bewholly owned by WMC Resources International Pty., Ltd. (WMC), which in turn was a wholly owned subsidiaryof 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 FTAAbeen originally issued to a Filipino-owned corporation, there would have been no constitutionality issue to speakof. Upon the other hand, the conveyance of the WMCP FTAA to a Filipino corporation can be likened to the saleof land to a foreigner who subsequently acquires Filipino citizenship, or who later resells the same land to aFilipino citizen. The conveyance would be validated, as the property in question would no longer be owned by adisqualified vendee.

And, inasmuch as the FTAA is to be implemented now by a Filipino corporation, it is no longer possible for theCourt to declare it unconstitutional. The case pending in the Court of Appeals is a dispute between two Filipinocompanies (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 avirtual 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 theinvalidity of the alleged sale of the shares in WMCP from WMC to Sagittarius, and of the transfer of the FTAAfrom WMCP to Sagittarius, resulting in the change of contractor in the FTAA in question. And even assumingthat the said transfers were valid, there still exists an actual case predicated on the invalidity of RA 7942 and itsImplementing Rules and Regulations (DAO 96-40). Presently, we shall discuss petitioners' objections to thetransfer of both the shares and the FTAA. We shall take up the alleged invalidity of RA 7942 and DAO 96-40later on in the discussion of the third issue.

No Transgression of the Constitutionby the Transfer of the WMCP Shares

Petitioners claim, first, that the alleged invalidity of the transfer of the WMCP shares to Sagittarius violates thefourth paragraph of Section 2 of Article XII of the Constitution; second, that it is contrary to the provisions of theWMCP FTAA itself; and third, that the sale of the shares is suspect and should therefore be the subject of acase 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 enterinto FTAAs only with foreign-owned corporations. Petitioners insist that the first paragraph of this constitutionalprovision limits the participation of Filipino corporations in the exploration, development and utilization of naturalresources to only three species of contracts -- production sharing, co-production and joint venture -- to theexclusion of all other arrangements or variations thereof, and the WMCP FTAA may therefore not be validlyassumed and implemented by Sagittarius. In short, petitioners claim that a Filipino corporation is not allowed bythe 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 andutilization of natural resources shall be under the full control and supervision of the State. The State may directlyundertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements withFilipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by suchcitizens. x x x." Nowhere in the provision is there any express limitation or restriction insofar as arrangementsother than the three aforementioned contractual schemes are concerned.













as petitioners did, that the transferee's high debt-to-equity ratio per se necessarily carried negative implicationsfor 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 cannotbe 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) didratiocinate 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 withrespect to the exploration, development and utilization of mineral resources, contrary to the provisions ofparagraph 4 of Section 2 of Article XII of the Constitution. And since the FTAA was per se void, no valid rightcould 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 thisCourt 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 supervisionover the exploration, development and utilization of mineral resources, to the exclusion of the government. Thispoint will be dealt with in greater detail below; but for now, suffice it to say that a perusal of the FTAA provisionswill prove that the government has effective overall direction and control of the mining operations, includingmarketing and product pricing, and that the contractor's work programs and budgets are subject to its review andapproval or disapproval.

As will be detailed later on, the government does not have to micro-manage the mining operations and dip itshands into the day-to-day management of the enterprise in order to be considered as having overall control anddirection. Besides, for practical and pragmatic reasons, there is a need for government agencies to delegatecertain aspects of the management work to the contractor. Thus the basis for declaring the FTAA void still has tobe revisited, reexamined and reconsidered.

Petitioners sniff at the citation of Chavez v. Public Estates Authority ,14 and Halili v. CA,15 claiming that thedoctrines 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 alienwho later sells the land to a Filipino, the invalidity of the first transfer is corrected by the subsequent sale to acitizen. Similarly, where the alien who buys the land subsequently acquires Philippine citizenship, the sale isvalidated since the purpose of the constitutional ban to limit land ownership to Filipinos has been achieved. Inshort, the law disregards the constitutional disqualification of the buyer to hold land if the land is subsequentlytransferred 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 whatwas 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 FTAAitself, the object of the transfer, that is being assailed as invalid and unconstitutional. So, petitioners claim thatthe 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 theFTAA was a wholly owned subsidiary of a foreign corporation. It cannot be gainsaid that anyone would haveasserted 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 anallegedly 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 theconstitutional provision -- to keep the exploration, development and utilization of our natural resources in Filipinohands -- has been served.

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More accurately speaking, the present situation is one degree better than that obtaining in Halili, in which theoriginal sale to a non-Filipino was clearly and indisputably violative of the constitutional prohibition and thusvoidab initio. In the present case, the issuance/grant of the subject FTAA to the then foreign-owned WMCPwas not illegal, void or unconstitutional at the time. The matter had to be brought to court, precisely foradjudication as to whether the FTAA and the Mining Law had indeed violated the Constitution. Since, up to thispoint, the decision of this Court declaring the FTAA void has yet to become final, to all intents and purposes, theFTAA must be deemed valid and constitutional.17

At bottom, we find completely outlandish petitioners' contention that an FTAA could be entered into by thegovernment only with a foreign corporation, never with a Filipino enterprise. Indeed, the nationalistic provisionsof the Constitution are all anchored on the protection of Filipino interests. How petitioners can now argue thatforeigners have the exclusive right to FTAAs totally overturns the entire basis of the Petition -- preference for theFilipino in the exploration, development and utilization of our natural resources. It does not take deep knowledgeof law and logic to understand that what the Constitution grants to foreigners should be equally available toFilipinos.

Second Issue:

Wheth er the Court Can Stil l Decide the Case,

Even Assum ing It Is Moot

All the protagonists are in agreement that the Court has jurisdiction to decide this controversy, even assuming itto be moot.

Petitioners stress the following points. First , while a case becomes moot and academic when "there is no moreactual controversy between the parties or no useful purpose can be served in passing upon the merits," 18 what isat issue in the instant case is not only the validity of the WMCP FTAA, but also the constitutionality of RA 7942and its Implementing Rules and Regulations. Second, the acts of private respondent cannot operate to cure thelaw of its alleged unconstitutionality or to divest this Court of its jurisdiction to decide. Third, the Constitutionimposes 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 toconstitutional strictures (assuming that, at present, it does not); that public respondents will continue toimplement and enforce the statute until this Court rules otherwise; and that the said law continues to be thesource 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 andGeosciences Bureau (MGB), with an aggregate area of 2,064,908.65 hectares -- spread over Luzon, theVisayas and Mindanao19 -- applied for. It may be a bit far-fetched to assert, as petitioners do, that each andevery FTAA that was entered into under the provisions of the Mining Act "invites potential litigation" for as longas the constitutional issues are not resolved with finality. Nevertheless, we must concede that there exists thedistinct possibility that one or more of the future FTAAs will be the subject of yet another suit grounded onconstitutional issues.

But of equal if not greater significance is the cloud of uncertainty hanging over the mining industry, which is evennow scaring away foreign investments. Attesting to this climate of anxiety is the fact that the Chamber of Minesof 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 theDecision of January 27, 2004.20

We are convinced. We now agree that the Court must recognize the exceptional character of the situation andthe 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 constitutionalityand validity of the Mining Act, the subject FTAA and future FTAAs, and the need to avert a multiplicity ofsuits. ParaphrasingGonzales v. Commission on Elections,21 it is evident that strong reasons of public policydemand 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 "capableof repetition, yet evading review." 24 Public respondents ask the Court to avoid a situation in which theconstitutionality 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 alsorecall Salonga v. Cruz Paño,25 in which this Court declared that "(t)he Court also has the duty to formulateguiding and controlling constitutional principles, precepts, doctrines or rules. It has the symbolic function ofeducating 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 tothe Decision that there was no more justiciable controversy and the plea to nullify the Mining Law has become avirtual petition for declaratory relief .26 The entry of the Chamber of Mines of the Philippines, Inc., however, hasput into focus the seriousness of the allegations of unconstitutionality of RA 7942 and DAO 96-40 which convertsthe case to one for prohibition27 in the enforcement of the said law and regulations.

Indeed, this CMP entry brings to fore that the real issue in this case is whether paragraph 4 of Section 2 of Article XII of the Constitution is contravened by RA 7942 and DAO 96-40, not whether it was violated by specificacts implementing RA 7942 and DAO 96-40. "[W]hen an act of the legislative department is seriously alleged tohave infringed the Constitution, settling the controversy becomes the duty of this Court. By the mere enactmentof the questioned law or the approval of the challenged action, the dispute is said to have ripened into a judicialcontroversy even without any other overt act."28 This ruling can be traced from Tañada v. Angara,29 in which theCourt 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 isseriously alleged to have infringed the Constitution, it becomes not only the right but in fact the duty ofthe 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 orabandon its sacred duty and authority to uphold the Constitution in matters that involve grave abuse ofdiscretion brought before it in appropriate cases, committed by any officer, agency, instrumentality ordepartment of the government."30

Additionally, the entry of CMP into this case has also effectively forestalled any possible objections arising fromthe 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 constitutionalissues in this case.

Third Issue:

The Proper Interpretat ion of the Const i tut ional Phrase

"A greements 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 the1987 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, allforces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other naturalresources are owned by the State. With the exception of agricultural lands, all other natural resourcesshall not be alienated. The exploration, development and utilization of natural resources shall be underthe full control and supervision of the State. The State may directly undertake such activities, or it mayenter into co-production, joint venture or production-sharing agreements with Filipino citizens orcorporations or associations at least sixty per centum of whose capital is owned by such citizens. Suchagreements 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 forirrigation, water supply, fisheries, or industrial uses other than the development of water power,beneficial use may be the measure and limit of the grant.

"The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea, and exclusiveeconomic 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 wellas cooperative fish farming, with priority to subsistence fishermen and fish-workers in rivers, lakes, baysand lagoons.

"The President may enter into agreements with foreign-owned corporations involving either technical

or f inancial assistance for large-scale explorat ion, development, and u t i l izat ion of minerals,

petroleum, and other mineral oi ls 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 suchagreements, 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 bya Verba Legis Interpretation

To interpret the foregoing provision, petitioners adamantly assert that the language of the Constitution shouldprevail; that the primary method of interpreting it is to seek the ordinary meaning of the words used in itsprovisions. They rely on rulings of this Court, such as the following:

"The fundamental principle in constitutional construction however is that the primary source from whichto ascertain constitutional intent or purpose is the language of the provision itself. The presumption isthat the words in which the constitutional provisions are couched express the objective sought to beattained. In other words, verba legis prevails. Only when the meaning of the words used is unclear andequivocal 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 trueintent 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 reiteratethe well-settled principles of constitutional construction:

"First, verba legis, that is, wherever possible, the words used in the Constitution must be given

theirordinary 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 beinterpreted 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 cannotbe alienated by the State.

2. The exploration, development and utilization (EDU) of natural resources shall be under the full controland 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 Filipinocitizens 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.







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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 accordingto 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 mayundertake such EDU activities by itself or in tandem with Filipinos or Filipino corporations, except in twoinstances:first , in small-scale utilization of natural resources, which Filipinos may be allowed by law to undertake;andsecond , in large-scale EDU of minerals, petroleum and mineral oils, which may be undertaken by the Statevia "agreements with foreign-owned corporations involving either technical or financial assistance" as providedby law.

Petitioners claim that the phrase "agreements x x x involving either technical or financial assistance" simplymeans technical assistance or financial assistance agreements, nothing more and nothing else. They insist thatthere is no ambiguity in the phrase, and that a plain reading of paragraph 4 quoted above leads to theinescapable conclusion that what a foreign-owned corporation may enter into with the government is merely anagreement for either financial or technical assistance only , for the large-scale exploration, development andutilization of minerals, petroleum and other mineral oils; such a limitation, they argue, excludes foreignmanagement and operation of a mining enterprise.35

This restrictive interpretation, petitioners believe, is in line with the general policy enunciated by the Constitutionreserving to Filipino citizens and corporations the use and enjoyment of the country's natural resources. Theymaintain that this Court's Decision36 of January 27, 2004 correctly declared the WMCP FTAA, along withpertinent provisions of RA 7942, void for allowing a foreign contractor to have direct and exclusive managementof a mining enterprise. Allowing such a privilege not only runs counter to the "full control and supervision" thatthe State is constitutionally mandated to exercise over the exploration, development and utilization of thecountry's natural resources; doing so also vests in the foreign company "beneficial ownership" of our mineralresources. It will be recalled that the Decision of January 27, 2004 zeroed in on "management or other forms ofassistance" or other activities associated with the "service contracts" of the martial law regime, since "themanagement or operation of mining activities by foreign contractors, which is the primary feature of servicecontracts, 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 notmerely an agreement for supplying limited and specific financial or technical services to the State. Rather, such

FTAA is a comprehensive agreement for the foreign-owned corporation's integrated exploration, developmentand utilization of mineral, petroleum or other mineral oils on a large-scale basis. The agreement, therefore,authorizes the foreign contractor's rendition of a whole range of integrated and comprehensive services, rangingfrom 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 tothe conclusions arrived at in the ponencia. First , the drafters' choice of words -- their use of thephraseagreements x x x involv ing either technical or financial assistance -- does not indicate the intentto exclude other modes of assistance. The drafters opted to use involving when they could have simplysaid agreements fo r financial or technical assistance, if that was their intention to begin with. In this case, thelimitation 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 ofassistance or activities having to do with, otherwise related to or compatible with financial or technicalassistance. The word "involving" as used in this context has three connotations that can be differentiatedthus: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," whenunderstood in the sense of "including," as in including technical or financial assistance, necessarily implies thatthere are activities other than those that are being included. In other words, if an agreement includes technical orfinancial assistance, there is apart from such assistance -- something else already in, and covered or may becovered by, the said agreement.

In short, it allows for the possibility that matters, other than those explicitly mentioned, could be made part of theagreement. Thus, we are now led to the conclusion that the use of the word "involving" implies that theseagreements with foreign corporations are not limited to mere financial or technical assistance. The difference insense becomes very apparent when we juxtapose "agreements for technical or financial assistance" against


















"agreements inc luding technical or financial assistance." This much is unalterably clear in a verbalegisapproach.

Second , if the real intention of the drafters was to confine foreign corporations to financial or technical assistanceand nothing more, their language would have certainly been so unmistakably restrictive and stringent as toleave no doubt in anyone's mind about their true intent. For example, they would have used the sentence foreigncorporations are absolutely prohibi ted from involvement in the management or operation of mining or similarventures or words of similar import. A search for such stringent wording yields negative results. Thus, we come

to the inevitable conc lusion that there was a conscious and del iberate decision to avoid the use of

restr ict ive wording that bespeaks an intent not to us e the expression " agreements x x x involving either

technical or f inancial assistance" in an exclusionary and l imit ing m anner.

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 ofmining activities by foreign contractors, which is the primary feature of service contracts, was precisely the evilthat the drafters of the 1987 Constitution sought to eradicate." Nowhere in the above-quoted Section can bediscerned the objective to keep out of foreign hands the management or operation of mining activities or the planto eradicate service contracts as these were understood in the 1973 Constitution. Still, petitioners maintain thatthe deletion or omission from the 1987 Constitution of the term "service contracts" found in the 1973 Constitutionsufficiently 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 tocarry the same expression or term over to the new Constitution, absent a more specific, explicit and unequivocalstatement to that effect. What petitioners seek (a complete ban on foreign participation in the management ofmining operations, as previously allowed by the earlier Constitutions) is nothing short of bringing about amomentous 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 ourgovernment, to the great prejudice of the mining sector in particular and our economy in general, merely on thebasis 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 fromcertain internal logical inconsistencies that generate ambiguities in the understanding of the provision. As theintervenor pointed out, there has never been any constitutional or statutory provision that reserved to Filipinocitizens or corporations, at least 60 percent of which is Filipino-owned, the rendition of financial or technicalassistance to companies engaged in mining or the development of any other natural resource. The taking out offoreign-currency or peso-denominated loans or any other kind of financial assistance, as well as the rendition oftechnical assistance -- whether to the State or to any other entity in the Philippines -- has never been restrictedin favor of Filipino citizens or corporations having a certain minimum percentage of Filipino equity. Such arestriction would certainly be preposterous and unnecessary. As a matter of fact, financial, and even technicalassistance,regardless of the nationality of its source, would be welcomed in the mining industry anytime withopen 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 torender financial or technical assistance, whether in respect of mining or some other resource development orcommercial activity in the Philippines. The last point needs to be emphasized: if merely financial ortechnical assistance agreements are allowed, there would be no need to limit them to large-scale minin g

operat ions, as there would be far greater need for them in the smaller-scale mining activities (and evenin non-mining areas). Obviously, the provision in question was intended to refer to agreements otherthan 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 onlyfinancial or technical assistance agreements are involved. Such agreements are in the nature of foreign loans

that -- pursuant to Section 20 of Article VII39 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 toCongresswithin thirty days from the end of every quarter of the calendar year, not thirty days after the agreementis entered into.







And if paragraph 4 permits only agreements for loans and other forms of financial, or technical assistance, whatis the point of requiring that they be based on real contributions to the economic growth and general welfare ofthe 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 operationsomewhere in Mindanao? Such a criterion would make more sense when applied to a major businessinvestment in a principal sector of the industry.

The conclusion is clear and inescapable -- a verba legis construction shows that paragraph 4 is not to beunderstood as one limited only to foreign loans (or other forms of financial support) and to technical assistance.There is definitely more to it than that. These are provisions permitting participation by foreign companies;requiring the President's report to Congress; and using, as yardstick, contributions based on economicgrowth and general welfare. These were neither accidentally inserted into the Constitution nor carelesslycobbled together by the drafters in lip service to shallow nationalism. The provisions patently havesignificance and usefulness in a context that allows agreements with foreign companies to include more thanmere financial or technical assistance.

Fifth, it is argued that Section 2 of Article XII authorizes nothing more than a rendition of specific and limitedfinancial service or technical assistance by a foreign company. This argument begs the question "To whom or forwhom would it be rendered"? or Who is being assisted? If the answer is "The State," then it necessarily impliesthat 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 thefinancing sourced from the foreign lender and/or of paying compensation to the foreign entity rendering technicalassistance.

However, it is of common knowledge, and of judicial notice as well, that the government is and has for manymany years been financially strapped, to the point that even the most essential services have suffered seriouscurtailments -- education and health care, for instance, not to mention judicial services -- have had to make dowith inadequate budgetary allocations. Thus, government has had to resort to build-operate-transfer and similararrangements with the private sector, in order to get vital infrastructure projects built without any governmentaloutlay.

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 adirect 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 alsothe attendant risk of never finding and developing economically viable quantities of minerals, petroleum andother mineral oils.40

It is equally difficult to imagine that such a provision restricting foreign companies to the rendition of onlyfinancial 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 orpetroleum extraction and the country's deficiency in precisely those areas.41 To say so would be tantamount toasserting that the provision was purposely designed to ladle the large-scale development and utilization ofmineral, petroleum and related resources with impossible conditions; and to remain forever and permanently

"reserved" for future generations of Filipinos.

A More Reasonable Lookat the Charter's Plain Language

Sixth, we shall now look closer at the plain language of the Charter and examining the logical inferences. Thedrafters chose to emphasize and highlight agreements x x x involving either technical or financial assistance inrelation to foreign corporations' participation in large-scale EDU. The inclusion of this clause on "technical orfinancial assistance" recognizes the fact that foreign business entities and multinational corporations are theones with the resources and know-how to provide technical and/or financial assistance of the magnitude andtype required for large-scale exploration, development and utilization of these resources.

The drafters -- whose ranks included many academicians, economists, businessmen, lawyers, politicians andgovernment officials -- were not unfamiliar with the practices of foreign corporations and multinationals.

Neither were they so naïve as to believe that these entities would provide "assistance" without conditionalities orsome 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 corporationsusually require that they be given a say in the management, for instance, of day-to-day operations of the jointventure. They would demand the appointment of their own men as, for example, operations managers, technicalexperts, quality control heads, internal auditors or comptrollers. Furthermore, they would probably require seatson the Board of Directors -- all these to ensure the success of the enterprise and the repayment of the loans andother financial assistance and to make certain that the funding and the technology they supply would not go towaste. 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 foreignentities will not enter into such "agreements involving assistance" without requiring arrangements for theprotection of their investments, gains and benefits.

Thus, by specifying such "agreements involving assistance," the drafters necessarily gave implied assent toeverything that these agreements necessarily entailed; or that could reasonably be deemed necessary to makethem tenable and effective, including management authority with respect to the day-to-day operations of theenterprise and measures for the protection of the interests of the foreign corporation, PROVIDED THATPhilippine sovereignty over natural resources and full control over the enterprise undertaking the EDU activitiesremain 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 itis the fact that there is nothing by way of transitory provisions that would serve to confirm the theory that theomission 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 forceand 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 hadto provide for the termination or pretermination of the existing contracts. Accordingly, they would have suppliedthe specifics and the when and how of effecting the extinguishment of these existing contracts (or at least themechanics for determining them); and of putting in place the means to address the just claims of the contractorsfor 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 instructionsto Congress to deal with these closing-out issues, perhaps by way of general guidelines and a timeline withinwhich to carry them out. The following are some extant examples of such transitory guidelines set forth in ArticleXVIII of our Constitution:

"Section 23. Advertising entities affected by paragraph (2), Section 11 of Article XVI of this Constitutionshall have five years from its ratification to comply on a graduated and proportionate basis with theminimum 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 andthe United States of America concerning military bases, foreign military bases, troops, or facilities shallnot be allowed in the Philippines except under a treaty duly concurred in by the Senate and, when theCongress so requires, ratified by a majority of the votes cast by the people in a national referendum heldfor 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 March25, 1986 in relation to the recovery of ill-gotten wealth shall remain operative for not more than eighteenmonths after the ratification of this Constitution. However, in the national interest, as certified by thePresident, the Congress may extend such period.

A sequestration or freeze order shall be issued only upon showing of a prima facie case. The order andthe list of the sequestered or frozen properties shall forthwith be registered with the proper court. Fororders issued before the ratification of this Constitution, the corresponding judicial action or proceedingshall be filed within six months from its ratification. For those issued after such ratification, the judicialaction 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 iscommenced as herein provided." 43]

It is inconceivable that the drafters of the Constitution would leave such an important matter -- an expression ofsovereignty as it were -- indefinitely hanging in the air in a formless and ineffective state. Indeed, the completeabsence of even a general framework only serves to further deflate petitioners' theory, like a child's balloonlosing its air.

Under the circumstances, the logical inconsistencies resulting from petitioners' literal and purely verbalegisapproach to paragraph 4 of Section 2 of Article XII compel a resort to other aids to interpretation.

Petitioners' Posture Also Negatedby Ratio Legis Et Anima

Thus, in order to resolve the inconsistencies, incongruities and ambiguities encountered and to supply thedeficiencies of the plain-language approach, there is a need for recourse to the proceedings of the 1986Constitutional 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) conclusivelyshow that they discussed agreements involving either technical or financial assistance in the same breadthasservice 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 technicalor 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 amendmentby substitution reads: THE PRESIDENT MAY ENTER INTO AGREEMENTS WITH FOREIGN-OWNEDCORPORATIONS 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 thebackground.

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 beforeas 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 theguidelines 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, notupon Congress?







MR. JAMIR. That is also correct, Madam President.

MR. SUAREZ. Except that all of these contracts, service or otherwise, must be made strictly inaccordance 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 servicecontracts which was accepted by the Committee. Since the Committee has accepted it, I would like toask 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 withthe guidelines of a general law on service contract to be enacted by Congress. Is that correct?

MR. VILLEGAS. The Commissioner is right, Madam President.

MR. GASCON. According to the original proposal, if the President were to enter into a particularagreement, he would need the concurrence of Congress. Now that it has been changed by the proposalof Commissioner Jamir in that Congress will set the general law to which the President shall comply, thePresident will, therefore, not need the concurrence of Congress every time he enters into servicecontracts. Is that correct?


MR. GASCON. The proposed amendment of Commissioner Jamir is in indirect contrast to my proposedamendment, 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 thePresident will enter into might be too general or since we do not know the content yet of such a law, itmight be that certain agreements will be detrimental to the interest of the Filipinos. This is in directcontrast to my proposal which provides that there be effective constraints in the implementationof service contracts.

