Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 143855

September 21, 2010

REPRESENTATIVES GERARDO S. ESPINA, ORLANDO FUA, JR., PROSPERO AMATONG, ROBERT ACE
S. BARBERS, RAUL M. GONZALES, PROSPERO PICHAY, JUAN MIGUEL ZUBIRI and FRANKLIN
BAUTISTA,Petitioners,
vs.
HON. RONALDO ZAMORA, JR. (Executive Secretary), HON. MAR ROXAS (Secretary of Trade and
Industry), 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.
DECISION
ABAD, J.:
This case calls upon the Court to exercise its power of judicial review and determine the constitutionality of the
Retail Trade Liberalization Act of 2000, which has been assailed as in breach of the constitutional mandate for
the 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 known
as 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 It expressly repealed R.A. 1180, which absolutely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 to
do so under four categories:
Category A

Less than
US$2,500,000.00

Exclusively for Filipino citizens and

corporations wholly owned by Filipino citizens.

Category B

US$2,500,000.00 up but less

than US$7,500,000.00

For the first two years of R.A. 8762s

effectivity, foreign ownership is allowed up to
60%. After the two-year period, 100% foreign
equity shall be allowed.

Category C

US$7,500,000.00 or more

May be wholly owned by foreigners. Foreign

investments for establishing a store in
Categories B and C shall not be less than the
equivalent in Philippine Pesos of
US$830,000.00.

Category D

US$250,000.00 per store of

foreign enterprises
specializing in high-end or
luxury 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 the
Philippines, 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, filed the present petition, assailing the constitutionality of R.A. 8762 on the
following grounds:

PETITIONERS ARGUMENT
First, the law runs afoul of Sections 9, 19, and 20 of Article II of the Constitution which enjoins the
State to place the national economy under the control of Filipinos to achieve equal distribution of
opportunities, promote industrialization and full employment, and protect Filipino enterprise against
unfair competition and trade policies.
Second, the implementation of R.A. 8762 would lead to alien control of the retail trade, which taken
together with alien dominance of other areas of business, would result in the loss of effective Filipino
control of the economy.
Third, foreign retailers like Walmart and K-Mart would crush Filipino retailers and sari-sari store
vendors, 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 in
restraint of trade.
Respondents Executive Secretary Ronaldo Zamora, Jr., Trade and Industry Secretary Mar Roxas, National
Economic 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 are
taxpayers since R.A. 8762 does not involve the disbursement of public funds. Nor can they invoke the
fact that they are members of Congress since they made no claim that the law infringes on their right as
legislators.
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 the
petition 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. It
directs Congress to reserve to Filipino citizens certain areas of investments upon the recommendation of
the NEDA and when the national interest so dictates. But the Constitution leaves to the discretion of the
Congress whether or not to make such reservation. It does not prohibit Congress from enacting laws
allowing 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 constitutionality
of R.A. 8762; and
Held:
There is no clear showing that the implementation of the Retail Trade Liberalization Act
prejudices 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 of principles and state policies, are not
self-executing. Legislative failure to pursue such policies cannot give rise to a cause of
action in the courts.
while Section 19, Article II of the 1987 Constitution requires the development of a self-reliant and
independent national economy effectively controlled by Filipino entrepreneurs, it does not
impose a policy of Filipino monopoly of the economic environment. The objective is simply
to prohibit foreign powers or interests from maneuvering our economic policies and ensure that
Filipinos 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, it
does not prohibit them either. In fact, it allows an exchange on the basis of equality and
reciprocity, frowning only on foreign competition that is unfair.10 The key, as in all economies in
the world, is to strike a balance between protecting local businesses and allowing the entry of
foreign investments and services.
1avv phi 1

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 and
concessions 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 effectively
controlled by Filipinos.8
ten.li hpw al

Section 10, Article XII of the 1987 Constitution gives Congress the discretion to reserve to
Filipinos certain areas of investments upon the recommendation of the NEDA and when
the national interest requires. Thus, Congress can determine what policy to pass and when to
pass it depending on the economic exigencies. It can enact laws allowing the entry of foreigners
into certain industries not reserved by the Constitution to Filipino citizens. In this case, Congress
has decided to open certain areas of the retail trade business to foreign investments instead of
reserving 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 right
to property or to engage in an ordinarily lawful business, it cannot be said that the law
amounts to a denial of the Filipinos right to property and to due process of law. Filipinos
continue to have the right to engage in the kinds of retail business to which the law in question
has permitted the entry of foreign investors.
4. R.A. 8762, the Retail Trade Liberalization Act, lessens the restraint on the foreigners right
to property or to engage in an ordinarily lawful business, it cannot be said that the law
amounts to a denial of the Filipinos right to property and to due process of law. Filipinos
continue to have the right to engage in the kinds of retail business to which the law in question
has permitted the entry of foreign investors.

The Courts Ruling

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

show that he has been or is about to be denied some right or privilege to which he is lawfully entitled or
that 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 prejudices
petitioners or inflicts damages on them, either as taxpayers4 or as legislators.5 Still the Court will resolve
the question they raise since the rule on standing can be relaxed for nontraditional plaintiffs like ordinary
citizens, taxpayers, and legislators when as in this case the public interest so requires or the matter is of
transcendental 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 State
to develop a self-reliant and independent national economy effectively controlled by Filipinos. They
invoke the provisions of the Declaration of Principles and State Policies under Article II of the 1987
Constitution, which read as follows:
Section 9. The State shall promote a just and dynamic social order that will ensure the prosperity and
independence of the nation and free the people from poverty through policies that provide adequate social
services, promote full employment, a rising standard of living, and an improved quality of life for all.
xxxx
Section 19. The State shall develop a self-reliant and independent national economy effectively
controlled by Filipinos.
Section 20. The State recognizes the indispensable role of the private sector, encourages private
enterprise, and provides incentives to needed investments.
Petitioners also invoke the provisions of the National Economy and Patrimony under Article XII of the 1987
Constitution, which reads:
Section 10. The Congress shall, upon recommendation of the economic and planning agency, when the national
interest dictates, reserve to citizens of the Philippines or to corporations or associations at least sixty per centum
of whose capital is owned by such citizens, or such higher percentage as Congress may prescribe, certain areas
of investments. The Congress shall enact measures that will encourage the formation and operation 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 shall
give preference to qualified Filipinos.
The State shall regulate and exercise authority over foreign investments within its national jurisdiction and in
accordance with its national goals and priorities.
xxxx
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 and
arrangements of exchange on the basis of equality and reciprocity.
But, as the Court explained in Taada v. Angara,7 the provisions of Article II of the 1987 Constitution, the
declarations of principles and state policies, are not self-executing. Legislative failure to pursue such
policies cannot give rise to a cause of action in the courts.
The Court further explained in Taada that 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 and concessions
covering the national economy and patrimony and in the use of Filipino labor, domestic materials and locallyproduced 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 by
Filipinos.8
ten.lihpw al

In other words, while Section 19, Article II of the 1987 Constitution requires the development of a self-reliant and
independent national economy effectively controlled by Filipino entrepreneurs, it does not impose a policy of
Filipino monopoly of the economic environment. The objective is simply to prohibit foreign powers or
interests from maneuvering our economic policies and ensure that Filipinos are given preference in all areas of
development.
Indeed, the 1987 Constitution takes into account the realities of the outside world as it requires the pursuit of a
trade policy that serves the general welfare and utilizes all forms and arrangements of exchange on the basis of
equality and reciprocity; and speaks of industries which are competitive in both domestic and foreign markets as
well as of the protection of Filipino enterprises against unfair foreign competition and trade practices. Thus, while
the Constitution mandates a bias in favor of Filipino goods, services, labor and enterprises, it also recognizes the
need for business exchange with the rest of the world on the bases of equality and reciprocity and limits
protection 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, and
services. While it does not encourage their unlimited entry into the country, it does not prohibit them
either. In fact, it allows an exchange on the basis of equality and reciprocity, frowning only on foreign
competition that is unfair.10 The key, as in all economies in the world, is to strike a balance between protecting
local businesses and allowing the entry of foreign investments and services.
1avv phi 1

More importantly, Section 10, Article XII of the 1987 Constitution gives Congress the discretion to reserve
to Filipinos certain areas of investments upon the recommendation of the NEDA and when the national
interest requires. Thus, Congress can determine what policy to pass and when to pass it depending on the
economic exigencies. It can enact laws allowing the entry of foreigners into certain industries not reserved by the
Constitution to Filipino citizens. In this case, Congress has decided to open certain areas of the retail trade
business to foreign investments instead of reserving them exclusively to Filipino citizens. The NEDA has not
opposed such policy.
The control and regulation of trade in the interest of the public welfare is of course an exercise of the
police power of the State. A persons 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 Trade
Nationalization Act or R.A. 1180 that restricts the retail business to Filipino citizens. In denying the petition
assailing the validity of such Act for violation of the foreigners 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 an
interest in preventing alien control of the retail trade and R.A. 1180 was reasonably related to that
purpose. That law is not arbitrary.
Here, to the extent that R.A. 8762, the Retail Trade Liberalization Act, lessens the restraint on the
foreigners right to property or to engage in an ordinarily lawful business, it cannot be said that the law
amounts to a denial of the Filipinos right to property and to due process of law. Filipinos continue to have
the right to engage in the kinds of retail business to which the law in question has permitted the entry of foreign
investors.
Certainly, it is not within the province of the Court to inquire into the wisdom of R.A. 8762 save when it blatantly
violates the Constitution. But as the Court has said, there is no showing that the law has contravened any
constitutional mandate. The Court is not convinced that the implementation of R.A. 8762 would eventually
lead to alien control of the retail trade business. Petitioners have not mustered any concrete and strong
argument to support its thesis. The law itself has provided strict safeguards on foreign participation in that
business. 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 of
Filipino 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 their
accredited stores through the use of mobile or rolling stores or carts, the use of sales representatives, door-todoor 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 local
small 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 ON
PRIVATIZATION 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, and
concessions covering the national economy and patrimony, the State shall give preference to qualified
Filipinos, 1 is in oked by
2. Petitioner ( MANILA PRINCE HOTEL (MPH) its bid to acquire 51% of the shares of the Manila Hotel
Corporation (MHC) which owns the historic Manila Hotel.

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

1. The controversy arose when respondent Government Service Insurance System (GSIS), pursuant to
the privatization program of the Philippine Government under Proclamation No. 50 dated 8 December
1986, decided to sell through public bidding 30% to 51% of the issued and outstanding shares of
respondent MHC.
2. The winning bidder, or the eventual "strategic partner," is to provide management expertise and/or an
international marketing/reservation system, and financial support to strengthen the profitability
and performance of the Manila 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% of
the 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 the
same 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 of
Shares 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 the
Management Contract, International Marketing/Reservation System Contract or
other type of contract specified by the Highest Bidder in its strategic plan for the
Manila Hotel. . . .
b. The Highest Bidder must execute the Stock Purchase and Sale Agreement
with GSIS . . . .
K. DECLARATION OF THE WINNING BIDDER/STRATEGIC PARTNER
The Highest Bidder will be declared the Winning Bidder/Strategic Partner after the following
conditions are met:
a. Execution of the necessary contracts with GSIS/MHC not later than October
23, 1995 (reset to November 3, 1995); and

b. Requisite approvals from the GSIS/MHC and COP (Committee on

Privatization)/OGCC (Office of the Government Corporate Counsel) are
obtained. 3
3. Pending the declaration of Renong Berhad as the winning bidder/strategic partner and the
execution of the necessary contracts, petitioner in a letter to respondent GSIS dated 28
September 1995 matched the bid price of P44.00 per share tendered by Renong Berhad. 4 In a
subsequent letter dated 10 October 1995 petitioner sent a manager's check issued by Philtrust Bank
for Thirty-three Million Pesos (P33.000.000.00) as Bid Security to match the bid 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 the
matching bid and that the sale of 51% of the MHC may be hastened by respondent GSIS and
consummated with Renong Berhad,
5. petitioner came to this Court on prohibition and mandamus. On 18 October 1995 the Court
issued a temporary restraining order enjoining respondents from perfecting and
consummating 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 it
by 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 that
the Manila Hotel has been identified with the Filipino nation and has practically
become a historical monument which reflects the vibrancy of Philippine heritage and
culture. It is a proud legacy of an earlier generation of Filipinos who believed in the nobility
and sacredness of independence and its power and capacity to release the full potential of
the Filipino people. To all intents and purposes, it has become a part of the national
patrimony. 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 controlled
corporation, the hotel business of respondent GSIS being a part of the tourism industry is
unquestionably a part of the national economy. Thus, any transaction involving 51% of the shares
of stock of the MHC is clearly covered by the term national economy, to which Sec. 10, second
par., Art. XII, 1987 Constitution, applies. 7

c. since Manila Hotel is part of the national patrimony and its business also
unquestionably part of the national economy. Hence, petitioner should be preferred
after it has matched the bid offer of the Malaysian firm.
d. For the bidding rules mandate that if for any reason, the Highest Bidder cannot be
awarded the Block of Shares, GSIS may offer this to the other Qualified Bidders that
have validly submitted bids provided that these Qualified Bidders are willing to match
the highest bid in terms of price per share. 8
RESPONDENT ARGUMENT
A. Sec. 10, second par., Art. XII, of the 1987 Constitution is merely a statement of principle
and policy since it is not a self-executing provision and requires implementing
legislation(s) . . . Thus, for the said provision to Operate, there must be existing laws "to lay
down conditions under which business may be done." 9
B. granting that this provision is self-executing, Manila Hotel does not fall under the term
national patrimony which only refers to 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 to
respondents, while petitioner speaks of the guests who have slept in the hotel and the events
that have transpired therein which make the hotel historic, these alone do not make the hotel
fall under the patrimonyof 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 own
separate and distinct from the Philippines as a State.

C. granting that the Manila Hotel forms part of the national patrimony, the constitutional
provision invoked is still inapplicable since what is being sold is only 51% of the outstanding
shares of the corporation, not the hotel building nor the land upon which the building
stands. Certainly, 51% of the equity of the MHC cannot be considered part of
the national patrimony. Moreover, if the disposition of the shares of the MHC is really
contrary to the Constitution, petitioner should have questioned it right from the beginning and
not after it had lost in the bidding.
D. Fourth, the reliance by petitioner on par. V., subpar. J. 1., of the bidding rules which provides
that if for any reason, the Highest Bidder cannot be awarded the Block of Shares, GSIS may
offer this to the other Qualified Bidders that have validly submitted bids provided that these
Qualified Bidders are willing to match the highest bid in terms of price per share, is
misplaced. Respondents postulate that the privilege of submitting a matching bid has
not yet arisen since it only takes place if for any reason, the Highest Bidder cannot be
awarded the Block of Shares. Thus the submission by petitioner of a matching bid is
premature since Renong Berhad could still very well be awarded the block of shares and the
condition 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 since
respondent GSIS did not exercise its discretion in a capricious, whimsical manner, and if ever it
did abuse its discretion it was not so patent and gross as to amount to an evasion of a positive
duty or a virtual refusal to perform a duty enjoined by law. Similarly, the petition
for mandamus should fail as petitioner has no clear legal right to what it demands and
respondents 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 and
policy since it is not a self-executing provision and requires implementing.
in case of doubt, the Constitution should be considered self-executing rather than non-selfexecuting . . . . Unless the contrary is clearly intended, the provisions of the Constitution should be
considered self-executing, as a contrary rule would give the legislature discretion to determine when, or
whether, they shall be effective

Constitution is the fundamental, paramount and supreme law of the nation, it is deemed
written in every statute and contract.

HELD: NO

Sec. 10, second par., Art. XII of the of the 1987 Constitution is a mandatory, positive command
which is complete in itself and which needs no further guidelines or implementing laws or rules for
its enforcement. From its very words the provision does not require any legislation to put it in operation.
It is per sejudicially 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 qualified
Filipinos, it means just that qualified Filipinos shall be preferred. And when our Constitution declares
that a right exists in certain specified circumstances an action may be maintained to enforce such right
notwithstanding the absence of any legislation on the subject; consequently, if there is no statute
especially enacted to enforce such constitutional right, such right enforces itself by its own inherent
potency 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 in
previous Constitutions . . . .
The term "qualified Filipinos" simply means that preference shall be given to those
citizens who can make a viable contribution to the common good, because of credible
competence and efficiency. It certainly does NOT mandate the pampering and preferential
treatment to Filipino citizens or organizations that are incompetent or inefficient, since such an
indiscriminate 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 made
between a "qualified foreigner" end a "qualified Filipino," the latter shall be chosen over the
former."
Lastly, the word qualified is also determinable. Petitioner was so considered by respondent GSIS
and selected as one of the qualified bidders. It was pre-qualified by respondent GSIS in
accordance with its own guidelines so that the sole inference here is that petitioner has been
found to be possessed of proven management expertise in the hotel industry, or it has significant
equity ownership in another hotel company, or it has an overall management and marketing
proficiency to successfully operate the Manila Hotel. 44

2. w/n Manila Hotel forms part of the national patrimony?

HELD: yes
The patrimony of the Nation that should be conserved and developed refers not only to out rich
natural 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 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 the
Constitution speaks of national patrimony, it refers not only to the natural resources of the
Philippines, as the Constitution could have very well used the term natural resources, but also to
the cultural heritage of the Filipinos.

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 for the 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 the Philippine Commonwealth. Dubbed as the Official Guest
House of the Philippine Government. it plays host to dignitaries and official visitors who are accorded the
traditional Philippine hospitality. 36
The Manila Hotel or, for that matter, 51% of the MHC, is not just any commodity to be sold to the
highest bidder solely for the sake of privatization. We are not talking about an ordinary piece of
property in a commercial district. We are talking about a historic relic that has hosted many of
the 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 a
nation. It is supreme, imperious, absolute and unalterable except by the authority from which it emanates. It has
been defined as the fundamental and paramount law of the nation. 10 It prescribes the permanent framework of a
system 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 a
supreme law to which all other laws must conform and in accordance with which all private rights must be determined
and all public authority administered.11 Under the doctrine of constitutional supremacy, if a law or contract violates
any norm of the constitution that law or contract whether promulgated by the legislative or by the executive branch or
entered into by private persons for private purposes is null and void and without any force and effect. Thus, since the

Constitution is the fundamental, paramount and supreme law of the nation, it is deemed written in every
statute and contract.

Admittedly, some constitutions are merely declarations of policies and principles. Their provisions command the
legislature to enact laws and carry out the purposes of the framers who merely establish an outline of
government providing for the different departments of the governmental machinery and securing certain
fundamental and inalienable rights of citizens. 12 A provision which lays down a general principle, such as
those found in Art. II of the 1987 Constitution, is usually not self-executing. But a provision which is complete in
itself 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 constitutional
provision is self-executing if the nature and extent of the right conferred and the liability imposed are fixed by
the constitution itself, so that they can be determined by an examination and construction of its terms, and
there 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 principle
and have often become in effect extensive codes of laws intended to operate directly upon the people in a
manner similar to that of statutory enactments, and the function of constitutional conventions has evolved into
one more like that of a legislative body. Hence, unless it is expressly provided that a legislative act is
necessary to enforce a constitutional mandate, the presumption now is that all provisions of the
constitution are self-executing If the constitutional provisions are treated as requiring legislation instead
of self-executing, the legislature would have the power to ignore and practically nullify the mandate of
the fundamental law. 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 than
non-self-executing . . . . Unless the contrary is clearly intended, the provisions of the
Constitution should be considered self-executing, as a contrary rule would give the legislature
discretion to determine when, or whether, they shall be effective. These provisions would be
subordinated to the will of the lawmaking body, which could make them entirely meaningless by
simply refusing to pass the needed implementing statute. 15
Respondents argue that Sec. 10, second par., Art. XII, of the 1987 Constitution is clearly not self-executing, as
they quote from discussions on the floor of the 1986 Constitutional Commission
MR. RODRIGO. Madam President, I am asking this question as the Chairman of
the Committee on Style. If the wording of "PREFERENCE" is given to
QUALIFIED FILIPINOS," can it be understood as a preference to qualified
Filipinos vis-a-vis Filipinos who are not qualified. So, why do we not make it
clear? To qualified Filipinos as against aliens?
THE PRESIDENT. What is the question of Commissioner Rodrigo? Is it to
remove the word "QUALIFIED?".
MR. RODRIGO. No, no, but say definitely "TO QUALIFIED FILIPINOS" as
against 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 down
conditions under which business may be done. For example, qualifications on the
setting up of other financial structures, et cetera (emphasis supplied by
respondents)
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 is
non-self-executing but simply for purposes of style. But, certainly, the legislature is not precluded from enacting
other further laws to enforce the constitutional provision so long as the contemplated statute squares with the
Constitution. Minor details may be left to the legislature without impairing the self-executing nature of
constitutional provisions.

In self-executing constitutional provisions, the legislature may still enact legislation to facilitate the
exercise of powers directly granted by the constitution, further the operation of such a provision, prescribe a
practice to be used for its enforcement, provide a convenient remedy for the protection of the rights secured or
the determination thereof, or place reasonable safeguards around the exercise of the right. The mere fact that
legislation may supplement and add to or prescribe a penalty for the violation of a self-executing constitutional
provision does not render such a provision ineffective in the absence of such legislation. The omission from a
constitution of any express provision for a remedy for enforcing a right or liability is not necessarily an indication
that it was not intended to be self-executing. The rule is that a self-executing provision of the constitution does
not 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 legislation
however 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 the
tenor of the first and third paragraphs of the same section which undoubtedly are not self-executing. 18 The
argument is flawed. If the first and third paragraphs are not self-executing because Congress is still to enact measures
to encourage the formation and operation of enterprises fully owned by Filipinos, as in the first paragraph, and the
State 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 does
not 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 selfexecuting in one part and non-self-executing in another. 19

Even the cases cited by respondents holding that certain constitutional provisions are merely statements of
principles and policies, which are basically not self-executing and only placed in the Constitution as moral
incentives 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 of
family life, 22 the vital role of the youth in nation-building 23 the promotion of social justice, 24 and the values of
education.25 Tolentino v. Secretary of Finance 26 refers to the constitutional provisions on social justice and human
rights 27 and on education. 28 Lastly, Kilosbayan, Inc. v. Morato 29 cites provisions on the promotion of general
welfare, 30 the sanctity of family life, 31 the vital role of the youth in nation-building 32 and the promotion of total human
liberation and development.33 A reading of these provisions indeed clearly shows that they are not judicially
enforceable constitutional rights but merely guidelines for legislation. The very terms of the provisions manifest that
they 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, positive
command which is complete in itself and which needs no further guidelines or implementing laws or rules
for its enforcement. From its very words the provision does not require any legislation to put it in operation. It
is per sejudicially 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 qualified Filipinos, it
means just that qualified Filipinos shall be preferred. And when our Constitution declares that a right exists in
certain specified circumstances an action may be maintained to enforce such right notwithstanding the absence
of any legislation on the subject; consequently, if there is no statute especially enacted to enforce such
constitutional right, such right enforces itself by its own inherent potency and puissance, and from which all
legislations 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 to
out rich natural 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 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 the
Constitution speaks of national patrimony, it refers not only to the natural resources of the Philippines, as the
Constitution could have very well used the term natural resources, but also to the cultural heritage of the
Filipinos.

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 for
the 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 the
Philippine Commonwealth. Dubbed as the Official Guest House of the Philippine Government. it plays host to
dignitaries 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 a
City. 37During World War II the hotel was converted by the Japanese Military Administration into a military
headquarters. When the American forces returned to recapture Manila the hotel was selected by the Japanese
together with Intramuros as the two (2) places fro their final stand. Thereafter, in the 1950's and 1960's, the hotel
became the center of political activities, playing host to almost every political convention. In 1970 the hotel reopened
after a renovation and reaped numerous international recognitions, an acknowledgment of the Filipino talent and
ingenuity. 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 and
frustrations of the Filipinos; its existence is impressed with public interest; its own historicity associated with our
struggle for sovereignty, independence and nationhood. Verily, Manila Hotel has become part of our national
economy and patrimony. For sure, 51% of the equity of the MHC comes within the purview of the constitutional
shelter for it comprises the majority and controlling stock, so that anyone who acquires or owns the 51% will
have actual control and management of the hotel. In this instance, 51% of the MHC cannot be disassociated
from 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% of
the 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 includes
corporations 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 "QUALIFIED
FILIPINOS" with the following: "CITIZENS OF THE PHILIPPINES OR
CORPORATIONS OR ASSOCIATIONS WHOSE CAPITAL OR CONTROLLING
STOCK IS WHOLLY OWNED BY SUCH CITIZENS.
xxx xxx xxx
MR. MONSOD. Madam President, apparently the proponent is agreeable, but we
have 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. What
about 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 the
preference 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 read
again.
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 QUALIFIED
FILIPINOS." And the word "Filipinos" here, as intended by the proponents, will

include not only individual Filipinos but also Filipino-controlled entities or entities
fully-controlled by Filipinos. 40
The phrase preference to qualified Filipinos was explained thus
MR. FOZ. Madam President, I would like to request Commissioner Nolledo to
please restate his amendment so that I can ask a question.
MR. NOLLEDO. "IN THE GRANT OF RIGHTS, PRIVILEGES AND
CONCESSIONS 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 qualified
and a Filipino enterprise is also qualified, will the Filipino enterprise still be given
a preference?
MR. NOLLEDO. Obviously.
MR. FOZ. If the foreigner is more qualified in some aspects than the Filipino
enterprise, 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 STATE
SHALL GlVE PREFERENCE TO QUALIFIED FILIPINOS. This embodies the so-called "Filipino
First" 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 still
further clarified by Commissioner Nolledo 43
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 in previous
Constitutions . . . .
The term "qualified Filipinos" simply means that preference shall be given to those citizens who
can make a viable contribution to the common good, because of credible competence and
efficiency. It certainly does NOT mandate the pampering and preferential treatment to Filipino
citizens or organizations that are incompetent or inefficient, since such an indiscriminate
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 made
between a "qualified foreigner" end a "qualified Filipino," the latter shall be chosen over the
former."
Lastly, the word qualified is also determinable. Petitioner was so considered by respondent GSIS and selected
as one of the qualified bidders. It was pre-qualified by respondent GSIS in accordance with its own guidelines so
that the sole inference here is that petitioner has been found to be possessed of proven management expertise
in the hotel industry, or it has significant equity ownership in another hotel company, or it has an overall
management 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 not
self-executory and requires implementing legislation is quite disturbing. The attempt to violate a clear
constitutional provision by the government itself is only too distressing. To adopt such a line of reasoning is
to renounce the duty to ensure faithfulness to the Constitution. For, even some of the provisions of the
Constitution which evidently need implementing legislation have juridical life of their own and can be the source
of 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., on
constitutional 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 executive
action. When the executive acts, it must be guided by its own understanding of the constitutional
command and of applicable laws. The responsibility for reading and understanding the
Constitution and the laws is not the sole prerogative of Congress. If it were, the executive would
have to ask Congress, or perhaps the Court, for an interpretation every time the executive is
confronted 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 GSIS
which by itself possesses a separate and distinct personality. This argument again is at best specious. It is
undisputed that the sale of 51% of the MHC could only be carried out with the prior approval of the State acting
through respondent Committee on Privatization. As correctly pointed out by Fr. Joaquin G. Bernas, S.J., this fact
alone 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 the
Constitution (1) when the activity it engages in is a "public function;" (2) when the government is so significantly
involved with the private actor as to make the government responsible for his action; and, (3) when the
government has approved or authorized the action. It is evident that the act of respondent GSIS in selling 51% of
its 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 and
therefore subject to the constitutional command. 46
When the Constitution addresses the State it refers not only to the people but also to the government as
elements of the State. After all, government is composed of three (3) divisions of power legislative, executive
and judicial. Accordingly, a constitutional mandate directed to the State is correspondingly directed to the
three(3) branches of government. It is undeniable that in this case the subject constitutional injunction is
addressed among others to the Executive Department and respondent GSIS, a government instrumentality
deriving 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. The
bidding 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 First
Policy provision of the Constitution bestows preference on qualified Filipinos the mere tending of the highest bid
is not an assurance that the highest bidder will be declared the winning bidder. Resultantly, respondents are not
bound to make the award yet, nor are they under obligation to enter into one with the highest bidder. For in
choosing the awardee respondents are mandated to abide by the dictates of the 1987 Constitution the
provisions 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 being
violative of the Constitution. It is a basic principle in constitutional law that all laws and contracts must conform
with 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 the
Block of Shares, GSIS may offer this to other Qualified Bidders that have validly submitted bids provided that
these Qualified Bidders are willing to match the highest bid in terms of price per
share. 47 Certainly, the constitutional mandate itself is reason enough not to award the block of shares immediately to
the foreign bidder notwithstanding its submission of a higher, or even the highest, bid. In fact, we cannot conceive of a
stronger 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 a
Filipino, there is no question that the Filipino will have to be allowed to match the bid of the foreign entity. And if
the Filipino matches the bid of a foreign firm the award should go to the Filipino. It must be so if we are to give
life 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 simply
disregarded. 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 the
Constitution 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 person
therefore desiring to do business in the Philippines or with any of its agencies or instrumentalities is presumed to
know 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 since
petitioner 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 sale
only 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 the
constitutional mandate, petitioner had not yet matched the bid offered by Renong Berhad. Thus it did not have
the right or personality then to compel respondent GSIS to accept its earlier bid. Rightly, only after it had
matched the bid of the foreign firm and the apparent disregard by respondent GSIS of petitioner's matching bid
did the latter have a cause of action.
Besides, there is no time frame for invoking the constitutional safeguard unless perhaps the award has been
finally made. To insist on selling the Manila Hotel to foreigners when there is a Filipino group willing to match the
bid of the foreign group is to insist that government be treated as any other ordinary market player, and bound
by its mistakes or gross errors of judgment, regardless of the consequences to the Filipino people. The
miscomprehension of the Constitution is regrettable. Thus we would rather remedy the indiscretion while there is
still an opportunity to do so than let the government develop the habit of forgetting that the Constitution lays
down 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 execute
the necessary agreements and documents to effect the sale in accordance not only with the bidding guidelines
and procedures but with the Constitution as well. The refusal of respondent GSIS to execute the corresponding
documents with petitioner as provided in the bidding rules after the latter has matched the bid of the Malaysian
firm clearly constitutes grave abuse of discretion.
The Filipino First Policy is a product of Philippine nationalism. It is embodied in the 1987 Constitution not merely
to be used as a guideline for future legislation but primarily to be enforced; so must it be enforced. This Court as
the ultimate guardian of the Constitution will never shun, under any reasonable circumstance, the duty of
upholding 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 from
it, the Court encourages and welcomes more business opportunities but avowedly sanctions the preference for
Filipinos whenever such preference is ordained by the Constitution. The position of the Court on this matter
could 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 for
that of the legislature or the executive about the wisdom and feasibility of legislation economic in
nature, the Supreme Court has not been spared criticism for decisions perceived as obstacles to
economic progress and development . . . in connection with a temporary injunction issued by the
Court'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 "again
demonstrates 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 in
contracts of the kind referred to or set itself up as the judge of whether they are viable or
attainable, it is its bounden duty to make sure that they do not violate the Constitution or the
laws, or are not adopted or implemented with grave abuse of discretion amounting to lack or
excess of jurisdiction. It will never shirk that duty, no matter how buffeted by winds of unfair and
ill-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 the
Constitution 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 economic
policy 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, with
sovereignty 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. Any
interpretation of any constitutional provision must adhere to such basic concept. Protection of foreign
investments, 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 highest
bidder solely for the sake of privatization. We are not talking about an ordinary piece of property in a
commercial district. We are talking about a historic relic that has hosted many of the most important
events in the short history of the Philippines as a nation. We are talking about a hotel where heads of states
would prefer to be housed as a strong manifestation of their desire to cloak the dignity of the highest state
function to their official visits to the Philippines. Thus the Manila Hotel has played and continues to play a
significant role as an authentic repository of twentieth century Philippine history and culture. In this sense, it has
become truly a reflection of the Filipino soul a place with a history of grandeur; a most historical setting that
has 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 historical
landmark this Grand Old Dame of hotels in Asia to a total stranger. For, indeed, the conveyance of this
epic exponent of the Filipino psyche to alien hands cannot be less than mephistophelian for it is, in whatever
manner viewed, a veritable alienation of a nation's soul for some pieces of foreign silver. And so we ask: What
advantage, 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's
cultural 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? This
is 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 HOTEL
CORPORATION, COMMITTEE ON PRIVATIZATION and OFFICE OF THE GOVERNMENT CORPORATE
COUNSEL are directed to CEASE and DESIST from selling 51% of the shares of the Manila Hotel Corporation
to RENONG BERHAD, and to ACCEPT the matching bid of petitioner MANILA PRINCE HOTEL
CORPORATION to purchase the subject 51% of the shares of the Manila Hotel Corporation at P44.00 per share
and thereafter to execute the necessary clearances and to do such other acts and deeds as may be necessary
for 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 OF
TRADE & INDUSTRY, THE SECRETARY OF THE DEPARTMENT OF FINANCE, and THE COMMISSIONER
OF THE BUREAU OF CUSTOMS, respondents.

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 the law to ensure that the
determination of the imposition or non-imposition of a safeguard measure is proper.
Antecedent Facts
1. 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
2. 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 itself to 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
3. 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
After preliminary investigation, the Bureau of Import Services of the DTI, determined that critical
circumstances existed justifying the imposition of provisional measures.11
4. 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
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 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 of Southern 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
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 definitive general safeguard measure be imposed on the
importation of gray Portland cement.24
7. The DTI received the Report on 14 March 2002. After reviewing the report, then
8. 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
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 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 measure 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 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."
The DTI hereby issues the following:
10. The application for safeguard measures against the importation of gray Portland cement filed by
PHILCEMCOR (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 Court
of Appeals a Petition for Certiorari, Prohibition and Mandamus28 seeking to set aside the
DTI Decision, as well as the Tariff Commission's Report.
12. 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
13. 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,
14. 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.
15. 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
16. 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.
17. 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 in matters addressed to the sound discretion and coming under the special
technical 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 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 of Department of Trade and
Industry 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 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 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, 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 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 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
itsDecision 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 25 June
2003Decision. 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.51A 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'sPetition, 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 Court of 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 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 matterprecisely 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
mademotu 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.76Such 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 to impose 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
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 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 the
consequences.
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 right to
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 is grave 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 the SMA
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 measures may
be imposed. However, the most fundamental restriction on the DTI Secretary's power in that respect is
contained in Section 5 of the SMAthat there should first be a positive final determination of the Tariff
Commissionwhich 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 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.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 distinction is 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 powerthe 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 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 or the 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.101At 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. Phipps105 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, Cario 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 Cario, 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 Cario 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 to adjudicate cases,
but only to investigate all forms of human rights violations.110 Yet, without modifying the thorough disquisition of
the Court in Cario 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's
Implementing 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 terminated where 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 measure 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 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.114The 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
thedetermination 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 any safeguard
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 Yet imperfect
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 Secretary
imposing 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 Decision for 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.
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, AND
COMMISSIONER RICARDO ABCEDE OF THE PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT
(PCGG) IN THEIR CAPACITIES AS CHAIR AND MEMBERS, RESPECTIVELY, OF THE PRIVATIZATION
COUNCIL, CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC CO., LTD. IN HIS CAPACITY AS DIRECTOR
OF METRO PACIFIC ASSET HOLDINGS INC., CHAIRMAN MANUEL V. PANGILINAN OF PHILIPPINE
LONG DISTANCE TELEPHONE COMPANY (PLDT) IN HIS CAPACITY AS MANAGING DIRECTOR OF
FIRST PACIFIC CO., LTD., PRESIDENT NAPOLEON L. NAZARENO OF PHILIPPINE LONG DISTANCE
TELEPHONE COMPANY, CHAIR FE BARIN OF THE SECURITIES EXCHANGE COMMISSION, and
PRESIDENT FRANCIS LIM OF THE PHILIPPINE STOCK EXCHANGE, Respondents.
PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioners-in-Intervention.
DECISION
CARPIO, J.:
The Case
This is an original petition for prohibition, injunction, declaratory relief and declaration of nullity of the sale of
shares of stock of Philippine Telecommunications Investment Corporation (PTIC) by the government of the
Republic of the Philippines to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific Company
Limited (First Pacific).
The Antecedents
The facts, according to
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 a
franchise and the right to engage in telecommunications business.
3. In 1969, General Telephone and Electronics Corporation (GTE), an American company and a
major PLDT stockholder, sold 26 percent of the outstanding common shares of PLDT to PTIC
Philippine Telecommunications Investment Corporation.
4. In 1977, Prime Holdings, Inc. (PHI) was incorporated by several persons, including Roland Gapud and
Jose Campos, Jr. Subsequently,
5. 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.
6. In 1986, the 111,415 shares of stock of PTIC held by PHI were sequestered by the Presidential
Commission 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 the
remaining 54 percent of the outstanding capital stock of PTIC.
9. On 20 November 2006, the Inter-Agency Privatization Council (IPC) of the Philippine Government
announced that it would sell the 111,415 PTIC shares, or 46.125 percent of the outstanding capital stock
of PTIC, through a public bidding to be conducted on 4 December 2006. Subsequently, the public
bidding was reset to 8 December 2006, and only two bidders, Parallax Venture Fund XXVII (Parallax)
and Pan-Asia Presidio Capital, submitted their bids. Parallax won with a bid of P25.6 billion or
US$510 million.
Thereafter,
10. First Pacific announced that it would exercise its right of first refusal as a PTIC stockholder and
buy the 111,415 PTIC shares by matching the bid price of Parallax. However, First Pacific failed to do so
by the 1 February 2007 deadline set by IPC and instead, yielded its right to PTIC itself which was then
given by IPC until 2 March 2007 to buy the PTIC shares.
11. On 14 February 2007, First Pacific, through its subsidiary, MPAH, entered into a Conditional Sale
and Purchase Agreement of the 111,415 PTIC shares, or 46.125 percent of the outstanding capital

stock of PTIC, with the Philippine Government for the price of P25,217,556,000 or
US$510,580,189. The sale was completed on 28 February 2007.
12. Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of PTIC
shares is actually an indirect sale of 12 million shares or about 6.3 percent of the outstanding common
shares of PLDT.With the sale, First Pacifics common shareholdings in PLDT increased from 30.7
percent to 37 percent, thereby increasing the common shareholdings of foreigners in PLDT to
about 81.47 percent.
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 111,415
PTIC shares or 46.125 percent of the outstanding capital stock of PTIC by virtue of three Deeds of
Assignment executed by Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 PTIC shares
held by PHI were sequestered by the PCGG, and subsequently declared by this Court as part of the illgotten wealth of former President Ferdinand Marcos. The sequestered PTIC shares were reconveyed to
the Republic of the Philippines in accordance with this Courts decision4 which became final and
executory on 8 August 2006.
Summary:
a. GTE sold 26 percent of the outstanding common shares of PLDT to PTIC
b. 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 of
PTIC shares is actually an indirect sale of 12 million shares or about 6.3 percent of the outstanding
common shares of PLDT.With the sale
g. First Pacifics common shareholdings in PLDT increased from 30.7 percent to 37 percent,
thereby increasing the common shareholdings of foreigners in PLDT to about 81.47 percent.
The Philippine Government decided to sell the 111,415 PTIC shares, which represent 6.4 percent of the
outstanding common shares of stock of PLDT, and designated the Inter-Agency Privatization Council (IPC),
composed of the Department of Finance and the PCGG, as the disposing entity. An invitation to bid was
published in seven different newspapers from 13 to 24 November 2006. On 20 November 2006, a pre-bid
conference was held, and the original deadline for bidding scheduled on 4 December 2006 was reset to 8
December 2006. The extension was published in nine different newspapers.
During the 8 December 2006 bidding, Parallax Capital Management LP emerged as the highest bidder with a bid
of P25,217,556,000. The government notified First Pacific, the majority owner of PTIC shares, of the bidding
results and gave First Pacific until 1 February 2007 to exercise its right of first refusal in accordance with PTICs
Articles of Incorporation. First Pacific announced its intention to match Parallaxs bid.
On 31 January 2007, the House of Representatives (HR) Committee on Good Government conducted a public
hearing on the particulars of the then impending sale of the 111,415 PTIC shares. Respondents Teves and
Sevilla were among those who attended the public hearing. The HR Committee Report No. 2270 concluded that:
(a) the auction of the governments 111,415 PTIC shares bore due diligence, transparency and conformity with
existing legal procedures; and
(b) First Pacifics intended acquisition of the governments 111,415 PTIC shares resulting in First
Pacifics 100% ownership of PTIC will not violate the 40 percent constitutional limit on foreign ownership

of a public utility since PTIC holds only 13.847 percent of the total outstanding common shares of
PLDT.5 On 28 February 2007, First Pacific completed the acquisition of the 111,415 shares of stock of PTIC.
Respondent Manuel V. Pangilinan admits the following facts:
(a) the IPC conducted a public bidding for the sale of 111,415 PTIC shares or 46 percent of the outstanding
capital stock of PTIC (the remaining 54 percent of PTIC shares was already owned by First Pacific and its
affiliates);
(b) Parallax offered the highest bid amounting toP25,217,556,000;
(c) pursuant to the right of first refusal in favor of PTIC and its shareholders granted in PTICs Articles of
Incorporation, MPAH, a First Pacific affiliate, exercised its right of first refusal by matching the highest bid
offered for PTIC shares on 13 February 2007; and (d) on 28 February 2007, the sale was consummated when
MPAH paid IPC P25,217,556,000 and the government delivered the certificates for the 111,415 PTIC shares.
Respondent Pangilinan denies the other allegations of facts of petitioner.
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 First
Pacifics common shareholdings in PLDT from 30.7 percent to 37 percent, and this, combined with Japanese
NTT DoCoMos common shareholdings in PLDT, would result to a total foreign common shareholdings in PLDT
of 51.56 percent which is over the 40 percent constitutional limit.6 Petitioner asserts:
If and when the sale is completed, First Pacifics equity in PLDT will go up from 30.7 percent to 37.0 percent of
its common or voting- stockholdings, x x x. Hence, the consummation of the sale will put the two largest
foreign investors in PLDT First Pacific and Japans NTT DoCoMo, which is the worlds largest wireless
telecommunications firm, owning 51.56 percent of PLDT common equity. x x x With the completion of the sale,
data culled from the official website of the New York Stock Exchange (www.nyse.com) showed that those
foreign entities, which own at least five percent of common equity, will collectively own 81.47 percent of PLDTs
common equity. x x x
x x x as the annual disclosure reports, also referred to as Form 20-K reports x x x which PLDT submitted to the
New York Stock Exchange for the period 2003-2005, revealed that First Pacific and several other foreign entities
breached the constitutional limit of 40 percent ownership as early as 2003. x x x"7
Petitioner raises the following issues: (1) whether the consummation of the then impending sale of 111,415 PTIC
shares to First Pacific violates the constitutional limit on foreign ownership of a public utility; (2) whether public
respondents committed grave abuse of discretion in allowing the sale of the 111,415 PTIC shares to First
Pacific; and (3) whether the sale of common shares to foreigners in excess of 40 percent of the entire
subscribed common capital stock violates the constitutional limit on foreign ownership of a public utility.8
On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a Motion for Leave to Intervene and Admit
Attached Petition-in-Intervention. In the Resolution of 28 August 2007, the Court granted the motion and noted
the Petition-in-Intervention.
Petitioners-in-intervention "join petitioner Wilson Gamboa x x x in seeking, among others, to enjoin and/or nullify
the sale by respondents of the 111,415 PTIC shares to First Pacific or assignee." Petitioners-in-intervention
claim that, as PLDT subscribers, they have a "stake in the outcome of the controversy x x x where the Philippine
Government is completing the sale of government owned assets in [PLDT], unquestionably a public utility, in
violation of the nationality restrictions of the Philippine Constitution."
The Issue
This Court is not a trier of facts. Factual questions such as those raised by petitioner,9 which indisputably
demand a thorough examination of the evidence of the parties, are generally beyond this Courts jurisdiction.
Adhering to this well-settled principle, the Court shall confine the resolution of the instant controversy solely on
the threshold and purely legal issue of

Issue
1. whether the term "capital" in Section 11, Article XII of the Constitution refers to the total common shares
only or to the total outstanding capital stock (combined total of common and non-voting preferred shares)
of PLDT, a public utility.
The Ruling of the Court
The petition is partly meritorious.
Petition for declaratory relief treated as petition for mandamus
At the outset, petitioner is faced with a procedural barrier. Among the remedies petitioner seeks, only the petition
for prohibition is within the original jurisdiction of this court, which however is not exclusive but is concurrent with
the Regional Trial Court and the Court of Appeals. The actions for declaratory relief,10 injunction, and annulment
of sale are not embraced within the original jurisdiction of the Supreme Court. On this ground alone, the petition
could have been dismissed outright.
While direct resort to this Court may be justified in a petition for prohibition,11 the Court shall nevertheless refrain
from discussing the grounds in support of the petition for prohibition since on 28 February 2007, the questioned
sale was consummated when MPAH paid IPC P25,217,556,000 and the government delivered the certificates
for the 111,415 PTIC shares.
However, since the threshold and purely legal issue on the definition of the term "capital" in Section 11, Article
XII of the Constitution has far-reaching implications to the national economy, the Court treats the petition for
declaratory relief as one for mandamus.12
In Salvacion v. Central Bank of the Philippines,13 the Court treated the petition for declaratory relief as one for
mandamus considering the grave injustice that would result in the interpretation of a banking law. In that
case, which involved the crime of rape committed by a foreign tourist against a Filipino minor and the execution
of the final judgment in the civil case for damages on the tourists dollar deposit with a local bank, the Court
declared Section 113 of Central Bank Circular No. 960, exempting foreign currency deposits from attachment,
garnishment or any other order or process of any court, inapplicable due to the peculiar circumstances of the
case. The Court held that "injustice would result especially to a citizen aggrieved by a foreign guest like accused
x x x" that would "negate Article 10 of the Civil Code which provides that in case of doubt in the interpretation
or application of laws, it is presumed that the lawmaking body intended right and justice to prevail." The
Court therefore required respondents Central Bank of the Philippines, the local bank, and the accused to comply
with the writ of execution issued in the civil case for damages and to release the dollar deposit of the accused to
satisfy the judgment.
In Alliance of Government Workers v. Minister of Labor,14 the Court similarly brushed aside the procedural
infirmity of the petition for declaratory relief and treated the same as one for mandamus. In Alliance, the issue
was whether the government unlawfully excluded petitioners, who were government employees, from the
enjoyment of rights to which they were entitled under the law. Specifically, the question was: "Are the branches,
agencies, subdivisions, and instrumentalities of the Government, including government owned or controlled
corporations included among the four employers under Presidential Decree No. 851 which are required to pay
their employees x x x a thirteenth (13th) month pay x x x ?" The Constitutional principle involved therein affected
all government employees, clearly justifying a relaxation of the technical rules of procedure, and certainly
requiring the interpretation of the assailed presidential decree.
In short, it is well-settled that this Court may treat a petition for declaratory relief as one for mandamus if the
issue involved has far-reaching implications. As this Court held in Salvacion:
The Court has no original and exclusive jurisdiction over a petition for declaratory relief. However, exceptions
to this rule have been recognized. Thus, where the petition has far-reaching implications and raises
questions that should be resolved, it may be treated as one for mandamus.15 (Emphasis supplied)
In the present case, petitioner seeks primarily the interpretation of the term "capital" in Section 11, Article XII of
the Constitution. He prays that this Court declare that the term "capital" refers to common shares only,
and that such shares constitute "the sole basis in determining foreign equity in a public utility." Petitioner
further asks this Court to declare any ruling inconsistent with such interpretation unconstitutional.

The interpretation of the term "capital" in Section 11, Article XII of the Constitution has far-reaching
implications to the national economy. In fact, a resolution of this issue will determine whether Filipinos are
masters, or second class citizens, in their own country. What is at stake here is whether Filipinos or foreigners
will have effective control of the national economy. Indeed, if ever there is a legal issue that has far-reaching
implications to the entire nation, and to future generations of Filipinos, it is the threshhold legal issue presented
in this case.
The Court first encountered the issue on the definition of the term "capital" in Section 11, Article XII of the
Constitution in the case of Fernandez v. Cojuangco, docketed as G.R. No. 157360.16 That case involved the
same public utility (PLDT) and substantially the same private respondents. Despite the importance and novelty
of the constitutional issue raised therein and despite the fact that the petition involved a purely legal question,
the Court declined to resolve the case on the merits, and instead denied the same for disregarding the hierarchy
of courts.17 There, petitioner Fernandez assailed on a pure question of law the Regional Trial Courts Decision of
21 February 2003 via a petition for review under Rule 45. The Courts Resolution, denying the petition, became
final on 21 December 2004.
The instant petition therefore presents the Court with another opportunity to finally settle this purely legal
issuewhich is of transcendental importance to the national economy and a fundamental requirement to a faithful
adherence to our Constitution. The Court must forthwith seize such opportunity, not only for the benefit of the
litigants, but more significantly for the benefit of the entire Filipino people, to ensure, in the words of the
Constitution, "a self-reliant and independent national economy effectively controlled by Filipinos."18 Besides, in
the light of vague and confusing positions taken by government agencies on this purely legal issue, present and
future foreign investors in this country deserve, as a matter of basic fairness, a categorical ruling from this Court
on the extent of their participation in the capital of public utilities and other nationalized businesses.
Despite its far-reaching implications to the national economy, this purely legal issue has remained unresolved for
over 75 years since the 1935 Constitution. There is no reason for this Court to evade this ever recurring
fundamental issue and delay again defining the term "capital," which appears not only in Section 11, Article XII
of the Constitution, but also in Section 2, Article XII on co-production and joint venture agreements for the
development of our natural resources,19 in Section 7, Article XII on ownership of private lands,20 in Section 10,
Article XII on the reservation of certain investments to Filipino citizens,21 in Section 4(2), Article XIV on the
ownership of educational institutions,22 and in Section 11(2), Article XVI on the ownership of advertising
companies.23
Petitioner has locus standi
There is no dispute that petitioner is a stockholder of PLDT. As such, he has the right to question the
subject sale, which he claims to violate the nationality requirement prescribed in Section 11, Article XII of the
Constitution. If the sale indeed violates the Constitution, then there is a possibility that PLDTs franchise could be
revoked, a dire consequence directly affecting petitioners interest as a stockholder.
More importantly, there is no question that the instant petition raises matters of transcendental importance to the
public. The fundamental and threshold legal issue in this case, involving the national economy and the economic
welfare of the Filipino people, far outweighs any perceived impediment in the legal personality of the petitioner to
bring this action.
In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring a suit on matters of transcendental
importance to the public, thus:
In Taada v. Tuvera, the Court asserted that when the issue concerns a public right and the object of
mandamus is to obtain the enforcement of a public duty, the people are regarded as the real parties in
interest; and because it is sufficient that petitioner is a citizen and as such is interested in the execution
of the laws, he need not show that he has any legal or special interest in the result of the action. In the
aforesaid case, the petitioners sought to enforce their right to be informed on matters of public concern, a right
then recognized in Section 6, Article IV of the 1973 Constitution, in connection with the rule that laws in order to
be valid and enforceable must be published in the Official Gazette or otherwise effectively promulgated. In ruling
for the petitioners legal standing, the Court declared that the right they sought to be enforced is a public right
recognized by no less than the fundamental law of the land.
Legaspi v. Civil Service Commission, while reiterating Taada, further declared that when a mandamus
proceeding involves the assertion of a public right, the requirement of personal interest is satisfied by

the mere fact that petitioner is a citizen and, therefore, part of the general public which possesses the
right.
Further, in Albano v. Reyes, we said that while expenditure of public funds may not have been involved under
the questioned contract for the development, management and operation of the Manila International Container
Terminal, public interest [was] definitely involved considering the important role [of the subject contract]
. . . in the economic development of the country and the magnitude of the financial consideration
involved. We concluded that, as a consequence, the disclosure provision in the Constitution would constitute
sufficient authority for upholding the petitioners standing. (Emphasis supplied)
Clearly, since the instant petition, brought by a citizen, involves matters of transcendental public importance, the
petitioner has the requisite locus standi.
Definition of the Term "Capital" in
Section 11, Article XII of the 1987 Constitution
Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the Filipinization of
public utilities, to wit:
Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility
shall be granted except to citizens of the Philippines or to corporations or associations organized under
the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall
such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years.
Neither shall any such franchise or right be granted except under the condition that it shall be subject to
amendment, alteration, or repeal by the Congress when the common good so requires. The State shall
encourage equity participation in public utilities by the general public. The participation of foreign investors in the
governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all
the executive and managing officers of such corporation or association must be citizens of the Philippines.
(Emphasis supplied)
The above provision substantially reiterates Section 5, Article XIV of the 1973 Constitution, thus:
Section 5. No franchise, certificate, or any other form of authorization for the operation of a public utility
shall be granted except to citizens of the Philippines or to corporations or associations organized under
the laws of the Philippines at least sixty per centum of the capital of which is owned by such citizens,
nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty
years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to
amendment, alteration, or repeal by the National Assembly when the public interest so requires. The State shall
encourage equity participation in public utilities by the general public. The participation of foreign investors in the
governing body of any public utility enterprise shall be limited to their proportionate share in the capital thereof.
(Emphasis supplied)
The foregoing provision in the 1973 Constitution reproduced Section 8, Article XIV of the 1935 Constitution, viz:
Section 8. No franchise, certificate, or any other form of authorization for the operation of a public utility
shall be granted except to citizens of the Philippines or to corporations or other entities organized under
the laws of the Philippines sixty per centum of the capital of which is owned by citizens of the
Philippines, nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period
than fifty years. No franchise or right shall be granted to any individual, firm, or corporation, except under the
condition that it shall be subject to amendment, alteration, or repeal by the Congress when the public interest so
requires. (Emphasis supplied)
Father Joaquin G. Bernas, S.J., a leading member of the 1986 Constitutional Commission, reminds us that the
Filipinization provision in the 1987 Constitution is one of the products of the spirit of nationalism which
gripped the 1935 Constitutional Convention.25
The 1987 Constitution "provides for the Filipinization of public utilities by requiring that any form of
authorization for the operation of public utilities should be granted only to citizens of the Philippines or
to corporations or associations organized under the laws of the Philippines at least sixty per centum of
whose capital is owned by such citizens. The provision is [an express] recognition of the sensitive and
vital position of public utilities both in the national economy and for national security."26 The evident
purpose of the citizenship requirement is to prevent aliens from assuming control of public utilities, which may be

inimical to the national interest.27 This specific provision explicitly reserves to Filipino citizens control of public
utilities, pursuant to an overriding economic goal of the 1987 Constitution: to "conserve and develop our
patrimony"28 and ensure "a self-reliant and independent national economy effectively controlled by Filipinos."29
Any citizen or juridical entity desiring to operate a public utility must therefore meet the minimum nationality
requirement prescribed in Section 11, Article XII of the Constitution. Hence, for a corporation to be granted
authority to operate a public utility, at least 60 percent of its "capital" must be owned by Filipino citizens.
The crux of the controversy is the definition of the term "capital." Does the term "capital" in Section 11, Article
XII of the Constitution refer to common shares or to the total outstanding capital stock (combined total of
common and non-voting preferred shares)?
Petitioner submits that the 40 percent foreign equity limitation in domestic public utilities refers only to
common shares because such shares are entitled to vote and it is through voting that control over a
corporation is exercised. Petitioner posits that the term "capital" in Section 11, Article XII of the Constitution
refers to "the ownership of common capital stock subscribed and outstanding, which class of shares alone,
under the corporate set-up of PLDT, can vote and elect members of the board of directors." It is undisputed that
PLDTs non-voting preferred shares are held mostly by Filipino citizens.30 This arose from Presidential Decree
No. 217,31 issued on 16 June 1973 by then President Ferdinand Marcos, requiring every applicant of a PLDT
telephone line to subscribe to non-voting preferred shares to pay for the investment cost of installing the
telephone line.32

PETITIONER ARGUMENT
Petitioners-in-intervention basically reiterate petitioners arguments and adopt petitioners definition of the term
"capital."33 Petitioners-in-intervention allege that "the approximate foreign ownership of common capital stock of
PLDT x x x already amounts to at least 63.54% of the total outstanding common stock," which means that
foreigners exercise significant control over PLDT, patently violating the 40 percent foreign equity limitation in
public utilities prescribed by the Constitution.
Petitioner submits that the 40 percent foreign equity limitation in domestic public utilities refers only to
common shares because such shares are entitled to vote and it is through voting that control over a
corporation is exercised. Petitioner posits that the term "capital" in Section 11, Article XII of the Constitution
refers to "the ownership of common capital stock subscribed and outstanding, which class of shares alone,
under the corporate set-up of PLDT, can vote and elect members of the board of directors." It is undisputed that
PLDTs non-voting preferred shares are held mostly by Filipino citizens.30 This arose from Presidential Decree
No. 217,31 issued on 16 June 1973 by then President Ferdinand Marcos, requiring every applicant of a PLDT
telephone line to subscribe to non-voting preferred shares to pay for the investment cost of installing the
telephone line.32

RESPONDENT ARGUMENT

Respondents, on the other hand, do not offer any definition of the term "capital" in Section 11, Article XII
of the Constitution. More importantly, private respondents Nazareno and Pangilinan of PLDT do not
dispute that more than 40 percent of the common shares of PLDT are held by foreigners.
In particular, respondent Nazarenos Memorandum, consisting of 73 pages, harps mainly on the procedural
infirmities of the petition and the supposed violation of the due process rights of the "affected foreign common
shareholders." Respondent Nazareno does not deny petitioners allegation of foreigners dominating the
common shareholdings of PLDT. Nazareno stressed mainly that the petition "seeks to divest foreign common
shareholders purportedly exceeding 40% of the total common shareholdings in PLDT of their ownership
over their shares." Thus, "the foreign natural and juridical PLDT shareholders must be impleaded in this suit so
that they can be heard."34 Essentially, Nazareno invokes denial of due process on behalf of the foreign common
shareholders.
While Nazareno does not introduce any definition of the term "capital," he states that "among the factual
assertions that need to be established to counter petitioners allegations is the uniform interpretation by

government agencies (such as the SEC), institutions and corporations (such as the Philippine National
Oil Company-Energy Development Corporation or PNOC-EDC) of including both preferred shares and
common shares in "controlling interest" in view of testing compliance with the 40% constitutional
limitation on foreign ownership in public utilities."35
Similarly, respondent Manuel V. Pangilinan does not define the term "capital" in Section 11, Article XII of the
Constitution. Neither does he refute petitioners claim of foreigners holding more than 40 percent of PLDTs
common shares. Instead, respondent Pangilinan focuses on the procedural flaws of the petition and the alleged
violation of the due process rights of foreigners. Respondent Pangilinan emphasizes in his Memorandum (1) the
absence of this Courts jurisdiction over the petition; (2) petitioners lack of standing; (3) mootness of the petition;
(4) non-availability of declaratory relief; and (5) the denial of due process rights. Moreover, respondent
Pangilinan alleges that the issue should be whether "owners of shares in PLDT as well as owners of shares in
companies holding shares in PLDT may be required to relinquish their shares in PLDT and in those companies
without any law requiring them to surrender their shares and also without notice and trial."
Respondent Pangilinan further asserts that "Section 11, [Article XII of the Constitution] imposes no
nationality requirement on the shareholders of the utility company as a condition for keeping their
shares in the utility company." According to him, "Section 11 does not authorize taking one persons property
(the shareholders stock in the utility company) on the basis of another partys alleged failure to satisfy a
requirement that is a condition only for that other partys retention of another piece of property (the utility
company being at least 60% Filipino-owned to keep its franchise)."36
The OSG, representing public respondents Secretary Margarito Teves, Undersecretary John P. Sevilla,
Commissioner Ricardo Abcede, and Chairman Fe Barin, is likewise silent on the definition of the term "capital."
In its Memorandum37 dated 24 September 2007, the OSG also limits its discussion on the supposed procedural
defects of the petition, i.e. lack of standing, lack of jurisdiction, non-inclusion of interested parties, and lack of
basis for injunction. The OSG does not present any definition or interpretation of the term "capital" in Section 11,
Article XII of the Constitution. The OSG contends that "the petition actually partakes of a collateral attack on
PLDTs franchise as a public utility," which in effect requires a "full-blown trial where all the parties in interest are
given their day in court."38
Respondent Francisco Ed Lim, impleaded as President and Chief Executive Officer of the Philippine Stock
Exchange (PSE), does not also define the term "capital" and seeks the dismissal of the petition on the following
grounds: (1) failure to state a cause of action against Lim; (2) the PSE allegedly implemented its rules and
required all listed companies, including PLDT, to make proper and timely disclosures; and (3) the reliefs prayed
for in the petition would adversely impact the stock market.
In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez who claimed to be a stockholder of record
of PLDT, contended that the term "capital" in the 1987 Constitution refers to shares entitled to vote or the
common shares. Fernandez explained thus:
The forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution refers
to ownership of shares of stock entitled to vote, i.e., common shares, considering that it is through
voting that control is being exercised. x x x
Obviously, the intent of the framers of the Constitution in imposing limitations and restrictions on fully
nationalized and partially nationalized activities is for Filipino nationals to be always in control of the corporation
undertaking said activities. Otherwise, if the Trial Courts ruling upholding respondents arguments were to be
given credence, it would be possible for the ownership structure of a public utility corporation to be divided into
one percent (1%) common stocks and ninety-nine percent (99%) preferred stocks. Following the Trial Courts
ruling adopting respondents arguments, the common shares can be owned entirely by foreigners thus creating
an absurd situation wherein foreigners, who are supposed to be minority shareholders, control the public utility
corporation.
xxxx
HELD:
Thus, the 40% foreign ownership limitation should be interpreted to apply to both the beneficial
ownership and the controlling interest.
xxxx

Clearly, therefore, the forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution
refers to ownership of shares of stock entitled to vote, i.e., common shares. Furthermore, ownership of record of
shares will not suffice but it must be shown that the legal and beneficial ownership rests in the hands of Filipino
citizens. Consequently, in the case of petitioner PLDT, since it is already admitted that the voting interests of
foreigners which would gain entry to petitioner PLDT by the acquisition of SMART shares through the
Questioned Transactions is equivalent to 82.99%, and the nominee arrangements between the foreign principals
and the Filipino owners is likewise admitted, there is, therefore, a violation of Section 11, Article XII of the
Constitution.
Parenthetically, the Opinions dated February 15, 1988 and April 14, 1987 cited by the Trial Court to support the
proposition that the meaning of the word "capital" as used in Section 11, Article XII of the Constitution allegedly
refers to the sum total of the shares subscribed and paid-in by the shareholder and it allegedly is immaterial how
the stock is classified, whether as common or preferred, cannot stand in the face of a clear legislative policy as
stated in the FIA which took effect in 1991 or way after said opinions were rendered, and as clarified by the
above-quoted Amendments. In this regard, suffice it to state that as between the law and an opinion rendered by
an administrative agency, the law indubitably prevails. Moreover, said Opinions are merely advisory and cannot
prevail over the clear intent of the framers of the Constitution.
In the same vein, the SECs construction of Section 11, Article XII of the Constitution is at best merely advisory
for it is the courts that finally determine what a law means.39
On the other hand, respondents therein, Antonio O. Cojuangco, Manuel V. Pangilinan, Carlos A. Arellano, Helen
Y. Dee, Magdangal B. Elma, Mariles Cacho-Romulo, Fr. Bienvenido F. Nebres, Ray C. Espinosa, Napoleon L.
Nazareno, Albert F. Del Rosario, and Orlando B. Vea, argued that the term "capital" in Section 11, Article XII of
the Constitution includes preferred shares since the Constitution does not distinguish among classes of stock,
thus:
16. The Constitution applies its foreign ownership limitation on the corporations "capital," without
distinction as to classes of shares. x x x
In this connection, the Corporation Code which was already in force at the time the present (1987) Constitution
was drafted defined outstanding capital stock as follows:
Section 137. Outstanding capital stock defined. The term "outstanding capital stock", as used in this Code,
means the total shares of stock issued under binding subscription agreements to subscribers or stockholders,
whether or not fully or partially paid, except treasury shares.
Section 137 of the Corporation Code also does not distinguish between common and preferred shares, nor
exclude either class of shares, in determining the outstanding capital stock (the "capital") of a corporation.
Consequently, petitioners suggestion to reckon PLDTs foreign equity only on the basis of PLDTs
outstanding common shares is without legal basis. The language of the Constitution should be understood
in the sense it has in common use.
xxxx
17. But even assuming that resort to the proceedings of the Constitutional Commission is necessary, there is
nothing in the Record of the Constitutional Commission (Vol. III) which petitioner misleadingly cited in the
Petition x x x which supports petitioners view that only common shares should form the basis for computing a
public utilitys foreign equity.
xxxx
18. In addition, the SEC the government agency primarily responsible for implementing the Corporation Code,
and which also has the responsibility of ensuring compliance with the Constitutions foreign equity restrictions as
regards nationalized activities x x x has categorically ruled that both common and preferred shares are
properly considered in determining outstanding capital stock and the nationality composition thereof.40
We agree with petitioner and petitioners-in-intervention. The term "capital" in Section 11, Article XII of the
Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present
case only to common shares,41 and not to the total outstanding capital stock comprising both common and nonvoting preferred shares.