So instead of a general law to be passed by Congress to serve as a guideline to the President whenentering 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 withregard to the issue in Section 3 on all lands of the public domain. My alternative amendment, which wewill discuss later, reads: THAT THE PRESIDENT SHALL ENTER INTO SUCH AGREEMENTS ONLYWITH THE CONCURRENCE OF TWO-THIRDS VOTE OF ALL THE MEMBERS OF CONGRESSSITTING 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 breedcorruption. By the way, this is not just confined to service contracts but also to financial assistance. Ifwe are going to make every single contract subject to the concurrence of Congress – which, according tothe Commissioner's amendment is the concurrence of two-thirds of Congress voting separately – then(1) there is a very great chance that each contract will be different from another; and (2) there is a greattemptation that it would breed corruption because of the great lobbying that is going to happen. And wedo not want to subject our legislature to that.

Now, to answer the Commissioner's apprehension, by "general law," we do not mean statements ofmotherhood. Congress can build all the restrictions that it wishes into that general law so that everycontract entered into by the President under that specific area will have to be uniform. The President hasno 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 lawas to how much constraints there will be in it. And to my mind, although the Committee's contention thatthe regular concurrence from Congress would subject Congress to extensive lobbying, I think that is arisk we will have to take since Congress is a body of representatives of the people whose membershipwill be changing regularly as there will be changing circumstances every time certain agreements aremade. It would be best then to keep in tab and attuned to the interest of the Filipino people, wheneverthe President enters into any agreement with regard to such an important matter as technical orfinancial assistance for large-scale exploration, development and utilization of natural resourcesor service contracts, the people's 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 afew minutes, I can fill up the remaining time while he completes his proposed amendment. I just wantedto ask Commissioner Jamir whether he would entertain a minor amendment to his amendment, and itreads as follows: THE PRESIDENT SHALL SUBSEQUENTLY NOTIFY CONGRESS OFEVERY SERVICE CONTRACT ENTERED INTO IN ACCORDANCE WITH THE GENERAL LAW. I thinkthe reason is, if I may state it briefly, as Commissioner Bengzon said, Congress can always change thegeneral law later on to conform to new perceptions of standards that should be built into servicecontracts. But the only way Congress can do this is if there were a notification requirement from theOffice of the President that suchservice contracts had been entered into, subject then to the scrutiny ofthe Members of Congress. This pertains to a situation where the service contracts are already enteredinto, and all that this amendment seeks is the reporting requirement from the Office of the President. WillCommissioner 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 andthe past service contracts under Mr. Marcos is the general law to be enacted by the legislature and thenotification of Congress by the President? That is the only difference, is it not?


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 Financialand Technical AssistanceEntailed by the Agreements

The clear words of Commissioner Jose N. Nolledo quoted below explicitly and eloquently demonstrate that thedrafters knew that the agreements with foreign corporations were going to entail not mere technical or financialassistance but, rather, foreign investment in and management of an enterprise involved in large-scaleexploration,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 onlytwo 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 infavor 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 favoredaliens. I was shocked when I read a provision authorizing service contracts while we, in thisConstitutional 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 torecognize service contracts.

As far as I am concerned, if I should have my own way, I am for the complete deletion of thisprovision. 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 thefuture 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 ofnatural resources for the interest of the nation, and therefore, being an exception it should besubject, whenever possible, to stringent rules. It seems to me that we are liberalizing the rules infavor of aliens.

I say these things with a heavy heart, Madam President. I do not claim to be a nationalist, but Ilove my country. Although we need investments, we must adopt safeguards that are trulyreflective of the sentiments of the people and not mere cosmetic safeguards as they now appearin the Jamir amendment. (Applause)

Thank you, Madam President.46

Another excerpt, featuring then Commissioner (now Chief Justice) Hilario G. Davide Jr., indicates the limitationsof the scope of such service contracts -- they are valid only in regard to minerals, petroleum and other mineraloils, not to all natural resources.


MR. DAVIDE. Thank you, Madam President. This is an amendment to the Jamir amendment and also tothe 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 OFTHE 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 necessarilyinclude all lands of the public domain, our marine resources, forests, parks and so on. So we would liketo limit the scope of these service contracts to those areas really where these may be needed, theexploitation, development and exploration of minerals, petroleum and other mineral oils. And so, webelieve that we should really, if we want to grant service contracts at all, limit the same to only thoseparticular 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 thoseenumerations 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 intowhichservice contracts may enter. So, beyond the reach of any service contract will be lands of thepublic 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:


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 andutilization of these minerals, petroleum and other mineral oils by virtue of the Jamir amendment. I votedin favor of the Jamir amendment because it will eventually give way to vesting in exclusively Filipinocitizens 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 Filipinocitizens or corporations wholly owned by such citizens. But by virtue of the Jamir amendment, since wefeel that Filipino capital may not be enough for the development and utilization of minerals, petroleumand other mineral oils, the President can enter into service contracts with foreign corporations preciselyfor the development and utilization of such resources. And so, there is nothing to fear that we willstagnate in the development of minerals, petroleum and mineral oils because we now allow servicecontracts. 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 ArticleXII of the Constitution. Beyond any doubt, the members of the ConCom were actually debating about themartial-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 CommissionersGascon, Garcia and Tadeo indicated that they had voted to reject this provision on account of their objections tothe "constitutionalization" of the "service contract" concept.

Mr. Gascon said, "I felt that if we would constitutionalize any provision on service contracts , this should alwaysbe with the concurrence of Congress and not guided only by a general law to be promulgated by Congress." 49Mr.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 theexploitation of our natural resources for the benefit of foreign interests." 50 Likewise, Mr. Tadeo cited inter alia thefact that service contracts continued to subsist, enabling foreign interests to benefit from our naturalresources.51It was hardly likely that these gentlemen would have objected so strenuously, had theprovision 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 doubtthat the service contract concept precisely underpinned the commissioners' understanding of the "agreementsinvolving either technical or financial assistance."

Summation of theConcom Deliberations

At this point, we sum up the matters established, based on a careful reading of the ConCom deliberations, asfollows:






















· In their deliberations on what was to become paragraph 4, the framers used the term servicecontracts in referring to agreements x x x involving either technical or financial assistance.

· They spoke of service contracts as the concept was understood in the 1973 Constitution.

· It was obvious from their discussions that they were not about to ban or eradicate service contracts.

· 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 servicecontracts with foreign corporations as contractors, but with safety measures to prevent abuses, as anexception to the general norm established in the first paragraph of Section 2 of Article XII. This provisionreserves or limits to Filipino citizens -- and corporations at least 60 percent of which is owned by suchcitizens -- the exploration, development and utilization of natural resources.

· This provision was prompted by the perceived insufficiency of Filipino capital and the felt need forforeign 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 adequateand reasonable. But some of them, having more "radical" leanings, wanted to ban service contractsaltogether; for them, the provision would permit aliens to exploit and benefit from the nation's natural

resources, which they felt should be reserved only for Filipinos.

· In the explanation of their votes, the individual commissioners were heard by the entire body. Theysounded off their individual opinions, openly enunciated their philosophies, and supported or attackedthe provisions with fervor. Everyone's viewpoint was heard.

· In the final voting, the Article on the National Economy and Patrimony -- including paragraph 4 allowingservice contracts with foreign corporations as an exception to the general norm in paragraph 1 of Section2 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 orfinancial 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, thegovernment as principal or "owner" of the works. In the new service contracts, the foreign contractors providecapital, 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 exercisescontrol and supervision over the entire operation.

Such service contracts may be entered into only with respect to minerals, petroleum and other mineral oils. Thegrant 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 oruniform terms, conditions and requirements, presumably to attain a certain uniformity in provisions andavoid the possible insertion of terms disadvantageous to the country.

(2) The President shall be the signatory for the government because, supposedly before an agreement ispresented to the President for signature, it will have been vetted several times over at different levels toensure 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 thatbranch 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 thecriticism 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 constitutionalconvention in order to arrive at the reason and purpose of the resulting Constitution, resort thereto maybe had only when other guides fail as said proceedings are powerless to vary the terms of theConstitution when the meaning is clear. Debates in the constitutional convention ' are of value as showingthe views of the individual members, and as indicating the reason for their votes, but they give us no lightas to the views of the large majority who did not talk, much less the mass of our fellow citizens whosevotes at the polls gave that instrument the force of fundamental law. We think it safer to construe theconstitution from what appears upon its face.' The proper interpretation therefore depends more on howit 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 themajority who remained silent should be clarified. We must never forget that those who spoke out were heard bythose who remained silent and did not react. If the latter were silent because they happened not to be present atthe 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 propoundedor 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 theproponents of the draft provisions.

In any event, each and every one of the commissioners had the opportunity to speak out and to vote on thematter. Moreover, the individual explanations of votes are on record, and they show where each delegate stoodon the issues. In sum, we cannot completely denigrate the value or usefulness of the record of theConCom, 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 thatparticipated in the referendum and ratified the Constitution. Verily, whether we like it or not, it is a bit too much toassume that every one of those who voted to ratify the proposed Charter did so only after carefully reading andmulling 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 draftCharter actually understood the import of its provisions, much less analyzed it vis-à-vis the previousConstitutions. We believe that in reality, a good percentage of those who voted in favor of it did so more out offaith 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 dutycould not be questioned.

In short, a large proportion of the voters voted "yes" because the drafters, or a majority of them, endorsed theproposed Constitution. What this fact translates to is the inescapable conclusion that many of the voters in thereferendum did not form their own isolated judgment about the draft Charter, much less about particularprovisions therein. They only relied or fell back and acted upon the favorable endorsement or recommendationof the framers as a group. In other words, by voting yes, they may be deemed to have signified their voluntaryadoption of the understanding and interpretation of the delegates with respect to the proposed Charter and its

particular provisions. "If it's good enough for them, it's good enough for me;" or, in many instances, "If it's goodenough for President Cory Aquino, it's good enough for me."

And even for those who voted based on their own individual assessment of the proposed Charter, there is noevidence available to indicate that their assessment or understanding of its provisions was in fact different fromthat of the drafters. This unwritten assumption seems to be petitioners' as well. For all we know, this segment ofvoters must have read and understood the provisions of the Constitution in the same way the framers had, anassumption that would account for the favorable votes.

Fundamentally speaking, in the process of rewriting the Charter, the members of the ConCom as a group weresupposed to represent the entire Filipino people. Thus, we cannot but regard their views as being very muchindicative 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 abovearguments. As written by the framers and ratified and adopted by the people, the Constitution allows thecontinued 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, petroleumand 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 aview different from that of the Decision, which had these findings: (a) paragraph 4 of Section 2 of Article XII limitsforeign involvement in the local mining industry to agreements strictly for either financial or technical assistanceonly; (b) the same paragraph precludes agreements that grant to foreign corporations the management of localmining operations, as such agreements are purportedly in the nature of service contracts as these wereunderstood under the 1973 Constitution; (c) these service contracts were supposedly "de-constitutionalized" andproscribed by the omission of the term service contracts from the 1987 Constitution; (d) since the WMCP FTAAcontains provisions permitting the foreign contractor to manage the concern, the said FTAA is invalid for being aprohibited service contract; and (e) provisions of RA 7942 and DAO 96-40, which likewise grant managerialauthority to the foreign contractor, are also invalid and unconstitutional.

Ultimate Test: State's "Control"Determinative of Constitutionality

But we are not yet at the end of our quest. Far from it. It seems that we are confronted with a possible collision ofconstitutional provisions. On the one hand, paragraph 1 of Section 2 of Article XII explicitly mandates the Stateto 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 theenterprise as a whole. There is thus a legitimate ground to be concerned that either the State's full control andsupervision may rule out any exercise of management authority by the foreign contractor; or, the other wayaround, allowing the foreign contractor full management prerogatives may ultimately negate the State's fullcontrol and supervision.

Ut Magis ValeatQuam 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 aharmonious 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 furtherdiscussion, we must stress the primacy and supremacy of the principle of sovereignty and State control andsupervision over all aspects of exploration, development and utilization of the country's natural resources, asmandated 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 meanthat the State controls and supervises everything involved, down to the minutest details, and makes alldecisionsrequired in the mining operations. This strained concept of control and supervision over the miningenterprise would render impossible the legitimate exercise by the contractors of a reasonable degree ofmanagement prerogative and authority necessary and indispensable to their proper functioning.

For one thing, such an interpretation would discourage foreign entry into large-scale exploration, developmentand utilization activities; and result in the unmitigated stagnation of this sector, to the detriment of our nation'sdevelopment. This scenario renders paragraph 4 inoperative and useless. And as respondents have correctlypointed out, the government does not have to micro-manage the mining operations and dip its hands into theday-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 andgovern the affairs of the extractive enterprises. Control by the State may be on a macro level, through theestablishment of policies, guidelines, regulations, industry standards and similar measures that would enable thegovernment to control the conduct of affairs in various enterprises and restrain activities deemed not desirable orbeneficial.

The end in view is ensuring that these enterprises contribute to the economic development and general welfareof the country, conserve the environment, and uplift the well-being of the affected local communities. Such aconcept 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 andprofitably, 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 thegovernment to exercise that degree of control sufficient to direct and regulate the conduct of affairs ofindividual enterprises and restrain undesirable activities.

On the resolution of these questions will depend the validity and constitutionality of certain provisions of thePhilippine Mining Act of 1995 (RA 7942) and its Implementing Rules and Regulations (DAO 96-40), as well asthe WMCP FTAA.

Indeed, petitioners charge54 that RA 7942, as well as its Implementing Rules and Regulations, makes it possiblefor FTAA contracts to cede full control and management of mining enterprises over to fully foreign-ownedcorporations, with the result that the State is allegedly reduced to a passive regulator dependent on submittedplans and reports, with weak review and audit powers. The State does not supposedly act as the owner of thenatural resources for and on behalf of the Filipino people; it practically has little effective say in the decisionsmade by the enterprise. Petitioners then conclude that the law, the implementing regulations, and the WMCPFTAA 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 State's control thus:

"Sec. 4. Ownership of Mineral Resources. – Mineral resources are owned by the State and theexploration, development, utilization and processing thereof shall be under its full control andsupervision. The State may directly undertake such activities or it may enter into mineral agreementswith contractors.

"The State shall recognize and protect the rights of the indigenous cultural communities to their ancestrallands 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 andexclusive economic zone of the Republic of the Philippines are owned by the State. It shall be theresponsibility of the State to promote their rational exploration, development, utilization and conservationthrough the combined efforts of the Government and private sector in order to enhance national growthin a way that effectively safeguards the environment and protects the rights of affected communities."

Sufficient Control Over MiningOperations Vested in the Stateby RA 7942 and DAO 96-40

RA 7942 provides for the State's control and supervision over mining operations. The following provisionsthereof 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 DENR's power of over-all supervision and periodic review for "theconservation, management, development and proper use of the State's 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 ofthe Phil. National Police, barangay, duly registered non-governmental organization (NGO) or anyqualified person to police mining activities;

3. Sec. 66 which vests in the Regional Director "exclusive jurisdiction over safety inspections of allinstallations, 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 itsIRR.

"(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 otherrelevant data for its mining operation, and that books of accounts and records shall be open forinspection by the government. x x x.

"(m) Requiring the proponent to dispose of the minerals at the highest price and moreadvantageous 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 Filipinopeople."

The foregoing provisions of Section 35 of RA 7942 are also reflected and implemented in Section56 (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 government's control overmining enterprises:

· The contractor is to relinquish to the government those portions of the contract area not needed formining 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 environmentalprotection (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, RA7942; Chapter XXIV, DAO 96-40).

· An FTAA contractor is obliged to open its books of accounts and records for inspection by thegovernment (Section 56-m, DAO 96-40).

· An FTAA contractor has to dispose of the minerals and by-products at the highest market price andregister with the MGB a copy of the sales agreement (Section 56-n, DAO 96-40).

· MGB is mandated to monitor the contractor's 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 ora DENR-accredited nongovernmental organization to police mining activities (Section 7-d and -f, DAO96-40).

· An FTAA cannot be transferred or assigned without prior approval by the President (Section 40, RA7942; 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 withoutsubmission 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; Section27, RA 7160)

6. Free and prior informed consent by the indigenous peoples concerned, including payment ofroyalties 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 thegeneral welfare of its inhabitants, and development of science and mining technology (Section 57, RA7942).

· The FTAA contractor is obliged to submit reports (on quarterly, semi-annual or annual basis as thecase 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 writtenclearance 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 anamount equivalent to its expenditures obligations for any particular year. This requirement is apart fromthe representations and warranties of the contractor that it has access to all the financing, managerialand 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: anenvironmental 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 andrecords of geologic accounting (Section 56-m); annual progress reports and final report of explorationactivities (Section 56-2).



· Other programs required to be submitted by the contractor, pursuant to DAO 96-40, are the following: asafety and health program (Section 144); an environmental work program (Section 168); an annualenvironmental protection and enhancement program (Section 171).

The foregoing gamut of requirements, regulations, restrictions and limitations imposed upon the FTAA contractorby the statute and regulations easily overturns petitioners' contention. The setup under RA 7942 and DAO 96-40hardly relegates the State to the role of a "passive regulator" dependent on submitted plans and reports. On thecontrary, 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 foreach 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 toensure that the products and by-products are disposed of at the best prices possible; even copies of salesagreements have to be submitted to and registered with MGB. And the contractor is mandated to open its booksof accounts and records for scrutiny, so as to enable the State to determine if the government share has beenfully paid.

The State may likewise compel the contractor's compliance with mandatory requirements on mine safety, healthand environmental protection, and the use of anti-pollution technology and facilities. Moreover, the contractor isalso obligated to assist in the development of the mining community and to pay royalties to the indigenouspeoples concerned.

Cancellation of the FTAA may be the penalty for violation of any of its terms and conditions and/ornoncompliance 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 amining project.

Overall, considering the provisions of the statute and the regulations just discussed, we believe that the Statedefinitely possesses the means by which it can have the ultimate word in the operation of the enterprise, setdirections and objectives, and detect deviations and noncompliance by the contractor; likewise, it has thecapability 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 thecontrary, 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 supervisionover the conduct of mining operations.

Section 3(aq) of RA 7942Not Unconstitutional

An objection has been expressed that Section 3(aq)55 of RA 7942 -- which allows a foreign contractor to apply forand hold an exploration permit -- is unconstitutional. The reasoning is that Section 2 of Article XII of theConstitution 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 itsnatural 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 controland supervision over the exploitation of mineral resources, nowhere does it require the government to hold allexploration permits and similar authorizations. In fact, there is no prohibition at all against foreign or localcorporations 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 conductexploration for all minerals in specified areas. Such a permit does not amount to an authorization to extract andcarry 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 revenuesor incomes to speak of. In short, the exploration permit is an authorization for the grantee to spend its own fundson exploration programs that are pre-approved by the government, without any right to recover anything shouldno minerals in commercial quantities be discovered. The State risks nothing and loses nothing by granting thesepermits to local or foreign firms; in fact, it stands to gain in the form of data generated by the explorationactivities.







Pursuant to Section 24 of RA 7942, an exploration permit grantee who determines the commercial viability of amining area may, within the term of the permit, file with the MGB a declaration of mining project feasibilityaccompanied by a work program for development. The approval of the mining project feasibility and compliancewith other requirements of RA 7942 vests in the grantee the exclusive right to an MPSA or any other mineralagreement, or to an FTAA.

Thus, the permit grantee may apply for an MPSA, a joint venture agreement, a co-production agreement, or anFTAA over the permit area, and the application shall be approved if the permit grantee meets the necessaryqualifications and the terms and conditions of any such agreement. Therefore, the contractor will be in a positionto extract minerals and earn revenues only when the MPSA or another mineral agreement, or an FTAA, isgranted. At that point, the contractor's rights and obligations will be covered by an FTAA or a mineral agreement.

But prior to the issuance of such FTAA or mineral agreement, the exploration permit grantee (or prospectivecontractor) cannot yet be deemed to have entered into any contract or agreement with the State, and thegrantee would definitely need to have some document or instrument as evidence of its right to conductexploration works within the specified area. This need is met by the exploration permit issued pursuant toSections 3(aq), 20 and 23 of RA 7942.

In brief, the exploration permit serves a practical and legitimate purpose in that it protects the interestsand 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 earnrevenues 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 todiscourage investors and contractors. Thus, Section 3(aq) of RA 7942 may not be deemed unconstitutional.

The Terms of the WMCP FTAA

A Deference to State Control

A perusal of the WMCP FTAA also reveals a slew of stipulations providing for State control and supervision:

1. The contractor is obligated to account for the value of production and sale of minerals (Clause 1.4).

2. The contractor's work program, activities and budgets must be approved by/on behalf of the State(Clause 2.1).

3. The DENR secretary has the power to extend the exploration period (Clause 3.2-a).

4. Approval by the State is necessary for incorporating lands into the FTAA contract area (Clause 4.3-c).

5. The Bureau of Forest Development is vested with discretion in regard to approving the inclusion offorest 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-yearperiods, containing the proposed work activities and expenditures budget related to exploration (Clause5.1).

10. The contractor is required to obtain State approval for its proposed expenditures for explorationactivities (Clause 5.2).

11. The contractor is required to submit an annual report on geological, geophysical, geochemical andother 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 allits 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 miningoperations and the technology to be employed, and a proposed work program for the developmentphase, for approval by the DENR secretary (Clause 5.4).

14. The contractor is obliged to complete the development of the mine, including construction of theproduction 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 coveringeach period of three fiscal years (Clause 6.2).

16. The contractor is to submit reports to the DENR secretary on the production, ore reserves, workaccomplished and work in progress, profile of its work force and management staff, and other technicalinformation (Clause 6.3).

17. Any expansions, modifications, improvements and replacements of mining facilities shall be subjectto 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 thePhilippines (Clause 7.2).

19. The State has supervisory power with respect to technical, financial and marketing issues (Clause10.1-a).

20. The contractor is required to ensure 60 percent Filipino equity in the contractor, within ten years ofrecovering specified expenditures, unless not so required by subsequent legislation (Clause 10.1).

21. The State has the right to terminate the FTAA for the contractor's unremedied substantial breachthereof (Clause 13.2);

22. The State's approval is needed for any assignment of the FTAA by the contractor to an entity otherthan an affiliate (Clause 14.1).

We should elaborate a little on the work programs and budgets, and what they mean with respect to the State'sability to exercise full control and effective supervision over the enterprise. For instance, throughout the initialfive-year exploration and feasibility phase of the project, the contractor is mandated by Clause 5.1 of the WMCPFTAA to submit a series of work programs (copy furnished the director of MGB) to the DENR secretaryfor approval.The programs will detail the contractor's proposed exploration activities and budget covering eachsubsequent 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 toapprove/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 activitiesduring the first contract year of the exploration period was fixed at not less than P24 million; and then for thesucceeding years, the amount shall be as agreed between the DENR secretary and the contractor prior to thecommencement of each subsequent fiscal year. If no such agreement is arrived upon, the previous year'sexpenditure commitment shall apply.

This provision alone grants the government through the DENR secretary a very big say in the exploration phaseof the project. This fact is not something to be taken lightly, considering that the government has absolutely nocontribution 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 contractarea 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 fordevelopment and production, a description of the proposed mining operations including the technology to beused, a work program for development, an environmental impact statement, and a description of thecontributions 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, thecontractor must comply with it and complete the development of the mine, including the construction ofproduction facilities and installation of machinery and equipment, within the period provided in the approvedwork program for development (per Clause 6.1).

Thus, notably, the development phase of the project is likewise subject to the control and supervision of thegovernment. It cannot be emphasized enough that the proper and timely construction and deployment of theproduction facilities and the development of the mine are of pivotal significance to the success of the miningventure. Any missteps here will potentially be very costly to remedy. Hence, the submission of the work programfor development to the DENR secretary for approval is particularly noteworthy, considering that so many millionsof dollars worth of investments -- courtesy of the contractor -- are made to depend on the State's considerationand action.

Throughout the operating period , the contractor is required to submit to the DENR secretary for approval, copyfurnished the director of MGB, work programs covering each period of three fiscal years (per Clause 6.2). Duringthe same period (per Clause 6.3), the contractor is mandated to submit various quarterly and annual reports tothe DENR secretary, copy furnished the director of MGB, on the tonnages of production in terms of ores andconcentrates, with corresponding grades, values and destinations; reports of sales; total ore reserves, totaltonnage of ores, work accomplished and work in progress (installations and facilities related to miningoperations), 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 DENRsecretary (copy furnished the director of MGB) the work program and corresponding budget for the contractarea, describing the mining operations that are proposed to be carried out during the period covered. Thesecretary is, of course, entitled to grant or deny approval of any work program or budget and/or proposerevisions 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 anda grant of beneficial ownership of mineral resources to the contractor in question, bestow upon the State morethan adequate control and supervision over the activities of the contractor and the enterprise.

No Surrender of ControlUnder 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 arelinquishment of control by the State, since it "cannot truly impose its own discretion" in respect of the submittedwork programs.

"8.2. The Secretary shall be deemed to have approved any Work Programme or Budget or variationthereofsubmitted by the Contractor unless within sixty (60) days after submission by the Contractor theSecretary gives notice declining such approval or proposing a revision of certain features and specifyingits reasons therefor ('the Rejection Notice').

8.3. If the Secretary gives a Rejection Notice, the Parties shall promptly meet and endeavor to agree onamendments 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 orBudget or variation thereof proposed by the Contractor shall be deemed approved, so as not tounnecessarily 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 andBudget. It is recognized by the Secretary and the Contractor that the details of any Work Programmes orBudgets may require changes in the light of changing circumstances. The Contractor may make suchchanges without approval of the Secretary provided they do not change the general objective of anyWork 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 forapproval of the Secretary ."

From the provisions quoted above, petitioners generalize by asserting that the government does not participatein making critical decisions regarding the operations of the mining firm. Furthermore, while the State can requirethe submission of work programs and budgets, the decision of the contractor will still prevail, if the parties have adifference 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 acomplete halt as a result of possibly over-long and unjustified delays in the government's handling, processingand approval of submitted work programs and budgets. Anyway, the provision does give the DENR secretarymore than sufficient time (60 days) to react to submitted work programs and budgets. It cannot be supposed thatproper 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 overthe submitted work program or budget arises between the State and the contractor and results in a stalemate orimpasse, 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 thegovernment will inexorably be aggrieved if and when these temporary remedies come into play. First , avoidanceof long delays in these situations will undoubtedly redound to the benefit of the State as well as thecontractor.Second , who is to say that the work program or budget proposed by the contractor and deemedapproved under Clause 8.3 would not be the better or more reasonable or more effective alternative? Thecontractor, being the "insider," as it were, may be said to be in a better position than the State -- an outsiderlooking in -- to determine what work program or budget would be appropriate, more effective, or more suitableunder the circumstances.

All things considered, we take exception to the characterization of the DENR secretary as a subservientnonentity whom the contractor can overrule at will, on account of Clause 8.3. And neither is it true that under thesame clause, the DENR secretary has no authority whatsoever to disapprove the work program. As RespondentWMCP reasoned in its Reply-Memorandum, the State -- despite Clause 8.3 -- still has control over the contractarea and it may, as sovereign authority, prohibit work thereon until the dispute is resolved. And ultimately, theState may terminate the agreement, pursuant to Clause 13.2 of the same FTAA, citing substantial breachthereof. 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 onecan accurately forecast under all circumstances, or predict how situations may change. Hence, while approvedwork programs and budgets are to be followed and complied with as far as practicable, there may be instancesin which changes will have to be effected, and effected rapidly, since events may take shape and unfold withsuddenness and urgency. Thus, Clause 8.5 allows the contractor to move ahead and make changes without theexpress or implicit approval of the DENR secretary. Such changes are, however, subject to certain conditionsthat will serve to limit or restrict the variance and prevent the contractor from straying very far from what hasbeen approved.

Clause 8.5 provides the contractor a certain amount of flexibility to meet unexpected situations, while stillguaranteeing that the approved work programs and budgets are not abandoned altogether. Clause 8.5 does notconstitute proof that the State has relinquished control. And ultimately, should there be disagreement with theactions taken by the contractor in this instance as well as under Clause 8.3 discussed above, the DENRsecretary 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 saywhatsoever as to -- the parts of the contract area to be relinquished pursuant to Clause 4.6 of the WMCPFTAA.56 This clause, however, does not constitute abdication of control. Rather, it is a mere acknowledgment ofthe fact that the contractor will have determined, after appropriate exploration works, which portions of thecontract area do not contain minerals in commercial quantities sufficient to justify developing the same andought therefore to be relinquished. The State cannot just substitute its judgment for that of the contractor anddictate upon the latter which areas to give up.







Moreover, we can be certain that the contractor's self-interest will propel proper and efficient relinquishment. According to private respondent,57 a mining company tries to relinquish as much non-mineral areas as soon aspossible, because the annual occupation fees paid to the government are based on the total hectarage of thecontract area, net of the areas relinquished. Thus, the larger the remaining area, the heftier the amount ofoccupation fees to be paid by the contractor. Accordingly, relinquishment is not an issue, given that thecontractor will not want to pay the annual occupation fees on the non-mineral parts of its contract area. Neitherwill 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 eminentdomain to acquire surface areas within the contract area for the contractor's use. Clause 10.2 (e) of the WMCPFTAA provides that the government agrees that the contractor shall "(e) have the right to require theGovernment at the Contractor's own cost, to purchase or acquire surface areas for and on behalf of theContractor at such price and terms as may be acceptable to the contractor. At the termination of this Agreementsuch areas shall be sold by public auction or tender and the Contractor shall be entitled to reimbursement of thecosts 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 thisprovision, 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 tothe constitutional requirement of just compensation has allegedly also been contracted away by the government,on account of the latter's commitment that the acquisition shall be at such terms as may be acceptable to thecontractor.

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 theFTAA, was a foreign-owned corporation and therefore not qualified to own land. As contractor, it has at somefuture date to construct the infrastructure -- the mine processing plant, the camp site, the tailings dam, and otherinfrastructure -- needed for the large-scale mining operations. It will then have to identify and pinpoint, within theFTAA contract area, the particular surface areas with favorable topography deemed ideal for such infrastructureand will need to acquire the surface rights. The State owns the mineral deposits in the earth, and is also qualifiedto 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 mineinfrastructure. The government then acquires ownership of the surface land areas on behalf of the contractor, inorder 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, aftertermination of the FTAA, to be reimbursed from proceeds of the sale of the surface areas, which the governmentwill dispose of through public bidding. It should be noted that this provision will not be applicable to Sagittarius asthe present FTAA contractor, since it is a Filipino corporation qualified to own and hold land. As such, it maytherefore 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 forthe said provision. That provision does not call for the exercise of the power of eminent domain -- anddetermination of just compensation is not an issue -- as much as it calls for a qualified party to acquire thesurface rights on behalf of a foreign-owned contractor.

Rather than having the foreign contractor act through a dummy corporation, having the State do the purchasingis a better alternative. This will at least cause the government to be aware of such transaction/s and fostertransparency in the contractor's dealings with the local property owners. The government, then, will not act as asubcontractor of the contractor; rather, it will facilitate the transaction and enable the parties to avoid a technicalviolation of the Anti-Dummy Law.

Absence of ProvisionRequiring Sale at PostedPrices Not Problematic

The supposed absence of any provision in the WMCP FTAA directly and explicitly requiring the contractor to sellthe 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 toSection 35 of RA 7942, which incorporates into all FTAAs certain terms, conditions and warranties, including thefollowing:

"(l) The contractors shall furnish the Government records of geologic, accounting and other relevant datafor its mining operation, and that books of accounts and records shall be open for inspection by thegovernment. x x x

(m) Requiring the proponent to dispose of the minerals at the highest price and more advantageousterms and conditions."

For that matter, Section 56(n) of DAO 99-56 specifically obligates an FTAA contractor to dispose of the mineralsand by-products at the highest market price and to register with the MGB a copy of the sales agreement. Afterall, the provisions of prevailing statutes as well as rules and regulations are deemed written into contracts.

Contractor's Right to MortgageNot Objectionable Per Se

Petitioners also question the absolute right of the contractor under Clause 10.2 (l) to mortgage and encumbernot 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 provisionmay have to do with the conditions imposed by the creditor-banks of the then foreign contractor WMCP tosecure the lendings made or to be made to the latter. Ordinarily, banks lend not only on the security ofmortgages on fixed assets, but also on encumbrances of goods produced that can easily be sold and convertedinto cash that can be applied to the repayment of loans. Banks even lend on the security of accountsreceivable 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" overthe production for the next twelve months and/or the proceeds of the sale thereof -- or the correspondingaccounts receivable, if sold on terms -- in favor of its creditor-banks. Such deeds may include authorizing thecreditors 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 beexplained below, even if it is allowed to mortgage or encumber the mineral end-products themselves, thecontractor is not freed of its obligation to pay the government its basic and additional shares in the net miningrevenue, which is the essential thing to consider.

In brief, the alarum raised over the contractor's right to mortgage the minerals is simply unwarranted. Just thesame, 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 miningrevenues of the contractor. The latter's right to mortgage the minerals does not negate the State's right toreceive 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 atany time." This provision may seem somewhat unusual, but considering that WMCP then was 100 percentforeign-owned, any change would mean that such percentage would either stay unaltered or be decreased infavor of Filipino ownership. Moreover, the foreign-held shares may change hands freely. Such eventuality is as itshould be.

We believe it is not necessary for government to attempt to limit or restrict the freedom of the shareholders in thecontractor to freely transfer, dispose of or encumber their shareholdings, consonant with the unfettered exerciseof their business judgment and discretion. Rather, what is critical is that, regardless of the identity, nationalityand percentage ownership of the various shareholders of the contractor -- and regardless of whether theseshareholders 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 torender the services required under the FTAA, under the direction and control of the government.

Contractor's Right to AskFor Amendment Not Absolute







With respect to Clauses 10.4(e) and (i), petitioners complain that these provisions bind government to allowamendments to the FTAA if required by banks and other financial institutions as part of the conditions for newlendings. However, we do not find anything wrong with Clause 10.4(e), which only states that "if the Contractorseeks 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 reducethe Contractor's obligations or the Government's rights hereunder." The colatilla obviously safeguards theState's interests; if breached, it will give the government cause to object to the proposed amendments.

On the other hand, Clause 10.4(i) provides that "the Government shall favourably consider any request from[the] Contractor for amendments of this Agreement which are necessary in order for the Contractor tosuccessfully obtain the financing." Petitioners see in this provision a complete renunciation of control. Wedisagree.

The proviso does not say that the government shall grant any request for amendment. Clause 10.4(i) onlyobliges the State to favorably consider any such request, which is not at all unreasonable, as it is not equivalentto saying that the government must automatically consent to it. This provision should be read together with therest of the FTAA provisions instituting government control and supervision over the mining enterprise. Theclause should not be given an interpretation that enables the contractor to wiggle out of the restrictions imposedupon 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 areindispensable, 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 tothe contractor (a very unlikely scenario); and that without the needed financing, the execution of the workprograms will not proceed. But the bottom line is, in the exercise of its power of control, the government hasthefinal say on whether to approve or disapprove such requested amendments to the FTAA. In short, approvalthereof is not mandatory on the part of the government.

In fine, the foregoing evaluation and analysis of the aforementioned FTAA provisions sufficientlyoverturns petitioners' litany of objections to and criticisms of the State's alleged lack of control.

Financial Benefits NotSurrendered to the Contractor

One of the main reasons certain provisions of RA 7942 were struck down was the finding mentioned in theDecision that beneficial ownership of the mineral resources had been conveyed to the contractor. This findingwas based on the underlying assumption, common to the said provisions, that the foreign contractor managesthe mineral resources in the same way that foreign contractors in service contracts used to. "By allowing foreigncontractors to manage or operate all the aspects of the mining operation, the above-cited provisions of R.A. No.7942 have in effect conv eyed benef ic ial ownership over the nation's mineral resources to these contractors,leaving the State with nothing but bare title thereto." 60 As the WMCP FTAA contained similar provisions deemedby 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 thecourts at the suit of the beneficial owner .61 Black's Law Dictionary indicates that the term is used in twosenses: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 isnot registered in the corporation's books as the owner .62 Usually, beneficial ownership is distinguished fromnaked ownership, which is the enjoyment of all the benefits and privileges of ownership, as against possessionof 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 oftheir 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 miningoperation is merely the equivalent of the consideration the government has undertaken to pay for its services. Alllawful contracts require such mutual prestations, and the WMCP FTAA is no different. The contractor commits toperform certain services for the government in respect of the mining operation, and in turn it is to becompensated out of the net mining revenues generated from the sale of mineral products. What would beobjectionable is a contractual provision that unduly benefits the contractor far in excess of the service renderedor 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 canbe said to convey beneficial ownership of any mineral resource or product to any foreign FTAA contractor.

Equitable Sharingof 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, andthe 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 andcommercial utilization of minerals. The general framework or concept followed in crafting the fiscal regime of theFTAA is based on the principle that the government expects real contributions to the economic growth andgeneral welfare of the country, while the contractor expects a reasonable return on its investments in the project .63

Specifically, under the fiscal regime, the government's expectation is, inter alia, the receipt of its share from thetaxes and fees normally paid by a mining enterprise. On the other hand, the FTAA contractor is granted by thegovernment certain fiscal and non-fiscal incentives64 to help support the former's cash flow during the mostcritical 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 thebasic share of the government, plus an additional share for the government based on the options and formulaeset forth in DAO 99-56.

The said DAO spells out the financial benefits the government will receive from an FTAA, referred to as "theGovernment Share," composed of a basic government share and an addit ional government share .

The basic government share is comprised of all direct taxes, fees and royalties, as well as other paymentsmade by the contractor during the term of the FTAA. These are amounts paid directly to (i) the nationalgovernment (through the Bureau of Internal Revenue, Bureau of Customs, Mines & Geosciences Bureau andother national government agencies imposing taxes or fees), (ii) the local government units where the miningactivity is conducted, and (iii) persons and communities directly affected by the mining project. The major taxesand 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 andCustoms Code (3-7 percent for chemicals; 3-10 percent for explosives; 3-15 percent formechanical 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 – 5percent 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 amonglocal 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 amineral 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 - therate and the type depend on the local government

Other Payments:

· Royalty to indigenous cultural communities, if any – 1 percent of gross output from miningoperations

· 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 inaccordance with the second paragraph of Section 81 of RA 7942, which provides that the government shareshall 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 o ther th ings ,the contractor's corporate income tax, excise tax, special allowance, withholding tax due from the contractor'sforeign stockholders arising from dividend or interest payments to the said foreign stockholder in case of aforeign national, and all such other taxes, duties and fees as provided for under existing laws." (Bold typessupplied.)

The government, through the DENR and the MGB, has interpreted the insertion of the phrase among otherthingsas signifying that the government is entitled to an "additional government share" to be paid by thecontractor 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 DAO99-56: (1) a fifty-fifty sharing in the cumulative present value of cash flows; (2) the share based on excessprofits; and (3) the sharing based on the cumulative net mining revenue. The particular formula to be applied willbe selected by the contractor, with a written notice to the government prior to the commencement of thedevelopment and construction phase of the mining project.66

Proceeds from the government shares arising from an FTAA contract are distributed to and received by thedifferent levels of government in the following proportions:

National Government 50 percent

ProvincialGovernment

10 percent

MunicipalGovernment 20 percent

Affected Barangays 20 percent







The portion of revenues remaining after the deduction of the basic and additional government shares is whatgoes to the contractor.

Government's Share in anFTAA Not Consisting Solelyof Taxes, Duties and Fees

In connection with the foregoing discussion on the basic and additional government shares, it is pertinent atthis juncture to mention the criticism leveled at the second paragraph of Section 81 of RA 7942, quoted earlier.The said proviso has been denounced, because, allegedly, the State's share in FTAAs with foreign contractorshas been limited to taxes, fees and duties only; in effect, the State has been deprived of a share in the after-taxincome of the enterprise. In the face of this allegation, one has to consider that the law does not define thetermamong other things; and the Office of the Solicitor General, in its Motion for Reconsideration, appears tohave 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 avoidedsetting unnecessary limitations as to what may constitute compensation to the State for the exploitation and useof mineral resources. But the inclusion of that phrase clearly and unmistakably reveals the legislative intent tohave 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 asreferring 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 inthe second paragraph of Section 81,67 the DENR structured and formulated in DAO 99-56 the said additionalgovernment share. Such a share was to consist not of taxes, but of a share in the earnings or cash flows ofthe mining enterprise. The additional government share was to be paid by the contractor on top of the basicshare, so as to achieve a fifty-fifty sharing -- between the government and the contractor -- of net benefits frommining . In the Ramos-DeVera paper, the explanation of the three options or formulas68 -- presented in DAO99-56 for the computation of the additional government share -- serves to debunk the claim that thegovernment's take from an FTAA consists solely of taxes, fees and duties.

Unfortunately, the Office of the Solicitor General -- although in possession of the relevant data -- failed to fullyreplicate or echo the pertinent elucidation in the Ramos-DeVera paper regarding the three schemes or optionsfor 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 abstrusemathematical jargon employed in DAO 99-56, the OSG omitted any mention of the three options. Instead, theOSG skipped to a side discussion of the effect of indirect taxes, which had nothing at all to do with the additionalgovernment share, to begin with. Unfortunately, this move created the wrong impression, pointed out in Justice Antonio T. Carpio's Opinion, that the OSG had taken the position that the additional government share consistedof indirect taxes.

In any event, what is quite evident is the fact that the additional government share, as formulated, has nothingto do with taxes -- direct or indirect -- or with duties, fees or charges. To repeat, it is over and above the basicgovernment share composed of taxes and duties. Simply put, the additional share may be (a) an amount that willresult in a 50-50 sharing of the cumulative present value of the cash flow s69 of the enterprise; (b) an amountequivalent to 25 percent of the additional or excess profits of the enterprise, reckoned against a benchmarkreturn on investments; or (c) an amount that will result in a fifty-fifty sharing of the cumulative net miningrevenue from the end of the recovery period up to the taxable year in question. The contractor is required toselect one of the three options or formulae for computing the additional share, an option it will apply to all of itsmining 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 additionalgovernment 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 alsoperformed some quantifications of the government share via a financial modeling of each of the three optionsdiscussed 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 additionalshares; and that, even though production rate decreases, the government share will actually increase when thenet 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 indirecttaxes70 and other financial contributions71 of mining projects. These indirect taxes and other contributions are realand actual benefits enjoyed by the Filipino people and/or government. Now, if some of the quantifiable items aretaken into account in the computations, the financial modeling would show that the total government shareincreases to 60 percent or higher -- in one instance, as much as 77 percent and even 89 percent -- of the netpresent value of total benefits from the project. As noted in the Ramos-DeVera paper, these results are not at allshabby, considering that the contractor puts in all the capital requirements and assumes all the risks, without thegovernment having to contribute or risk anything.

Despite the foregoing explanation, Justice Carpio still insisted during the Court's deliberations that thephraseamong other things refers only to taxes, duties and fees. We are bewildered by his position. On the onehand, he condemns the Mining Law for allegedly limiting the government's benefits only to taxes, duties andfees; and on the other, he refuses to allow the State to benefit from the correct and proper interpretation of theDENR/MGB. To remove all doubts then, we hold that the State's share is not limited to taxes, duties and feesonly and that the DENR/MGB interpretation of the phrase among other things is correct. Definitely, thisDENR/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 areasonable and fair amount for the additional government share. As can be seen from DAO 99-56, theagencies concerned did an admirable job of conceiving and developing not just one formula, but three differentformulae 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 fiscalregime 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 thegovernment, 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 termsof 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 RA7942, the government's share is limited to taxes, fees and duties. Consequently, we find the attacks onthe second paragraph of Section 81 of RA 7942 totally unwarranted.

Collections Not Made Uncertainby the Third Paragraph of Section 81

The third or last paragraph of Section 8172 provides that the government share in FTAAs shall be collected whenthe contractor shall have recovered its pre-operating expenses and exploration and development expenditures.The objection has been advanced that, on account of the proviso, the collection of the State's share is not evencertain, 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 concernedagencies, which are, on account of their technical expertise and training, in a better position to determine theappropriate durations for such recovery periods. After all, these recovery periods are determined, to a greatextent, by technical and technological factors peculiar to the mining industry. Besides, with developments andadvances 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 Rulesand Regulations of RA 7942 specify that the period of recovery, reckoned from the date of commercialoperation, shall be for a period not exceeding five years, or until the date of actual recovery, whichever comesearlier .

Approval of Pre-OperatingExpenses Required by RA 7942

Still, RA 7942 is criticized for allegedly not requiring government approval of pre-operating, exploration anddevelopment 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 inamounts equal to the mining revenues anticipated for the first 10 or 15 years of commercial production, with theresult that the share of the State will be zero for the first 10 or 15 years. Moreover, under the circumstances, thegovernment 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 crucialprovisions in the Mining Law were overlooked. Section 23, dealing with the rights and obligations of theexploration permit grantee, states: "The permittee shall undertake exploration work on the area as specified byits permit based on an approved work program." The next proviso reads: "Any expenditure in excess ofthe yearly budget of the approved work program may be carried forward and credited to the succeeding yearscovering 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 -- forapproval by the government -- a proposed work program for exploration, containing a yearly budget of proposedexpenditures. 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 thatthe 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 amining area may, within the term of the permit, file with the Mines and Geosciences Bureau a declaration ofmining project feasibility. This declaration is to be accompanied by a work program for development for theBureau's approval, the necessary prelude for entering into an FTAA, a mineral production sharing agreement(MPSA), or some other mineral agreement. At this stage, too, the government obviously has the opportunity toapprove 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 berecovered by the contractor.

Naturally, with the submission of approved work programs and budgets for the exploration and thedevelopment/construction phases, the government will be able to scrutinize and approve or reject suchexpenditures. It will be well-informed as to the amounts of pre-operating and other expenses that the contractormay legitimately recover and the approximate period of time needed to effect such a recovery. There is thereforeno way the contractor can just randomly post any amount of pre-operating expenses and expect to recover thesame.

The aforecited provisions on approved work programs and budgets have counterparts in Section 35, which dealswith the terms and conditions exclusively applicable to FTAAs. The said provision requires certain terms andconditions to be incorporated into FTAAs; among them, "a firm commitment x x x of an amount corresponding tothe expenditure obligation that will be invested in the contract area" and "representations and warranties x x x totimely deploy these [financing, managerial and technical expertise and technological] resources under itssupervision pursuant to the periodic work programs and related budgets x x x," as well as "work programs andminimum expenditures commitments." (underscoring supplied)

Unarguably, given the provisions of Section 35, the State has every opportunity to pass upon the proposedexpenditures under an FTAA and approve or reject them. It has access to all the information it may need in orderto 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 mannerunconstitutional.

No Deprivation of Beneficial Rights

It is also claimed that aside from the second and the third paragraphs of Section 81 (discussed above), Sections80, 84 and 112 of RA 7942 also operate to deprive the State of beneficial rights of ownership over mineralresources; 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 ingeniousattempt to resurrect the old and discredited system of "license, concession or lease."

Specifically, Section 80 is condemned for limiting the State's share in a mineral production-sharing agreement(MPSA) to just the excise tax on the mineral product. Under Section 151(A) of the Tax Code, such tax is only 2percent of the market value of the gross output of the minerals. The colatilla in Section 84, the portionconsidered 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 noapplication to FTAAs. These particular statutory provisions do not come within the issues that were defined anddelineated by this Court during the Oral Argument -- particularly the third issue, which pertained exclusively toFTAAs. Neither did the parties argue upon them in their pleadings. Hence, this Court cannot make anypronouncement in this case regarding the constitutionality of Sections 80 and 84 without violating thefundamental rules of due process. Indeed, the two provisos will have to await another case specifically placingthem in issue.

On the other hand, Section 11274 is disparaged for allegedly reverting FTAAs and all mineral agreements to theold 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-sharingagreement 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, comprisesthe 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 fromany other source.

Apart from the fact that Section 112 likewise does not come within the issues delineated by this Court during theOral Argument, and was never touched upon by the parties in their pleadings, it must also be noted that thecriticism hurled against this Section is rooted in unwarranted conclusions made without considering otherrelevant 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 atall is the fact that it happens to use the word "contractor." Hence, it is a bit of a stretch to insist that it coversFTAAs as well. Second , mineral agreements, of which there are three types -- MPSAs, co-productionagreements, and joint venture agreements -- are covered by Chapter V of RA 7942. On the other hand, FTAAsare covered by and in fact are the subject of Chapter VI, an entirely different chapter altogether. The lawobviously intends to treat them as a breed apart from mineral agreements, since Section 35 (found in ChapterVI) creates a long list of specific terms, conditions, commitments, representations and warranties -- which havenot 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 tosustain large-scale mining operations. Thus, there is no reason to think that the law through Section 112 intendsto exact from FTAA contractors merely the same government share (a 2 percent excise tax) that it apparentlydemands from contractors under the three forms of mineral agreements. In brief, Section 112 does not applyto FTAAs.