The Corporation Code of the Philippines42 classifies shares as common or preferred, thus:
Sec. 6. Classification of shares. - The shares of stock of stock corporations may be divided into classes or series
of shares, or both, any of which classes or series of shares may have such rights, privileges or restrictions as
may be stated in the articles of incorporation: Provided, That no share may be deprived of voting rights
except those classified and issued as "preferred" or "redeemable" shares, unless otherwise provided in
this Code: Provided, further, That there shall always be a class or series of shares which have complete voting
rights. Any or all of the shares or series of shares may have a par value or have no par value as may be
provided for in the articles of incorporation: Provided, however, That banks, trust companies, insurance
companies, public utilities, and building and loan associations shall not be permitted to issue no-par value
shares of stock.
Preferred shares of stock issued by any corporation may be given preference in the distribution of the assets of
the corporation in case of liquidation and in the distribution of dividends, or such other preferences as may be
stated in the articles of incorporation which are not violative of the provisions of this Code: Provided, That
preferred shares of stock may be issued only with a stated par value. The Board of Directors, where authorized
in the articles of incorporation, may fix the terms and conditions of preferred shares of stock or any series
thereof: Provided, That such terms and conditions shall be effective upon the filing of a certificate thereof with
the Securities and Exchange Commission.
Shares of capital stock issued without par value shall be deemed fully paid and non-assessable and the holder
of such shares shall not be liable to the corporation or to its creditors in respect thereto: Provided; That shares
without par value may not be issued for a consideration less than the value of five (P5.00) pesos per share:
Provided, further, That the entire consideration received by the corporation for its no-par value shares shall be
treated as capital and shall not be available for distribution as dividends.
A corporation may, furthermore, classify its shares for the purpose of insuring compliance with constitutional or
legal requirements.
Except as otherwise provided in the articles of incorporation and stated in the certificate of stock, each share
shall be equal in all respects to every other share.
Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the holders
of such shares shall nevertheless be entitled to vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate
property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or other corporations;
7. Investment of corporate funds in another corporation or business in accordance with this Code; and
8. Dissolution of the corporation.
Except as provided in the immediately preceding paragraph, the vote necessary to approve a particular
corporate act as provided in this Code shall be deemed to refer only to stocks with voting rights.
Indisputably, one of the rights of a stockholder is the right to participate in the control or management of the
corporation.43 This is exercised through his vote in the election of directors because it is the board of directors
that controls or manages the corporation.44 In the absence of provisions in the articles of incorporation denying
voting rights to preferred shares, preferred shares have the same voting rights as common shares. However,
preferred shareholders are often excluded from any control, that is, deprived of the right to vote in the election of
directors and on other matters, on the theory that the preferred shareholders are merely investors in the

corporation for income in the same manner as bondholders.45 In fact, under the Corporation Code only preferred
or redeemable shares can be deprived of the right to vote.46 Common shares cannot be deprived of the right to
vote in any corporate meeting, and any provision in the articles of incorporation restricting the right of common
shareholders to vote is invalid.47
Considering that common shares have voting rights which translate to control, as opposed to preferred
shares which usually have no voting rights, the term "capital" in Section 11, Article XII of the
Constitution refers only to common shares. However, if the preferred shares also have the right to vote in the
election of directors, then the term "capital" shall include such preferred shares because the right to participate in
the control or management of the corporation is exercised through the right to vote in the election of directors. In
short, the term "capital" in Section 11, Article XII of the Constitution refers only to shares of stock that
can vote in the election of directors.
This interpretation is consistent with the intent of the framers of the Constitution to place in the hands of Filipino
citizens the control and management of public utilities. As revealed in the deliberations of the Constitutional
Commission, "capital" refers to the voting stock or controlling interest of a corporation, to wit:
MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign equity;
namely, 60-40 in Section 3, 60-40 in Section 9 and 2/3-1/3 in Section 15.
MR. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are always faced with this question: "Where do we base the equity
requirement, is it on the authorized capital stock, on the subscribed capital stock, or on the paid-up capital stock
of a corporation"? Will the Committee please enlighten me on this?
MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP Law Center who
provided us a draft. The phrase that is contained here which we adopted from the UP draft is "60 percent
of voting stock."
MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared delinquent,
unpaid capital stock shall be entitled to vote.
MR. VILLEGAS. That is right.
MR. NOLLEDO. Thank you.
With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percent
equity invests in another corporation which is permitted by the Corporation Code, does the Committee adopt the
grandfather rule?
MR. VILLEGAS. Yes, that is the understanding of the Committee.
MR. NOLLEDO. Therefore, we need additional Filipino capital?
MR. VILLEGAS. Yes.48
xxxx
MR. AZCUNA. May I be clarified as to that portion that was accepted by the Committee.
MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase "voting stock or controlling
interest."
MR. AZCUNA. Hence, without the Davide amendment, the committee report would read: "corporations or
associations at least sixty percent of whose CAPITAL is owned by such citizens."
MR. VILLEGAS. Yes.

MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the capital to be owned by
citizens.
MR. VILLEGAS. That is right.
MR. AZCUNA. But the control can be with the foreigners even if they are the minority. Let us say 40
percent of the capital is owned by them, but it is the voting capital, whereas, the Filipinos own the
nonvoting shares. So we can have a situation where the corporation is controlled by foreigners despite
being the minority because they have the voting capital. That is the anomaly that would result here.
MR. BENGZON. No, the reason we eliminated the word "stock" as stated in the 1973 and 1935
Constitutions is that according to Commissioner Rodrigo, there are associations that do not have
stocks. That is why we say "CAPITAL."
MR. AZCUNA. We should not eliminate the phrase "controlling interest."
MR. BENGZON. In the case of stock corporations, it is assumed.49 (Emphasis supplied)
Thus, 60 percent of the "capital" assumes, or should result in, "controlling interest" in the corporation.
Reinforcing this interpretation of the term "capital," as referring to controlling interest or shares entitled to vote, is
the definition of a "Philippine national" in the Foreign Investments Act of 1991,50 to wit:
SEC. 3. Definitions. - As used in this Act:
a. The term "Philippine national" shall mean a citizen of the Philippines; or a domestic partnership or association
wholly owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of
which at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held
by citizens of the Philippines; or a corporation organized abroad and registered as doing business in the
Philippines under the Corporation Code of which one hundred percent (100%) of the capital stock outstanding
and entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement or
separation benefits, where the trustee is a Philippine national and at least sixty percent (60%) of the fund will
accrue to the benefit of Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders
own stocks in a Securities and Exchange Commission (SEC) registered enterprise, at least sixty percent (60%)
of the capital stock outstanding and entitled to vote of each of both corporations must be owned and held by
citizens of the Philippines and at least sixty percent (60%) of the members of the Board of Directors of each of
both corporations must be citizens of the Philippines, in order that the corporation, shall be considered a
"Philippine national." (Emphasis supplied)
In explaining the definition of a "Philippine national," the Implementing Rules and Regulations of the Foreign
Investments Act of 1991 provide:
b. "Philippine national" shall mean a citizen of the Philippines or a domestic partnership or association wholly
owned by the citizens of the Philippines; or a corporation organized under the laws of the Philippines of
which at least sixty percent [60%] of the capital stock outstanding and entitled to vote is owned and held
by citizens of the Philippines; or a trustee of funds for pension or other employee retirement or separation
benefits, where the trustee is a Philippine national and at least sixty percent [60%] of the fund will accrue to the
benefit of the Philippine nationals; Provided, that where a corporation its non-Filipino stockholders own stocks in
a Securities and Exchange Commission [SEC] registered enterprise, at least sixty percent [60%] of the capital
stock outstanding and entitled to vote of both corporations must be owned and held by citizens of the Philippines
and at least sixty percent [60%] of the members of the Board of Directors of each of both corporation must be
citizens of the Philippines, in order that the corporation shall be considered a Philippine national. The control test
shall be applied for this purpose.
Compliance with the required Filipino ownership of a corporation shall be determined on the basis of
outstanding capital stock whether fully paid or not, but only such stocks which are generally entitled to
vote are considered.
For stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is
not enough to meet the required Filipino equity. Full beneficial ownership of the stocks, coupled with
appropriate voting rights is essential. Thus, stocks, the voting rights of which have been assigned or
transferred to aliens cannot be considered held by Philippine citizens or Philippine nationals.

Individuals or juridical entities not meeting the aforementioned qualifications are considered as nonPhilippine nationals. (Emphasis supplied)
Mere legal title is insufficient to meet the 60 percent Filipino-owned "capital" required in the Constitution. Full
beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the voting rights,
is required. The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the
hands of Filipino nationals in accordance with the constitutional mandate. Otherwise, the corporation is
"considered as non-Philippine national[s]."
Under Section 10, Article XII of the Constitution, Congress may "reserve to citizens of the Philippines or to
corporations or associations at least sixty per centum of whose capital is owned by such citizens, or such higher
percentage as Congress may prescribe, certain areas of investments." Thus, in numerous laws Congress has
reserved certain areas of investments to Filipino citizens or to corporations at least sixty percent of the "capital"
of which is owned by Filipino citizens. Some of these laws are: (1) Regulation of Award of Government Contracts
or R.A. No. 5183; (2) Philippine Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro, Small and
Medium Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping Development Act or R.A. No. 7471; (5)
Domestic Shipping Development Act of 2004 or R.A. No. 9295; (6) Philippine Technology Transfer Act of 2009
or R.A. No. 10055; and (7) Ship Mortgage Decree or P.D. No. 1521. Hence, the term "capital" in Section 11,
Article XII of the Constitution is also used in the same context in numerous laws reserving certain areas of
investments to Filipino citizens.
To construe broadly the term "capital" as the total outstanding capital stock, including both common and nonvoting preferred shares, grossly contravenes the intent and letter of the Constitution that the "State shall develop
a self-reliant and independent national economy effectively controlled by Filipinos." A broad definition
unjustifiably disregards who owns the all-important voting stock, which necessarily equates to control of the
public utility.
We shall illustrate the glaring anomaly in giving a broad definition to the term "capital." Let us assume that a
corporation has 100 common shares owned by foreigners and 1,000,000 non-voting preferred shares owned by
Filipinos, with both classes of share having a par value of one peso (P1.00) per share. Under the broad definition
of the term "capital," such corporation would be considered compliant with the 40 percent constitutional limit on
foreign equity of public utilities since the overwhelming majority, or more than 99.999 percent, of the total
outstanding capital stock is Filipino owned. This is obviously absurd.
In the example given, only the foreigners holding the common shares have voting rights in the election of
directors, even if they hold only 100 shares. The foreigners, with a minuscule equity of less than 0.001 percent,
exercise control over the public utility. On the other hand, the Filipinos, holding more than 99.999 percent of the
equity, cannot vote in the election of directors and hence, have no control over the public utility. This starkly
circumvents the intent of the framers of the Constitution, as well as the clear language of the Constitution, to
place the control of public utilities in the hands of Filipinos. It also renders illusory the State policy of an
independent national economy effectively controlled by Filipinos.
The example given is not theoretical but can be found in the real world, and in fact exists in the present case.
Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of directors. PLDTs
Articles of Incorporation expressly state that "the holders of Serial Preferred Stock shall not be entitled to
vote at any meeting of the stockholders for the election of directors or for any other purpose or otherwise
participate in any action taken by the corporation or its stockholders, or to receive notice of any meeting of
stockholders."51
On the other hand, holders of common shares are granted the exclusive right to vote in the election of directors.
PLDTs Articles of Incorporation52 state that "each holder of Common Capital Stock shall have one vote in
respect of each share of such stock held by him on all matters voted upon by the stockholders, and the holders
of Common Capital Stock shall have the exclusive right to vote for the election of directors and for all
other purposes."53
In short, only holders of common shares can vote in the election of directors, meaning only common
shareholders exercise control over PLDT. Conversely, holders of preferred shares, who have no voting rights in
the election of directors, do not have any control over PLDT. In fact, under PLDTs Articles of Incorporation,
holders of common shares have voting rights for all purposes, while holders of preferred shares have no voting
right for any purpose whatsoever.

It must be stressed, and respondents do not dispute, that foreigners hold a majority of the common shares of
PLDT. In fact, based on PLDTs 2010 General Information Sheet (GIS),54 which is a document required to be
submitted annually to the Securities and Exchange Commission,55 foreigners hold 120,046,690 common shares
of PLDT whereas Filipinos hold only 66,750,622 common shares.56 In other words, foreigners hold 64.27% of the
total number of PLDTs common shares, while Filipinos hold only 35.73%. Since holding a majority of the
common shares equates to control, it is clear that foreigners exercise control over PLDT. Such amount of control
unmistakably exceeds the allowable 40 percent limit on foreign ownership of public utilities expressly mandated
in Section 11, Article XII of the Constitution.
Moreover, the Dividend Declarations of PLDT for 2009,57 as submitted to the SEC, shows that per share the
SIP58 preferred shares earn a pittance in dividends compared to the common shares. PLDT declared dividends
for the common shares at P70.00 per share, while the declared dividends for the preferred shares amounted to a
measly P1.00 per share.59 So the preferred shares not only cannot vote in the election of directors, they also
have very little and obviously negligible dividend earning capacity compared to common shares.
As shown in PLDTs 2010 GIS,60 as submitted to the SEC, the par value of PLDT common shares is P5.00 per
share, whereas the par value of preferred shares is P10.00 per share. In other words, preferred shares have
twice the par value of common shares but cannot elect directors and have only 1/70 of the dividends of common
shares. Moreover, 99.44% of the preferred shares are owned by Filipinos while foreigners own only a minuscule
0.56% of the preferred shares.61 Worse, preferred shares constitute 77.85% of the authorized capital stock of
PLDT while common shares constitute only 22.15%.62 This undeniably shows that beneficial interest in PLDT is
not with the non-voting preferred shares but with the common shares, blatantly violating the constitutional
requirement of 60 percent Filipino control and Filipino beneficial ownership in a public utility.
The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of
Filipinos in accordance with the constitutional mandate. Full beneficial ownership of 60 percent of the
outstanding capital stock, coupled with 60 percent of the voting rights, is constitutionally required for the States
grant of authority to operate a public utility. The undisputed fact that the PLDT preferred shares, 99.44% owned
by Filipinos, are non-voting and earn only 1/70 of the dividends that PLDT common shares earn, grossly violates
the constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership of a public utility.
In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of the
dividends, of PLDT. This directly contravenes the express command in Section 11, Article XII of the
Constitution that "[n]o franchise, certificate, or any other form of authorization for the operation of a public utility
shall be granted except to x x x corporations x x x organized under the laws of the Philippines, at least sixty per
centum of whose capital is owned by such citizens x x x."
To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercises
the soleright to vote in the election of directors, and thus exercise control over PLDT; (2) Filipinos own only
35.73% of PLDTs common shares, constituting a minority of the voting stock, and thus do not exercise control
over PLDT; (3) preferred shares, 99.44% owned by Filipinos, have no voting rights; (4) preferred shares earn
only 1/70 of the dividends that common shares earn;63 (5) preferred shares have twice the par value of common
shares; and (6) preferred shares constitute 77.85% of the authorized capital stock of PLDT and common shares
only 22.15%. This kind of ownership and control of a public utility is a mockery of the Constitution.
Incidentally, the fact that PLDT common shares with a par value of P5.00 have a current stock market value
ofP2,328.00 per share,64 while PLDT preferred shares with a par value of P10.00 per share have a current stock
market value ranging from only P10.92 to P11.06 per share,65 is a glaring confirmation by the market that control
and beneficial ownership of PLDT rest with the common shares, not with the preferred shares.
Indisputably, construing the term "capital" in Section 11, Article XII of the Constitution to include both voting and
non-voting shares will result in the abject surrender of our telecommunications industry to foreigners, amounting
to a clear abdication of the States constitutional duty to limit control of public utilities to Filipino citizens. Such an
interpretation certainly runs counter to the constitutional provision reserving certain areas of investment to
Filipino citizens, such as the exploitation of natural resources as well as the ownership of land, educational
institutions and advertising businesses. The Court should never open to foreign control what the Constitution has
expressly reserved to Filipinos for that would be a betrayal of the Constitution and of the national interest. The
Court must perform its solemn duty to defend and uphold the intent and letter of the Constitution to ensure, in
the words of the Constitution, "a self-reliant and independent national economy effectively controlled by
Filipinos."

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

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

Under Section 17(4)70 of the Corporation Code, the SEC has the regulatory function to reject or disapprove the
Articles of Incorporation of any corporation where "the required percentage of ownership of the capital stock
to be owned by citizens of the Philippines has not been complied with as required by existing laws or
the Constitution." Thus, the SEC is the government agency tasked with the statutory duty to enforce the
nationality requirement prescribed in Section 11, Article XII of the Constitution on the ownership of public utilities.
This Court, in a petition for declaratory relief that is treated as a petition for mandamus as in the present case,
can direct the SEC to perform its statutory duty under the law, a duty that the SEC has apparently unlawfully
neglected to do based on the 2010 GIS that respondent PLDT submitted to the SEC.
Under Section 5(m) of the Securities Regulation Code,71 the SEC is vested with the "power and function" to
"suspend or revoke, after proper notice and hearing, the franchise or certificate of registration of
corporations, partnerships or associations, upon any of the grounds provided by law." The SEC is
mandated under Section 5(d) of the same Code with the "power and function" to "investigate x x x the
activities of persons to ensure compliance" with the laws and regulations that SEC administers or enforces.
The GIS that all corporations are required to submit to SEC annually should put the SEC on guard against
violations of the nationality requirement prescribed in the Constitution and existing laws. This Court can compel
the SEC, in a petition for declaratory relief that is treated as a petition for mandamus as in the present case, to
hear and decide a possible violation of Section 11, Article XII of the Constitution in view of the ownership
structure of PLDTs voting shares, as admitted by respondents and as stated in PLDTs 2010 GIS that PLDT
submitted to SEC.
WHEREFORE, we PARTLY GRANT the petition and rule that the term "capital" in Section 11, Article XII of the
1987 Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the
present case only to common shares, and not to the total outstanding capital stock (common and non-voting
preferred shares). Respondent Chairperson of the Securities and Exchange Commission is DIRECTED to apply
this definition of the term "capital" in determining the extent of allowable foreign ownership in respondent
Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article XII of the
Constitution, to impose the appropriate sanctions under the law.
SO ORDERED.
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, AND
COMMISSIONER RICARDO ABCEDE OF THE PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT(PCGG) IN THEIR CAPACITIES AS CHAIR AND MEMBERS, RESPECTIVELY, OF THE
PRIVATIZATION COUNCIL, CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC CO., LTD. IN HIS CAPACITY
AS DIRECTOR OF METRO PACIFIC ASSET HOLDINGS INC., CHAIRMAN MANUEL V. PANGILINAN OF
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY (PLDT) IN HIS CAPACITY AS MANAGING
DIRECTOR OF FIRST PACIFIC CO., LTD., PRESIDENT NAPOLEON L. NAZARENO OF PHILIPPINE LONG
DISTANCE TELEPHONE COMPANY, CHAIR FE BARIN OF THE SECURITIES AND EXCHANGE
COMMISSION, and PRESIDENT FRANCIS LIM OF THE PHILIPPINE STOCK EXCHANGE, Respondents.
PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioner-in-Intervention.
RESOLUTION
CARPIO, J.:
This resolves the motions for reconsideration of the 28 June 2011 Decision filed by (1) the Philippine Stock
Exchange'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 behalfofthe
SEC,5 assailing the 28 June 2011 Decision. However, it subsequently filed a Consolidated Comment on behalf
of 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 position
consistent with the Court's 28 June 2011 Decision.
We deny the motions for reconsideration.
I.
Far-reaching implications of the legal issue justify
treatment of petition for declaratory relief as one 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 this
issue will determine whether Filipinos are masters, or second-class citizens, in their own country. What is at
stake here is whether Filipinos or foreigners will have effective control of the Philippine national economy.
Indeed, if ever there is a legal issue that has far-reaching implications to the entire nation, and to future
generations of Filipinos, it is the threshold legal issue presented in this case.
Contrary to Pangilinans narrow view, the serious economic consequences resulting in the interpretation of the
term "capital" in Section 11, Article XII of the Constitution undoubtedly demand an immediate adjudication of this
issue. 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 case
although 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-Dummy
Law 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 of
rights, franchises, privileges, properties and businesses which only Filipinos and qualified corporations could
exercise or enjoy under the Constitution and the statutes. Moreover, the same issue could be raised by appellant
in an appropriate action. Thus, in Luzon Stevedoring the Court deemed it necessary to finally dispose of the
case 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 the
pivotal 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 public
and all concerned parties.

II.
No change of any long-standing rule;
thus, no redefinition of the term "capital."
Movants contend that the term "capital" in Section 11, Article XII of the Constitution has long been settled and
defined to refer to the total outstanding shares of stock, whether voting or non-voting. In fact, movants claim that
the SEC, which is the administrative agency tasked to enforce the 60-40 ownership requirement in favor of
Filipino citizens in the Constitution and various statutes, has consistently adopted this particular definition in its
numerous 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 judicial
precedent interpreting the term "capital" in the 1935, 1973 and 1987 Constitutions, until now. Hence, it is
patently wrong and utterly baseless to claim that the Court in defining the term "capital" in its 28 June 2011
Decision modified, reversed, or set aside the purported long-standing definition of the term "capital," which
supposedly refers to the total outstanding shares of stock, whether voting or non-voting. To repeat, until the
present case there has never been a Court ruling categorically defining the term "capital" found in the various
economic 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" as
referring to both voting and non-voting shares (combined total of common and preferred shares) are, in the first
place, conflicting and inconsistent. There is no basis whatsoever to the claim that the SEC and the DOJ have
consistently and uniformly adopted a definition of the term "capital" contrary to the definition that this Court
adopted 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, Article
XIV of the 1973 Constitution was raised, that is, whether the term "capital" includes "both preferred and common
stocks." The issue was raised in relation to a stock-swap transaction between a Filipino and a Japanese
corporation, both stockholders of a domestic corporation that owned lands in the Philippines. Then Minister of
Justice Estelito P. Mendoza ruled that the resulting ownership structure of the corporation would
beunconstitutional because 60% of the voting stock would be owned by Japanese while Filipinos would own
only 40% of the voting stock, although when the non-voting stock is added, Filipinos would own 60% of the
combined voting and non-voting stock. This ownership structure is remarkably similar to the current
ownership structure of PLDT. Minister Mendoza ruled:
xxxx
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 not
distinguish, the courts shall not distinguish."
xxxx
In light of the foregoing jurisprudence, it is my opinion that the stock-swap transaction in question may not
be constitutionally upheld. While it may be ordinary corporate practice to classify corporate shares into
common voting shares and preferred non-voting shares, any arrangement which attempts to defeat the
constitutional purpose should be eschewed. Thus, the resultant equity arrangement which would place
ownership of 60%11 of the common (voting) shares in the Japanese group, while retaining 60% of the
total percentage of common and preferred shares in Filipino hands would amount to circumvention of
the 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 of
the 1973 Constitution includes "both preferred and common stocks" treated as the same class of shares
regardless of differences in voting rights and privileges. Minister Mendoza stressed that the 60-40 ownership
requirement 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 situs
of 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, using
only 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 entitled to vote is owned by a Philippine national, the
Trustee; and (2) at least sixty percent (60%) of the ERF will accrue to the benefit of Philippine nationals. Still
pursuant to the Control Test, MLRCs investment in 60% of BFDCs outstanding capital stock entitled to
vote 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 entitled to vote is owned by a Philippine
national (i.e., by the Trustee, in the case of MLRC; and by MLRC, in the case of BFDC); and (2) at least 60% of
their respective board of directors are Filipino citizens. (Boldfacing and italicization supplied)
Clearly, these DOJ and SEC opinions are compatible with the Courts interpretation of the 60-40 ownership
requirement in favor of Filipino citizens mandated by the Constitution for certain economic activities. At the same
time, these opinions highlight the conflicting, contradictory, and inconsistent positions taken by the DOJ and the
SEC 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 regulations
because only the SEC en banc can adopt rules and regulations. As expressly provided in Section 4.6 of the
Securities Regulation Code,12 the SEC cannot delegate to any of its individual Commissioner or staff the power
to 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 opinions and approve rules and
regulations. Thus:
4.6. The Commission may, for purposes of efficiency, delegate any of its functions to any department or office of
the Commission, an individual Commissioner or staff member of the Commission exceptits review or appellate
authority 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 any
department 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 shall
have the powers and functions provided by this Code, Presidential Decree No. 902-A, the Corporation Code, the
Investment Houses Law, the Financing Company Act and other existing laws. Pursuant thereto the Commission
shall have, among others, the following powers and functions:
xxxx
(g) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide
guidance 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 effect
of 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 en
banc 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 of
the SEC.
The SEC admits during the Oral Arguments that only the SEC en banc, and not any of its individual
commissioners or legal staff, is empowered to issue opinions which have the same binding effect as SEC rules
and regulations, thus:
JUSTICE CARPIO:

So, under the law, it is the Commission En Banc that can issue an
SEC Opinion, correct?
COMMISSIONER GAITE:13
Thats 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 commissioner
or 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:
Thats correct, Your Honor.
JUSTICE CARPIO:
So, you combine the two (2), the SEC officer, if delegated that power, can issue an opinion
but 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 on
behalf of the SEC, has adopted even the Grandfather Rule in determining compliance with the 60-40 ownership
requirement in favor of Filipino citizens mandated by the Constitution for certain economic activities. This
prevailing 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 Consolidated
Mines, 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 natural
resources. Necessarily, therefore, the Rule interpreting the constitutional provision should not diminish
that right through the legal fiction of corporate ownership and control. But the constitutional provision, as
interpreted and practiced via the 1967 SEC Rules, has favored foreigners contrary to the command of the
Constitution. Hence, the Grandfather Rule must be applied to accurately determine the actual
participation, both direct and indirect, of foreigners in a corporation engaged in a nationalized activity or
business.
Compliance with the constitutional limitation(s) on engaging in nationalized activities must be determined by
ascertaining if 60% of the investing corporations outstanding capital stock is owned by "Filipino citizens", or as
interpreted, by natural or individual Filipino citizens. If such investing corporation is in turn owned to some extent
by another investing corporation, the same process must be observed. One must not stop until the citizenships
of the individual or natural stockholders of layer after layer of investing corporations have been established, the
very essence of the Grandfather Rule.
Lastly, it was the intent of the framers of the 1987 Constitution to adopt the Grandfather Rule. In one of
the 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. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are always faced with the question: Where do we base the equity
requirement, is it on the authorized capital stock, on the subscribed capital stock, or on the paid-up capital stock
of a corporation? Will the Committee please enlighten me on this?
MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP Law Center who
provided us a draft. The phrase that is contained here which we adopted from the UP draft is 60 percent of
voting stock.
MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared delinquent,
unpaid capital stock shall be entitled to vote.
MR. VILLEGAS. That is right.
MR. NOLLEDO. Thank you. With respect to an investment by one corporation in another corporation, say, a
corporation with 60-40 percent equity invests in another corporation which is permitted by the Corporation Code,
does the Committee adopt the grandfather rule?
MR. VILLEGAS. Yes, that is the understanding of the Committee.
MR. NOLLEDO. Therefore, we need additional Filipino capital?
MR. VILLEGAS. Yes. (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 favor
of Filipino citizens in the Constitution to engage in certain economic activities applies not only to voting control of
the 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. Full
beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the
voting rights, is required. The legal and beneficial ownership of 60 percent of the outstanding capital stock

must rest in the hands of Filipino nationals in accordance with the constitutional mandate. Otherwise, the
corporation is "considered as non-Philippine national[s]." (Emphasis supplied)
Both the Voting Control Test and the Beneficial Ownership Test must be applied to determine whether a
corporation is a "Philippine national."
The interpretation by legal officers of the SEC of the term "capital," embodied in various opinions which
respondents relied upon, is merely preliminary and an opinion only of such officers. To repeat, any such opinion
does not constitute an SEC rule or regulation. In fact, many of these opinions contain a disclaimer which
expressly states: "x x x the foregoing opinion is based solely on facts disclosed in your query and relevant only
to the particular issue raised therein and shall not be used in the nature of a standing rule binding upon the
Commission in other cases whether of similar or dissimilar circumstances."16 Thus, the opinions clearly
make 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 nor
controlling and thus, do not bind the Court. It is hornbook doctrine that any interpretation of the law that
administrative or quasi-judicial agencies make is only preliminary, never conclusive on the Court. The power to
make a final interpretation of the law, in this case the term "capital" in Section 11, Article XII of the 1987
Constitution, lies with this Court, not with any other government entity.
In his motion for reconsideration, the PSE President cites the cases of National Telecommunications
Commission v. Court of Appeals17 and Philippine Long Distance Telephone Company v. National
Telecommunications 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
Appeals20 andPhilippine Long Distance Telephone Company v. National Telecommunications Commission,21 the
Court did not define the term "capital" as found in Section 11, Article XII of the 1987 Constitution. In fact, these
two cases never mentioned, discussed or cited Section 11, Article XII of the Constitution or any of its
economic provisions, and thus cannot serve as precedent in the interpretation of Section 11, Article XII
of the Constitution. These two cases dealt solely with the determination of the correct regulatory fees under
Section 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 public
services and/or in the regulation or fixing of their rates, twenty centavos for each one hundred pesos or fraction
thereof, of the capital stock subscribed or paid, or if no shares have been issued, of the capital invested, or of
the 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, of
the increased capital. (Emphasis supplied)
The Courts 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, Article
XII 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 of
these two cases reveals that the terms "capital stock subscribed or paid," "capital stock" and "capital" were
defined solely to determine the basis for computing the supervision and regulation fees under Section 40(e) and
(f) of the Public Service Act.
III.
Filipinization of Public Utilities
The Preamble of the 1987 Constitution, as the prologue of the supreme law of the land, embodies the ideals that
the 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, conserve
and develop our patrimony, and secure to ourselves and our posterity, the blessings of independence and
democracy under the rule of law and a regime of truth, justice, freedom, love, equality, and peace, do ordain and
promulgate this Constitution. (Emphasis supplied)

Consistent with these ideals, Section 19, Article II of the 1987 Constitution declares as State policy the
development of a national economy "effectively controlled" by Filipinos:
Section 19. The State shall develop a self-reliant and independent national economy effectively controlled by
Filipinos.
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 national
interest dictates, reserve to citizens of the Philippines or to corporations or associations at least sixty per
centum of whose capital is owned by such citizens, or such higher percentage as Congress may prescribe,
certain areas of investments. The Congress shall enact measures that will encourage the formation and
operation 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 shall
give preference to qualified Filipinos.
The State shall regulate and exercise authority over foreign investments within its national jurisdiction and in
accordance 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 to
corporations or associations at least sixty per centum of whose capital is owned by such citizens, or such higher
percentage as Congress may prescribe, certain areas of investments." Thus, in numerous laws Congress has
reserved certain areas of investments to Filipino citizens or to corporations at least sixty percent of the "capital"
of which is owned by Filipino citizens. Some of these laws are: (1) Regulation of Award of Government Contracts
or R.A. No. 5183; (2) Philippine Inventors Incentives Act or R.A. No. 3850; (3) Magna Carta for Micro, Small and
Medium Enterprises or R.A. No. 6977; (4) Philippine Overseas Shipping Development Act or R.A. No. 7471; (5)
Domestic Shipping Development Act of 2004 or R.A. No. 9295; (6) Philippine Technology Transfer Act of 2009
or R.A. No. 10055; and (7) Ship Mortgage Decree or P.D. No. 1521.
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 utility
shall be granted except to citizens of the Philippines or to corporations or associations organized under
the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall
such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years.
Neither shall any such franchise or right be granted except under the condition that it shall be subject to
amendment, alteration, or repeal by the Congress when the common good so requires. The State shall
encourage equity participation in public utilities by the general public. The participation of foreign investors in the
governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all
the executive and managing officers of such corporation or association must be citizens of the Philippines.
(Emphasis supplied)
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 associations
organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens."
"The provision is [an express] recognition of the sensitive and vital position of public utilities both in the
national economy and for national security."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, in
the case of individuals, only Filipino citizens can validly own and operate a public utility. In the case of
corporations or associations, at least 60 percent of their "capital" must be owned by Filipino citizens. In other
words, under Section 11, Article XII of the 1987 Constitution, to own and operate a public utility a
corporations capital must at least be 60 percent owned by Philippine nationals.
IV.
Definition of "Philippine 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 association
wholly owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of
which at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held
by citizens of the Philippines; or a corporation organized abroad and registered as doing business in the
Philippines under the Corporation Code of which one hundred percent (100%) of the capital stock outstanding
and entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement or
separation benefits, where the trustee is a Philippine national and at least sixty percent (60%) of the fund will
accrue to the benefit of Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders
own stocks in a Securities and Exchange Commission (SEC) registered enterprise, at least sixty percent (60%)
of the capital stock outstanding and entitled to vote of each of both corporations must be owned and held by
citizens of the Philippines and at least sixty percent (60%) of the members of the Board of Directors of each of
both corporations must be citizens of the Philippines, in order that the corporation, shall be considered a
"Philippine national." (Boldfacing, italicization and underscoring supplied)
Thus, the FIA clearly and unequivocally defines a "Philippine national" as a Philippine citizen, or a domestic
corporation at least "60% of the capital stock outstanding and entitled to vote" is owned by Philippine
citizens.
The definition of a "Philippine national" in the FIA reiterated the meaning of such term as provided in its
predecessor statute, Executive Order No. 226 or the Omnibus Investments Code of 1987,25 which was issued by
then 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 association
wholly-owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of
which at least sixty per cent (60%) of the capital stock outstanding and entitled to vote is owned and
held by citizens of the Philippines; or a trustee of funds for pension or other employee retirement or
separation benefits, where the trustee is a Philippine national and at least sixty per cent (60%) of the fund will
accrue to the benefit of Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders
own stock in a registered enterprise, at least sixty per cent (60%) of the capital stock outstanding and entitled to
vote 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
that the corporation shall be considered a Philippine national. (Boldfacing, italicization and underscoring
supplied)
Under Article 48(3)26 of the Omnibus Investments Code of 1987, "no corporation x x x which is not a Philippine
national 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 effect
that such business or economic activity x x x would not conflict with the Constitution or laws of the
Philippines."27Thus, a "non-Philippine national" cannot own and operate a reserved economic activity like a
public 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 a
reiteration of the meaning of such term as provided in Article 14 of the Omnibus Investments Code of 1981,28 to
wit:
Article 14. "Philippine national" shall mean a citizen of the Philippines; or a domestic partnership or association
wholly owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of
which at least sixty per cent (60%) of the capital stock outstanding and entitled to vote is owned and
held by citizens of the Philippines; or a trustee of funds for pension or other employee retirement or
separation benefits, where the trustee is a Philippine national and at least sixty per cent (60%) of the fund will
accrue to the benefit of Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders
own stock in a registered enterprise, at least sixty per cent (60%) of the capital stock outstanding and entitled to
vote 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

that the corporation shall be considered a Philippine national. (Boldfacing, italicization and underscoring
supplied)
Under Article 69(3) of the Omnibus Investments Code of 1981, "no corporation x x x which is not a Philippine
national x x x shall do business x x x in the Philippines x x x without first securing a written certificate from the
Board of Investments to the effect that such business or economic activity x x x would not conflict with the
Constitution or laws of the Philippines."29 Thus, a "non-Philippine national" cannot own and operate a reserved
economic activity like a public utility. Again, this means that only a "Philippine national" can own and operate a
public utility.
Prior to the Omnibus Investments Code of 1981, Republic Act No. 518630 or the Investment Incentives
Act, which took effect on 16 September 1967, contained a similar definition of a "Philippine national," to wit:
(f) "Philippine National" shall mean a citizen of the Philippines; or a partnership or association wholly owned by
citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least
sixty per cent of the capital stock outstanding and entitled to vote is owned and held by citizens of the
Philippines; or a trustee of funds for pension or other employee retirement or separation benefits, where the
trustee is a Philippine National and at least sixty per cent of the fund will accrue to the benefit of Philippine
Nationals: Provided, That where a corporation and its non-Filipino stockholders own stock in a registered
enterprise, at least sixty per cent of the capital stock outstanding and entitled to vote of both corporations must
be owned and held by the citizens of the Philippines and at least sixty per cent of the members of the Board of
Directors of both corporations must be citizens of the Philippines in order that the corporation shall be
considered a Philippine National. (Boldfacing, italicization and underscoring supplied)
Under Section 3 of Republic Act No. 5455 or the Foreign Business Regulations Act, which took effect on 30
September 1968, if the investment in a domestic enterprise by non-Philippine nationals exceeds 30% of its
outstanding capital stock, such enterprise must obtain prior approval from the Board of Investments before
accepting such investment. Such approval shall not be granted if the investment "would conflict with existing
constitutional provisions and laws regulating the degree of required ownership by Philippine nationals in the
enterprise."31 A "non-Philippine national" cannot own and operate a reserved economic activity like a public
utility. Again, this means that only a "Philippine national" can own and operate a public utility.
The FIA, like all its predecessor statutes, clearly defines a "Philippine national" as a Filipino citizen, or
adomestic corporation "at least sixty percent (60%) of the capital stock outstanding and entitled to
vote"is owned by Filipino citizens. A domestic corporation is a "Philippine national" only if at least 60% of
its voting stock is owned by Filipino citizens. This definition of a "Philippine national" is crucial in the present
case because the FIA reiterates and clarifies Section 11, Article XII of the 1987 Constitution, which limits the
ownership and operation of public utilities to Filipino citizens or to corporations or associations at least 60%
Filipino-owned.
The FIA is the basic law governing foreign investments in the Philippines, irrespective of the nature of business
and area of investment. The FIA spells out the procedures by which non-Philippine nationals can invest in the
Philippines. Among the key features of this law is the concept of a negative list or the Foreign Investments
Negative List.32 Section 8 of the law states:
SEC. 8. List of Investment Areas Reserved to Philippine Nationals [Foreign Investment Negative List]. - The
Foreign Investment Negative List shall have two 2 component lists: A and B:
a. List A shall enumerate the areas of activities reserved to Philippine nationals by mandate of the
Constitution and specific laws.
b. List B shall contain the areas of activities and enterprises regulated pursuant to law:
1. which are defense-related activities, requiring prior clearance and authorization from the Department of
National Defense [DND] to engage in such activity, such as the manufacture, repair, storage and/or distribution
of firearms, ammunition, lethal weapons, military ordinance, explosives, pyrotechnics and similar materials;
unless such manufacturing or repair activity is specifically authorized, with a substantial export component, to a
non-Philippine national by the Secretary of National Defense; or
2. which have implications on public health and morals, such as the manufacture and distribution of dangerous
drugs; all forms of gambling; nightclubs, bars, beer houses, dance halls, sauna and steam bathhouses and
massage clinics. (Boldfacing, underscoring and italicization supplied)

Section 8 of the FIA enumerates the investment areas "reserved to Philippine nationals." Foreign Investment
Negative List A consists of "areas of activities reserved to Philippine nationals by mandate of the
Constitution and specific laws," where foreign equity participation in any enterprise shall be limited to
the maximum percentage expressly prescribed by the Constitution and other specific laws. In short, to
own and operate a public utility in the Philippines one must be a "Philippine national" as defined in the
FIA. The FIA is abundant notice to foreign investors to what extent they can invest in public utilities in
the Philippines.
To repeat, among the areas of investment covered by the Foreign Investment Negative List A is the ownership
and operation of public utilities, which the Constitution expressly reserves to Filipino citizens and to corporations
at least 60% owned by Filipino citizens. In other words, Negative List A of the FIA reserves the ownership
and operation of public utilities only to "Philippine nationals," defined in Section 3(a) of the FIA as "(1) a
citizen of the Philippines; x x x or (3) a corporation organized under the laws of the Philippines of which at
least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by
citizens of the Philippines; or (4) a corporation organized abroad and registered as doing business in the
Philippines under the Corporation Code of which one hundred percent (100%) of the capital stock outstanding
and entitled to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement or
separation benefits, where the trustee is a Philippine national and at least sixty percent (60%) of the fund will
accrue to the benefit of Philippine nationals."
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 present
Foreign 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 domestic
corporation at least 60% of the voting stock is owned by Filipinos. Likewise, these same statutes have
uniformly and consistently required that only "Philippine nationals" could own and operate public
utilities 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? Thats over twenty (20) years ago, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And Section 8 of the Foreign Investments Act of 1991 states that []only Philippine nationals can
own 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 citizen
of the Philippines, or if it is a corporation at least sixty percent (60%) of the voting stock is owned
by citizens of the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
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 nationals
can 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 the
Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And even prior to the Omnibus Investments Act of 1987, under the Omnibus Investments Act of
1981, the same rules apply: x x x only a Philippine national can own and operate a public utility
and a Philippine national, if it is a corporation, sixty percent (60%) of its x x x voting stock, must
be owned by citizens of the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And even prior to that, under [the]1967 Investments Incentives Act and the Foreign Company Act
of 1968, the same rules applied, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
So, for the last four (4) decades, x x x, the law has been very consistent only a Philippine
national can own and operate a public utility, and a Philippine national, if it is a
corporation, x x x at least sixty percent (60%) of the voting stock must be owned by
citizens 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 categorically
prescribe that certain economic activities, like the ownership and operation of public utilities, are reserved to
corporations "at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and
held by citizens of the Philippines." Foreign Investment Negative List A refers to "activities reserved to Philippine
nationals 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 foreign
investments, as well as counsels of foreign investors, should start with the FIA in determining to what extent a
particular foreign investment is allowed in the Philippines. Foreign investors and their counsels who ignore the
FIA do so at their own peril. Foreign investors and their counsels who rely on opinions of SEC legal officers that
obviously 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" in
Section 3(a) of the FIA in determining whether a particular corporation is qualified to own and operate a
nationalized or partially nationalized business in the Philippines. This shows that SEC legal officers are not only
aware of, but also rely on and invoke, the provisions of the FIA in ascertaining the eligibility of a corporation to
engage 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 Overseas
Employment 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 the
FIA signifies their lack of integrity and competence in resolving issues on the 60-40 ownership requirement in
favor 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 interpreted
to refer to corporations seeking to avail of tax and fiscal incentives under investment incentives laws and cannot
be equated with the term "capital" in Section 11, Article XII of the 1987 Constitution. Pangilinan similarly
contends that the FIA and its predecessor statutes do not apply to "companies which have not registered and
obtained 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. Tax
and fiscal incentives to investments are granted separately under the Omnibus Investments Code of 1987, not
under the FIA. In fact, the FIA expressly repealed Articles 44 to 56 of Book II of the Omnibus Investments Code
of 1987, which articles previously regulated foreign investments in nationalized or partially nationalized
industries.
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, that
states, expressly or impliedly, that the FIA or its predecessor statutes do not apply to enterprises not availing of
tax and fiscal incentives under the Code. The FIA and its predecessor statutes apply to investments in all
domestic enterprises, whether or not such enterprises enjoy tax and fiscal incentives under the Omnibus
Investments 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 the
Constitution regulating foreign investments in public utilities. In fact, the Board of Investments Primer on
Investment 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., the
activity is not listed in the IPP, and they are not exporting at least 70% of their production) may go ahead and
make the investments without seeking incentives. They only have to be guided by the Foreign Investments
Negative 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 beneficial ownership,
translates to effective control.
The 28 June 2011 Decision declares that the 60 percent Filipino ownership required by the Constitution to
engage in certain economic activities applies not only to voting control of the corporation, but also to the
beneficial 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. Full
beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the
voting rights, is required. The legal and beneficial ownership of 60 percent of the outstanding capital stock
must rest in the hands of Filipino nationals in accordance with the constitutional mandate. Otherwise, the
corporation is "considered as non-Philippine national[s]." (Emphasis supplied)

This is consistent with Section 3 of the FIA which provides that where 100% of the capital stock is held by "a
trustee of funds for pension or other employee retirement or separation benefits," the trustee is a Philippine
national 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 by
Philippine citizens or Philippine nationals, mere legal title is not enough to meet the required Filipino equity. Full
beneficial ownership of the stocks, coupled with appropriate voting rights, is essential."
Since the constitutional requirement of at least 60 percent Filipino ownership applies not only to voting control of
the corporation but also to the beneficial ownership of the corporation, it is therefore imperative that such
requirement apply uniformly and across the board to all classes of shares, regardless of nomenclature and
category, comprising the capital of a corporation. Under the Corporation Code, capital stock35 consists of all
classes of shares issued to stockholders, that is, common shares as well as preferred shares, which may have
different 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 denial
of the right to vote in specific corporate matters. Thus, common shares have the right to vote in the election of
directors, while preferred shares may be denied such right. Nonetheless, preferred shares, even if denied the
right to vote in the election of directors, are entitled to vote on the following corporate matters: (1) amendment of
articles of incorporation; (2) increase and decrease of capital stock; (3) incurring, creating or increasing bonded
indebtedness; (4) sale, lease, mortgage or other disposition of substantially all corporate assets; (5) investment
of 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 shares
in a corporation, the 60-40 ownership requirement in favor of Filipino citizens in Section 11, Article XII of the
Constitution must apply not only to shares with voting rights but also to shares without voting rights. Preferred
shares, denied the right to vote in the election of directors, are anyway still entitled to vote on the eight specific
corporate 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 shares
and at least 60 percent of the preferred non-voting shares must be owned by Filipinos. Of course, if a
corporation issues only a single class of shares, at least 60 percent of such shares must necessarily be owned
by 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 of
shares. This uniform application of the 60-40 ownership requirement in favor of Filipino citizens clearly breathes
life to the constitutional command that the ownership and operation of public utilities shall be reserved
exclusively to corporations at least 60 percent of whose capital is Filipino-owned. Applying uniformly the 60-40
ownership requirement in favor of Filipino citizens to each class of shares, regardless of differences in voting
rights, privileges and restrictions, guarantees effective Filipino control of public utilities, as mandated by the
Constitution.
Moreover, such uniform application to each class of shares insures that the "controlling interest" in public utilities
always lies in the hands of Filipino citizens. This addresses and extinguishes Pangilinans worry that foreigners,
owning most of the non-voting shares, will exercise greater control over fundamental corporate matters requiring
two-thirds or majority vote of all shareholders.
VI.
Intent of the framers of the Constitution
While Justice Velasco quoted in his Dissenting Opinion38 a portion of the deliberations of the Constitutional
Commission to support his claim that the term "capital" refers to the total outstanding shares of stock, whether
voting or non-voting, the following excerpts of the deliberations reveal otherwise. It is clear from the following
exchange 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. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are always faced with this question: "Where do we base the equity
requirement, is it on the authorized capital stock, on the subscribed capital stock, or on the paid-up capital stock
of a corporation"? Will the Committee please enlighten me on this?

MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP Law Center who
provided us a draft. The phrase that is contained here which we adopted from the UP draft is "60 percent
of voting stock."
MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared delinquent,
unpaid capital stock shall be entitled to vote.
MR. VILLEGAS. That is right.
MR. NOLLEDO. Thank you.
With respect to an investment by one corporation in another corporation, say, a corporation with 60-40 percent
equity invests in another corporation which is permitted by the Corporation Code, does the Committee adopt the
grandfather rule?
MR. VILLEGAS. Yes, that is the understanding of the Committee.
MR. NOLLEDO. Therefore, we need additional Filipino capital?
MR. VILLEGAS. Yes.39
xxxx
MR. AZCUNA. May I be clarified as to that portion that was accepted by the Committee.
MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase "voting stock or controlling
interest."
MR. AZCUNA. Hence, without the Davide amendment, the committee report would read: "corporations or
associations at least sixty percent of whose CAPITAL is owned by such citizens."
MR. VILLEGAS. Yes.
MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the capital to be owned by
citizens.
MR. VILLEGAS. That is right.
MR. AZCUNA. But the control can be with the foreigners even if they are the minority. Let us say 40
percent of the capital is owned by them, but it is the voting capital, whereas, the Filipinos own the
nonvoting shares. So we can have a situation where the corporation is controlled by foreigners despite
being the minority because they have the voting capital. That is the anomaly that would result here.
MR. BENGZON. No, the reason we eliminated the word "stock" as stated in the 1973 and 1935
Constitutions is that according to Commissioner Rodrigo, there are associations that do not have
stocks. That is why we say "CAPITAL."
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 can
operate 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 of
the 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 the
Convention."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 1973
Constitutions 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 Courts 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 the
entities qualified to operate public utilities to include associations without stocks. The framers omission of the
phrase "controlling interest" did not mean the inclusion of all shares of stock, whether voting or non-voting. The
OSG reiterated essentially the Courts declaration that the Constitution reserved exclusively to Philippine
nationals the ownership and operation of public utilities consistent with the States policy to "develop a selfreliant and independent national economy effectively controlled by Filipinos."
As we held in our 28 June 2011 Decision, to construe broadly the term "capital" as the total outstanding capital
stock, treated as a single class regardless of the actual classification of shares, grossly contravenes the intent
and letter of the Constitution that the "State shall develop a self-reliant and independent national
economyeffectively controlled by Filipinos." We illustrated the glaring anomaly which would result in defining
the term "capital" as the total outstanding capital stock of a corporation, treated as a single class of shares
regardless 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-voting
preferred shares owned by Filipinos, with both classes of share having a par value of one peso (P 1.00) per
share. Under the broad definition of the term "capital," such corporation would be considered compliant with the
40 percent constitutional limit on foreign equity of public utilities since the overwhelming majority, or more than
99.999 percent, of the total outstanding capital stock is Filipino owned. This is obviously absurd.
In the example given, only the foreigners holding the common shares have voting rights in the election of
directors, even if they hold only 100 shares. The foreigners, with a minuscule equity of less than 0.001 percent,
exercise control over the public utility. On the other hand, the Filipinos, holding more than 99.999 percent of the
equity, cannot vote in the election of directors and hence, have no control over the public utility. This starkly
circumvents the intent of the framers of the Constitution, as well as the clear language of the Constitution, to
place the control of public utilities in the hands of Filipinos. x x x
Further, even if foreigners who own more than forty percent of the voting shares elect an all-Filipino board of
directors, this situation does not guarantee Filipino control and does not in any way cure the violation of the
Constitution. The independence of the Filipino board members so elected by such foreign shareholders is highly
doubtful. As the OSG pointed out, quoting Justice George Sutherlands words in Humphreys Executor v.
US,44 "x x x it is quite evident that one who holds his office only during the pleasure of another cannot be
depended upon to maintain an attitude of independence against the latters will." Allowing foreign shareholders
to elect a controlling majority of the board, even if all the directors are Filipinos, grossly circumvents the letter
and intent of the Constitution and defeats the very purpose of our nationalization laws.
VII.
Last sentence of Section 11, Article XII of the Constitution
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 their
proportionate share in its capital, and all the executive and managing officers of such corporation or association
must be citizens of the Philippines.
During the Oral Arguments, the OSG emphasized that there was never a question on the intent of the framers of
the 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 records
show they clearly understood that Filipino control of the public utility corporation can only be and is obtained only
through 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 1986
was 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 thirds
of whose voting stock or controlling interest," and instead substitute the words "SIXTY PERCENT OF WHOSE
CAPITAL" so that the sentence will read: "No franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines at least SIXTY PERCENT OF WHOSE CAPITAL is owned by such
citizens."
xxxx
THE PRESIDENT: Will Commissioner Jamir first explain?
MR. JAMIR. Yes, in this Article on National Economy and Patrimony, there were two previous sections in which
we fixed the Filipino equity to 60 percent as against 40 percent for foreigners. It is only in this Section 15 with
respect to public utilities that the committee proposal was increased to two-thirds. I think it would be better to
harmonize this provision by providing that even in the case of public utilities, the minimum equity for Filipino
citizens 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 with
representatives of the Filipino majority owners of the international record carriers, and the subsequent
memoranda 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 in
the 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 the
board. 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 the
spokesman 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
xxxx
THE PRESIDENT. Just to clarify, would Commissioner Rosario Braid support the proposal of two-thirds rather
than 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 the
Constitution intended public utilities to be majority Filipino-owned and controlled. To ensure that Filipinos control
public utilities, the framers of the Constitution approved, as additional safeguard, the inclusion of the last
sentence of Section 11, Article XII of the Constitution commanding that "[t]he participation of foreign investors in
the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and
all the executive and managing officers of such corporation or association must be citizens of the Philippines." In
other words, the last sentence of Section 11, Article XII of the Constitution mandates that (1) the participation of
foreign investors in the governing body of the corporation or association shall be limited to their proportionate
share 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 the
corporation 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 public
utilities, thus:
MS. ROSARIO BRAID. x x x They also like to suggest that we amend this provision by adding a phrase which
states: "THE MANAGEMENT BODY OF EVERY CORPORATION OR ASSOCIATION SHALL IN ALL CASES
BE 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 Commissioner
Romulo mentioned Philippine Global Communications, Eastern Telecommunications, Globe Mackay Cable
are 40-percent owned by foreign multinational companies and 60-percent owned by their respective Filipino
partners. All three, however, also have management contracts with these foreign companies Philcom with
RCA, ETPI with Cable and Wireless PLC, and GMCR with ITT. Up to the present time, the general managers of
these carriers are foreigners. While the foreigners in these common carriers are only minority owners, the
foreign multinationals are the ones managing and controlling their operations by virtue of their management
contracts and by virtue of their strength in the governing bodies of these carriers.47
xxxx
MR. OPLE. I think a number of us have agreed to ask Commissioner Rosario Braid to propose an amendment
with 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.
xxxx
MS. ROSARIO BRAID. Madam President, I propose a new section to read: THE MANAGEMENT BODY OF
EVERY CORPORATION OR ASSOCIATION SHALL IN ALL CASES BE CONTROLLED BY CITIZENS OF THE
PHILIPPINES."
This will prevent management contracts and assure control by Filipino citizens. Will the committee assure
us that this amendment will insure that past activities such as management contracts will no longer be possible
under this amendment?
xxxx
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 UTILITY
ENTERPRISE 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 ANY
PUBLIC UTILITY ENTERPRISE SHALL BE LIMITED TO THEIR PROPORTIONATE SHARE IN THE CAPITAL
THEREOF..." 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 the
amendment. Is that all right with Commissioner Rosario Braid?
MS. ROSARIO BRAID. Yes.
xxxx
MR. DE LOS REYES. The governing body refers to the board of directors and trustees.
MR. VILLEGAS. That is right.
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
xxxx
The results show 29 votes in favor and none against; so the proposed amendment is approved.
xxxx
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 of
authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines at least 60 PERCENT OF WHOSE
CAPITAL 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 ANY
PUBLIC UTILITY ENTERPRISE SHALL BE LIMITED TO THEIR PROPORTIONATE SHARE IN THE CAPITAL
THEREOF 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 IN
CHARACTER OR FOR A PERIOD LONGER THAN TWENTY-FIVE YEARS RENEWABLE FOR NOT MORE
THAN TWENTY-FIVE YEARS. Neither shall any such franchise or right be granted except under the condition
that it shall be subject to amendment, alteration, or repeal by Congress when the common good so requires. The
State shall encourage equity participation in public utilities by the general public."

VOTING
xxxx
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 limited
participation 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 of
public 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 to
vote in the election of directors, and thus foreigners control PLDT;
(2) Filipinos own only 35.73% of PLDTs 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 only
22.15%.
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 Section
11, Article XII of the 1987 Constitution. Such question indisputably calls for a presentation and
determination of evidence through a hearing, which is generally outside the province of the Courts
jurisdiction, but well within the SECs statutory powers. Thus, for obvious reasons, the Court limited its
decision 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 exact
percentage of foreign ownership in PLDT.
IX.
PLDT is not an indispensable party;
SEC is impleaded in this case.
In his petition, Gamboa prays, among others:
xxxx
5. For the Honorable Court to issue a declaratory relief that ownership of common or voting shares is the sole
basis in determining foreign equity in a public utility and that any other government rulings, opinions, and
regulations inconsistent with this declaratory relief be declared unconstitutional and a violation of the intent and
spirit of the 1987 Constitution;
6. For the Honorable Court to declare null and void all sales of common stocks to foreigners in excess of 40
percent of the total subscribed common shareholdings; and

7. For the Honorable Court to direct the Securities and Exchange Commission and Philippine Stock
Exchange to require PLDT to make a public disclosure of all of its foreign shareholdings and their actual
and 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 statutory
duty to investigate whether "the required percentage of ownership of the capital stock to be owned by citizens of
the Philippines has been complied with [by PLDT] as required by x x x the Constitution."51 Such plea clearly
negates SECs argument that it was not impleaded.
Granting that only the SEC Chairman was impleaded in this case, the Court has ample powers to order the
SECs compliance with its directive contained in the 28 June 2011 Decision in view of the far-reaching
implications of this case. In Domingo v. Scheer,52 the Court dispensed with the amendment of the pleadings to
implead the Bureau of Customs considering (1) the unique backdrop of the case; (2) the utmost need to avoid
further 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 not
be 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, to
amend the processes, pleadings, proceedings and decisions by substituting as party-plaintiff the real party-ininterest. The Court has the power to avoid delay in the disposition of this case, to order its amendment
as to implead the BOC as party-respondent. Indeed, it may no longer be necessary to do so taking into
account the unique backdrop in this case, involving as it does an issue of public interest. After all, the
Office of the Solicitor General has represented the petitioner in the instant proceedings, as well as in the
appellate court, and maintained the validity of the deportation order and of the BOCs Omnibus Resolution. It
cannot, thus, be claimed by the State that the BOC was not afforded its day in court, simply because only the
petitioner, 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 to
facilitate the application of justice to the rival claims of contending parties. They were created, not to
hinder and delay, but to facilitate and promote, the administration of justice. They do not constitute the thing
itself, which courts are always striving to secure to litigants. They are designed as the means best adapted to
obtain that thing. In other words, they are a means to an end. When they lose the character of the one and
become the other, the administration of justice is at fault and courts are correspondingly remiss in the
performance of their obvious duty.53(Emphasis supplied)
In any event, the SEC has expressly manifested54 that it will abide by the Courts decision and defer to
the Courts definition of the term "capital" in Section 11, Article XII of the Constitution. Further, the SEC
entered its special appearance in this case and argued during the Oral Arguments, indicating its
submission to the Courts jurisdiction. It is clear, therefore, that there exists no legal impediment against
the proper and immediate implementation of the Courts directive to the SEC.
PLDT is an indispensable party only insofar as the other issues, particularly the factual questions, are
concerned. In other words, PLDT must be impleaded in order to fully resolve the issues on (1) whether the sale
of 111,415 PTIC shares to First Pacific violates the constitutional limit on foreign ownership of PLDT; (2) whether
the 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 ownership
requirement in favor of Filipino citizens under the Constitution for the ownership and operation of PLDT. These
issues 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 proceedings
before 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 issues
raised 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 case
even without the participation of PLDT since defining the term "capital" in Section 11, Article XII of the
Constitution 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 treating
the petition as one for mandamus,56 merely directed the SEC to apply the Courts definition of the term "capital"
in Section 11, Article XII of the Constitution in determining whether PLDT committed any violation of the said
constitutional provision. The dispositive portion of the Courts ruling is addressed not to PLDT but solely
to the SEC, which is the administrative agency tasked to enforce the 60-40 ownership requirement in
favor 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 60-40
ownership requirement in favor of Filipino citizens under the Constitution,57 there is no deprivation of PLDTs
property or denial of PLDTs right to due process, contrary to Pangilinan and Nazarenos misimpression. Due
process will be afforded to PLDT when it presents proof to the SEC that it complies, as it claims here, with
Section 11, Article XII of the Constitution.
X.
Foreign Investments in the Philippines
Movants fear that the 28 June 2011 Decision would spell disaster to our economy, as it may result in a sudden
flight of existing foreign investors to "friendlier" countries and simultaneously deterring new foreign investors to
our country. In particular, the PSE claims that the 28 June 2011 Decision may result in the following: (1) loss of
more than P 630 billion in foreign investments in PSE-listed shares; (2) massive decrease in foreign trading
transactions; (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. Without
providing specific details, he pointed out the depressing state of the Philippine economy compared to our
neighboring countries which boast of growing economies. Further, Dr. Villegas explained that the solution to our
economic 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 high
FDI59 countries in East Asia have allowed foreigners x x x control [of] their public utilities, so that we can
compare apples with apples.
DR. VILLEGAS:
Correct, but let me just make a comment. When these neighbors of ours find an industry strategic, their solution
is not to "Filipinize" or "Vietnamize" or "Singaporize." Their solution is to make sure that those industries are
in the hands of state enterprises. So, in these countries, nationalization means the government takes
over. And because their governments are competent and honest enough to the public, that is the
solution. x x x 60 (Emphasis supplied)
If government ownership of public utilities is the solution, then foreign investments in our public utilities serve no
purpose. 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. Villegass argument that
foreign investments in telecommunication companies like PLDT are badly needed to save our ailing economy
contradicts his own theory that the solution is for government to take over these companies. Dr. Villegas is
barking up the wrong tree since State ownership of public utilities and foreign investments in such industries are
diametrically opposed concepts, which cannot possibly be reconciled.
In any event, the experience of our neighboring countries cannot be used as argument to decide the present
case 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 is
sworn 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 Filipino
citizens, or corporations or associations at least 60 percent of whose capital belongs to Filipinos. Following Dr.
Villegass claim, the Philippines appears to be more liberal in allowing foreign investors to own 40 percent of
public utilities, unlike in other Asian countries whose governments own and operate such industries.

XI.
Prospective Application of Sanctions
In its Motion for Partial Reconsideration, the SEC sought to clarify the reckoning period of the application and
imposition of appropriate sanctions against PLDT if found violating Section 11, Article XII of the Constitution.

1avv phi 1

As discussed, the Court has directed the SEC to investigate and determine whether PLDT violated
Section 11, Article XII of the Constitution. Thus, there is no dispute that it is only after the SEC has
determined PLDTs violation, if any exists at the time of the commencement of the administrative case or
investigation, that the SEC may impose the statutory sanctions against PLDT. In other words, once the 28 June
2011 Decision becomes final, the SEC shall impose the appropriate sanctions only if it finds after due hearing
that, at the start of the administrative case or investigation, there is an existing violation of Section 11, Article XII
of the Constitution. Under prevailing jurisprudence, public utilities that fail to comply with the nationality
requirement under Section 11, Article XII and the FIA can cure their deficiencies prior to the start of the
administrative case or investigation.61
XII.
Final Word
Rulling
The Constitution expressly declares as State policy the development of an economy "effectively
controlled" by Filipinos. Consistent with such State policy, the Constitution explicitly reserves the
ownership and operation of public utilities to Philippine nationals, who are defined in the Foreign
Investments Act of 1991 as Filipino citizens, or corporations or associations at least 60 percent of whose
capital with voting rights belongs to Filipinos. The FIAs implementing rules explain that "[f]or stocks to be
deemed owned and held by Philippine citizens or Philippine nationals, mere legal title is not enough to meet the
required Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate voting rights is
essential." In effect, the FIA clarifies, reiterates and confirms the interpretation that the term "capital" in Section
11, Article XII of the 1987 Constitution refers toshares with voting rights, as well as with full beneficial
ownership. This is precisely because the right to vote in the election of directors, coupled with full beneficial
ownership 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 letter
and intent of the Constitution. Any other meaning of the term "capital" openly invites alien domination of
economic activities reserved exclusively to Philippine nationals. Therefore, respondents interpretation will
ultimately result in handing over effective control of our national economy to foreigners in patent violation of the
Constitution, 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, which
gave Americans the same rights as Filipinos in the exploitation of natural resources, and in the ownership and
control of public utilities, in the Philippines. To do this the 1935 Constitution, which contained the same 60
percent 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 Filipinos
eagerly awaited its expiration. In late 1968, PLDT was one of the American-controlled public utilities that became
Filipino-controlled when the controlling American stockholders divested in anticipation of the expiration of the
Parity Amendment on 3 July 1974.63 No economic suicide happened when control of public utilities and mining
corporations 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, effectively giving foreigners parity rights with Filipinos, but this time even without any
amendment to the present Constitution. Worse, movants interpretation opens up our national economy
toeffective control not only by Americans but also by all foreigners, be they Indonesians, Malaysians or
Chinese, even in the absence of reciprocal treaty arrangements. At least the Parity Amendment, as
implemented by the Laurel-Langley Agreement, gave the capital-starved Filipinos theoretical parity the same
rights 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, without any reciprocal arrangements. That would mean that Indonesians, Malaysians and
Chinese nationals could effectively control our mining companies and public utilities while Filipinos, even if they
have 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 requirement
for public utilities like PLOT. Any deviation from this requirement necessitates an amendment to the Constitution
as exemplified by the Parity Amendment. This Court has no power to amend the Constitution for its power and
duty is only to faithfully apply and interpret the Constitution.
WHEREFORE, we DENY the motions for reconsideration WITH FINALITY. No further pleadings shall be
entertained.SO ORDERED.ANTONIO T. CARPIO
Associate Justice

G.R. No. 171396

May 3, 2006

PROF. RANDOLF S. DAVID, LORENZO TAADA 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 THE
PHILIPPINES, DIRECTOR GENERAL ARTURO LOMIBAO, CHIEF, PHILIPPINE NATIONAL POLICE, Respondents.
x-------------------------------------x
G.R. No. 171409

May 3, 2006

NIEZ CACHO-OLIVARES AND TRIBUNE PUBLISHING CO., INC., Petitioners,

vs.
HONORABLE SECRETARY EDUARDO ERMITA AND HONORABLE DIRECTOR GENERAL ARTURO C. LOMIBAO, Respondents.
x-------------------------------------x
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 THERESIA
HONTIVEROS-BARAQUEL, IMELDA C. NICOLAS, MARVIC M.V.F. LEONEN, NERI JAVIER COLMENARES, MOVEMENT OF CONCERNED
CITIZENS 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.
x-------------------------------------x
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., AND
ROQUE 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, ARTURO
LOMIBAO, Respondents.
x-------------------------------------x
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 ARTURO
LOMIBAO, 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 AND
INTEGRATED BAR OF THE PHILIPPINES (IBP),Petitioners,
vs.
HON. EXECUTIVE SECRETARY EDUARDO ERMITA, GENERAL GENEROSO SENGA, IN HIS CAPACITY AS AFP CHIEF OF STAFF, AND
DIRECTOR GENERAL ARTURO LOMIBAO, IN HIS CAPACITY AS PNP CHIEF,Respondents.
x-------------------------------------x
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 CAPACITY
AS DIRECTOR-GENERAL OF THE PHILIPPINE NATIONAL POLICE (PNP); GENEROSO SENGA, IN HIS CAPACITY AS CHIEF OF STAFF OF
THE ARMED FORCES OF THE PHILIPPINES (AFP); AND EDUARDO ERMITA, IN HIS CAPACITY AS EXECUTIVE
SECRETARY, Respondents.

DECISION

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 safeguarding
the constitutional rights of the citizens, specifically their liberty.
Chief Justice Artemio V. Panganibans philosophy of liberty is thus most relevant. He said: "In cases involving
liberty, the scales of justice should weigh heavily against government and in favor of the poor, the
oppressed, the marginalized, the dispossessed and the weak." Laws and actions that restrict fundamental
rights 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 Presidential
Proclamation No. 1017 (PP 1017) and General Order No. 5 (G.O. No. 5), President Gloria MacapagalArroyo committed grave abuse of discretion. Petitioners contend that respondent officials of the
Government, in their professed efforts to defend and preserve democratic institutions, are actually
trampling upon the very freedom guaranteed and protected by the Constitution. Hence, such issuances
are void for being unconstitutional.
Once again, the Court is faced with an age-old but persistently modern problem. How does the
Constitution of a free people combine the degree of liberty, without which, law becomes tyranny, with
the 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 Commanderin-Chief of the Armed Forces of the Philippines, by virtue of the powers vested upon me by Section 18, Article 7
of the Philippine Constitution which states that: "The President. . . whenever it becomes necessary, . . . may call
out (the) armed forces to prevent or suppress. . .rebellion. . .," and in my capacity as their Commander-inChief, 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 or
rebellion and to enforce obedience to all the laws and to all decrees, orders and regulations
promulgated by me personally or upon my direction; and as provided in Section 17, Article 12 of the
Constitution 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 authoritarians
of the extreme Left represented by the NDF-CPP-NPA and the extreme Right, represented by military
adventurists the historical enemies of the democratic Philippine State who are now in a tactical alliance
and engaged in a concerted and systematic conspiracy, over a broad front, to bring down the duly constituted
Government 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 the
national media;
WHEREAS, this series of actions is hurting the Philippine State by obstructing governance
including hindering the growth of the economy and sabotaging the peoples confidence in government
and 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 the
opening 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 democratic
institutions 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;
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 of
the 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 engaged
in a concerted and systematic conspiracy, over a broad front, to bring down the duly-constituted Government
elected 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 national
media;
WHEREAS, these series of actions is hurting the Philippine State by obstructing governance, including hindering
the growth of the economy and sabotaging the peoples confidence in the government and 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 the opening to
intensify 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 democratic
institutions and the State the primary duty of Government;
WHEREAS, the activities above-described, their consequences, ramifications and collateral effects constitute a
clear 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 the
Constitution as President of the Republic of the Philippines, and Commander-in-Chief of the Republic of the
Philippines, and pursuant to Proclamation No. 1017 dated February 24, 2006, do hereby call upon the Armed
Forces of the Philippines (AFP) and the Philippine National Police (PNP), to prevent and suppress acts of
terrorism 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 AFP
and PNP, to immediately carry out the necessary and appropriate actions and measures to suppress and
prevent 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 these
petitions 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 basis
of 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 lawless
violence 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 violence
and rebellion;
NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of the Republic of the Philippines, by
virtue of the powers vested in me by law, hereby declare that the state of national emergency has ceased to
exist.

RESPONDENT ARGUMENT
In their presentation of the factual bases of PP 1017 and G.O. No. 5, respondents stated that the proximate
cause behind the executive issuances was the conspiracy among some military officers, leftist insurgents
of the New Peoples 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-over
the 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 the
issuance 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 the
President in determining the necessity of calling out the armed forces. He emphasized that none of the
petitioners 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, narrated
hereunder, for the elucidation of the issues.
On January 17, 2006, Captain Nathaniel Rabonza and First Lieutenants Sonny Sarmiento, Lawrence San Juan
and Patricio Bumidang, members of the Magdalo Group indicted in the Oakwood mutiny, escaped their
detention cell in Fort Bonifacio, Taguig City. In a public statement, they vowed to remain defiant and to elude
arrest at all costs. They called upon the people to "show and proclaim our displeasure at the sham regime. Let
us demonstrate our disgust, not only by going to the streets in protest, but also by wearing red bands on our left
arms." 5
On February 17, 2006, the authorities got hold of a document entitled "Oplan Hackle I " which detailed
plans for bombings and attacks during the Philippine Military Academy Alumni Homecoming in Baguio
City. The plot was to assassinate selected targets including some cabinet members and President Arroyo
herself.6 Upon the advice of her security, President Arroyo decided not to attend the Alumni Homecoming. The
next 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 in
his possession were two (2) flash disks containing minutes of the meetings between members of the Magdalo
Group and the National Peoples Army (NPA), a tape recorder, audio cassette cartridges, diskettes, and copies
of subversive documents.7 Prior to his arrest, Lt. San Juan announced through DZRH that the "Magdalos D-Day
would 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 Marcelino
Franco, Jr. to "disavow" any defection. The latter promptly obeyed and issued a public statement: "All SAF units
are under the effective control of responsible and trustworthy officers with proven integrity and unquestionable
loyalty."
On the same day, at the house of former Congressman Peping Cojuangco, President Cory Aquinos 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. government
official about his groups 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 Armys elite Scout Ranger. Lim said "it was all
systems go for the planned movement against Arroyo."8
B/Gen. Danilo Lim and Brigade Commander Col. Ariel Querubin confided to Gen. Generoso Senga, Chief
of Staff of the Armed Forces of the Philippines (AFP), that a huge number of soldiers would join the
rallies to provide a critical mass and armed component to the Anti-Arroyo protests to be held on
February 24, 2005. According to these two (2) officers, there was no way they could possibly stop the soldiers
because 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 immediately
took custody of B/Gen. Lim and directed Col. Querubin to return to the Philippine Marines Headquarters in Fort
Bonifacio.
Earlier, the CPP-NPA called for intensification of political and revolutionary work within the military and the police
establishments in order to forge alliances with its members and key officials. NPA spokesman Gregorio "Ka
Roger" 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; of
rendering 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 Central
Mindanao, publicly announced: "Anti-Arroyo groups within the military and police are growing rapidly, hastened
by the economic difficulties suffered by the families of AFP officers and enlisted personnel who undertake
counter-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 June
2005, it is probable that the Presidents 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 and
Bataan was also considered as additional factual basis for the issuance of PP 1017 and G.O. No. 5. So is the
raid of an army outpost in Benguet resulting in the death of three (3) soldiers. And also the directive of the
Communist Party of the Philippines ordering its front organizations to join 5,000 Metro Manila radicals and
25,000 more from the provinces in mass protests.10
By midnight of February 23, 2006, the President convened her security advisers and several cabinet members to
assess the gravity of the fermenting peace and order situation. She directed both the AFP and the PNP to
account for all their men and ensure that the chain of command remains solid and undivided. To protect the
young students from any possible trouble that might break loose on the streets, the President suspended
classes 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 the
20th anniversary celebration of Edsa People Power I; and revoked the permits to hold rallies issued earlier by
the local governments. Justice Secretary Raul Gonzales stated that political rallies, which to the Presidents
mind were organized for purposes of destabilization, are cancelled.Presidential Chief of Staff Michael Defensor
announced 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 of
protesters (members of Kilusang Mayo Uno [KMU] and National Federation of Labor Unions-Kilusang Mayo
Uno [NAFLU-KMU]), marched from various parts of Metro Manila with the intention of converging at the
EDSA shrine. Those who were already near the EDSA site were violently dispersed by huge clusters of antiriot police. The well-trained policemen used truncheons, big fiber glass shields, water cannons, and tear gas to
stop and break up the marching groups, and scatter the massed participants. The same police action was used
against 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 Avenue
and 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 their
assemblies.
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 his
companion, Ronald Llamas, president of party-list Akbayan.
At around 12:20 in the early morning of February 25, 2006, operatives of the Criminal Investigation and
Detection Group (CIDG) of the PNP, on the basis of PP 1017 and G.O. No. 5, raided the Daily Tribune offices in
Manila. The raiding team confiscated news stories by reporters, documents, pictures, and mock-ups of the
Saturday issue. Policemen from Camp Crame in Quezon City were stationed inside the editorial and business
offices 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 Tribune offices, the police surrounded the
premises 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 tell media outlets not to connive or do anything that would help the rebels in bringing down this
government." The PNP warned that it would take over any media organization that would not follow "standards
set by the government during the state of national emergency." Director General Lomibao 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. 5 and Proc. No. 1017 we will recommend a

takeover." National Telecommunications Commissioner Ronald Solis urged television and radio networks
to "cooperate" with the government for the duration of the state of national emergency. He asked for "balanced
reporting" 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 rules
set 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 Party
and Chairman of Kilusang Mayo Uno (KMU), while leaving his farmhouse in Bulacan. The police showed a
warrant for his arrest dated 1985. Beltrans 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 in
any of these petitions.
When members of petitioner KMU went to Camp Crame to visit Beltran, they were told they could not be
admitted because of PP 1017 and G.O. No. 5. Two members were arrested and detained, while the rest were
dispersed by the police.
Bayan Muna Representative Satur Ocampo eluded arrest when the police went after him during a public forum
at the Sulo Hotel in Quezon City. But his two drivers, identified as Roel and Art, were taken into custody.
Retired Major General Ramon Montao, former head of the Philippine Constabulary, was arrested while with his
wife and golfmates at the Orchard Golf and Country Club in Dasmarias, Cavite.
Attempts were made to arrest Anakpawis Representative Satur Ocampo, Representative Rafael Mariano, Bayan
Muna Representative Teodoro Casio and Gabriela Representative Liza Maza. Bayan Muna Representative
Josel Virador was arrested at the PAL Ticket Office in Davao City. Later, he was turned over to the custody of
the 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, Satur
Ocampo,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 has
ceased to exist.
In the interim, these seven (7) petitions challenging the constitutionality of PP 1017 and G.O. No. 5 were
filed 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 encroaches
on the emergency powers of Congress; (2) itis a subterfuge to avoid the constitutional requirements for the
imposition of martial law; and (3) it violates the constitutional guarantees of freedom of the press, of speech and
of assembly.
In G.R. No. 171409, petitioners Ninez Cacho-Olivares and Tribune Publishing Co., Inc. challenged the CIDGs
act 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 Casio, 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." They
alleged that President Arroyo "gravely abused her discretion in calling out the armed forces without clear and
verifiable 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 are
unconstitutional 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 to
peaceably assemble to redress their grievances.

In G.R. No. 171400, petitioner Alternative Law Groups, Inc. (ALGI) alleged that PP 1017 and G.O. No. 5 are
unconstitutional because they violate (a) Section 415 of Article II, (b) Sections 1,16 2,17 and 418 of Article
III, (c)Section 2319 of Article VI, and (d) Section 1720 of Article XII of the Constitution.
In G.R. No. 171489, petitioners Jose Anselmo I. Cadiz et al., alleged that PP 1017 is an "arbitrary and unlawful
exercise by the President of her Martial Law powers." And assuming that PP 1017 is not really a declaration of
Martial Law, petitioners argued that "it amounts to an exercise by the President of emergency powers without
congressional approval." In addition, petitioners asserted that PP 1017 "goes beyond the nature and function of
a proclamation as defined under the Revised Administrative Code."
And lastly, in G.R. No. 171424,petitionerLoren B. Legarda maintained that PP 1017 and G.O. No. 5 are
"unconstitutional for being violative of the freedom of expression, including its cognate rights such as freedom of
the press and the right to access to information on matters of public concern, all guaranteed under Article III,
Section 4 of the 1987 Constitution." In this regard, she stated that these issuances prevented her from fully
prosecuting her election protest pending before the Presidential Electoral Tribunal.
In respondents Consolidated Comment, the Solicitor General countered that: first, the petitions should be
dismissed for being moot; second,petitioners in G.R. Nos. 171400 (ALGI), 171424 (Legarda), 171483 (KMU et
al.), 171485 (Escudero et al.) and 171489 (Cadiz et al.) have no legal standing; third, it is not necessary for
petitioners to implead President Arroyo as respondent; fourth, PP 1017 has constitutional and legal basis;
andfifth, PP 1017 does not violate the peoples right to free expression and redress of grievances.
On March 7, 2006, the Court conducted oral arguments and heard the parties on the above interlocking issues
which may be summarized as follows:
A. PROCEDURAL:
1) Whether the issuance of PP 1021 renders the petitions moot and academic.
No,
moot" case may still be decided "provided the party raising it 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.
The Court holds that President Arroyos issuance of PP 1021 did not render the present petitions moot
and academic. 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 justify these alleged illegal acts? These are the vital issues that must be resolved in
the present petitions. It must be stressed that "an unconstitutional act is not a law, it confers no
rights, it imposes no duties, it affords no protection; it is in legal contemplation, inoperative."30
2) Whether petitioners in 171485 (Escudero et al.), G.R. Nos. 171400 (ALGI), 171483 (KMU et
al.), 171489(Cadiz et al.), and 171424 (Legarda) have legal standing.
In matter of mere public right, howeverthe people are the real partiesIt is at least the right, if
not the duty, of every citizen to interfere and see that a public offence be properly pursued and
punished, and that a public grievance be remedied." With respect to taxpayers suits, Terr v.
Jordan41 held that "the right of a citizen and a taxpayer to maintain an action in courts to restrain
the unlawful use of public funds to his injury cannot be denied."
B. SUBSTANTIVE:
1) Whetherthe Supreme Court can review the factual bases of PP 1017.
Petitioners failed to show that President Arroyos exercise of the calling-out power, by issuing PP 1017, is totally
bereft of factual basis. A reading of the Solicitor Generals Consolidated Comment and Memorandum shows a
detailed narration of the events leading to the issuance of PP 1017, with supporting reports forming part of the
records. Mentioned are the escape of the Magdalo Group, their audacious threat of the Magdalo D-Day, the
defections in the military, particularly in the Philippine Marines, and the reproving statements from the
communist 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 refute
such events. Thus, absent any contrary allegations, the Court is convinced that the President was justified in
issuing PP 1017 calling for military aid.
Indeed, judging the seriousness of the incidents, President Arroyo was not expected to simply fold her arms and
do nothing to prevent or suppress what she believed was lawless violence, invasion or rebellion. However, the
exercise 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. They
also failed to establish that men of common intelligence cannot understand the meaning and
application 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 review
enunciated 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. It
confers limited powers on the national government. x x x If the government consciously or unconsciously
oversteps these limitations there must be some authority competent to hold it in control, to thwart its
unconstitutional attempt, and thus to vindicate and preserve inviolate the will of the people as
expressed in the Constitution. This power the courts exercise. This is the beginning and the end of the
theory of judicial review.22
But the power of judicial review does not repose upon the courts a "self-starting capacity."23 Courts may exercise
such power only when the following requisites are present: first, there must be an actual case or
controversy;second, petitioners have to raise a question of constitutionality; third, the constitutional question
must be raised at the earliest opportunity; and fourth, the decision of the constitutional question must be
necessary to the determination of the case itself.24
Respondents maintain that the first and second requisites are absent, hence, we shall limit our discussion
thereon.
An actual case or controversy involves a conflict of legal right, an opposite legal claims susceptible of judicial
resolution. It is "definite and concrete, touching the legal relations of parties having adverse legal interest;" a real
and substantial controversy admitting of specific relief.25 The Solicitor General refutes the existence of such
actual case or controversy, contending that the present petitions were rendered "moot and academic" by
President Arroyos 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 supervening
events,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 Arroyos issuance of PP 1021 did not render the present petitions moot and
academic. 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 justify
these alleged illegal acts? These are the vital issues that must be resolved in the present petitions. It must be
stressed that "an unconstitutional act is not a law, it confers no rights, it imposes no duties, it affords no
protection; it is in legal contemplation, inoperative."30
The "moot and academic" principle is not a magical formula that can automatically dissuade the courts in
resolving a case. Courts will decide cases, otherwise moot and academic, if: first, there is a grave violation of the
Constitution;31 second, the exceptional character of the situation and the paramount public interest is
involved;32third, 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 Courts assumption of jurisdiction over the instant
petitions. Petitioners alleged that the issuance of PP 1017 and G.O. No. 5 violates the Constitution. There is no
question that the issues being raised affect the publics interest, involving as they do the peoples basic rights to
freedom of expression, of assembly and of the press. Moreover, the Court has the duty to formulate guiding and
controlling constitutional precepts, doctrines or rules. It has the symbolic function of educating the bench and the
bar, and in the present petitions, the military and the police, on the extent of the protection given by
constitutional guarantees.35 And lastly, respondents contested actions are capable of repetition. Certainly, the
petitions are subject to judicial review.
In their attempt to prove the alleged mootness of this case, respondents cited Chief Justice Artemio V.
Panganibans Separate Opinion in Sanlakas v. Executive Secretary.36 However, they failed to take into account
the Chief Justices very statement that an otherwise "moot" case may still be decided "provided the party raising
it 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 Standing
In view of the number of petitioners suing in various personalities, the Court deems it imperative to have a more
than 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 of
Civil Procedure, as amended. It provides that "every action must be prosecuted or defended in the name of
the real party in interest." Accordingly, the "real-party-in interest" is "the party who stands to be benefited or
injured by the judgment in the suit or the party entitled to the avails of the suit."38 Succinctly put, the
plaintiffs 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" in
assailing an allegedly illegal official action, does so as a representative of the general public. He may be a
person who is affected no differently from any other person. He could be suing as a "stranger," or in the category
of a "citizen," or taxpayer." In either case, he has to adequately show that he is entitled to seek judicial
protection. In other words, he has to make out a sufficient interest in the vindication of the public order and the
securing of relief as a "citizen" or "taxpayer.
Case law in most jurisdictions now allows both "citizen" and "taxpayer" standing in public actions. The distinction
was first laid down in Beauchamp v. Silk,39 where it was held that the plaintiff in a taxpayers suit is in a different
category from the plaintiff in a citizens suit. In the former, the plaintiff is affected by the expenditure of
public funds, while in the latter, he is but the mere instrument of the public concern. As held by the New
York Supreme Court in People ex rel Case v. Collins:40 "In matter of mere public right, howeverthe people
are the real partiesIt is at least the right, if not the duty, of every citizen to interfere and see that a
public offence be properly pursued and punished, and that a public grievance be remedied." With respect
to taxpayers suits, Terr v. Jordan41 held that "the right of a citizen and a taxpayer to maintain an action in
courts 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 with
which he disagreed with, and thus hinders the activities of governmental agencies engaged in public service, the
United State Supreme Court laid down the more stringent "direct injury" test in Ex Parte Levitt,42 later
reaffirmed inTileston v. Ullman.43 The same Court ruled that for a private individual to invoke the judicial power to
determine 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 of
the public.
This Court adopted the "direct injury" test in our jurisdiction. In People v. Vera,44 it held that the person who
impugns the validity of a statute must have "a personal and substantial interest in the case such that he has
sustained, or will sustain direct injury as a result." The Vera doctrine was upheld in a litany of cases, such
as,Custodio v. President of the Senate,45 Manila Race Horse Trainers Association v. De la Fuente,46 Pascual v.
Secretary of Public Works47 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 in
the 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. Such
liberality was neither a rarity nor accidental. In Aquino v. Comelec,50 this Court resolved to pass upon the issues
raised due to the "far-reaching implications" of the petition notwithstanding its categorical statement that
petitioner therein had no personality to file the suit. Indeed, there is a chain of cases where this liberal policy has
been observed, allowing ordinary citizens, members of Congress, and civic organizations to prosecute actions
involving 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 have
been 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 the
constitutional right to information and the equitable diffusion of natural resources are matters of
transcendental importance which clothe the petitioner with locus standi;
(2) Bagong Alyansang Makabayan v. Zamora,53 wherein the Court held that "given the transcendental
importance of the issues involved, the Court may relax the standing requirements and allow the
suit to prosper despite the lack of direct injury to the parties seeking judicial review" of the
Visiting Forces Agreement;
(3) Lim v. Executive Secretary,54 while the Court noted that the petitioners may not file suit in their
capacity as taxpayers absent a showing that "Balikatan 02-01" involves the exercise of Congress taxing
or spending powers, it reiterated its ruling in Bagong Alyansang Makabayan v. Zamora,55that in cases
of transcendental importance, the cases must be settled promptly and definitely and standing
requirements 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 requirements
are 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 is
unconstitutional;
(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 transcendental
importance which must be settled early; and
(5) for legislators, there must be a claim that the official action complained of infringes upon their
prerogatives as legislators.
Significantly, recent decisions show a certain toughening in the Courts attitude toward legal standing.
In Kilosbayan, Inc. v. Morato,56 the Court ruled that the status of Kilosbayan as a peoples organization does not
give it the requisite personality to question the validity of the on-line lottery contract, more so where it does not
raise any issue of constitutionality. Moreover, it cannot sue as a taxpayer absent any allegation that public funds
are 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 "there
must be a showing that the citizen personally suffered some actual or threatened injury arising from the alleged
illegal official act."
In Lacson v. Perez,58 the Court ruled that one of the petitioners, Laban ng Demokratikong Pilipino (LDP), is not a
real 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 Congress
have standing to sue, as they claim that the Presidents declaration of a state of rebellion is a usurpation of the
emergency powers of Congress, thus impairing their legislative powers. As to petitioners Sanlakas, Partido
Manggagawa, and Social Justice Society, the Court declared them to be devoid of standing, equating them with
the 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 same
holds 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 PP
1017. 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 also
raised the issue of whether or not the concurrence of Congress is necessary whenever the alarming powers
incident to Martial Law are used. Moreover, it is in the interest of justice that those affected by PP 1017 can be
represented by their Congressmen in bringing to the attention of the Court the alleged violations of their basic
rights.
In G.R. No. 171400, (ALGI), this Court applied the liberality rule in Philconsa v. Enriquez,60 Kapatiran Ng Mga
Naglilingkod 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 Taada v.
Tuvera,64 that when the issue concerns a public right, it is sufficient that the petitioner is a citizen and has an
interest in the execution of the laws.
In G.R. No. 171483, KMUs assertion that PP 1017 and G.O. No. 5 violated its right to peaceful assembly may
be deemed sufficient to give it legal standing. Organizations may be granted standing to assert the rights of
their members.65 We take judicial notice of the announcement by the Office of the President banning all rallies
and 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 the
Philippines (IBP) have no legal standing, having failed to allege any direct or potential injury which the IBP as
an 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 to
preserve the rule of law and nothing more, while undoubtedly true, is not sufficient to clothe it with standing in
this 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 no
allegations of illegal disbursement of public funds. The fact that she is a former Senator is of no
consequence. She can no longer sue as a legislator on the allegation that her prerogatives as a lawmaker have
been impaired by PP 1017 and G.O. No. 5. Her claim that she is a media personality will not likewise aid her
because there was no showing that the enforcement of these issuances prevented her from pursuing her
occupation. Her submission that she has pending electoral protest before the Presidential Electoral Tribunal is
likewise of no relevance. She has not sufficiently shown that PP 1017 will affect the proceedings or result of her
case. But considering once more the transcendental importance of the issue involved, this Court may
relax the standing rules.
It must always be borne in mind that the question of locus standi is but corollary to the bigger question of proper
exercise of judicial power. This is the underlying legal tenet of the "liberality doctrine" on legal standing. It cannot
be doubted that the validity of PP No. 1017 and G.O. No. 5 is a judicial question which is of paramount
importance to the Filipino people. To paraphrase Justice Laurel, the whole of Philippine society now waits with
bated 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 "PP
1017 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 no
need to provide for it in the Constitution or law. It will degrade the dignity of the high office of the President, the
Head of State, if he can be dragged into court litigations while serving as such. Furthermore, it is important that
he be freed from any form of harassment, hindrance or distraction to enable him to fully attend to the
performance of his official duties and functions. Unlike the legislative and judicial branch, only one constitutes
the executive branch and anything which impairs his usefulness in the discharge of the many great and
important 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 remains
accountable to the people68 but he may be removed from office only in the mode provided by law and that is by
impeachment.69
B. SUBSTANTIVE
I. Review of Factual Bases
Petitioners maintain that PP 1017 has no factual basis. Hence, it was not "necessary" for President Arroyo to
issue such Proclamation.
The issue of whether the Court may review the factual bases of the Presidents exercise of his Commander-inChief power has reached its distilled point - from the indulgent days of Barcelon v. Baker70 and Montenegro v.
Castaneda71 to the volatile era of Lansang v. Garcia,72 Aquino, Jr. v. Enrile,73 and Garcia-Padilla v. Enrile.74 The
tug-of-war always cuts across the line defining "political questions," particularly those questions "in regard to
which full discretionary authority has been delegated to the legislative or executive branch of the
government."75Barcelon and Montenegro were in unison in declaring that the authority to decide whether an
exigency has arisen belongs to the President and his decision is final and conclusive on the
courts. Lansang took the opposite view. There, the members of the Court were unanimous in the conviction that
the Court has the authority to inquire into the existence of factual bases in order to determine their constitutional
sufficiency. From the principle of separation of powers, it shifted the focus to the system of checks and
balances, "under which the President is supreme, x x x only if and when he acts within the sphere
allotted to him by the Basic Law, and the authority to determine whether or not he has so acted is vested
in the Judicial Department, which in this respect, is, in turn, constitutionally supreme."76 In 1973, the
unanimous Court ofLansang was divided in Aquino v. Enrile.77 There, the Court was almost evenly divided on the
issue of whether the validity of the imposition of Martial Law is a political or justiciable question.78 Then
came Garcia-Padilla v. Enrile which greatly diluted Lansang. It declared that there is a need to re-examine the
latter case, ratiocinating that "in times of war or national emergency, the President must be given absolute
control for the very life of the nation and the government is in great peril. The President, it intoned, is
answerable 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 -- echoed
a principle similar to Lansang. While the Court considered the Presidents "calling-out" power as a discretionary
power solely vested in his wisdom, it stressed that "this does not prevent an examination of whether such
power was exercised within permissible constitutional limits or whether it was exercised in a manner
constituting grave abuse of discretion."This ruling is mainly a result of the Courts reliance on Section 1,
Article VIII of 1987 Constitution which fortifies the authority of the courts to determine in an appropriate action
the validity of the acts of the political departments. Under the new definition of judicial power, the courts are
authorized not only "to settle actual controversies involving rights which are legally demandable and
enforceable," but also "to determine whether or not there has been a grave abuse of discretion amounting
to lack or excess of jurisdiction on the part of any branch or instrumentality of the government." The
latter part of the authority represents a broadening of judicial power to enable the courts of justice to review what
was before a forbidden territory, to wit, the discretion of the political departments of the government.81 It speaks
of judicial prerogative not only in terms of power but also of duty.82
As to how the Court may inquire into the Presidents exercise of power, Lansang adopted the test that "judicial
inquiry can go no further than to satisfy the Court not that the Presidents decision is correct," but that "the
President did not act arbitrarily." Thus, the standard laid down is not correctness, but
arbitrariness.83 In Integrated Bar of the Philippines, this Court further ruled that "it is incumbent upon the

petitioner to show that the Presidents decision is totally bereft of factual basis" and that if he fails, by way
of proof, to support his assertion, then "this Court cannot undertake an independent investigation beyond
the pleadings."
Petitioners failed to show that President Arroyos exercise of the calling-out power, by issuing PP 1017, is totally
bereft of factual basis. A reading of the Solicitor Generals Consolidated Comment and Memorandum shows a
detailed narration of the events leading to the issuance of PP 1017, with supporting reports forming part of the
records. Mentioned are the escape of the Magdalo Group, their audacious threat of the Magdalo D-Day, the
defections in the military, particularly in the Philippine Marines, and the reproving statements from the
communist 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 refute
such events. Thus, absent any contrary allegations, the Court is convinced that the President was justified in
issuing PP 1017 calling for military aid.
Indeed, judging the seriousness of the incidents, President Arroyo was not expected to simply fold her arms and
do nothing to prevent or suppress what she believed was lawless violence, invasion or rebellion. However, the
exercise of such power or duty must not stifle liberty.
II. Constitutionality 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 at
the 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 to
cope with the problem of emergency. In times of danger to the nation, positive law enacted by the legislature
might be inadequate or even a fatal obstacle to the promptness of action necessary to avert catastrophe. In
these 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 moral
restraint might not suffice to avoid abuse of prerogative powers. Who shall judge the need for resorting to the
prerogative and how may its abuse be avoided? Here, Locke readily admitted defeat, suggesting that "the
people have no other remedy in this, as in all other cases where they have no judge on earth, but to
appeal to Heaven."85
Jean-Jacques Rousseau also assumed the need for temporary suspension of democratic processes of
government in time of emergency. According to him:
The inflexibility of the laws, which prevents them from adopting themselves to circumstances, may, in certain
cases, 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 their
operation. 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 is
to 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 peoples first intention is that the
State shall not perish.86
Rosseau did not fear the abuse of the emergency dictatorship or "supreme magistracy" as he termed it. For
him, it would more likely be cheapened by "indiscreet use." He was unwilling to rely upon an "appeal to
heaven." Instead, he relied upon a tenure of office of prescribed duration to avoid perpetuation of the
dictatorship.87
John Stuart Mill concluded his ardent defense of representative government: "I am far from condemning, in
cases of extreme necessity, the assumption of absolute power in the form of a temporary dictatorship."88
Nicollo Machiavellis 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 this
chasm in democratic political theory, thus:

Now, in a well-ordered society, it should never be necessary to resort to extra constitutional measures; for
although they may for a time be beneficial, yet the precedent is pernicious, for if the practice is once established
for good objects, they will in a little while be disregarded under that pretext but for evil purposes. Thus, no
republic will ever be perfect if she has not by law provided for everything, having a remedy for every emergency
and fixed rules for applying it.89
Machiavelli in contrast to Locke, Rosseau and Mill sought to incorporate into the constitution a regularized
system 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 in
its application in time of emergency, with effective constitutional restraints.90
Contemporary political theorists, addressing themselves to the problem of response to emergency by
constitutional democracies, have employed the doctrine of constitutional dictatorship.91 Frederick M. Watkins
saw "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 of
temporary emergency and is followed by a prompt return to the previous forms of political life."92 He
recognized the two (2) key elements of the problem of emergency governance, as well as all constitutional
governance: increasing administrative powers of the executive, while at the same time "imposing
limitation upon that power."93 Watkins placed his real faith in a scheme of constitutional dictatorship. These are
the conditions of success of such a dictatorship: "The period of dictatorship must be relatively
shortDictatorship should always be strictly legitimate in characterFinal authority to determine the
need for dictatorship in any given case must never rest with the dictator himself"94 and the objective of
such 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 unprecedented
magnitude and gravity. There must be a broad grant of powers, subject to equally strong limitations as to who
shall exercise such powers, when, for how long, and to what end."96 Friedrich, too, offered criteria for judging the
adequacy of any of scheme of emergency powers, to wit: "The emergency executive must be appointed by
constitutional means i.e., he must be legitimate; he should not enjoy power to determine the existence
of an emergency; emergency powers should be exercised under a strict time limitation; and last, the
objective 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" as
solution to the vexing problems presented by emergency.98 Like Watkins and Friedrich, he stated a priori the
conditions of success of the "constitutional dictatorship," thus:
1) No general regime or particular institution of constitutional dictatorship should be initiated unless it is
necessary 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 men
who will constitute the dictator
3) No government should initiate a constitutional dictatorship without making specific provisions for its
termination
4) all uses of emergency powers and all readjustments in the organization of the government should
be effected in pursuit of constitutional or legal requirements
5) no dictatorial institution should be adopted, no right invaded, no regular procedure altered any
more 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 be
permanent in character or effect
7) The dictatorship should be carried on by persons representative of every part of the citizenry
interested 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 never
be 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 was
instituted
11) the termination of the crisis must be followed by a complete return as possible to the political and
governmental conditions existing prior to the initiation of the constitutional dictatorship99
Rossiter accorded to legislature a far greater role in the oversight exercise of emergency powers than did
Watkins. He would secure to Congress final responsibility for declaring the existence or termination of an
emergency, 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 saying
that, "the suggestion that democracies surrender the control of government to an authoritarian ruler in
time of grave danger to the nation is not based upon sound constitutional theory." To appraise emergency
power in terms of constitutional dictatorship serves merely to distort the problem and hinder realistic analysis. It
matters not whether the term "dictator" is used in its normal sense (as applied to authoritarian rulers) or is
employed to embrace all chief executives administering emergency powers. However used, "constitutional
dictatorship" 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, and
which is consistent with the findings of this study, is that formulated by Charles H. McIlwain. While it does not by
any means necessarily exclude some indeterminate limitations upon the substantive powers of government, full
emphasis is placed upon procedural limitations, and political responsibility. McIlwain clearly recognized the
need to repose adequate power in government. And in discussing the meaning of constitutionalism, he insisted
that the historical and proper test of constitutionalism was the existence of adequate processes for
keeping government responsible. He refused to equate constitutionalism with the enfeebling of government
by an exaggerated emphasis upon separation of powers and substantive limitations on governmental power. He
found that the really effective checks on despotism have consisted not in the weakening of government but, but
rather in the limiting of it; between which there is a great and very significant difference. In associating
constitutionalism with "limited" as distinguished from "weak" government, McIlwain meant government
limited to the orderly procedure of law as opposed to the processes of force. The two fundamental
correlative elements of constitutionalism for which all lovers of liberty must yet fight are the legal limits
to 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 Locks "theory
of prerogative," to Watkins doctrine of "constitutional dictatorship" and, eventually, to McIlwains "principle of
constitutionalism" --- ultimately aim to solve one real problem in emergency governance, i.e., that of allotting
increasing areas of discretionary power to the Chief Executive, while insuring that such powers will be
exercised 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 1986
Constitutional Commission, in drafting the 1987 Constitution, endeavored to create a government in the concept
of Justice Jacksons "balanced power structure."102 Executive, legislative, and judicial powers are dispersed to
the President, the Congress, and the Supreme Court, respectively. Each is supreme within its own sphere. But
none has the monopoly of power in times of emergency. Each branch is given a role to serve as
limitation or check upon the other. This system does not weaken the President, it just limits his power, using
the language of McIlwain. In other words, in times of emergency, our Constitution reasonably demands that we
repose a certain amount of faith in the basic integrity and wisdom of the Chief Executive but, at the same time, it
obliges 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 its
enforcement encroached on both unprotected and protected rights under Section 4, Article III of the
Constitution 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 is
actually 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 the
limited 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 state
interest 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 facial
overbreadth adjudication is an exception to our traditional rules of practice and that its function, a
limited one at the outset, attenuates as the otherwise unprotected behavior that it forbids the State to
sanction moves from pure speech toward conduct and that conduct even if expressive falls within
the scope of otherwise valid criminal laws that reflect legitimate state interests in maintaining
comprehensive controls over harmful, constitutionally unprotected conduct.
Thus, claims of facial overbreadth are entertained in cases involving statutes which, by their terms, seek to
regulate only "spoken words" and again, that "overbreadth claims, if entertained at all, have been curtailed
when 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 is
manifestly subject to state regulation.
Second, facial invalidation of laws is considered as "manifestly strong medicine," to be used "sparingly and
only as a last resort," and is "generally disfavored;"107 The reason for this is obvious. Embedded in the
traditional rules governing constitutional adjudication is the principle that a person to whom a law may be applied
will 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 the
usual rules of constitutional litigation. Ordinarily, a particular litigant claims that a statute is
unconstitutional as applied to him or her; if the litigant prevails, the courts carve away the
unconstitutional 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 assert
their own interests. In overbreadth analysis, those rules give way; challenges are permitted to raise the
rights of third parties; and the court invalidates the entire statute "on its face," not merely "as applied for" so
that the overbroad law becomes unenforceable until a properly authorized court construes it more narrowly. The
factor 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 Court
assumes that an overbroad laws "very existence may cause others not before the court to refrain from
constitutionally 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 and
pinpoint its flaws and defects, not on the basis of its actual operation to petitioners, but on the assumption or
prediction that its very existence may cause others not before the Court to refrain from constitutionally
protected 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 these
deficiencies before the statute is put into effect, is rarely if ever an appropriate task for the judiciary. The
combination of the relative remoteness of the controversy, the impact on the legislative process of the
relief sought, and above all the speculative and amorphous nature of the required line-by-line analysis of
detailed 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 facially
invalid if men of common intelligence must necessarily guess at its meaning and differ as to its
application."110 It is subject to the same principles governing overbreadth doctrine. For one, it is also an
analytical tool for testing "on their faces" statutes in free speech cases. And like overbreadth, it is said that a
litigant 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 to
establish 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 provision:
"by virtue of the power vested upon me by Section 18, Artilce VII 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 any act of insurrection or rebellion"
Second provision:
"and to enforce obedience to all the laws and to all decrees, orders and regulations promulgated by me
personally or upon my direction;"
Third provision:
"as provided in Section 17, Article XII of the Constitution do hereby declare a State of National Emergency."
First Provision: Calling-out Power
The first provision pertains to the Presidents 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 it
becomes 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 period
not exceeding sixty days, suspend the privilege of the writ of habeas corpus or place the Philippines or any part
thereof under martial law. Within forty-eight hours from the proclamation of martial law or the suspension of the
privilege 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, may
revoke such proclamation or suspension, which revocation shall not be set aside by the President. Upon the
initiative of the President, the Congress may, in the same manner, extend such proclamation or suspension for a
period 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 factual
bases 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 civil
courts or legislative assemblies, nor authorize the conferment of jurisdiction on military courts and agencies over
civilians 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 offenses
inherent in or directly connected with invasion.

During the suspension of the privilege of the writ, any person thus arrested or detained shall be judicially
charged 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 least
benign, these are: the calling-out power, the power to suspend the privilege of the writ of habeas corpus, and the
power to declare Martial Law. Citing Integrated Bar of the Philippines v. Zamora,112 the Court ruled that the only
criterion for the exercise of the calling-out power is that "whenever it becomes necessary," the President may
call 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 Arroyo
found it necessary to issue PP 1017. Owing to her Offices vast intelligence network, she is in the best position
to determine the actual condition of the country.
Under the calling-out power, the President may summon the armed forces to aid him in suppressing lawless
violence, invasion and rebellion. This involves ordinary police action. But every act that goes beyond the
Presidents calling-out power is considered illegal or ultra vires. For this reason, a President must be careful in
the 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 Presidents authority to declare a
"state of rebellion" (in Sanlakas) and the authority to proclaim a state of national emergency. While
President Arroyos 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 of
1987, which provides:
SEC. 4. Proclamations. Acts of the President fixing a date or declaring a status or condition of public moment
or interest, upon the existence of which the operation of a specific law or regulation is made to depend, shall be
promulgated in proclamations which shall have the force of an executive order.
President Arroyos declaration of a "state of rebellion" was merely an act declaring a status or condition of public
moment or interest, a declaration allowed under Section 4 cited above. Such declaration, in the words
ofSanlakas, is harmless, without legal significance, and deemed not written. In these cases, PP 1017 is more
than that. In declaring a state of national emergency, President Arroyo did not only rely on Section 18, Article
VII of the Constitution, a provision calling on the AFP to prevent or suppress lawless violence, invasion
or rebellion. She also relied on Section 17, Article XII, a provision on the States extraordinary power to
take over privately-owned public utility and business affected with public interest. Indeed, PP 1017 calls
for the exercise of an awesome power. Obviously, such Proclamation cannot be deemed harmless, without
legal 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 was
her calling-out power.
The declaration of Martial Law is a "warn[ing] to citizens that the military power has been called upon by the
executive to assist in the maintenance of law and order, and that, while the emergency lasts, they must, upon
pain of arrest and punishment, not commit any acts which will in any way render more difficult the restoration of
order 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-inChief, the power to declare Martial Law poses the most severe threat to civil liberties. It is a strong medicine
which should not be resorted to lightly. It cannot be used to stifle or persecute critics of the government. It is
placed in the keeping of the President for the purpose of enabling him to secure the people from harm and to
restore 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 civil
courts or legislative assemblies, nor authorize the conferment of jurisdiction on military courts and agencies over
civilians 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 the
President to the armed forces to prevent or suppress lawless violence. As such, it cannot be used to justify acts
that only under a valid declaration of Martial Law can be done. Its use for any other purpose is a perversion of its
nature 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 Commanderin-Chief only where there is a valid declaration of Martial Law or suspension of the writ of habeas
corpus.
HELD:
Based on the above disquisition, it is clear that PP 1017 is not a declaration of Martial Law. It is merely an
exercise of President Arroyos calling-out power for the armed forces to assist her in preventing or
suppressing 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. This
is based on Section 17, Article VII which reads:
SEC. 17. The President shall have control of all the executive departments, bureaus, and offices. He shall
ensure 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 the
laws as well as to formulate policies to be embodied in existing laws. He sees to it that all laws are enforced by
the officials and employees of his department. Before assuming office, he is required to take an oath or
affirmation to the effect that as President of the Philippines, he will, among others, "execute its laws."116 In the
exercise of such function, the President, if needed, may employ the powers attached to his office as the
Commander-in-Chief of all the armed forces of the country,117 including the Philippine National Police118 under
the Department of Interior and Local Government.119
Petitioners, especially Representatives Francis Joseph G. Escudero, Satur Ocampo, Rafael Mariano, Teodoro
Casio, 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 vests
the 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 from
Former President Marcos Proclamation No. 1081, which partly reads:
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines by virtue of the powers vested
upon me by Article VII, Section 10, Paragraph (2) of the Constitution, do hereby place the entire Philippines as
defined in Article 1, Section 1 of the Constitution under martial law and, in my capacity as their Commander-inChief, 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 or
rebellion and to enforce obedience to all the laws and decrees, orders and regulations promulgated by
me personally or upon my direction.
We all know that it was PP 1081 which granted President Marcos legislative power. Its enabling clause
states: "to enforce obedience to all the laws and decrees, orders and regulations promulgated by me
personally 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 all decrees, orders and regulations promulgated by
me 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 in
implementation 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 governmental
operations 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 moment
or interest, upon the existence of which the operation of a specific law or regulation is made to depend, shall be
promulgated 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 or
temporary interest which only concern a particular officer or office of the Government shall be embodied in
memorandum orders.
Sec. 6. Memorandum Circulars. Acts of the President on matters relating to internal administration, which the
President desires to bring to the attention of all or some of the departments, agencies, bureaus or offices of the
Government, 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-inChief of the Armed Forces of the Philippines shall be issued as general or special orders.
President Arroyos ordinance power is limited to the foregoing issuances. She cannot issue decrees similar to
those issued by Former President Marcos under PP 1081. Presidential Decrees are laws which are of the same
category and binding force as statutes because they were issued by the President in the exercise of his
legislative 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 the
authority 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 the
Philippines which shall consist of a Senate and a House of Representatives." To be sure, neither Martial
Law nor a state of rebellion nor a state of emergency can justify President Arroyos exercise of legislative power
by 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 are
void and, therefore, cannot be enforced. With respect to "laws," she cannot call the military to enforce or
implement certain laws, such as customs laws, laws governing family and property relations, laws on obligations
and contracts and the like. She can only order the military, under PP 1017, to enforce laws pertinent to its
duty 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 me
personally or upon my direction; and as provided in Section 17, Article XII of the Constitution do hereby
declare a state of national emergency.
The import of this provision is that President Arroyo, during the state of national emergency under PP 1017, can
call the military not only to enforce obedience "to all the laws and to all decrees x x x" but also to act pursuant to
the 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 the
emergency and under reasonable terms prescribed by it, temporarily take over or direct the operation of any
privately-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 the
President, without any authority or delegation from Congress, to take over or direct the operation of any
privately-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 1971
Constitutional Convention.122 In effect at the time of its approval was President Marcos Letter of Instruction No. 2
dated September 22, 1972 instructing the Secretary of National Defense to take over "the management, control
and operation of the Manila Electric Company, the Philippine Long Distance Telephone Company, the National
Waterworks 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 and
end the present national emergency."
Petitioners, particularly the members of the House of Representatives, claim that President Arroyos inclusion of
Section 17, Article XII in PP 1017 is an encroachment on the legislatures emergency powers.
This is an area that needs delineation.
A distinction must be drawn between the Presidents authority to declare "a state of national emergency" and
toexercise emergency powers. To the first, as elucidated by the Court, Section 18, Article VII grants the
President such power, hence, no legitimate constitutional objection can be raised. But to the second, manifold
constitutional 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 a
limited period and subject to such restrictions as it may prescribe, to exercise powers necessary and proper to
carry out a declared national policy. Unless sooner withdrawn by resolution of the Congress, such powers shall
cease 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 "other
national emergency." If the intention of the Framers of our Constitution was to withhold from the President the
authority to declare a "state of national emergency" pursuant to Section 18, Article VII (calling-out power) and
grant it to Congress (like the declaration of the existence of a state of war), then the Framers could have
provided so. Clearly, they did not intend that Congress should first authorize the President before he can declare
a "state of national emergency." The logical conclusion then is that President Arroyo could validly declare the
existence 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 business
affected 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 be
construed together and considered in the light of each other.123 Considering that Section 17 of Article XII and
Section 23 of Article VI, previously quoted, relate to national emergencies, they must be read together to
determine 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 power
not reposed upon it. However, knowing that during grave emergencies, it may not be possible or practicable for
Congress to meet and exercise its powers, the Framers of our Constitution deemed it wise to allow Congress to
grant 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 of
private business affected with public interest is just another facet of the emergency powers generally reposed
upon Congress. Thus, when Section 17 states that the "the State may, during the emergency and under
reasonable terms prescribed by it, temporarily take over or direct the operation of any privately owned
public 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 to
him 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 the
Constitution. And it is not claimed that express constitutional language grants this power to the President. The
contention 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 a
President . . . .;" that "he shall take Care that the Laws be faithfully executed;" and that he "shall be Commanderin-Chief of the Army and Navy of the United States.
The order cannot properly be sustained as an exercise of the Presidents military power as Commander-in-Chief
of the Armed Forces. The Government attempts to do so by citing a number of cases upholding broad powers in
military commanders engaged in day-to-day fighting in a theater of war. Such cases need not concern us
here.Even though "theater of war" be an expanding concept, we cannot with faithfulness to our
constitutional system hold that the Commander-in-Chief of the Armed Forces has the ultimate power as
such to take possession of private property in order to keep labor disputes from stopping production.
This is a job for the nations lawmakers, not for its military authorities.
Nor can the seizure order be sustained because of the several constitutional provisions that grant
executive power to the President. In the framework of our Constitution, the Presidents power to see that
the laws are faithfully executed refutes the idea that he is to be a lawmaker. The Constitution limits his
functions in the lawmaking process to the recommending of laws he thinks wise and the vetoing of laws
he thinks bad. And the Constitution is neither silent nor equivocal about who shall make laws which the
President is to execute. The first section of the first article says that "All legislative Powers herein
granted 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 existing
danger to life or well-being beyond that which is accepted as normal. Implicit in this definitions are the elements
of intensity, variety, and perception.127 Emergencies, as perceived by legislature or executive in the United Sates
since 1933, have been occasioned by a wide range of situations, classifiable under three (3) principal
heads: 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, economic
crisis, pestilence or epidemic, typhoon, flood, or other similar catastrophe of nationwide proportions or
effect.131This is evident in the Records of the Constitutional Commission, thus:
MR. GASCON. Yes. What is the Committees 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 privately
owned public utility or business affected with public interest.
MR. VILLEGAS. What I mean is threat from external aggression, for example, calamities or natural
disasters.
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

xxxxxx
MR. TINGSON. May I ask the committee if "national emergency" refers to military national emergency or could
this 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 with
public interest.
In Araneta v. Dinglasan,134 this Court emphasized that legislative power, through which extraordinary measures
are 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, the
fact 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 adopting
parliamentary government have given notice that they share the faith of other democracy-loving peoples in this
system, with all its faults, as the ideal. The point is, under this framework of government, legislation is preserved
for Congress all the time, not excepting periods of crisis no matter how serious. Never in the history of the United
States, the basic features of whose Constitution have been copied in ours, have specific functions of the
legislative branch of enacting laws been surrendered to another department unless we regard as legislating
the carrying out of a legislative policy according to prescribed standards; no, not even when that Republic was
fighting a total war, or when it was engaged in a life-and-death struggle to preserve the Union. The truth is that
under 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 the
duties 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 Court
rules that such Proclamation does not authorize her during the emergency to temporarily take over or direct the
operation of any privately owned public utility or business affected with public interest without authority from
Congress.
Let it be emphasized that while the President alone can declare a state of national emergency, however, without
legislation, 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 privatelyowned public utility or business affected with public interest. Nor can he determine when such exceptional
circumstances have ceased. Likewise, without legislation, the President has no power to point out the types of
businesses affected with public interest that should be taken over. In short, the President has no absolute
authority 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 necessity
and the guaranteed rights of the individual are often not compatible. Our history reveals that in the crucible of
conflict, many rights are curtailed and trampled upon. Here, the right against unreasonable search and
seizure; the right against warrantless arrest; and the freedom of speech, of expression, of the press, and
of 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 arrested
without warrants on their way to EDSA to celebrate the 20th Anniversary of People Power I. The arresting
officers 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 assigned
to 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 away
and dispersed" when they went to EDSA and later, to Ayala Avenue, to celebrate the 20th Anniversary of People
Power I.
A perusal of the "direct injuries" allegedly suffered by the said petitioners shows that they resulted from
theimplementation, 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? In
general,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 and
misabused135 and may afford an opportunity for abuse in the manner of application.136 The validity of a
statute or ordinance is to be determined from its general purpose and its efficiency to accomplish the end
desired,not from its effects in a particular case.137 PP 1017 is merely an invocation of the Presidents callingout power. Its general purpose is to command the AFP to suppress all forms of lawless violence, invasion or
rebellion. It had accomplished the end desired which prompted President Arroyo to issue PP 1021. But there is
nothing in PP 1017 allowing the police, expressly or impliedly, to conduct illegal arrest, search or violate the
citizens constitutional rights.
Now, may this Court adjudge a law or ordinance unconstitutional on the ground that its implementor committed
illegal acts? The answer is no. The criterion by which the validity of the statute or ordinance is to be measured is
the essential basis for the exercise of power, and not a mere incidental result arising from its
exertion.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 blunders
committed by policemen in the cases passed upon by the Court, majority of the provisions of the Revised Penal
Code 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 and
commands 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 for
the proper and efficientadministration of law. Such rules and regulations create no relation except between
the official who issues them and the official who receives them.139 They are based on and are the product of, a
relationship in which power is their source, and obedience, their object.140 For these reasons, one requirement
for 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 actions
and 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 is
invariably 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 our
country, 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 basic
slogans when it comes to the justification of the use of force against certain states and against groups operating
internationally. Lists of states "sponsoring terrorism" and of terrorist organizations are set up and constantly
being updated according to criteria that are not always known to the public, but are clearly determined by
strategic 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 armed
groups such as liberation movements, or by individuals.

The dilemma can by summarized in the saying "One countrys terrorist is another countrys freedom fighter." The
apparent contradiction or lack of consistency in the use of the term "terrorism" may further be demonstrated by
the historical fact that leaders of national liberation movements such as Nelson Mandela in South Africa, Habib
Bourgouiba in Tunisia, or Ahmed Ben Bella in Algeria, to mention only a few, were originally labeled as terrorists
by 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 from
eventually 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 consensus
on the basic issue of definition. The organization has intensified its efforts recently, but has been unable to
bridge the gap between those who associate "terrorism" with any violent act by non-state groups against
civilians, state functionaries or infrastructure or military installations, and those who believe in the concept of the
legitimate use of force when resistance against foreign occupation or against systematic oppression of ethnic
and/or religious groups within a state is concerned.
The dilemma facing the international community can best be illustrated by reference to the contradicting
categorization of organizations and movements such as Palestine Liberation Organization (PLO) which is a
terrorist 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 in
Nicaragua 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 of
freedom fighters for the West, nurtured by the United States, and a terrorist gang for the Soviet Union. One
could 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 same
group and its actions be explained? In our analysis, the basic reason for these striking inconsistencies lies in the
divergent interest of states. Depending on whether a state is in the position of an occupying power or in that of a
rival, 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 its
territory and will therefore speak of a "liberation struggle," not of "terrorism" when acts of violence by this group
are concerned, and vice-versa.
The United Nations Organization has been unable to reach a decision on the definition of terrorism exactly
because of these conflicting interests of sovereign states that determine in each and every instance how a
particular armed movement (i.e. a non-state actor) is labeled in regard to the terrorists-freedom fighter
dichotomy. A "policy of double standards" on this vital issue of international affairs has been the unavoidable
consequence.
This "definitional predicament" of an organization consisting of sovereign states and not of peoples, in spite of
the emphasis in the Preamble to the United Nations Charter! has become even more serious in the present
global power constellation: one superpower exercises the decisive role in the Security Council, former great
powers of the Cold War era as well as medium powers are increasingly being marginalized; and the problem has
become 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 or
military. An illustration is when a group of persons are merely engaged in a drinking spree. Yet the military or the
police 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 considered
a 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, 1981
enacted by President Marcos during the Martial Law regime. This decree is entitled "Codifying The Various Laws
on 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 the
purpose 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 by
President Corazon Aquino on May 5, 1985. These two (2) laws, however, do not define "acts of terrorism." Since
there 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, taking
over the media enterprises, prohibition and dispersal of all assemblies and gatherings unfriendly to the
administration. All these can be effected in the name of G.O. No. 5. These acts go far beyond the calling-out
power of the President. Certainly, they violate the due process clause of the Constitution. Thus, this Court
declares 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 what
arenecessary and appropriate to suppress and prevent lawless violence, the limitation of their authority in
pursuing 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 effects
against unreasonable search and seizure of whatever nature and for any purpose shall be inviolable, and no
search 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, and
particularly describing the place to be searched and the persons or things to be seized."142 The plain import of
the language of the Constitution is that searches, seizures and arrests are normally unreasonable unless
authorized by a validly issued search warrant or warrant of arrest. Thus, the fundamental protection given by this
provision is that between person and police must stand the protective authority of a magistrate clothed with
power 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 without
warrant; second, the PNP operatives arrested him on the basis of PP 1017; third, he was brought at Camp
Karingal, Quezon City where he was fingerprinted, photographed and booked like a criminal suspect; fourth,he
was treated brusquely by policemen who "held his head and tried to push him" inside an unmarked car; fifth, he
was charged with Violation of Batas Pambansa Bilang No. 880145 and Inciting to Sedition; sixth, he was
detained 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 without 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 is
attempting to commit an offense.
(b) When an offense has just been committed and he has probable cause to believe based on personal
knowledge 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 Davids warrantless arrest. During the
inquest for the charges of inciting to sedition and violation of BP 880, all that the arresting officers could
invoke was their observation that some rallyists were wearing t-shirts with the invective "Oust Gloria Now" and
their erroneous assumption that petitioner David was the leader of the rally.146 Consequently, the Inquest
Prosecutor ordered his immediate release on the ground of insufficiency of evidence. He noted that petitioner
David was not wearing the subject t-shirt and even if he was wearing it, such fact is insufficient to charge him
with inciting to sedition. Further, he also stated that there is insufficient evidence for the charge of violation of
BP 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 warrantless
arrest 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 people
peaceably 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 public
affairs. It is a necessary consequence of our republican institution and complements the right of speech. As in
the case of freedom of expression, this right is not to be limited, much less denied, except on a showing of
a clear and present danger of a substantive evil that Congress has a right to prevent. In other words, like other
rights embraced in the freedom of expression, the right to assemble is not subject to previous restraint or
censorship. It may not be conditioned upon the prior issuance of a permit or authorization from the government
authorities except, of course, if the assembly is intended to be held in a public place, a permit for the use of such
place, 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 to
peaceful assembly. They were not committing any crime, neither was there a showing of a clear and present
danger that warranted the limitation of that right. As can be gleaned from circumstances, the charges of inciting
to sedition and violation of BP 880 were mere afterthought. Even the Solicitor General, during the oral
argument, failed to justify the arresting officers conduct. In De Jonge v. Oregon,148 it was held that peaceable
assembly cannot be made a crime, thus:
Peaceable assembly for lawful discussion cannot be made a crime. The holding of meetings for peaceable
political action cannot be proscribed. Those who assist in the conduct of such meetings cannot be branded as
criminals 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 the
speakers, 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 a
conspiracy against the public peace and order, they may be prosecuted for their conspiracy or other violations of
valid 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 a
criminal charge.
On the basis of the above principles, the Court likewise considers the dispersal and arrest of the members of
KMU et al. (G.R. No. 171483) unwarranted. Apparently, their dispersal was done merely on the basis of
Malacaangs directive canceling all permits previously issued by local government units. This is arbitrary. The
wholesale cancellation of all permits to rally is a blatant disregard of the principle that "freedom of assembly is
not to be limited, much less denied, except on a showing of a clear and present danger of a substantive
evil 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 to
exercise it. Indeed, respondents failed to show or convince the Court that the rallyists committed acts amounting
to lawless violence, invasion or rebellion. With the blanket revocation of permits, the distinction between
protected and unprotected assemblies was eliminated.
Moreover, under BP 880, the authority to regulate assemblies and rallies is lodged with the local government
units. They have the power to issue permits and to revoke such permits after due notice and hearing on the
determination of the presence of clear and present danger. Here, petitioners were not even notified and heard
on the revocation of their permits.150 The first time they learned of it was at the time of the dispersal. Such
absence of notice is a fatal defect. When a persons right is restricted by government action, it behooves a
democratic 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 the
press. Petitioners narration of facts, which the Solicitor General failed to refute, established the
following: first, theDaily Tribunes offices were searched without warrant;second, the police operatives seized
several materials for publication; third, the search was conducted at about 1:00 o clock in the morning of
February 25, 2006; fourth,the search was conducted in the absence of any official of the Daily Tribune except
the security guard of the building; and fifth, policemen stationed themselves at the vicinity of the Daily
Tribune offices.
Thereafter, a wave of warning came from government officials. Presidential Chief of Staff Michael Defensor was
quoted as saying that such raid was "meant to show a strong presence, to tell media outlets not to
connive or do anything that would help the rebels in bringing down this government." Director General
Lomibao 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. 5
and Proc. No. 1017 we will recommend a takeover." National Telecommunications Commissioner Ronald
Solis urged television and radio networks to "cooperate" with the government for the duration of the state of
national 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 is
threatened.151
The search is illegal. Rule 126 of The Revised Rules on Criminal Procedure lays down the steps in the conduct
of search and seizure. Section 4 requires that a search warrant be issued upon probable cause in connection
with one specific offence to be determined personally by the judge after examination under oath or affirmation of
the complainant and the witnesses he may produce. Section 8 mandates that the search of a house, room, or
any other premise be made in the presence of the lawful occupant thereof or any member of his family or in
the absence of the latter, in the presence of two (2) witnesses of sufficient age and discretion residing in the
same locality. And Section 9 states that the warrant must direct that it be served in the daytime, unless the
property is on the person or in the place ordered to be searched, in which case a direction may be inserted that it
be 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 democratic
society rests in the degree of freedom enjoyed by its media. In the Burgos v. Chief of Staff152 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 were
padlocked and sealed, with the further result that the printing and publication of said newspapers were
discontinued.
Such closure is in the nature of previous restraint or censorship abhorrent to the freedom of the press
guaranteed under the fundamental law, and constitutes a virtual denial of petitioners' freedom to
express themselves in print. This state of being is patently anathematic to a democratic framework
where a free, alert and even militant press is essential for the political enlightenment and growth of the
citizenry.
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 enforcement
duties. The search and seizure of materials for publication, the stationing of policemen in the vicinity of the The
Daily Tribune offices, and the arrogant warning of government officials to media, are plain censorship. It is that
officious functionary of the repressive government who tells the citizen that he may speak only if allowed to do
so, and no more and no less than what he is permitted to say on pain of punishment should he be so rash as to
disobey.153 Undoubtedly, the The Daily Tribune was subjected to these arbitrary intrusions because of its antigovernment sentiments. This Court cannot tolerate the blatant disregard of a constitutional right even if it
involves the most defiant of our citizens. Freedom to comment on public affairs is essential to the vitality of a
representative democracy. It is the duty of the courts to be watchful for the constitutional rights of the citizen, and
against 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 Tribunes offices
and 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 the
purpose of gathering evidence and you admitted that the policemen were able to get the clippings. Is that not in
admission 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 are
inadmissible for any purpose.155
xxxxxxxxx
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 oclock in the morning and without any search warrant? Did they become
suddenly 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.
SR. ASSO. JUSTICE PUNO:
Are you saying that the act of the policeman is illegal, it is not based on any law, and it is not based on
Proclamation 1017.
SOLGEN BENIPAYO:
It is not based on Proclamation 1017, Your Honor, because there is nothing in 1017 which says that the police
could go and inspect and gather clippings from Daily Tribune or any other newspaper.
SR. ASSO. JUSTICE PUNO:
Is it based on any law?
SOLGEN BENIPAYO:
As far as I know, no, Your Honor, from the facts, no.
SR. ASSO. JUSTICE PUNO:
So, it has no basis, no legal basis whatsoever?
SOLGEN BENIPAYO:
Maybe so, Your Honor. Maybe so, that is why I said, I dont know if it is premature to say this, we do not
condone this. If the people who have been injured by this would want to sue them, they can sue and
there 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 dont know whether this will clarify. The acts, the supposed illegal or unlawful acts committed on the occasion
of 1017, as I said, it cannot be condoned. You cannot blame the President for, as you said, a misapplication of
the 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 result
in 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 exhaustively
presented. At this point, suffice it to reiterate that PP 1017 is limited to the calling out by the President of the
military 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 the
Constitution, this Court has to declare such acts unconstitutional and illegal.
In this connection, Chief Justice Artemio V. Panganibans concurring opinion, attached hereto, is considered an
integral part of this ponencia.