Notwithstanding the foregoing explanation, Justices Carpio and Morales maintain that the Court mustrule now on the constitutionality of Sections 80, 84 and 112, allegedly because the WMCP FTAA contains aprovision 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 2percent excise tax. Justice Carpio adds that there are five MPSAs already signed just awaiting the judgment ofthis Court on respondents' and intervenor's Motions for Reconsideration. We hold however that, at this point, this

argument is based on pure speculation. The Court cannot rule on mere surmises and hypothetical assumptions,without firm factual anchor. We repeat: basic due process requires that we hear the parties who have a real legalinterest 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 complywith the law, particularly Section 39 of RA 7942; inter alia, it must convincingly show that the "economic viabilityof the contract is found to be inadequate to justify large-scale mining operations;" second, it must contend withthe President's exercise of the power of State control over the EDU of natural resources; and third, it will have torisk 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 thecontractor 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 andprocedures 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 tofile a declaration of mining feasibility, and to apply for an FTAA, thereby leading the State to believe that the areacould sustain large-scale mining. The contractor must justify fully why its earlier findings, based on scientificprocedures, 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 contractor's technicalcapabilities and expertise into serious doubt. We wonder if anyone would relish being in this situation. The Statecould even question and challenge the contractor's qualification and competence to continue the activity underan MPSA.

All in all, while there may be cogent grounds to assail the aforecited Sections, this Court -- onconsiderations of due process -- cannot rule upon them here. Anyway, if later on these Sections aredeclared unconstitutional, such declaration will not affect the other portions since they are clearlyseparable from the rest.

Our Mineral Resources NotGiven Away for Free by RA 7942

Nevertheless, if only to disabuse our minds, we should address the contention that our mineral resources areeffectively 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 mineralresources without paying anything . In order to get at the minerals, they have to invest huge sums of money (tensor hundreds of millions of dollars) in exploration works first. If the exploration proves unsuccessful, all the cashspent thereon will not be returned to the foreign investors; rather, those funds will have been infused into thelocal economy, to remain there permanently. The benefits therefrom cannot be simply ignored. And assumingthat the foreign contractors are successful in finding ore bodies that are viable for commercial exploitation, theydo not just pluck out the minerals and cart them off. They have first to build camp sites and roadways; dig mineshafts and connecting tunnels; prepare tailing ponds, storage areas and vehicle depots; install their machineryand 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, salariesof local labor and technical staff, and other operating expenses. In the meantime, they also have to paytaxes,75duties, fees, and royalties. All told, the exploration, pre-feasibility, feasibility, development andconstruction phases together add up to as many as eleven years.76 The contractors have to continually shell outfunds for the duration of over a decade, before they can commence commercial production from which theywould 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, thateventuality will happen only after they shall have first put out the cash and fueled the economy. Moreover, in theprocess of recouping their investments and costs, the foreign contractors do not actually pull out the money fromthe economy . Rather, they recover or recoup their investments out of actual commercial production by notpaying a portion of the basic government share corresponding to national taxes, along with the additionalgovernment share, for a period of not more than five year s77 counted from the commencement of commercialproduction.

It must be noted that there can be no recovery without commencing actual commercial production. In themeantime that the contractors are recouping costs, they need to continue operating; in order to do so, they haveto 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 areallowed 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 Entitledto 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 ofinvestments is absolutely indispensable for business survival; and business survival ensures soundness of theeconomy, 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 discussionhas 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 ortransformable 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 thegood they do us right now. They have first to be extracted and converted into marketable form, and the countryneeds the foreign contractor's funds, technology and know-how for that.

After about eleven years of pre-operation and another five years for cost recovery, the foreign contractors willhave 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 maintainprofitability. During this period, they pay the whole of the basic government share and the additional governmentshare which, taken together with indirect taxes and other contributions, amount to approximately 60 percent ormore 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 hardcash 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 definitelydisagree with the sweeping claim that no FTAA under Section 81 will ever make any real contribution to thegrowth 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 issueat 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 economicgrowth and general welfare of the country, as mandated by Section 2 of Article XII of the Constitution. Pursuantto Section 81 of the law, the entire after-tax income arising from the exploitation of mineral resources owned bythe State supposedly belongs to the foreign contractors, which will naturally repatriate the said after-tax incometo 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 secondparagraph of Section 81 of RA 7942 to mean that the government is entitled to an additional share, to becomputed based on any one of the following factors: net mining revenues, the present value of the cash flows, orexcess profits reckoned against a benchmark rate of return on investments. So it is not correct to say that all ofthe after-tax income will accrue to the foreign FTAA contractor, as the government effectively receives asignificant portion thereof .

Second , the foreign contractors can hardly "repatriate the entire after-tax income to their home countries." Evena bit of knowledge of corporate finance will show that it will be impossible to maintain a business as a "goingconcern" 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 doingso 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 inuse 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 thenormal 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 itsmarket, can afford to repatriate the entire after-tax income to the home country.

The State's Receipt of SixtyPercent of an FTAA Contractor's After-Tax Income Not Mandatory

We now come to the next objection which runs this way: In FTAAs with a foreign contractor, the State mustreceive 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 theincome, 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 60percent of the after-tax income from a mining company run by a foreign contractor. The argument is that theCharter requires the State's partner in a co-production agreement, joint venture agreement or MPSA to be aFilipino 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, afterall, dealing with an essentially different equation, one that involves different elements. The Charter did notintend to fix an iron-clad rule on the 60 percent share, applicable to all situations at all times and in allcircumstances. If ever such was the intention of the framers, they would have spelt it out in black andwhite.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 whatwe are demanding of the foreign contractor. Let us use a simplified illustration. Let us base it on gross revenuesof, say, P500. After deducting operating expenses, but prior to income tax, suppose a mining firm makesataxable income of P100. A corporate income tax of 32 percent results in P32 of taxable income going to thegovernment, leaving the mining firm with P68. Government then takes 60 percent thereof , equivalent to P40.80,leaving only P27.20 for the mining firm.

At this point the government has pocketed P32.00 plus P40.80, or a total of P72.80 for every P100 of taxableincome, leaving the mining firm with only P27.20. But that is not all. The government has also taken 2 percentexcise tax "off the top," equivalent to another P10. Under the minimum 60 percent proposal, the governmentnets around P82.80 (not counting other taxes, duties, fees and charges) from a taxable income of P100(assuming gross revenues of P500, for purposes of illustration). On the other hand, the foreign contractor, which provided all the capital, equipment and labor, and took all the entrepreneurial risks -- receives P27.20. Onecannot but wonder whether such a distribution is even remotely equitable and reasonable, consideringthe nature of the mining business. The amount of P82.80 out of P100.00 is really a lot – it does not matter thatwe call part of it excise tax or income tax , and another portion thereof income from exploitation of mineralresources. Some might think it wonderful to be able to take the lion's share of the benefits. But we have to askourselves if we are really serious in attracting the investments that are the indispensable and key element ingenerating the monetary benefits of which we wish to take the lion's share. Fairness is a credo not only in law,

but also in business.

Third, the 60 percent rule in the petroleum industry cannot be insisted upon at all times in the mining business.The reason happens to be the fact that in petroleum operations, the bulk of expenditures is in exploration, butonce the contractor has found and tapped into the deposit, subsequent investments and expenditures arerelatively 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 hasbeen located, the contractor must continually invest in machineries and expend funds to dig and build tunnels inorder 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 andstubbornly insist on the "minimum 60 percent."

The Mining and the Oil IndustriesDifferent From Each Other

To stress, there is no independent showing that the taking of at least a 60 percent share in the after-tax incomeof 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 factomean 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 theirrespective 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 sharein 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 theextraction of natural resources.

Indeed, we should take note of the fact that Congress made a distinction between mining firms and petroleumcompanies. In Republic Act No. 7729 -- "An Act Reducing the Excise Tax Rates on Metallic and Non-MetallicMinerals and Quarry Resources, Amending for the Purpose Section 151(a) of the National Internal RevenueCode, 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 ofpetroleum, the lawmakers set the excise tax rate for the first taxable sale at fifteen percent of the fairinternational market price thereof.

There must have been a very sound reason that impelled Congress to impose two very dissimilar excise taxrate. We cannot assume, without proof, that our honorable legislators acted arbitrarily, capriciously andwhimsically in this instance. We cannot just ignore the reality of two distinctly different situations and stubbornlyinsist on going "minimum 60 percent."

To repeat, the mere fact that gas and oil exploration contracts grant the State 60 percent of the net revenuesdoes not necessarily imply that mining contracts should likewise yield a minimum of 60 percent for theState.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 struckand the wells are put in place, the risk is relatively over and black gold simply flows out continuouslywithcomparatively 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 capitaland expertise to dig the mineral ores from the mines. Just because deposits of mineral ores are found in onearea is no guarantee that an equal amount can be found in the adjacent areas. There are simply continuing risksand 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 mineralindustry. As mines are explored and extracted, vast employment is created, roads and other infrastructure arebuilt, and other multiplier effects arise. On the other hand, once oil wells start producing, there is less need foremployment. Roads and other public works need not be constructed continuously. In fine, there is no basis forsaying that government revenues from the oil industry and from the mineral industries are to be identical all thetime.

Fourth, to our mind, the proffered "minimum 60 percent" suggestion tends to limit the flexibility and tie the handsof government , ultimately hampering the country's competitiveness in the international market, to the detrimentof the Filipino people. This "you-have-to-give-us-60-percent-of-after-tax-income-or-we-don't-do- business-with-you" approach is quite perilous. True, this situation may not seem too unpalatable to the foreign contractorduring good years, when international market prices are up and the mining firm manages to keep its costs incheck. However, under unfavorable economic and business conditions, with costs spiraling skywards andminerals 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 miningventure, 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 tochanging economic conditions and shifting market forces. This inflexibility further renders our country lessattractive as an investment option compared with other countries.

And fifth, for this Court to decree imperiously that the government's share should be not less than 60 percent ofthe after-tax income of FTAA contractors at all times is nothing short of dictating upon the government. Theresult, ironically, is that the State ends up losing control . To avoid compromising the State's full control andsupervision over the exploitation of mineral resources, this Court must back off from insisting upon a "minimum60 percent" rule. It is sufficient that the State has the power and means, should it so decide, to get a 60 percentshare (or more) in the contractor's net mining revenues or after-tax income, or whatever other basis thegovernment may decide to use in reckoning its share. It is not necessary for it to do so in every case, regardlessof circumstances.

In fact, the government must be trusted, must be accorded the liberty and the utmost flexibility to deal, negotiateand 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 theState 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 thegovernment in an FTAA at 60 percent of the net profit. For this Court to decree such minimum is to wade into judicial legislation, and thereby inordinately impinge on the control power of the State. Let it be clear: the Court isnot 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 underthe peculiar circumstances of a specific contract, the President could secure only 50 percent or 55 percent, sobe 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, theofficials responsible for entering into such a contract on its behalf will have to answer to the courts for theirmalfeasance. And the contract provision voided. But this Court would abuse its own authority should it force thegovernment's hand to adopt the 60 percent demand of some of our esteemed colleagues.

Capital and Expertise Provided,Yet All Risks Assumed by Contractor

Here, we will repeat what has not been emphasized and appreciated enough: the fact that the contractor in anFTAA provides all the needed capital, technical and managerial expertise, and technology required to undertakethe project.

In regard to the WMCP FTAA, the then foreign-owned WMCP as contractor committed, at the very outset, tomake capital investments of up to US$50 million in that single mining project. WMCP claims to have alreadypoured in well over P800 million into the country as of February 1998, with more in the pipeline. Theseresources, valued in the tens or hundreds of millions of dollars, are invested in a mining project that provides noassurance 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 socialobligations, for which it also commits to make significant expenditures of funds. Throughout, the contractorassumes all the risks79 of the business, as mentioned earlier. These risks are indeed very high, considering thatthe rate of success in exploration is extremely low. The probability of finding any mineral or petroleum incommercially viable quantities is estimated to be about 1:1,000 only. On that slim chance rides the contractor'shope of recouping investments and generating profits. And when the contractor has recouped its initialinvestments in the project, the government share increases to sixty percent of net benefits -- without the Stateever being in peril of incurring costs, expenses and losses.

And even in the worst possible scenario -- an absence of commercial quantities of minerals to justifydevelopment -- the contractor would already have spent several million pesos for exploration works, beforearriving at the point in which it can make that determination and decide to cut its losses. In fact, duringthe first year alone of the exploration period, the contractor was already committed to spend not less than P24million. 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; itcertainly cannot be said to convey beneficial ownership of our mineral resources to foreign contractors.

Deductions Allowed by theWMCP FTAA Reasonable

Petitioners question whether the State's weak control might render the sharing arrangements ineffective. Theycite 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 "theestablishment and administration of field offices including administrative overheads incurred within and outsidethe Philippines which are properly allocatable to the Mining Operations and reasonably related to theperformance of the Contractor's obligations and exercise of its rights under this Agreement."82






















It is quite well known, however, that mining companies do perform some marketing activities abroad in respect ofselling their mineral products and by-products. Hence, it would not be improper to allow the deductionof reasonable consulting fees incurred abroad, as well as administrative expenses and overheads related tomarketing offices also located abroad -- provided that these deductions are directly related or properlyallocatable to the mining operations and reasonably related to the performance of the contractor's obligationsand exercise of its rights. In any event, more facts are needed. Until we see how these provisions actuallyoperate, mere "suspicions" will not suffice to propel this Court into taking action.

Section 7.9 of the WMCP FTAAInvalid and Disadvantageous

Having defended the WMCP FTAA, we shall now turn to two defective provisos. Let us start with Section 7.9 ofthe WMCP FTAA. While Section 7.7 gives the government a 60 percent share in the net mining revenues ofWMCP from the commencement of commercial production, Section 7.9 deprives the government of part or all ofthe said 60 percent. Under the latter provision, should WMCP's foreign shareholders -- who originally owned 100percent 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 bereduced 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 anyoffsetting compensation to the State. Thus, in reality, the State has no vested right to receive any income fromthe FTAA for the exploitation of its mineral resources. Worse, it would seem that what is given to the State inSection 7.7 is by mere tolerance of WMCP's foreign stockholders, who can at any time cut off the government'sentire 60 percent share. They can do so by simply selling 60 percent of WMCP's outstanding capital stock to aPhilippine citizen or corporation. Moreover, the proceeds of such sale will of course accrue to the foreignstockholders of WMCP, not to the State.

The sale of 60 percent of WMCP's outstanding equity to a corporation that is 60 percent Filipino-owned and 40percent foreign-owned will still trigger the operation of Section 7.9. Effectively, the State will lose its right toreceive all 60 percent of the net mining revenues of WMCP; and foreign stockholders will own beneficially up to64 percent of WMCP , consisting of the remaining 40 percent foreign equity therein, plus the 24 percent pro-ratashare in the buyer-corporation.84

In fact, the January 23, 2001 sale by WMCP's foreign stockholder of the entire outstanding equity in WMCP toSagittarius Mines, Inc. -- a domestic corporation at least 60 percent Filipino owned -- may be deemed to haveautomatically triggered the operation of Section 7.9, without need of further action by any party, and removed theState's right to receive the 60 percent share in net mining revenues.

At bottom, Section 7.9 has the effect of depriving the State of its 60 percent share in the net mining revenues of

WMCP without any offset or compensation whatsoever . It is possible that the inclusion of the offending provisionwas initially prompted by the desire to provide some form of incentive for the principal foreign stockholder inWMCP 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 60percent share in WMCP's net mining revenues, without any form of compensation whatsoever. Such an outcomeis completely unacceptable.

The whole point of developing the nation's natural resources is to benefit the Filipino people, future generationsincluded. And the State as sovereign and custodian of the nation's natural wealth is mandated to protect,conserve, preserve and develop that part of the national patrimony for their benefit. Hence, the Charter laysgreat emphasis on "real contributions to the economic growth and general welfare of the country"85 as essentialguiding 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 andtransact with contractors and third parties as it sees fit, and upon terms that it ascertains to be most favorable ormost acceptable under the circumstances, even if that should mean agreeing to less than 60 percent; (2) that itis 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 bedeprived 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 andprotect the national interest. In this instance, national interest finds particular application in the protection of thenational patrimony and the development and exploitation of the country's mineral resources for the benefit of theFilipino people and the enhancement of economic growth and the general welfare of the country. Undoubtedly,such full control can be misused and abused, as we now witness.

Section 7.9 of the WMCP FTAA effectively gives away the State's share of net mining revenues (provided for inSection 7.7) without anything in exchange. Moreover, this outcome constitutes unjust enrichment on the part ofthe local and foreign stockholders of WMCP. By their mere divestment of up to 60 percent equity in WMCP infavor of Filipino citizens and/or corporations, the local and foreign stockholders get a windfall. Their share in thenet mining revenues of WMCP is automatically increased, without their having to pay the government anythingfor 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 decisions86 that the parties to a contract may establish anyagreements, 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 topublic 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 ofthe ill consequences, is of no moment. It is hornbook doctrine that the principle of estoppel does not operateagainst the government for the act of its agents,88 and that it is never estopped by any mistake or error on theirpart.89 It is therefore possible and proper to rectify the situation at this time. Moreover, we may also say that theFTAA in question does not involve mere contractual rights; being impressed as it is with public interest, thecontractual provisions and stipulations must yield to the common good and the national interest.

Since the offending provision is very much separable90 from Section 7.7 and the rest of the FTAA, the deletion ofSection 7.9 can be done without affecting or requiring the invalidation of the WMCP FTAA itself. Such a deletionwill preserve for the government its due share of the benefits. This way, the mandates of the Constitution arecomplied with and the interests of the government fully protected, while the business operations of the contractorare 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 backedschemes, any tax on dividend payments by the Contractor or its Affiliates in respect of revenuesfrom the Mining Operations and any tax on interest on domestic and foreign loans or otherfinancial arrangements or accommodations, including loans extended to the Contractor by itsstockholders;

"(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 orClaimowners;

"(d) costs and expenses of fulfilling the Contractor's obligations to contribute to nationaldevelopment 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 theGovernment to the Contractor or to financial or technical assistance agreement contractors ingeneral;

"(f) all of the foregoing items which have not previously been offset against the GovernmentShare 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 governmentfor the benefit of the contractor in building roads leading to the mine site should still be deductible from theState's share in net mining revenues. Allowing this deduction results in benefiting the contractor twice over. Itconstitutesunjust enrichment on the part of the contractor at the expense of the government, since the latter iseffectively being made to pay twice for the same item.91 For being grossly disadvantageous and prejudicial to thegovernment and contrary to public policy, Section 7.8(e) is undoubtedly invalid and must be declared to bewithout 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 ofdeduction from the State's 60 percent share. After taking these into account, will the State ever receive anythingfor 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 componentsor elements of the basic government share established in DAO 99-56, as discussed in the earlier part of thisOpinion.

Likewise, the balance of the government's 60 percent share -- after netting out the items of deduction listed inSection 7.8 --corresponds closely to the additional government share provided for in DAO 99-56 which, weonce again stress, has nothing at all to do with indirect taxes. The Ramos-DeVera paper 92 concisely presents thefiscal contribution of an FTAA under DAO 99-56 in this equation:

Receipts from an FTAA = basic gov't share + add'l gov't share

Transposed into a similar equation, the fiscal payments system from the WMCP FTAA assumes the followingformulation:

Government's 60 percent share in net mining revenues of WMCP = items listed in Sec. 7.8 of the FTAA+ balance of Gov't share, payable 4 months from the end of the fiscal year

It should become apparent that the fiscal arrangement under the WMCP FTAA is very similar to that under DAO99-56, with the "balance of government share payable 4 months from end of fiscal year" being the equivalent ofthe additional government share computed in accordance with the "net-mining-revenue-based option" underDAO 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 f iscal regime of the WMCP FTAA,and certainly nothing to warrant the invalidation of the FTAA in its entirety.

Section 3.3 of the WMCPFTAA Constitutional

Section 3.3 of the WMCP FTAA is assailed for violating supposed constitutional restrictions on the term ofFTAAs. 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 theGovernment 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, allforces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other naturalresources are owned by the State. With the exception of agricultural lands, all other natural resourcesshall not be alienated. The exploration, development and utilization of natural resources shall be underthe full control and supervision of the State. The State may directly undertake such activities, or it mayenter into co-production, joint venture or production-sharing agreements with Filipino citizens orcorporations or associations at least sixty per centum of whose capital is owned by such citizens. Suchagreements m ay be for a period not exceeding tw enty-f ive years, renewable for not mo re than

twenty-f ive years, and under such terms and cond it ions as may be provided by law. In cases of

water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, beneficial use may be the measure and limit of the grant.

"The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea, and exclusiveeconomic 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 wellas cooperative fish farming, with priority to subsistence fishermen and fish-workers in rivers, lakes, baysand lagoons.

"The President may enter into agreements with foreign-owned corporations involving either technical orfinancial assistance for large-scale exploration, development, and utilization of minerals, petroleum, andother mineral oils according to the general terms and conditions provided by law, based on realcontributions to the economic growth and general welfare of the country. In such agreements, the Stateshall 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 aboveprovision 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 thegovernment 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 benoted that there are no term limitations provided for in the said paragraphs dealing with FTAAs. This shows thatFTAAs are sui generis, in a class of their own. This omission was obviously a deliberate move on the part of theframers. They probably realized that FTAAs would be different in many ways from MPSAs, JVAs and CPAs. Thereason the framers did not fix term limitations applicable to FTAAs is that they preferred to leave the matter tothe discretion of the legislature and/or the agencies involved in implementing the laws pertaining to FTAAs, inorder 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, afew more years would be gobbled up in start-up operations. It may take fifteen years before an FTAA contractorcan start earning profits. And thus, the period of 25 years may really be short for an FTAA. Consider too that inthis kind of agreement, the contractor assumes all entrepreneurial risks. If no commercial quantities of mineralsare found, the contractor bears all financial losses. To compensate for this long gestation period and extrabusiness risks, it would not be totally unreasonable to allow it to continue EDU activities for another twenty fiveyears.

In any event, the complaint is that, in essence, Section 3.3 gives the contractor the power to compel thegovernment to renew the WMCP FTAA for another 25 years and deprives the State of any say on whether torenew the contract.

While we agree that Section 3.3 could have been worded so as to prevent it from favoring the contractor, thisprovision 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 iscertainly 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 didnot. It appears that, in the process of negotiations, the other contracting party was able to convince thegovernment 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. Ifgovernment believes that it is or will be aggrieved by the effects of Section 3.3, the remedy is the renegotiationof the provision in order to provide the State the option to not renew the FTAA.

Financial Benefits for ForeignersNot Forbidden by the Constitution

Before leaving this subject matter, we find it necessary for us to rid ourselves of the false belief that theConstitution somehow forbids foreign-owned corporations from deriving financial benefits from the developmentof our natural or mineral resources.

The Constitution has never prohibited foreign corporations from acquiring and enjoying "beneficial interest" in thedevelopment 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 jointventure 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-Filipinostakeholders obviously participate in the beneficial interest derived from the development and utilization of ournatural resources. They may receive by way of dividends, up to 40 percent of the contractor's earnings from themining project. Likewise, they may have a say in the decisions of the board of directors, since they are entitled torepresentation therein to the extent of their equity participation, which the Constitution permits to be up to 40percent of the contractor's equity. Hence, the non-Filipino stakeholders may in that manner also participate in themanagement of the contractor's natural resource development work. All of this is permitted by our Constitution,for any natural resource, and without limitation even in regard to the magnitude of the mining project oroperations (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 offoreign individuals and entities having or enjoying "beneficial interest" in -- and participating in the managementof operations relative to -- the exploration, development and utilization of our natural resources.

FTAA More AdvantageousThan Other SchemesLike CPA, JVA and MPSA

A final point on the subject of beneficial interest. We believe the FTAA is a more advantageous proposition forthe government as compared with other agreements permitted by the Constitution. In a CPA that thegovernment enters into with one or more contractors, the government shall provide inputs to the miningoperations 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 equityshares (investments); and the contractor is granted the exclusive right to conduct mining operations and toextract 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 thecontractor 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 governmenthas to ante up some risk capital for the enterprise. In other words, government funds (public moneys) arewithdrawn from other possible uses, put to work in the venture and placed at risk in case the venture fails. Thisnotwithstanding, management and control of the operations of the enterprise are -- in all three arrangements -- inthe hands of the contractor , with the government being mainly a silent partner. The three types of agreementmentioned above apply to any natural resource, without limitation and regardless of the size or magnitude of theproject 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 Constitutionremoves the 40 percent cap on foreign ownership and allows the foreign corporation to own up to 100 percent ofthe equity. Filipino capital may not be sufficient on account of the size of the project, so the foreign entity mayhave 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 ofthe particular FTAA granted to it, WMCP (then 100 percent foreign owned) was responsible, as contractor, forproviding the entire equity, including all the inputs for the project. It was to bear 100 percent of the risk of loss ifthe project failed, but its maximum potential "beneficial interest" consisted only of 40 percent of the net beneficialinterest, because the other 60 percent is the share of the government, which will never be exposed to any risk ofloss whatsoever.