SUMMATION
In sum, the lifting of PP 1017 through the issuance of PP 1021 a supervening event would have normally
rendered this case moot and academic. However, while PP 1017 was still operative, illegal acts were committed
allegedly in pursuance thereof. Besides, there is no guarantee that PP 1017, or one similar to it, may not again
be 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 parties
should 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 the
Constitution and the relevant jurisprudence discussed earlier. However, PP 1017s extraneous provisions giving
the President express or implied power (1) to issue decrees; (2) to direct the AFP to enforce obedience to all
laws even those not related to lawless violence as well as decrees promulgated by the President; and (3) to
impose standards on media or any form of prior restraint on the press, are ultra vires and unconstitutional. The
Court also rules that under Section 17, Article XII of the Constitution, the President, in the absence of a
legislation, 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 as
Commander-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 and
appropriate actions and measures to suppress and prevent acts of lawless violence."But the words "acts
of terrorism" found in G.O. No. 5 have not been legally defined and made punishable by Congress and should
thus be deemed deleted from the said G.O. While "terrorism" has been denounced generally in media, no law
has been enacted to guide the military, and eventually the courts, to determine the limits of the AFPs authority in
carrying 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) the
warrantless arrest of petitioners Randolf S. David and Ronald Llamas; (2) the dispersal of the rallies and
warrantless arrest of the KMU and NAFLU-KMU members; (3) the imposition of standards on media or any prior
restraint on the press; and (4) the warrantless search of the Tribune offices and the whimsical seizures of some
articles for publication and other materials, are not authorized by the Constitution, the law and jurisprudence. Not
even 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 sanctions
on the individual police officers concerned. They have not been individually identified and given their day in
court. The civil complaints or causes of action and/or relevant criminal Informations have not been presented
before 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 in
themselves. How to give the military the power it needs to protect the Republic without unnecessarily
trampling 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 to
unduly restrain our peoples liberty.
Perhaps, the vital lesson that we must learn from the theorists who studied the various competing political
philosophies is that, it is possible to grant government the authority to cope with crises without surrendering the
two vital principles of constitutionalism: the maintenance of legal limits to arbitrary power, and political
responsibility of the government to the governed.158
WHEREFORE, the Petitions are partly granted. The Court rules that PP 1017 is CONSTITUTIONAL insofar as it
constitutes 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, as
well as decrees promulgated by the President, are declared UNCONSTITUTIONAL. In addition, the provision in
PP 1017 declaring national emergency under Section 17, Article VII of the Constitution
is 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 implement
PP 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 by
the 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 KMU
and NAFLU-KMU members during their rallies, in the absence of proof that these petitioners were committing
acts constituting lawless violence, invasion or rebellion and violating BP 880; the imposition of standards on
media or any form of prior restraint on the press, as well as the warrantless search of the Tribune offices and
whimsical 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.
BOE, 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 AIRPORT
AUTHORITY, DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS and SECRETARY
LEANDRO M. MENDOZA, in his capacity as Head of the Department of Transportation and
Communications, 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 AIRPORT
AUTHORITY, DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, DEPARTMENT OF
PUBLIC WORKS AND HIGHWAYS, SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of the
Department of Transportation and Communications, and SECRETARY SIMEON A. DATUMANONG, in his
capacity 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, ANGELITO
SANTOS, MA. LUISA M. PALCON and SAMAHANG MANGGAGAWA SA PALIPARAN NG PILIPINAS
(SMPP), petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT
AUTHORITY, DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, SECRETARY LEANDRO
M. MENDOZA, in his capacity as Head of the Department of Transportation and
Communications, 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 of
Transportation and Communications (DOTC) and its Secretary from implementing the following agreements
executed by the Philippine Government through the DOTC and the MIAA and the Philippine International Air
Terminals Co., Inc. (PIATCO): (1) the Concession Agreement signed on July 12, 1997, (2) the Amended and
Restated Concession Agreement dated November 26, 1999, (3) the First Supplement to the Amended and
Restated Concession Agreement dated August 27, 1999, (4) the Second Supplement to the Amended and
Restated Concession Agreement dated September 4, 2000, and (5) the Third Supplement to the Amended and
Restated 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 the
present airport can cope with the traffic development up to the year 2010. The study consisted of two
parts: first, traffic forecasts, capacity of existing facilities, NAIA future requirements, proposed master
plans and development plans; and second, presentation of the preliminary design of the passenger
terminal 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 explore
the possibility of investing in the construction and operation of a new international airport terminal. To
signify 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 the
DOTC/MIAA for the development of NAIA International Passenger Terminal III (NAIA IPT III) under a
build-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 National
Economic and Development Authority (NEDA). A revised proposal, however, was forwarded by the DOTC to
NEDA 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 for
competitive 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 envelope
the 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 the
submission of the comparative bid proposals. Interested firms were permitted to obtain the Request for Proposal
Documents beginning June 28, 1996, upon submission of a written application and payment of a non-refundable
fee of P50,000.00 (US$2,000).
The Bid Documents issued by the PBAC provided among others that the proponent must have adequate
capability to sustain the financing requirement for the detailed engineering, design, construction, operation, and
maintenance phases of the project. The proponent would be evaluated based on its ability to provide a minimum
amount 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 following
amendments 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 payment
of 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 as
the 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 minimum
amount of equity for the project; and
ii. a letter testimonial from reputable banks attesting that the project proponent and/or the
members of the consortium are banking with them, that the project proponent and/or the
members 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 and
financial 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 amendments
shall 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 the
request of prospective bidder People's Air Cargo & Warehousing Co., Inc (Paircargo), the PBAC warranted that
based 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 the
challengers' technical and financial proposals would remain confidential. The PBAC also clarified that the list of
revenue sources contained in Annex 4.2a of the Bid Documents was merely indicative and that other revenue
sources 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 those
charges which would be actually deemed Public Utility Fees could still be revised, depending on the outcome of
PBAC'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 as
Per 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 member
company is so structured to meet the requirements and needs of their current respective business
undertaking/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 that
embodies a commitment to infuse the required capital in case the project is awarded to the Joint Venture
instead 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, not
future 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 be
established 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 a
Performance Security to the joint venture in the event that the Concessions Agreement (sic) is awarded
to them. However, Paircargo is being required to submit a copy of the draft concession as one of the
documentary requirements. Therefore, Paircargo is requesting that they'd (sic) be furnished copy of the
approved 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 changes
would be made known to prospective challengers through bid bulletins. However, a final version will be
issued before the award of contract.
The PBAC also stated that it would require AEDC to sign Supplement C of the Bid Documents (Acceptance of
Criteria 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 PBAC
opened the first envelope containing the prequalification documents of the Paircargo Consortium. On the
following 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 Paircargo
Consortium, 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 that
Security Bank could legally invest in the project;
d. The inclusion of Siemens as a contractor of the PAIRCARGO Joint Venture, for prequalification
purposes; and
e. The appointment of Lufthansa as the facility operator, in view of the Philippine requirement in the
operation of a public utility.
The PBAC gave its reply on October 2, 1996, informing AEDC that it had considered the issues raised by the
latter, 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 the
DOTC approved the finding of the PBAC.
The PBAC then proceeded with the opening of the second envelope of the Paircargo Consortium which
contained its Technical Proposal.

On October 3, 1996, AEDC reiterated its objections, particularly with respect to Paircargo's financial capability, in
view of the restrictions imposed by Section 21-B of the General Banking Act and Sections 1380 and 1381 of the
Manual Regulations for Banks and Other Financial Intermediaries. On October 7, 1996, AEDC again manifested
its objections and requested that it be furnished with excerpts of the PBAC meeting and the accompanying
technical 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 Consortium
containing their respective financial proposals. Both proponents offered to build the NAIA Passenger Terminal III
for at least $350 million at no cost to the government and to pay the government: 5% share in gross revenues for
the first five years of operation, 7.5% share in gross revenues for the next ten years of operation, and 10% share
in gross revenues for the last ten years of operation, in accordance with the Bid Documents. However, in
addition to the foregoing, AEDC offered to pay the government a total of P135 million as guaranteed payment for
27 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 Paircargo
Consortium, 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, on
December 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 as
regards the prequalification of PIATCO.
On April 11, 1997, the DOTC submitted the concession agreement for the second-pass approval of the NEDAICC.
On April 16, 1997, AEDC filed with the Regional Trial Court of Pasig a Petition for Declaration of Nullity of the
Proceedings, 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 Technical
Committee.
On April 17, 1997, the NEDA-ICC conducted an ad referendum to facilitate the approval, on a no-objection
basis, of the BOT agreement between the DOTC and PIATCO. As the ad referendum gathered only four (4) of
the 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 its
President, Henry T. Go, signed the "Concession Agreement for the Build-Operate-and-Transfer Arrangement of
the 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 to
collect the fees, rentals and other charges in accordance with the rates or schedules stipulated in the 1997
Concession Agreement. The Agreement provided that the concession period shall be for twenty-five (25) years
commencing from the in-service date, and may be renewed at the option of the Government for a period not
exceeding twenty-five (25) years. At the end of the concession period, PIATCO shall transfer the development
facility 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 ARCA
were: Sec. 1.11 pertaining to the definition of "certificate of completion"; Sec. 2.05 pertaining to the Special
Obligations 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 of
operations by GRP; Sec. 5.16 pertaining to the taxes, duties and other imposts that may be levied on the
Concessionaire; Sec. 6.03 as regards the periodic adjustment of public utility fees and charges; the entire Article
VIII concerning the provisions on the termination of the contract; and Sec. 10.02 providing for the venue of the
arbitration 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 was
signed on August 27, 1999; the Second Supplement on September 4, 2000; and the Third Supplement on June
22, 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 by
MIAA; and further providing additional special obligations on the part of GRP aside from those already
enumerated in Sec. 2.05 of the ARCA. The First Supplement also provided a stipulation as regards the
construction of a surface road to connect NAIA Terminal II and Terminal III in lieu of the proposed access tunnel
crossing Runway 13/31; the swapping of obligations between GRP and PIATCO regarding the improvement of
Sales Road; and the changes in the timetable. It also amended Sec. 6.01 (c) of the ARCA pertaining to the
Disposition 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 or
disposal of subterranean structures uncovered or discovered at the site of the construction of the terminal by the
Concessionaire. It defined the scope of works; it provided for the procedure for the demolition of the said
structures 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 provided
for 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 of
the 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, had
existing concession contracts with various service providers to offer international airline airport services, such as
in-flight catering, passenger handling, ramp and ground support, aircraft maintenance and provisions, cargo
handling and warehousing, and other services, to several international airlines at the NAIA. Some of these
service 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 industry
with an aggregate market share of 70%.
On September 17, 2002, the workers of the international airline service providers, claiming that they stand to
lose their employment upon the implementation of the questioned agreements, filed before this Court a petition
for 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 for
intervention and a petition-in-intervention.
On October 24, 2002, Congressmen Salacnib Baterina, Clavel Martinez and Constantino Jaraula filed a similar
petition 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-InIntervention 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 Malacaang 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 behalf
of the public respondents.
On December 10, 2002, the Court heard the case on oral argument. After the oral argument, the Court then
resolved 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 as
provided in the challenged contracts.
In their consolidated Memorandum, the Office of the Solicitor General and the Office of the Government
Corporate Counsel prayed that the present petitions be given due course and that judgment be rendered
declaring the 1997 Concession Agreement, the ARCA and the Supplements thereto void for being contrary to
the 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 commenced
arbitration 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 the
Philippines 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 their
intersecting legal and economic implications. The Court is aware of the far reaching fall out effects of the ruling
which it makes today. For more than a century and whenever the exigencies of the times demand it, this Court
has never shirked from its solemn duty to dispense justice and resolve "actual controversies involving rights
which are legally demandable and enforceable, and to determine whether or not there has been grave abuse of
discretion amounting to lack or excess of jurisdiction."6 To be sure, this Court will not begin to do otherwise
today.
We shall first dispose of the procedural issues raised by respondent PIATCO which they allege will bar the
resolution 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 separate
concession 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, cargo
handling and warehousing and other services. Also included as petitioners are labor unions MIASCOR Workers
Union-National Labor Union and Philippine Airlines Employees Association. These petitioners filed the instant
action for prohibition as taxpayers and as parties whose rights and interests stand to be violated by the
implementation of the PIATCO Contracts.
Petitioners-Intervenors in the same case are all corporations organized and existing under Philippine laws
engaged in the business of providing in-flight catering, passenger handling, ramp and ground support, aircraft
maintenance and provisions, cargo handling and warehousing and other services to several international airlines
at the Ninoy Aquino International Airport. Petitioners-Intervenors allege that as tax-paying international airline
and airport-related service operators, each one of them stands to be irreparably injured by the implementation of
the 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 and
violated by respondent PIATCO.
In G.R. No. 155661, petitioners constitute employees of MIAA and Samahang Manggagawa sa Paliparan ng
Pilipinas - a legitimate labor union and accredited as the sole and exclusive bargaining agent of all the
employees in MIAA. Petitioners anchor their petition for prohibition on the nullity of the contracts entered into by
the Government and PIATCO regarding the build-operate-and-transfer of the NAIA IPT III. They filed the petition
as taxpayers and persons who have a legitimate interest to protect in the implementation of the PIATCO
Contracts.
Petitioners in both cases raise the argument that the PIATCO Contracts contain stipulations which directly
contravene 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 said
contracts, have committed grave abuse of discretion amounting to lack or excess of jurisdiction which can be
remedied only by a writ of prohibition, there being no plain, speedy or adequate remedy in the ordinary course of
law.

In particular, petitioners assail the provisions in the 1997 Concession Agreement and the ARCA which grant
PIATCO 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 contracts
further provide that upon the commencement of operations at the NAIA IPT III, the Government shall cause the
closure 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 providers
regarding certain services or operations, the 1997 Concession Agreement and the ARCA uniformly provide that
such services or operations will not be carried over to the NAIA IPT III and PIATCO is under no obligation to
permit 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 of
the NAIA IPT III, they allege that they will be effectively barred from providing international airline airport services
at the NAIA Terminals I and II as all international airlines and passengers will be diverted to the NAIA IPT III. The
petitioning service providers will thus be compelled to contract with PIATCO alone for such services, with no
assurance that subsisting contracts with MIAA and other international airlines will be respected. Petitioning
service providers stress that despite the very competitive market, the substantial capital investments required
and the high rate of fees, they entered into their respective contracts with the MIAA with the understanding that
the said contracts will be in force for the stipulated period, and thereafter, renewed so as to allow each of the
petitioning 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 the
PIATCO Contracts, they stand to lose employment.
The question on legal standing is whether such parties have "alleged such a personal stake in the outcome of
the controversy as to assure that concrete adverseness which sharpens the presentation of issues upon which
the court so largely depends for illumination of difficult constitutional questions."9 Accordingly, it has been held
that the interest of a person assailing the constitutionality of a statute must be direct and personal. He must be
able to show, not only that the law or any government act is invalid, but also that he sustained or is in imminent
danger of sustaining some direct injury as a result of its enforcement, and not merely that he suffers thereby in
some indefinite way. It must appear that the person complaining has been or is about to be denied some right or
privilege to which he is lawfully entitled or that he is about to be subjected to some burdens or penalties by
reason 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 and
substantial interest to protect by reason of the implementation of the PIATCO Contracts. They stand to lose their
source of livelihood, a property right which is zealously protected by the Constitution. Moreover, subsisting
concession agreements between MIAA and petitioners-intervenors and service contracts between international
airlines and petitioners-intervenors stand to be nullified or terminated by the operation of the NAIA IPT III under
the PIATCO Contracts. The financial prejudice brought about by the PIATCO Contracts on petitioners and
petitioners-intervenors in these cases are legitimate interests sufficient to confer on them the requisite standing
to 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 especially
interested in the PIATCO Contracts, because the contracts compel the Government and/or the House of
Representatives to appropriate funds necessary to comply with the provisions therein.11 They cite provisions of
the PIATCO Contracts which require disbursement of unappropriated amounts in compliance with the
contractual obligations of the Government. They allege that the Government obligations in the PIATCO
Contracts which compel government expenditure without appropriation is a curtailment of their prerogatives as
legislators, contrary to the mandate of the Constitution that "[n]o money shall be paid out of the treasury except
in 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 who
have 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 Imus
Electric Co. v. Municipality of Imus13 and Gonzales v. Raquiza14 wherein this Court held that appropriation
must be made only on amounts immediately demandable, public interest demands that we take a more
liberal view in determining whether the petitioners suing as legislators, taxpayers and citizens have
locus 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 of
planters, and non-profit civic organizations were allowed to initiate and prosecute actions before this Court to
question the constitutionality or validity of laws, acts, decisions, rulings, or orders of various government
agencies or instrumentalities."16 Further, "insofar as taxpayers' suits are concerned . . . (this Court) is not devoid
of discretion as to whether or not it should be entertained."17 As such ". . . even if, strictly speaking, they [the
petitioners] are not covered by the definition, it is still within the wide discretion of the Court to waive the
requirement and so remove the impediment to its addressing and resolving the serious constitutional questions
raised."18 In view of the serious legal questions involved and their impact on public interest, we resolve to grant
standing to the petitioners.
Other Procedural Matters
Respondent PIATCO further alleges that this Court is without jurisdiction to review the instant cases as factual
issues are involved which this Court is ill-equipped to resolve. Moreover, PIATCO alleges that submission of this
controversy to this Court at the first instance is a violation of the rule on hierarchy of courts. They contend that
trial courts have concurrent jurisdiction with this Court with respect to a special civil action for prohibition and
hence, 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 the
instant controversy involves significant legal questions. The facts necessary to resolve these legal questions
are 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 where
exceptional and compelling circumstances justify availment of a remedy within and calling for the exercise of this
Court's primary jurisdiction.19
It is easy to discern that exceptional circumstances exist in the cases at bar that call for the relaxation of the
rule. Both petitioners and respondents agree that these cases are of transcendental importance as they
involve the construction and operation of the country's premier international airport. Moreover, the crucial issues
submitted for resolution are of first impression and they entail the proper legal interpretation of key provisions of
the Constitution, the BOT Law and its Implementing Rules and Regulations. Thus, considering the nature of the
controversy before the Court, procedural bars may be lowered to give way for the speedy disposition of the
instant 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 arbitration
proceedings 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 the
Distributorship Agreement in question is valid and the dispute between the parties is arbitrable, this Court
affirmed the trial court's decision denying petitioner's Motion to Suspend Proceedings pursuant to the arbitration
clause 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 the
arbitration clause stipulated therein. This Court ruled that arbitration proceedings could be called for
but only with respect to the parties to the contract in question. Considering that there are parties to the case who
are neither parties to the Distributorship Agreement nor heirs or assigns of the parties thereto, this Court, citing
its previous ruling in Salas, Jr. v. Laperal Realty Corporation,21 held that to tolerate the splitting of proceedings by
allowing 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 the
interest of justice would best be served if the trial court hears and adjudicates the case in a single and
complete proceeding.
It is established that petitioners in the present cases who have presented legitimate interests in the resolution
of 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 arbitration
proceedings. 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 arbitration
is precisely to allow an expeditious determination of a dispute. This objective would not be met if this Court were
to allow the parties to settle the cases by arbitration as there are certain issues involving non-parties to the
PIATCO 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-qualified
bidder on the unsolicited proposal submitted by AEDC as the Paircargo Consortium failed to meet the financial
capability required under the BOT Law and the Bid Documents. They allege that in computing the ability of the
Paircargo Consortium to meet the minimum equity requirements for the project, the entire net worth of
Security 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 net
worth of P3,900,000,000.00, sufficient to meet the equity requirements of the project. The said Memorandum
was in response to a letter from Mr. Antonio Henson of AEDC to President Fidel V. Ramos questioning the
financial capability of the Paircargo Consortium on the ground that it does not have the financial resources to put
up 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 an
amount 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 be
evaluated 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 that
could 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 now
will be nothing less than unfair.
The financial statement or the net worth is not the sole basis in establishing financial capability. As stated
in Bid Bulletin No. 3, financial capability may also be established by testimonial letters issued by
reputable 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 money
to be used to answer the required thirty percent (30%) equity of the challenger but rather to be used in
establishing 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 awarded
to the bidder "who, having satisfied the minimum financial, technical, organizational and legal
standards" required by the law, has submitted the lowest bid and most favorable terms of the
project.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 maintenance
phases of the project, as the case may be. For purposes of pre-qualification, this capability shall be
measured in terms of (i) proof of the ability of the project proponent and/or the consortium to
provide a minimum amount of equity to the project, and (ii) a letter testimonial from reputable
banks 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. The
government agency/LGU concerned shall determine on a project-to-project basis and before prequalification, 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 financial
capability 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 technical
and 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 thirty
percent (30%) of the project cost instead of the twenty percent (20%) specified in Section 3.6.4 of
the Bid Documents. This is to correlate with the required debt-to-equity ratio of 70:30 in Section 2.01a
of the draft concession agreement. The debt portion of the project financing should not exceed 70% of
the 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 in
the minimum amount of 30% of the project cost through (i) proof of the ability to provide a minimum amount
of equity to the project, and (ii) a letter testimonial from reputable banks attesting that the project proponent or
members of the consortium are banking with them, that they are in good financial standing, and that they have
adequate resources.
As the minimum project cost was estimated to be US$350,000,000.00 or roughly P9,183,650,000.00,25 the
Paircargo Consortium had to show to the satisfaction of the PBAC that it had the ability to provide the minimum
equity 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 P2,783,592.00
and 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 Financial
Statements as of 1995 show that it has a net worth equivalent to its capital funds in the amount of
P3,523,504,377.00.28
We agree with public respondents that with respect to Security Bank, the entire amount of its net worth could
not be invested in a single undertaking or enterprise, whether allied or non-allied in accordance with the
provisions 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 support
national priority projects, may authorize a commercial bank, a bank authorized to provide
commercial 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 to
powers authorized for commercial banks, the powers of an Investment House as provided in
Presidential Decree No. 129, invest in the equity of a non-allied undertaking, or own a majority or all
of the equity in a financial intermediary other than a commercial bank or a bank authorized to provide
commercial banking services: Provided, That (a) the total investment in equities shall not exceed fifty
percent (50%) of the net worth of the bank; (b) the equity investment in any one enterprise whether
allied or non-allied shall not exceed fifteen percent (15%) of the net worth of the bank; (c) the
equity investment of the bank, or of its wholly or majority-owned subsidiary, in a single non-allied
undertaking shall not exceed thirty-five percent (35%) of the total equity in the enterprise nor shall it
exceed thirty-five percent (35%) of the voting stock in that enterprise; and (d) the equity investment in
other banks shall be deducted from the investing bank's net worth for purposes of computing the
prescribed ratio of net worth to risk assets.
xxx

xxx

Further, the 1993 Manual of Regulations for Banks provides:

xxx

SECTION X383. Other Limitations and Restrictions. The following limitations and restrictions shall
also apply regarding equity investments of banks.
a. In any single enterprise. The equity investments of banks in any single enterprise shall not exceed
at any time fifteen percent (15%) of the net worth of the investing bank as defined in Sec. X106 and
Subsec. X121.5.
Thus, the maximum amount that Security Bank could validly invest in the Paircargo Consortium is only
P528,525,656.55, representing 15% of its entire net worth. The total net worth therefore of the Paircargo
Consortium, after considering the maximum amounts that may be validly invested by each of its members
isP558,384,871.55 or only 6.08% of the project cost,29 an amount substantially less than the prescribed
minimum equity investment required for the project in the amount of P2,755,095,000.00 or 30% of the project
cost.
The purpose of pre-qualification in any public bidding is to determine, at the earliest opportunity, the ability of the
bidder 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 entire
cost of the project by considering the maximum amounts that each bidder may invest in the project at the
time of pre-qualification.
The PBAC has determined that any prospective bidder for the construction, operation and maintenance of the
NAIA IPT III project should prove that it has the ability to provide equity in the minimum amount of 30% of the
project cost, in accordance with the 70:30 debt-to-equity ratio prescribed in the Bid Documents. Thus, in the
case of Paircargo Consortium, the PBAC should determine the maximum amounts that each member of the
consortium may commit for the construction, operation and maintenance of the NAIA IPT III project at the time
of pre-qualification. With respect to Security Bank, the maximum amount which may be invested by it would
only be 15% of its net worth in view of the restrictions imposed by the General Banking Act. Disregarding the
investment ceilings provided by applicable law would not result in a proper evaluation of whether or not a bidder
is pre-qualified to undertake the project as for all intents and purposes, such ceiling or legal restriction
determines 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 an
evaluation of the financial capacity of the said bidder at the time the bid is submitted based on the required
documents presented by the bidder. The PBAC should not be allowed to speculate on the future financial
abilityof the bidder to undertake the project on the basis of documents submitted. This would open doors to
abuse and defeat the very purpose of a public bidding. This is especially true in the case at bar which involves
the investment of billions of pesos by the project proponent. The relevant government authority is duty-bound to
ensure that the awardee of the contract possesses the minimum required financial capability to complete the
project. To allow the PBAC to estimate the bidder's future financial capability would not secure the viability and
integrity of the project. A restrictive and conservative application of the rules and procedures of public bidding is
necessary not only to protect the impartiality and regularity of the proceedings but also to ensure the financial
and 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 documents
submitted 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 the
bidding 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 are
submitted falls short of the minimum amounts required to be put up by the bidder, said bidder should be
properly disqualified. Considering that at the pre-qualification stage, the maximum amounts which the Paircargo
Consortium may invest in the project fell short of the minimum amounts prescribed by the PBAC, we hold that
Paircargo Consortium was not a qualified bidder. Thus the award of the contract by the PBAC to the Paircargo
Consortium, 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 of
the 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 is
necessary 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 contains
provisions that substantially depart from the draft Concession Agreement included in the Bid Documents. They
maintain that a substantial departure from the draft Concession Agreement is a violation of public policy and
renders the 1997 Concession Agreement null and void.
PIATCO maintains, however, that the Concession Agreement attached to the Bid Documents is intended to be
adraft, 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 Bulletin
No. 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 amendments
shall 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 possible
advantages through open competition. Thus:
Competition must be legitimate, fair and honest. In the field of government contract law, competition
requires, not only `bidding upon a common standard, a common basis, upon the same thing, the same
subject matter, the same undertaking,' but also that it be legitimate, fair and honest; and not
designed 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 in
terms of application of the procedural rules and regulations imposed by the relevant government agency, but
more importantly, on the contract bidded upon. Each bidder must be able to bid on the same thing. The rationale
is obvious. If the winning bidder is allowed to later include or modify certain provisions in the contract awarded
such that the contract is altered in any material respect, then the essence of fair competition in the public bidding
is destroyed. A public bidding would indeed be a farce if after the contract is awarded, the winning bidder may
modify 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. The
specifications in such biddings provide the common ground or basis for the bidders. The specifications
should, 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 public
work to the lowest responsible bidder, the proposals and specifications therefore must be so framed as
to permit free and full competition. Nor can they enter into a contract with the best bidder containing
substantial 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 concession
agreement is subject to amendment, the pertinent portion of which was quoted above, the PBAC also clarified
that"[s]aid amendments shall only cover items that would not materially affect the preparation of the
proponent's proposal."
While we concede that a winning bidder is not precluded from modifying or amending certain provisions of the
contract bidded upon, such changes must not constitute substantial or material amendments that would
alter the basic parameters of the contract and would constitute a denial to the other bidders of the
opportunity to bid on the same terms. Hence, the determination of whether or not a modification or
amendment 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 altering
the technical and/or financial proposals previously submitted by other bidders. The alterations and modifications
in the contract executed between the government and the winning bidder must be such as to render such
executed contract to be an entirely different contract from the one that was bidded upon.

In the case of Caltex (Philippines), Inc. v. Delgado Brothers, Inc.,34 this Court quoted with approval the ruling
of the trial court that an amendment to a contract awarded through public bidding, when such subsequent
amendment was made without a new public bidding, is null and void:
The Court agrees with the contention of counsel for the plaintiffs that the due execution of a contract
after public bidding is a limitation upon the right of the contracting parties to alter or amend it without
another public bidding, for otherwise what would a public bidding be good for if after the execution
of a contract after public bidding, the contracting parties may alter or amend the contract, or
even cancel it, at their will? Public biddings are held for the protection of the public, and to give the
public the best possible advantages by means of open competition between the bidders. He who bids or
offers the best terms is awarded the contract subject of the bid, and it is obvious that such protection and
best possible advantages to the public will disappear if the parties to a contract executed after public
bidding may alter or amend it without another previous public bidding.35
Hence, the question that comes to fore is this: is the 1997 Concession Agreement the same agreement that was
offered for public bidding, i.e., the draft Concession Agreement attached to the Bid Documents? A close
comparison of the draft Concession Agreement attached to the Bid Documents and the 1997 Concession
Agreement reveals that the documents differ in at least two material respects:
a. Modification on the Public
Utility Revenues and Non-Public
Utility Revenues that may be
collected by PIATCO
The fees that may be imposed and collected by PIATCO under the draft Concession Agreement and the 1997
Concession Agreement may be classified into three distinct categories: (1) fees which are subject to periodic
adjustment of once every two years in accordance with a prescribed parametric formula and adjustments are
made effective only upon written approval by MIAA; (2) fees other than those included in the first category which
maybe adjusted by PIATCO whenever it deems necessary without need for consent of DOTC/MIAA; and (3)
new fees and charges that may be imposed by PIATCO which have not been previously imposed or collected at
the Ninoy Aquino International Airport Passenger Terminal I, pursuant to Administrative Order No. 1, Series of
1993, as amended. The glaring distinctions between the draft Concession Agreement and the 1997 Concession
Agreement lie in the types of fees included in each category and the extent of the supervision and regulation
which MIAA is allowed to exercise in relation thereto.
For fees under the first category, i.e., those which are subject to periodic adjustment in accordance with a
prescribed parametric formula and effective only upon written approval by MIAA, the draft Concession
Agreement includes the following:36
(1) aircraft parking fees;
(2) aircraft tacking fees;
(3) groundhandling fees;
(4) rentals and airline offices;
(5) check-in counter rentals; and
(6) porterage fees.
Under the 1997 Concession Agreement, fees which are subject to adjustment and effective upon MIAA
approval are classified as "Public Utility Revenues" and include:37
(1) aircraft parking fees;
(2) aircraft tacking fees;

(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 to
fees included in the second category identified above. Under the 1997 Concession Agreement, fees which
PIATCO may adjust whenever it deems necessary without need for consent of DOTC/MIAA are "Non-Public
Utility Revenues" and is defined as "all other income not classified as Public Utility Revenues derived from
operations of the Terminal and the Terminal Complex."38 Thus, under the 1997 Concession Agreement, ground
handling 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) lobby
and vehicular parking fees and (2) other new fees and charges that may be imposed by PIATCO. Such
regulation may be made by periodic adjustment and is effective only upon written approval of MIAA. The full text
of said provision is quoted below:
Section 6.03. Periodic Adjustment in Fees and Charges. Adjustments in the aircraft parking fees, aircraft
tacking fees, groundhandling fees, rentals and airline offices, check-in-counter rentals and porterage
fees shall be allowed only once every two years and in accordance with the Parametric Formula
attached hereto as Annex F. Provided that adjustments shall be made effective only after the written
express approval of the MIAA. Provided, further, that such approval of the MIAA, shall be contingent only
on the conformity of the adjustments with the above said parametric formula. The first adjustment shall
be 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 and
vehicular parking fees and other new fees and charges as contemplated in paragraph 2 of
Section 6.01 if in its judgment the users of the airport shall be deprived of a free option for the
services 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 Utility
Revenues in order to ensure that End Users are not unreasonably deprived of services. While the
vehicular parking fee, porterage fee and greeter/well wisher fee constitute Non-Public Utility
Revenues 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 have
become 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 approval
under the second paragraph of Section 6.03 thereof while porterage fee is covered by the first paragraph of the
same provision. There is an obvious relaxation of the extent of control and regulation by MIAA with respect to
the 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., new
fees and charges that may be imposed by PIATCO which have not been previously imposed or collected at the
Ninoy Aquino International Airport Passenger Terminal I, under Section 6.03 of the draft Concession
Agreement MIAA has reserved the right to regulate the same under the same conditions that MIAA may
regulate fees under the first category, i.e., periodic adjustment of once every two years in accordance with a
prescribed parametric formula and effective only upon written approval by MIAA. However, under the 1997
Concession 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 the
category of "Public Utility Revenues" under the 1997 Concession Agreement. This classification is significant
because 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 subject
to "Interim Adjustment."43
Finally, under the 1997 Concession Agreement, "Public Utility Revenues," except terminal fees, are
denominated in US Dollars44 while payments to the Government are in Philippine Pesos. In the draft
Concession Agreement, no such stipulation was included. By stipulating that "Public Utility Revenues" will be
paid to PIATCO in US Dollars while payments by PIATCO to the Government are in Philippine currency under
the 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 the
types of fees that are subject to MIAA regulation and the relaxation of such regulation with respect to other fees
are significant amendments that substantially distinguish the draft Concession Agreement from the 1997
Concession Agreement. The 1997 Concession Agreement, in this respect, clearly gives PIATCO more
favorable terms than what was available to other bidders at the time the contract was bidded out. It is not
very difficult to see that the changes in the 1997 Concession Agreement translate to direct and concrete
financial advantages for PIATCO which were not available at the time the contract was offered for bidding. It
cannot be denied that under the 1997 Concession Agreement only "Public Utility Revenues" are subject to MIAA
regulation. 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 have
provided, loaned or advanced funds for the NAIA IPT III project does not result in the assumption by the
Government of these liabilities. In fact, nowhere in the said contract does default of PIATCO's loans figure in the
agreement. Such default does not directly result in any concomitant right or obligation in favor of the
Government.
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 default
has resulted in the acceleration of the payment due date of the Attendant Liability prior to its stated date
of maturity, the Unpaid Creditors and Concessionaire shall immediately inform GRP in writing of such
default. GRP shall, within one hundred eighty (180) Days from receipt of the joint written notice of the
Unpaid 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 concessionaire
and operator of the Development Facility in accordance with the terms and conditions hereof, or
designate a qualified operator acceptable to GRP to operate the Development Facility, likewise under
the terms and conditions of this Agreement; Provided that if at the end of the 180-day period GRP shall
not have served the Unpaid Creditors and Concessionaire written notice of its choice, GRP shall be
deemed 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, the
latter shall form and organize a concession company qualified to take over the operation of the
Development Facility. 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 to GRP within one hundred eighty (180) days from receipt of GRP's written notice. If
the concession company, acting in good faith and with due diligence, is unable to designate a qualified
operator within the aforesaid period, then GRP shall at the end of the 180-day period take over the
Development Facility and assume Attendant Liabilities.
The term "Attendant Liabilities" under the 1997 Concession Agreement is defined as:
Attendant Liabilities refer to all amounts recorded and from time to time outstanding in the books of the
Concessionaire as owing to Unpaid Creditors who have provided, loaned or advanced funds
actually used for the Project, including all interests, penalties, associated fees, charges, surcharges,
indemnities, reimbursements and other related expenses, and further including amounts owed by
Concessionaire to its suppliers, contractors and sub-contractors.
Under the above quoted portions of Section 4.04 in relation to the definition of "Attendant Liabilities," default by
PIATCO of its loans used to finance the NAIA IPT III project triggers the occurrence of certain events that
leads to the assumption by the Government of the liability for the loans. Only in one instance may the
Government escape the assumption of PIATCO's liabilities, i.e., when the Government so elects and allows a
qualified operator to take over as Concessionaire. However, this circumstance is dependent on the
existence and availability of a qualified operator who is willing to take over the rights and obligations of
PIATCO under the contract, a circumstance that is not entirely within the control of the Government.
Without going into the validity of this provision at this juncture, suffice it to state that Section 4.04 of the 1997
Concession Agreement may be considered a form of security for the loans PIATCO has obtained to finance the
project, an option that was not made available in the draft Concession Agreement. Section 4.04 is an important
amendment to the 1997 Concession Agreement because it grants PIATCO a financial advantage or benefit
which was not previously made available during the bidding process. This financial advantage is a
significant modification that translates to better terms and conditions for PIATCO.
PIATCO, however, argues that the parties to the bidding procedure acknowledge that the draft Concession
Agreement is subject to amendment because the Bid Documents permit financing or borrowing. They claim that
it was the lenders who proposed the amendments to the draft Concession Agreement which resulted in the 1997
Concession Agreement.
We agree that it is not inconsistent with the rationale and purpose of the BOT Law to allow the project proponent
or the winning bidder to obtain financing for the project, especially in this case which involves the construction,
operation and maintenance of the NAIA IPT III. Expectedly, compliance by the project proponent of its
undertakings therein would involve a substantial amount of investment. It is therefore inevitable for the awardee
of the contract to seek alternate sources of funds to support the project. Be that as it may, this Court maintains
that amendments to the contract bidded upon should always conform to the general policy on public bidding if
such procedure is to be faithful to its real nature and purpose. By its very nature and characteristic, competitive
public bidding aims to protect the public interest by giving the public the best possible advantages through open
competition.45 It has been held that the three principles in public bidding are (1) the offer to the public; (2)
opportunity for competition; and (3) a basis for the exact comparison of bids. A regulation of the matter which
excludes any of these factors destroys the distinctive character of the system and thwarts the purpose of its
adoption.46 These are the basic parameters which every awardee of a contract bidded out must conform to,
requirements of financing and borrowing notwithstanding. Thus, upon a concrete showing that, as in this case,
the contract signed by the government and the contract-awardee is an entirely different contract from the
contract bidded, courts should not hesitate to strike down said contract in its entirety for violation of public policy
on public bidding. A strict adherence on the principles, rules and regulations on public bidding must be sustained
if only to preserve the integrity and the faith of the general public on the procedure.
Public bidding is a standard practice for procuring government contracts for public service and for furnishing
supplies and other materials. It aims to secure for the government the lowest possible price under the most
favorable terms and conditions, to curtail favoritism in the award of government contracts and avoid suspicion of
anomalies and it places all bidders in equal footing.47 Any government action which permits any substantial
variance between the conditions under which the bids are invited and the contract executed after the
award thereof is a grave abuse of discretion amounting to lack or excess of jurisdiction which warrants
proper judicial action.
In view of the above discussion, the fact that the foregoing substantial amendments were made on the 1997
Concession Agreement renders the same null and void for being contrary to public policy. These
amendments convert the 1997 Concession Agreement to an entirely different agreement from the contract

bidded out or the draft Concession Agreement. It is not difficult to see that the amendments on (1) the types of
fees or charges that are subject to MIAA regulation or control and the extent thereof and (2) the assumption by
the Government, under certain conditions, of the liabilities of PIATCO directly translates concrete financial
advantages to PIATCO that were previously not available during the bidding process. These amendments
cannot be taken as merely supplements to or implementing provisions of those already existing in the draft
Concession Agreement. The amendments discussed above present new terms and conditions which provide
financial benefit to PIATCO which may have altered the technical and financial parameters of other bidders had
they 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 stated
date of maturity, the Unpaid Creditors and Concessionaire shall immediately inform GRP in writing of
such default. GRP shall within one hundred eighty (180) days from receipt of the joint written notice of
the Unpaid 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 concessionaire
and operator of the Development facility in accordance with the terms and conditions hereof, or
designate a qualified operator acceptable to GRP to operate the Development Facility, likewise under
the terms and conditions of this Agreement; Provided, that if at the end of the 180-day period GRP shall
not have served the Unpaid Creditors and Concessionaire written notice of its choice, GRP shall be
deemed to have elected to take over the Development Facility with the concomitant assumption
of Attendant Liabilities.
(c) If GRP, by written notice, allow the Unpaid Creditors to be substituted as concessionaire, the latter
shall form and organize a concession company qualified to takeover the operation of the Development
Facility. 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 to
GRP within one hundred eighty (180) days from receipt of GRP's written notice. If the concession
company, acting in good faith and with due diligence, is unable to designate a qualified operator within
the aforesaid period, then GRP shall at the end of the 180-day period take over the Development
Facility 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 of
the Concessionaire as owing to Unpaid Creditors who have provided, loaned or advanced funds
actually used for the Project, including all interests, penalties, associated fees, charges, surcharges,
indemnities, reimbursements and other related expenses, and further including amounts owed by
Concessionaire 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 loan
obligations, is obligated to pay "all amounts recorded and from time to time outstanding from the books" of
PIATCO 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 the
Government 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 to
allow PIATCO's unpaid creditors operate NAIA IPT III, the Government is still at a risk of being liable to
PIATCO's creditors should the latter be unable to designate a qualified operator within the prescribed period.51 In
effect,whatever option the Government chooses to take in the event of PIATCO's failure to fulfill its loan
obligations, the Government is still at a risk of assuming PIATCO's outstanding loans. This is due to the
fact 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's
assumption of liability is virtually out of its control. The Government under the circumstances provided for in
the 1997 Concession Agreement is at the mercy of the existence, availability and willingness of a qualified
operator. 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 the
infrastructure and development projects necessary for economic growth and development. This is why private
sector resources are being tapped in order to finance these projects. The BOT law allows the private sector to
participate, and is in fact encouraged to do so by way of incentives, such as minimizing the unstable flow of
returns,52 provided that the government would not have to unnecessarily expend scarcely available funds for the
project itself. As such, direct guarantee, subsidy and equity by the government in these projects are strictly
prohibited.53 This is but logical for if the government would in the end still be at a risk of paying the debts
incurred 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 or
local government units assume responsibility for the repayment of debt directly incurred by the
project 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 unpaid
debts, the 1997 Concession Agreement provided for a direct government guarantee for the debts incurred by
PIATCO in the implementation of the NAIA IPT III project. It is of no moment that the relevant sections are
subsumed under the title of "assignment". The provisions providing for direct government guarantee which is
prohibited 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 into
direct agreement with the Senior Lenders, or with an agent of such Senior Lenders (which agreement
shall be subject to the approval of the Bangko Sentral ng Pilipinas), in such form as may be reasonably
acceptable 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 the
Senior Lenders, and as a result thereof the Senior Lenders have become entitled to accelerate
the Senior Loans, the Senior Lenders shall have the right to notify GRP of the same, and without
prejudice 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), to
either 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 under
sub-clause (viii) below;
xxx

xxx

xxx

(vi) if the Senior Lenders, acting in good faith and using reasonable efforts, are unable to
designate a nominee or effect a transfer in terms and conditions satisfactory to the Senior
Lenders within one hundred eighty (180) days after giving GRP notice as referred to respectively
in (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 a
turnover of the Development Facility [NAIA Terminal 3] to GRP) within the following one hundred
eighty (180) days. If no agreement relating to the Development Facility [NAIA Terminal 3] is
arrived at by GRP and the Senior Lenders within the said 180-day period, then at the end thereof
the Development Facility [NAIA Terminal 3] shall be transferred by the Concessionaire

[PIATCO] to GRP or its designee and GRP shall make a termination payment to
Concessionaire [PIATCO] equal to the Appraised Value (as hereinafter defined) of the
Development 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 the
transfer 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 to
timeowed or which may become owing by Concessionaire [PIATCO] to Senior Lenders or any
other persons or entities who have provided, loaned, or advanced funds or provided financial
facilities to Concessionaire [PIATCO] for the Project [NAIA Terminal 3], including, without
limitation, all principal, interest, associated fees, charges, reimbursements, and other related
expenses (including the fees, charges and expenses of any agents or trustees of such persons or
entities), whether payable at maturity, by acceleration or otherwise, and further including amounts owed
by Concessionaire [PIATCO] to its professional consultants and advisers, suppliers, contractors and subcontractors.54
It is clear from the foregoing contractual provisions that in the event that PIATCO fails to fulfill its loan obligations
to its Senior Lenders, the Government is obligated to directly negotiate and enter into an agreement relating to
NAIA IPT III with the Senior Lenders, should the latter fail to appoint a qualified nominee or transferee who will
take the place of PIATCO. If the Senior Lenders and the Government are unable to enter into an agreement
after the prescribed period, the Government must then pay PIATCO, upon transfer of NAIA IPT III to the
Government, termination payment equal to the appraised value of the project or the value of the attendant
liabilities whichever is greater. Attendant liabilities as defined in the ARCA includes all amounts owed or
thereafter may be owed by PIATCO not only to the Senior Lenders with whom PIATCO has defaulted in its loan
obligations but to all other persons who may have loaned, advanced funds or provided any other type of financial
facilities to PIATCO for NAIA IPT III. The amount of PIATCO's debt that the Government would have to pay as a
result of PIATCO's default in its loan obligations -- in case no qualified nominee or transferee is appointed by the
Senior Lenders and no other agreement relating to NAIA IPT III has been reached between the Government and
the 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 pay
PIATCO's loans not only to its Senior Lenders but all other entities who provided PIATCO funds or
services upon PIATCO's default in its loan obligation with its Senior Lenders. The fact that the
Government's obligation to pay PIATCO's lenders for the latter's obligation would only arise after the Senior
Lenders fail to appoint a qualified nominee or transferee does not detract from the fact that, should the
conditions as stated in the contract occur, the ARCA still obligates the Government to pay any and all amounts
owed by PIATCO to its lenders in connection with NAIA IPT III. Worse, the conditions that would make the
Government liable for PIATCO's debts is triggered by PIATCO's own default of its loan obligations to its Senior
Lenders to which loan contracts the Government was never a party to. The Government was not even given an
option 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 is
the Senior Lenders who are authorized to appoint a qualified nominee or transferee. Should the Senior Lenders
fail to make such an appointment, the Government is then automatically obligated to "directly deal and
negotiate" with the Senior Lenders regarding NAIA IPT III. The only way the Government would not be liable for
PIATCO's debt is for a qualified nominee or transferee to be appointed in place of PIATCO to continue the
construction, operation and maintenance of NAIA IPT III. This "pre-condition", however, will not take the contract
out of the ambit of a direct guarantee by the government as the existence, availability and willingness of a
qualified nominee or transferee is totally out of the government's control. As such the Government is virtually
at the mercy of PIATCO (that it would not default on its loan obligations to its Senior Lenders), the Senior
Lenders (that they would appoint a qualified nominee or transferee or agree to some other arrangement with the
Government) and the existence of a qualified nominee or transferee who is able and willing to take the place of
PIATCO in NAIA IPT III.
The proscription against government guarantee in any form is one of the policy considerations behind
the BOT Law. Clearly, in the present case, the ARCA obligates the Government to pay for all loans, advances
and obligations arising out of financial facilities extended to PIATCO for the implementation of the NAIA IPT III
project 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 the
conditions 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 may
be accepted, the following conditions must first be met: (1) the project involves a new concept in technology
and/or is not part of the list of priority projects, (2) no direct government guarantee, subsidy or equity is
required, and (3) the government agency or local government unit has invited by publication other interested
parties to a public bidding and conducted the same.56 The failure to meet any of the above conditions will result
in the denial of the proposal. It is further provided that the presence of direct government guarantee, subsidy or
equity will "necessarily disqualify a proposal from being treated and accepted as an unsolicited proposal."57 The
BOT Law clearly and strictly prohibits direct government guarantee, subsidy and equity in unsolicited proposals
that the mere inclusion of a provision to that effect is fatal and is sufficient to deny the proposal. It stands to
reason 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 to
invalidate the contract itself. A prohibited provision, the inclusion of which would result in the denial of a proposal
cannot, and should not, be allowed to later on be inserted in the contract resulting from the said proposal. The
basic rules of justice and fair play alone militate against such an occurrence and must not, therefore, be
countenanced particularly in this instance where the government is exposed to the risk of shouldering hundreds
of 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 against
a 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 a
contract of loan between the project proponent and its lenders and to which the Government is not a
party to -- but would also render the BOT Law useless for what it seeks to achieve - to make use of the
resources of the private sector in the "financing, operation and maintenance of infrastructure and
development projects"59 which are necessary for national growth and development but which the
government, 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, during
the emergency and under reasonable terms prescribed by it, temporarily take over or direct the operation
of 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 its
police power, to temporarily take over the operation of any business affected with public interest. In the 1986
Constitutional Commission, the term "national emergency" was defined to include threat from external
aggression, calamities or national disasters, but not strikes "unless it is of such proportion that would paralyze
government service."60 The duration of the emergency itself is the determining factor as to how long the
temporary takeover by the government would last.61 The temporary takeover by the government extends only to
the operation of the business and not to the ownership thereof. As such the government is not required to
compensate the private entity-owner of the said business as there is no transfer of ownership, whether
permanent or temporary. The private entity-owner affected by the temporary takeover cannot, likewise, claim just
compensation for the use of the said business and its properties as the temporary takeover by the government is
in 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 or
any part thereof, become the subject matter of or be included in any notice, notification, or declaration
concerning or relating to acquisition, seizure or appropriation by GRP in times of war or national
emergency, 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 be
suspended; provided, that upon termination of war, hostilities or national emergency, the operations shall
be returned to Concessionaire, at which time, the Concession period shall commence to run
again.Concessionaire shall be entitled to reasonable compensation for the duration of the
temporary take over by GRP, which compensation shall take into account the reasonable cost for
the use of the Terminal and/or Terminal Complex, (which is in the amount at least equal to the
debt service requirements of Concessionaire, if the temporary take over should occur at the time
when Concessionaire is still servicing debts owed to project lenders), any loss or damage to the
Development 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 in
accordance with Section 10.01 [Arbitration]. Any amount determined to be payable by GRP to
Concessionaire shall be offset from the amount next payable by Concessionaire to GRP.62
PIATCO cannot, by mere contractual stipulation, contravene the Constitutional provision on temporary
government takeover and obligate the government to pay "reasonable cost for the use of the Terminal
and/or Terminal Complex."63 Article XII, section 17 of the 1987 Constitution envisions a situation wherein the
exigencies of the times necessitate the government to "temporarily take over or direct the operation of any
privately owned public utility or business affected with public interest." It is the welfare and interest of the public
which is the paramount consideration in determining whether or not to temporarily take over a particular
business. 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 its
exercise.65 Thus, requiring the government to pay reasonable compensation for the reasonable use of the
property 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 the
exclusive right (or power) to carry on a particular business or trade, manufacture a particular article, or control
the sale of a particular commodity."66 The 1987 Constitution strictly regulates monopolies, whether private or
public, 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. No
combinations 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 the
government in carrying on an enterprise or to aid in the performance of various services and functions in the
interest of the public.67 Nonetheless, a determination must first be made as to whether public interest requires
a monopoly. As monopolies are subject to abuses that can inflict severe prejudice to the public, they are subject
to 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 "exclusive
right to operate a commercial international passenger terminal within the Island of Luzon" at the NAIA IPT
III.68This is with the exception of already existing international airports in Luzon such as those located in the
Subic Bay Freeport Special Economic Zone ("SBFSEZ"), Clark Special Economic Zone ("CSEZ") and in Laoag
City.69 As such, upon commencement of PIATCO's operation of NAIA IPT III, Terminals 1 and 2 of NAIA would
cease to function as international passenger terminals. This, however, does not prevent MIAA to use Terminals
1 and 2 as domestic passenger terminals or in any other manner as it may deem appropriate except those
activities that would compete with NAIA IPT III in the latter's operation as an international passenger
terminal.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 the
government.72 Both the 1997 Concession Agreement and the ARCA further provide that, in view of the
exclusive right granted to PIATCO, the concession contracts of the service providers currently servicing
Terminals 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 public
interest. In entering into a BuildOperate-and-Transfer contract for the construction, operation and maintenance
of 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 entity
undertaking the said project, in this case PIATCO. Nonetheless, the privilege given to PIATCO is subject to
reasonable regulation and supervision by the Government through the MIAA, which is the government agency
authorized 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 be
regulated.75While it is the declared policy of the BOT Law to encourage private sector participation by "providing
a climate of minimum government regulations,"76 the same does not mean that Government must completely
surrender its sovereign power to protect public interest in the operation of a public utility as a monopoly. The
operation of said public utility can not be done in an arbitrary manner to the detriment of the public which it seeks
to 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 passenger
terminal, the Government, through the MIAA, has the right and the duty to ensure that it is done in accord with
public 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 operations
currently being undertaken at the Ninoy Aquino International Airport passenger Terminal I have a
validity period extending beyond the In-Service Date. GRP through DOTC/MIAA, confirms that
these services and operations shall not be carried over to the Terminal and the Concessionaire is
under no legal obligation to permit such carry-over except through a separate agreement duly
entered into with Concessionaire. In the event Concessionaire becomes involved in any litigation initiated
by any such concessionaire or operator, GRP undertakes and hereby holds Concessionaire free and
harmless on full indemnity basis from and against any loss and/or any liability resulting from any such
litigation, including the cost of litigation and the reasonable fees paid or payable to Concessionaire's
counsel of choice, all such amounts shall be fully deductible by way of an offset from any amount which
the 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 whose
validity extends beyond the In-Service Date. One contract remains valid until 2008 and the other until
2010.77
We hold that while the service providers presently operating at NAIA Terminal 1 do not have an absolute right for
the renewal or the extension of their respective contracts, those contracts whose duration extends beyond NAIA
IPT III's In-Service-Date should not be unduly prejudiced. These contracts must be respected not just by the
parties thereto but also by third parties. PIATCO cannot, by law and certainly not by contract, render a valid and
binding contract nugatory. PIATCO, by the mere expedient of claiming an exclusive right to operate, cannot
require the Government to break its contractual obligations to the service providers. In contrast to the arrastre
and stevedoring service providers in the case of Anglo-Fil Trading Corporation v. Lazaro78 whose contracts
consist of temporary hold-over permits, the affected service providers in the cases at bar, have a valid and
binding contract with the Government, through MIAA, whose period of effectivity, as well as the other terms and
conditions thereof, cannot be violated.
In fine, the efficient functioning of NAIA IPT III is imbued with public interest. The provisions of the 1997
Concession Agreement and the ARCA did not strip government, thru the MIAA, of its right to supervise the
operation 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 will
do so within the bounds of the law and with due regard to the rights of third parties and above all, the interest of
the public.
VI
CONCLUSION
In sum, this Court rules that in view of the absence of the requisite financial capacity of the Paircargo
Consortium, 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 the
1997 Concession Agreement into an entirely different agreement from the contract bidded upon, the 1997
Concession Agreement is similarly null and void for being contrary to public policy. The provisions under
Sections 4.04(b) and (c) in relation to Section 1.06 of the 1997 Concession Agreement and Section 4.04(c) in
relation 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. The
Supplements, being accessory contracts to the ARCA, are likewise null and void.
WHEREFORE, the 1997 Concession Agreement, the Amended and Restated Concession Agreement and the
Supplements thereto are set aside for being null and void.
SO ORDERED.
Davide, Jr., C.J., Bellosillo, Ynares-Santiago, Sandoval-Gutierrez, Austria-Martinez, Corona, and CarpioMorales, 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 dated
September 16, 1974 which reversed the decision of the Court of First Instance and the denial of a motion for
reconsideration 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. As
down payment, the defendant company paid the amount of P4,000.00 to Madrid
Trading which issued official receipt No. 02248. The diesel generating unit was
received by the defendant company on January 27, 1967 as shown by Invoice
No. 214 (Exhibit C), where it also provided for the payment of the balance of
P17,000.00 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 satisfaction
of the said obligation, a chattel mortgage (Exhibit H) over the same diesel
generating unit was constituted by the defendant First Coconut Central Co., Inc.
in favor of Madrid Trading. On January 26, 1967, Madrid Trading assigned all its
rights under the chattel mortgage to the herein plaintiff, Marsman & Company,
Inc. by virtue of a Deed of Assignment (Exhibit B). On March 28, 1967, the
defendant 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 First
Coconut Central Company, lnc. of its "long overdue and outstanding account" in
the amount of P15,000. 00. On September 25, 1967, the defendant company
wrote Marsman & Company, Inc., appealing that they be given thirty (30) days to
settle the obligation, and enclosing in said letter a check for One Thousand
Pesos (P1,000.00). On October 30, 1967, after repeated failure by the defendant
company to meet its obligation, plaintiff Marsman & Company, Inc. brought this
action to recover the balance of defendant company's account in the sum of
Fourteen Thousand Pesos (P14,000.00).
After hearing, the Court of First Instance of Manila, Branch II, handed down its
decision, ordaining in its dispositive portion:
WHEREFORE, judgment is rendered in favor of the plaintiff and
against the defendant in the amount of P14,000.00, with interest
at the rate of 12% per annum from September 25, 1967, and to
pay attorney's fees in the amount of P2,000.00 and the costs of
the suit.
SO ORDERED. 1
Defendant First Coconut Central Co., Inc., not satisfied with the decision of the trial court appealed to the Court
of Appeals. On September 16, 1974, the Court of Appeals rendered the decision now sought to be reviewed in
the instant petition. The decision stated that the sale in question violated Republic Act No. 1180 (the Retail
Trade Nationalization Law), the dispositive portion of which reads as follows:
WHEREFORE, the appealed judgment is hereby set aside, and another one entered, dismissing
the plaintiff-appellee's complaint and the defendant- appellant's counterclaim; and ordering the
defendant-appellant to return the diesel generating unit in question to the plaintiff-appellee, and
on 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., modified
by the Court of Appeals in its resolution of October 15, 1974 so as to correct alleged clerical errors contained
therein. 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 aboveentitled case is hereby AMENDED to read as follows:
"WHEREFORE, the appealed judgment is hereby set aside, and another one entered, dismissing
the plaintiff-appellee's complaint and the defendant- appellant's counterclaim; and ordering the
defendant-appellant to return the diesel generating unit in question to the plaintiff-appellee, and
on the part of the PLAINTIFF-APPELLEE to return the amount of P7,000.00 to
the 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 Appeals
for 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 DOES
NOT CONSTITUTE ENGAGING IN THE RETAIL BUSINESS WITHIN THE CONTEMPLATION

OF REPUBLIC ACT NO. 1180. ACCORDINGLY, THE COURT OF APPEALS ERRED IN

HOLDING 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 ENGAGING
IN DIRECT SELLING OF MACHINERY TO INDUSTRIAL USERS, THE CONTRACT OF SALE
IN QUESTION IS NOT, BY THAT FACT ALONE, NULL AND VOID, AND THAT,
ACCORDINGLY, PETITIONER IS ENTITLED TO RECOVER FROM RESPONDENT THE
BALANCE 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-Dummy
Law5a 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 of
habitually 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 products
manufactured, 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 or
manufacture goods which are in turn sold by them.
(d) a hotel-owner or keeper operating a restaurant, irrespective of the amount of capital, provided
that the restaurant is necessarily included in, or incidental to, the hotel business. 6 (emphasis
supplied.)

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 or
consumer goods. Consumer goods may be defined as "goods which are used or bought for use primarily for
personal, family or household purposes. Such goods are not intended for resale or further use in the production
of 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 of
other 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 goods
used for industry or business is classified as a wholesale transaction. Wholesaling has been defined as "selling to
retailers 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 machinerya diesel generating unit. The said
unit 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 within
the 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 guilty
of violating the Anti- Dummy Law or of using a dummy since it is not prohibited by the Retail Trade
Nationalization Law from selling the diesel generating unit to herein respondent. From the foregoing, there can
be 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 Nationalization
Law is further confirmed by Presidential Decree No. 714 promulgated on May 28, 1975 amending said law when
the latter provided in its preamble that "Whereas, it is believed to be not within the intendment of said
nationalization 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 its
conclusion that the contract of sale with the respondent is void must be overturned. Petitioner's suit for the
recovery 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. The
decision of the trial Court in favor of the petitioner and against the respondent for the amount of P14,000.00, with
interest at the rate of 12% per annum from September 25, 1967, and to pay attorney's fees in the amount of
P2,000.00, and the costs of the suit, is hereby AFFIRMED. This decision is immediately executory and no
motion 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 commonlaw spouses, for violation of the Retail Trade Nationalization Law (Section 2-A, Commonwealth Act 108, as
amended 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, Basilan
City.
Yap O. Teck alias Antonio Yap, is a permanent immigrant in the Philippines. He arrived here in 1947, and
resided 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 Zamboanga
City on December 21, 1950. He appears to have returned briefly to China in 1951 and married a Chinese
woman named Ang Siok Chin in Amoy, China. However, on February 20, 1955, or only five (5) days after Erlinda
Talan obtained a mayor's permit to open her sari-sari store, she and Yap O. Teck began living as husband and
wife without the benefit of marriage.
On January 14, 1969, Erlinda Talan applied for, and was granted, a permit to engage in business as a general
merchant, 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 the
police 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 child
named 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, salted
fish; 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), Lamitan
District, 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-law
husband 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 gathered
by the field investigator, the Prosecutor of the Anti-Dummy Board filed an information against the petitioners
alleging:
... between January 20, 1959, up to the present in the District of Lamitan, Basilan
City and within the jurisdiction of this Honorable Court, the above-named accused
ERLINDA TALAN, a Filipino citizen, and having in her name a license for a retail
store in Lamitan Market Site, did then and there wilfully, unlawfully, and
feloniously 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 engage
directly or indirectly in the retail business; as in fact said accused YAP O. TECK
without falling within the exception provided in Section 2-A of Commonwealth Act
108, wilfully, feloniously, unlawfully, and knowingly aided, assisted or abetted in
the planning, consummation or perpetration of the act of his co-accused
ERLINDA TALAN, by then and there managing or otherwise taking part in the
management, 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 reasonable
doubt 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 to
engage, 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 was
only 38 years old in 1958, he never exerted effort to look for a job. These and the fact that
the sari-saristore 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 engage
directly 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 or
control by a Filipino citizen having a common-law relationship with an alien, of a right, privilege, property or
business, the exercise or enjoyment of which is expressly reserved by the Constitution or the laws to citizens of
the 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 retail
businessprovided she uses capital exclusively derived from her paraphernal property (Opinion No. 201, Series of
1961, Secretary of Justice), it was, however, shown in this case that the capital used in the sari-sari store was
not exclusively derived from petitioner Talan's paraphernal property. It was shown that petitioner Yap O. Teck
contributed much to the retail business of Talan, by not only providing more capital but also actively managing
the 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 Talan
guilty of having unlawfully permitted her non-Filipino common-law husband Yap O. Teck to engage directly or
indirectly 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 the
management, 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 funds
for the purchase and operation of the said CLUB and that Gayon was administering, operating and holding the
aforesaid 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 take
possession 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 Puno
and Domingo to get the CLUB from her (TSN, June 18, 1986, p. 4). She was advised by petitioner that she had
a right to possess the CLUB and must file a case against Puno, Domingo and respondent Fraser ( TSN, June
18, 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 and
succeeded 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. Said
date was antedated to make it appear that the sale was made earlier than the one made by respondent Fraser
to Puno and his partners. A receipt for the amount of P350,000.00 was likewise prepared by petitioner and
signed by Gayon.
Petitioner succeeded in convincing Gayon to allow one Mr. Fujiwara, who was supposedly interested in buying
the CLUB, to operate it for one month on a trial basis. However, it turned out that it was petitioner himself, not
Mr. Fujiwara, who operated the said CLUB
Because of their forcible eviction from the CLUB, Puno and his partners filed a complaint for forcible entry with
damages and preliminary mandatory injunction against Gayon and one "Atty. Yam" with the Metropolitan Trial
Court of Pasay City. Atty. Yam happened to be a law partner of petitioner. When petitioner Puno, he
misrepresented 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 and
all persons claiming rights under her to vacate the premises known as the Argentina Club and Disco; (2) to pay
the plaintiffs the sum of P20,000.00 a month as reasonable compensation for the use and occupation of the
aforesaid premises, starting April 18, 1984 until she and all persons claiming possession under her finally vacate
the 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 of
the City Fiscal of Pasay City. He alleged that Gayon sold to him the Club and that respondent Fraser, by falsely
pretending to be the owner of the CLUB, was able to sell the same to the group of Puno, who in turn succeeded
in having him evicted from the CLUB to the Order of Execution issued by the Metropolitan Trial Court of Pasay
City. The criminal case was, however, dismissed on August 22, 1986. After the reinvestigation, the complaint
was , likewise dismissed on June 11, 1985 (Rollo, p. 74; Annex "1"). A petition for review was dismissed by the
Department of Justice (Rollo. p. 79; Annex "2").
On or about February 12, 1985, petitioner filed an "Amended Complaint for Ownership, Possession, Annulment
of Contract and Damages with prayer for Preliminary Mandatory Injunction and/or Restraining Order" against
respondents 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 of
preliminary mandatory injunction. However, on March 11, 1985, the said trial court approved the counterbond
filed 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 set
forth 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 mandatory
injunction, 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 with
preliminary attachment against respondents Fraser and Marita S. Caymo with the Regional Trial Court of
Siniloan, Laguna,
Branch 33 and docketed as Case No. 5-423. Respondent Caymo was impleaded for allegedly being the wife of
respondent Fraser.
Petitioner sought to collect the amount of P510,000.00, representing the purchase price of the CLUB sold by
respondent Fraser to Puno and his partners. Furthermore, petitioner sought to attach the property of respondent
Caymo 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 decision
of the Metropolitan Trial Court of Pasay City, alleging that not being a party to the said case, he was not given
his 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 San
Lorenzo Village, Makati (Records, Vol. I, p. 39).
On June 22, 1987, the trial court rendered the questioned decision, the dispositive portion of which reads as
follows :
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 of
plaintiff 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 from
December 14, 1984 up to the date of actual indemnification.
d) Seven Hundred Fifty Thousand (750,000.00) pesos as exemplary damages arising from the
fraud 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 on
July 15, 1987 (Original Records, Vol. III, pp. 538-539). On the same day, petitioner filed a Motion for Issuance of
Writ of Execution (Original Records, Vol. III, p. 543). Both respondents filed an opposition to the Motion for
Issuance 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 of
execution and denying respondents' opposition thereto and recalled its Order dated July 15, 1987 elevating the
records 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 prohibition
andmandamus 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 execution
pending appeal but ordered petitioner to file a good and sufficient bond in the amount of P2,000.00 in order to
answer 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 (Original
Records, Vol. IV, p. 672).
On January 21, 1988, respondent Caymo filed an urgent motion for status quo and motion for leave to file
counterbond (Original Records, Vol. IV, pp. 676-677).
In its Resolution dated January 22, 1988, the Court of Appeals ordered the parties to maintain the status
quo 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 increase
the 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 of
Execution 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). On
the other hand, respondent Caymo filed a "Motion to Disapprove Bond of Plaintiff or To Allow Defendant to File a
Counterbond 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 (Original
Records, Vol. V, p. 921).
On April 30, 1990, petitioner as the highest bidder in the auction sale of respondent Caymo's property was
issued 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 (Original
Records, Vol. V, p. 992).
On May 14, 1990, petitioner filed a motion for the issuance of writ of possession, which was denied by the trial
court on May 15, 1990. The trial court ordered the elevation of the case to the Court of Appeals (Original
Records, Vol. V, p. 1112).
On July 3, 1991, the Court of Appeals rendered its decision, reversing the trial court's decision and declaring null
and 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 REVERSED
and 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 EXECUTION
SALE OF THE PROPERTY OF DEFENDANT-RESPONDENT CAYMO ALTHOUGH SUCH
MATTER 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 TRIAL
COURT (Rollo, p. 22).
Petitioner contends that the Court of Appeals acted beyond and in excess of its jurisdiction when it ruled on the
validity of the execution sale of the property of respondent Caymo. Claiming that such matter was neither stated
in the assignment of errors nor properly argued in respondent Caymo's brief, he invokes the rule that "no error
which does not affect jurisdiction over the subject matter will be considered unless stated in the assignment of
errors 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 that
have 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 Insurance
Society 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 the
determination of the question raised by the error properly assigned is dependent, will be
considered 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 not
assigned as errors in their appeal, if it finds that their consideration is necessary in arriving at a
decision of the case.
In her brief, respondent Caymo raised the issue of her alleged marriage to respondent Fraser as evidenced by a
photo-copy of a marriage contract presented by petitioner. Such marriage contract became the basis for the trial
court to conclude that respondents Caymo and Fraser were married to each other and therefore the property
registered 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 the
validity of the attachment and execution sale made on the property registered in the name of respondent Caymo
alone. 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 Caymo
and Fraser.
As correctly found by the Court of Appeals, the photo-copy of an alleged marriage contract presented by
petitioner 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 contract
and a certification issued by the Local Civil Registrar of Pasay City attesting to the fact that no marriage was
officiated by Judge Eriberto V. Loreto of the Metropolitan Trial Court of Pasay City and that no record of such
marriage 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 and
eventual 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 by
respondents Caymo and Fraser with the Court of Appeals docketed as CA-G.R. nos. 12713 and 12718
respectively, merely questioned the jurisdiction of the Regional Trial Court, Br. 33, Siniloan, Laguna, in granting
the 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 trial
resulting 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 CAG.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 Deed
of Trust executed by Amelia Gayon in favor of respondent Fraser.
Petitioner contends that respondent Fraser, being an Australian citizen, is precluded from owning a retail
business 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 the
operation 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 of
any 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 of
the 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 citizen
of the Philippines, such license shall be conclusive evidence of Gayon's ownership of the said retail business as
far 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, the
same having been prepared only in anticipation of the ejectment case filed by Puno against her. She also claims
that the deed of sale and receipt were antedated to make it appear that it was made earlier than the deed of sale
executed by respondent Fraser.
The characteristics of simulation is the fact that the apparent contract is not really desired or intended to produce
legal 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 against
her by Puno if she would execute a deed of sale in his favor. Thus, she even admitted to have lied in her
testimony 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 it
was impossible for him not to have known that Puno and his partners were in actual, physical possession of the
CLUB 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? The
truth is, he was not in possession of the CLUB on April 1, 1984 and neither was the said CLUB legally conveyed
to him on April 2, 1984. He did not do anything because there was nothing for him to protect for he knew that the
contract 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.
Grio-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, engaged
since 1958 in the manufacture, processing and marketing of vegetable oil extracted from corn, rice, copra,
soybean, peanuts, fish, and other vegetable products.
1wph1.t

On August 2, 1960, Republic Act 3018 was approved, Section 1 of which prohibited, among others, partnerships
whose capital was not wholly owned by citizens of the Philippines from engaging, directly or indirectly, in the rice
and/or corn industry. The law was to take effect on January 1, 1951. However, Section 3 (a) allowed such
partnerships, upon registration with the municipal treasurer, to continue business until two years from and after
January 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 in
their 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 for
the purpose of trade of rice and/or corn and the by-products thereof shall be allowed to continue to
engage therein for a period of two years from the date of effectivity of this Act;
xxx

xxx

xxx

On November 21, 1960, the newly created Rice and Corn Board1 issued Resolution No. 10, pursuant to Section
6 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 "capital
investment" used in Section 3 of Republic Act 3018 which limits the maximum amount of capital investments of
alien persons and entities engaged in the rice and/or corn industry to the amount stated in their statement made
pursuant to Section 2 of the law.
These two circulars have been duly published and translated into the local dialect pursuant to Section 6 of
Republic Act 3018.
Plaintiff-appellee, having been required by agents of RICOB to register in accordance with Section 2 of the law
and the latter's resolution, dated January 3, 1961, ruling that manufacturers and/or dealers of bijon, noodle, corn
starch, gawgaw, rice wine, poultry feeds and other by products of rice and corn are covered by the law, filed
action in the Court of First Instance to declare the said law and RICOB Resolution No. 10, Nov. 21, 1960 and
Gen. Circular No. 1, July 10, 1961, as inapplicable to it. Pending trial on the merits, the lower court issued the
writ of preliminary injunction prayed for.
To abbreviate the proceedings, the parties entered into a stipulation of facts. Thereupon, the lower court
rendered judgment (a) declaring Republic Act 3018 not applicable to plaintiff's business; (b) declaring null and
void RICOB's Resolution No. 10, dated November 21, 1960 and General Circular No. 10, as amended, dated
July 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 instant
appeal to raise questions purely of law.
Admittedly, plaintiff-appellee has stopped from engaging in the purchase and sale of rice and/or corn since the
lapse of the two-year period from the effectivity of the law. It has limited its activities to
the trade, processing andmanufacture of corn and rice oil from raw materials consisting of corn germ proper or
embryo ("sungo") and "tahup," as well as from rice husk it secures from others who mill rice and corn. In the
processing 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 in
wholesale 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 or
indirectly 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, or
the acquisition for the purpose of trade of rice (husked or unhusked) or corn and the by-products
thereof: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 it
manufactures the vegetable oil and produces the "corn meal" or "corn germ meal" that it subsequently distributes
and 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, its
inclusion in the body of the law is not invalid, as the lower court held, since it is germane to the subject matter
expressed 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 invalid
legislative usurpation of the court's function to interpret the laws, as the lower court also ruled. This definition is
part 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 because
Filipinos 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 the
nationalization not only of the rice and corn industry but also the trade of the by-products just mentioned
above, the business in which the plaintiff has been engaged and since December 31, 1962, as is at
present, engaged, the Court is of the opinion that in the trade, processing, manufacture of corn and rice
oil from the raw materials of corn germ proper or embryo (sungo) and tahup and from rice husk
converting the remaining parts into "corn meal" or "corn germ meal" which is traded and sold and that it
acquired its raw materials from those engaged milling rice and/or corn. the said Republic Act No. 3018
does 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 to
include in its control, limitation and prohibition the business of the plaintiff mentioned above, would be
not 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 its
context the processing and extracting of oil from rice and corn and the manufacture of corn meal or corn
germ 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 that
the Resolution No. 10, Annex 1 and the general circular dated July 10, 1961, quoted under paragraph 3
of the parties' Stipulation of Facts are hereby declared null and void in so far as they attempted to
include in the scope of said law the defendant's business activities described above in which it engaged
since 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. The
law 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 only
duty was to apply the law as it was.4 The purpose of the Act, as expressed in the introductory note of the bill, can
control the language of the law only in case of ambiguity.5 There is none here. Furthermore, the court below's
interpretation would render the statute nugatory and defeat its aims, rather than apply and effectuate its
provisions,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 the
validity of Resolution No. 10 of November 21, 1960. The power and authority of appellant RICOB to issue such
rules and regulations implementing the law, proceeds from the law itself.7 Said resolution, by enumerating some
specific examples of by-products of rice and/,or corn, merely carried out the provisions of law. And the sole
reason why the lower court invalidated it, was its mistaken stand that the term "by-product" ought not to have
been made a part of the statute.
The foregoing considerations render moot and academic the question regarding the validity of General Circular
No. 1 on July 10, 1961.
Wherefore, the judgment appealed from is reversed and the writ of injunction issued therein is annulled and set
aside. 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), ETERNIT
CORPORATION, respondents.

PADILLA, J.:
This is a petition for certiorari, with preliminary prohibitory and/or mandatory injunction, to annul and set aside
the Order issued by the respondent judge on 25 January 1977, dissolving the restraining order previously issued
in 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" as
well as the Order dated 2 February 1977, which dismissed petitioner's complaint and upheld the Order of 25
January 1977.
The antecedent facts of the case are, as follows:
Petitioner Asbestos Integrated Manufacturing, Inc. (AIMI for short) is a 100% Filipino-owned and controlled
manufacturing and trading corporation, organized and existing under Philippine laws and engaged in the
marketing 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 organized
under Philippine laws and doing business in the Philippines. 1

The respondent Eternit Corporation (Eternit, for short) is a domestic corporation, incorporated under Philippine
laws, 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 and
controlled corporation, organized and existing under Philippine laws "to carry on and undertake any business
undertaking, transaction or operation commonly carried on or undertaken by general contractors, subcontractors etc." and whose secondary purpose, among others, is "to engage in, operate, conduct and maintain
the 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 and
controlled corporation.
On 18 May 1976, the MWSS, in pursuance of its interim program of construction, improvement, repair and
expansion 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 the
petitioner AIMI, and the respondent Sanvar. In the bidding conducted, Sanvar submitted a total bid price of
P373,122.30 while AIMI, submitted a total bid price of P423,913.96, which is 13.6% higher than that of the
former.4 However, no award was made since "the pipes needed for the projects mentioned in this bidding, will now
come 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, the
contract to supply the asbestos cement pressure pipes was awarded to Sanvar.

Whereupon, AIMI, claiming that Sanvar is but a mere dealer or distributor or marketing arm of the alien-owned
Eternit, 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 enforcing
the 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-owned
corporations 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 November
1976, restraining the respondents "from entering into contract covering the public biddings on 18 May 1976 and
27 September 1976, or making and accepting deliveries under any contract which may have been entered into
in the meantime, or from otherwise implementing the Board resolution of the Metropolitan Waterworks and
Sewerage System awarding the questioned bids in favor of defendants Sanvar Development Corporation and/or
Eternit Corporation, until further orders from the Court", and forthwith set the hearing on the issuance of a writ of
preliminary 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 order
issued 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 court
issued an order on 28 January 1977, giving the respondents "until Monday, 31 January 1977, within which to file
their comment or opposition to the motion for reconsideration, subject to the condition that if no deliveries of
asbestos pipes have not (sic) yet been made, no deliveries shall commence until after this incident is finally
resolved, and that if deliveries have started, the same should be stopped in the meanwhile, and that no
payments on said deliveries shall be made until the Court will issue its order hereof which shall be not later than
Wednesday, 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 their
representatives "from executing the covering contracts for the questioned bids of 18 May 1976 and 27
September 1976 and/or from accepting any pipes deliveries from respondents Sanvar and/or Eternit under the
contract awards if such covering contracts for the two bids had in the meantime been concluded precipitately
following the afore-alleged MWSS board resolution approving the Sanvar and Eternit bids, and/or paying
respondents Sanvarand/or Eternit for pipes deliveries if these had been made, and/or from otherwise
implementing in any way said MWSS board resolution awarding the 18 May 1976 and 27 September 1976 bids
to 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 prohibited
by 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 that
Sanvar 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 with
plaintiff 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 Flag
Law and other laws calculated to protect Filipino Industrialists from the cut-throat competition of
more powerful and more financed alien enterprises. Among plaintiff's evidence on the alleged
relationship of principal and agent between Eternit and Sanvar are the dealership agreement of
the two which describes it as "for the operation of a dealer-owned outlet for the sale of Eternit
construction materials'"(Exhibit "A"); and portions of the Confidential Statement for Determining
Prospective Bidder's Responsibility, which is MWSS Form No. EO-4 and accomplished by
Sanvar (Exhibit "8"), viz: the typewritten words 'distributor of Eternit products, Eternit Corporation
Mandaluyong, 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 such
as roofing material", which is descriptive of the business of Sanvar as the organization submitting
the bid (Exhibit "B-2") that which states that the bidder has been in business as "manufacturer's
representatiue or agent" for "2 years" (Exhibit "B-3", and that which shows that materials sold by
Sanvar to Rudy Pagdanganan La Paz Gaissue, Invictus Inc., and Ayala Group, all in 1975, were
supplied by Eternit (Exhibit "B-4".) In the interpretation of a contract the evident intention of the
parties 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 the
parties and not what they prefer to call that relationship. (American Rubber Co. vs. Collector of
Customs, 64 SCRA 560). To ascertain the meaning or import of a contract the whole of it, and
not 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 a
distributing or retailing business or to have intercourse on business relations (Webster's New
Collegiate Dictionary). as appearing in Exhibit "A" of the plaintiff, is clear from many explicit and
unmistakable provisions spread over the entire agreement, viz: ... "the dealer shall RESELL
Eternit construction products PURCHASED from the company (Par 1) ... the dealer shall
PURCHASE from the company his/its requirement for RESALE (Par. 3) ... all PURCHASES
under this agreement shall be paid in cash ... any loss or damage to, or deterioration of, the
products 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 the
products are delivered to carrier... (Par 5)... nothing in this agreement shall be construed as
reserving to the company any right to exercise any control over, or direct in respect the conduct
or management of, the business or operations of the dealer ... the entire control and direction of
such business and operations shall be and remains in the dealer .... the dealer shall not have any
right or authority to, and shall not, incur any debts or liabilities or enter into any contract or
transact 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 the
parties. Sanvar buying from Eternit construction materials (Exhibits " 18-B Sanvar" to "18-G-15Sanvar") 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 behalf
of 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 Branch
Manager of Eternit to Sanvar (Exhibit "Q"), all to the effect that Sanvar is the exclusive distributor
of pipes manufactured by Eternit, do not detract a whit from Sanvar's position vis a vis Eternit, as
a buyer of the products of the latter, for a buser engaged in the business of selling what he buys

from the manufacturer has to necessarily distribute what he buys, without thereby becoming the
seller's agent, and an agreement that the buyer shall deal exclusively with the products of the
seller a well-known practice in the business world is not inconsistent with the contract of
sale, much less convert it into one of agency. 14
Since Sanvar, a domestic corporation wholly owned or controlled by Filipino citizens, is not an alter ego of
Eternit, it follows that Republic Act No. 5183, which bars aliens and alien owned or controlled corporations from
participating in biddings to supply the government or its instrumentalities with materials, equipment, goods, and
commodities, as well as the Anti-Dummy Act (Com. Act No. 108) and the Retail Trade Nationalization Act (Rep.
Act No. 1180), cannot be invoked against Sanvar.
Neither can the petitioner find support in the Flag Law. Under said law, Commonwealth Act No. 138, preference
is given (a) in favor of unmanufactured articles, materials or supplies of the growth or production of the
Philippines, and manufactured articles, materials and supplies, produced, made and manufactured in the
Philippines substantially from articles, materials or supplies of the growth, production or manufacture of the
Philippines; and (b) in favor of domestic entities.
The Flag Law may be invoked only against a bidder who is not a domestic entity, as defined in the law, or
against a domestic entity who offers imported articles, materials or supplies or those made or produced in the
Philippines from imported materials. But, where all the materials, goods or supplies offered in the bids submitted
are produced, made and manufactured in the Philippines substantially from articles, materials or supplies of the
growth of the Philippines, and the bidders are domestic entities, as in the instant case, the Flag Law finds no
application.
Portions of the Opinion of the Secretary of Justice, Hon. Jose W. Diokno, a true and acclaimed Filipino
nationalist, on the applicability of the Flag Law, which had been adopted by the Court of Appeals in a case also
involving Eternit and MWSS and asbestos cement pressure pipes,15 although not controlling upon the Court, are reproduced
hereunder:

1. The Flag Law CA 138) establishes only two types of preference:

(a) One in favor of unmanufactured articles, materials or supplies of the growth or
production of the Philippines, and of manufactured articles, materials and
supplies produced, made and manufactured in the Philippines substantially from
articles, materials or supplies of the growth, production or manufacture of the
Philippines (Secs. 1; 2(c) and (d); and (3);
(b) The other, in favor of domestic entities, that is, citizens of the Philippines or
corporate bodies or commercial companies, duly organized and registered under
the laws of the Philippines, 75% of whose capital is owned by citizens of the
Philippines, and who are habitually established in business engaged in the
manufacture or sale of the merchandise covered by their bid (Secs. 1; 2(b); and
(4).
2. The two contending bidders at the bid in question were Amon Trading and C & C Construction
Supply, both of whom offered asbestos cement pipes produced and manufactured in the
Philippines, substantially from articles, materials and supplies of the growth, production or
manufacture of the Philippines. Both therefore qualify as domestic bidders, as that term is
defined in Section 2(c) of the Flag Law (CA 138), so that neither is entitled over the other to the
preference provided for in Section 3 of the law. The fact that the pipes offered by Amon Trading
Corporation are manufactured by Eternit Corporation, a foreign owned corporation, while the
pipes offered by C & C Commercial Corporation, a Philippine owned corporation, does not entitle
the latter to preference over the former, since both brands of pipes are manufactured in the
Philippines of raw materials that are of Philippine origin, and it is not the nationality of the
manufacturer, but the place of manufacture, that determine whether the first type of preference
granted by the Flag Law applies.
xxx xxx xxx
4. As to the second type of preference, both Amon Trading Corporation and C & C Construction
Supply, are equally qualified as domestic entities, as that term is defined in Article 2(b) of the
Flag Law (CA 138), because both are 100% Filipino owned corporations, organized and

registered under the laws of the Philippines, and when the bidding in question was held, both
were habitually established in business, and engaged in the sale of the asbestos cement pipes
covered by their respective bids to both Government and private entities (See documentary
evidence 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 granted
by 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 to
prevent foreign manufacturers in the Philippines from subverting the Flag Law by designating
Filipino firms as their representatives or sole distributors in Government bids, is laudable but has
no real foundation, and indeed, the danger was foreseen and provided for by the Flag Law itself
which, in defining a domestic entity, requires not only that the bidder is a Filipino or Philippine
owned entity, but also that he must have been habitually established in business and engaged in
the sale of the commodity covered by his bid, which means that he is a bona fide businessman
or entity engaged in the line of business covered by his bid. Obviously, such a bidder cannot be
considered a dummy or front for a foreign manufacturer. Moreover, such a Filipino bidder, being
habitually engaged in the line of business covered by his bid, is entitled to as much protection as
a 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 not
be 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 bid
of 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 the
effect that:
6. We are also willing to offer tosupply your requirements for a period of one year with an
additional 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 respondents
that 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 the
Court 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., MANILA
INTERNATIONAL AIRPORT AUTHORITY AND GUILLERMO G.
CUNANAN, respondents.
DECISION
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 CAG.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, 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.
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 (shall
have been) chosen."[2] Under the arrangement, G & S was able to operate the coupon taxi service
uninterruptedly 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] On
23 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/km
2. 2000 Transport Cooperative . . .. . . . . . . . . . P17.00/km
3. Nissan Car Lease Philippines . . . . . . . . . . . . P18.00/km
4. 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 it
submitted was not a cash bond as required by the bidding rules.[5] Consequently, on 5 December
1994 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 to
disqualify 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 falsified
and its income tax returns falsely attested to by its treasurer, and for the existence of allegedly
reasonable 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 terms
of facilities, financial standing, organizational set-up and capability. G & S subsequently
amended the complaint to state that no new legitimate concessionaire had been properly chosen
as 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 be
the 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 deserving
concessionaire would have been selected.
As prayed for in the complaint, the trial court issued a temporary restraining order enjoining
MIAA from awarding to 2000 TRANSPORT and NISSAN the new concessions to operate the

NAIA coupon taxi service and from removing G & S as such concessionaire, and thereafter
scheduled for hearing the application for preliminary injunction.
Meanwhile respondents 2000 TRANSPORT and NISSAN each moved to dismiss the
complaint for failure to state a cause of action and for improper venue and to lift the temporary
restraining 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 certiorari
with 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 falsified
its 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] The
temporary restraining order (issued by the Court of Appeals) had already expired when the
appellate 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. 9572586. The case was re-raffled and in due time referred to the RTC-Br. 7 which extensively
heard 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 denied
reconsideration 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. 9572586 except to dismiss the same.[11] The appellate court held that the trial court gravely abused
its 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, the
instant 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 certiorari
under 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 and
that 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 the
complaint that 2000 TRANSPORT falsified its Articles of Incorporation and income tax
returns, and was a dummy corporation for two (2) Korean nationals, and that irregularities
rigged 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 and
necessity for a speedier remedy than appeal and further explains that joining the petitions for
review 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 resolving
the 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 civil
case 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 action
and the rule is that joinder of causes of action shall not include special civil actions governed by
special 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 joined
which in the end would only cause difficulties in determining which of the conflicting decisions
should 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 by
the 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 of
the 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 errors
will 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 a
motion 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 which
if 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 are
considered for purposes of applying the test.[17] Furthermore, actions which are prematurely
commenced would fall under the objection.[18]

Petitioner G & S prayed for a permanent injunction to bar the award of the concession
contract 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; the
nullification 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] discovered
that 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 Plaintiff
further discovered that on October 25, 1994, the same Meliton Solpot executed a Sworn
Statement 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 the
Securities 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) 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 also able 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 [2000 Transport] while Young Kon Jo, a
Korean, is the Vice President of [2000 Transport] x x x x 23. Since [2000 Transport] was not
duly 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 same
ineffective, 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 factors
stated 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 far
outrank 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. The
other 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. The
alleged 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 and
in 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 privy
to. 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 MIAA
to 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 anyone
to fulfill contractual obligations.[21] Only such duties as are clearly and peremptorily enjoined by
law 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 of
which 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 the
MIAA 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 in
enhancing 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 be
selected 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 would
necessarily 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-legal
factors, 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 "the
discretion 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 Philippines
shall 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 any
lawful 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 utility
which 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 a
government entity, this may be done only upon a clear showing of grave abuse of
discretion[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 not
demonstrate grave abuse of discretion nor raise issues definitely outside the exercise of
discretion in technical cases which would survive a motion to dismiss for failure to state cause
of 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 by
reason 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 and
declared 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 of
such 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 also
able 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 [2000
Transport] 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 nationals
subscribed 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 alleged
additional 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 Sheet
on 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 stages
of 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 the
EDSA 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 owns
are 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 their
ownership 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 operate
them 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. The
exercise 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 the
ownership 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 the
corporation 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 even
if admitted to be true could not be characterized as showing grave abuse of discretion on the part
of 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 Service
Concession the required pre-qualification documents consisted of, among others, certified true
copy 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] MIAA
acted 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 by
the proper administrative agencies. It appears from the records that 2000 TRANSPORT had
long 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 on
the 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 certificate
of 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, which
at all the times relevant to the civil case would be the Securities and Exchange
Commission[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 matters
which 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 jurisdiction
in many cases involving matters that demand the special competence of administrative
agencies. 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 such
that its determination requires the expertise, specialized skills and knowledge of the proper
administrative bodies because technical matters or intricate questions of facts are involved, then
relief 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 the
regulation 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 more
flexible procedure" x x x x[39]
The propriety of the Order of dismissal of Civil Case No. 95-72586 should render moot and
academic 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 main
case of which it is but an incident.[40] Indeed what more could this Court enjoin when the
complaint 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 restrain
acts 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 with
law and jurisprudence. For starters, it is well settled that before a writ of preliminary injunction
may 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 established
right.[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 been
chosen. 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 MIAA
or 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 correctly
nullified 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 is
a 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 the
winning bid of NISSAN. From the beginning, G & S had no reason to restrain NISSAN from
the 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 its
discretion 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 of
the 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 proper
authorities as discussed above.
It is important to note that the claims of petitioner G & S assume great importance when
argued 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 new
counsel or attorney-in-fact. Without so much as a by-your-leave, 2000 TRANSPORT
abandoned 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 and
the detention of one (1) of its lawyers for direct contempt of court arising from his failure to file
the 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 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," 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 to
the filing of the appropriate complaint/action with the concerned regulatory agencies.
Let copy of this Decision be served upon the Land Transportation Franchising and
Regulatory Board and the Securities and Exchange Commission for their information and
appropriate 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, LUZON
PETROCHEMICAL 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 and
Industry (DTI) approving the transfer of the site of the proposed petrochemical plant from Bataan to Batangas
and 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 Board
of 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) to
publish the amended application for registration of the Bataan Petrochemical Corporation, (2) to
allow the petitioner to have access to its records on the original and amended applications for
registration, as a petrochemical manufacturer, of the respondent Bataan Petrochemical

Corporation, excluding, however, privileged papers containing its trade secrets and other
business and financial information, and (3) to set for hearing the petitioner's opposition to the
amended application in order that he may present at such hearing all the evidence in his
possession in support of his opposition to the transfer of the site of the BPC petrochemical plant
to Batangas province. The hearing shall not exceed a period of ten (10) days from the date fixed
by the BOI, notice of which should be served by personal service to the petitioner through
counsel, at least three (3) days in advance. The hearings may be held from day to day for a
period of ten (10) days without postponements. The petition for a writ of prohibition or preliminary
injunction 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 the
provisions 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 only
petrochemical zone in the country, nor prohibit the establishment of a petrochemical plant elsewhere in the
country, 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 circumstances
surrounding its first choice of plant site may change it simply because it has the final choice on the matter. The
Court 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 of
the 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 issue
of whether or not the foreign investor has the right of final choice of plant site; that the non-attendance of the
petitioner at the hearing was because the decision was not yet final and executory; and that the petitioner had
not 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 Constitution
nor in the Omnibus Investments Code is there such a 'right of final choice.' In the first place, the
investor's choice is subject to processing and approval or disapproval by the BOI (Art. 7, Chapter
II, Omnibus Investments Code). By submitting its application and amended application to the BOI
for approval, the investor recognizes the sovereign prerogative of our Government, through the
BOI, to approve or disapprove the same after determining whether its proposed project will be
feasible, desirable and beneficial to our country. By asking that his opposition to the LPC's
amended application be heard by the BOI, the petitioner likewise acknowledges that the BOI, not
the 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 a
corresponding change in the choice of plant site in order that the project will not fail. After all, our
country 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 the
motion for reconsideration stating that the hearing set by the BOI was premature as the decision of the Court
was not yet final and executory; that as contended by the petitioner the Court must first rule on whether or not
the investor has the right of final choice of plant site for if the ruling is in the affirmative, the hearing would be a
useless exercise; that in the October 19, 1989 resolution, the Court while upholding validity of the transfer of the
plant site did not rule on the issue of who has the final choice; that they agree with the observation of the
majority that "the investor has no final choice either under the 1987 Constitution or in the Omnibus Investments
Code and that it is the BOI who decides for the government" and that the plea of the petitioner should be granted
to 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 Investments
Code.

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, and
ownership of the Philippine National Oil Company (PNOC).
The Bataan Refining Corporation (BRC) is a wholly government owned corporation, located at Bataan. It
produces 60% of the national output of naphtha.
Taiwanese investors in a petrochemical project formed the Bataan Petrochemical Corporation (BPC) and
applied with BOI for registration as a new domestic producer of petrochemicals. Its application specified Bataan
as 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 venture
with 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 taxes
on raw materials, (2) repatriation of the entire proceeds of liquidation investments in currency originally made
and at the exchange rate obtaining at the time of repatriation; and (3) remittance of earnings on investments. As
additional incentive, the House of Representatives approved a bill introduced by the petitioner eliminating the
48%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's
desire to amend the original registration certification of its project by changing the job site from Limay, Bataan, to
Batangas. The reason adduced for the transfer was the insurgency and unstable labor situation, and the
presence 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 preference
that the plant be established in Bataan in a conference with the Taiwanese investors, the Secretary of National
Defense 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 April
11, 1989 its request for approval of the amendments. Its application is as follows: "(l) increasing the investment
amount 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/or
liquefied 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 Secretary
Concepcion to be furnished a copy of the proposed amendment with its attachments which was denied by the
BOI 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 Senate
asserted that:
The BOI has taken a public position preferring Bataan over Batangas as the site of the
petrochemical complex, as this would provide a better distribution of industries around the Metro
Manila area. ... In advocating the choice of Bataan as the project site for the petrochemical
complex, the BOI, however, made it clear, and I would like to repeat this that the BOI made it
clear in its view that the BOI or the government for that matter could only recomend as to where
the project should be located. The BOI recognizes and respect the principle that the final chouce
is 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 courts
as may be established by law.

Judicial power includes the duty of the courts of justice to settle actual controversies involving
rights which are legally demandable and enforceable, and to determine whether or not there has
been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any
branch or instrumentality of the Government.
There is before us an actual controversy whether the petrochemical plant should remain in Bataan or should be
transferred to Batangas, and whether its feedstock originally of naphtha only should be changed to naphtha
and/or liquefied petroleum gas as the approved amended application of the BPC, now Luzon Petrochemical
Corporation (LPC), shows. And in the light of the categorical admission of the BOI that it is the investor who has
the final choice of the site and the decision on the feedstock, whether or not it constitutes a grave abuse of
discretion 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 it
organized itself into a corporation bearing the name Bataan. There is available 576 hectares of public land
precisely reserved as the petrochemical zone in Limay, Bataan under P.D. No. 1803. There is no need to buy
expensive real estate for the site unlike in the proposed transfer to Batangas. The site is the result of careful
study long before any covetous interests intruded into the choice. The site is ideal. It is not unduly constricted
and allows for expansion. The respondents have not shown nor reiterated that the alleged peace and order
situation in Bataan or unstable labor situation warrant a transfer of the plant site to Batangas. Certainly, these
were taken into account when the firm named itself Bataan Petrochemical Corporation. Moreover, the evidence
proves the contrary.
Second, the BRC, a government owned Filipino corporation, located in Bataan produces 60% of the national
output of naphtha which can be used as feedstock for the plant in Bataan. It can provide the feedstock
requirement of the plant. On the other hand, the country is short of LPG and there is need to import the same for
use of the plant in Batangas. The local production thereof by Shell can hardly supply the needs of the
consumers for cooking purposes. Scarce dollars will be diverted, unnecessarily, from vitally essential projects in
order 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 Act
No. 6767 by President Aquino but excluding LPG from exemption from ad valorem tax. The law was enacted
specifically 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 feedstock
from naphtha to LPG.
Fourth, under Section 10, Article XII of the 1987 Constitution, it is the duty of the State to "regulate and exercise
authority over foreign investments within its national jurisdiction and in accordance with its national goals and
priorities." The development of a self-reliant and independent national economy effectively controlled by Filipinos
is 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 in
consonance 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 local
sources by way of loan which led to the so-called "petroscam scandal", the capital requirements would be
greatly minimized if LPC does not have to buy the land for the project and its feedstock shall be limited to
naphtha which is certainly more economical, more readily available than LPG, and does not have to be
imported.
Sixth, if the plant site is maintained in Bataan, the PNOC shall be a partner in the venture to the great benefit
and advantage of the government which shall have a participation in the management of the project instead of a
firm 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 freely
choose 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.

Section 1, Article XII of the Constitution provides that:

xxx xxx xxx
The State shall promote industrialization and full employment based on sound agricultural
development and agrarian reform, through industries that make full and efficient use of human
and natural resources, and which are competitive in both domestic and foreign markets.
However, the State shall protect Filipino enterprises against unfair foreign competition and trade
practices.
xxx xxx xxx
Every provision of the Constitution on the national economy and patrimony is infused with the spirit of national
interest. The non-alienation of natural resources, the State's full control over the development and utilization of
our scarce resources, agreements with foreigners being based on real contributions to the economic growth and
general welfare of the country and the regulation of foreign investments in accordance with national goals and
priorities are too explicit not to be noticed and understood.
A petrochemical industry is not an ordinary investment opportunity. It should not be treated like a garment or
embroidery firm, a shoe-making venture, or even an assembler of cars or manufacturer of computer chips,
where the BOI reasoning may be accorded fuller faith and credit. The petrochemical industry is essential to the
national interest. In other ASEAN countries like Indonesia and Malaysia, the government superintends the
industry by controlling the upstream or cracker facility.
In this particular BPC venture, not only has the Government given unprecedented favors, among them:
(1) For an initial authorized capital of only P20 million, the Central Bank gave an eligible
relending credit or relending facility worth US $50 million and a debt to swap arrangement for US
$30 million or a total accommodation of US $80 million which at current exchange rates is around
P2080 million.
(2) A major part of the company's capitalization shall not come from foreign sources but from
loans, initially a Pl Billion syndicated loan, to be given by both government banks and a
consortium of Philippine private banks or in common parlance, a case of 'guiniguisa sa sariling
manteca.'
(3) Tax exemptions and privileges were given as part of its 'preferred pioneer status.'
(4) Loan applications of other Philippine firms will be crowded out of the Asian Development
Bank portfolio because of the petrochemical firm's massive loan request. (Taken from the
proceedings before the Senate Blue Ribbon Committee).
but through its regulatory agency, the BOI, it surrenders even the power to make a company abide by its initial
choice, a choice free from any suspicion of unscrupulous machinations and a choice which is undoubtedly in the
best interests of the Filipino people.
The Court, therefore, holds and finds that the BOI committed a grave abuse of discretion in approving the
transfer of the petrochemical plant from Bataan to Batangas and authorizing the change of feedstock from
naphtha only to naphtha and/or LPG for the main reason that the final say is in the investor all other
circumstances to the contrary notwithstanding. No cogent advantage to the government has been shown by this
transfer. This is a repudiation of the independent policy of the government expressed in numerous laws and the
Constitution to run its own affairs the way it deems best for the national interest.
One can but remember the words of a great Filipino leader who in part said he would not mind having a
government run like hell by Filipinos than one subservient to foreign dictation. In this case, it is not even a
foreign government but an ordinary investor whom the BOI allows to dictate what we shall do with our heritage.
WHEREFORE, the petition is hereby granted. The decision of the respondent Board of Investments approving
the amendment of the certificate of registration of the Luzon Petrochemical Corporation on May 23, 1989 under
its Resolution No. 193, Series of 1989, (Annex F to the Petition) is SET ASIDE as NULL and VOID. The original

certificate of registration of BPC' (now LPC) of February 24, 1988 with Bataan as the plant site and naphtha as
the 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. TAADA; PONCIANO BENNAGEN; JAIME TADEO; RENATO R.
CONSTANTINO JR.; F'LONG AGUSTIN M. DABIE; ROBERTO P. AMLOY; RAQIM L. DABIE; SIMEON H.
DOLOJO; IMELDA M. GANDON; LENY B. GUSANAN; MARCELO L. GUSANAN; QUINTOL A. LABUAYAN;
LOMINGGES D. LAWAY; BENITA P. TACUAYAN; Minors JOLY L. BUGOY, Represented by His Father
UNDERO D. BUGOY and ROGER M. DADING; Represented by His Father ANTONIO L. DADING; ROMY M.
LAGARO, Represented by His Father TOTING A. LAGARO; MIKENY JONG B. LUMAYONG, Represented
by His Father MIGUEL M. LUMAYONG; RENE T. MIGUEL, Represented by His Mother EDITHA T.
MIGUEL; ALDEMAR L. SAL, Represented by His Father DANNY M. SAL; DAISY RECARSE, Represented
by Her Mother LYDIA S. SANTOS; EDWARD M. EMUY; ALAN P. MAMPARAIR; MARIO L. MANGCAL;
ALDEN S. TUSAN; AMPARO S. YAP; VIRGILIO CULAR; MARVIC M.V.F. LEONEN; JULIA REGINA CULAR,
GIAN CARLO CULAR, VIRGILIO CULAR JR., Represented by Their Father VIRGILIO CULAR; PAUL
ANTONIO P. VILLAMOR, Represented by His Parents JOSE VILLAMOR and ELIZABETH PUA-VILLAMOR;
ANA GININA R. TALJA, Represented by Her Father MARIO JOSE B. TALJA; SHARMAINE R. CUNANAN,
Represented by Her Father ALFREDO M. CUNANAN; ANTONIO JOSE A. VITUG III, Represented by His
Mother ANNALIZA A. VITUG, LEAN D. NARVADEZ, Represented by His Father MANUEL E. NARVADEZ
JR.; ROSERIO MARALAG LINGATING, Represented by Her Father RIO OLIMPIO A. LINGATING; MARIO
JOSE B. TALJA; DAVID E. DE VERA; MARIA MILAGROS L. SAN JOSE; Sr. SUSAN O. BOLANIO, OND;
LOLITA G. DEMONTEVERDE; BENJIE L. NEQUINTO;1 ROSE LILIA S. ROMANO; ROBERTO S. VERZOLA;
EDUARDO AURELIO C. REYES; LEAN LOUEL A. PERIA, Represented by His Father ELPIDIO V.
PERIA;2 GREEN FORUM PHILIPPINES; GREEN FORUM WESTERN VISAYAS (GF-WV); ENVIRONMENTAL
LEGAL ASSISTANCE CENTER (ELAC); KAISAHAN TUNGO SA KAUNLARAN NG KANAYUNAN AT
REPORMANG PANSAKAHAN (KAISAHAN);3PARTNERSHIP FOR AGRARIAN REFORM and RURAL
DEVELOPMENT SERVICES, INC. (PARRDS); PHILIPPINE PARTNERSHIP FOR THE DEVELOPMENT OF
HUMAN RESOURCES IN THE RURAL AREAS, INC. (PHILDHRRA); WOMEN'S LEGAL BUREAU (WLB);
CENTER FOR ALTERNATIVE DEVELOPMENT INITIATIVES, INC. (CADI); UPLAND DEVELOPMENT

INSTITUTE (UDI); KINAIYAHAN FOUNDATION, INC.; SENTRO NG ALTERNATIBONG LINGAP PANLIGAL

(SALIGAN); and LEGAL RIGHTS AND NATURAL RESOURCES CENTER, INC. (LRC), petitioners,
vs.
VICTOR O. RAMOS, Secretary, Department of Environment and Natural Resources (DENR); HORACIO
RAMOS, Director, Mines and Geosciences Bureau (MGB-DENR); RUBEN TORRES, Executive Secretary;
and WMC (PHILIPPINES), INC.,4 respondents.

RESOLUTION

PANGANIBAN, J.:
All mineral resources are owned by the State. Their exploration, development and utilization (EDU) must always
be subject to the full control and supervision of the State. More specifically, given the inadequacy of Filipino
capital and technology in large-scale EDU activities, the State may secure the help of foreign companies in all
relevant matters -- especially financial and technical assistance -- provided that, at all times, the State maintains
its right of full control. The foreign assistor or contractor assumes all financial, technical and entrepreneurial risks
in the EDU activities; hence, it may be given reasonable management, operational, marketing, audit and other
prerogatives to protect its investments and to enable the business to succeed.
Full control is not anathematic to day-to-day management by the contractor, provided that the State retains the
power to direct overall strategy; and to set aside, reverse or modify plans and actions of the contractor. The idea
of full control is similar to that which is exercised by the board of directors of a private corporation: the
performance of managerial, operational, financial, marketing and other functions may be delegated to
subordinate officers or given to contractual entities, but the board retains full residual control of the business.
Who or what organ of government actually exercises this power of control on behalf of the State? The
Constitution is crystal clear: the President. Indeed, the Chief Executive is the official constitutionally mandated
to "enter into agreements with foreign owned corporations." On the other hand, Congress may review the action
of the President once it is notified of "every contract entered into in accordance with this [constitutional] provision
within thirty days from its execution." In contrast to this express mandate of the President and Congress in the
EDU of natural resources, Article XII of the Constitution is silent on the role of the judiciary. However, should the
President and/or Congress gravely abuse their discretion in this regard, the courts may -- in a proper case -exercise their residual duty under Article VIII. Clearly then, the judiciary should not inordinately interfere in the
exercise of this presidential power of control over the EDU of our natural resources.
The Constitution should be read in broad, life-giving strokes. It should not be used to strangulate economic
growth or to serve narrow, parochial interests. Rather, it should be construed to grant the President and
Congress sufficient discretion and reasonable leeway to enable them to attract foreign investments and
expertise, as well as to secure for our people and our posterity the blessings of prosperity and peace.
On the basis of this control standard, this Court upholds the constitutionality of the Philippine Mining Law, its
Implementing Rules and Regulations -- insofar as they relate to financial and technical agreements -- as well as
the subject Financial and Technical Assistance Agreement (FTAA).5
Background
The Petition for Prohibition and Mandamus before the Court challenges the constitutionality of (1) Republic Act
No. [RA] 7942 (The Philippine Mining Act of 1995); (2) its Implementing Rules and Regulations (DENR
Administrative Order No. [DAO] 96-40); and (3) the FTAA dated March 30, 1995,6 executed by the government
with Western Mining Corporation (Philippines), Inc. (WMCP).7
On January 27, 2004, the Court en banc promulgated its Decision8 granting the Petition and declaring the
unconstitutionality of certain provisions of RA 7942, DAO 96-40, as well as of the entire FTAA executed between
the government and WMCP, mainly on the finding that FTAAs are service contracts prohibited by the 1987
Constitution.

The Decision struck down the subject FTAA for being similar to service contracts,9 which, though permitted
under the 1973 Constitution,10 were subsequently denounced for being antithetical to the principle of sovereignty
over our natural resources, because they allowed foreign control over the exploitation of our natural resources,
to the prejudice of the Filipino nation.
The Decision quoted several legal scholars and authors who had criticized service contracts for, inter
alia, vesting in the foreign contractor exclusive management and control of the enterprise, including operation of
the field in the event petroleum was discovered; control of production, expansion and development; nearly
unfettered control over the disposition and sale of the products discovered/extracted; effective ownership of the
natural resource at the point of extraction; and beneficial ownership of our economic resources. According to the
Decision, the 1987 Constitution (Section 2 of Article XII) effectively banned such service contracts.
Subsequently, respondents filed separate Motions for Reconsideration. In a Resolution dated March 9, 2004, the
Court required petitioners to comment thereon. In the Resolution of June 8, 2004, it set the case for Oral
Argument on June 29, 2004.
After hearing the opposing sides, the Court required the parties to submit their respective Memoranda in
amplification of their arguments. In a Resolution issued later the same day, June 29, 2004, the Court noted, inter
alia, the Manifestation and Motion (in lieu of comment) filed by the Office of the Solicitor General (OSG) on
behalf of public respondents. The OSG said that it was not interposing any objection to the Motion for
Intervention filed by the Chamber of Mines of the Philippines, Inc. (CMP) and was in fact joining and adopting
the latter's Motion for Reconsideration.

Memoranda were accordingly filed by the intervenor as well as by petitioners, public respondents, and private
respondent, dwelling at length on the three issues discussed below. Later, WMCP submitted its Reply
Memorandum, while the OSG -- in obedience to an Order of this Court -- filed a Compliance submitting copies of
more FTAAs entered into by the government.
Three Issues Identified by the Court
During the Oral Argument, the Court identified the three issues to be resolved in the present controversy, as
follows:
1. Has the case been rendered moot by the sale of WMC shares in WMCP to Sagittarius (60 percent of
Sagittarius' equity is owned by Filipinos and/or Filipino-owned corporations while 40 percent is owned by
Indophil Resources NL, an Australian company) and by the subsequent transfer and registration of the FTAA
from WMCP to Sagittarius?
2. Assuming that the case has been rendered moot, would it still be proper to resolve the constitutionality of the
assailed provisions of the Mining Law, DAO 96-40 and the WMCP FTAA?
3. What is the proper interpretation of the phrase Agreements Involving Either Technical or Financial
Assistancecontained in paragraph 4 of Section 2 of Article XII of the Constitution?
Should the Motion for Reconsideration 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 majority
Decision agreed with petitioners' contention that the subject FTAA had been executed in violation of Section 2 of
Article XII of the 1987 Constitution. According to petitioners, the FTAAs entered into by the government with
foreign-owned corporations are limited by the fourth paragraph of the said provision to agreements involving only
technical or financial assistance for large-scale exploration, development and utilization of minerals, petroleum
and other mineral oils. Furthermore, the foreign contractor is allegedly permitted by the FTAA in question to fully

manage and control the mining operations and, therefore, to acquire "beneficial ownership" of our mineral
resources.
The Decision merely shrugged off the Manifestation by WMPC informing the Court (1) that on January 23, 2001,
WMC had sold all its shares in WMCP to Sagittarius Mines, Inc., 60 percent of whose equity was held by
Filipinos; and (2) that the assailed FTAA had likewise been transferred from WMCP to
Sagittarius.11 The ponenciadeclared that the instant case had not been rendered moot by the transfer and
registration of the FTAA to a Filipino-owned corporation, and that the validity of the said transfer remained in
dispute and awaited final judicial determination.12 Patently therefore, the Decision is anchored on the assumption
that WMCP had remained aforeign corporation.
The crux of this issue of mootness is the fact that WMCP, at the time it entered into the FTAA, happened to be
wholly owned by WMC Resources International Pty., Ltd. (WMC), which in turn was a wholly owned subsidiary
of Western Mining Corporation Holdings Ltd., a publicly listed major Australian mining and exploration company.
The nullity of the FTAA was obviously premised upon the contractor being a foreign corporation. Had the FTAA
been originally issued to a Filipino-owned corporation, there would have been no constitutionality issue to speak
of. Upon the other hand, the conveyance of the WMCP FTAA to a Filipino corporation can be likened to the sale
of land to a foreigner who subsequently acquires Filipino citizenship, or who later resells the same land to a
Filipino citizen. The conveyance would be validated, as the property in question would no longer be owned by a
disqualified vendee.
And, inasmuch as the FTAA is to be implemented now by a Filipino corporation, it is no longer possible for the
Court to declare it unconstitutional. The case pending in the Court of Appeals is a dispute between two Filipino
companies (Sagittarius and Lepanto), both claiming the right to purchase the foreign shares in WMCP. So,
regardless of which side eventually wins, the FTAA would still be in the hands of a qualified Filipino company.
Considering that there is no longer any justiciable controversy, the plea to nullify the Mining Law has become a
virtual petition for declaratory relief, over which this Court has no original jurisdiction.
In their Final Memorandum, however, petitioners argue that the case has not become moot, considering the
invalidity of the alleged sale of the shares in WMCP from WMC to Sagittarius, and of the transfer of the FTAA
from WMCP to Sagittarius, resulting in the change of contractor in the FTAA in question. And even assuming
that the said transfers were valid, there still exists an actual case predicated on the invalidity of RA 7942 and its
Implementing Rules and Regulations (DAO 96-40). Presently, we shall discuss petitioners' objections to the
transfer of both the shares and the FTAA. We shall take up the alleged invalidity of RA 7942 and DAO 96-40
later on in the discussion of the third issue.
No Transgression of the Constitution
by the Transfer of the WMCP Shares
Petitioners claim, first, that the alleged invalidity of the transfer of the WMCP shares to Sagittarius violates the
fourth paragraph of Section 2 of Article XII of the Constitution; second, that it is contrary to the provisions of the
WMCP FTAA itself; and third, that the sale of the shares is suspect and should therefore be the subject of a
case in which its validity may properly be litigated.
On the first ground, petitioners assert that paragraph 4 of Section 2 of Article XII permits the government to enter
into FTAAs only with foreign-owned corporations. Petitioners insist that the first paragraph of this constitutional
provision limits the participation of Filipino corporations in the exploration, development and utilization of natural
resources to only three species of contracts -- production sharing, co-production and joint venture -- to the
exclusion of all other arrangements or variations thereof, and the WMCP FTAA may therefore not be validly
assumed and implemented by Sagittarius. In short, petitioners claim that a Filipino corporation is not allowed by
the Constitution to enter into an FTAA with the government.
However, a textual analysis of the first paragraph of Section 2 of Article XII does not support petitioners'
argument. The pertinent part of the said provision states: "Sec. 2. x x x The exploration, development and
utilization of natural resources shall be under the full control and supervision of the State. The State may directly
undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with
Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such
citizens. x x x." Nowhere in the provision is there any express limitation or restriction insofar as arrangements
other than the three aforementioned contractual schemes are concerned.

Neither can one reasonably discern any implied stricture to that effect. Besides, there is no basis to believe that
the framers of the Constitution, a majority of whom were obviously concerned with furthering the development
and utilization of the country's natural resources, could have wanted to restrict Filipino participation in that area.
This point is clear, especially in the light of the overarching constitutional principle of giving preference and
priority to Filipinos and Filipino corporations in the development of our natural resources.
Besides, even assuming (purely for argument's sake) that a constitutional limitation barring Filipino corporations
from holding and implementing an FTAA actually exists, nevertheless, such provision would apply only to the
transfer of the FTAA to Sagittarius, but definitely not to the sale of WMC's equity stake in WMCP to Sagittarius.
Otherwise, an unreasonable curtailment of property rights without due process of law would ensue. Petitioners'
argument must therefore fail.
FTAA Not Intended
Solely for Foreign Corporation
Equally barren of merit is the second ground cited by petitioners -- that the FTAA was intended to apply solely to
a foreign corporation, as can allegedly be seen from the provisions therein. They manage to cite only one
WMCP FTAA provision that can be regarded as clearly intended to apply only to a foreign contractor: Section
12, which provides for international commercial arbitration under the auspices of the International Chamber of
Commerce, after local remedies are exhausted. This provision, however, does not necessarily imply that the
WMCP FTAA cannot be transferred to and assumed by a Filipino corporation like Sagittarius, in which event the
said provision should simply be disregarded as a superfluity.
No Need for a Separate
Litigation of the Sale of Shares
Petitioners claim as third ground the "suspicious" sale of shares from WMC to Sagittarius; hence, the need to
litigate it in a separate case. Section 40 of RA 7942 (the Mining Law) allegedly requires the President's prior
approval of a transfer.
A re-reading of the said provision, however, leads to a different conclusion. "Sec. 40. Assignment/Transfer -- A
financial or technical assistance agreement may be assigned or transferred, in whole or in part, to a qualified
person subject to the prior approval of the President: Provided, That the President shall notify Congress of every
financial or technical assistance agreement assigned or converted in accordance with this provision within thirty
(30) days from the date of the approval thereof."
Section 40 expressly applies to the assignment or transfer of the FTAA, not to the sale and transfer of shares of
stock in WMCP. Moreover, when the transferee of an FTAA is another foreign corporation, there is a logical
application of the requirement of prior approval by the President of the Republic and notification to Congress in
the event of assignment or transfer of an FTAA. In this situation, such approval and notification are appropriate
safeguards, considering that the new contractor is the subject of a foreign government.
On the other hand, when the transferee of the FTAA happens to be a Filipino corporation, the need for such
safeguard is not critical; hence, the lack of prior approval and notification may not be deemed fatal as to render
the transfer invalid. Besides, it is not as if approval by the President is entirely absent in this instance. As pointed
out by private respondent in its Memorandum,13 the issue of approval is the subject of one of the cases brought
by Lepanto against Sagittarius in GR No. 162331. That case involved the review of the Decision of the Court of
Appeals dated November 21, 2003 in CA-GR SP No. 74161, which affirmed the DENR Order dated December
31, 2001 and the Decision of the Office of the President dated July 23, 2002, both approving the assignment of
the WMCP FTAA to Sagittarius.
Petitioners also question the sale price and the financial capacity of the transferee. According to the Deed of
Absolute Sale dated January 23, 2001, executed between WMC and Sagittarius, the price of the WMCP shares
was fixed at US$9,875,000, equivalent to P553 million at an exchange rate of 56:1. Sagittarius had an
authorized capital stock of P250 million and a paid up capital of P60 million. Therefore, at the time of approval of
the sale by the DENR, the debt-to-equity ratio of the transferee was over 9:1 -- hardly ideal for an FTAA
contractor, according to petitioners.
However, private respondents counter that the Deed of Sale specifically provides that the payment of the
purchase price would take place only after Sagittarius' commencement of commercial production from mining
operations, if at all. Consequently, under the circumstances, we believe it would not be reasonable to conclude,

as petitioners did, that the transferee's high debt-to-equity ratio per se necessarily carried negative implications
for the enterprise; and it would certainly be improper to invalidate the sale on that basis, as petitioners propose.
FTAA Not Void,
Thus Transferrable
To bolster further their claim that the case is not moot, petitioners insist that the FTAA is void and, hence cannot
be transferred; and that its transfer does not operate to cure the constitutional infirmity that is inherent in it;
neither will a change in the circumstances of one of the parties serve to ratify the void contract.
While the discussion in their Final Memorandum was skimpy, petitioners in their Comment (on the MR) did
ratiocinate that this Court had declared the FTAA to be void because, at the time it was executed with WMCP,
the latter was a fully foreign-owned corporation, in which the former vested full control and management with
respect to the exploration, development and utilization of mineral resources, contrary to the provisions of
paragraph 4 of Section 2 of Article XII of the Constitution. And since the FTAA was per se void, no valid right
could be transferred; neither could it be ratified, so petitioners conclude.
Petitioners have assumed as fact that which has yet to be established. First and foremost, the Decision of this
Court declaring the FTAA void has not yet become final. That was precisely the reason the Court still heard Oral
Argument in this case. Second, the FTAA does not vest in the foreign corporation full control and supervision
over the exploration, development and utilization of mineral resources, to the exclusion of the government. This
point will be dealt with in greater detail below; but for now, suffice it to say that a perusal of the FTAA provisions
will prove that the government has effective overall direction and control of the mining operations, including
marketing and product pricing, and that the contractor's work programs and budgets are subject to its review and
approval or disapproval.
As will be detailed later on, the government does not have to micro-manage the mining operations and dip its
hands into the day-to-day management of the enterprise in order to be considered as having overall control and
direction. Besides, for practical and pragmatic reasons, there is a need for government agencies to delegate
certain aspects of the management work to the contractor. Thus the basis for declaring the FTAA void still has to
be revisited, reexamined and reconsidered.
Petitioners sniff at the citation of Chavez v. Public Estates Authority,14 and Halili v. CA,15 claiming that the
doctrines in these cases are wholly inapplicable to the instant case.
Chavez clearly teaches: "Thus, the Court has ruled consistently that where a Filipino citizen sells land to an alien
who later sells the land to a Filipino, the invalidity of the first transfer is corrected by the subsequent sale to a
citizen. Similarly, where the alien who buys the land subsequently acquires Philippine citizenship, the sale is
validated since the purpose of the constitutional ban to limit land ownership to Filipinos has been achieved. In
short, the law disregards the constitutional disqualification of the buyer to hold land if the land is subsequently
transferred to a qualified party, or the buyer himself becomes a qualified party."16
In their Comment, petitioners contend that in Chavez and Halili, the object of the transfer (the land) was not what
was assailed for alleged unconstitutionality. Rather, it was the transaction that was assailed; hence subsequent
compliance with constitutional provisions would cure its infirmity. In contrast, in the instant case it is the FTAA
itself, the object of the transfer, that is being assailed as invalid and unconstitutional. So, petitioners claim that
the subsequent transfer of a void FTAA to a Filipino corporation would not cure the defect.
Petitioners are confusing themselves. The present Petition has been filed, precisely because the grantee of the
FTAA was a wholly owned subsidiary of a foreign corporation. It cannot be gainsaid that anyone would have
asserted that the same FTAA was void if it had at the outset been issued to a Filipino corporation. The FTAA,
therefore, is not per se defective or unconstitutional. It was questioned only because it had been issued to an
allegedly non-qualified, foreign-owned corporation.
We believe that this case is clearly analogous to Halili, in which the land acquired by a non-Filipino was reconveyed to a qualified vendee and the original transaction was thereby cured. Paraphrasing Halili, the same
rationale applies to the instant case: assuming arguendo the invalidity of its prior grant to a foreign corporation,
the disputed FTAA -- being now held by a Filipino corporation -- can no longer be assailed; the objective of the
constitutional provision -- to keep the exploration, development and utilization of our natural resources in Filipino
hands -- has been served.