In consonance with the degree of risk assumed, the FTAA vested in WMCP the day-to-day management of themining operations. Still such management is subject to the overall control and supervision of the State in termsof 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 benefitsderived or to be derived from a CPA, a JVA or an MPSA vis-à-vis those pertaining to an FTAA. It may not berealistically asserted that the foreign grantee of an FTAA is being unduly favored or benefited as compared witha foreign stakeholder in a corporation holding a CPA, a JVA or an MPSA. Seen the other way around, thegovernment 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 considerwhether mining as an industry and economic activity deserved to be accorded priority, preference andgovernment support as against, say, agriculture and other activities in which Filipinos and the Philippines mayhave an "economic advantage." For instance, a recent US study96 reportedly examined the economicperformance of all local US counties that were dependent on mining and 20 percent of whose labor earningsbetween 1970 and 2000 came from mining enterprises.

The study -- covering 100 US counties in 25 states dependent on mining -- showed that per capita income grewabout 30 percent less in mining-dependent communities in the 1980s and 25 percent less for the entire period1980 to 2000; the level of per capita income was also lower. Therefore, given the slower rate of growth, the gapbetween these and other local counties increased.

Petitioners invite attention to the OXFAM America Report's warning to developing nations that mining brings withit serious economic problems, including increased regional inequality, unemployment and poverty. They also citethe final repor t97 of the Extractive Industries Review project commissioned by the World Bank (the WB-EIRReport), which warns of environmental degradation, social disruption, conflict, and uneven sharing of benefitswith local communities that bear the negative social and environmental impact. The Report suggests thatcountries need to decide on the best way to exploit their natural resources, in order to maximize the value addedfrom the development of their resources and ensure that they are on the path to sustainable development oncethe resources run out.

Whatever priority or preference may be given to mining vis-à-vis other economic or non-economic activities is aquestion of policy that the President and Congress will have to address; it is not for this Court to decide. ThisCourt declares what the Constitution and the laws say, interprets only when necessary, and refrains from delvinginto matters of policy .

Suffice it to say that the State control accorded by the Constitution over mining activities assures a properbalancing of interests. More pointedly, such control will enable the President to demand the best miningpractices and the use of the best available technologies to protect the environment and to rehabilitate mined-outareas. Indeed, under the Mining Law, the government can ensure the protection of the environment during andafter mining. It can likewise provide for the mechanisms to protect the rights of indigenous communities, andthereby 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 improvedchances of human resource and countryside development by creating self-reliant communities awayfrom 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, wetake 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 OrdersNos. 270 and 270-A, respectively, "to promote responsible mineral resources exploration, development andutilization, in order to enhance economic growth, in a manner that adheres to the principles of sustainabledevelopment and with due regard for justice and equity, sensitivity to the culture of the Filipino people andrespect 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 andMorales.

1. Justice Morales introduced us to Hugh Morgan, former president and chief executive officer of Western MiningCorporation (WMC) and former president of the Australian Mining Industry Council, who spearheaded thevociferous 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 sourcesquoted by our esteemed colleague, Morgan was also a racist and a bigot. In the course ofprotesting 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 ofHugh Morgan and his hordes of alleged racist-bigots at WMC. With all due respect, such scare tactics shouldhave no place in the discussion of this case. We are deliberating on the constitutionality of RA 7942, DAO 96-40and the FTAA originally granted to WMCP, which had been transferred to Sagittarius Mining, a Filipinocorporation. 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 financialassistance, Justice Morales points out that at times we "conveniently omitted" the use of thedisjunctive either…or, which according to her denotes restriction; hence the phrase must be deemed to connoterestriction and limitation.

But, as Justice Carpio himself pointed out during the Oral Argument, the disjunctive phrase either technical orfinancial assistance would, strictly speaking, literally mean that a foreign contractor may provide only one or theother, but not both. And if both technical and financial assistance were required for a project, the State wouldhave to deal with at least two different foreign contractors -- one for financial and the other for technicalassistance. And following on that, a foreign contractor, though very much qualified to provide both kinds ofassistance, would nevertheless be prohibited from providing one kind as soon as it shall have agreed to providethe other.

But if the Court should follow this restrictive and literal construction, can we really find two (or more) contractorswho 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 willingand are able to cooperate and work closely together on the same project (even if they are otherwisecompetitors). And it would be superb if no conflicts would arise between or among them in the entire course ofthe contract. But what are the chances things will turn out this way in the real world? To think that the framersdeliberately imposed this kind of restriction is to say that they were either exceedingly optimistic, or incrediblynaïve. This begs the question -- What laudable objective or purpose could possibly be served by such strict andrestrictive literal interpretation?

3. Citing Oposa v. Factoran Jr., Justice Morales claims that a service contract is not a contract or property rightwhich merits protection by the due process clause of the Constitution, but merely a license or privilege whichmay be validly revoked, rescinded or withdrawn by executive action whenever dictated by public interest orpublic welfare.

Oposa cites Tan v. Director of Forestry and Ysmael v. Deputy Executive Secretary as authority. The latter casesdealt specifically with timber 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 ormunicipal, 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 createirrevocable 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 alsoinvolved in this situation? We do not think so. A grantee of a timber license, permit or license agreement gets tocut the timber already growing on the surface; it need not dig up tons of earth to get at the logs. In a loggingconcession, the investment of the licensee is not as substantial as the investment of a large-scale miningcontractor. 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 theground, so to speak, for exploration activities, for development of the mine site and infrastructure, and for theactual excavation and extraction of minerals, including the extensive tunneling work to reach the ore body. Thecancellation of the mining contract will utterly deprive the contractor of its investments (i.e., prevent recovery ofinvestments), 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 rightswhich merit protection by the due process clause of the Constitution, and may therefore be revoked or cancelledin the blink of an eye, is to adopt a well-nigh confiscatory stance; at the very least, it is downright dismissive ofthe 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 coffersof 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 ofthe 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 ournatural resources exclusively for the Filipino people. She then quoted from the records of the ConComdeliberations a passage in which then Commissioner Davide explained his vote, arguing in the process thataliens ought not be allowed to participate in the enjoyment of our natural resources. One passage does notsuffice to capture the tenor or substance of the entire extensive deliberations of the commissioners, or to revealthe clear intention of the framers as a group. A re-reading of the entire deliberations (quoted here earlier) isnecessary 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 theexploration, development or utilization of the nation's natural resources is merely secondary to the protection andpreservation of their ownership of the natural resources, so says Justice Morales, citing Aruego. If it is true thatthe framers of the 1987 Constitution did not care much about alleviating the retardation or delay in thedevelopment and utilization of our natural resources, why did they bother to write paragraph 4 at all? Were theymerely paying lip service to large-scale exploration, development and utilization? They could have justcompletely ignored the subject matter and left it to be dealt with through a future constitutional amendment. Butwe have to harmonize every part of the Constitution and to interpret each provision in a manner that would givelife and meaning to it and to the rest of the provisions. It is obvious that a literal interpretation of paragraph 4 willrender 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 reasonablybe deemed necessary to make them tenable and effective, including management authority in the day-to-dayoperations. As proof thereof, she quotes one single passage from the ConCom deliberations, consisting of anexchange among Commissioners Tingson, Garcia and Monsod.

However, the quoted exchange does not serve to contradict our argument; it even bolsters it. Comm. ChristianMonsod was quoted as saying: "xxx I think we have to make a distinction that it is not really realistic to say thatwe will borrow on our own terms. Maybe we can say that we inherited unjust loans, and we would like to repaythese on terms that are not prejudicial to our own growth. But the general statement that we should only borrowon 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 aftercompletion of the exploration phase and just before undertaking the development and construction phase, onaccount of the fact that the requirement for a minimum investment of $50 million is applicable only during thedevelopment, 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 contractormaximizes 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 comeanywhere near profitability, the contractor must first extract and sell the mineral ore. In order to do that, it mustalso develop and construct the mining facilities, set up its machineries and equipment and dig the tunnels to getto the deposit. The contractor is thus compelled to expend funds in order to make profits. If it decides to cut backon investments and expenditures, it will necessarily sacrifice the pace of development and utilization; it willnecessarily 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 variableexpenses, let alone overhead expenses; this is a dismal situation anyone would want to avoid. In order to makemoney, one has to spend money. This truism applies to the mining industry as well.

8. Mortgaging the minerals to secure a foreign FTAA contractor's obligations is anomalous, according to JusticeMorales since the contractor was from the beginning obliged to provide all financing needed for the miningoperations. However, the mortgaging of minerals by the contractor does not necessarily signify that thecontractor is unable to provide all financing required for the project, or that it does not have the financialcapability to undertake large-scale operations. Mortgaging of mineral products, just like the assignment (by wayof security) of manufactured goods and goods in inventory, and the assignment of receivables, is an ordinaryrequirement 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 justa 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 toreimbursement 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 beneeded, and the land previously acquired will have to be disposed of, in which case the contractor getsreimbursement from the sales proceeds. The contractor has to pay out the acquisition price for the land. Thatmoney will belong to the seller of the land. Only if and when the land is finally sold off will the contractor get anyreimbursement. In other words, the contractor will have been cash-out for the entire duration of the term of thecontract -- 25 or 50 years, depending. If we calculate the cost of money at say 12 percent per annum, that is thecost 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 least600 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 landfor the contractor is just to enable the contractor to establish its mine site, build its facilities, establish a tailingspond, set up its machinery and equipment, and dig mine shafts and tunnels, etc. It is impossible that the surfacerequirement will aggregate 5,000 hectares. Much of the operations will consist of the tunneling and diggingunderground, which will not require possessing or using any land surface. 5,000 hectares is way too much forthe needs of a mining operator. It simply will not spend its cash to acquire property that it will not need; the cashmay 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 issueDAO 99-56 and prescribe the formulae therein on the State's share from mining operations. He adds that thephraseamong other things was not intended as a delegation of legislative power to the DENR secretary, muchless could it be deemed a valid delegation of legislative power, since there is nothing in the second paragraph ofSection 81 which can be said to grant any delegated legislative power to the DENR secretary. And even if therewere, 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 oflegislative power to the DENR secretary, it does not mean that DAO 99-56 is invalid per se, or that the secretaryacted without any authority or jurisdiction in issuing DAO 99-56. As we stated earlier in our Prologue, "Who orwhat organ of government actually exercises this power of control on behalf of the State? The Constitution iscrystal 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 thePresident once it is notified of 'every contract entered into in accordance with this [constitutional] provision withinthirty days from its execution.'" It is the President who is constitutionally mandated to enter into FTAAs withforeign corporations, and in doing so, it is within the President's prerogative to specify certain terms and



conditions of the FTAAs, for example, the fiscal regime of FTAAs -- i.e., the sharing of the net mining revenuesbetween the contractor and the State.

Being the President's alter ego with respect to the control and supervision of the mining industry, the DENRsecretary, acting for the President, is necessarily clothed with the requisite authority and power to draw upguidelines delineating certain terms and conditions, and specifying therein the terms of sharing of benefits frommining, to be applicable to FTAAs in general. It is important to remember that DAO 99-56 has been in existencefor 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 notdelegate the power to determine the nature, extent and composition of the items that would come under thephrase among other things. The legislature's power pertains to the imposition of taxes, duties and fees. Thispower was not delegated to the DENR secretary. But the power to negotiate and enter into FTAAs was withheldfrom Congress, and reserved for the President. In determining the sharing of mining benefits, i.e., in specifyingwhat the phrase among other things include, the President (through the secretary acting in his/her behalf) wasnot determining the amount or rate of taxes, duties and fees, but rather the amount of INCOME to be derivedfrom 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 thePresident's sphere of authority when the former provided that

"The Government share in financial or technical assistance agreement shall consist of, among otherthings, the contractor's corporate income tax, excise tax, special allowance, withholding tax due from thecontractor's foreign stockholders arising from dividend or interest payments to the said foreignstockholder in case of a foreign national and all such other taxes, duties and fees as provided for underexisting laws." (Italics supplied)

But it did not usurp the President's authority since the provision merely included the enumerated items as part ofthe government share, without foreclosing or in any way preventing (as in fact Congress could not validlyprevent) the President from determining what constitutes the State's compensation derived from FTAAs. In thiscase, the President in effect directed the inclusion or addition of "other things," viz., INCOME for the owner of theresources, in the government's share, while adopting the items enumerated by Congress as part of thegovernment share also.

12. Justice Carpio's insistence on applying the ejusdem generis rule of statutory construction to thephraseamong other things is therefore useless, and must fall by the wayside. There is no point trying to construethat phrase in relation to the enumeration of taxes, duties and fees found in paragraph 2 of Section 81, preciselybecause " the con st i tut ional power to prescribe the sharing of m ining income between the State and

minin g companies," to quote Justice Carpio pursuant to an FTAA is constitutionally lodged with thePresident, not with Congress. It thus makes no sense to persist in giving the phrase among other things arestricted 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 timeeven without the approval of the President, and the secretary is the sole authority to determine the amount ofconsideration that the State shall receive in an FTAA, because Section 5 of the DAO states that "xxx anyamendment 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 requiresapproval of the President, but if the amendment involves a change in the fiscal regime, the DENR secretary hasthe final authority, and approval of the President may be dispensed with; hence the secretary is more powerfulthan the President.

We believe there is some distortion resulting from the quoted provision being taken out of context. Section 5 ofDAO 99-56 reads as follows:

"Section 5. Status of Existing FTAAs. All FTAAs approved prior to the effectivity of this AdministrativeOrder shall remain valid and be recognized by the Government: Provided, That should a Contractordesire 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 byseeking for the amendment of its FTAA's whole fiscal regime by adopting the fiscal regime providedhereof: Provided, finally, That any amendment of an FTAA other than the provision on fiscal regime shallrequire the negotiation with the Negotiating Panel and the recommendation of the Secretary for approvalof 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 actuallypreceded by a phrase that requires a contractor desiring to amend the fiscal regime of its FTAA, to amendthesame by adopting the fiscal regime prescribed in DAO 99-56 -- i.e., solely in that manner, and in noother .Obviously, since DAO 99-56 was issued by the secretary under the authority and with thepresumed approval of the President, the amendment of an FTAA by merely adopting the fiscal regimeprescribed in said DAO 99-56 (and nothing more) need not have the express clearance of the Presidentanymore. It is as if the same had been pre-approved. We cannot fathom the complaint that that makes thesecretary more powerful than the President, or that the former is trying to hide things from the President orCongress.

14. Based on the first sentence of Section 5 of DAO 99-56, which states "[A]ll FTAAs approved prior to theeffectivity of this Administrative Order shall remain valid and be recognized by the Government", Justice Carpioconcludes that said Administrative Order allegedly exempts FTAAs approved prior to its effectivity -- like theWMCP FTAA -- from having to pay the State any share from their mining income, apart from taxes, duties andfees.

We disagree. What we see in black and white is the statement that the FTAAs approved before the DAO cameinto effect are to continue to be valid and will be recognized by the State. Nothing is said about their fiscalregimes. Certainly, there is no basis to claim that the contractors under said FTAAs were being exempted frompaying 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. TheWMCP FTAA has its own fiscal regime -- Section 7.7 -- which gives the government a 60 percent share inthe 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 aconsideration. Hence, we find quite out of place Justice Carpio's statement that ironically, DAO 99-56, the veryauthority cited to support the claim that the WMCP FTAA has a consideration, does not apply to the WMCPFTAA. By its own express terms, DAO 99-56 does not apply to FTAAs executed before the issuance of DAO 99-56, like the WMCP FTAA. The majority's position has allegedly no leg to stand on since even DAO 99-56,assuming it is valid, cannot save the WMCP FTAA from want of consideration. Even assuming arguendo thatDAO 99-56 does not apply to the WMCP FTAA, nevertheless, the WMCP FTAA has its own fiscal regime, foundin 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, whichgrant a sham consideration to the State, are void. Since the majority agrees that the WMCP FTAA has a shamconsideration, the WMCP FTAA thus lacks the third element of a valid contract. The Decision should declare theWMCP FTAA void for want of consideration unless it treats the contract as an MPSA under Section 80. Indeedthe 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 togovernment and detrimental to the interests of the Filipino people, as well as violative of public policy, and musttherefore be stricken off as invalid. Since the offending provisions are very much separable from Section 7.7 andthe rest of the FTAA, the deletion of Sections 7.9 and 7.8(e) can be done without affecting or requiring theinvalidation 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 noncethat 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 InvolvingEither 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 ofassistance, but rather implies that there are other things being included or possibly being made part of theagreement, apart from financial or technical assistance. The drafters avoided the use of restrictive and stringentphraseology; a verba legis scrutiny of Section 2 of Article XII of the Constitution discloses not even a hint of adesire to prohibit foreign involvement in the management or operation of mining activities, or to eradicate servicecontracts. 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 mereomission of the words "service contract" from the new Constitution.

Furthermore, a literal and restrictive interpretation of this paragraph leads to logical inconsistencies. Aconstitutional provision specifically allowing foreign-owned corporations to render financial ortechnical assistancein respect of mining or any other commercial activity was clearly unnecessary; the provisionwas 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 inrequiring that they be "based on real contributions to the economic growth and general welfare of thecountry." And considering that there were various long-term service contracts still in force and effect at the timethe new Charter was being drafted, the absence of any transitory provisions to govern the termination andclosing-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 scrutinythereof conclusively shows that the ConCom members discussed agreements involving either technical orfinancial assistance in the same sense as service contracts and used the terms interchangeably. The drafters infact knew that the agreements with foreign corporations were going to entail not mere technical or financialassistance 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 obviousfrom their discussions that they did not intend to ban or eradicate service contracts. Instead, they were intent oncrafting provisions to put in place safeguards that would eliminate or minimize the abuses prevalent during themartial law regime. In brief, they were going to permit service contracts with foreign corporations ascontractors, but with safety measures to prevent abuses, as an exception to the general normestablished in the first paragraph of Section 2 of Article XII, which reserves or limits to Filipino citizensand corporations at least 60 percent owned by such citizens the exploration, development and utilizationof mineral or petroleum resources. This was prompted by the perceived insufficiency of Filipino capital andthe 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 NationalEconomy and Patrimony -- including paragraph 4 allowing service contracts with foreign corporations as anexception to the general norm in paragraph 1 of Section 2 of the same Article -- was resoundingly andoverwhelmingly approved.

The drafters, many of whom were economists, academicians, lawyers, businesspersons and politicians knewthat foreign entities will not enter into agreements involving assistance without requiring measures of protectionto 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 suchagreements involving assistance, necessarily gave implied assent to everything that these agreements entailedor that could reasonably be deemed necessary to make them tenable and effective -- including managementauthority with respect to the day-to-day operations of the enterprise, and measures for the protection of theinterests 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 resourcesremaining vested in the State.

From the foregoing, it is clear that agreements involving either technical or financial assistance referred to inparagraph 4 are in fact service contracts, but such new service contracts are between foreign corporationsacting 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 managerialexpertise in the creation and operation of the large-scale mining/extractive enterprise, and government throughits 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. Thegrant 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) thePresident be the signatory for the government; and (3) the President report the executed agreement to Congresswithin thirty days.

Ultimate Test: Full State Control



To repeat, the primacy of the principle of the State's sovereign ownership of all mineral resources, and its fullcontrol and supervision over all aspects of exploration, development and utilization of natural resources must beupheld. But "full control and supervision" cannot be taken literally to mean that the State controls andsuperviseseverything down to the minutest details and makes all required actions, as this would renderimpossible the legitimate exercise by the contractor of a reasonable degree of management prerogative andauthority, 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 fullcontrol and supervision.

Control, as utilized in Section 2 of Article XII, must be taken to mean a degree of control sufficient to enable theState to direct, restrain, regulate and govern the affairs of the extractive enterprises. Control by the State may beon a macro level, through the establishment of policies, guidelines, regulations, industry standards and similarmeasures that would enable government to regulate the conduct of affairs in various enterprises, and restrainactivities deemed not desirable or beneficial, with the end in view of ensuring that these enterprises contribute tothe 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 theforeign contractor sufficient and reasonable management authority over the enterprise it has invested in, toensure efficient and profitable operation.

Government Granted Full Controlby RA 7942 and DAO 96-40

Baseless are petitioners' sweeping claims that RA 7942 and its Implementing Rules and Regulations make itpossible for FTAA contracts to cede full control and management of mining enterprises over to fully foreignowned corporations. Equally wobbly is the assertion that the State is reduced to a passive regulator dependenton submitted plans and reports, with weak review and audit powers and little say in the decision-making of theenterprise, for which reasons "beneficial ownership" of the mineral resources is allegedly ceded to the foreigncontractor.

As discussed hereinabove, the State's full control and supervision over mining operations are ensured throughthe 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 ordisapprove -- hence, in a position to influence, direct, and change -- the various work programs and thecorresponding minimum expenditure commitments for each of the exploration, development and utilizationphases of the enterprise. Once they have been approved, the contractor's compliance with its commitmentstherein will be monitored. Figures for mineral production and sales are regularly monitored and subjected togovernment review, to ensure that the products and by-products are disposed of at the best prices; copies ofsales 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 todetermine 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 ofanti-pollution technology and facilities. The contractor is also obligated to assist the development of the miningcommunity, and pay royalties to the indigenous peoples concerned. And violation of any of the FTAA's termsand conditions, and/or non-compliance with statutes or regulations, may be penalized by cancellation of theFTAA. Such sanction is significant to a contractor who may have yet to recover the tens or hundreds of millionsof dollars sunk into a mining project.

Overall, the State definitely has a pivotal say in the operation of the individual enterprises, and can set directionsand objectives, detect deviations and non-compliances by the contractor, and enforce compliance and imposesanctions should the occasion arise. Hence, RA 7942 and DAO 96-40 vest in government more than a sufficientdegree 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 forand hold an exploration permit. During the exploration phase, the permit grantee (and prospective contractor) isspending and investing heavily in exploration activities without yet being able to extract minerals and generaterevenues. The exploration permit issued under Sections 3(aq), 20 and 23 of RA 7942, which allows explorationbut 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 alreadymade, may end up only benefiting claim-jumpers. Thus, Section 3(aq) of RA 7942 is not unconstitutional.

WMCP FTAA Likewise Gives theState Full Control and Supervision

The WMCP FTAA obligates the contractor to account for the value of production and sale of minerals (Clause1.4); requires that the contractor's work program, activities and budgets be approved by the State (Clause 2.1);gives the DENR secretary power to extend the exploration period (Clause 3.2-a); requires approval by the Statefor incorporation of lands into the contract area (Clause 4.3-c); requires Bureau of Forest Development approvalfor inclusion of forest reserves as part of the FTAA contract area (Clause 4.5); obligates the contractor toperiodically 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 thecontractor to report to the State the results of its exploration activities (Clause 4.9); requires the contractor toobtain State approval for its work programs for the succeeding two year periods, containing the proposed workactivities and expenditures budget related to exploration (Clause 5.1); requires the contractor to obtain Stateapproval for its proposed expenditures for exploration activities (Clause 5.2); requires the contractor to submit anannual report on geological, geophysical, geochemical and other information relating to its explorations withinthe FTAA area (Clause 5.3-a); requires the contractor to submit within six months after expiration of explorationperiod a final report on all its findings in the contract area (Clause 5.3-b); requires the contractor after conductingfeasibility 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, andthe 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 productionfacilities, within the period stated in the approved work program (Clause 6.1); requires the contractor to submitfor approval a work program covering each period of three fiscal years (Clause 6.2); requires the contractor tosubmit reports to the secretary on the production, ore reserves, work accomplished and work in progress, profileof 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 thecontractor to ensure 60 percent Filipino equity in the contractor within ten years of recovering specifiedexpenditures 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 Stateapproval 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 agrant of beneficial ownership of mineral resources to the contractor in question, vest the State with control andsupervision 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 8.2provides a mechanism to prevent the mining operations from grinding to a complete halt as a result of possibledelays of more than 60 days in the government's processing and approval of submitted work programs andbudgets. 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 adeadlock 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, prohibitwork 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 theprior approval of the DENR secretary, subject to certain limitations with respect to the variance/s, merelyprovides the contractor a certain amount of flexibility to meet unexpected situations, while still guaranteeing thatthe approved work programs and budgets are not abandoned altogether. And if the secretary disagrees with theactions 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 berelinquished. The State is not in a position to substitute its judgment for that of the contractor, who knows exactlywhich portions of the contract area do not contain minerals in commercial quantities and should be relinquished.



Also, since the annual occupation fees paid to government are based on the total hectarage of the contract area,net of the areas relinquished, the contractor's self-interest will assure proper and efficient relinquishment.

Clause 10.2(e) of the WMCP FTAA does not mean that the contractor can compel government to use its powerof eminent domain. It contemplates a situation in which the contractor is a foreign-owned corporation, hence, notqualified to own land. The contractor identifies the surface areas needed for it to construct the infrastructure formining operations, and the State then acquires the surface rights on behalf of the former. The provision does notcall for the exercise of the power of eminent domain (or determination of just compensation); it seeks to avoid aviolation of the anti-dummy law.

Clause 10.2(l) of the WMCP FTAA giving the contractor the right to mortgage and encumber the mineralproducts extracted may have been a result of conditions imposed by creditor-banks to secure the loanobligations of WMCP. Banks lend also upon the security of encumbrances on goods produced, which can beeasily sold and converted into cash and applied to the repayment of loans. Thus, Clause 10.2(l) is not somethingout of the ordinary. Neither is it objectionable, because even though the contractor is allowed to mortgage orencumber the mineral end-products themselves, the contractor is not thereby relieved of its obligation to pay thegovernment its basic and additional shares in the net mining revenue. The contractor's ability to mortgage theminerals does not negate the State's right to receive its share of net mining revenues.

Clause 10.2(k) which gives the contractor authority "to change its equity structure at any time," means thatWMCP, which was then 100 percent foreign owned, could permit Filipino equity ownership. Moreover, what isimportant is that the contractor, regardless of its ownership, is always in a position to render the servicesrequired 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 otherfinancial institutions as part of the conditions of new lendings. There is nothing objectionable here, since Clause10.4(e) also provides that such financing arrangements should in no event reduce the contractor's obligations orthe government's rights under the FTAA. Clause 10.4(i) provides that government shall "favourably consider"any request for amendments of this agreement necessary for the contractor to successfully obtain financing.There is no renunciation of control, as the proviso does not say that government shall automatically grant anysuch request. Also, it is up to the contractor to prove the need for the requested changes. The governmentalways has the final say on whether to approve or disapprove such requests.

In fine, the FTAA provisions do not reduce or abdicate State control.

No Surrender of Financial Benefits

The second paragraph of Section 81 of RA 7942 has been denounced for allegedly limiting the State's share inFTAAs with foreign contractors to just taxes, fees and duties, and depriving the State of a share in the after-taxincome of the enterprise. However, the inclusion of the phrase "among other things" in the second paragraph ofSection 81 clearly and unmistakably reveals the legislative intent to have the State collect more than just theusual 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 onlyabasic government share, comprised of all direct taxes, fees and royalties, as well as other payments made bythe contractor during the term of the FTAA, but also an additional government share, being a share in theearnings or cash flows of the mining enterprise, so as to achieve a fifty-fifty sharing of net benefits frommining between the government and the contractor.

The additional government share is computed using one of three (3) options or schemes detailed in DAO 99-56, viz., (1) the fifty-fifty sharing of cumulative present value of cash flows; (2) the excess profit-related additionalgovernment share; and (3) the additional sharing based on the cumulative net mining revenue. Whichever optionor 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 whatgoes to the contractor.

The basic government share and the additional government share do not yet take into account the indirect taxesand other financial contributions of mining projects, which are real and actual benefits enjoyed by the Filipinopeople; if these are taken into account, total government share increases to 60 percent or higher (as much as 77percent, 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 governmentshare in FTAAs until after the contractor shall have recovered its pre-operating expenses, exploration anddevelopment expenditures. Allegedly, the collection of the State's share is rendered uncertain, as there is notime limit in RA 7942 for this grace period or recovery period. But although RA 7942 did not limit the graceperiod, the concerned agencies (DENR and MGB) in formulating the 1995 and 1996 Implementing Rules andRegulations provided that the period of recovery, reckoned from the date of commercial operation, shall be for aperiod 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 anddevelopment expenses of the foreign contractors, it is feared that such expenses could be bloated to wipe outmining revenues anticipated for 10 years, with the result that the State's share is zero for the first 10 years.However, the argument is based on incorrect information.

Under Section 23 of RA 7942, the applicant for exploration permit is required to submit a proposed workprogram for exploration, containing a yearly budget of proposed expenditures, which the State passes upon andeither approves or rejects; if approved, the same will subsequently be recorded as pre-operating expenses thatthe 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, itmust submit a work program for development, with corresponding budget, for approval by the Bureau, beforegovernment may grant an FTAA or MPSA or other mineral agreements; again, government has the opportunityto approve or reject the proposed work program and budgeted expenditures for development works, which willbecome the pre-operating and development costs that will have to be recovered. Government is able to knowahead of time the amounts of pre-operating and other expenses to be recovered, and the approximate period oftime needed therefor. The aforecited provisions have counterparts in Section 35, which deals with the terms andconditions exclusively applicable to FTAAs. In sum, the third or last paragraph of Section 81 of RA 7942 cannotbe deemed defective.

Section 80 of RA 7942 allegedly limits the State's share in a mineral production-sharing agreement (MPSA) to just the excise tax on the mineral product, i.e., only 2 percent of market value of the minerals. The colatilla inSection 84 reiterates the same limitation in Section 80. However, these two provisions pertain only toMPSAs, and have no application to FTAAs. These particular provisions do not come within the issuesdefined 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 orlease" system, because it allegedly effectively reduces the government share in FTAAs to just the 2 percentexcise tax which pursuant to Section 80 comprises the government share in MPSAs. However, Section 112likewise does not come within the issues delineated by this Court, and was never touched upon by the parties intheir pleadings. Moreover, Section 112 may not properly apply to FTAAs. The mining law obviously meant totreat FTAAs as a breed apart from mineral agreements. There is absolutely no basis to believe that the lawintends to exact from FTAA contractors merely the same government share (i.e., the 2 percent excise tax) that itapparently 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 anFTAA to the foreign contractors.

Moreover, there is no concrete basis for the view that, in FTAAs with a foreign contractor, the State must receiveat least 60 percent of the after-tax income from the exploitation of its mineral resources, and that such share isthe equivalent of the constitutional requirement that at least 60 percent of the capital, and hence 60 percent ofthe income, of mining companies should remain in Filipino hands. Even if the State is entitled to a 60 percentshare from other mineral agreements (CPA, JVA and MPSA), that would not create a parallel or analogoussituation for FTAAs. We are dealing with an essentially different equation. Here we have the old apples andoranges syndrome.

The Charter did not intend to fix an iron-clad rule of 60 percent share, applicable to all situations, regardless ofcircumstances. There is no indication of such an intention on the part of the framers. Moreover, the terms andconditions 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 explorationand drilling companies do not have the remotest resemblance to those of on-shore mining companies.

To take the position that government's share must be not less than 60 percent of after-tax income of FTAAcontractors is nothing short of this Court dictating upon the government. The State resultantly ends up losingcontrol. To avoid compromising the State's full control and supervision over the exploitation of mineral resources,there must be no attempt to impose a "minimum 60 percent" rule. It is sufficient that the State has the power andmeans, should it so decide, to get a 60 percent share (or greater); and it is not necessary that the State does soin every case.

Invalid Provisions of the WMCP FTAA

Section 7.9 of the WMCP FTAA clearly renders illusory the State's 60 percent share of WMCP's revenues.Under Section 7.9, should WMCP's foreign stockholders (who originally owned 100 percent of the equity) sell 60percent or more of their equity to a Filipino citizen or corporation, the State loses its right to receive its share innet mining revenues under Section 7.7, without any offsetting compensation to the State. And what is given tothe State in Section 7.7 is by mere tolerance of WMCP's foreign stockholders, who can at any time cut off thegovernment's entire share by simply selling 60 percent of WMCP's equity to a Philippine citizen or corporation.

In fact, the sale by WMCP's foreign stockholder on January 23, 2001 of the entire outstanding equity in WMCPto Sagittarius Mines, Inc., a domestic corporation at least 60 percent Filipino owned, can be deemed to haveautomatically triggered the operation of Section 7.9 and removed the State's right to receive its 60 percent share.Section 7.9 of the WMCP FTAA has effectively given away the State's share without anything in exchange.

Moreover, it constitutes unjust enrichment on the part of the local and foreign stockholders in WMCP, becauseby the mere act of divestment, the local and foreign stockholders get a windfall, as their share in the net miningrevenues 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 ofpublic policy, Section 7.9 must therefore be stricken off as invalid. The FTAA in question does not involve merecontractual rights but, being impressed as it is with public interest, the contractual provisions and stipulationsmust yield to the common good and the national interest. Since the offending provision is very much separablefrom the rest of the FTAA, the deletion of Section 7.9 can be done without affecting or requiring the invalidationof 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 thebenefit of the contractor to be deductible from the State's share in net mining revenues, it results in benefiting thecontractor twice over. This constitutes unjust enrichment on the part of the contractor, at the expense ofgovernment. 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 ofthe FTAA.

EPILOGUE

AFTER ALL IS SAID AND DONE, it is clear that there is unanimous agreement in the Court upon the keyprinciple that the State must exercise full control and supervision over the exploration, development andutilization of mineral resources.

The crux of the controversy is the amount of discretion to be accorded the Executive Department, particularly thePresident of the Republic, in respect of negotiations over the terms of FTAAs, particularly when it comes to thegovernment share of financial benefits from FTAAs. The Court believes that it is not unconstitutional to allow awide degree of discretion to the Chief Executive, given the nature and complexity of such agreements, thehumongous amounts of capital and financing required for large-scale mining operations, the complicatedtechnology needed, and the intricacies of international trade, coupled with the State's need to maintain flexibilityin its dealings, in order to preserve and enhance our country's competitiveness in world markets.

We are all, in one way or another, sorely affected by the recently reported scandals involving corruption in highplaces, duplicity in the negotiation of multi-billion peso government contracts, huge payoffs to governmentofficials, and other malfeasances; and perhaps, there is the desire to see some measures put in place to preventfurther abuse. However, dictating upon the President what minimum share to get from an FTAA is not thesolution. It sets a bad precedent since such a move institutionalizes the very reduction if not deprivation of theState's control. The remedy may be worse than the problem it was meant to address. In any event, provisions in



such future agreements which may be suspected to be grossly disadvantageous or detrimental to governmentmay 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 ofgovernment, this Court must restrain itself from intruding into policy matters and must allow the President andCongress maximum discretion in using the resources of our country and in securing the assistance of foreigngroups to eradicate the grinding poverty of our people and answer their cry for viable employment opportunitiesin the country.

"The judiciary is loath to interfere with the due exercise by coequal branches of government of their officialfunctions."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 onit by the Organic Act ."100 Let the development of the mining industry be the responsibility of the political branchesof 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 andhopes of all the people. We fully sympathize with the plight of Petitioner La Bugal B'laan and other tribal groups,and commend their efforts to uplift their communities. However, we cannot justify the invalidation of an otherwiseconstitutional statute along with its implementing rules, or the nullification of an otherwise legal and bindingFTAA contract.

We must never forget that it is not only our less privileged brethren in tribal and cultural communities whodeserve 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 andof this Court. To stress, the benefits to be derived by the State from mining activities must ultimately serve thegreat majority of our fellow citizens. They have as much right and interest in the proper and well-ordereddevelopment and utilization of the country's mineral resources as the petitioners.

Whether we consider the near term or take the longer view, we cannot overemphasize the need foranappropriate balancing of interests and needs -- the need to develop our stagnating mining industry andextract what NEDA Secretary Romulo Neri estimates is some US$840 billion (approx. PhP47.04 trillion) worth ofmineral wealth lying hidden in the ground, in order to jumpstart our floundering economy on the one hand, andon the other, the need to enhance our nationalistic aspirations, protect our indigenous communities, and preventirreversible ecological damage.

This Court cannot but be mindful that any decision rendered in this case will ultimately impact not only thecultural communities which lodged the instant Petition, and not only the larger community of the Filipino peoplenow struggling to survive amidst a fiscal/budgetary deficit, ever increasing prices of fuel, food, and essentialcommodities and services, the shrinking value of the local currency, and a government hamstrung in its deliveryof 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 basicservices, their overall level of well-being, the very shape of their lives are even now being determined andaffected partly by the policies and directions being adopted and implemented by government today. And in partby 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 ofpeople living in the areas locally affected by mining activities, but the entire Filipino nation, present and future, towhom the mineral wealth really belong. This Court has therefore weighed carefully the rights and interests of allconcerned, 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 forReconsideration; to REVERSE and SET ASIDE this Court's January 27, 2004 Decision; to DISMISS the Petition;and to issue this new judgment declaring CONSTITUTIONAL (1) Republic Act No. 7942 (the Philippine MiningLaw), (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 March30, 1995 executed by the government and Western Mining Corporation Philippines Inc. (WMCP), exceptSections 7.8 and 7.9 of the subject FTAA which are hereby INVALIDATED for being contrary to public policy andfor being grossly disadvantageous to the government.











G.R. No. 158540 July 8, 2004

SOUTHERN CROSS CEMENT CORPORATION, petitioner,

vs.

THE PHILIPPINE CEMENT MANUFACTURERS CORP., THE SECRETARY OF THE

DEPARTMENT OF TRADE & INDUSTRY, THE SECRETARY OF THE DEPARTMENT OFFINANCE, and THE COMMISSIONER OF THE BUREAU OF CUSTOMS, respondents.

D E C I S I O N

TINGA, J .:

"Good fences make good neighbors," so observed Robert Frost, the archetype of traditional New England

detachment. The Frost ethos has been heeded by nations adjusting to the effects of the liberalized global

market.1 The Philippines, for one, enacted Republic Act (Rep. Act) No. 8751 (on the imposition of

countervailing duties), Rep. Act No. 8752 (on the imposition of anti-dumping duties) and, finally, Rep. Act

No. 8800, also known as the Safeguard Measures Act ("SMA")2 soon after it joined the General Agreement

on Tariff and Trade (GATT) and the World Trade Organization (WTO) Agreement.3

The SMA provides the structure and mechanics for the imposition of emergency measures, including tariffs,

to protect domestic industries and producers from increased imports which inflict or could inflict serious

injury on them.4 The wisdom of the policies behind the SMA, however, is not put into question by the

petition at bar. The questions submitted to the Court relate to the means and the procedures ordained in thelaw to ensure that the determination of the imposition or non-imposition of a safeguard measure is proper.

Antecedent Facts

Petitioner Southern Cross Cement Corporation ("Southern Cross") is a domestic corporation engaged in the

business of cement manufacturing, production, importation and exportation. Its principal stockholders are

Taiheiyo Cement Corporation and Tokuyama Corporation, purportedly the largest cement manufacturers in

Japan.5

Private respondent Philippine Cement Manufacturers Corporation6 ("Philcemcor") is an association of

domestic cement manufacturers. It has eighteen (18) members,7 per Record. While Philcemcor heralds itselfto be an association of domestic cement manufacturers, it appears that considerable equity holdings, if not

controlling interests in at least twelve (12) of its member-corporations, were acquired by the three largest

cement manufacturers in the world, namely Financiere Lafarge S.A. of France, Cemex S.A. de C.V. of

Mexico, and Holcim Ltd. of Switzerland (formerly Holderbank Financiere Glaris, Ltd., then Holderfin

B.V.).8

On 22 May 2001, respondent Department of Trade and Industry ("DTI") accepted an application from

Philcemcor, alleging that the importation of gray Portland cement9 in increased quantities has caused

declines in domestic production, capacity utilization, market share, sales and employment; as well as caused

depressed local prices. Accordingly, Philcemcor sought the imposition at first of provisional, then later,definitive safeguard measures on the import of cement pursuant to the SMA. Philcemcor filed the

application in behalf of twelve (12) of its member-companies.10

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After preliminary investigation, the Bureau of Import Services of the DTI, determined that critical

circumstances existed justifying the imposition of provisional measures.11 On 7 November 2001, the DTI

issued an Order , imposing a provisional measure equivalent to Twenty Pesos and Sixty Centavos (P20.60)

per forty (40) kilogram bag on all importations of gray Portland cement for a period not exceeding two

hundred (200) days from the date of issuance by the Bureau of Customs (BOC) of the implementing

Customs Memorandum Order .12 The corresponding Customs Memorandum Order was issued on 10

December 2001, to take effect that same day and to remain in force for two hundred (200) days.13

In the meantime, the Tariff Commission, on 19 November 2001, received a request from the DTI for a

formal investigation to determine whether or not to impose a definitive safeguard measure on imports of

gray Portland cement, pursuant to Section 9 of the SMA and its Implementing Rules and Regulations. A

notice of commencement of formal investigation was published in the newspapers on 21 November 2001.

Individual notices were likewise sent to concerned parties, such as Philcemcor, various importers and

exporters, the Embassies of Indonesia, Japan and Taiwan, contractors/builders associations, industry

associations, cement workers' groups, consumer groups, non-government organizations and concerned

government agencies.14 A preliminary conference was held on 27 November 2001, attended by several

concerned parties, including Southern Cross.15 Subsequently, the Tariff Commission received several

position papers both in support and against Philcemcor's application.16 The Tariff Commission also visited

the corporate offices and manufacturing facilities of each of the applicant companies, as well as that ofSouthern Cross and two other cement importers.17

On 13 March 2002, the Tariff Commission issued its Formal Investigation Report ("Report"). Among the

factors studied by the Tariff Commission in its Report were the market share of the domestic industry ,18

production and sales,19 capacity utilization,20 financial performance and profitability,21 and return on sales.22

The Tariff Commission arrived at the following conclusions:

1. The circumstances provided in Article XIX of GATT 1994 need not be demonstrated since the

product under consideration (gray Portland cement) is not the subject of any Philippine obligation or

tariff concession under the WTO Agreement. Nonetheless, such inquiry is governed by the national

legislation (R.A. 8800) and the terms and conditions of the Agreement on Safeguards.

2. The collective output of the twelve (12) applicant companies constitutes a major proportion of the

total domestic production of gray Portland cement and blended Portland cement.

3. Locally produced gray Portland cement and blended Portland cement (Pozzolan) are "like" to

imported gray Portland cement.

4. Gray Portland cement is being imported into the Philippines in increased quantities, both in

absolute terms and relative to domestic production, starting in 2000. The increase in volume of

imports is recent, sudden, sharp and significant.

5. The industry has not suffered and is not suffering significant overall impairment in its condition,

i.e., serious injury.

6. There is no threat of serious injury that is imminent from imports of gray Portland cement.

7. Causation has become moot and academic in view of the negative determination of the elements

of serious injury and imminent threat of serious injury.23

Accordingly, the Tariff Commission made the following recommendation, to wit:

The elements of serious injury and imminent threat of serious injury not having been established, it is

hereby recommended that no definitive general safeguard measure be imposed on the importation of

gray Portland cement.24



























































The DTI received the Report on 14 March 2002. After reviewing the report, then DTI Secretary Manuel

Roxas II ("DTI Secretary") disagreed with the conclusion of the Tariff Commission that there was no serious

injury to the local cement industry caused by the surge of imports.25 In view of this disagreement, the DTI

requested an opinion from the Department of Justice ("DOJ") on the DTI Secretary's scope of options in

acting on the Commission's recommendations. Subsequently, then DOJ Secretary Hernando Perez rendered

an opinion stating that Section 13 of the SMA precluded a review by the DTI Secretary of the Tariff

Commission's negative finding, or finding that a definitive safeguard measure should not be imposed.26

On 5 April 2002, the DTI Secretary promulgated a Decision. After quoting the conclusions of the Tariff

Commission, the DTI Secretary noted the DTI's disagreement with the conclusions. However, he also cited

the DOJ Opinion advising the DTI that it was bound by the negative finding of the Tariff Commission.

Thus, he ruled as follows:

The DTI has no alternative but to abide by the [Tariff] Commission's recommendations.

IN VIEW OF THE FOREGOING, and in accordance with Section 13 of RA 8800 which states:

" I n the event of a negative fi nal determination; or i f the cash bond is in excess of the

def ini tive safeguard duty assessed, the Secretary shall immediately issue, through theSecretary of F inance, a wri tten instruction to the Commissioner of Customs, authori zing

the retur n of the cash bond or the remainder thereof, as the case may be, previously

collected as provisional general safeguard measur e within ten (10) days from the date a

final decision has been made; Provided, that the government shall not be liable for any

interest on the amount to be retur ned. The Secretary shal l not accept for consideration

another peti tion from the same industry, with respect to the same imports of the product

under consideration with in one (1) year after the date of r ender ing such a decision."

The DTI hereby issues the following:

The application for safeguard measures against the importation of gray Portland cement filed byPHILCEMCOR (Case No. 02-2001) is hereby denied.27 (Emphasis in the original)

Philcemcor received a copy of the DTI Decision on 12 April 2002. Ten days later, it filed with the Court of

Appeals a Petition for Certiorari, Prohibition and Mandamu s28 seeking to set aside the DTI Decision, as

well as the Tariff Commission's Report. Philcemcor likewise applied for a Temporary Restraining

Order/Injunction to enjoin the DTI and the BOC from implementing the questioned Decision and Report. It

prayed that the Court of Appeals direct the DTI Secretary to disregard the Report and to render judgment

independently of the Report. Philcemcor argued that the DTI Secretary, vested as he is under the law with

the power of review, is not bound to adopt the recommendations of the Tariff Commission; and, that the

Report is void, as it is predicated on a flawed framework, inconsistent inferences and erroneous

methodology.29

On 10 June 2002, Southern Cross filed its Comment .30 It argued that the Court of Appeals had no

jurisdiction over Philcemcor's Petition, for it is on the Court of Tax Appeals ("CTA") that the SMA

conferred jurisdiction to review rulings of the Secretary in connection with the imposition of a safeguard

measure. It likewise argued that Philcemcor's resort to the special civil action of certiorari is improper,

considering that what Philcemcor sought to rectify is an error of judgment and not an error of jurisdiction or

grave abuse of discretion, and that a petition for review with the CTA was available as a plain, speedy and

adequate remedy. Finally, Southern Cross echoed the DOJ Opinion that Section 13 of the SMA precludes a

review by the DTI Secretary of a negative finding of the Tariff Commission.

After conducting a hearing on 19 June 2002 on Philcemcor's application for preliminary injunction, the

Court of Appeals' Twelfth Division31 granted the writ sought in its Resolution dated 21 June 2002.32 Seven

days later, on 28 June 2002, the two-hundred (200)-day period for the imposition of the provisional measure

expired. Despite the lapse of the period, the BOC continued to impose the provisional measure on all



































importations of Portland cement made by Southern Cross. The uninterrupted assessment of the tariff,

according to Southern Cross, worked to its detriment to the point that the continued imposition would

eventually lead to its closure.33

Southern Cross timely filed a Motion for Reconsideration of the Resolution on 9 September 2002. Alleging

that Philcemcor was not entitled to provisional relief, Southern Cross likewise sought a clarificatory order as

to whether the grant of the writ of preliminary injunction could extend the earlier imposition of the

provisional measure beyond the two hundred (200)-day limit imposed by law. The appeals' court failed to

take immediate action on Southern Cross's motion despite the four (4) motions for early resolution the latter

filed between September of 2002 and February of 2003. After six (6) months, on 19 February 2003, the

Court of Appeals directed Philcemcor to comment on Southern Cross's Motion for Reconsideration.34 After

Philcemcor filed its Opposition35 on 13 March 2003, Southern Cross filed another set of four (4) motions for

early resolution.

Despite the efforts of Southern Cross, the Court of Appeals failed to directly resolve the Motion for

Reconsideration. Instead, on 5 June 2003, it rendered a Decision,36 granting in part Philcemcor's petition.

The appellate court ruled that it had jurisdiction over the petition for certiorari since it alleged grave abuse of

discretion. It refused to annul the findings of the Tariff Commission, citing the rule that factual findings of

administrative agencies are binding upon the courts and its corollary, that courts should not interfere inmatters addressed to the sound discretion and coming under the special technical knowledge and training of

such agencies.37 Nevertheless, it held that the DTI Secretary is not bound by the factual findings of the Tariff

Commission since such findings are merely recommendatory and they fall within the ambit of the

Secretary's discretionary review. It determined that the legislative intent is to grant the DTI Secretary the

power to make a final decision on the Tariff Commission's recommendation.38 The dispositive portion of the

Decision reads:

WHEREFORE, based on the foregoing premises, petitioner's prayer to set aside the findings of the

Tariff Commission in its assailed Report dated March 13, 2002 is DENIED. On the other hand, the

assailed April 5, 2002 Decision of the Secretary of the Department of Trade and Industry is hereby

SET ASIDE. Consequently, the case is REMANDED to the public respondent Secretary ofDepartment of Trade and Industry for a final decision in accordance with RA 8800 and its

Implementing Rules and Regulations.