More accurately speaking, the present situation is one degree better than that obtaining in Halili, in which the
original sale to a non-Filipino was clearly and indisputably violative of the constitutional prohibition and thus
voidab initio. In the present case, the issuance/grant of the subject FTAA to the then foreign-owned WMCP
was notillegal, void or unconstitutional at the time. The matter had to be brought to court, precisely for
adjudication as to whether the FTAA and the Mining Law had indeed violated the Constitution. Since, up to this
point, the decision of this Court declaring the FTAA void has yet to become final, to all intents and purposes, the
FTAA must be deemed valid and constitutional.17
At bottom, we find completely outlandish petitioners' contention that an FTAA could be entered into by the
government only with a foreign corporation, never with a Filipino enterprise. Indeed, the nationalistic provisions
of the Constitution are all anchored on the protection of Filipino interests. How petitioners can now argue that
foreigners have the exclusive right to FTAAs totally overturns the entire basis of the Petition -- preference for the
Filipino in the exploration, development and utilization of our natural resources. It does not take deep knowledge
of law and logic to understand that what the Constitution grants to foreigners should be equally available to
Filipinos.
Second Issue:
Whether the Court Can Still Decide the Case,
Even Assuming It Is Moot
All the protagonists are in agreement that the Court has jurisdiction to decide this controversy, even assuming it
to be moot.
Petitioners stress the following points. First, while a case becomes moot and academic when "there is no more
actual controversy between the parties or no useful purpose can be served in passing upon the merits,"18 what is
at issue in the instant case is not only the validity of the WMCP FTAA, but also the constitutionality of RA 7942
and its Implementing Rules and Regulations. Second, the acts of private respondent cannot operate to cure the
law of its alleged unconstitutionality or to divest this Court of its jurisdiction to decide. Third, the Constitution
imposes upon the Supreme Court the duty to declare invalid any law that offends the Constitution.
Petitioners also argue that no amendatory laws have been passed to make the Mining Act of 1995 conform to
constitutional strictures (assuming that, at present, it does not); that public respondents will continue to
implement and enforce the statute until this Court rules otherwise; and that the said law continues to be the
source of legal authority in accepting, processing and approving numerous applications for mining rights.
Indeed, it appears that as of June 30, 2002, some 43 FTAA applications had been filed with the Mines and
Geosciences Bureau (MGB), with an aggregate area of 2,064,908.65 hectares -- spread over Luzon, the
Visayas and Mindanao19 -- applied for. It may be a bit far-fetched to assert, as petitioners do, that each and
every FTAA that was entered into under the provisions of the Mining Act "invites potential litigation" for as long
as the constitutional issues are not resolved with finality. Nevertheless, we must concede that there exists the
distinct possibility that one or more of the future FTAAs will be the subject of yet another suit grounded on
constitutional issues.
But of equal if not greater significance is the cloud of uncertainty hanging over the mining industry, which is even
now scaring away foreign investments. Attesting to this climate of anxiety is the fact that the Chamber of Mines
of the Philippines saw the urgent need to intervene in the case and to present its position during the Oral
Argument; and that Secretary General Romulo Neri of the National Economic Development Authority (NEDA)
requested this Court to allow him to speak, during that Oral Argument, on the economic consequences of the
Decision of January 27, 2004.20
We are convinced. We now agree that the Court must recognize the exceptional character of the situation and
the paramount public interest involved, as well as the necessity for a ruling to put an end to the uncertainties
plaguing the mining industry and the affected communities as a result of doubts cast upon the constitutionality
and validity of the Mining Act, the subject FTAA and future FTAAs, and the need to avert a multiplicity of
suits. ParaphrasingGonzales v. Commission on Elections,21 it is evident that strong reasons of public policy
demand that the constitutionality issue be resolved now.22
In further support of the immediate resolution of the constitutionality issue, public respondents cite Acop v.
Guingona,23 to the effect that the courts will decide a question -- otherwise moot and academic -- if it is "capable
of repetition, yet evading review."24 Public respondents ask the Court to avoid a situation in which the
constitutionality issue may again arise with respect to another FTAA, the resolution of which may not be

achieved until after it has become too late for our mining industry to grow out of its infancy. They also
recall Salonga v. Cruz Pao,25 in which this Court declared that "(t)he Court also has the duty to formulate
guiding and controlling constitutional principles, precepts, doctrines or rules. It has the symbolic function of
educating the bench and bar on the extent of protection given by constitutional guarantees. x x x."
The mootness of the case in relation to the WMCP FTAA led the undersigned ponente to state in his dissent to
the Decision that there was no more justiciable controversy and the plea to nullify the Mining Law has become a
virtual petition for declaratory relief.26 The entry of the Chamber of Mines of the Philippines, Inc., however, has
put into focus the seriousness of the allegations of unconstitutionality of RA 7942 and DAO 96-40 which converts
the case to one for 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 specific
acts implementing RA 7942 and DAO 96-40. "[W]hen an act of the legislative department is seriously alleged to
have infringed the Constitution, settling the controversy becomes the duty of this Court. By the mere enactment
of the questioned law or the approval of the challenged action, the dispute is said to have ripened into a judicial
controversy even without any other overt act."28 This ruling can be traced from Taada v. Angara,29 in which the
Court said:
"In seeking to nullify an act of the Philippine Senate on the ground that it contravenes the Constitution,
the petition no doubt raises a justiciable controversy. Where an action of the legislative branch is
seriously alleged to have infringed the Constitution, it becomes not only the right but in fact the duty of
the judiciary to settle the dispute.
xxxxxxxxx
"As this Court has repeatedly and firmly emphasized in many cases, it will not shirk, digress from or
abandon its sacred duty and authority to uphold the Constitution in matters that involve grave abuse of
discretion brought before it in appropriate cases, committed by any officer, agency, instrumentality or
department of the government."30
Additionally, the entry of CMP into this case has also effectively forestalled any possible objections arising from
the standing or legal interest of the original parties.
For all the foregoing reasons, we believe that the Court should proceed to a resolution of the constitutional
issues in this case.
Third Issue:
The Proper Interpretation of the Constitutional Phrase
"Agreements Involving Either Technical or Financial Assistance"
The constitutional provision at the nucleus of the controversy is paragraph 4 of Section 2 of Article XII of the
1987 Constitution. In order to appreciate its context, Section 2 is reproduced in full:
"Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception of agricultural lands, all other natural resources
shall not be alienated. The exploration, development and utilization of natural resources shall be under
the full control and supervision of the State. The State may directly undertake such activities, or it may
enter into co-production, joint venture or production-sharing agreements with Filipino citizens or
corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such
agreements may be for a period not exceeding twenty-five years, renewable for not more than twentyfive years, and under such terms and conditions as may be provided by law. In cases of water rights for
irrigation, water supply, fisheries, or industrial uses other than the development of water power,
beneficial use may be the measure and limit of the grant.
"The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea, and exclusive
economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.

"The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as well
as cooperative fish farming, with priority to subsistence fishermen and fish-workers in rivers, lakes, bays
and lagoons.
"The President may enter into agreements with foreign-owned corporations involving either technical
or financial assistance for large-scale exploration, development, and utilization of minerals,
petroleum, and other mineral oils according to the general terms and conditions provided by law,
based on real contributions to the economic growth and general welfare of the country. In such
agreements, the State shall promote the development and use of local scientific and technical resources.
"The President shall notify the Congress of every contract entered into in accordance with this provision,
within thirty days from its execution."31
No Restriction of Meaning by
a Verba Legis Interpretation
To interpret the foregoing provision, petitioners adamantly assert that the language of the Constitution should
prevail; that the primary method of interpreting it is to seek the ordinary meaning of the words used in its
provisions. They rely on rulings of this Court, such as the following:
"The fundamental principle in constitutional construction however is that the primary source from which
to ascertain constitutional intent or purpose is the language of the provision itself. The presumption is
that the words in which the constitutional provisions are couched express the objective sought to be
attained. In other words, verba legis prevails. Only when the meaning of the words used is unclear and
equivocal should resort be made to extraneous aids of construction and interpretation, such as the
proceedings of the Constitutional Commission or Convention to shed light on and ascertain the true
intent or purpose of the provision being construed."32
Very recently, in Francisco v. The House of Representatives,33 this Court indeed had the occasion to reiterate
the well-settled principles of constitutional construction:
"First, verba legis, that is, wherever possible, the words used in the Constitution must be given
theirordinary meaning except where technical terms are employed. x x x.
xxxxxxxxx
"Second, where there is ambiguity, ratio legis est anima. The words of the Constitution should be
interpreted in accordance with the intent of its framers. x x x.
xxxxxxxxx
"Finally, ut magis valeat quam pereat. The Constitution is to be interpreted as a whole."34
For ease of reference and in consonance with verba legis, we reconstruct and stratify the aforequoted Section 2
as follows:
1. All natural resources are owned by the State. Except for agricultural lands, natural resources cannot
be alienated by the State.
2. The exploration, development and utilization (EDU) of natural resources shall be under the full control
and supervision of the State.
3. The State may undertake these EDU activities through either of the following:
(a) By itself directly and solely
(b) By (i) co-production; (ii) joint venture; or (iii) production sharing agreements with Filipino
citizens or corporations, at least 60 percent of the capital of which is owned by such citizens
4. Small-scale utilization of natural resources may be allowed by law in favor of Filipino citizens.

5. For large-scale EDU of minerals, petroleum and other mineral oils, the President may enter into
"agreements with foreign-owned corporations involving either technical or financial assistance according
to the general terms and conditions provided by law x x x."
Note that in all the three foregoing mining activities -- exploration, development and utilization -- the State may
undertake such EDU activities by itself or in tandem with Filipinos or Filipino corporations, except in two
instances:first, in small-scale utilization of natural resources, which Filipinos may be allowed by law to undertake;
andsecond, in large-scale EDU of minerals, petroleum and mineral oils, which may be undertaken by the State
via "agreements with foreign-owned corporations involving either technical or financial assistance" as provided
by law.
Petitioners claim that the phrase "agreements x x x involving either technical or financial assistance" simply
means technical assistance or financial assistance agreements, nothing more and nothing else. They insist that
there is no ambiguity in the phrase, and that a plain reading of paragraph 4 quoted above leads to the
inescapable conclusion that what a foreign-owned corporation may enter into with the government is merely an
agreement for either financial or technical assistance only, for the large-scale exploration, development and
utilization of minerals, petroleum and other mineral oils; such a limitation, they argue, excludes foreign
management and operation of a mining enterprise.35
This restrictive interpretation, petitioners believe, is in line with the general policy enunciated by the Constitution
reserving to Filipino citizens and corporations the use and enjoyment of the country's natural resources. They
maintain that this Court's Decision36 of January 27, 2004 correctly declared the WMCP FTAA, along with
pertinent provisions of RA 7942, void for allowing a foreign contractor to have direct and exclusive management
of a mining enterprise. Allowing such a privilege not only runs counter to the "full control and supervision" that
the State is constitutionally mandated to exercise over the exploration, development and utilization of the
country's natural resources; doing so also vests in the foreign company "beneficial ownership" of our mineral
resources. It will be recalled that the Decision of January 27, 2004 zeroed in on "management or other forms of
assistance" or other activities associated with the "service contracts" of the martial law regime, since "the
management or operation of mining activities by foreign contractors, which is the primary feature of service
contracts, was precisely the evil that the drafters of the 1987 Constitution sought to eradicate."
On the other hand, the intervenor37 and public respondents argue that the FTAA allowed by paragraph 4 is not
merely an agreement for supplying limited and specific financial or technical services to the State. Rather, such
FTAA is a comprehensive agreement for the foreign-owned corporation's integrated exploration, development
and 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, ranging
from the discovery to the development, utilization and production of minerals or petroleum products.
We do not see how applying a strictly literal or verba legis interpretation of paragraph 4 could inexorably lead to
the conclusions arrived at in the ponencia. First, the drafters' choice of words -- their use of the
phraseagreements x x x involving either technical or financial assistance -- does not indicate the intent
to exclude other modes of assistance. The drafters opted to use involving when they could have simply
said agreements forfinancial or technical assistance, if that was their intention to begin with. In this case, the
limitation would be very clear and no further debate would ensue.
In contrast, the use of the word "involving" signifies the possibility of the inclusion of other forms of
assistance or activities having to do with, otherwise related to or compatible with financial or technical
assistance. The word "involving" as used in this context has three connotations that can be differentiated
thus:one, the sense of "concerning," "having to do with," or "affecting"; two, "entailing," "requiring," "implying" or
"necessitating"; and three, "including," "containing" or "comprising."38
Plainly, none of the three connotations convey a sense of exclusivity. Moreover, the word "involving," when
understood in the sense of "including," as in including technical or financial assistance, necessarily implies that
there are activities other than those that are being included. In other words, if an agreement includes technical or
financial assistance, there is apart from such assistance -- something else already in, and covered or may be
covered by, the said agreement.
In short, it allows for the possibility that matters, other than those explicitly mentioned, could be made part of the
agreement. Thus, we are now led to the conclusion that the use of the word "involving" implies that these
agreements with foreign corporations are not limited to mere financial or technical assistance. The difference in
sense becomes very apparent when we juxtapose "agreements for technical or financial assistance" against

"agreements including technical or financial assistance." This much is unalterably clear in a verba
legisapproach.
Second, if the real intention of the drafters was to confine foreign corporations to financial or technical assistance
and nothing more, their language would have certainly been so unmistakably restrictive and stringent as to
leave no doubt in anyone's mind about their true intent. For example, they would have used the sentence foreign
corporations are absolutely prohibited from involvement in the management or operation of mining or similar
ventures or words of similar import. A search for such stringent wording yields negative results. Thus, we come
to the inevitable conclusion that there was a conscious and deliberate decision to avoid the use of
restrictive wording that bespeaks an intent not to use the expression "agreements x x x involving either
technical or financial assistance" in an exclusionary and limiting manner.
Deletion of "Service Contracts" to
Avoid Pitfalls of Previous Constitutions,
Not to Ban Service Contracts Per Se
Third, we do not see how a verba legis approach leads to the conclusion that "the management or operation of
mining activities by foreign contractors, which is the primary feature of service contracts, was precisely the evil
that the drafters of the 1987 Constitution sought to eradicate." Nowhere in the above-quoted Section can be
discerned the objective to keep out of foreign hands the management or operation of mining activities or the plan
to eradicate service contracts as these were understood in the 1973 Constitution. Still, petitioners maintain that
the deletion or omission from the 1987 Constitution of the term "service contracts" found in the 1973 Constitution
sufficiently proves the drafters' intent to exclude foreigners from the management of the affected enterprises.
To our mind, however, such intent cannot be definitively and conclusively established from the mere failure to
carry the same expression or term over to the new Constitution, absent a more specific, explicit and unequivocal
statement to that effect. What petitioners seek (a complete ban on foreign participation in the management of
mining operations, as previously allowed by the earlier Constitutions) is nothing short of bringing about a
momentous sea change in the economic and developmental policies; and the fundamentally capitalist, freeenterprise philosophy of our government. We cannot imagine such a radical shift being undertaken by our
government, to the great prejudice of the mining sector in particular and our economy in general, merely on the
basis of the omission of the terms service contract from or the failure to carry them over to the new Constitution.
There has to be a much more definite and even unarguable basis for such a drastic reversal of policies.
Fourth, a literal and restrictive interpretation of paragraph 4, such as that proposed by petitioners, suffers from
certain internal logical inconsistencies that generate ambiguities in the understanding of the provision. As the
intervenor pointed out, there has never been any constitutional or statutory provision that reserved to Filipino
citizens or corporations, at least 60 percent of which is Filipino-owned, the rendition of financial or technical
assistance to companies engaged in mining or the development of any other natural resource. The taking out of
foreign-currency or peso-denominated loans or any other kind of financial assistance, as well as the rendition of
technical assistance -- whether to the State or to any other entity in the Philippines -- has never been restricted
in favor of Filipino citizens or corporations having a certain minimum percentage of Filipino equity. Such a
restriction would certainly be preposterous and unnecessary. As a matter of fact, financial, and even technical
assistance,regardless of the nationality of its source, would be welcomed in the mining industry anytime with
open arms, on account of the dearth of local capital and the need to continually update technological know-how
and improve technical skills.
There was therefore no need for a constitutional provision specifically allowing foreign-owned corporations to
render financial or technical assistance, whether in respect of mining or some other resource development or
commercial activity in the Philippines. The last point needs to be emphasized: if merely financial or
technical assistance agreements are allowed, there would be no need to limit them to large-scale mining
operations, as there would be far greater need for them in the smaller-scale mining activities (and even
in non-mining areas). Obviously, the provision in question was intended to refer to agreements other
than those for mere financial or technical assistance.
In like manner, there would be no need to require the President of the Republic to report to Congress, if only
financial or technical assistance agreements are involved. Such agreements are in the nature of foreign loans
that -- pursuant to Section 20 of Article 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 to
Congresswithin thirty days from the end of every quarter of the calendar year, not thirty days after the agreement
is entered into.

And if paragraph 4 permits only agreements for loans and other forms of financial, or technical assistance, what
is the point of requiring that they be based on real contributions to the economic growth and general welfare of
the country? For instance, how is one to measure and assess the "real contributions" to the "economic growth"
and "general welfare" of the country that may ensue from a foreign-currency loan agreement or a technicalassistance agreement for, say, the refurbishing of an existing power generating plant for a mining operation
somewhere in Mindanao? Such a criterion would make more sense when applied to a major business
investment in a principal sector of the industry.
The conclusion is clear and inescapable -- a verba legis construction shows that paragraph 4 is not to be
understood as one limited only to foreign loans (or other forms of financial support) and to technical assistance.
There is definitely more to it than that. These are provisions permitting participation by foreign companies;
requiring the President's report to Congress; and using, as yardstick, contributions based on economic
growth and general welfare. These were neither accidentally inserted into the Constitution nor carelessly
cobbled together by the drafters in lip service to shallow nationalism. The provisions patently have
significance and usefulness in a context that allows agreements with foreign companies to include more than
mere financial or technical assistance.
Fifth, it is argued that Section 2 of Article XII authorizes nothing more than a rendition of specific and limited
financial service or technical assistance by a foreign company. This argument begs the question "To whom or for
whom would it be rendered"? or Who is being assisted? If the answer is "The State," then it necessarily implies
that the State itself is the one directly and solely undertaking the large-scale exploration, development and
utilization of a mineral resource, so it follows that the State must itself bear the liability and cost of repaying the
financing sourced from the foreign lender and/or of paying compensation to the foreign entity rendering technical
assistance.
However, it is of common knowledge, and of judicial notice as well, that the government is and has for many
many years been financially strapped, to the point that even the most essential services have suffered serious
curtailments -- education and health care, for instance, not to mention judicial services -- have had to make do
with inadequate budgetary allocations. Thus, government has had to resort to build-operate-transfer and similar
arrangements with the private sector, in order to get vital infrastructure projects built without any governmental
outlay.
The very recent brouhaha over the gargantuan "fiscal crisis" or "budget deficit" merely confirms what the
ordinary citizen has suspected all along. After the reality check, one will have to admit the implausibility of a
direct undertaking -- by the State itself -- of large-scale exploration, development and utilization of minerals,
petroleum and other mineral oils. Such an undertaking entails not only humongous capital requirements, but also
the attendant risk of never finding and developing economically viable quantities of minerals, petroleum and
other mineral oils.40
It is equally difficult to imagine that such a provision restricting foreign companies to the rendition of only
financial or technical assistance to the government was deliberately crafted by the drafters of the Constitution,
who were all well aware of the capital-intensive and technology-oriented nature of large-scale mineral or
petroleum extraction and the country's deficiency in precisely those areas.41 To say so would be tantamount to
asserting that the provision was purposely designed to ladle the large-scale development and utilization of
mineral, petroleum and related resources with impossible conditions; and to remain forever and permanently
"reserved" for future generations of Filipinos.
A More Reasonable Look
at the Charter's Plain Language
Sixth, we shall now look closer at the plain language of the Charter and examining the logical inferences. The
drafters chose to emphasize and highlight agreements x x x involving either technical or financial assistance in
relation to foreign corporations' participation in large-scale EDU. The inclusion of this clause on "technical or
financial assistance" recognizes the fact that foreign business entities and multinational corporations are the
ones with the resources and know-how to provide technical and/or financial assistance of the magnitude and
type required for large-scale exploration, development and utilization of these resources.
The drafters -- whose ranks included many academicians, economists, businessmen, lawyers, politicians and
government officials -- were not unfamiliar with the practices of foreign corporations and multinationals.
Neither were they so nave as to believe that these entities would provide "assistance" without conditionalities or
some quid pro quo. Definitely, as business persons well know and as a matter of judicial notice, this matter is not

just a question of signing a promissory note or executing a technology transfer agreement. Foreign corporations
usually require that they be given a say in the management, for instance, of day-to-day operations of the joint
venture. They would demand the appointment of their own men as, for example, operations managers, technical
experts, quality control heads, internal auditors or comptrollers. Furthermore, they would probably require seats
on the Board of Directors -- all these to ensure the success of the enterprise and the repayment of the loans and
other financial assistance and to make certain that the funding and the technology they supply would not go to
waste. Ultimately, they would also want to protect their business reputation and bottom lines.42
In short, the drafters will have to be credited with enough pragmatism and savvy to know that these foreign
entities will not enter into such "agreements involving assistance" without requiring arrangements for the
protection of their investments, gains and benefits.
Thus, by specifying such "agreements involving assistance," the drafters necessarily gave implied assent to
everything that these agreements necessarily entailed; or that could reasonably be deemed necessary to make
them tenable and effective, including management authority with respect to the day-to-day operations of the
enterprise and measures for the protection of the interests of the foreign corporation, PROVIDED THAT
Philippine sovereignty over natural resources and full control over the enterprise undertaking the EDU activities
remain firmly in the State.
Petitioners' Theory Deflated by the
Absence of Closing-Out Rules or Guidelines
Seventh and final point regarding the plain-language approach, one of the practical difficulties that results from it
is the fact that there is nothing by way of transitory provisions that would serve to confirm the theory that the
omission of the term "service contract" from the 1987 Constitution signaled the demise of service contracts.
The framers knew at the time they were deliberating that there were various service contracts extant and in force
and effect, including those in the petroleum industry. Many of these service contracts were long-term (25 years)
and had several more years to run. If they had meant to ban service contracts altogether, they would have had
to provide for the termination or pretermination of the existing contracts. Accordingly, they would have supplied
the specifics and the when and how of effecting the extinguishment of these existing contracts (or at least the
mechanics for determining them); and of putting in place the means to address the just claims of the contractors
for compensation for their investments, lost opportunities, and so on, if not for the recovery thereof.
If the framers had intended to put an end to service contracts, they would have at least left specific instructions
to Congress to deal with these closing-out issues, perhaps by way of general guidelines and a timeline within
which to carry them out. The following are some extant examples of such transitory guidelines set forth in Article
XVIII of our Constitution:
"Section 23. Advertising entities affected by paragraph (2), Section 11 of Article XVI of this Constitution
shall have five years from its ratification to comply on a graduated and proportionate basis with the
minimum Filipino ownership requirement therein.
xxxxxxxxx
"Section 25. After the expiration in 1991 of the Agreement between the Republic of the Philippines and
the United States of America concerning military bases, foreign military bases, troops, or facilities shall
not be allowed in the Philippines except under a treaty duly concurred in by the Senate and, when the
Congress so requires, ratified by a majority of the votes cast by the people in a national referendum held
for that purpose, and recognized as a treaty by the other contracting State.
"Section 26. The authority to issue sequestration or freeze orders under Proclamation No. 3 dated March
25, 1986 in relation to the recovery of ill-gotten wealth shall remain operative for not more than eighteen
months after the ratification of this Constitution. However, in the national interest, as certified by the
President, the Congress may extend such period.
A sequestration or freeze order shall be issued only upon showing of a prima facie case. The order and
the list of the sequestered or frozen properties shall forthwith be registered with the proper court. For
orders issued before the ratification of this Constitution, the corresponding judicial action or proceeding
shall be filed within six months from its ratification. For those issued after such ratification, the judicial
action or proceeding shall be commenced within six months from the issuance thereof.

The sequestration or freeze order is deemed automatically lifted if no judicial action or proceeding is
commenced as herein provided." 43]
It is inconceivable that the drafters of the Constitution would leave such an important matter -- an expression of
sovereignty as it were -- indefinitely hanging in the air in a formless and ineffective state. Indeed, the complete
absence of even a general framework only serves to further deflate petitioners' theory, like a child's balloon
losing its air.
Under the circumstances, the logical inconsistencies resulting from petitioners' literal and purely verba
legisapproach to paragraph 4 of Section 2 of Article XII compel a resort to other aids to interpretation.
Petitioners' Posture Also Negated
by Ratio Legis Et Anima
Thus, in order to resolve the inconsistencies, incongruities and ambiguities encountered and to supply the
deficiencies of the plain-language approach, there is a need for recourse to the proceedings of the 1986
Constitutional Commission. There is a need for ratio legis et anima.
Service Contracts Not
"Deconstitutionalized"
Pertinent portions of the deliberations of the members of the Constitutional Commission (ConCom) conclusively
show that they discussed agreements involving either technical or financial assistance in the same breadth
asservice contracts and used the terms interchangeably. The following exchange between Commissioner Jamir
(sponsor of the provision) and Commissioner Suarez irrefutably proves that the "agreements involving technical
or financial assistance" were none other than service contracts.
THE PRESIDENT. Commissioner Jamir is recognized. We are still on Section 3.
MR. JAMIR. Yes, Madam President. With respect to the second paragraph of Section 3, my amendment
by substitution reads: THE PRESIDENT MAY ENTER INTO AGREEMENTS WITH FOREIGN-OWNED
CORPORATIONS INVOLVING EITHER TECHNICAL OR FINANCIAL ASSISTANCE FOR LARGESCALE EXPLORATION, DEVELOPMENT AND UTILIZATION OF NATURAL RESOURCES
ACCORDING TO THE TERMS AND CONDITIONS PROVIDED BY LAW.
MR. VILLEGAS. The Committee accepts the amendment. Commissioner Suarez will give the
background.
MR. JAMIR. Thank you.
THE PRESIDENT. Commissioner Suarez is recognized.
MR. SUAREZ. Thank you, Madam President.
Will Commissioner Jamir answer a few clarificatory questions?
MR. JAMIR. Yes, Madam President.
MR. SUAREZ. This particular portion of the section has reference to what was popularly known before
as service contracts, among other things, is that correct?
MR. JAMIR. Yes, Madam President.
MR. SUAREZ. As it is formulated, the President may enter into service contracts but subject to the
guidelines that may be promulgated by Congress?
MR. JAMIR. That is correct.
MR. SUAREZ. Therefore, that aspect of negotiation and consummation will fall on the President, not
upon Congress?

MR. JAMIR. That is also correct, Madam President.

MR. SUAREZ. Except that all of these contracts, service or otherwise, must be made strictly in
accordance with guidelines prescribed by Congress?
MR. JAMIR. That is also correct.
MR. SUAREZ. And the Gentleman is thinking in terms of a law that uniformly covers situations of the
same nature?
MR. JAMIR. That is 100 percent correct.
MR. SUAREZ. I thank the Commissioner.
MR. JAMIR. Thank you very much.44
The following exchange leaves no doubt that the commissioners knew exactly what they were dealing with:
service contracts.
THE PRESIDENT. Commissioner Gascon is recognized.
MR. GASCON. Commissioner Jamir had proposed an amendment with regard to special service
contracts which was accepted by the Committee. Since the Committee has accepted it, I would like to
ask some questions.
THE PRESIDENT. Commissioner Gascon may proceed.
MR. GASCON. As it is proposed now, such service contracts will be entered into by the President with
the guidelines of a general law on service contract to be enacted by Congress. Is that correct?
MR. VILLEGAS. The Commissioner is right, Madam President.
MR. GASCON. According to the original proposal, if the President were to enter into a particular
agreement, he would need the concurrence of Congress. Now that it has been changed by the proposal
of Commissioner Jamir in that Congress will set the general law to which the President shall comply, the
President will, therefore, not need the concurrence of Congress every time he enters into service
contracts. Is that correct?
MR. VILLEGAS. That is right.
MR. GASCON. The proposed amendment of Commissioner Jamir is in indirect contrast to my proposed
amendment, so I would like to object and present my proposed amendment to the body.
xxxxxxxxx
MR. GASCON. Yes, it will be up to the body.
I feel that the general law to be set by Congress as regard service contract agreements which the
President will enter into might be too general or since we do not know the content yet of such a law, it
might be that certain agreements will be detrimental to the interest of the Filipinos. This is in direct
contrast to my proposal which provides that there be effective constraints in the implementation
of service contracts.
So instead of a general law to be passed by Congress to serve as a guideline to the President when
entering into service contract agreements, I propose that every service contract entered into by the
President would need the concurrence of Congress, so as to assure the Filipinos of their interests with
regard to the issue in Section 3 on all lands of the public domain. My alternative amendment, which we
will discuss later, reads: THAT THE PRESIDENT SHALL ENTER INTO SUCH AGREEMENTS ONLY
WITH THE CONCURRENCE OF TWO-THIRDS VOTE OF ALL THE MEMBERS OF CONGRESS
SITTING SEPARATELY.

xxxxxxxxx
MR. BENGZON. The reason we made that shift is that we realized the original proposal could breed
corruption. By the way, this is not just confined to service contracts but also to financial assistance. If
we are going to make every single contract subject to the concurrence of Congress which, according to
the Commissioner's amendment is the concurrence of two-thirds of Congress voting separately then
(1) there is a very great chance that each contract will be different from another; and (2) there is a great
temptation that it would breed corruption because of the great lobbying that is going to happen. And we
do not want to subject our legislature to that.
Now, to answer the Commissioner's apprehension, by "general law," we do not mean statements of
motherhood. Congress can build all the restrictions that it wishes into that general law so that every
contract entered into by the President under that specific area will have to be uniform. The President has
no choice but to follow all the guidelines that will be provided by law.
MR. GASCON. But my basic problem is that we do not know as of yet the contents of such a general law
as to how much constraints there will be in it. And to my mind, although the Committee's contention that
the regular concurrence from Congress would subject Congress to extensive lobbying, I think that is a
risk we will have to take since Congress is a body of representatives of the people whose membership
will be changing regularly as there will be changing circumstances every time certain agreements are
made. It would be best then to keep in tab and attuned to the interest of the Filipino people, whenever
the President enters into any agreement with regard to such an important matter as technical or
financial assistance for large-scale exploration, development and utilization of natural resources
or service contracts, the people's elected representatives should be on top of it.
xxxxxxxxx
MR. OPLE. Madam President, we do not need to suspend the session. If Commissioner Gascon needs a
few minutes, I can fill up the remaining time while he completes his proposed amendment. I just wanted
to ask Commissioner Jamir whether he would entertain a minor amendment to his amendment, and it
reads as follows: THE PRESIDENT SHALL SUBSEQUENTLY NOTIFY CONGRESS OF
EVERY SERVICE CONTRACT ENTERED INTO IN ACCORDANCE WITH THE GENERAL LAW. I think
the reason is, if I may state it briefly, as Commissioner Bengzon said, Congress can always change the
general law later on to conform to new perceptions of standards that should be built into service
contracts. But the only way Congress can do this is if there were a notification requirement from the
Office of the President that suchservice contracts had been entered into, subject then to the scrutiny of
the Members of Congress. This pertains to a situation where the service contracts are already entered
into, and all that this amendment seeks is the reporting requirement from the Office of the President. Will
Commissioner Jamir entertain that?
MR. JAMIR. I will gladly do so, if it is still within my power.
MR. VILLEGAS. Yes, the Committee accepts the amendment.
xxxxxxxxx
SR. TAN. Madam President, may I ask a question?
THE PRESIDENT. Commissioner Tan is recognized.
SR. TAN. Am I correct in thinking that the only difference between these future service contracts and
the past service contracts under Mr. Marcos is the general law to be enacted by the legislature and the
notification of Congress by the President? That is the only difference, is it not?
MR. VILLEGAS. That is right.
SR. TAN. So those are the safeguards.
MR. VILLEGAS. Yes. There was no law at all governing service contracts before.
SR. TAN. Thank you, Madam President.45

More Than Mere Financial

and Technical Assistance
Entailed by the Agreements
The clear words of Commissioner Jose N. Nolledo quoted below explicitly and eloquently demonstrate that the
drafters knew that the agreements with foreign corporations were going to entail not mere technical or financial
assistance but, rather, foreign investment in and management of an enterprise involved in large-scale
exploration,development and utilization of minerals, petroleum, and other mineral oils.
THE PRESIDENT. Commissioner Nolledo is recognized.
MR. NOLLEDO. Madam President, I have the permission of the Acting Floor Leader to speak for only
two minutes in favor of the amendment of Commissioner Gascon.
THE PRESIDENT. Commissioner Nolledo may proceed.
MR. NOLLEDO. With due respect to the members of the Committee and Commissioner Jamir, I am in
favor of the objection of Commissioner Gascon.
Madam President, I was one of those who refused to sign the 1973 Constitution, and one of the
reasons is that there were many provisions in the Transitory Provisions therein that favored
aliens. I was shocked when I read a provision authorizing service contracts while we, in this
Constitutional Commission, provided for Filipino control of the economy. We are, therefore,
providing for exceptional instances where aliens may circumvent Filipino control of our economy.
And one way of circumventing the rule in favor of Filipino control of the economy is to
recognize service contracts.
As far as I am concerned, if I should have my own way, I am for the complete deletion of this
provision. However, we are presenting a compromise in the sense that we are requiring a twothirds vote of all the Members of Congress as a safeguard. I think we should not mistrust the
future Members of Congress by saying that the purpose of this provision is to avoid corruption.
We cannot claim that they are less patriotic than we are. I think the Members of this Commission
should know that entering into service contracts is an exception to the rule on protection of
natural resources for the interest of the nation, and therefore, being an exception it should be
subject, whenever possible, to stringent rules. It seems to me that we are liberalizing the rules in
favor of aliens.
I say these things with a heavy heart, Madam President. I do not claim to be a nationalist, but I
love my country. Although we need investments, we must adopt safeguards that are truly
reflective of the sentiments of the people and not mere cosmetic safeguards as they now appear
in the Jamir amendment. (Applause)
Thank you, Madam President.46
Another excerpt, featuring then Commissioner (now Chief Justice) Hilario G. Davide Jr., indicates the limitations
of the scope of such service contracts -- they are valid only in regard to minerals, petroleum and other mineral
oils, not to all natural resources.
THE PRESIDENT. Commissioner Davide is recognized.
MR. DAVIDE. Thank you, Madam President. This is an amendment to the Jamir amendment and also to
the Ople amendment. I propose to delete "NATURAL RESOURCES" and substitute it with the following:
MINERALS, PETROLEUM AND OTHER MINERAL OILS. On the Ople amendment, I propose to add:
THE NOTIFICATION TO CONGRESS SHALL BE WITHIN THIRTY DAYS FROM THE EXECUTION OF
THE SERVICE CONTRACT.
THE PRESIDENT. What does the Committee say with respect to the first amendment in lieu of
"NATURAL RESOURCES"?
MR. VILLEGAS. Could Commissioner Davide explain that?

MR. DAVIDE. Madam President, with the use of "NATURAL RESOURCES" here, it would necessarily
include all lands of the public domain, our marine resources, forests, parks and so on. So we would like
to limit the scope of these service contracts to those areas really where these may be needed, the
exploitation, development and exploration of minerals, petroleum and other mineral oils. And so, we
believe that we should really, if we want to grant service contracts at all, limit the same to only those
particular areas where Filipino capital may not be sufficient, and not to all natural resources.
MR. SUAREZ. Just a point of clarification again, Madam President. When the Commissioner made those
enumerations and specifications, I suppose he deliberately did not include "agricultural land"?
MR. DAVIDE. That is precisely the reason we have to enumerate what these resources are into
whichservice contracts may enter. So, beyond the reach of any service contract will be lands of the
public domain, timberlands, forests, marine resources, fauna and flora, wildlife and national parks.47
After the Jamir amendment was voted upon and approved by a vote of 21 to 10 with 2 abstentions,
Commissioner Davide made the following statement, which is very relevant to our quest:
THE PRESIDENT. Commissioner Davide is recognized.
MR. DAVIDE. I am very glad that Commissioner Padilla emphasized minerals, petroleum and mineral
oils. The Commission has just approved the possible foreign entry into the development, exploration and
utilization of these minerals, petroleum and other mineral oils by virtue of the Jamir amendment. I voted
in favor of the Jamir amendment because it will eventually give way to vesting in exclusively Filipino
citizens and corporations wholly owned by Filipino citizens the right to utilize the other natural resources.
This means that as a matter of policy, natural resources should be utilized and exploited only by Filipino
citizens or corporations wholly owned by such citizens. But by virtue of the Jamir amendment, since we
feel that Filipino capital may not be enough for the development and utilization of minerals, petroleum
and other mineral oils, the President can enter into service contracts with foreign corporations precisely
for the development and utilization of such resources. And so, there is nothing to fear that we will
stagnate in the development of minerals, petroleum and mineral oils because we now allow service
contracts. x x x."48
The foregoing are mere fragments of the framers' lengthy discussions of the provision dealing with agreements x
x x involving either technical or financial assistance, which ultimately became paragraph 4 of Section 2 of Article
XII of the Constitution. Beyond any doubt, the members of the ConCom were actually debating about the
martial-law-era service contracts for which they were crafting appropriate safeguards.
In the voting that led to the approval of Article XII by the ConCom, the explanations given by Commissioners
Gascon, Garcia and Tadeo indicated that they had voted to reject this provision on account of their objections to
the "constitutionalization" of the "service contract" concept.
Mr. Gascon said, "I felt that if we would constitutionalize any provision on service contracts, this should always
be with the concurrence of Congress and not guided only by a general law to be promulgated by Congress."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 the
exploitation of our natural resources for the benefit of foreign interests."50 Likewise, Mr. Tadeo cited inter alia the
fact that service contracts continued to subsist, enabling foreign interests to benefit from our natural
resources.51It was hardly likely that these gentlemen would have objected so strenuously, had the
provision called for mere technical or financial assistance and nothing more.
The deliberations of the ConCom and some commissioners' explanation of their votes leave no room for doubt
that the service contract concept precisely underpinned the commissioners' understanding of the "agreements
involving either technical or financial assistance."
Summation of the
Concom Deliberations
At this point, we sum up the matters established, based on a careful reading of the ConCom deliberations, as
follows:

 In their deliberations on what was to become paragraph 4, the framers used the term service
contracts in referring to agreements x x x involving either technical or financial assistance.
They spoke of service contracts as the concept was understood in the 1973 Constitution.
It was obvious from their discussions that they were not about to ban or eradicate service contracts.
Instead, they were plainly crafting provisions to put in place safeguards that would eliminate or
minimize the abuses prevalent during the marital law regime. In brief, they were going to permit service
contracts with foreign corporations as contractors, but with safety measures to prevent abuses, as an
exception to the general norm established in the first paragraph of Section 2 of Article XII. This provision
reserves or limits to Filipino citizens -- and corporations at least 60 percent of which is owned by such
citizens -- the exploration, development and utilization of natural resources.
This provision was prompted by the perceived insufficiency of Filipino capital and the felt need for
foreign investments in the EDU of minerals and petroleum resources.
The framers for the most part debated about the sort of safeguards that would be considered adequate
and reasonable. But some of them, having more "radical" leanings, wanted to ban service contracts
altogether; for them, the provision would permit aliens to exploit and benefit from the 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. They
sounded off their individual opinions, openly enunciated their philosophies, and supported or attacked
the provisions with fervor. Everyone's viewpoint was heard.
In the final voting, the Article on the National Economy and Patrimony -- including paragraph 4 allowing
service contracts with foreign corporations as an exception to the general norm in paragraph 1 of Section
2 of the same article -- was resoundingly approved by a vote of 32 to 7, with 2 abstentions.
Agreements Involving Technical
or Financial Assistance Are
Service Contracts With Safeguards
From the foregoing, we are impelled to conclude that the phrase agreements involving either technical or
financial assistance, referred to in paragraph 4, are in fact service contracts. But unlike those of the 1973 variety,
the new ones are between foreign corporations acting as contractors on the one hand; and on the other, the
government as principal or "owner" of the works. In the new service contracts, the foreign contractors provide
capital, technology and technical know-how, and managerial expertise in the creation and operation of largescale mining/extractive enterprises; and the government, through its agencies (DENR, MGB), actively exercises
control and supervision over the entire operation.
Such service contracts may be entered into only with respect to minerals, petroleum and other mineral oils. The
grant thereof is subject to several safeguards, among which are these requirements:
(1) The service contract shall be crafted in accordance with a general law that will set standard or
uniform terms, conditions and requirements, presumably to attain a certain uniformity in provisions and
avoid the possible insertion of terms disadvantageous to the country.
(2) The President shall be the signatory for the government because, supposedly before an agreement is
presented to the President for signature, it will have been vetted several times over at different levels to
ensure that it conforms to law and can withstand public scrutiny.
(3) Within thirty days of the executed agreement, the President shall report it to Congress to give that
branch of government an opportunity to look over the agreement and interpose timely objections, if any.
Use of the Record of the
ConCom to Ascertain Intent

At this juncture, we shall address, rather than gloss over, the use of the "framers' intent" approach, and the
criticism hurled by petitioners who quote a ruling of this Court:
"While it is permissible in this jurisdiction to consult the debates and proceedings of the constitutional
convention in order to arrive at the reason and purpose of the resulting Constitution, resort thereto may
be had only when other guides fail as said proceedings are powerless to vary the terms of the
Constitution when the meaning is clear. Debates in the constitutional convention 'are of value as showing
the views of the individual members, and as indicating the reason for their votes, but they give us no light
as to the views of the large majority who did not talk, much less the mass of our fellow citizens whose
votes at the polls gave that instrument the force of fundamental law. We think it safer to construe the
constitution from what appears upon its face.' The proper interpretation therefore depends more on how
it was understood by the people adopting it than in the framers' understanding thereof."52
The notion that the deliberations reflect only the views of those members who spoke out and not the views of the
majority who remained silent should be clarified. We must never forget that those who spoke out were heard by
those who remained silent and did not react. If the latter were silent because they happened not to be present at
the time, they are presumed to have read the minutes and kept abreast of the deliberations. By remaining silent,
they are deemed to have signified their assent to and/or conformity with at least some of the views propounded
or their lack of objections thereto. It was incumbent upon them, as representatives of the entire Filipino people,
to follow the deliberations closely and to speak their minds on the matter if they did not see eye to eye with the
proponents of the draft provisions.
In any event, each and every one of the commissioners had the opportunity to speak out and to vote on the
matter. Moreover, the individual explanations of votes are on record, and they show where each delegate stood
on the issues. In sum, we cannot completely denigrate the value or usefulness of the record of the
ConCom, simply because certain members chose not to speak out.
It is contended that the deliberations therein did not necessarily reflect the thinking of the voting population that
participated in the referendum and ratified the Constitution. Verily, whether we like it or not, it is a bit too much to
assume that every one of those who voted to ratify the proposed Charter did so only after carefully reading and
mulling over it, provision by provision.
Likewise, it appears rather extravagant to assume that every one of those who did in fact bother to read the draft
Charter actually understood the import of its provisions, much less analyzed it vis--vis the previous
Constitutions. We believe that in reality, a good percentage of those who voted in favor of it did so more out of
faith and trust. For them, it was the product of the hard work and careful deliberation of a group of intelligent,
dedicated and trustworthy men and women of integrity and conviction, whose love of country and fidelity to duty
could not be questioned.
In short, a large proportion of the voters voted "yes" because the drafters, or a majority of them, endorsed the
proposed Constitution. What this fact translates to is the inescapable conclusion that many of the voters in the
referendum did not form their own isolated judgment about the draft Charter, much less about particular
provisions therein. They only relied or fell back and acted upon the favorable endorsement or recommendation
of the framers as a group. In other words, by voting yes, they may be deemed to have signified their voluntary
adoption of the understanding and interpretation of the delegates with respect to the proposed Charter and its
particular provisions. "If it's good enough for them, it's good enough for me;" or, in many instances, "If it's good
enough 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 no
evidence available to indicate that their assessment or understanding of its provisions was in fact different from
that of the drafters. This unwritten assumption seems to be petitioners' as well. For all we know, this segment of
voters must have read and understood the provisions of the Constitution in the same way the framers had, an
assumption that would account for the favorable votes.
Fundamentally speaking, in the process of rewriting the Charter, the members of the ConCom as a group were
supposed to represent the entire Filipino people. Thus, we cannot but regard their views as being very much
indicative of the thinking of the people with respect to the matters deliberated upon and to the Charter as a
whole.
It is therefore reasonable and unavoidable to make the following conclusion, based on the above
arguments. As written by the framers and ratified and adopted by the people, the Constitution allows the
continued use of service contracts with foreign corporations -- as contractors who would invest in and

operate and manage extractive enterprises, subject to the full control and supervision of the State -sans the abuses of the past regime. The purpose is clear: to develop and utilize our mineral, petroleum
and other resources on a large scale for the immediate and tangible benefit of the Filipino people.
In view of the foregoing discussion, we should reverse the Decision of January 27, 2004, and in fact now hold a
view different from that of the Decision, which had these findings: (a) paragraph 4 of Section 2 of Article XII limits
foreign involvement in the local mining industry to agreements strictly for either financial or technical assistance
only; (b) the same paragraph precludes agreements that grant to foreign corporations the management of local
mining operations, as such agreements are purportedly in the nature of service contracts as these were
understood under the 1973 Constitution; (c) these service contracts were supposedly "de-constitutionalized" and
proscribed by the omission of the term service contracts from the 1987 Constitution; (d) since the WMCP FTAA
contains provisions permitting the foreign contractor to manage the concern, the said FTAA is invalid for being a
prohibited service contract; and (e) provisions of RA 7942 and DAO 96-40, which likewise grant managerial
authority to the foreign contractor, are also invalid and unconstitutional.
Ultimate Test: 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 of
constitutional provisions. On the one hand, paragraph 1 of Section 2 of Article XII explicitly mandates the State
to exercise "full control and supervision" over the exploration, development and utilization of natural resources.
On the other hand, paragraph 4 permits safeguarded service contracts with foreign contractors. Normally,
pursuant thereto, the contractors exercise management prerogatives over the mining operations and the
enterprise as a whole. There is thus a legitimate ground to be concerned that either the State's full control and
supervision may rule out any exercise of management authority by the foreign contractor; or, the other way
around, allowing the foreign contractor full management prerogatives may ultimately negate the State's full
control and supervision.
Ut Magis Valeat
Quam Pereat
Under the third principle of constitutional construction laid down in Francisco -- ut magis valeat quam pereat -every part of the Constitution is to be given effect, and the Constitution is to be read and understood as a
harmonious whole. Thus, "full control and supervision" by the State must be understood as one that does not
preclude the legitimate exercise of management prerogatives by the foreign contractor. Before any further
discussion, we must stress the primacy and supremacy of the principle of sovereignty and State control and
supervision over all aspects of exploration, development and utilization of the country's natural resources, as
mandated in the first paragraph of Section 2 of Article XII.
But in the next breadth we have to point out that "full control and supervision" cannot be taken literally to mean
that the State controls and supervises everything involved, down to the minutest details, and makes all
decisionsrequired in the mining operations. This strained concept of control and supervision over the mining
enterprise would render impossible the legitimate exercise by the contractors of a reasonable degree of
management prerogative and authority necessary and indispensable to their proper functioning.
For one thing, such an interpretation would discourage foreign entry into large-scale exploration, development
and utilization activities; and result in the unmitigated stagnation of this sector, to the detriment of our nation's
development. This scenario renders paragraph 4 inoperative and useless. And as respondents have correctly
pointed out, the government does not have to micro-manage the mining operations and dip its hands into the
day-to-day affairs of the enterprise in order for it to be considered as having full control and supervision.
The concept of control53 adopted in Section 2 of Article XII must be taken to mean less than dictatorial, allencompassing control; but nevertheless sufficient to give the State the power to direct, restrain, regulate and
govern the affairs of the extractive enterprises. Control by the State may be on a macro level, through the
establishment of policies, guidelines, regulations, industry standards and similar measures that would enable the
government to control the conduct of affairs in various enterprises and restrain activities deemed not desirable or
beneficial.
The end in view is ensuring that these enterprises contribute to the economic development and general welfare
of the country, conserve the environment, and uplift the well-being of the affected local communities. Such a
concept of control would be compatible with permitting the foreign contractor sufficient and reasonable

management authority over the enterprise it invested in, in order to ensure that it is operating efficiently and
profitably, to protect its investments and to enable it to succeed.
The question to be answered, then, is whether RA 7942 and its Implementing Rules enable the
government to exercise that degree of control sufficient to direct and regulate the conduct of affairs of
individual enterprises and restrain undesirable activities.
On the resolution of these questions will depend the validity and constitutionality of certain provisions of the
Philippine Mining Act of 1995 (RA 7942) and its Implementing Rules and Regulations (DAO 96-40), as well as
the WMCP FTAA.
Indeed, petitioners charge54 that RA 7942, as well as its Implementing Rules and Regulations, makes it possible
for FTAA contracts to cede full control and management of mining enterprises over to fully foreign-owned
corporations, with the result that the State is allegedly reduced to a passive regulator dependent on submitted
plans and reports, with weak review and audit powers. The State does not supposedly act as the owner of the
natural resources for and on behalf of the Filipino people; it practically has little effective say in the decisions
made by the enterprise. Petitioners then conclude that the law, the implementing regulations, and the WMCP
FTAA cede "beneficial ownership" of the mineral resources to the foreign contractor.
A careful scrutiny of the provisions of RA 7942 and its Implementing Rules belies petitioners' claims.
Paraphrasing the Constitution, Section 4 of the statute clearly affirms the State's control thus:
"Sec. 4. Ownership of Mineral Resources. Mineral resources are owned by the State and the
exploration, development, utilization and processing thereof shall be under its full control and
supervision. The State may directly undertake such activities or it may enter into mineral agreements
with contractors.
"The State shall recognize and protect the rights of the indigenous cultural communities to their ancestral
lands as provided for by the Constitution."
The aforequoted provision is substantively reiterated in Section 2 of DAO 96-40 as follows:
"Sec. 2. Declaration of Policy. All mineral resources in public and private lands within the territory and
exclusive economic zone of the Republic of the Philippines are owned by the State. It shall be the
responsibility of the State to promote their rational exploration, development, utilization and conservation
through the combined efforts of the Government and private sector in order to enhance national growth
in a way that effectively safeguards the environment and protects the rights of affected communities."
Sufficient Control Over Mining
Operations Vested in the State
by RA 7942 and DAO 96-40
RA 7942 provides for the State's control and supervision over mining operations. The following provisions
thereof establish the mechanism of inspection and visitorial rights over mining operations and institute reportorial
requirements in this manner:
1. Sec. 8 which provides for the DENR's power of over-all supervision and periodic review for "the
conservation, 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 of
the Phil. National Police, barangay, duly registered non-governmental organization (NGO) or any
qualified person to police mining activities;
3. Sec. 66 which vests in the Regional Director "exclusive jurisdiction over safety inspections of all
installations, whether surface or underground", utilized in mining operations.
4. Sec. 35, which incorporates into all FTAAs the following terms, conditions and warranties:

"(g) Mining operations shall be conducted in accordance with the provisions of the Act and its
IRR.
"(h) Work programs and minimum expenditures commitments.
xxxxxxxxx
"(k) Requiring proponent to effectively use appropriate anti-pollution technology and facilities to
protect the environment and restore or rehabilitate mined-out areas.
"(l) The contractors shall furnish the Government records of geologic, accounting and other
relevant data for its mining operation, and that books of accounts and records shall be open for
inspection by the government. x x x.
"(m) Requiring the proponent to dispose of the minerals at the highest price and more
advantageous terms and conditions.
"(n) x x x x x x x x x
"(o) Such other terms and conditions consistent with the Constitution and with this Act as the
Secretary may deem to be for the best interest of the State and the welfare of the Filipino
people."
The foregoing provisions of Section 35 of RA 7942 are also reflected and implemented in Section
56 (g), (h), (l), (m) and (n) of the Implementing Rules, DAO 96-40.
Moreover, RA 7942 and DAO 96-40 also provide various stipulations confirming the government's control over
mining enterprises:
The contractor is to relinquish to the government those portions of the contract area not needed for
mining operations and not covered by any declaration of mining feasibility (Section 35-e, RA 7942;
Section 60, DAO 96-40).
The contractor must comply with the provisions pertaining to mine safety, health and environmental
protection (Chapter XI, RA 7942; Chapters XV and XVI, DAO 96-40).
For violation of any of its terms and conditions, government may cancel an FTAA. (Chapter XVII, RA
7942; Chapter XXIV, DAO 96-40).
An FTAA contractor is obliged to open its books of accounts and records for inspection by the
government (Section 56-m, DAO 96-40).
An FTAA contractor has to dispose of the minerals and by-products at the highest market price and
register with the MGB a copy of the sales agreement (Section 56-n, DAO 96-40).
MGB is mandated to monitor the 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 or
a DENR-accredited nongovernmental organization to police mining activities (Section 7-d and -f, DAO
96-40).
An FTAA cannot be transferred or assigned without prior approval by the President (Section 40, RA
7942; Section 66, DAO 96-40).
A mining project under an FTAA cannot proceed to the construction/development/utilization stage,
unless its Declaration of Mining Project Feasibility has been approved by government (Section 24, RA
7942).
The Declaration of Mining Project Feasibility filed by the contractor cannot be approved without
submission of the following documents:

1. Approved mining project feasibility study (Section 53-d, DAO 96-40)

2. Approved three-year work program (Section 53-a-4, DAO 96-40)
3. Environmental compliance certificate (Section 70, RA 7942)
4. Approved environmental protection and enhancement program (Section 69, RA 7942)
5. Approval by the Sangguniang Panlalawigan/Bayan/Barangay (Section 70, RA 7942; Section
27, RA 7160)
6. Free and prior informed consent by the indigenous peoples concerned, including payment of
royalties through a Memorandum of Agreement (Section 16, RA 7942; Section 59, RA 8371)
The FTAA contractor is obliged to assist in the development of its mining community, promotion of the
general welfare of its inhabitants, and development of science and mining technology (Section 57, RA
7942).
The FTAA contractor is obliged to submit reports (on quarterly, semi-annual or annual basis as the
case may be; per Section 270, DAO 96-40), pertaining to the following:
1. Exploration
2. Drilling
3. Mineral resources and reserves
4. Energy consumption
5. Production
6. Sales and marketing
7. Employment
8. Payment of taxes, royalties, fees and other Government Shares
9. Mine safety, health and environment
10. Land use
11. Social development
12. Explosives consumption
An FTAA pertaining to areas within government reservations cannot be granted without a written
clearance from the government agencies concerned (Section 19, RA 7942; Section 54, DAO 96-40).
An FTAA contractor is required to post a financial guarantee bond in favor of the government in an
amount equivalent to its expenditures obligations for any particular year. This requirement is apart from
the representations and warranties of the contractor that it has access to all the financing, managerial
and technical expertise and technology necessary to carry out the objectives of the FTAA (Section 35-b,
-e, and -f, RA 7942).
Other reports to be submitted by the contractor, as required under DAO 96-40, are as follows: an
environmental report on the rehabilitation of the mined-out area and/or mine waste/tailing covered area,
and anti-pollution measures undertaken (Section 35-a-2); annual reports of the mining operations and
records of geologic accounting (Section 56-m); annual progress reports and final report of exploration
activities (Section 56-2).

 Other programs required to be submitted by the contractor, pursuant to DAO 96-40, are the following: a
safety and health program (Section 144); an environmental work program (Section 168); an annual
environmental protection and enhancement program (Section 171).
The foregoing gamut of requirements, regulations, restrictions and limitations imposed upon the FTAA contractor
by the statute and regulations easily overturns petitioners' contention. The setup under RA 7942 and DAO 96-40
hardly relegates the State to the role of a "passive regulator" dependent on submitted plans and reports. On the
contrary, the government agencies concerned are empowered to approve or disapprove -- hence, to influence,
direct and change -- the various work programs and the corresponding minimum expenditure commitments for
each of the exploration, development and utilization phases of the mining enterprise.
Once these plans and reports are approved, the contractor is bound to comply with its commitments therein.
Figures for mineral production and sales are regularly monitored and subjected to government review, in order to
ensure that the products and by-products are disposed of at the best prices possible; even copies of sales
agreements have to be submitted to and registered with MGB. And the contractor is mandated to open its books
of accounts and records for scrutiny, so as to enable the State to determine if the government share has been
fully paid.
The State may likewise compel the contractor's compliance with mandatory requirements on mine safety, health
and environmental protection, and the use of anti-pollution technology and facilities. Moreover, the contractor is
also obligated to assist in the development of the mining community and to pay royalties to the indigenous
peoples concerned.
Cancellation of the FTAA may be the penalty for violation of any of its terms and conditions and/or
noncompliance with statutes or regulations. This general, all-around, multipurpose sanction is no trifling matter,
especially to a contractor who may have yet to recover the tens or hundreds of millions of dollars sunk into a
mining project.
Overall, considering the provisions of the statute and the regulations just discussed, we believe that the State
definitely possesses the means by which it can have the ultimate word in the operation of the enterprise, set
directions and objectives, and detect deviations and noncompliance by the contractor; likewise, it has the
capability to enforce compliance and to impose sanctions, should the occasion therefor arise.
In other words, the FTAA contractor is not free to do whatever it pleases and get away with it; on the
contrary, it will have to follow the government line if it wants to stay in the enterprise. Ineluctably then,
RA 7942 and DAO 96-40 vest in the government more than a sufficient degree of control and supervision
over the conduct of mining operations.
Section 3(aq) of RA 7942
Not Unconstitutional
An objection has been expressed that Section 3(aq)55 of RA 7942 -- which allows a foreign contractor to apply for
and hold an exploration permit -- is unconstitutional. The reasoning is that Section 2 of Article XII of the
Constitution does not allow foreign-owned corporations to undertake mining operations directly. They may act
only as contractors of the State under an FTAA; and the State, as the party directly undertaking exploitation of its
natural resources, must hold through the government all exploration permits and similar authorizations. Hence,
Section 3(aq), in permitting foreign-owned corporations to hold exploration permits, is unconstitutional.
The objection, however, is not well-founded. While the Constitution mandates the State to exercise full control
and supervision over the exploitation of mineral resources, nowhere does it require the government to hold all
exploration permits and similar authorizations. In fact, there is no prohibition at all against foreign or local
corporations or contractors holding exploration permits. The reason is not hard to see.
Pursuant to Section 20 of RA 7942, an exploration permit merely grants to a qualified person the right to conduct
exploration for all minerals in specified areas. Such a permit does not amount to an authorization to extract and
carry off the mineral resources that may be discovered. This phase involves nothing but expenditures for
exploring the contract area and locating the mineral bodies. As no extraction is involved, there are no revenues
or incomes to speak of. In short, the exploration permit is an authorization for the grantee to spend its own funds
on exploration programs that are pre-approved by the government, without any right to recover anything should
no minerals in commercial quantities be discovered. The State risks nothing and loses nothing by granting these
permits to local or foreign firms; in fact, it stands to gain in the form of data generated by the exploration
activities.

Pursuant to Section 24 of RA 7942, an exploration permit grantee who determines the commercial viability of a
mining area may, within the term of the permit, file with the MGB a declaration of mining project feasibility
accompanied by a work program for development. The approval of the mining project feasibility and compliance
with other requirements of RA 7942 vests in the grantee the exclusive right to an MPSA or any other mineral
agreement, or to an FTAA.
Thus, the permit grantee may apply for an MPSA, a joint venture agreement, a co-production agreement, or an
FTAA over the permit area, and the application shall be approved if the permit grantee meets the necessary
qualifications and the terms and conditions of any such agreement. Therefore, the contractor will be in a position
to extract minerals and earn revenues only when the MPSA or another mineral agreement, or an FTAA, is
granted. At that point, the 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 prospective
contractor) cannot yet be deemed to have entered into any contract or agreement with the State, and the
grantee would definitely need to have some document or instrument as evidence of its right to conduct
exploration works within the specified area. This need is met by the exploration permit issued pursuant to
Sections 3(aq), 20 and 23 of RA 7942.
In brief, the exploration permit serves a practical and legitimate purpose in that it protects the interests
and preserves the rights of the exploration permit grantee (the would-be contractor) -- foreign or local -during the period of time that it is spending heavily on exploration works, without yet being able to earn
revenues to recoup any of its investments and expenditures. Minus this permit and the protection it affords,
the exploration works and expenditures may end up benefiting only claim-jumpers. Such a possibility tends to
discourage investors and contractors. Thus, Section 3(aq) of RA 7942 may not be deemed unconstitutional.
The Terms of the WMCP FTAA
A Deference to State Control
A perusal of the WMCP FTAA also reveals a slew of stipulations providing for State control and supervision:
1. The contractor is obligated to account for the value of production and sale of minerals (Clause 1.4).
2. The 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 of
forest reserves as part of the FTAA contract area (Clause 4.5).
6. The contractor is obliged to relinquish periodically parts of the contract area not needed for exploration
and development (Clause 4.6).
7. A Declaration of Mining Feasibility must be submitted for approval by the State (Clause 4.6-b).
8. The contractor is obligated to report to the State its exploration activities (Clause 4.9).
9. The contractor is required to obtain State approval of its work programs for the succeeding two-year
periods, containing the proposed work activities and expenditures budget related to exploration (Clause
5.1).
10. The contractor is required to obtain State approval for its proposed expenditures for exploration
activities (Clause 5.2).
11. The contractor is required to submit an annual report on geological, geophysical, geochemical and
other information relating to its explorations within the FTAA area (Clause 5.3-a).