SO ORDERED.39

On 23 June 2003, Southern Cross filed the present petition, assailing the appellate court's Decision for

departing from the accepted and usual course of judicial proceedings, and not deciding the substantial

questions in accordance with law and jurisprudence. The petition argues in the main that the Court of

Appeals has no jurisdiction over Philcemcor's petition, the proper remedy being a petition for review with

the CTA conformably with the SMA, and; that the factual findings of the Tariff Commission on the

existence or non-existence conditions warranting the imposition of general safeguard measures are bindingupon the DTI Secretary.

The timely filing of Southern Cross's petition before this Court necessarily prevented the Court of Appeals

Decision from becoming final.40 Yet on 25 June 2003, the DTI Secretary issued a new Decision, ruling this

time that that in light of the appellate court's Decision there was no longer any legal impediment to his

deciding Philcemcor's application for definitive safeguard measures.41 He made a determination that,

contrary to the findings of the Tariff Commission, the local cement industry had suffered serious injury as a

result of the import surges.42 Accordingly, he imposed a definitive safeguard measure on the importation of

gray Portland cement, in the form of a definitive safeguard duty in the amount of P20.60/40 kg. bag for three

years on imported gray Portland Cement.43

On 7 July 2003, Southern Cross filed with the Court a "Very Urgent Application for a Temporary

Restraining Order and/or A Writ of Preliminary Injunction" ("TRO Application"), seeking to enjoin the DTI

Secretary from enforcing his Decision of 25 June 2003 in view of the pending petition before this Court.














































Philcemcor filed an opposition, claiming, among others, that it is not this Court but the CTA that has

jurisdiction over the application under the law.

On 1 August 2003, Southern Cross filed with the CTA a Petition for Review, assailing the DTI Secretary's

25 June 2003 Decision which imposed the definite safeguard measure. Prescinding from this action,

Philcemcor filed with this Court a Manifestation and Motion to Dismiss in regard to Southern Cross's

petition, alleging that it deliberately and willfully resorted to forum-shopping. It points out that Southern

Cross's TRO Application seeks to enjoin the DTI Secretary's second decision, while its Petition before the

CTA prays for the annulment of the same decision.44

Reiterating its Comment on Southern Cross's Petition for Review, Philcemcor also argues that the CTA,

being a special court of limited jurisdiction, could only review the ruling of the DTI Secretary when a

safeguard measure is imposed, and that the factual findings of the Tariff Commission are not binding on the

DTI Secretary.45

After giving due course to Southern Cross's Petition, the Court called the case for oral argument on 18

February 2004.46 At the oral argument, attended by the counsel for Philcemcor and Southern Cross and the

Office of the Solicitor General, the Court simplified the issues in this wise: (i) whether the Decision of the

DTI Secretary is appealable to the CTA or the Court of Appeals; (ii) assuming that the Court of Appeals has jurisdiction, whether its Decision is in accordance with law; and, (iii) whether a Temporary Restraining

Order is warranted.47

During the oral arguments, counsel for Southern Cross manifested that due to the imposition of the general

safeguard measures, Southern Cross was forced to cease operations in the Philippines in November of

2003.48

Propriety of the Temporary Restraining Order

Before the merits of the Petition, a brief comment on Southern Cross's application for provisional relief. It

sought to enjoin the DTI Secretary from enforcing the definitive safeguard measure he imposed in his 25June 2003 Decision. The Court did not grant the provisional relief for it would be tantamount to enjoining

the collection of taxes, a peremptory judicial act which is traditionally frowned upon,49 unless there is a clear

statutory basis for it.50 In that regard, Section 218 of the Tax Reform Act of 1997 prohibits any court from

granting an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed

by the internal revenue code.51 A similar philosophy is expressed by Section 29 of the SMA, which states

that the filing of a petition for review before the CTA does not stop, suspend, or otherwise toll the

imposition or collection of the appropriate tariff duties or the adoption of other appropriate safeguard

measures.52 This evinces a clear legislative intent that the imposition of safeguard measures, despite the

availability of judicial review, should not be enjoined notwithstanding any timely appeal of the imposition.

The Forum-Shopping Issue

In the same breath, we are not convinced that the allegation of forum-shopping has been duly proven, or that

sanction should befall upon Southern Cross and its counsel. The standard by Section 5, Rule 7 of the 1997

Rules of Civil Procedure in order that sanction may be had is that "the acts of the party or his counsel clearly

constitute willful and deliberate forum shopping."53 The standard implies a malicious intent to subvert

procedural rules, and such state of mind is not evident in this case.

The Jurisdictional Issue

On to the merits of the present petition.

In its assailed Decision, the Court of Appeals, after asserting only in brief that it had jurisdiction over

Philcemcor's Petition, discussed the issue of whether or not the DTI Secretary is bound to adopt the negative

recommendation of the Tariff Commission on the application for safeguard measure. The Court of Appeals










































maintained that it had jurisdiction over the petition, as it alleged grave abuse of discretion on the part of the

DTI Secretary, thus:

A perusal of the instant petition reveals allegations of grave abuse of discretion on the part of the

DTI Secretary in rendering the assailed April 5, 2002 Decision wherein it was ruled that he had no

alternative but to abide by the findings of the Commission on the matter of safeguard measures for

the local cement industry. Abuse of discretion is admittedly within the ambit of certiorari.

Grave abuse of discretion implies such capricious and whimsical exercise of judgment as is

equivalent to lack of jurisdiction. It is alleged that, in the assailed Decision, the DTI Secretary

gravely abused his discretion in wantonly evading to discharge his duty to render an independent

determination or decision in imposing a definitive safeguard measure.54

We do not doubt that the Court of Appeals' certiorari powers extend to correcting grave abuse of discretion

on the part of an officer exercising judicial or quasi-judicial functions.55 However, the special civil action of

certiorari is available only when there is no plain, speedy and adequate remedy in the ordinary course of

law.56 Southern Cross relies on this limitation, stressing that Section 29 of the SMA is a plain, speedy and

adequate remedy in the ordinary course of law which Philcemcor did not avail of. The Section reads:

Section 29. Judicial Review. – Any interested party who is adversely affected by the ruling of the

Secretary in connection with the imposition of a safeguard measure may file with the CTA, a

petition for review of such ruling within thirty (30) days from receipt thereof. Provided, however,

that the filing of such petition for review shall not in any way stop, suspend or otherwise toll the

imposition or collection of the appropriate tariff duties or the adoption of other appropriate safeguard

measures, as the case may be.

The petition for review shall comply with the same requirements and shall follow the same rules of

procedure and shall be subject to the same disposition as in appeals in connection with adverse

rulings on tax matters to the Court of Appeals.57 (Emphasis supplied)

It is not difficult to divine why the legislature singled out the CTA as the court with jurisdiction to review

the ruling of the DTI Secretary in connection with the imposition of a safeguard measure. The Court has

long recognized the legislative determination to vest sole and exclusive jurisdiction on matters involving

internal revenue and customs duties to such a specialized court.58 By the very nature of its function, the CTA

is dedicated exclusively to the study and consideration of tax problems and has necessarily developed an

expertise on the subject.59

At the same time, since the CTA is a court of limited jurisdiction, its jurisdiction to take cognizance of a

case should be clearly conferred and should not be deemed to exist on mere implication.60 Concededly, Rep.

Act No. 1125, the statute creating the CTA, does not extend to it the power to review decisions of the DTI

Secretary in connection with the imposition of safeguard measures.61 Of course, at that time which was before the advent of trade liberalization the notion of safeguard measures or safety nets was not yet in

vogue.

Undeniably, however, the SMA expanded the jurisdiction of the CTA by including review of the rulings of

the DTI Secretary in connection with the imposition of safeguard measures. However, Philcemcor and the

public respondents agree that the CTA has appellate jurisdiction over a decision of the DTI Secretary

imposing a safeguard measure, but not when his ruling is not to impose such measure.

In a related development, Rep. Act No. 9282, enacted on 30 March 2004, expressly vests unto the CTA

jurisdiction over "[d]ecisions of the Secretary of Trade and Industry, in case of nonagricultural product,

commodity or article xxx involving xxx safeguard measures under Republic Act No. 8800, where either

party may appeal the decision to impose or not to impose said duties."62 Had Rep. Act No. 9282 already

been in force at the beginning of the incidents subject of this case, there would have been no need to make

any deeper inquiry as to the extent of the CTA's jurisdiction. But as Rep. Act No. 9282 cannot be applied







































retroactively to the present case, the question of whether such jurisdiction extends to a decision not to

impose a safeguard measure will have to be settled principally on the basis of the SMA.

Under Section 29 of the SMA, there are three requisites to enable the CTA to acquire jurisdiction over the

petition for review contemplated therein: (i) there must be a ruling by the DTI Secretary; (ii) the petition

must be filed by an interested party adversely affected by the ruling; and (iii) such ruling must be in

connection with the imposition of a safeguard measure. The first two requisites are clearly present. The third

requisite deserves closer scrutiny.

Contrary to the stance of the public respondents and Philcemcor, in this case where the DTI Secretary

decides not to impose a safeguard measure, it is the CTA which has jurisdiction to review his decision. The

reasons are as follows:

First. Split jurisdiction is abhorred.

Essentially, respondents' position is that judicial review of the DTI Secretary's ruling is exercised by two

different courts, depending on whether or not it imposes a safeguard measure, and in either case the court

exercising jurisdiction does so to the exclusion of the other. Thus, if the DTI decision involves the

imposition of a safeguard measure it is the CTA which has appellate jurisdiction; otherwise, it is the Courtof Appeals. Such setup is as novel and unusual as it is cumbersome and unwise. Essentially, respondents

advocate that Section 29 of the SMA has established split appellate jurisdiction over rulings of the DTI

Secretary on the imposition of safeguard measure.

This interpretation cannot be favored, as the Court has consistently refused to sanction split jurisdiction.63

The power of the DTI Secretary to adopt or withhold a safeguard measure emanates from the same statutory

source, and it boggles the mind why the appeal modality would be such that one appellate court is qualified

if what is to be reviewed is a positive determination, and it is not if what is appealed is a negative

determination. In deciding whether or not to impose a safeguard measure, provisional or general, the DTI

Secretary would be evaluating only one body of facts and applying them to one set of laws. The reviewing

tribunal will be called upon to examine the same facts and the same laws, whether or not the determinationis positive or negative.

In short, if we were to rule for respondents we would be confirming the exercise by two judicial bodies of

jurisdiction over basically the same subject matter¾precisely the split-jurisdiction situation which is

anathema to the orderly administration of justice.64 The Court cannot accept that such was the legislative

motive especially considering that the law expressly confers on the CTA, the tribunal with the specialized

competence over tax and tariff matters, the role of judicial review without mention of any other court that

may exercise corollary or ancillary jurisdiction in relation to the SMA. The provision refers to the Court of

Appeals but only in regard to procedural rules and dispositions of appeals from the CTA to the Court of

Appeals.65

The principle enunciated in Tejada v. Homestead Property Corporation66 is applicable to the case at bar:

The Court agrees with the observation of the [that] when an administrative agency or body is

conferred quasi-judicial functions, all controversies relating to the subject matter pertaining to

its specialization are deemed to be included within the jurisdiction of said administrative

agency or body. Split jurisdiction is not favored.67

Second. The interpretation of the provisions of the SMA favors vesting untrammeled appellate jurisdiction

on the CTA.

A plain reading of Section 29 of the SMA reveals that Congress did not expressly bar the CTA from

reviewing a negative determination by the DTI Secretary nor conferred on the Court of Appeals such review

authority. Respondents note, on the other hand, that neither did the law expressly grant to the CTA the

power to review a negative determination. However, under the clear text of the law, the CTA is vested with






















jurisdiction to review the ruling of the DTI Secretary "in connection with the imposition of a safeguard

measure." Had the law been couched instead to incorporate the phrase "the ruling imposing a safeguard

measure," then respondent's claim would have indisputable merit. Undoubtedly, the phrase "in connection

with" not only qualifies but clarifies the succeeding phrase "imposition of a safeguard measure." As

expounded later, the phrase also encompasses the opposite or converse ruling which is the non-imposition of

a safeguard measure.

In the American case of Shaw v. Delta Air Lines, Inc.,68 the United States Supreme Court, in interpreting a

key provision of the Employee Retirement Security Act of 1974, construed the phrase "relates to" in its

normal sense which is the same as "if it has connection with or reference to."69 There is no serious dispute

that the phrase "in connection with" is synonymous to "relates to" or "reference to," and that all three

phrases are broadly expansive. This is affirmed not just by jurisprudential fiat, but also the acquired

connotative meaning of "in connection with" in common parlance. Consequently, with the use of the phrase

"in connection with," Section 29 allows the CTA to review not only the ruling imposing a safeguard

measure, but all other rulings related or have reference to the application for such measure.

Now, let us determine the maximum scope and reach of the phrase "in connection with" as used in Section

29 of the SMA. A literalist reading or linguistic survey may not satisfy. Even the US Supreme Court in New

York State Blue Cross Plans v. Travelers Ins.

70

conceded that the phrases "relate to" or "in connection with"may be extended to the farthest stretch of indeterminacy for, universally, relations or connections are infinite

and stop nowhere.71 Thus, in the case the US High Court, examining the same phrase of the same provision

of law involved in Shaw, resorted to looking at the statute and its objectives as the alternative to an

"uncritical literalism."72 A similar inquiry into the other provisions of the SMA is in order to determine the

scope of review accorded therein to the CTA.73

The authority to decide on the safeguard measure is vested in the DTI Secretary in the case of non-

agricultural products, and in the Secretary of the Department of Agriculture in the case of agricultural

products.74 Section 29 is likewise explicit that only the rulings of the DTI Secretary or the Agriculture

Secretary may be reviewed by the CTA.75 Thus, the acts of other bodies that were granted some powers by

the SMA, such as the Tariff Commission, are not subject to direct review by the CTA.

Under the SMA, the Department Secretary concerned is authorized to decide on several matters. Within

thirty (30) days from receipt of a petition seeking the imposition of a safeguard measure, or from the date he

made motu proprio initiation, the Secretary shall make a preliminary determination on whether the increased

imports of the product under consideration substantially cause or threaten to cause serious injury to the

domestic industry.76 Such ruling is crucial since only upon the Secretary's positive preliminary

determination that a threat to the domestic industry exists shall the matter be referred to the Tariff

Commission for formal investigation, this time, to determine whether the general safeguard measure should

be imposed or not.77 Pursuant to a positive preliminary determination, the Secretary may also decide that the

imposition of a provisional safeguard measure would be warranted under Section 8 of the SMA.78 The

Secretary is also authorized to decide, after receipt of the report of the Tariff Commission, whether or not toimpose the general safeguard measure, and if in the affirmative, what general safeguard measures should be

applied.79 Even after the general safeguard measure is imposed, the Secretary is empowered to extend the

safeguard measure,80 or terminate, reduce or modify his previous rulings on the general safeguard measure.81

With the explicit grant of certain powers involving safeguard measures by the SMA on the DTI Secretary, it

follows that he is empowered to rule on several issues. These are the issues which arise in connection with,

or in relation to, the imposition of a safeguard measure. They may arise at different stages – the preliminary

investigation stage, the post-formal investigation stage, or the post-safeguard measure stage – yet all these

issues do become ripe for resolution because an initiatory action has been taken seeking the imposition of a

safeguard measure. It is the initiatory action for the imposition of a safeguard measure that sets the wheels in

motion, allowing the Secretary to make successive rulings, beginning with the preliminary determination.

Clearly, therefore, the scope and reach of the phrase "in connection with," as intended by Congress, pertain

to all rulings of the DTI Secretary or Agriculture Secretary which arise from the time an application or motu

























































proprio initiation for the imposition of a safeguard measure is taken. Indeed, the incidents which require

resolution come to the fore only because there is an initial application or action seeking the imposition of a

safeguard measure. From the legislative standpoint, it was a matter of sense and practicality to lump up the

questions related to the initiatory application or action for safeguard measure and to assign only one court

and; that is the CTA to initially review all the rulings related to such initiatory application or action. Both

directions Congress put in place by employing the phrase "in connection with" in the law.

Given the relative expanse of decisions subject to judicial review by the CTA under Section 29, we do not

doubt that a negative ruling refusing to impose a safeguard measure falls within the scope of its jurisdiction.

On a literal level, such negative ruling is "a ruling of the Secretary in connection with the imposition of a

safeguard measure," as it is one of the possible outcomes that may result from the initial application or

action for a safeguard measure. On a more critical level, the rulings of the DTI Secretary in connection with

a safeguard measure, however diverse the outcome may be, arise from the same grant of jurisdiction on the

DTI Secretary by the SMA.82 The refusal by the DTI Secretary to grant a safeguard measure involves the

same grant of authority, the same statutory prescriptions, and the same degree of discretion as the imposition

by the DTI Secretary of a safeguard measure.

The position of the respondents is one of "uncritical literalism"83 incongruent with the animus of the law.

Moreover, a fundamentalist approach to Section 29 is not warranted, considering the absurdity of theconsequences.

Third. Interpretatio Talis In Ambiguis Semper Fienda Est, Ut Evitur Inconveniens Et Absurdum.84

Even assuming arguendo that Section 29 has not expressly granted the CTA jurisdiction to review a

negative ruling of the DTI Secretary, the Court is precluded from favoring an interpretation that would cause

inconvenience and absurdity.85 Adopting the respondents' position favoring the CTA's minimal jurisdiction

would unnecessarily lead to illogical and onerous results.

Indeed, it is illiberal to assume that Congress had intended to provide appellate relief to rulings imposing a

safeguard measure but not to those declining to impose the measure. Respondents might argue that the rightto relief from a negative ruling is not lost since the applicant could, as Philcemcor did, question such ruling

through a special civil action for certiorari under Rule 65 of the 1997 Rules of Civil Procedure, in lieu of an

appeal to the CTA. Yet these two reliefs are of differing natures and gravamen. While an appeal may be

predicated on errors of fact or errors of law, a special civil action for certiorari is grounded on grave abuse of

discretion or lack of or excess of jurisdiction on the part of the decider. For a special civil action for

certiorari to succeed, it is not enough that the questioned act of the respondent is wrong. As the Court

clarified in Sempio v. Court of Appeals:

A tribunal, board or officer acts without jurisdiction if it/he does not have the legal power to

determine the case. There is excess of jurisdiction where, being clothed with the power to determine

the case, the tribunal, board or officer oversteps its/his authority as determined by law. And there isgrave abuse of discretion where the tribunal, board or officer acts in a capricious, whimsical,

arbitrary or despotic manner in the exercise of his judgment as to be said to be equivalent to lack of

jurisdiction. Certiorari is often resorted to in order to correct errors of jurisdiction. Where the error is

one of law or of fact, which is a mistake of judgment, appeal is the remedy.86

It is very conceivable that the DTI Secretary, after deliberate thought and careful evaluation of the evidence,

may either make a negative preliminary determination as he is so empowered under Section 7 of the SMA,

or refuse to adopt the definitive safeguard measure under Section 13 of the same law. Adopting the

respondents' theory, this negative ruling is susceptible to reversal only through a special civil action for

certiorari, thus depriving the affected party the chance to elevate the ruling on appeal on the rudimentary

grounds of errors in fact or in law. Instead, and despite whatever indications that the DTI Secretary acted

with measure and within the bounds of his jurisdiction are, the aggrieved party will be forced to resort to a

gymnastic exercise, contorting the straight and narrow in an effort to discombobulate the courts into

believing that what was within was actually beyond and what was studied and deliberate actually whimsical























and capricious. What then would be the remedy of the party aggrieved by a negative ruling that simply erred

in interpreting the facts or the law? It certainly cannot be the special civil action for certiorari, for as the

Court held in Silverio v. Court of Appeals: "Certiorari is a remedy narrow in its scope and inflexible in its

character. It is not a general utility tool in the legal workshop."87

Fortunately, this theoretical quandary need not come to pass. Section 29 of the SMA is worded in such a

way that it places under the CTA's judicial review all rulings of the DTI Secretary, which are connected with

the imposition of a safeguard measure. This is sound and proper in light of the specialized jurisdiction of the

CTA over tax matters. In the same way that a question of whether to tax or not to tax is properly a tax

matter, so is the question of whether to impose or not to impose a definitive safeguard measure.

On another note, the second paragraph of Section 29 similarly reveals the legislative intent that rulings of the

DTI Secretary over safeguard measures should first be reviewed by the CTA and not the Court of Appeals.

It reads:

The petition for review shall comply with the same requirements and shall follow the same rules of

procedure and shall be subject to the same disposition as in appeals in connection with adverse

rulings on tax matters to the Court of Appeals.

This is the only passage in the SMA in which the Court of Appeals is mentioned. The express wish of

Congress is that the petition conform to the requirements and procedure under Rule 43 of the Rules of Civil

Procedure. Since Congress mandated that the form and procedure adopted be analogous to a review of a

CTA ruling by the Court of Appeals, the legislative contemplation could not have been that the appeal be

directly taken to the Court of Appeals.

Issue of Binding Effect of Tariff

Commission's Factual Determination

on DTI Secretary.

The next issue for resolution is whether the factual determination made by the Tariff Commission under theSMA is binding on the DTI Secretary. Otherwise stated, the question is whether the DTI Secretary may

impose general safeguard measures in the absence of a positive final determination by the Tariff

Commission.

The Court of Appeals relied upon Section 13 of the SMA in ruling that the findings of the Tariff

Commission do not necessarily constitute a final decision. Section 13 details the procedure for the adoption

of a safeguard measure, as well as the steps to be taken in case there is a negative final determination. The

implication of the Court of Appeals' holding is that the DTI Secretary may adopt a definitive safeguard

measure, notwithstanding a negative determination made by the Tariff Commission.

Undoubtedly, Section 13 prescribes certain limitations and restrictions before general safeguard measuresmay be imposed. However, the most fundamental restriction on the DTI Secretary's power in that

respect is contained in Section 5 of the SMA¾that there should first be a positive final determinationof the Tariff Commission¾which the Court of Appeals curiously all but ignored. Section 5 reads:

Sec. 5. Conditions for the Application of General Safeguard Measures. – The Secretary shall apply

a general safeguard measure upon a positive final determination of the [Tariff] Commission that a product is being imported into the country in increased quantities, whether absolute or relative

to the domestic production, as to be a substantial cause of serious injury or threat thereof to the

domestic industry; however, in the case of non-agricultural products, the Secretary shall first

establish that the application of such safeguard measures will be in the public interest. (emphasis

supplied)







The plain meaning of Section 5 shows that it is the Tariff Commission that has the power to make a

"positive final determination." This power lodged in the Tariff Commission, must be distinguished from the

power to impose the general safeguard measure which is properly vested on the DTI Secretary.88

All in all, there are two condition precedents that must be satisfied before the DTI Secretary may impose a

general safeguard measure on grey Portland cement. First, there must be a positive final determination by

the Tariff Commission that a product is being imported into the country in increased quantities (whether

absolute or relative to domestic production), as to be a substantial cause of serious injury or threat to the

domestic industry. Second, in the case of non-agricultural products the Secretary must establish that the

application of such safeguard measures is in the public interest.89 As Southern Cross argues, Section 5 is

quite clear-cut, and it is impossible to finagle a different conclusion even through overarching methods of

statutory construction. There is no safer nor better settled canon of interpretation that when language is clear

and unambiguous it must be held to mean what it plainly expresses:90 In the quotable words of an illustrious

member of this Court, thus:

[I]f a statute is clear, plain and free from ambiguity, it must be given its literal meaning and applied

without attempted interpretation. The verba legis or plain meaning rule rests on the valid

presumption that the words employed by the legislature in a statute correctly express its intent or will

and preclude the court from construing it differently. The legislature is presumed to know themeaning of the words, to have used words advisedly, and to have expressed its intent by the use of

such words as are found in the statute.91

Moreover, Rule 5 of the Implementing Rules and Regulations of the SMA,92 which interprets Section 5 of

the law, likewise requires a positive final determination on the part of the Tariff Commission before the

application of the general safeguard measure.

The SMA establishes a distinct allocation of functions between the Tariff Commission and the DTI

Secretary. The plain meaning of Section 5 shows that it is the Tariff Commission that has the power to make

a "positive final determination." This power, which belongs to the Tariff Commission, must be distinguished

from the power to impose general safeguard measure properly vested on the DTI Secretary. The distinctionis vital, as a "positive final determination" clearly antecedes, as a condition precedent, the imposition of a

general safeguard measure. At the same time, a positive final determination does not necessarily result in the

imposition of a general safeguard measure. Under Section 5, notwithstanding the positive final

determination of the Tariff Commission, the DTI Secretary is tasked to decide whether or not that the

application of the safeguard measures is in the public interest.

It is also clear from Section 5 of the SMA that the positive final determination to be undertaken by the Tariff

Commission does not entail a mere gathering of statistical data. In order to arrive at such determination, it

has to establish causal linkages from the statistics that it compiles and evaluates: after finding there is an

importation in increased quantities of the product in question, that such importation is a substantial cause of

serious threat or injury to the domestic industry.

The Court of Appeals relies heavily on the legislative record of a congressional debate during deliberations

on the SMA to assert a purported legislative intent that the findings of the Tariff Commission do not bind

the DTI Secretary.93 Yet as explained earlier, the plain meaning of Section 5 emphasizes that only if the

Tariff Commission renders a positive determination could the DTI Secretary impose a safeguard measure.

Resort to the congressional records to ascertain legislative intent is not warranted if a statute is clear, plain

and free from ambiguity. The legislature is presumed to know the meaning of the words, to have used words

advisedly, and to have expressed its intent by the use of such words as are found in the statute.94

Indeed, the legislative record, if at all to be availed of, should be approached with extreme caution, as

legislative debates and proceedings are powerless to vary the terms of the statute when the meaning is

clear .95 Our holding in Civil Liberties Union v. Executive Secretary96 on the resort to deliberations of the

constitutional convention to interpret the Constitution is likewise appropriate in ascertaining statutory intent:






































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 reasons for their votes, but they

give us no light as to the views of the large majority who did not talk xxx. We think it safer to

construe the constitution from what appears upon its face."97

Moreover, it is easy to selectively cite passages, sometimes out of their proper context, in order to assert a

misleading interpretation. The effect can be dangerous. Minority or solitary views, anecdotal ruminations, or

even the occasional crude witticisms, may improperly acquire the mantle of legislative intent by the sole

virtue of their publication in the authoritative congressional record. Hence, resort to legislative deliberations

is allowable when the statute is crafted in such a manner as to leave room for doubt on the real intent of the

legislature.

Section 5 plainly evinces legislative intent to restrict the DTI Secretary's power to impose a general

safeguard measure by preconditioning such imposition on a positive determination by the Tariff

Commission. Such legislative intent should be given full force and effect, as the executive power to impose

definitive safeguard measures is but a delegated power¾the power of taxation, by nature and by commandof the fundamental law, being a preserve of the legislature.98 Section 28(2), Article VI of the 1987

Constitution confirms the delegation of legislative power, yet ensures that the prerogative of Congress to

impose limitations and restrictions on the executive exercise of this power:

The Congress may, by law, authorize the President to fix within specified limits, and subject to such

limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and

wharfage dues, and other duties or imposts within the framework of the national development

program of the Government.99

The safeguard measures which the DTI Secretary may impose under the SMA may take the following

variations, to wit: (a) an increase in, or imposition of any duty on the imported product; (b) a decrease in orthe imposition of a tariff-rate quota on the product; (c) a modification or imposition of any quantitative

restriction on the importation of the product into the Philippines; (d) one or more appropriate adjustment

measures, including the provision of trade adjustment assistance; and (e) any combination of the above-

described actions. Except for the provision of trade adjustment assistance, the measures enumerated by the

SMA are essentially imposts, which precisely are the subject of delegation under Section 28(2), Article VI

of the 1987 Constitution.100

This delegation of the taxation power by the legislative to the executive is authorized by the Constitution

itself .101 At the same time, the Constitution also grants the delegating authority (Congress) the right to

impose restrictions and limitations on the taxation power delegated to the President .102 The restrictions and

limitations imposed by Congress take on the mantle of a constitutional command, which the executive branch is obliged to observe.

The SMA empowered the DTI Secretary, as alter ego of the President,103 to impose definitive general

safeguard measures, which basically are tariff imposts of the type spoken of in the Constitution. However,

the law did not grant him full, uninhibited discretion to impose such measures. The DTI Secretary authority

is derived from the SMA; it does not flow from any inherent executive power. Thus, the limitations imposed

by Section 5 are absolute, warranted as they are by a constitutional fiat.104

Philcemcor cites our 1912 ruling in Lamb v. Phipp s105 to assert that the DTI Secretary, having the final

decision on the safeguard measure, has the power to evaluate the findings of the Tariff Commission and

make an independent judgment thereon. Given the constitutional and statutory limitations governing the

present case, the citation is misplaced. Lamb pertained to the discretion of the Insular Auditor of the

Philippine Islands, whom, as the Court recognized, "[t]he statutes of the United States require[d] xxx to






































exercise his judgment upon the legality xxx [of] provisions of law and resolutions of Congress providing for

the payment of money, the means of procuring testimony upon which he may act."106

Thus in Lamb, while the Court recognized the wide latitude of discretion that may have been vested on the

Insular Auditor, it also recognized that such latitude flowed from, and is consequently limited by, statutory

grant. However, in this case, the provision of the Constitution in point expressly recognizes the authority of

Congress to prescribe limitations in the case of tariffs, export/import quotas and other such safeguard

measures. Thus, the broad discretion granted to the Insular Auditor of the Philippine Islands cannot be

analogous to the discretion of the DTI Secretary which is circumscribed by Section 5 of the SMA.

For that matter, Cariño v. Commissioner on Human Rights ,107 likewise cited by Philcemcor, is also

inapplicable owing to the different statutory regimes prevailing over that case and the present petition. In

Cariño, the Court ruled that the constitutional power of the Commission on Human Rights (CHR) to

investigate human rights' violations did not extend to adjudicating claims on the merits.108 Philcemcor

claims that the functions of the Tariff Commission being "only investigatory," it could neither decide nor

adjudicate.109

The applicable law governing the issue in Cariño is Section 18, Article XIII of the Constitution, which

delineates the powers and functions of the CHR. The provision does not vest on the CHR the power toadjudicate cases, but only to investigate all forms of human rights violations.110 Yet, without modifying the

thorough disquisition of the Court in Cariño on the general limitations on the investigatory power, the

precedent is inapplicable because of the difference in the involved statutory frameworks. The Constitution

does not repose binding effect on the results of the CHR's investigation.111 On the other hand, through

Section 5 of the SMA and under the authority of Section 28(2), Article VI of the Constitution, Congress did

intend to bind the DTI Secretary to the determination made by the Tariff Commission.112 It is of no

consequence that such determination results from the exercise of investigatory powers by the Tariff

Commission since Congress is well within its constitutional mandate to limit the authority of the DTI

Secretary to impose safeguard measures in the manner that it sees fit.

The Court of Appeals and Philcemcor also rely on Section 13 of the SMA and Rule 13 of the SMA'sImplementing Rules in support of the view that the DTI Secretary may decide independently of the

determination made by the Tariff Commission. Admittedly, there are certain infelicities in the language of

Section 13 and Rule 13. But reliance should not be placed on the textual imprecisions. Rather, Section 13

and Rule 13 must be viewed in light of the fundamental prescription imposed by Section 5. 113

Section 13 of the SMA lays down the procedure to be followed after the Tariff Commission renders its

report. The provision reads in full:

SEC. 13. Adoption of Definitive Measures. — Upon its positive determination, the Commission shall

recommend to the Secretary an appropriate definitive measure, in the form of:

(a) An increase in, or imposition of, any duty on the imported product;

(b) A decrease in or the imposition of a tariff-rate quota (MAV) on the product;

(c) A modification or imposition of any quantitative restriction on the importation of the product into

the Philippines;

(d) One or more appropriate adjustment measures, including the provision of trade adjustment

assistance;

(e) Any combination of actions described in subparagraphs (a) to (d).

The Commission may also recommend other actions, including the initiation of international

negotiations to address the underlying cause of the increase of imports of the product, to alleviate the



































injury or threat thereof to the domestic industry, and to facilitate positive adjustment to import

competition.

The general safeguard measure shall be limited to the extent of redressing or preventing the injury

and to facilitate adjustment by the domestic industry from the adverse effects directly attributed to

the increased imports: Provided, however, That when quantitative import restrictions are used, such

measures shall not reduce the quantity of imports below the average imports for the three (3)

preceding representative years, unless clear justification is given that a different level is necessary to

prevent or remedy a serious injury.

A general safeguard measure shall not be applied to a product originating from a developing country

if its share of total imports of the product is less than three percent (3%): Provided, however , That

developing countries with less than three percent (3%) share collectively account for not more than

nine percent (9%) of the total imports.

The decision imposing a general safeguard measure, the duration of which is more than one (1) year,

shall be reviewed at regular intervals for purposes of liberalizing or reducing its intensity. The

industry benefiting from the application of a general safeguard measure shall be required to show

positive adjustment within the allowable period. A general safeguard measure shall be terminatedwhere the benefiting industry fails to show any improvement, as may be determined by the

Secretary.

The Secretary shall issue a written instruction to the heads of the concerned government agencies to

implement the appropriate general safeguard measure as determined by the Secretary within fifteen

(15) days from receipt of the report.

In the event of a negative final determination, or if the cash bond is in excess of the definitive

safeguard duty assessed, the Secretary shall immediately issue, through the Secretary of Finance, a

written instruction to the Commissioner of Customs, authorizing the return of the cash bond or the

remainder thereof, as the case may be, previously collected as provisional general safeguard measurewithin ten (10) days from the date a final decision has been made: Provided, That the government

shall not be liable for any interest on the amount to be returned. The Secretary shall not accept for

consideration another petition from the same industry, with respect to the same imports of the

product under consideration within one (1) year after the date of rendering such a decision.

When the definitive safeguard measure is in the form of a tariff increase, such increase shall not be

subject or limited to the maximum levels of tariff as set forth in Section 401(a) of the Tariff and

Customs Code of the Philippines.

To better comprehend Section 13, note must be taken of the distinction between the investigatory and

recommendatory functions of the Tariff Commission under the SMA.

The word "determination," as used in the SMA, pertains to the factual findings on whether there are

increased imports into the country of the product under consideration, and on whether such increased

imports are a substantial cause of serious injury or threaten to substantially cause serious injury to the

domestic industry.114 The SMA explicitly authorizes the DTI Secretary to make a preliminary

determination,115 and the Tariff Commission to make the final determination.116 The distinction is

fundamental, as these functions are not interchangeable. The Tariff Commission makes its determination

only after a formal investigation process, with such investigation initiated only if there is a positive

preliminary determination by the DTI Secretary under Section 7 of the SMA.117 On the other hand, the DTI

Secretary may impose definitive safeguard measure only if there is a positive final determination made by

the Tariff Commission.118

In contrast, a "recommendation" is a suggested remedial measure submitted by the Tariff Commission under

Section 13 after making a positive final determination in accordance with Section 5. The Tariff Commission























is not empowered to make a recommendation absent a positive final determination on its part .119 Under

Section 13, the Tariff Commission is required to recommend to the [DTI] Secretary an "appropriate

definitive measure."120 The Tariff Commission "may also recommend other actions, including the initiation

of international negotiations to address the underlying cause of the increase of imports of the products, to

alleviate the injury or threat thereof to the domestic industry and to facilitate positive adjustment to import

competition."121

The recommendations of the Tariff Commission, as rendered under Section 13, are not obligatory on the

DTI Secretary. Nothing in the SMA mandates the DTI Secretary to adopt the recommendations made by the

Tariff Commission. In fact, the SMA requires that the DTI Secretary establish that the application of such

safeguard measures is in the public interest, notwithstanding the Tariff Commission's recommendation on

the appropriate safeguard measure based on its positive final determination.122 The non-binding force of the

Tariff Commission's recommendations is congruent with the command of Section 28(2), Article VI of the

1987 Constitution that only the President may be empowered by the Congress to impose appropriate tariff

rates, import/export quotas and other similar measures.123 It is the DTI Secretary, as alter ego of the

President, who under the SMA may impose such safeguard measures subject to the limitations imposed

therein. A contrary conclusion would in essence unduly arrogate to the Tariff Commission the executive

power to impose the appropriate tariff measures. That is why the SMA empowers the DTI Secretary to adopt

safeguard measures other than those recommended by the Tariff Commission.

Unlike the recommendations of the Tariff Commission, its determination has a different effect on the DTI

Secretary. Only on the basis of a positive final determination made by the Tariff Commission under Section

5 can the DTI Secretary impose a general safeguard measure. Clearly, then the DTI Secretary is bound by

the determination made by the Tariff Commission.

Some confusion may arise because the sixth paragraph of Section 13124 uses the variant word "determined"

in a different context, as it contemplates "the appropriate general safeguard measure as determined by the

Secretary within fifteen (15) days from receipt of the report." Quite plainly, the word "determined" in this

context pertains to the DTI Secretary's power of choice of the appropriate safeguard measure, as opposed to

the Tariff Commission's power to determine the existence of conditions necessary for the imposition of anysafeguard measure. In relation to Section 5, such choice also relates to the mandate of the DTI Secretary to

establish that the application of safeguard measures is in the public interest, also within the fifteen (15) day

period. Nothing in Section 13 contradicts the instruction in Section 5 that the DTI Secretary is allowed to

impose the general safeguard measures only if there is a positive determination made by the Tariff

Commission.

Unfortunately, Rule 13.2 of the Implementing Rules of the SMA is captioned "Final Determination by the

Secretary." The assailed Decision and Philcemcor latch on this phraseology to imply that the factual

determination rendered by the Tariff Commission under Section 5 may be amended or reversed by the DTI

Secretary. Of course, implementing rules should conform, not clash, with the law that they seek to

implement, for a regulation which operates to create a rule out of harmony with the statute is a nullity .125 Yetimperfect draftsmanship aside, nothing in Rule 13.2 implies that the DTI Secretary can set aside the

determination made by the Tariff Commission under the aegis of Section 5. This can be seen by examining

the specific provisions of Rule 13.2, thus:

RULE 13.2. Final Determination by the Secretary

RULE 13.2.a. Within fifteen (15) calendar days from receipt of the Report of the

Commission, the Secretary shall make a decision, taking into consideration the measures

recommended by the Commission.

RULE 13.2.b. If the determination is affirmative, the Secretary shall issue, within two (2)

calendar days after making his decision, a written instruction to the heads of the concerned

government agencies to immediately implement the appropriate general safeguard measure as

determined by him. Provided, however, that in the case of non-agricultural products, the






























Secretary shall first establish that the imposition of the safeguard measure will be in the

public interest.

RULE 13.2.c. Within two (2) calendar days after making his decision, the Secretary shall also

order its publication in two (2) newspapers of general circulation. He shall also furnish a copy

of his Order to the petitioner and other interested parties, whether affirmative or negative.

(Emphasis supplied.)

Moreover, the DTI Secretary does not have the power to review the findings of the Tariff Commission for it

is not subordinate to the Department of Trade and Industry ("DTI"). It falls under the supervision, not of the

DTI nor of the Department of Finance (as mistakenly asserted by Southern Cross),126 but of the National

Economic Development Authority, an independent planning agency of the government of co-equal

rank as the DTI.127 As the supervision and control of a Department Secretary is limited to the bureaus,

offices, and agencies under him,128 the DTI Secretary generally cannot exercise review authority over

actions of the Tariff Commission. Neither does the SMA specifically authorize the DTI Secretary to alter,

amend or modify in any way the determination made by the Tariff Commission. The most that the DTI

Secretary could do to express displeasure over the Tariff Commission's actions is to ignore its

recommendation, but not its determination.

The word "determination" as used in Rule 13.2 of the Implementing Rules is dissonant with the same word

as employed in the SMA, which in the latter case is undeviatingly in reference to the determination made by

the Tariff Commission. Beyond the resulting confusion, however, the divergent use in Rule 13.2 is

explicable as the Rule textually pertains to the power of the DTI Secretary to review the recommendations

of the Tariff Commission, not the latter's determination. Indeed, an examination of the specific provisions

show that there is no real conflict to reconcile. Rule 13.2 respects the logical order imposed by the SMA.

The Rule does not remove the essential requirement under Section 5 that a positive final determination be

made by the Tariff Commission before a definitive safeguard measure may be imposed by the DTI

Secretary.

The assailed Decision characterizes the findings of the Tariff Commission as merely recommendatory and points to the DTI Secretary as the authority who renders the final decision.129 At the same time, Philcemcor

asserts that the Tariff Commission's functions are merely investigatory, and as such do not include the power

to decide or adjudicate. These contentions, viewed in the context of the fundamental requisite set forth by

Section 5, are untenable. They run counter to the statutory prescription that a positive final determination

made by the Tariff Commission should first be obtained before the definitive safeguard measures may be

laid down.

Was it anomalous for Congress to have provided for a system whereby the Tariff Commission may preclude

the DTI, an office of higher rank, from imposing a safeguard measure? Of course, this Court does not

inquire into the wisdom of the legislature but only charts the boundaries of powers and functions set in its

enactments. But then, it is not difficult to see the internal logic of this statutory framework.

For one, as earlier stated, the DTI cannot exercise review powers over the Tariff Commission which is not

its subordinate office.

Moreover, the mechanism established by Congress establishes a measure of check and balance involving

two different governmental agencies with disparate specializations. The matter of safeguard measures is of

such national importance that a decision either to impose or not to impose then could have ruinous effects on

companies doing business in the Philippines. Thus, it is ideal to put in place a system which affords all due

deliberation and calls to fore various governmental agencies exercising their particular specializations.

Finally, if this arrangement drawn up by Congress makes it difficult to obtain a general safeguard measure,

it is because such safeguard measure is the exception, rather than the rule. The Philippines is obliged to

observe its obligations under the GATT, under whose framework trade liberalization, not protectionism, is



















laid down. Verily, the GATT actually prescribes conditions before a member-country may impose a

safeguard measure. The pertinent portion of the GATT Agreement on Safeguards reads:

2. A Member may only apply a safeguard measure to a product only if that member has determined,

pursuant to the provisions set out below, that such product is being imported into its territory in such

increased quantities, absolute or relative to domestic production, and under such conditions as to

cause or threaten to cause serious injury to the domestic industry that produces like or directly

competitive products.130

3. (a) A Member may apply a safeguard measure only following an investigation by the competent

authorities of that Member pursuant to procedures previously established and made public in

consonance with Article X of the GATT 1994. This investigation shall include reasonable public

notice to all interested parties and public hearings or other appropriate means in which importers,

exporters and other interested parties could present evidence and their views, including the

opportunity to respond to the presentations of other parties and to submit their views, inter alia, as to

whether or not the application of a safeguard measure would be in the public interest. The competent

authorities shall publish a report setting forth their findings and reasoned conclusions reached on all

pertinent issues of fact and law.131

The SMA was designed not to contradict the GATT, but to complement it. The two requisites laid down in

Section 5 for a positive final determination are the same conditions provided under the GATT Agreement on

Safeguards for the application of safeguard measures by a member country. Moreover, the investigatory

procedure laid down by the SMA conforms to the procedure required by the GATT Agreement on

Safeguards. Congress has chosen the Tariff Commission as the competent authority to conduct such

investigation. Southern Cross stresses that applying the provision of the GATT Agreement on Safeguards,

the Tariff Commission is clearly empowered to arrive at binding conclusions.132 We agree: binding on the

DTI Secretary is the Tariff Commission's determinations on whether a product is imported in increased

quantities, absolute or relative to domestic production and whether any such increase is a substantial cause

of serious injury or threat thereof to the domestic industry.133

Satisfied as we are with the proper statutory paradigm within which the SMA should be analyzed, the flaws

in the reasoning of the Court of Appeals and in the arguments of the respondents become apparent. To better

understand the dynamics of the procedure set up by the law leading to the imposition of definitive safeguard

measures, a brief step-by-step recount thereof is in order.

1. After the initiation of an action involving a general safeguard measure,134 the DTI Secretary makes a

preliminary determination whether the increased imports of the product under consideration substantially

cause or threaten to substantially cause serious injury to the domestic industry,135 and whether the imposition

of a provisional measure is warranted under Section 8 of the SMA.136 If the preliminary determination is

negative, it is implied that no further action will be taken on the application.

2. When his preliminary determination is positive, the Secretary immediately transmits the records covering

the application to the Tariff Commission for immediate formal investigation.137

3. The Tariff Commission conducts its formal investigation, keyed towards making a final determination. In

the process, it holds public hearings, providing interested parties the opportunity to present evidence or

otherwise be heard.138 To repeat, Section 5 enumerates what the Tariff Commission is tasked to determine:

(a) whether a product is being imported into the country in increased quantities, irrespective of whether the

product is absolute or relative to the domestic production; and (b) whether the importation in increased

quantities is such that it causes serious injury or threat to the domestic industry.139 The findings of the Tariff

Commission as to these matters constitute the final determination, which may be either positive or negative.

4. Under Section 13 of the SMA, if the Tariff Commission makes a positive determination, the Tariff

Commission "recommends to the [DTI] Secretary an appropriate definitive measure." The Tariff

Commission "may also recommend other actions, including the initiation of international negotiations to











































address the underlying cause of the increase of imports of the products, to alleviate the injury or threat

thereof to the domestic industry, and to facilitate positive adjustment to import competition."140

5. If the Tariff Commission makes a positive final determination, the DTI Secretary is then to decide, within

fifteen (15) days from receipt of the report, as to what appropriate safeguard measures should he impose.

6. However, if the Tariff Commission makes a negative final determination, the DTI Secretary cannot

impose any definitive safeguard measure. Under Section 13, he is instructed instead to return whatever cash

bond was paid by the applicant upon the initiation of the action for safeguard measure.

The Effect of the Court's Decision

The Court of Appeals erred in remanding the case back to the DTI Secretary, with the instruction that the

DTI Secretary may impose a general safeguard measure even if there is no positive final determination from

the Tariff Commission. More crucially, the Court of Appeals could not have acquired jurisdiction over

Philcemcor's petition for certiorari in the first place, as Section 29 of the SMA properly vests jurisdiction on

the CTA. Consequently, the assailed Decision is an absolute nullity, and we declare it as such.

What is the effect of the nullity of the assailed Decision on the 5 June 2003 Decision of the DTI Secretaryimposing the general safeguard measure? We have recognized that any initial judicial review of a DTI ruling

in connection with the imposition of a safeguard measure belongs to the CTA. At the same time, the Court

also recognizes the fundamental principle that a null and void judgment cannot produce any legal effect.

There is sufficient cause to establish that the 5 June 2003 Decision of the DTI Secretary resulted from the

assailed Court of Appeals Decision, even if the latter had not yet become final. Conversely, it can be

concluded that it was because of the putative imprimatur of the Court of Appeals' Decision that the DTI

Secretary issued his ruling imposing the safeguard measure. Since the 5 June 2003 Decision derives its legal

effect from the void Decision of the Court of Appeals, this ruling of the DTI Secretary is consequently void.

The spring cannot rise higher than the source.

The DTI Secretary himself acknowledged that he drew stimulating force from the appellate court's Decisionfor in his own 5 June 2003 Decision, he declared:

From the aforementioned ruling, the CA has remanded the case to the DTI Secretary for a final

decision. Thus, there is no legal impediment for the Secretary to decide on the application.141

The inescapable conclusion is that the DTI Secretary needed the assailed Decision of the Court of Appeals

to justify his rendering a second Decision. He explicitly invoked the Court of Appeals' Decision as basis for

rendering his 5 June 2003 ruling, and implicitly recognized that without such Decision he would not have

the authority to revoke his previous ruling and render a new, obverse ruling.

It is clear then that the 25 June 2003 Decision of the DTI Secretary is a product of the void Decision, it being an attempt to carry out such null judgment. There is therefore no choice but to declare it void as well,

lest we sanction the perverse existence of a fruit from a non-existent tree. It does not even matter what the

disposition of the 25 June 2003 Decision was, its nullity would be warranted even if the DTI Secretary chose

to uphold his earlier ruling denying the application for safeguard measures.

It is also an unfortunate spectacle to behold the DTI Secretary, seeking to enforce a judicial decision which

is not yet final and actually pending review on appeal. Had it been a judge who attempted to enforce a

decision that is not yet final and executory, he or she would have readily been subjected to sanction by this

Court. The DTI Secretary may be beyond the ambit of administrative review by this Court, but we are

capacitated to allocate the boundaries set by the law of the land and to exact fealty to the legal order,

especially from the instrumentalities and officials of government.











WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is DECLARED

NULL AND VOID and SET ASIDE. The Decision of the DTI Secretary dated 25 June 2003 is also

DECLARED NULL AND VOID and SET ASIDE. No Costs.

SO ORDERED.