12. The contractor is to submit within six months after expiration of exploration period a final report on all
its findings in the contract area (Clause 5.3-b).
13. The contractor, after conducting feasibility studies, shall submit a declaration of mining feasibility,
along with a description of the area to be developed and mined, a description of the proposed mining
operations and the technology to be employed, and a proposed work program for the development
phase, for approval by the DENR secretary (Clause 5.4).
14. The contractor is obliged to complete the development of the mine, including construction of the
production facilities, within the period stated in the approved work program (Clause 6.1).
15. The contractor is obligated to submit for approval of the DENR secretary a work program covering
each period of three fiscal years (Clause 6.2).
16. The contractor is to submit reports to the DENR secretary on the production, ore reserves, work
accomplished and work in progress, profile of its work force and management staff, and other technical
information (Clause 6.3).
17. Any expansions, modifications, improvements and replacements of mining facilities shall be subject
to the approval of the secretary (Clause 6.4).
18. The State has control with respect to the amount of funds that the contractor may borrow within the
Philippines (Clause 7.2).
19. The State has supervisory power with respect to technical, financial and marketing issues (Clause
10.1-a).
20. The contractor is required to ensure 60 percent Filipino equity in the contractor, within ten years of
recovering specified expenditures, unless not so required by subsequent legislation (Clause 10.1).
21. The State has the right to terminate the FTAA for the contractor's unremedied substantial breach
thereof (Clause 13.2);
22. The State's approval is needed for any assignment of the FTAA by the contractor to an entity other
than an affiliate (Clause 14.1).
We should elaborate a little on the work programs and budgets, and what they mean with respect to the State's
ability to exercise full control and effective supervision over the enterprise. For instance, throughout the initial
five-year exploration and feasibility phase of the project, the contractor is mandated by Clause 5.1 of the WMCP
FTAA to submit a series of work programs (copy furnished the director of MGB) to the DENR secretary
for approval.The programs will detail the contractor's proposed exploration activities and budget covering each
subsequent period of two fiscal years.
In other words, the concerned government officials will be informed beforehand of the proposed exploration
activities and expenditures of the contractor for each succeeding two-year period, with the right to
approve/disapprove them or require changes or adjustments therein if deemed necessary.
Likewise, under Clause 5.2(a), the amount that the contractor was supposed to spend for exploration activities
during the first contract year of the exploration period was fixed at not less than P24 million; and then for the
succeeding years, the amount shall be as agreed between the DENR secretary and the contractor prior to the
commencement of each subsequent fiscal year. If no such agreement is arrived upon, the previous year's
expenditure commitment shall apply.
This provision alone grants the government through the DENR secretary a very big say in the exploration phase
of the project. This fact is not something to be taken lightly, considering that the government has absolutely no
contribution to the exploration expenditures or work activities and yet is given veto power over such a critical
aspect of the project. We cannot but construe as very significant such a degree of control over the project and,
resultantly, over the mining enterprise itself.
Following its exploration activities or feasibility studies, if the contractor believes that any part of the contract
area is likely to contain an economic mineral resource, it shall submit to the DENR secretary a declaration of

mining feasibility (per Clause 5.4 of the FTAA), together with a technical description of the area delineated for
development and production, a description of the proposed mining operations including the technology to be
used, a work program for development, an environmental impact statement, and a description of the
contributions to the economic and general welfare of the country to be generated by the mining operations
(pursuant to Clause 5.5).
The work program for development is subject to the approval of the DENR secretary. Upon its approval, the
contractor must comply with it and complete the development of the mine, including the construction of
production facilities and installation of machinery and equipment, within the period provided in the approved
work program for development (per Clause 6.1).
Thus, notably, the development phase of the project is likewise subject to the control and supervision of the
government. It cannot be emphasized enough that the proper and timely construction and deployment of the
production facilities and the development of the mine are of pivotal significance to the success of the mining
venture. Any missteps here will potentially be very costly to remedy. Hence, the submission of the work program
for development to the DENR secretary for approval is particularly noteworthy, considering that so many millions
of dollars worth of investments -- courtesy of the contractor -- are made to depend on the State's consideration
and action.
Throughout the operating period, the contractor is required to submit to the DENR secretary for approval, copy
furnished the director of MGB, work programs covering each period of three fiscal years (per Clause 6.2). During
the same period (per Clause 6.3), the contractor is mandated to submit various quarterly and annual reports to
the DENR secretary, copy furnished the director of MGB, on the tonnages of production in terms of ores and
concentrates, with corresponding grades, values and destinations; reports of sales; total ore reserves, total
tonnage of ores, work accomplished and work in progress (installations and facilities related to mining
operations), investments made or committed, and so on and so forth.
Under Section VIII, during the period of mining operations, the contractor is also required to submit to the DENR
secretary (copy furnished the director of MGB) the work program and corresponding budget for the contract
area, describing the mining operations that are proposed to be carried out during the period covered. The
secretary is, of course, entitled to grant or deny approval of any work program or budget and/or propose
revisions thereto. Once the program/budget has been approved, the contractor shall comply therewith.
In sum, the above provisions of the WMCP FTAA taken together, far from constituting a surrender of control and
a grant of beneficial ownership of mineral resources to the contractor in question, bestow upon the State more
than adequate control and supervision over the activities of the contractor and the enterprise.
No Surrender of Control
Under the WMCP FTAA
Petitioners, however, take aim at Clause 8.2, 8.3, and 8.5 of the WMCP FTAA which, they say, amount to a
relinquishment of control by the State, since it "cannot truly impose its own discretion" in respect of the submitted
work programs.
"8.2. The Secretary shall be deemed to have approved any Work Programme or Budget or variation
thereofsubmitted by the Contractor unless within sixty (60) days after submission by the Contractor the
Secretary gives notice declining such approval or proposing a revision of certain features and specifying
its reasons therefor ('the Rejection Notice').
8.3. If the Secretary gives a Rejection Notice, the Parties shall promptly meet and endeavor to agree on
amendments to the Work Programme or Budget. If the Secretary and the Contractor fail to agree on the
proposed revision within 30 days from delivery of the Rejection Notice then the Work Programme or
Budget or variation thereof proposed by the Contractor shall be deemed approved, so as not to
unnecessarily delay the performance of the Agreement.
8.4. x x x x x x x x x
8.5. So far as is practicable, the Contractor shall comply with any approved Work Programme and
Budget. It is recognized by the Secretary and the Contractor that the details of any Work Programmes or
Budgets may require changes in the light of changing circumstances. The Contractor may make such
changes without approval of the Secretary provided they do not change the general objective of any
Work Programme, nor entail a downward variance of more than twenty per centum (20percent) of the

relevant Budget. All other variations to an approved Work Programme or Budget shall be submitted for
approval of the Secretary."
From the provisions quoted above, petitioners generalize by asserting that the government does not participate
in making critical decisions regarding the operations of the mining firm. Furthermore, while the State can require
the submission of work programs and budgets, the decision of the contractor will still prevail, if the parties have a
difference of opinion with regard to matters affecting operations and management.
We hold, however, that the foregoing provisions do not manifest a relinquishment of control. For instance,
Clause 8.2 merely provides a mechanism for preventing the business or mining operations from grinding to a
complete halt as a result of possibly over-long and unjustified delays in the government's handling, processing
and approval of submitted work programs and budgets. Anyway, the provision does give the DENR secretary
more than sufficient time (60 days) to react to submitted work programs and budgets. It cannot be supposed that
proper grounds for objecting thereto, if any exist, cannot be discovered within a period of two months.
On the other hand, Clause 8.3 seeks to provide a temporary, stop-gap solution in the event a disagreement over
the submitted work program or budget arises between the State and the contractor and results in a stalemate or
impasse, in order that there will be no unreasonably long delays in the performance of the works.
These temporary or stop-gap solutions are not necessarily evil or wrong. Neither does it follow that the
government will inexorably be aggrieved if and when these temporary remedies come into play. First, avoidance
of long delays in these situations will undoubtedly redound to the benefit of the State as well as the
contractor.Second, who is to say that the work program or budget proposed by the contractor and deemed
approved under Clause 8.3 would not be the better or more reasonable or more effective alternative? The
contractor, being the "insider," as it were, may be said to be in a better position than the State -- an outsider
looking in -- to determine what work program or budget would be appropriate, more effective, or more suitable
under the circumstances.
All things considered, we take exception to the characterization of the DENR secretary as a subservient
nonentity whom the contractor can overrule at will, on account of Clause 8.3. And neither is it true that under the
same clause, the DENR secretary has no authority whatsoever to disapprove the work program. As Respondent
WMCP reasoned in its Reply-Memorandum, the State -- despite Clause 8.3 -- still has control over the contract
area and it may, as sovereign authority, prohibit work thereon until the dispute is resolved. And ultimately, the
State may terminate the agreement, pursuant to Clause 13.2 of the same FTAA, citing substantial breach
thereof. Hence, it clearly retains full and effective control of the exploitation of the mineral resources.
On the other hand, Clause 8.5 is merely an acknowledgment of the parties' need for flexibility, given that no one
can accurately forecast under all circumstances, or predict how situations may change. Hence, while approved
work programs and budgets are to be followed and complied with as far as practicable, there may be instances
in which changes will have to be effected, and effected rapidly, since events may take shape and unfold with
suddenness and urgency. Thus, Clause 8.5 allows the contractor to move ahead and make changes without the
express or implicit approval of the DENR secretary. Such changes are, however, subject to certain conditions
that will serve to limit or restrict the variance and prevent the contractor from straying very far from what has
been approved.
Clause 8.5 provides the contractor a certain amount of flexibility to meet unexpected situations, while still
guaranteeing that the approved work programs and budgets are not abandoned altogether. Clause 8.5 does not
constitute proof that the State has relinquished control. And ultimately, should there be disagreement with the
actions taken by the contractor in this instance as well as under Clause 8.3 discussed above, the DENR
secretary may resort to cancellation/termination of the FTAA as the ultimate sanction.
Discretion to Select Contract
Area Not an Abdication of Control
Next, petitioners complain that the contractor has full discretion to select -- and the government has no say
whatsoever as to -- the parts of the contract area to be relinquished pursuant to Clause 4.6 of the WMCP
FTAA.56 This clause, however, does not constitute abdication of control. Rather, it is a mere acknowledgment of
the fact that the contractor will have determined, after appropriate exploration works, which portions of the
contract area do not contain minerals in commercial quantities sufficient to justify developing the same and
ought therefore to be relinquished. The State cannot just substitute its judgment for that of the contractor and
dictate upon the latter which areas to give up.

Moreover, we can be certain that the 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 as
possible, because the annual occupation fees paid to the government are based on the total hectarage of the
contract area, net of the areas relinquished. Thus, the larger the remaining area, the heftier the amount of
occupation fees to be paid by the contractor. Accordingly, relinquishment is not an issue, given that the
contractor will not want to pay the annual occupation fees on the non-mineral parts of its contract area. Neither
will it want to relinquish promising sites, which other contractors may subsequently pick up.
Government Not a Subcontractor
Petitioners further maintain that the contractor can compel the government to exercise its power of eminent
domain to acquire surface areas within the contract area for the contractor's use. Clause 10.2 (e) of the WMCP
FTAA provides that the government agrees that the contractor shall "(e) have the right to require the
Government at the Contractor's own cost, to purchase or acquire surface areas for and on behalf of the
Contractor at such price and terms as may be acceptable to the contractor. At the termination of this Agreement
such areas shall be sold by public auction or tender and the Contractor shall be entitled to reimbursement of the
costs of acquisition and maintenance, adjusted for inflation, from the proceeds of sale."
According to petitioners, "government becomes a subcontractor to the contractor" and may, on account of this
provision, be compelled "to make use of its power of eminent domain, not for public purposes but on behalf of a
private party, i.e., the contractor." Moreover, the power of the courts to determine the amount corresponding to
the constitutional requirement of just compensation has allegedly also been contracted away by the government,
on account of the latter's commitment that the acquisition shall be at such terms as may be acceptable to the
contractor.
However, private respondent has proffered a logical explanation for the provision.58 Section 10.2(e)
contemplates a situation applicable to foreign-owned corporations. WMCP, at the time of the execution of the
FTAA, was a foreign-owned corporation and therefore not qualified to own land. As contractor, it has at some
future date to construct the infrastructure -- the mine processing plant, the camp site, the tailings dam, and other
infrastructure -- needed for the large-scale mining operations. It will then have to identify and pinpoint, within the
FTAA contract area, the particular surface areas with favorable topography deemed ideal for such infrastructure
and will need to acquire the surface rights. The State owns the mineral deposits in the earth, and is also qualified
to own land.
Section 10.2(e) sets forth the mechanism whereby the foreign-owned contractor, disqualified to own land,
identifies to the government the specific surface areas within the FTAA contract area to be acquired for the mine
infrastructure. The government then acquires ownership of the surface land areas on behalf of the contractor, in
order to enable the latter to proceed to fully implement the FTAA.
The contractor, of course, shoulders the purchase price of the land. Hence, the provision allows it, after
termination of the FTAA, to be reimbursed from proceeds of the sale of the surface areas, which the government
will dispose of through public bidding. It should be noted that this provision will not be applicable to Sagittarius as
the present FTAA contractor, since it is a Filipino corporation qualified to own and hold land. As such, it may
therefore freely negotiate with the surface rights owners and acquire the surface property in its own right.
Clearly, petitioners have needlessly jumped to unwarranted conclusions, without being aware of the rationale for
the said provision. That provision does not call for the exercise of the power of eminent domain -- and
determination of just compensation is not an issue -- as much as it calls for a qualified party to acquire the
surface rights on behalf of a foreign-owned contractor.
Rather than having the foreign contractor act through a dummy corporation, having the State do the purchasing
is a better alternative. This will at least cause the government to be aware of such transaction/s and foster
transparency in the contractor's dealings with the local property owners. The government, then, will not act as a
subcontractor of the contractor; rather, it will facilitate the transaction and enable the parties to avoid a technical
violation of the Anti-Dummy Law.
Absence of Provision
Requiring Sale at Posted
Prices Not Problematic
The supposed absence of any provision in the WMCP FTAA directly and explicitly requiring the contractor to sell
the mineral products at posted or market prices is not a problem. Apart from Clause 1.4 of the FTAA obligating

the contractor to account for the total value of mineral production and the sale of minerals, we can also look to
Section 35 of RA 7942, which incorporates into all FTAAs certain terms, conditions and warranties, including the
following:
"(l) The contractors shall furnish the Government records of geologic, accounting and other relevant data
for its mining operation, and that books of accounts and records shall be open for inspection by the
government. x x x
(m) Requiring the proponent to dispose of the minerals at the highest price and more advantageous
terms and conditions."
For that matter, Section 56(n) of DAO 99-56 specifically obligates an FTAA contractor to dispose of the minerals
and by-products at the highest market price and to register with the MGB a copy of the sales agreement. After
all, the provisions of prevailing statutes as well as rules and regulations are deemed written into contracts.
Contractor's Right to Mortgage
Not Objectionable Per Se
Petitioners also question the absolute right of the contractor under Clause 10.2 (l) to mortgage and encumber
not only its rights and interests in the FTAA and the infrastructure and improvements introduced, but also the
mineral products extracted. Private respondents do not touch on this matter, but we believe that this provision
may have to do with the conditions imposed by the creditor-banks of the then foreign contractor WMCP to
secure the lendings made or to be made to the latter. Ordinarily, banks lend not only on the security of
mortgages on fixed assets, but also on encumbrances of goods produced that can easily be sold and converted
into cash that can be applied to the repayment of loans. Banks even lend on the security of accounts
receivable that are collectible within 90 days.59
It is not uncommon to find that a debtor corporation has executed deeds of assignment "by way of security" over
the production for the next twelve months and/or the proceeds of the sale thereof -- or the corresponding
accounts receivable, if sold on terms -- in favor of its creditor-banks. Such deeds may include authorizing the
creditors to sell the products themselves and to collect the sales proceeds and/or the accounts receivable.
Seen in this context, Clause 10.2(l) is not something out of the ordinary or objectionable. In any case, as will be
explained below, even if it is allowed to mortgage or encumber the mineral end-products themselves, the
contractor is not freed of its obligation to pay the government its basic and additional shares in the net mining
revenue, which is the essential thing to consider.
In brief, the alarum raised over the contractor's right to mortgage the minerals is simply unwarranted. Just the
same, the contractor must account for the value of mineral production and the sales proceeds therefrom.
Likewise, under the WMCP FTAA, the government remains entitled to its sixty percent share in the net mining
revenues of the contractor. The latter's right to mortgage the minerals does not negate the State's right to
receive its share of net mining revenues.
Shareholders Free to Sell Their Stocks
Petitioners likewise criticize Clause 10.2(k), which gives the contractor authority "to change its equity structure at
any time." This provision may seem somewhat unusual, but considering that WMCP then was 100 percent
foreign-owned, any change would mean that such percentage would either stay unaltered or be decreased in
favor of Filipino ownership. Moreover, the foreign-held shares may change hands freely. Such eventuality is as it
should be.
We believe it is not necessary for government to attempt to limit or restrict the freedom of the shareholders in the
contractor to freely transfer, dispose of or encumber their shareholdings, consonant with the unfettered exercise
of their business judgment and discretion. Rather, what is critical is that, regardless of the identity, nationality
and percentage ownership of the various shareholders of the contractor -- and regardless of whether these
shareholders decide to take the company public, float bonds and other fixed-income instruments, or allow the
creditor-banks to take an equity position in the company -- the foreign-owned contractor is always in a position to
render the services required under the FTAA, under the direction and control of the government.
Contractor's Right to Ask
For Amendment Not Absolute

With respect to Clauses 10.4(e) and (i), petitioners complain that these provisions bind government to allow
amendments to the FTAA if required by banks and other financial institutions as part of the conditions for new
lendings. However, we do not find anything wrong with Clause 10.4(e), which only states that "if the Contractor
seeks to obtain financing contemplated herein from banks or other financial institutions, (the Government shall)
cooperate with the Contractor in such efforts provided that such financing arrangements will in no event reduce
the Contractor's obligations or the Government's rights hereunder." The colatilla obviously safeguards the
State'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 to
successfully obtain the financing." Petitioners see in this provision a complete renunciation of control. We
disagree.
The proviso does not say that the government shall grant any request for amendment. Clause 10.4(i) only
obliges the State to favorably consider any such request, which is not at all unreasonable, as it is not equivalent
to saying that the government must automatically consent to it. This provision should be read together with the
rest of the FTAA provisions instituting government control and supervision over the mining enterprise. The
clause should not be given an interpretation that enables the contractor to wiggle out of the restrictions imposed
upon it by merely suggesting that certain amendments are requested by the lenders.
Rather, it is up to the contractor to prove to the government that the requested changes to the FTAA are
indispensable, as they enable the contractor to obtain the needed financing; that without such contract changes,
the funders would absolutely refuse to extend the loan; that there are no other sources of financing available to
the contractor (a very unlikely scenario); and that without the needed financing, the execution of the work
programs will not proceed. But the bottom line is, in the exercise of its power of control, the government has
thefinal say on whether to approve or disapprove such requested amendments to the FTAA. In short, approval
thereof is not mandatory on the part of the government.
In fine, the foregoing evaluation and analysis of the aforementioned FTAA provisions sufficiently
overturns petitioners' litany of objections to and criticisms of the State's alleged lack of control.
Financial Benefits Not
Surrendered to the Contractor
One of the main reasons certain provisions of RA 7942 were struck down was the finding mentioned in the
Decision that beneficial ownership of the mineral resources had been conveyed to the contractor. This finding
was based on the underlying assumption, common to the said provisions, that the foreign contractor manages
the mineral resources in the same way that foreign contractors in service contracts used to. "By allowing foreign
contractors to manage or operate all the aspects of the mining operation, the above-cited provisions of R.A. No.
7942 have in effect conveyed beneficial ownership over the nation's mineral resources to these contractors,
leaving the State with nothing but bare title thereto."60 As the WMCP FTAA contained similar provisions deemed
by the ponente to be abhorrent to the Constitution, the Decision struck down the Contract as well.
Beneficial ownership has been defined as ownership recognized by law and capable of being enforced in the
courts at the suit of the beneficial owner.61 Black's Law Dictionary indicates that the term is used in two
senses:first, to indicate the interest of a beneficiary in trust property (also called "equitable ownership");
and second, to refer to the power of a corporate shareholder to buy or sell the shares, though the shareholder is
not registered in the corporation's books as the owner.62 Usually, beneficial ownership is distinguished from
naked ownership, which is the enjoyment of all the benefits and privileges of ownership, as against possession
of the bare title to property.
An assiduous examination of the WMCP FTAA uncovers no indication that it confers upon WMCP ownership,
beneficial or otherwise, of the mining property it is to develop, the minerals to be produced, or the proceeds of
their sale, which can be legally asserted and enforced as against the State.
As public respondents correctly point out, any interest the contractor may have in the proceeds of the mining
operation is merely the equivalent of the consideration the government has undertaken to pay for its services. All
lawful contracts require such mutual prestations, and the WMCP FTAA is no different. The contractor commits to
perform certain services for the government in respect of the mining operation, and in turn it is to be
compensated out of the net mining revenues generated from the sale of mineral products. What would be
objectionable is a contractual provision that unduly benefits the contractor far in excess of the service rendered
or value delivered, if any, in exchange therefor.

A careful perusal of the statute itself and its implementing rules reveals that neither RA 7942 nor DAO 99-56 can
be said to convey beneficial ownership of any mineral resource or product to any foreign FTAA contractor.
Equitable Sharing
of Financial Benefits
On the contrary, DAO 99-56, entitled "Guidelines Establishing the Fiscal Regime of Financial or Technical
Assistance Agreements" aims to ensure an equitable sharing of the benefits derived from mineral resources.
These benefits are to be equitably shared among the government (national and local), the FTAA contractor, and
the affected communities. The purpose is to ensure sustainable mineral resources development; and a fair,
equitable, competitive and stable investment regime for the large-scale exploration, development and
commercial utilization of minerals. The general framework or concept followed in crafting the fiscal regime of the
FTAA is based on the principle that the government expects real contributions to the economic growth and
general welfare of the country, while the contractor expects a reasonable return on its investments in the
project.63
Specifically, under the fiscal regime, the government's expectation is, inter alia, the receipt of its share from the
taxes and fees normally paid by a mining enterprise. On the other hand, the FTAA contractor is granted by the
government certain fiscal and non-fiscal incentives64 to help support the former's cash flow during the most
critical phase (cost recovery) and to make the Philippines competitive with other mineral-producing countries.
After the contractor has recovered its initial investment, it will pay all the normal taxes and fees comprising the
basic share of the government, plus an additional share for the government based on the options and formulae
set forth in DAO 99-56.
The said DAO spells out the financial benefits the government will receive from an FTAA, referred to as "the
Government Share," composed of a basic government share and an additional government share.
The basic government share is comprised of all direct taxes, fees and royalties, as well as other payments
made by the contractor during the term of the FTAA. These are amounts paid directly to (i) the national
government (through the Bureau of Internal Revenue, Bureau of Customs, Mines & Geosciences Bureau and
other national government agencies imposing taxes or fees), (ii) the local government units where the mining
activity is conducted, and (iii) persons and communities directly affected by the mining project. The major taxes
and other payments constituting the basic government share are enumerated below:65
Payments to the National Government:
Excise tax on minerals - 2 percent of the gross output of mining operations
Contractor' income tax - maximum of 32 percent of taxable income for corporations
Customs duties and fees on imported capital equipment -the rate is set by the Tariff and
Customs Code (3-7 percent for chemicals; 3-10 percent for explosives; 3-15 percent for
mechanical and electrical equipment; and 3-10 percent for vehicles, aircraft and vessels
VAT on imported equipment, goods and services 10 percent of value
Royalties due the government on minerals extracted from mineral reservations, if applicable 5
percent of the actual market value of the minerals produced
Documentary stamp tax - the rate depends on the type of transaction
Capital gains tax on traded stocks - 5 to 10 percent of the value of the shares
Withholding tax on interest payments on foreign loans -15 percent of the amount of interest
Withholding tax on dividend payments to foreign stockholders 15 percent of the dividend
Wharfage and port fees
Licensing fees (for example, radio permit, firearms permit, professional fees)

 Other national taxes and fees.

Payments to Local Governments:
Local business tax - a maximum of 2 percent of gross sales or receipts (the rate varies among
local government units)
Real property tax - 2 percent of the fair market value of the property, based on an assessment
level set by the local government
Special education levy - 1 percent of the basis used for the real property tax
Occupation fees - PhP50 per hectare per year; PhP100 per hectare per year if located in a
mineral reservation
Community tax - maximum of PhP10,500 per year
All other local government taxes, fees and imposts as of the effective date of the FTAA - the
rate and the type depend on the local government
Other Payments:
Royalty to indigenous cultural communities, if any 1 percent of gross output from mining
operations
Special allowance - payment to claim owners and surface rights holders
Apart from the basic share, an additional government share is also collected from the FTAA contractor in
accordance with the second paragraph of Section 81 of RA 7942, which provides that the government share
shall be comprised of, among other things, certain taxes, duties and fees. The subject proviso reads:
"The Government share in a financial or technical assistance agreement shall consist of, among other things,
the contractor's corporate income tax, excise tax, special allowance, withholding tax due from the contractor's
foreign stockholders arising from dividend or interest payments to the said foreign stockholder in case of a
foreign national, and all such other taxes, duties and fees as provided for under existing laws." (Bold types
supplied.)
The government, through the DENR and the MGB, has interpreted the insertion of the phrase among other
thingsas signifying that the government is entitled to an "additional government share" to be paid by the
contractor apart from the "basic share," in order to attain a fifty-fifty sharing of net benefits from mining.
The additional government share is computed by using one of three options or schemes presented in DAO
99-56: (1) a fifty-fifty sharing in the cumulative present value of cash flows; (2) the share based on excess
profits; and (3) the sharing based on the cumulative net mining revenue. The particular formula to be applied will
be selected by the contractor, with a written notice to the government prior to the commencement of the
development and construction phase of the mining project.66
Proceeds from the government shares arising from an FTAA contract are distributed to and received by the
different levels of government in the following proportions:
National Government

50 percent

Provincial
Government

10 percent

Municipal
Government

20 percent

Affected Barangays

20 percent

The portion of revenues remaining after the deduction of the basic and additional government shares is what
goes to the contractor.
Government's Share in an
FTAA Not Consisting Solely
of Taxes, Duties and Fees
In connection with the foregoing discussion on the basic and additional government shares, it is pertinent at
this juncture to mention the criticism leveled at the second paragraph of Section 81 of RA 7942, quoted earlier.
The said proviso has been denounced, because, allegedly, the State's share in FTAAs with foreign contractors
has been limited to taxes, fees and duties only; in effect, the State has been deprived of a share in the after-tax
income of the enterprise. In the face of this allegation, one has to consider that the law does not define the
termamong other things; and the Office of the Solicitor General, in its Motion for Reconsideration, appears to
have erroneously claimed that the phrase refers to indirect taxes.
The law provides no definition of the term among other things, for the reason that Congress deliberately avoided
setting unnecessary limitations as to what may constitute compensation to the State for the exploitation and use
of mineral resources. But the inclusion of that phrase clearly and unmistakably reveals the legislative intent to
have the State collect more than just the usual taxes, duties and fees. Certainly, there is nothing in that phrase -or in the second paragraph of Section 81 -- that would suggest that such phrase should be interpreted as
referring only to taxes, duties, fees and the like.
Precisely for that reason, to fulfill the legislative intent behind the inclusion of the phrase among other things in
the second paragraph of Section 81,67 the DENR structured and formulated in DAO 99-56 the said additional
government share. Such a share was to consist not of taxes, but of a share in the earnings or cash flows of
the mining enterprise. The additional government share was to be paid by the contractor on top of the basic
share, so as to achieve a fifty-fifty sharing -- between the government and the contractor -- of net benefits from
mining. In the Ramos-DeVera paper, the explanation of the three options or formulas68 -- presented in DAO
99-56 for the computation of the additional government share -- serves to debunk the claim that the
government'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 fully
replicate or echo the pertinent elucidation in the Ramos-DeVera paper regarding the three schemes or options
for computing the additional government share presented in DAO 99-56. Had due care been taken by the OSG,
the Court would have been duly apprised of the real nature and particulars of the additional share.
But, perhaps, on account of the esoteric discussion in the Ramos-DeVera paper, and the even more abstruse
mathematical jargon employed in DAO 99-56, the OSG omitted any mention of the three options. Instead, the
OSG skipped to a side discussion of the effect of indirect taxes, which had nothing at all to do with the additional
government share, to begin with. Unfortunately, this move created the wrong impression, pointed out in Justice
Antonio T. Carpio's Opinion, that the OSG had taken the position that the additional government share consisted
of indirect taxes.
In any event, what is quite evident is the fact that the additional government share, as formulated, has nothing
to do with taxes -- direct or indirect -- or with duties, fees or charges. To repeat, it is over and above the basic
government share composed of taxes and duties. Simply put, the additional share may be (a) an amount that will
result in a 50-50 sharing of the cumulative present value of the cash flows69 of the enterprise; (b) an amount
equivalent to 25 percent of the additional or excess profits of the enterprise, reckoned against a benchmark
return on investments; or (c) an amount that will result in a fifty-fifty sharing of the cumulative net mining
revenue from the end of the recovery period up to the taxable year in question. The contractor is required to
select one of the three options or formulae for computing the additional share, an option it will apply to all of its
mining operations.
As used above, "net mining revenue" is defined as the gross output from mining operations for a calendar year,
less deductible expenses (inclusive of taxes, duties and fees). Such revenue would roughly be equivalent to
"taxable income" or income before income tax. Definitely, as compared with, say, calculating the additional
government share on the basis of net income (after income tax), the net mining revenue is a better and much
more reasonable basis for such computation, as it gives a truer picture of the profitability of the company.
To demonstrate that the three options or formulations will operate as intended, Messrs. Ramos and de Vera also
performed some quantifications of the government share via a financial modeling of each of the three options
discussed above. They found that the government would get the highest share from the option that is based on

the net mining revenue, as compared with the other two options, considering only the basic and the additional
shares; and that, even though production rate decreases, the government share will actually increase when the
net mining revenue and the additional profit-based options are used.
Furthermore, it should be noted that the three options or formulae do not yet take into account the indirect
taxes70 and other financial contributions71 of mining projects. These indirect taxes and other contributions are real
and actual benefits enjoyed by the Filipino people and/or government. Now, if some of the quantifiable items are
taken into account in the computations, the financial modeling would show that the total government share
increases to 60 percent or higher -- in one instance, as much as 77 percent and even 89 percent -- of the net
present value of total benefits from the project. As noted in the Ramos-DeVera paper, these results are not at all
shabby, considering that the contractor puts in all the capital requirements and assumes all the risks, without the
government having to contribute or risk anything.
Despite the foregoing explanation, Justice Carpio still insisted during the Court's deliberations that the
phraseamong other things refers only to taxes, duties and fees. We are bewildered by his position. On the one
hand, he condemns the Mining Law for allegedly limiting the government's benefits only to taxes, duties and
fees; and on the other, he refuses to allow the State to benefit from the correct and proper interpretation of the
DENR/MGB. To remove all doubts then, we hold that the State's share is not limited to taxes, duties and fees
only and that the DENR/MGB interpretation of the phrase among other things is correct. Definitely, this
DENR/MGB interpretation is not only legally sound, but also greatly advantageous to the government.
One last point on the subject. The legislature acted judiciously in not defining the terms among other things and,
instead, leaving it to the agencies concerned to devise and develop the various modes of arriving at a
reasonable and fair amount for the additional government share. As can be seen from DAO 99-56, the
agencies concerned did an admirable job of conceiving and developing not just one formula, but three different
formulae for arriving at the additional government share. Each of these options is quite fair and reasonable; and,
as Messrs. Ramos and De Vera stated, other alternatives or schemes for a possible improvement of the fiscal
regime for FTAAs are also being studied by the government.
Besides, not locking into a fixed definition of the term among other things will ultimately be more beneficial to the
government, as it will have that innate flexibility to adjust to and cope with rapidly changing circumstances,
particularly those in the international markets. Such flexibility is especially significant for the government in terms
of helping our mining enterprises remain competitive in world markets despite challenging and shifting economic
scenarios.
In conclusion, we stress that we do not share the view that in FTAAs with foreign contractors under RA
7942, the government's share is limited to taxes, fees and duties. Consequently, we find the attacks on
the second paragraph of Section 81 of RA 7942 totally unwarranted.
Collections Not Made Uncertain
by the Third Paragraph of Section 81
The third or last paragraph of Section 8172 provides that the government share in FTAAs shall be collected when
the contractor shall have recovered its pre-operating expenses and exploration and development expenditures.
The objection has been advanced that, on account of the proviso, the collection of the State's share is not even
certain, as there is no time limit in RA 7942 for this grace period or recovery period.
We believe that Congress did not set any time limit for the grace period, preferring to leave it to the concerned
agencies, which are, on account of their technical expertise and training, in a better position to determine the
appropriate durations for such recovery periods. After all, these recovery periods are determined, to a great
extent, by technical and technological factors peculiar to the mining industry. Besides, with developments and
advances in technology and in the geosciences, we cannot discount the possibility of shorter recovery periods.
At any rate, the concerned agencies have not been remiss in this area. The 1995 and 1996 Implementing Rules
and Regulations of RA 7942 specify that the period of recovery, reckoned from the date of commercial
operation, shall be for a period not exceeding five years, or until the date of actual recovery, whichever comes
earlier.
Approval of Pre-Operating
Expenses Required by RA 7942
Still, RA 7942 is criticized for allegedly not requiring government approval of pre-operating, exploration and
development expenses of the foreign contractors, who are in effect given unfettered discretion to determine the

amounts of such expenses. Supposedly, nothing prevents the contractors from recording such expenses in
amounts equal to the mining revenues anticipated for the first 10 or 15 years of commercial production, with the
result that the share of the State will be zero for the first 10 or 15 years. Moreover, under the circumstances, the
government would be unable to say when it would start to receive its share under the FTAA.
We believe that the argument is based on incorrect information as well as speculation. Obviously, certain crucial
provisions in the Mining Law were overlooked. Section 23, dealing with the rights and obligations of the
exploration permit grantee, states: "The permittee shall undertake exploration work on the area as specified by
its permit based on an approved work program." The next proviso reads: "Any expenditure in excess of
the yearly budget of the approved work program may be carried forward and credited to the succeeding years
covering the duration of the permit. x x x." (underscoring supplied)
Clearly, even at the stage of application for an exploration permit, the applicant is required to submit -- for
approval by the government -- a proposed work program for exploration, containing a yearly budget of proposed
expenditures. The State has the opportunity to pass upon (and approve or reject) such proposed expenditures,
with the foreknowledge that -- if approved -- these will subsequently be recorded as pre-operating expenses that
the contractor will have to recoup over the grace period. That is not all.
Under Section 24, an exploration permit holder who determines the commercial viability of a project covering a
mining area may, within the term of the permit, file with the Mines and Geosciences Bureau a declaration of
mining project feasibility. This declaration is to be accompanied by a work program for development for the
Bureau'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 to
approve or reject the proposed work program and budgeted expenditures for development works on the project.
Such expenditures will ultimately become the pre-operating and development costs that will have to be
recovered by the contractor.
Naturally, with the submission of approved work programs and budgets for the exploration and the
development/construction phases, the government will be able to scrutinize and approve or reject such
expenditures. It will be well-informed as to the amounts of pre-operating and other expenses that the contractor
may legitimately recover and the approximate period of time needed to effect such a recovery. There is therefore
no way the contractor can just randomly post any amount of pre-operating expenses and expect to recover the
same.
The aforecited provisions on approved work programs and budgets have counterparts in Section 35, which deals
with the terms and conditions exclusively applicable to FTAAs. The said provision requires certain terms and
conditions to be incorporated into FTAAs; among them, "a firm commitment x x x of an amount corresponding to
the expenditure obligation that will be invested in the contract area" and "representations and warranties x x x to
timely deploy these [financing, managerial and technical expertise and technological] resources under its
supervision pursuant to the periodic work programs and related budgets x x x," as well as "work
programs andminimum expenditures commitments." (underscoring supplied)
Unarguably, given the provisions of Section 35, the State has every opportunity to pass upon the proposed
expenditures under an FTAA and approve or reject them. It has access to all the information it may need in order
to determine in advance the amounts of pre-operating and developmental expenses that will have to be
recovered by the contractor and the amount of time needed for such recovery.
In summary, we cannot agree that the third or last paragraph of Section 81 of RA 7942 is in any manner
unconstitutional.
No Deprivation of Beneficial Rights
It is also claimed that aside from the second and the third paragraphs of Section 81 (discussed above), Sections
80, 84 and 112 of RA 7942 also operate to deprive the State of beneficial rights of ownership over mineral
resources; and give them away for free to private business enterprises (including foreign owned corporations).
Likewise, the said provisions have been construed as constituting, together with Section 81, an ingenious
attempt to resurrect the old and discredited system of "license, concession or lease."
Specifically, Section 80 is condemned for limiting the 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 2
percent of the market value of the gross output of the minerals. The colatilla in Section 84, the portion
considered offensive to the Constitution, reiterates the same limitation made in Section 80.73

It should be pointed out that Section 80 and the colatilla in Section 84 pertain only to MPSAs and have no
application to FTAAs. These particular statutory provisions do not come within the issues that were defined and
delineated by this Court during the Oral Argument -- particularly the third issue, which pertained exclusively to
FTAAs. Neither did the parties argue upon them in their pleadings. Hence, this Court cannot make any
pronouncement in this case regarding the constitutionality of Sections 80 and 84 without violating the
fundamental rules of due process. Indeed, the two provisos will have to await another case specifically placing
them in issue.
On the other hand, Section 11274 is disparaged for allegedly reverting FTAAs and all mineral agreements to the
old and discredited "license, concession or lease" system. This Section states in relevant part that "the
provisions of Chapter XIV [which includes Sections 80 to 82] on government share in mineral production-sharing
agreement x x x shall immediately govern and apply to a mining lessee or contractor." (underscoring supplied)
This provision is construed as signifying that the 2 percent excise tax which, pursuant to Section 80, comprises
the government share in MPSAs shall now also constitute the government share in FTAAs -- as well as in coproduction agreements and joint venture agreements -- to the exclusion of revenues of any other nature or from
any other source.
Apart from the fact that Section 112 likewise does not come within the issues delineated by this Court during the
Oral Argument, and was never touched upon by the parties in their pleadings, it must also be noted that the
criticism hurled against this Section is rooted in unwarranted conclusions made without considering other
relevant provisions in the statute. Whether Section 112 may properly apply to co-production or joint venture
agreements, the fact of the matter is that it cannot be made to apply to FTAAs.
First, Section 112 does not specifically mention or refer to FTAAs; the only reason it is being applied to them at
all is the fact that it happens to use the word "contractor." Hence, it is a bit of a stretch to insist that it covers
FTAAs as well. Second, mineral agreements, of which there are three types -- MPSAs, co-production
agreements, and joint venture agreements -- are covered by Chapter V of RA 7942. On the other hand, FTAAs
are covered by and in fact are the subject of Chapter VI, an entirely different chapter altogether. The law
obviously intends to treat them as a breed apart from mineral agreements, since Section 35 (found in Chapter
VI) creates a long list of specific terms, conditions, commitments, representations and warranties -- which have
not been made applicable to mineral agreements -- to be incorporated into FTAAs.
Third, under Section 39, the FTAA contractor is given the option to "downgrade" -- to convert the FTAA into a
mineral agreement at any time during the term if the economic viability of the contract area is inadequate to
sustain large-scale mining operations. Thus, there is no reason to think that the law through Section 112 intends
to exact from FTAA contractors merely the same government share (a 2 percent excise tax) that it apparently
demands from contractors under the three forms of mineral agreements. In brief, Section 112 does not apply
to FTAAs.
Notwithstanding the foregoing explanation, Justices Carpio and Morales maintain that the Court must
rule now on the constitutionality of Sections 80, 84 and 112, allegedly because the WMCP FTAA contains a
provision which grants the contractor unbridled and "automatic" authority to convert the FTAA into an MPSA;
and should such conversion happen, the State would be prejudiced since its share would be limited to the 2
percent excise tax. Justice Carpio adds that there are five MPSAs already signed just awaiting the judgment of
this Court on respondents' and 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 legal
interest in the MPSAs (i.e. the parties who executed them) before these MPSAs can be reviewed, or worse,
struck down by the Court. Anything less than that requirement would be arbitrary and capricious.
In any event, the conversion of the present FTAA into an MPSA is problematic. First, the contractor must comply
with the law, particularly Section 39 of RA 7942; inter alia, it must convincingly show that the "economic viability
of the contract is found to be inadequate to justify large-scale mining operations;" second, it must contend with
the President's exercise of the power of State control over the EDU of natural resources; and third, it will have to
risk a possible declaration of the unconstitutionality (in a proper case) of Sections 80, 84 and 112.
The first requirement is not as simple as it looks. Section 39 contemplates a situation in which an FTAA has
already been executed and entered into, and is presumably being implemented, when the contractor "discovers"
that the mineral ore reserves in the contract area are not sufficient to justify large-scale mining, and thus the
contractor requests the conversion of the FTAA into an MPSA. The contractor in effect needs to explain why,
despite its exploration activities, including the conduct of various geologic and other scientific tests and
procedures in the contract area, it was unable to determine correctly the mineral ore reserves and the economic

viability of the area. The contractor must explain why, after conducting such exploration activities, it decided to
file a declaration of mining feasibility, and to apply for an FTAA, thereby leading the State to believe that the area
could sustain large-scale mining. The contractor must justify fully why its earlier findings, based on scientific
procedures, tests and data, turned out to be wrong, or were way off. It must likewise prove that its new findings,
also based on scientific tests and procedures, are correct. Right away, this puts the contractor's technical
capabilities and expertise into serious doubt. We wonder if anyone would relish being in this situation. The State
could even question and challenge the contractor's qualification and competence to continue the activity under
an MPSA.
All in all, while there may be cogent grounds to assail the aforecited Sections, this Court -- on
considerations of due process -- cannot rule upon them here. Anyway, if later on these Sections are
declared unconstitutional, such declaration will not affect the other portions since they are clearly
separable from the rest.
Our Mineral Resources Not
Given Away for Free by RA 7942
Nevertheless, if only to disabuse our minds, we should address the contention that our mineral resources are
effectively given away for free by the law (RA 7942) in general and by Sections 80, 81, 84 and 112 in particular.
Foreign contractors do not just waltz into town one day and leave the next, taking away mineral
resources without paying anything. In order to get at the minerals, they have to invest huge sums of money (tens
or hundreds of millions of dollars) in exploration works first. If the exploration proves unsuccessful, all the cash
spent thereon will not be returned to the foreign investors; rather, those funds will have been infused into the
local economy, to remain there permanently. The benefits therefrom cannot be simply ignored. And assuming
that the foreign contractors are successful in finding ore bodies that are viable for commercial exploitation, they
do not just pluck out the minerals and cart them off. They have first to build camp sites and roadways; dig mine
shafts and connecting tunnels; prepare tailing ponds, storage areas and vehicle depots; install their machinery
and equipment, generator sets, pumps, water tanks and sewer systems, and so on.
In short, they need to expend a great deal more of their funds for facilities, equipment and supplies, fuel, salaries
of local labor and technical staff, and other operating expenses. In the meantime, they also have to pay
taxes,75duties, fees, and royalties. All told, the exploration, pre-feasibility, feasibility, development and
construction phases together add up to as many as eleven years.76 The contractors have to continually shell out
funds for the duration of over a decade, before they can commence commercial production from which they
would eventually derive revenues. All that money translates into a lot of "pump-priming" for the local economy.
Granted that the contractors are allowed subsequently to recover their pre-operating expenses, still, that
eventuality will happen only after they shall have first put out the cash and fueled the economy. Moreover, in the
process of recouping their investments and costs, the foreign contractors do not actually pull out the money from
the economy. Rather, they recover or recoup their investments out of actual commercial production by not
paying a portion of the basic government share corresponding to national taxes, along with the additional
government share, for a period of not more than five years77 counted from the commencement of commercial
production.
It must be noted that there can be no recovery without commencing actual commercial production. In the
meantime that the contractors are recouping costs, they need to continue operating; in order to do so, they have
to disburse money to meet their various needs. In short, money is continually infused into the economy.
The foregoing discussion should serve to rid us of the mistaken belief that, since the foreign contractors are
allowed to recover their investments and costs, the end result is that they practically get the minerals for free,
which leaves the Filipino people none the better for it.
All Businesses Entitled
to Cost Recovery
Let it be put on record that not only foreign contractors, but all businessmen and all business entities in general,
have to recoup their investments and costs. That is one of the first things a student learns in business school.
Regardless of its nationality, and whether or not a business entity has a five-year cost recovery period, it will -must -- have to recoup its investments, one way or another. This is just common business sense. Recovery of
investments is absolutely indispensable for business survival; and business survival ensures soundness of the
economy, which is critical and contributory to the general welfare of the people. Even government corporations

must recoup their investments in order to survive and continue in operation. And, as the preceding discussion
has shown, there is no business that gets ahead or earns profits without any cost to it.
It must also be stressed that, though the State owns vast mineral wealth, such wealth is not readily accessible or
transformable into usable and negotiable currency without the intervention of the credible mining companies.
Those untapped mineral resources, hidden beneath tons of earth and rock, may as well not be there for all the
good they do us right now. They have first to be extracted and converted into marketable form, and the country
needs the foreign 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 will
have just broken even. Is it likely that they would at that point stop their operations and leave? Certainly not.
They have yet to make profits. Thus, for the remainder of the contract term, they must strive to maintain
profitability. During this period, they pay the whole of the basic government share and the additional government
share which, taken together with indirect taxes and other contributions, amount to approximately 60 percent or
more of the entire financial benefits generated by the mining venture.
In sum, we can hardly talk about foreign contractors taking our mineral resources for free. It takes a lot of hard
cash to even begin to do what they do. And what they do in this country ultimately benefits the local economy,
grows businesses, generates employment, and creates infrastructure, as discussed above. Hence, we definitely
disagree with the sweeping claim that no FTAA under Section 81 will ever make any real contribution to the
growth of the economy or to the general welfare of the country. This is not a plea for foreign contractors. Rather,
this is a question of focusing the judicial spotlight squarely on all the pertinent facts as they bear upon the issue
at hand, in order to avoid leaping precipitately to ill-conceived conclusions not solidly grounded upon fact.
Repatriation of After-Tax Income
Another objection points to the alleged failure of the Mining Law to ensure real contributions to the economic
growth and general welfare of the country, as mandated by Section 2 of Article XII of the Constitution. Pursuant
to Section 81 of the law, the entire after-tax income arising from the exploitation of mineral resources owned by
the State supposedly belongs to the foreign contractors, which will naturally repatriate the said after-tax income
to their home countries, thereby resulting in no real contribution to the economic growth of this country. Clearly,
this contention is premised on erroneous assumptions.
First, as already discussed in detail hereinabove, the concerned agencies have correctly interpreted the second
paragraph of Section 81 of RA 7942 to mean that the government is entitled to an additional share, to be
computed based on any one of the following factors: net mining revenues, the present value of the cash flows, or
excess profits reckoned against a benchmark rate of return on investments. So it is not correct to say that all of
the after-tax income will accrue to the foreign FTAA contractor, as the government effectively receives a
significant portion thereof.
Second, the foreign contractors can hardly "repatriate the entire after-tax income to their home countries." Even
a bit of knowledge of corporate finance will show that it will be impossible to maintain a business as a "going
concern" if the entire "net profit" earned in any particular year will be taken out and repatriated. The "net income"
figure reflected in the bottom line is a mere accounting figure not necessarily corresponding to cash in the bank,
or other quick assets. In order to produce and set aside cash in an amount equivalent to the bottom line figure,
one may need to sell off assets or immediately collect receivables or liquidate short-term investments; but doing
so may very likely disrupt normal business operations.
In terms of cash flows, the funds corresponding to the net income as of a particular point in time are actually in
use in the normal course of business operations. Pulling out such net income disrupts the cash flows and cash
position of the enterprise and, depending on the amount being taken out, could seriously cripple or endanger the
normal operations and financial health of the business enterprise. In short, no sane business person,
concerned with maintaining the mining enterprise as a going concern and keeping a foothold in its
market, can afford to repatriate the entire after-tax income to the home country.
The State's Receipt of Sixty
Percent 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 must
receive at least 60 percent of the after-tax income from the exploitation of its mineral resources. This share is the

equivalent of the constitutional requirement that at least 60 percent of the capital, and hence 60 percent of the
income, of mining companies should remain in Filipino hands.
First, we fail to see how we can properly conclude that the Constitution mandates the State to extract at least 60
percent of the after-tax income from a mining company run by a foreign contractor. The argument is that the
Charter requires the State's partner in a co-production agreement, joint venture agreement or MPSA to be a
Filipino corporation (at least 60 percent owned by Filipino citizens).
We question the logic of this reasoning, premised on a supposedly parallel or analogous situation. We are, after
all, dealing with an essentially different equation, one that involves different elements. The Charter did not
intend to fix an iron-clad rule on the 60 percent share, applicable to all situations at all times and in all
circumstances. If ever such was the intention of the framers, they would have spelt it out in black and
white.Verba legis will serve to dispel unwarranted and untenable conclusions.
Second, if we would bother to do the math, we might better appreciate the impact (and reasonableness) of what
we are demanding of the foreign contractor. Let us use a simplified illustration. Let us base it on gross revenues
of, say, P500. After deducting operating expenses, but prior to income tax, suppose a mining firm makes
ataxable income of P100. A corporate income tax of 32 percent results in P32 of taxable income going to the
government, leaving the mining firm with P68. Government then takes 60 percent thereof, equivalent to P40.80,
leaving only P27.20 for the mining firm.
At this point the government has pocketed P32.00 plus P40.80, or a total of P72.80 for every P100 of taxable
income, leaving the mining firm with only P27.20. But that is not all. The government has also taken 2 percent
excise tax "off the top," equivalent to another P10. Under the minimum 60 percent proposal, the government
nets 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. One
cannot but wonder whether such a distribution is even remotely equitable and reasonable, considering
the nature of the mining business. The amount of P82.80 out of P100.00 is really a lot it does not matter that
we call part of it excise taxor income tax, and another portion thereof income from exploitation of mineral
resources. Some might think it wonderful to be able to take the lion's share of the benefits. But we have to ask
ourselves if we are really serious in attracting the investments that are the indispensable and key element in
generating the monetary benefits of which we wish to take the 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, but
once the contractor has found and tapped into the deposit, subsequent investments and expenditures are
relatively minimal. The crude (or gas) keeps gushing out, and the work entailed is just a matter of piping,
transporting and storing. Not so in mineral mining. The ore body does not pop out on its own. Even after it has
been located, the contractor must continually invest in machineries and expend funds to dig and build tunnels in
order to access and extract the minerals from underneath hundreds of tons of earth and rock.
As already stated, the numerous intrinsic differences involved in their respective operations and requirements,
cost structures and investment needs render it highly inappropriate to use petroleum operations FTAAs as
benchmarks for mining FTAAs. Verily, we cannot just ignore the realities of the distinctly different situations and
stubbornly insist on the "minimum 60 percent."
The Mining and the Oil Industries
Different From Each Other
To stress, there is no independent showing that the taking of at least a 60 percent share in the after-tax income
ofa mining company operated by a foreign contractor is fair and reasonable under most if not all circumstances.
The fact that some petroleum companies like Shell acceded to such percentage of sharing does not ipso facto
mean that it is per se reasonable and applicable to non-petroleum situations (that is, mining companies) as well.
We can take judicial notice of the fact that there are, after all, numerous intrinsic differences involved in their
respective operations and equipment or technological requirements, costs structures and capital investment
needs, and product pricing and markets.
There is no showing, for instance, that mining companies can readily cope with a 60 percent government share
in the same way petroleum companies apparently can. What we have is a suggestion to enforce the 60 percent

quota on the basis of a disjointed analogy. The only factor common to the two disparate situations is the
extraction of natural resources.
Indeed, we should take note of the fact that Congress made a distinction between mining firms and petroleum
companies. In Republic Act No. 7729 -- "An Act Reducing the Excise Tax Rates on Metallic and Non-Metallic
Minerals and Quarry Resources, Amending for the Purpose Section 151(a) of the National Internal Revenue
Code, as amended" -- the lawmakers fixed the excise tax rate on metallic and non-metallic minerals at two
percent of the actual market value of the annual gross output at the time of removal. However, in the case of
petroleum, the lawmakers set the excise tax rate for the first taxable sale at fifteen percent of the fair
international market price thereof.
There must have been a very sound reason that impelled Congress to impose two very dissimilar excise tax
rate. We cannot assume, without proof, that our honorable legislators acted arbitrarily, capriciously and
whimsically in this instance. We cannot just ignore the reality of two distinctly different situations and stubbornly
insist on going "minimum 60 percent."
To repeat, the mere fact that gas and oil exploration contracts grant the State 60 percent of the net revenues
does not necessarily imply that mining contracts should likewise yield a minimum of 60 percent for the
State.Jumping to that erroneous conclusion is like comparing apples with oranges. The exploration,
development and utilization of gas and oil are simply different from those of mineral resources.
To stress again, the main risk in gas and oil is in the exploration. But once oil in commercial quantities is struck
and the wells are put in place, the risk is relatively over and black gold simply flows out continuously
withcomparatively less need for fresh investments and technology.
On the other hand, even if minerals are found in viable quantities, there is still need for continuous fresh capital
and expertise to dig the mineral ores from the mines. Just because deposits of mineral ores are found in one
area is no guarantee that an equal amount can be found in the adjacent areas. There are simply continuing risks
and need for more capital, expertise and industry all the time.
Note, however, that the indirect benefits -- apart from the cash revenues -- are much more in the mineral
industry. As mines are explored and extracted, vast employment is created, roads and other infrastructure are
built, and other multiplier effects arise. On the other hand, once oil wells start producing, there is less need for
employment. Roads and other public works need not be constructed continuously. In fine, there is no basis for
saying that government revenues from the oil industry and from the mineral industries are to be identical all the
time.
Fourth, to our mind, the proffered "minimum 60 percent" suggestion tends to limit the flexibility and tie the hands
of government, ultimately hampering the country's competitiveness in the international market, to the detriment
of the Filipino people. This "you-have-to-give-us-60-percent-of-after-tax-income-or-we-don't-do- business-withyou" approach is quite perilous. True, this situation may not seem too unpalatable to the foreign contractor
during good years, when international market prices are up and the mining firm manages to keep its costs in
check. However, under unfavorable economic and business conditions, with costs spiraling skywards and
minerals prices plummeting, a mining firm may consider itself lucky to make just minimal profits.
The inflexible, carved-in-granite demand for a 60 percent government share may spell the end of the mining
venture, scare away potential investors, and thereby further worsen the already dismal economic scenario.
Moreover, such an unbending or unyielding policy prevents the government from responding appropriately to
changing economic conditions and shifting market forces. This inflexibility further renders our country less
attractive as an investment option compared with other countries.
And fifth, for this Court to decree imperiously that the government's share should be not less than 60 percent of
the after-tax income of FTAA contractors at all times is nothing short of dictating upon the government. The
result, ironically, is that the State ends up losing control. To avoid compromising the State's full control and
supervision over the exploitation of mineral resources, this Court must back off from insisting upon a "minimum
60 percent" rule. It is sufficient that the State has the power and means, should it so decide, to get a 60 percent
share (or more) in the contractor's net mining revenues or after-tax income, or whatever other basis the
government may decide to use in reckoning its share. It is not necessary for it to do so in every case, regardless
of circumstances.
In fact, the government must be trusted, must be accorded the liberty and the utmost flexibility to deal, negotiate
and transact with contractors and third parties as it sees fit; and upon terms that it ascertains to be most

favorable or most acceptable under the circumstances, even if it means agreeing to less than 60 percent.
Nothing must prevent the State from agreeing to a share less than that, should it be deemed fit; otherwise the
State will be deprived of full control over mineral exploitation that the Charter has vested in it.
To stress again, there is simply no constitutional or legal provision fixing the minimum share of the
government in an FTAA at 60 percent of the net profit. For this Court to decree such minimum is to wade into
judicial legislation, and thereby inordinately impinge on the control power of the State. Let it be clear: the Court is
not against the grant of more benefits to the State; in fact, the more the better. If during the FTAA negotiations,
the President can secure 60 percent,78 or even 90 percent, then all the better for our people. But, if under
the peculiar circumstances of a specific contract, the President could secure only 50 percent or 55 percent, so
be it. Needless to say, the President will have to report (and be responsible for) the specific FTAA to Congress,
and eventually to the people.
Finally, if it should later be found that the share agreed to is grossly disadvantageous to the government, the
officials responsible for entering into such a contract on its behalf will have to answer to the courts for their
malfeasance. And the contract provision voided. But this Court would abuse its own authority should it force the
government'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 an
FTAA provides all the needed capital, technical and managerial expertise, and technology required to undertake
the project.
In regard to the WMCP FTAA, the then foreign-owned WMCP as contractor committed, at the very outset, to
make capital investments of up to US$50 million in that single mining project. WMCP claims to have already
poured in well over P800 million into the country as of February 1998, with more in the pipeline. These
resources, valued in the tens or hundreds of millions of dollars, are invested in a mining project that provides no
assurance whatsoever that any part of the investment will be ultimately recouped.
At the same time, the contractor must comply with legally imposed environmental standards and the social
obligations, for which it also commits to make significant expenditures of funds. Throughout, the contractor
assumes all the risks79 of the business, as mentioned earlier. These risks are indeed very high, considering that
the rate of success in exploration is extremely low. The probability of finding any mineral or petroleum in
commercially viable quantities is estimated to be about 1:1,000 only. On that slim chance rides the contractor's
hope of recouping investments and generating profits. And when the contractor has recouped its initial
investments in the project, the government share increases to sixty percent of net benefits -- without the State
ever being in peril of incurring costs, expenses and losses.
And even in the worst possible scenario -- an absence of commercial quantities of minerals to justify
development -- the contractor would already have spent several million pesos for exploration works, before
arriving at the point in which it can make that determination and decide to cut its losses. In fact, during
the first year alone of the exploration period, the contractor was already committed to spend not less than P24
million. The FTAA therefore clearly ensures benefits for the local economy, courtesy of the contractor.
All in all, this setup cannot be regarded as disadvantageous to the State or the Filipino people; it
certainly cannot be said to convey beneficial ownership of our mineral resources to foreign contractors.
Deductions Allowed by the
WMCP FTAA Reasonable
Petitioners question whether the State's weak control might render the sharing arrangements ineffective. They
cite the so-called "suspicious" deductions allowed by the WMCP FTAA in arriving at the net mining revenue,
which is the basis for computing the government share. The WMCP FTAA, for instance, allows expenditures for
"development within and outside the Contract Area relating to the Mining Operations,"80 "consulting fees incurred
both inside and outside the Philippines for work related directly to the Mining Operations,"81 and "the
establishment and administration of field offices including administrative overheads incurred within and outside
the Philippines which are properly allocatable to the Mining Operations and reasonably related to the
performance of the 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 of
selling their mineral products and by-products. Hence, it would not be improper to allow the deduction
ofreasonable consulting fees incurred abroad, as well as administrative expenses and overheads related to
marketing offices also located abroad -- provided that these deductions are directly related or properly
allocatable to the mining operations and reasonably related to the performance of the contractor's obligations
and exercise of its rights. In any event, more facts are needed. Until we see how these provisions actually
operate, mere "suspicions" will not suffice to propel this Court into taking action.
Section 7.9 of the WMCP FTAA
Invalid and Disadvantageous
Having defended the WMCP FTAA, we shall now turn to two defective provisos. Let us start with Section 7.9 of
the WMCP FTAA. While Section 7.7 gives the government a 60 percent share in the net mining revenues of
WMCP from the commencement of commercial production, Section 7.9 deprives the government of part or all of
the said 60 percent. Under the latter provision, should WMCP's foreign shareholders -- who originally owned 100
percent of the equity -- sell 60 percent or more of its outstanding capital stock to a Filipino citizen or corporation,
the State loses its right to receive its 60 percent share in net mining revenues under Section 7.7.
Section 7.9 provides:
The percentage of Net Mining Revenues payable to the Government pursuant to Clause 7.7 shall be
reduced by 1percent of Net Mining Revenues for every 1percent ownership interest in the Contractor
(i.e., WMCP) held by a Qualified Entity.83
Evidently, what Section 7.7 grants to the State is taken away in the next breath by Section 7.9 without any
offsetting compensation to the State. Thus, in reality, the State has no vested right to receive any income from
the FTAA for the exploitation of its mineral resources. Worse, it would seem that what is given to the State in
Section 7.7 is by mere tolerance of WMCP's foreign stockholders, who can at any time cut off the government's
entire 60 percent share. They can do so by simply selling 60 percent of WMCP's outstanding capital stock to a
Philippine citizen or corporation. Moreover, the proceeds of such sale will of course accrue to the foreign
stockholders of WMCP, not to the State.
The sale of 60 percent of WMCP's outstanding equity to a corporation that is 60 percent Filipino-owned and 40
percent foreign-owned will still trigger the operation of Section 7.9. Effectively, the State will lose its right to
receive all 60 percent of the net mining revenues of WMCP; and foreign stockholders will own beneficially up to
64 percent of WMCP, consisting of the remaining 40 percent foreign equity therein, plus the 24 percent pro-rata
share in the buyer-corporation.84
In fact, the January 23, 2001 sale by WMCP's foreign stockholder of the entire outstanding equity in WMCP to
Sagittarius Mines, Inc. -- a domestic corporation at least 60 percent Filipino owned -- may be deemed to have
automatically triggered the operation of Section 7.9, without need of further action by any party, and removed the
State'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 provision
was initially prompted by the desire to provide some form of incentive for the principal foreign stockholder in
WMCP to eventually reduce its equity position and ultimately divest in favor of Filipino citizens and corporations.
However, as finally structured, Section 7.9 has the deleterious effect of depriving government of the entire 60
percent share in WMCP's net mining revenues, without any form of compensation whatsoever. Such an outcome
is completely unacceptable.
The whole point of developing the nation's natural resources is to benefit the Filipino people, future generations
included. 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 lays
great emphasis on "real contributions to the economic growth and general welfare of the country"85 as essential
guiding principles to be kept in mind when negotiating the terms and conditions of FTAAs.
Earlier, we held (1) that the State must be accorded the liberty and the utmost flexibility to deal, negotiate and
transact with contractors and third parties as it sees fit, and upon terms that it ascertains to be most favorable or
most acceptable under the circumstances, even if that should mean agreeing to less than 60 percent; (2) that it
is not necessary for the State to extract a 60 percent share in every case and regardless of circumstances; and

(3) that should the State be prevented from agreeing to a share less than 60 percent as it deems fit, it will be
deprived of the full control over mineral exploitation that the Charter has vested in it.
That full control is obviously not an end in itself; it exists and subsists precisely because of the need to serve and
protect the national interest. In this instance, national interest finds particular application in the protection of the
national patrimony and the development and exploitation of the country's mineral resources for the benefit of the
Filipino people and the enhancement of economic growth and the general welfare of the country. Undoubtedly,
such full control can be misused and abused, as we now witness.
Section 7.9 of the WMCP FTAA effectively gives away the State's share of net mining revenues (provided for in
Section 7.7) without anything in exchange. Moreover, this outcome constitutes unjust enrichment on the part of
the local and foreign stockholders of WMCP. By their mere divestment of up to 60 percent equity in WMCP in
favor of Filipino citizens and/or corporations, the local and foreign stockholders get a windfall. Their share in the
net mining revenues of WMCP is automatically increased, without their having to pay the government anything
for it. In short, the provision in question is without a doubt grossly disadvantageous to the government,
detrimental to the interests of the Filipino people, and violative of public policy.
Moreover, it has been reiterated in numerous decisions86 that the parties to a contract may establish any
agreements, terms and conditions that they deem convenient; but these should not be contrary to law, morals,
good customs, public order or public policy.87 Being precisely violative of anti-graft provisions and contrary to
public policy, Section 7.9 must therefore be stricken off as invalid.
Whether the government officials concerned acceded to that provision by sheer mistake or with full awareness of
the ill consequences, is of no moment. It is hornbook doctrine that the principle of estoppel does not operate
against the government for the act of its agents,88 and that it is never estopped by any mistake or error on their
part.89 It is therefore possible and proper to rectify the situation at this time. Moreover, we may also say that the
FTAA in question does not involve mere contractual rights; being impressed as it is with public interest, the
contractual provisions and stipulations must yield to the common good and the national interest.
Since the offending provision is very much separable90 from Section 7.7 and the rest of the FTAA, the deletion of
Section 7.9 can be done without affecting or requiring the invalidation of the WMCP FTAA itself. Such a deletion
will preserve for the government its due share of the benefits. This way, the mandates of the Constitution are
complied with and the interests of the government fully protected, while the business operations of the contractor
are not needlessly disrupted.
Section 7.8(e) of the WMCP FTAA
Also Invalid and Disadvantageous
Section 7.8(e) of the WMCP FTAA is likewise invalid. It provides thus:
"7.8 The Government Share shall be deemed to include all of the following sums:
"(a) all Government taxes, fees, levies, costs, imposts, duties and royalties including excise tax,
corporate income tax, customs duty, sales tax, value added tax, occupation and regulatory fees,
Government controlled price stabilization schemes, any other form of Government backed
schemes, any tax on dividend payments by the Contractor or its Affiliates in respect of revenues
from the Mining Operations and any tax on interest on domestic and foreign loans or other
financial arrangements or accommodations, including loans extended to the Contractor by its
stockholders;
"(b) any payments to local and regional government, including taxes, fees, levies, costs, imposts,
duties, royalties, occupation and regulatory fees and infrastructure contributions;
"(c) any payments to landowners, surface rights holders, occupiers, indigenous people or
Claimowners;
"(d) costs and expenses of fulfilling the Contractor's obligations to contribute to national
development in accordance with Clause 10.1(i) (1) and 10.1(i) (2);

"(e) an amount equivalent to whatever benefits that may be extended in the future by the
Government to the Contractor or to financial or technical assistance agreement contractors in
general;
"(f) all of the foregoing items which have not previously been offset against the Government
Share in an earlier Fiscal Year, adjusted for inflation." (underscoring supplied)
Section 7.8(e) is out of place in the FTAA. It makes no sense why, for instance, money spent by the government
for the benefit of the contractor in building roads leading to the mine site should still be deductible from the
State's share in net mining revenues. Allowing this deduction results in benefiting the contractor twice over. It
constitutesunjust enrichment on the part of the contractor at the expense of the government, since the latter is
effectively being made to pay twice for the same item.91 For being grossly disadvantageous and prejudicial to the
government and contrary to public policy, Section 7.8(e) is undoubtedly invalid and must be declared to be
without effect. Fortunately, this provision can also easily be stricken off without affecting the rest of the FTAA.
Nothing Left Over
After Deductions?
In connection with Section 7.8, an objection has been raised: Specified in Section 7.8 are numerous items of
deduction from the State's 60 percent share. After taking these into account, will the State ever receive anything
for its ownership of the mineral resources?
We are confident that under normal circumstances, the answer will be yes. If we examine the various items of
"deduction" listed in Section 7.8 of the WMCP FTAA, we will find that they correspond closely to the components
or elements of the basic government share established in DAO 99-56, as discussed in the earlier part of this
Opinion.
Likewise, the balance of the government's 60 percent share -- after netting out the items of deduction listed in
Section 7.8 --corresponds closely to the additional government share provided for in DAO 99-56 which, we
once again stress, has nothing at all to do with indirect taxes. The Ramos-DeVera paper92 concisely presents the
fiscal 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 following
formulation:
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 DAO
99-56, with the "balance of government share payable 4 months from end of fiscal year" being the equivalent of
the additional government share computed in accordance with the "net-mining-revenue-based option" under
DAO 99-56, as discussed above. As we have emphasized earlier, we find each of the three options for
computing the additional government share -- as presented in DAO 99-56 -- to be sound and reasonable.
We therefore conclude that there is nothing inherently wrong in the fiscal regime of the WMCP FTAA,
and certainly nothing to warrant the invalidation of the FTAA in its entirety.
Section 3.3 of the WMCP
FTAA Constitutional
Section 3.3 of the WMCP FTAA is assailed for violating supposed constitutional restrictions on the term of
FTAAs. The provision in question reads:
"3.3 This Agreement shall be renewed by the Government for a further period of twenty-five (25) years
under the same terms and conditions provided that the Contractor lodges a request for renewal with the
Government not less than sixty (60) days prior to the expiry of the initial term of this Agreement and
provided that the Contractor is not in breach of any of the requirements of this Agreement."
Allegedly, the above provision runs afoul of Section 2 of Article XII of the 1987 Constitution, which states:

"Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception of agricultural lands, all other natural resources
shall not be alienated. The exploration, development and utilization of natural resources shall be under
the full control and supervision of the State. The State may directly undertake such activities, or it may
enter into co-production, joint venture or production-sharing agreements with Filipino citizens or
corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such
agreements may be for a period not exceeding twenty-five years, renewable for not more than
twenty-five years, and under such terms and conditions as may be provided by law. In cases of
water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water
power, beneficial use may be the measure and limit of the grant.
"The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea, and exclusive
economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.
"The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as well
as cooperative fish farming, with priority to subsistence fishermen and fish-workers in rivers, lakes, bays
and lagoons.
"The President may enter into agreements with foreign-owned corporations involving either technical or
financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and
other mineral oils according to the general terms and conditions provided by law, based on real
contributions to the economic growth and general welfare of the country. In such agreements, the State
shall promote the development and use of local scientific and technical resources.
"The President shall notify the Congress of every contract entered into in accordance with this provision,
within thirty days from its execution."93
We hold that the term limitation of twenty-five years does not apply to FTAAs. The reason is that the above
provision is found within paragraph 1 of Section 2 of Article XII, which refers to mineral agreements -- coproduction agreements, joint venture agreements and mineral production-sharing agreements -- which the
government may enter into with Filipino citizens and corporations, at least 60 percent owned by Filipino citizens.
The word "such" clearly refers to these three mineral agreements -- CPAs, JVAs and MPSAs -- not to FTAAs.
Specifically, FTAAs are covered by paragraphs 4 and 5 of Section 2 of Article XII of the Constitution. It will be
noted that there are no term limitations provided for in the said paragraphs dealing with FTAAs. This shows that
FTAAs are sui generis, in a class of their own. This omission was obviously a deliberate move on the part of the
framers. They probably realized that FTAAs would be different in many ways from MPSAs, JVAs and CPAs. The
reason the framers did not fix term limitations applicable to FTAAs is that they preferred to leave the matter to
the discretion of the legislature and/or the agencies involved in implementing the laws pertaining to FTAAs, in
order to give the latter enough flexibility and elbow room to meet changing circumstances.
Note also that, as previously stated, the exploratory phrases of an FTAA lasts up to eleven years. Thereafter, a
few more years would be gobbled up in start-up operations. It may take fifteen years before an FTAA contractor
can start earning profits. And thus, the period of 25 years may really be short for an FTAA. Consider too that in
this kind of agreement, the contractor assumes all entrepreneurial risks. If no commercial quantities of minerals
are found, the contractor bears all financial losses. To compensate for this long gestation period and extra
business risks, it would not be totally unreasonable to allow it to continue EDU activities for another twenty five
years.
In any event, the complaint is that, in essence, Section 3.3 gives the contractor the power to compel the
government to renew the WMCP FTAA for another 25 years and deprives the State of any say on whether to
renew the contract.
While we agree that Section 3.3 could have been worded so as to prevent it from favoring the contractor, this
provision does not violate any constitutional limits, since the said term limitation does not apply at all to FTAAs.
Neither can the provision be deemed in any manner to be illegal, as no law is being violated thereby. It is
certainly not illegal for the government to waive its option to refuse the renewal of a commercial contract.
Verily, the government did not have to agree to Section 3.3. It could have said "No" to the stipulation, but it did
not. It appears that, in the process of negotiations, the other contracting party was able to convince the
government to agree to the renewal terms. Under the circumstances, it does not seem proper for this Court to

intervene and step in to undo what might have perhaps been a possible miscalculation on the part of the State. If
government believes that it is or will be aggrieved by the effects of Section 3.3, the remedy is the renegotiation
of the provision in order to provide the State the option to not renew the FTAA.
Financial Benefits for Foreigners
Not Forbidden by the Constitution
Before leaving this subject matter, we find it necessary for us to rid ourselves of the false belief that the
Constitution somehow forbids foreign-owned corporations from deriving financial benefits from the development
of our natural or mineral resources.
The Constitution has never prohibited foreign corporations from acquiring and enjoying "beneficial interest" in the
development of Philippine natural resources. The State itself need not directly undertake exploration,
development, and utilization activities. Alternatively, the Constitution authorizes the government to enter into joint
venture agreements (JVAs), co-production agreements (CPAs) and mineral production sharing agreements
(MPSAs) with contractors who are Filipino citizens or corporations that are at least 60 percent Filipino-owned.
They may do the actual "dirty work" -- the mining operations.
In the case of a 60 percent Filipino-owned corporation, the 40 percent individual and/or corporate non-Filipino
stakeholders obviously participate in the beneficial interest derived from the development and utilization of our
natural resources. They may receive by way of dividends, up to 40 percent of the contractor's earnings from the
mining project. Likewise, they may have a say in the decisions of the board of directors, since they are entitled to
representation therein to the extent of their equity participation, which the Constitution permits to be up to 40
percent of the contractor's equity. Hence, the non-Filipino stakeholders may in that manner also participate in the
management 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 or
operations (see paragraph 1 of Section 2 of Article XII).
It is clear, then, that there is nothing inherently wrong with or constitutionally objectionable about the idea of
foreign individuals and entities having or enjoying "beneficial interest" in -- and participating in the management
of operations relative to -- the exploration, development and utilization of our natural resources.
FTAA More Advantageous
Than Other Schemes
Like CPA, JVA and MPSA
A final point on the subject of beneficial interest. We believe the FTAA is a more advantageous proposition for
the government as compared with other agreements permitted by the Constitution. In a CPA that the
government enters into with one or more contractors, the government shall provide inputs to the mining
operations other than the mineral resource itself.94
In a JVA, a JV company is organized by the government and the contractor, with both parties having equity
shares (investments); and the contractor is granted the exclusive right to conduct mining operations and to
extract minerals found in the area.95 On the other hand, in an MPSA, the government grants the contractor the
exclusive right to conduct mining operations within the contract area and shares in the gross output; and the
contractor provides the necessary financing, technology, management and manpower.
The point being made here is that, in two of the three types of agreements under consideration, the government
has to ante up some risk capital for the enterprise. In other words, government funds (public moneys) are
withdrawn from other possible uses, put to work in the venture and placed at risk in case the venture fails. This
notwithstanding, management and control of the operations of the enterprise are -- in all three arrangements -- in
the hands of the contractor, with the government being mainly a silent partner. The three types of agreement
mentioned above apply to any natural resource, without limitation and regardless of the size or magnitude of the
project or operations.
In contrast to the foregoing arrangements, and pursuant to paragraph 4 of Section 2 of Article XII, the FTAA is
limited to large-scale projects and only for minerals, petroleum and other mineral oils. Here, the Constitution
removes the 40 percent cap on foreign ownership and allows the foreign corporation to own up to 100 percent of
the equity. Filipino capital may not be sufficient on account of the size of the project, so the foreign entity may
have to ante up all the risk capital.

Correlatively, the foreign stakeholder bears up to 100 percent of the risk of loss if the project fails. In respect of
the particular FTAA granted to it, WMCP (then 100 percent foreign owned) was responsible, as contractor, for
providing the entire equity, including all the inputs for the project. It was to bear 100 percent of the risk of loss if
the project failed, but its maximum potential "beneficial interest" consisted only of 40 percent of the net beneficial
interest, because the other 60 percent is the share of the government, which will never be exposed to any risk of
loss whatsoever.
In consonance with the degree of risk assumed, the FTAA vested in WMCP the day-to-day management of the
mining operations. Still such management is subject to the overall control and supervision of the State in terms
of regular reporting, approvals of work programs and budgets, and so on.
So, one needs to consider in relative terms, the costs of inputs for, degree of risk attendant to, and benefits
derived or to be derived from a CPA, a JVA or an MPSA vis--vis those pertaining to an FTAA. It may not be
realistically asserted that the foreign grantee of an FTAA is being unduly favored or benefited as compared with
a foreign stakeholder in a corporation holding a CPA, a JVA or an MPSA. Seen the other way around, the
government is definitely better off with an FTAA than a CPA, a JVA or an MPSA.
Developmental Policy on the Mining Industry
During the Oral Argument and in their Final Memorandum, petitioners repeatedly urged the Court to consider
whether mining as an industry and economic activity deserved to be accorded priority, preference and
government support as against, say, agriculture and other activities in which Filipinos and the Philippines may
have an "economic advantage." For instance, a recent US study96 reportedly examined the economic
performance of all local US counties that were dependent on mining and 20 percent of whose labor earnings
between 1970 and 2000 came from mining enterprises.
The study -- covering 100 US counties in 25 states dependent on mining -- showed that per capita income grew
about 30 percent less in mining-dependent communities in the 1980s and 25 percent less for the entire period
1980 to 2000; the level of per capita income was also lower. Therefore, given the slower rate of growth, the gap
between these and other local counties increased.
Petitioners invite attention to the OXFAM America Report's warning to developing nations that mining brings with
it serious economic problems, including increased regional inequality, unemployment and poverty. They also cite
the final report97 of the Extractive Industries Review project commissioned by the World Bank (the WB-EIR
Report), which warns of environmental degradation, social disruption, conflict, and uneven sharing of benefits
with local communities that bear the negative social and environmental impact. The Report suggests that
countries need to decide on the best way to exploit their natural resources, in order to maximize the value added
from the development of their resources and ensure that they are on the path to sustainable development once
the resources run out.
Whatever priority or preference may be given to mining vis--vis other economic or non-economic activities is a
question of policy that the President and Congress will have to address; it is not for this Court to decide. This
Court declares what the Constitution and the laws say, interprets only when necessary, and refrains from delving
into matters of policy.
Suffice it to say that the State control accorded by the Constitution over mining activities assures a proper
balancing of interests. More pointedly, such control will enable the President to demand the best mining
practices and the use of the best available technologies to protect the environment and to rehabilitate mined-out
areas. Indeed, under the Mining Law, the government can ensure the protection of the environment during and
after mining. It can likewise provide for the mechanisms to protect the rights of indigenous communities, and
thereby mold a more socially-responsive, culturally-sensitive and sustainable mining industry.
Early on during the launching of the Presidential Mineral Industry Environmental Awards on February 6, 1997,
then President Fidel V. Ramos captured the essence of balanced and sustainable mining in these words:
"Long term, high profit mining translates into higher revenues for government, more decent jobs for the
population, more raw materials to feed the engines of downstream and allied industries, and improved
chances of human resource and countryside development by creating self-reliant communities away
from urban centers.
xxxxxxxxx

"Against a fragile and finite environment, it is sustainability that holds the key. In sustainable mining, we
take a middle ground where both production and protection goals are balanced, and where parties-ininterest come to terms."
Neither has the present leadership been remiss in addressing the concerns of sustainable mining operations.
Recently, on January 16, 2004 and April 20, 2004, President Gloria Macapagal Arroyo issued Executive Orders
Nos. 270 and 270-A, respectively, "to promote responsible mineral resources exploration, development and
utilization, in order to enhance economic growth, in a manner that adheres to the principles of sustainable
development and with due regard for justice and equity, sensitivity to the culture of the Filipino people and
respect for Philippine sovereignty."98
REFUTATION OF DISSENTS
The Court will now take up a number of other specific points raised in the dissents of Justices Carpio and
Morales.
1. Justice Morales introduced us to Hugh Morgan, former president and chief executive officer of Western Mining
Corporation (WMC) and former president of the Australian Mining Industry Council, who spearheaded the
vociferous opposition to the filing by aboriginal peoples of native title claims against mining companies in
Australia in the aftermath of the landmark Mabo decision by the Australian High Court. According to sources
quoted by our esteemed colleague, Morgan was also a racist and a bigot. In the course of
protesting Mabo, Morgan allegedly uttered derogatory remarks belittling the aboriginal culture and race.
An unwritten caveat of this introduction is that this Court should be careful not to permit the entry of the likes of
Hugh Morgan and his hordes of alleged racist-bigots at WMC. With all due respect, such scare tactics should
have no place in the discussion of this case. We are deliberating on the constitutionality of RA 7942, DAO 96-40
and the FTAA originally granted to WMCP, which had been transferred to Sagittarius Mining, a Filipino
corporation. We are not discussing the apparition of white Anglo-Saxon racists/bigots massing at our gates.
2. On the proper interpretation of the phrase agreements involving either technical or financial
assistance, Justice Morales points out that at times we "conveniently omitted" the use of the
disjunctive eitheror, which according to her denotes restriction; hence the phrase must be deemed to connote
restriction and limitation.
But, as Justice Carpio himself pointed out during the Oral Argument, the disjunctive phrase either technical or
financial assistance would, strictly speaking, literally mean that a foreign contractor may provide only one or the
other, but not both. And if both technical and financial assistance were required for a project, the State would
have to deal with at least two different foreign contractors -- one for financial and the other for technical
assistance. And following on that, a foreign contractor, though very much qualified to provide both kinds of
assistance, would nevertheless be prohibited from providing one kind as soon as it shall have agreed to provide
the other.
But if the Court should follow this restrictive and literal construction, can we really find two (or more) contractors
who are willing to participate in one single project -- one to provide the "financial assistance" only and the other
the "technical assistance" exclusively; it would be excellent if these two or more contractors happen to be willing
and are able to cooperate and work closely together on the same project (even if they are otherwise
competitors). And it would be superb if no conflicts would arise between or among them in the entire course of
the contract. But what are the chances things will turn out this way in the real world? To think that the framers
deliberately imposed this kind of restriction is to say that they were either exceedingly optimistic, or incredibly
nave. This begs the question -- What laudable objective or purpose could possibly be served by such strict and
restrictive literal interpretation?
3. Citing Oposa v. Factoran Jr., Justice Morales claims that a service contract is not a contract or property right
which merits protection by the due process clause of the Constitution, but merely a license or privilege which
may be validly revoked, rescinded or withdrawn by executive action whenever dictated by public interest or
public welfare.
Oposa cites Tan v. Director of Forestry and Ysmael v. Deputy Executive Secretary as authority. The latter cases
dealt specifically 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 or
municipal, granting it and the person to whom it is granted; neither is it property or a property right, nor does it

create a vested right; nor is it taxation. Thus this Court held that the granting of license does not create
irrevocable rights, neither is it property or property rights.
Should Oposa be deemed applicable to the case at bar, on the argument that natural resources are also
involved in this situation? We do not think so. A grantee of a timber license, permit or license agreement gets to
cut the timber already growing on the surface; it need not dig up tons of earth to get at the logs. In a logging
concession, the investment of the licensee is not as substantial as the investment of a large-scale mining
contractor. If a timber license were revoked, the licensee packs up its gear and moves to a new area applied for,
and starts over; what it leaves behind are mainly the trails leading to the logging site.
In contrast, the mining contractor will have sunk a great deal of money (tens of millions of dollars) into the
ground, so to speak, for exploration activities, for development of the mine site and infrastructure, and for the
actual excavation and extraction of minerals, including the extensive tunneling work to reach the ore body. The
cancellation of the mining contract will utterly deprive the contractor of its investments (i.e., prevent recovery of
investments), most of which cannot be pulled out.
To say that an FTAA is just like a mere timber license or permit and does not involve contract or property rights
which merit protection by the due process clause of the Constitution, and may therefore be revoked or cancelled
in the blink of an eye, is to adopt a well-nigh confiscatory stance; at the very least, it is downright dismissive of
the property rights of businesspersons and corporate entities that have investments in the mining industry,
whose investments, operations and expenditures do contribute to the general welfare of the people, the coffers
of government, and the strength of the economy. Such a pronouncement will surely discourage investments
(local and foreign) which are critically needed to fuel the engine of economic growth and move this country out of
the rut of poverty. In sum, Oposa is not applicable.
4. Justice Morales adverts to the supposedly "clear intention" of the framers of the Constitution to reserve our
natural resources exclusively for the Filipino people. She then quoted from the records of the ConCom
deliberations a passage in which then Commissioner Davide explained his vote, arguing in the process that
aliens ought not be allowed to participate in the enjoyment of our natural resources. One passage does not
suffice to capture the tenor or substance of the entire extensive deliberations of the commissioners, or to reveal
the clear intention of the framers as a group. A re-reading of the entire deliberations (quoted here earlier) is
necessary if we are to understand the true intent of the framers.
5. Since 1935, the Filipino people, through their Constitution, have decided that the retardation or delay in the
exploration, development or utilization of the nation's natural resources is merely secondary to the protection and
preservation of their ownership of the natural resources, so says Justice Morales, citing Aruego. If it is true that
the framers of the 1987 Constitution did not care much about alleviating the retardation or delay in the
development and utilization of our natural resources, why did they bother to write paragraph 4 at all? Were they
merely paying lip service to large-scale exploration, development and utilization? They could have just
completely ignored the subject matter and left it to be dealt with through a future constitutional amendment. But
we have to harmonize every part of the Constitution and to interpret each provision in a manner that would give
life and meaning to it and to the rest of the provisions. It is obvious that a literal interpretation of paragraph 4 will
render it utterly inutile and inoperative.
6. According to Justice Morales, the deliberations of the Constitutional Commission do not support our
contention that the framers, by specifying such agreements involving financial or technical assistance,
necessarily gave implied assent to everything that these agreements implicitly entailed, or that could reasonably
be deemed necessary to make them tenable and effective, including management authority in the day-to-day
operations. As proof thereof, she quotes one single passage from the ConCom deliberations, consisting of an
exchange among Commissioners Tingson, Garcia and Monsod.
However, the quoted exchange does not serve to contradict our argument; it even bolsters it. Comm. Christian
Monsod was quoted as saying: "xxx I think we have to make a distinction that it is not really realistic to say that
we will borrow on our own terms. Maybe we can say that we inherited unjust loans, and we would like to repay
these on terms that are not prejudicial to our own growth. But the general statement that we should only borrow
on our own terms is a bit unrealistic." Comm. Monsod is one who knew whereof he spoke.
7. Justice Morales also declares that the optimal time for the conversion of an FTAA into an MPSA is after
completion of the exploration phase and just before undertaking the development and construction phase, on
account of the fact that the requirement for a minimum investment of $50 million is applicable only during the
development, construction and utilization phase, but not during the exploration phase, when the foreign

contractor need merely comply with minimum ground expenditures. Thus by converting, the foreign contractor
maximizes its profits by avoiding its obligation to make the minimum investment of $50 million.
This argument forgets that the foreign contractor is in the game precisely to make money. In order to come
anywhere near profitability, the contractor must first extract and sell the mineral ore. In order to do that, it must
also develop and construct the mining facilities, set up its machineries and equipment and dig the tunnels to get
to the deposit. The contractor is thus compelled to expend funds in order to make profits. If it decides to cut back
on investments and expenditures, it will necessarily sacrifice the pace of development and utilization; it will
necessarily sacrifice the amount of profits it can make from the mining operations. In fact, at certain less-thanoptimal levels of operation, the stream of revenues generated may not even be enough to cover variable
expenses, let alone overhead expenses; this is a dismal situation anyone would want to avoid. In order to make
money, one has to spend money. This truism applies to the mining industry as well.
8. Mortgaging the minerals to secure a foreign FTAA contractor's obligations is anomalous, according to Justice
Morales since the contractor was from the beginning obliged to provide all financing needed for the mining
operations. However, the mortgaging of minerals by the contractor does not necessarily signify that the
contractor is unable to provide all financing required for the project, or that it does not have the financial
capability to undertake large-scale operations. Mortgaging of mineral products, just like the assignment (by way
of security) of manufactured goods and goods in inventory, and the assignment of receivables, is an ordinary
requirement of banks, even in the case of clients with more than sufficient financial resources. And nowadays,
even the richest and best managed corporations make use of bank credit facilities -- it does not necessarily
signify that they do not have the financial resources or are unable to provide the financing on their own; it is just
a manner of maximizing the use of their funds.
9. Does the contractor in reality acquire the surface rights "for free," by virtue of the fact that it is entitled to
reimbursement for the costs of acquisition and maintenance, adjusted for inflation? We think not. The
"reimbursement" is possible only at the end of the term of the contract, when the surface rights will no longer be
needed, and the land previously acquired will have to be disposed of, in which case the contractor gets
reimbursement from the sales proceeds. The contractor has to pay out the acquisition price for the land. That
money will belong to the seller of the land. Only if and when the land is finally sold off will the contractor get any
reimbursement. In other words, the contractor will have been cash-out for the entire duration of the term of the
contract -- 25 or 50 years, depending. If we calculate the cost of money at say 12 percent per annum, that is the
cost or opportunity loss to the contractor, in addition to the amount of the acquisition price. 12 percent per
annum for 50 years is 600 percent; this, without any compounding yet. The cost of money is therefore at least
600 percent of the original acquisition cost; it is in addition to the acquisition cost. "For free"? Not by a long shot.
10. The contractor will acquire and hold up to 5,000 hectares? We doubt it. The acquisition by the State of land
for the contractor is just to enable the contractor to establish its mine site, build its facilities, establish a tailings
pond, set up its machinery and equipment, and dig mine shafts and tunnels, etc. It is impossible that the surface
requirement will aggregate 5,000 hectares. Much of the operations will consist of the tunneling and digging
underground, which will not require possessing or using any land surface. 5,000 hectares is way too much for
the needs of a mining operator. It simply will not spend its cash to acquire property that it will not need; the cash
may be better employed for the actual mining operations, to yield a profit.
11. Justice Carpio claims that the phrase among other things (found in the second paragraph of Section 81 of
the Mining Act) is being incorrectly treated as a delegation of legislative power to the DENR secretary to issue
DAO 99-56 and prescribe the formulae therein on the State's share from mining operations. He adds that the
phraseamong other things was not intended as a delegation of legislative power to the DENR secretary, much
less could it be deemed a valid delegation of legislative power, since there is nothing in the second paragraph of
Section 81 which can be said to grant any delegated legislative power to the DENR secretary. And even if there
were, such delegation would be void, for lack of any standards by which the delegated power shall be exercised.
While there is nothing in the second paragraph of Section 81 which can directly be construed as a delegation of
legislative power to the DENR secretary, it does not mean that DAO 99-56 is invalid per se, or that the secretary
acted without any authority or jurisdiction in issuing DAO 99-56. As we stated earlier in our Prologue, "Who or
what organ of government actually exercises this power of control on behalf of the State? The Constitution is
crystal clear: the President. Indeed, the Chief Executive is the official constitutionally mandated to 'enter into
agreements with foreign owned corporations.' On the other hand, Congress may review the action of the
President once it is notified of 'every contract entered into in accordance with this [constitutional] provision within
thirty days from its execution.'" It is the President who is constitutionally mandated to enter into FTAAs with
foreign corporations, and in doing so, it is within the 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 revenues
between the contractor and the State.
Being the President's alter ego with respect to the control and supervision of the mining industry, the DENR
secretary, acting for the President, is necessarily clothed with the requisite authority and power to draw up
guidelines delineating certain terms and conditions, and specifying therein the terms of sharing of benefits from
mining, to be applicable to FTAAs in general. It is important to remember that DAO 99-56 has been in existence
for almost six years, and has not been amended or revoked by the President.
The issuance of DAO 99-56 did not involve the exercise of delegated legislative power. The legislature did not
delegate the power to determine the nature, extent and composition of the items that would come under the
phrase among other things. The legislature's power pertains to the imposition of taxes, duties and fees. This
power was not delegated to the DENR secretary. But the power to negotiate and enter into FTAAs was withheld
from Congress, and reserved for the President. In determining the sharing of mining benefits, i.e., in specifying
what the phrase among other things include, the President (through the secretary acting in his/her behalf) was
not determining the amount or rate of taxes, duties and fees, but rather the amount of INCOME to be derived
from minerals to be extracted and sold, income which belongs to the State as owner of the mineral resources.
We may say that, in the second paragraph of Section 81, the legislature in a sense intruded partially into the
President's sphere of authority when the former provided that
"The Government share in financial or technical assistance agreement shall consist of, among other
things, the contractor's corporate income tax, excise tax, special allowance, withholding tax due from the
contractor's foreign stockholders arising from dividend or interest payments to the said foreign
stockholder in case of a foreign national and all such other taxes, duties and fees as provided for under
existing laws."(Italics supplied)
But it did not usurp the President's authority since the provision merely included the enumerated items as part of
the government share, without foreclosing or in any way preventing (as in fact Congress could not validly
prevent) the President from determining what constitutes the State's compensation derived from FTAAs. In this
case, the President in effect directed the inclusion or addition of "other things," viz., INCOME for the owner of the
resources, in the government's share, while adopting the items enumerated by Congress as part of the
government share also.
12. Justice Carpio's insistence on applying the ejusdem generis rule of statutory construction to the
phraseamong other things is therefore useless, and must fall by the wayside. There is no point trying to construe
that phrase in relation to the enumeration of taxes, duties and fees found in paragraph 2 of Section 81, precisely
because "the constitutional power to prescribe the sharing of mining income between the State and
mining companies," to quote Justice Carpio pursuant to an FTAA is constitutionally lodged with the
President, not with Congress. It thus makes no sense to persist in giving the phrase among other things a
restricted meaning referring only to taxes, duties and fees.
13. Strangely, Justice Carpio claims that the DENR secretary can change the formulae in DAO 99-56 any time
even without the approval of the President, and the secretary is the sole authority to determine the amount of
consideration that the State shall receive in an FTAA, because Section 5 of the DAO states that "xxx any
amendment of an FTAA other than the provision on fiscal regime shall require the negotiation with the
Negotiation Panel and the recommendation of the Secretary for approval of the President xxx". Allegedly,
because of that provision, if an amendment in the FTAA involves non-fiscal matters, the amendment requires
approval of the President, but if the amendment involves a change in the fiscal regime, the DENR secretary has
the final authority, and approval of the President may be dispensed with; hence the secretary is more powerful
than the President.
We believe there is some distortion resulting from the quoted provision being taken out of context. Section 5 of
DAO 99-56 reads as follows:
"Section 5. Status of Existing FTAAs. All FTAAs approved prior to the effectivity of this Administrative
Order shall remain valid and be recognized by the Government: Provided, That should a Contractor
desire to amend its FTAA, it shall do so by filing a Letter of Intent (LOI) to the Secretary thru the Director.
Provided, further, That if the Contractor desires to amend the fiscal regime of its FTAA, it may do so by
seeking for the amendment of its FTAA's whole fiscal regime by adopting the fiscal regime provided
hereof: Provided, finally, That any amendment of an FTAA other than the provision on fiscal regime shall
require the negotiation with the Negotiating Panel and the recommendation of the Secretary for approval
of the President of the Republic of the Philippines." (underscoring supplied)

It looks like another case of misapprehension. The proviso being objected to by Justice Carpio is actually
preceded by a phrase that requires a contractor desiring to amend the fiscal regime of its FTAA, to amend
thesame by adopting the fiscal regime prescribed in DAO 99-56 -- i.e., solely in that manner, and in no
other.Obviously, since DAO 99-56 was issued by the secretary under the authority and with the
presumed approval of the President, the amendment of an FTAA by merely adopting the fiscal regime
prescribed in said DAO 99-56 (and nothing more) need not have the express clearance of the President
anymore. It is as if the same had been pre-approved. We cannot fathom the complaint that that makes the
secretary more powerful than the President, or that the former is trying to hide things from the President or
Congress.
14. Based on the first sentence of Section 5 of DAO 99-56, which states "[A]ll FTAAs approved prior to the
effectivity of this Administrative Order shall remain valid and be recognized by the Government", Justice Carpio
concludes that said Administrative Order allegedly exempts FTAAs approved prior to its effectivity -- like the
WMCP FTAA -- from having to pay the State any share from their mining income, apart from taxes, duties and
fees.
We disagree. What we see in black and white is the statement that the FTAAs approved before the DAO came
into effect are to continue to be valid and will be recognized by the State. Nothing is said about their fiscal
regimes. Certainly, there is no basis to claim that the contractors under said FTAAs were being exempted from
paying the government a share in their mining incomes.
For the record, the WMCP FTAA is NOT and has never been exempt from paying the government share. The
WMCP FTAA has its own fiscal regime -- Section 7.7 -- which gives the government a 60 percent share in
the net mining revenues of WMCP from the commencement of commercial production.
For that very reason, we have never said that DAO 99-56 is the basis for claiming that the WMCP FTAA has a
consideration. Hence, we find quite out of place Justice Carpio's statement that ironically, DAO 99-56, the very
authority cited to support the claim that the WMCP FTAA has a consideration, does not apply to the WMCP
FTAA. By its own express terms, DAO 99-56 does not apply to FTAAs executed before the issuance of DAO 9956, 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 that
DAO 99-56 does not apply to the WMCP FTAA, nevertheless, the WMCP FTAA has its own fiscal regime, found
in Section 7.7 thereof. Hence, there is no such thing as "want of consideration" here.
Still more startling is this claim: The majority supposedly agrees that the provisions of the WMCP FTAA, which
grant a sham consideration to the State, are void. Since the majority agrees that the WMCP FTAA has a sham
consideration, the WMCP FTAA thus lacks the third element of a valid contract. The Decision should declare the
WMCP FTAA void for want of consideration unless it treats the contract as an MPSA under Section 80. Indeed
the only recourse of WMCP to save the validity of its contract is to convert it into an MPSA.
To clarify, we said that Sections 7.9 and 7.8(e) of the WMCP FTAA are provisions grossly disadvantageous to
government and detrimental to the interests of the Filipino people, as well as violative of public policy, and must
therefore be stricken off as invalid. Since the offending provisions are very much separable from Section 7.7 and
the rest of the FTAA, the deletion of Sections 7.9 and 7.8(e) can be done without affecting or requiring the
invalidation of the WMCP FTAA itself, and such deletion will preserve for government its due share of the 60
percent benefits. Therefore, the WMCP FTAA is NOT bereft of a valid consideration (assuming for the nonce
that indeed this is the "consideration" of the FTAA).
SUMMATION
To conclude, a summary of the key points discussed above is now in order.
The Meaning of "Agreements Involving
Either Technical or Financial Assistance"
Applying familiar principles of constitutional construction to the phrase agreements involving either technical or
financial assistance, the framers' choice of words does not indicate the intent to exclude other modes of
assistance, but rather implies that there are other things being included or possibly being made part of the
agreement, apart from financial or technical assistance. The drafters avoided the use of restrictive and stringent
phraseology; a verba legis scrutiny of Section 2 of Article XII of the Constitution discloses not even a hint of a
desire to prohibit foreign involvement in the management or operation of mining activities, or to eradicate service
contracts. Such moves would necessarily imply an underlying drastic shift in fundamental economic and

developmental policies of the State. That change requires a much more definite and irrefutable basis than mere
omission of the words "service contract" from the new Constitution.
Furthermore, a literal and restrictive interpretation of this paragraph leads to logical inconsistencies. A
constitutional provision specifically allowing foreign-owned corporations to render financial or
technical assistancein respect of mining or any other commercial activity was clearly unnecessary; the provision
was meant to refer to more than mere financial or technical assistance.
Also, if paragraph 4 permits only agreements for financial or technical assistance, there would be no point in
requiring that they be "based on real contributions to the economic growth and general welfare of the
country."And considering that there were various long-term service contracts still in force and effect at the time
the new Charter was being drafted, the absence of any transitory provisions to govern the termination and
closing-out of the then existing service contracts strongly militates against the theory that the mere omission of
"service contracts" signaled their prohibition by the new Constitution.
Resort to the deliberations of the Constitutional Commission is therefore unavoidable, and a careful scrutiny
thereof conclusively shows that the ConCom members discussed agreements involving either technical or
financial assistance in the same sense as service contracts and used the terms interchangeably. The drafters in
fact knew that the agreements with foreign corporations were going to entail not mere technical or financial
assistance but, rather, foreign investment in and management of an enterprise for large-scale exploration,
development and utilization of minerals.
The framers spoke about service contracts as the concept was understood in the 1973 Constitution. It is obvious
from their discussions that they did not intend to ban or eradicate service contracts. Instead, they were intent on
crafting provisions to put in place safeguards that would eliminate or minimize the abuses prevalent during the
martial law regime. In brief, they were going to permit service contracts with foreign corporations as
contractors, but with safety measures to prevent abuses, as an exception to the general norm
established in the first paragraph of Section 2 of Article XII, which reserves or limits to Filipino citizens
and corporations at least 60 percent owned by such citizens the exploration, development and utilization
of mineral or petroleum resources. This was prompted by the perceived insufficiency of Filipino capital and
the felt need for foreign expertise in the EDU of mineral resources.
Despite strong opposition from some ConCom members during the final voting, the Article on the National
Economy and Patrimony -- including paragraph 4 allowing service contracts with foreign corporations as an
exception to the general norm in paragraph 1 of Section 2 of the same Article -- was resoundingly and
overwhelmingly approved.
The drafters, many of whom were economists, academicians, lawyers, businesspersons and politicians knew
that foreign entities will not enter into agreements involving assistance without requiring measures of protection
to ensure the success of the venture and repayment of their investments, loans and other financial assistance,
and ultimately to protect the business reputation of the foreign corporations. The drafters, by specifying such
agreements involving assistance, necessarily gave implied assent to everything that these agreements entailed
or that could reasonably be deemed necessary to make them tenable and effective -- including management
authority with respect to the day-to-day operations of the enterprise, and measures for the protection of the
interests of the foreign corporation, at least to the extent that they are consistent with Philippine sovereignty over
natural resources, the constitutional requirement of State control, and beneficial ownership of natural resources
remaining vested in the State.
From the foregoing, it is clear that agreements involving either technical or financial assistance referred to in
paragraph 4 are in fact service contracts, but such new service contracts are between foreign corporations
acting as contractors on the one hand, and on the other hand government as principal or "owner" (of the works),
whereby the foreign contractor provides the capital, technology and technical know-how, and managerial
expertise in the creation and operation of the large-scale mining/extractive enterprise, and government through
its agencies (DENR, MGB) actively exercises full control and supervision over the entire enterprise.
Such service contracts may be entered into only with respect to minerals, petroleum and other mineral oils. The
grant of such service contracts is subject to several safeguards, among them: (1) that the service contract be
crafted in accordance with a general law setting standard or uniform terms, conditions and requirements; (2) the
President be the signatory for the government; and (3) the President report the executed agreement to Congress
within thirty days.
Ultimate Test: Full State Control

To repeat, the primacy of the principle of the State's sovereign ownership of all mineral resources, and its full
control and supervision over all aspects of exploration, development and utilization of natural resources must be
upheld. But "full control and supervision" cannot be taken literally to mean that the State controls and
superviseseverything down to the minutest details and makes all required actions, as this would render
impossible the legitimate exercise by the contractor of a reasonable degree of management prerogative and
authority, indispensable to the proper functioning of the mining enterprise. Also, government need not micromanage mining operations and day-to-day affairs of the enterprise in order to be considered as exercising full
control and supervision.
Control, as utilized in Section 2 of Article XII, must be taken to mean a degree of control sufficient to enable the
State to direct, restrain, regulate and govern the affairs of the extractive enterprises. Control by the State may be
on a macro level, through the establishment of policies, guidelines, regulations, industry standards and similar
measures that would enable government to regulate the conduct of affairs in various enterprises, and restrain
activities deemed not desirable or beneficial, with the end in view of ensuring that these enterprises contribute to
the economic development and general welfare of the country, conserve the environment, and uplift the wellbeing of the local affected communities. Such a degree of control would be compatible with permitting the
foreign contractor sufficient and reasonable management authority over the enterprise it has invested in, to
ensure efficient and profitable operation.
Government Granted Full Control
by RA 7942 and DAO 96-40
Baseless are petitioners' sweeping claims that RA 7942 and its Implementing Rules and Regulations make it
possible for FTAA contracts to cede full control and management of mining enterprises over to fully foreign
owned corporations. Equally wobbly is the assertion that the State is reduced to a passive regulator dependent
on submitted plans and reports, with weak review and audit powers and little say in the decision-making of the
enterprise, for which reasons "beneficial ownership" of the mineral resources is allegedly ceded to the foreign
contractor.
As discussed hereinabove, the State's full control and supervision over mining operations are ensured through
the following provisions in RA 7942: Sections 8, 9, 16, 19, 24, 35[(b), (e), (f), (g), (h), (k), (l), (m) and (o)], 40, 57,
66, 69, 70, and Chapters XI and XVII; as well as the following provisions of DAO 96-40: Sections7[(d) and (f)],
35(a-2), 53[(a-4) and (d)], 54, 56[(g), (h), (l), (m) and (n)], 56(2), 60, 66, 144, 168, 171 and 270, and also
Chapters XV, XVI and XXIV.
Through the foregoing provisions, the government agencies concerned are empowered to approve or
disapprove -- hence, in a position to influence, direct, and change -- the various work programs and the
corresponding minimum expenditure commitments for each of the exploration, development and utilization
phases of the enterprise. Once they have been approved, the contractor's compliance with its commitments
therein will be monitored. Figures for mineral production and sales are regularly monitored and subjected to
government review, to ensure that the products and by-products are disposed of at the best prices; copies of
sales agreements have to be submitted to and registered with MGB.
The contractor is mandated to open its books of accounts and records for scrutiny, to enable the State to
determine that the government share has been fully paid. The State may likewise compel compliance by the
contractor with mandatory requirements on mine safety, health and environmental protection, and the use of
anti-pollution technology and facilities. The contractor is also obligated to assist the development of the mining
community, and pay royalties to the indigenous peoples concerned. And violation of any of the FTAA's terms
and conditions, and/or non-compliance with statutes or regulations, may be penalized by cancellation of the
FTAA. Such sanction is significant to a contractor who may have yet to recover the tens or hundreds of millions
of dollars sunk into a mining project.
Overall, the State definitely has a pivotal say in the operation of the individual enterprises, and can set directions
and objectives, detect deviations and non-compliances by the contractor, and enforce compliance and impose
sanctions should the occasion arise. Hence, RA 7942 and DAO 96-40 vest in government more than a sufficient
degree of control and supervision over the conduct of mining operations.
Section 3(aq) of RA 7942 was objected to as being unconstitutional for allowing a foreign contractor to apply for
and hold an exploration permit. During the exploration phase, the permit grantee (and prospective contractor) is
spending and investing heavily in exploration activities without yet being able to extract minerals and generate
revenues. The exploration permit issued under Sections 3(aq), 20 and 23 of RA 7942, which allows exploration
but not extraction, serves to protect the interests and rights of the exploration permit grantee (and would-be

contractor), foreign or local. Otherwise, the exploration works already conducted, and expenditures already
made, may end up only benefiting claim-jumpers. Thus, Section 3(aq) of RA 7942 is not unconstitutional.
WMCP FTAA Likewise Gives the
State Full Control and Supervision
The WMCP FTAA obligates the contractor to account for the value of production and sale of minerals (Clause
1.4); requires that the 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 State
for incorporation of lands into the contract area (Clause 4.3-c); requires Bureau of Forest Development approval
for inclusion of forest reserves as part of the FTAA contract area (Clause 4.5); obligates the contractor to
periodically relinquish parts of the contract area not needed for exploration and development (Clause 4.6);
requires submission of a declaration of mining feasibility for approval by the State (Clause 4.6-b); obligates the
contractor to report to the State the results of its exploration activities (Clause 4.9); requires the contractor to
obtain State approval for its work programs for the succeeding two year periods, containing the proposed work
activities and expenditures budget related to exploration (Clause 5.1); requires the contractor to obtain State
approval for its proposed expenditures for exploration activities (Clause 5.2); requires the contractor to submit an
annual report on geological, geophysical, geochemical and other information relating to its explorations within
the FTAA area (Clause 5.3-a); requires the contractor to submit within six months after expiration of exploration
period a final report on all its findings in the contract area (Clause 5.3-b); requires the contractor after conducting
feasibility studies to submit a declaration of mining feasibility, along with a description of the area to be
developed and mined, a description of the proposed mining operations and the technology to be employed, and
the proposed work program for the development phase, for approval by the DENR secretary (Clause 5.4);
obligates the contractor to complete the development of the mine, including construction of the production
facilities, within the period stated in the approved work program (Clause 6.1); requires the contractor to submit
for approval a work program covering each period of three fiscal years (Clause 6.2); requires the contractor to
submit reports to the secretary on the production, ore reserves, work accomplished and work in progress, profile
of its work force and management staff, and other technical information (Clause 6.3); subjects any expansions,
modifications, improvements and replacements of mining facilities to the approval of the secretary (Clause 6.4);
subjects to State control the amount of funds that the contractor may borrow within the Philippines (Clause 7.2);
subjects to State supervisory power any technical, financial and marketing issues (Clause 10.1-a); obligates the
contractor to ensure 60 percent Filipino equity in the contractor within ten years of recovering specified
expenditures unless not so required by subsequent legislation (Clause 10.1); gives the State the right to
terminate the FTAA for unremedied substantial breach thereof by the contractor (Clause 13.2); requires State
approval for any assignment of the FTAA by the contractor to an entity other than an affiliate (Clause 14.1).
In short, the aforementioned provisions of the WMCP FTAA, far from constituting a surrender of control and a
grant of beneficial ownership of mineral resources to the contractor in question, vest the State with control and
supervision over practically all aspects of the operations of the FTAA contractor, including the charging of preoperating and operating expenses, and the disposition of mineral products.
There is likewise no relinquishment of control on account of specific provisions of the WMCP FTAA. Clause 8.2
provides a mechanism to prevent the mining operations from grinding to a complete halt as a result of possible
delays of more than 60 days in the government's processing and approval of submitted work programs and
budgets. Clause 8.3 seeks to provide a temporary, stop-gap solution in case a disagreement between the State
and the contractor (over the proposed work program or budget submitted by the contractor) should result in a
deadlock or impasse, to avoid unreasonably long delays in the performance of the works.
The State, despite Clause 8.3, still has control over the contract area, and it may, as sovereign authority, prohibit
work thereon until the dispute is resolved, or it may terminate the FTAA, citing substantial breach thereof.
Hence, the State clearly retains full and effective control.
Clause 8.5, which allows the contractor to make changes to approved work programs and budgets without the
prior approval of the DENR secretary, subject to certain limitations with respect to the variance/s, merely
provides the contractor a certain amount of flexibility to meet unexpected situations, while still guaranteeing that
the approved work programs and budgets are not abandoned altogether. And if the secretary disagrees with the
actions taken by the contractor in this instance, he may also resort to cancellation/termination of the FTAA as the
ultimate sanction.
Clause 4.6 of the WMCP FTAA gives the contractor discretion to select parts of the contract area to be
relinquished. The State is not in a position to substitute its judgment for that of the contractor, who knows exactly
which portions of the contract area do not contain minerals in commercial quantities and should be relinquished.

Also, since the annual occupation fees paid to government are based on the total hectarage of the contract area,
net of the areas relinquished, the 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 power
of eminent domain. It contemplates a situation in which the contractor is a foreign-owned corporation, hence, not
qualified to own land. The contractor identifies the surface areas needed for it to construct the infrastructure for
mining operations, and the State then acquires the surface rights on behalf of the former. The provision does not
call for the exercise of the power of eminent domain (or determination of just compensation); it seeks to avoid a
violation of the anti-dummy law.
Clause 10.2(l) of the WMCP FTAA giving the contractor the right to mortgage and encumber the mineral
products extracted may have been a result of conditions imposed by creditor-banks to secure the loan
obligations of WMCP. Banks lend also upon the security of encumbrances on goods produced, which can be
easily sold and converted into cash and applied to the repayment of loans. Thus, Clause 10.2(l) is not something
out of the ordinary. Neither is it objectionable, because even though the contractor is allowed to mortgage or
encumber the mineral end-products themselves, the contractor is not thereby relieved of its obligation to pay the
government its basic and additional shares in the net mining revenue. The contractor's ability to mortgage the
minerals 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 that
WMCP, which was then 100 percent foreign owned, could permit Filipino equity ownership. Moreover, what is
important is that the contractor, regardless of its ownership, is always in a position to render the services
required under the FTAA, under the direction and control of the government.
Clauses 10.4(e) and (i) bind government to allow amendments to the FTAA if required by banks and other
financial institutions as part of the conditions of new lendings. There is nothing objectionable here, since Clause
10.4(e) also provides that such financing arrangements should in no event reduce the contractor's obligations or
the 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 any
such request. Also, it is up to the contractor to prove the need for the requested changes. The government
always has the final say on whether to approve or disapprove such requests.
In fine, the FTAA provisions do not reduce or abdicate State control.
No Surrender of Financial Benefits
The second paragraph of Section 81 of RA 7942 has been denounced for allegedly limiting the State's share in
FTAAs with foreign contractors to just taxes, fees and duties, and depriving the State of a share in the after-tax
income of the enterprise. However, the inclusion of the phrase "among other things" in the second paragraph of
Section 81 clearly and unmistakably reveals the legislative intent to have the State collect more than just the
usual taxes, duties and fees.
Thus, DAO 99-56, the "Guidelines Establishing the Fiscal Regime of Financial or Technical Assistance
Agreements," spells out the financial benefits government will receive from an FTAA, as consisting of not only
abasic government share, comprised of all direct taxes, fees and royalties, as well as other payments made by
the contractor during the term of the FTAA, but also an additional government share, being a share in the
earnings or cash flows of the mining enterprise, so as to achieve a fifty-fifty sharing of net benefits from
mining between the government and the contractor.
The additional government share is computed using one of three (3) options or schemes detailed in DAO 9956, viz., (1) the fifty-fifty sharing of cumulative present value of cash flows; (2) the excess profit-related additional
government share; and (3) the additional sharing based on the cumulative net mining revenue. Whichever option
or computation is used, the additional government share has nothing to do with taxes, duties, fees or charges.
The portion of revenues remaining after the deduction of the basic and additional government shares is what
goes to the contractor.
The basic government share and the additional government share do not yet take into account the indirect taxes
and other financial contributions of mining projects, which are real and actual benefits enjoyed by the Filipino
people; if these are taken into account, total government share increases to 60 percent or higher (as much as 77
percent, and 89 percent in one instance) of the net present value of total benefits from the project.

The third or last paragraph of Section 81 of RA 7942 is slammed for deferring the payment of the government
share in FTAAs until after the contractor shall have recovered its pre-operating expenses, exploration and
development expenditures. Allegedly, the collection of the State's share is rendered uncertain, as there is no
time limit in RA 7942 for this grace period or recovery period. But although RA 7942 did not limit the grace
period, the concerned agencies (DENR and MGB) in formulating the 1995 and 1996 Implementing Rules and
Regulations provided that the period of recovery, reckoned from the date of commercial operation, shall be for a
period not exceeding five years, or until the date of actual recovery, whichever comes earlier.
And since RA 7942 allegedly does not require government approval for the pre-operating, exploration and
development expenses of the foreign contractors, it is feared that such expenses could be bloated to wipe out
mining revenues anticipated for 10 years, with the result that the 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 work
program for exploration, containing a yearly budget of proposed expenditures, which the State passes upon and
either approves or rejects; if approved, the same will subsequently be recorded as pre-operating expenses that
the contractor will have to recoup over the grace period.
Under Section 24, when an exploration permittee files with the MGB a declaration of mining project feasibility, it
must submit a work program for development, with corresponding budget, for approval by the Bureau, before
government may grant an FTAA or MPSA or other mineral agreements; again, government has the opportunity
to approve or reject the proposed work program and budgeted expenditures for development works, which will
become the pre-operating and development costs that will have to be recovered. Government is able to know
ahead of time the amounts of pre-operating and other expenses to be recovered, and the approximate period of
time needed therefor. The aforecited provisions have counterparts in Section 35, which deals with the terms and
conditions exclusively applicable to FTAAs. In sum, the third or last paragraph of Section 81 of RA 7942 cannot
be deemed defective.
Section 80 of RA 7942 allegedly limits the 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 in
Section 84 reiterates the same limitation in Section 80. However, these two provisions pertain only to
MPSAs, and have no application to FTAAs. These particular provisions do not come within the issues
defined by this Court. Hence, on due process grounds, no pronouncement can be made in this case in
respect of the constitutionality of Sections 80 and 84.
Section 112 is disparaged for reverting FTAAs and all mineral agreements to the old "license, concession or
lease" system, because it allegedly effectively reduces the government share in FTAAs to just the 2 percent
excise tax which pursuant to Section 80 comprises the government share in MPSAs. However, Section 112
likewise does not come within the issues delineated by this Court, and was never touched upon by the parties in
their pleadings. Moreover, Section 112 may not properly apply to FTAAs. The mining law obviously meant to
treat FTAAs as a breed apart from mineral agreements. There is absolutely no basis to believe that the law
intends to exact from FTAA contractors merely the same government share (i.e., the 2 percent excise tax) that it
apparently demands from contractors under the three forms of mineral agreements.
While there is ground to believe that Sections 80, 84 and 112 are indeed unconstitutional, they cannot be ruled
upon here. In any event, they are separable; thus, a later finding of nullity will not affect the rest of RA 7942.
In fine, the challenged provisions of RA 7942 cannot be said to surrender financial benefits from an
FTAA to the foreign contractors.
Moreover, there is no concrete basis for the view that, in FTAAs with a foreign contractor, the State must receive
at least 60 percent of the after-tax income from the exploitation of its mineral resources, and that such share is
the equivalent of the constitutional requirement that at least 60 percent of the capital, and hence 60 percent of
the income, of mining companies should remain in Filipino hands. Even if the State is entitled to a 60 percent
share from other mineral agreements (CPA, JVA and MPSA), that would not create a parallel or analogous
situation for FTAAs. We are dealing with an essentially different equation. Here we have the old apples and
oranges syndrome.
The Charter did not intend to fix an iron-clad rule of 60 percent share, applicable to all situations, regardless of
circumstances. There is no indication of such an intention on the part of the framers. Moreover, the terms and
conditions of petroleum FTAAs cannot serve as standards for mineral mining FTAAs, because the technical

and operational requirements, cost structures and investment needs of off-shore petroleum exploration
and drilling companies do not have the remotest resemblance to those of on-shore mining companies.
To take the position that government's share must be not less than 60 percent of after-tax income of FTAA
contractors is nothing short of this Court dictating upon the government. The State resultantly ends up losing
control. To avoid compromising the 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 and
means, should it so decide, to get a 60 percent share (or greater); and it is not necessary that the State does so
in every case.
Invalid Provisions of the WMCP FTAA
Section 7.9 of the WMCP FTAA clearly renders illusory the 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 60
percent or more of their equity to a Filipino citizen or corporation, the State loses its right to receive its share in
net mining revenues under Section 7.7, without any offsetting compensation to the State. And what is given to
the State in Section 7.7 is by mere tolerance of WMCP's foreign stockholders, who can at any time cut off the
government'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 WMCP
to Sagittarius Mines, Inc., a domestic corporation at least 60 percent Filipino owned, can be deemed to have
automatically triggered the operation of Section 7.9 and removed the 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, because
by the mere act of divestment, the local and foreign stockholders get a windfall, as their share in the net mining
revenues of WMCP is automatically increased, without having to pay anything for it.
Being grossly disadvantageous to government and detrimental to the Filipino people, as well as violative of
public policy, Section 7.9 must therefore be stricken off as invalid. The FTAA in question does not involve mere
contractual rights but, being impressed as it is with public interest, the contractual provisions and stipulations
must yield to the common good and the national interest. Since the offending provision is very much separable
from the rest of the FTAA, the deletion of Section 7.9 can be done without affecting or requiring the invalidation
of the entire WMCP FTAA itself.
Section 7.8(e) of the WMCP FTAA likewise is invalid, since by allowing the sums spent by government for the
benefit of the contractor to be deductible from the State's share in net mining revenues, it results in benefiting the
contractor twice over. This constitutes unjust enrichment on the part of the contractor, at the expense of
government. For being grossly disadvantageous and prejudicial to government and contrary to public policy,
Section 7.8(e) must also be declared without effect. It may likewise be stricken off without affecting the rest of
the FTAA.
EPILOGUE
AFTER ALL IS SAID AND DONE, it is clear that there is unanimous agreement in the Court upon the key
principle that the State must exercise full control and supervision over the exploration, development and
utilization of mineral resources.
The crux of the controversy is the amount of discretion to be accorded the Executive Department, particularly the
President of the Republic, in respect of negotiations over the terms of FTAAs, particularly when it comes to the
government share of financial benefits from FTAAs. The Court believes that it is not unconstitutional to allow a
wide degree of discretion to the Chief Executive, given the nature and complexity of such agreements, the
humongous amounts of capital and financing required for large-scale mining operations, the complicated
technology needed, and the intricacies of international trade, coupled with the State's need to maintain flexibility
in 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 high
places, duplicity in the negotiation of multi-billion peso government contracts, huge payoffs to government
officials, and other malfeasances; and perhaps, there is the desire to see some measures put in place to prevent
further abuse. However, dictating upon the President what minimum share to get from an FTAA is not the
solution. It sets a bad precedent since such a move institutionalizes the very reduction if not deprivation of the
State'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 government
may be challenged in court, and the culprits haled before the bar of justice.
Verily, under the doctrine of separation of powers and due respect for co-equal and coordinate branches of
government, this Court must restrain itself from intruding into policy matters and must allow the President and
Congress maximum discretion in using the resources of our country and in securing the assistance of foreign
groups to eradicate the grinding poverty of our people and answer their cry for viable employment opportunities
in the country.
"The judiciary is loath to interfere with the due exercise by coequal branches of government of their official
functions."99 As aptly spelled out seven decades ago by Justice George Malcolm, "Just as the Supreme Court,
as the guardian of constitutional rights, should not sanction usurpations by any other department of government,
so should it as strictly confine its own sphere of influence to the powers expressly or by implication conferred on
it by the Organic Act."100 Let the development of the mining industry be the responsibility of the political branches
of government. And let not this Court interfere inordinately and unnecessarily.
The Constitution of the Philippines is the supreme law of the land. It is the repository of all the aspirations and
hopes of all the people. We fully sympathize with the plight of Petitioner La Bugal B'laan and other tribal groups,
and commend their efforts to uplift their communities. However, we cannot justify the invalidation of an otherwise
constitutional statute along with its implementing rules, or the nullification of an otherwise legal and binding
FTAA contract.
We must never forget that it is not only our less privileged brethren in tribal and cultural communities who
deserve the attention of this Court; rather, all parties concerned -- including the State itself, the contractor
(whether Filipino or foreign), and the vast majority of our citizens -- equally deserve the protection of the law and
of this Court. To stress, the benefits to be derived by the State from mining activities must ultimately serve the
great majority of our fellow citizens. They have as much right and interest in the proper and well-ordered
development and utilization of the country's mineral resources as the petitioners.
Whether we consider the near term or take the longer view, we cannot overemphasize the need for
anappropriate balancing of interests and needs -- the need to develop our stagnating mining industry and
extract what NEDA Secretary Romulo Neri estimates is some US$840 billion (approx. PhP47.04 trillion) worth of
mineral wealth lying hidden in the ground, in order to jumpstart our floundering economy on the one hand, and
on the other, the need to enhance our nationalistic aspirations, protect our indigenous communities, and prevent
irreversible ecological damage.
This Court cannot but be mindful that any decision rendered in this case will ultimately impact not only the
cultural communities which lodged the instant Petition, and not only the larger community of the Filipino people
now struggling to survive amidst a fiscal/budgetary deficit, ever increasing prices of fuel, food, and essential
commodities and services, the shrinking value of the local currency, and a government hamstrung in its delivery
of basic services by a severe lack of resources, but also countless future generations of Filipinos.
For this latter group of Filipinos yet to be born, their eventual access to education, health care and basic
services, their overall level of well-being, the very shape of their lives are even now being determined and
affected partly by the policies and directions being adopted and implemented by government today. And in part
by the this Resolution rendered by this Court today.
Verily, the mineral wealth and natural resources of this country are meant to benefit not merely a select group of
people living in the areas locally affected by mining activities, but the entire Filipino nation, present and future, to
whom the mineral wealth really belong. This Court has therefore weighed carefully the rights and interests of all
concerned, and decided for the greater good of the greatest number. JUSTICE FOR ALL, not just for some;
JUSTICE FOR THE PRESENT AND THE FUTURE, not just for the here and now.
WHEREFORE, the Court RESOLVES to GRANT the respondents' and the intervenors' Motions for
Reconsideration; to REVERSE and SET ASIDE this 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 Mining
Law), (2) its Implementing Rules and Regulations contained in DENR Administrative Order (DAO) No. 9640 -insofar as they relate to financial and technical assistance agreements referred to in paragraph 4 of Section 2 of
Article XII of the Constitution; and (3) the Financial and Technical Assistance Agreement (FTAA) dated March
30, 1995 executed by the government and Western Mining Corporation Philippines Inc. (WMCP), except
Sections 7.8 and 7.9 of the subject FTAA which are hereby INVALIDATED for being contrary to public policy and
for being grossly disadvantageous to the government.

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 OF
FINANCE, and THE COMMISSIONER OF THE BUREAU OF CUSTOMS, respondents.

DECISION

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 the
law 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 itself
to 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

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 of
Southern 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:
"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 measure 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 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."
The DTI hereby issues the following:
The application for safeguard measures against the importation of gray Portland cement filed by
PHILCEMCOR (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 Mandamus28 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 in
matters 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 of
Department 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 binding
upon 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 25
June 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 Court
of 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 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 matterprecisely 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 nonagricultural 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 to
impose 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 the
consequences.
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 right
to 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 is
grave 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 the
SMA 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 measures
may be imposed. However, the most fundamental restriction on the DTI Secretary's power in that
respect is contained in Section 5 of the SMAthat there should first be a positive final determination
of the Tariff Commissionwhich 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 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.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 distinction
is 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 powerthe 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 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 or
the 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 abovedescribed 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. Phipps105 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, Cario 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
Cario, 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 Cario 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 to
adjudicate cases, but only to investigate all forms of human rights violations.110 Yet, without modifying the
thorough disquisition of the Court in Cario 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's
Implementing 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 terminated
where 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 measure
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 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 any
safeguard 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 Yet
imperfect 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 Secretary
imposing 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 Decision
for 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.