La Bugal-BLaan Tribal Association, Inc. vs.

Ramos
G.R. No. 127882. December 1, 2004
Supreme Court En Banc
by Andrea Bernarte C2017
TIMELINE:
January 27, 2004: Court En Banc declares the unconstitutionality of certain Provisions of R.A. 7942,
DAO 96-40, as well as of the entire FTAA executed between the government and WMCP
March 9, 2004: Court resolution required petitioners to comment on the separate Motions for
Reconsideration filed by the respondents
June 8, 2004: A resolution set the case for Oral Argument on June 29, 2004
APPLICABLE LAWS:
1. Section 2, Article XII of the 1987 Constitution reads:
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 60 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 provided by law. In cases of water rights for irrigation, water supply, fisheries, or industrial
uses other than the development of waterpower, beneficial use may be the measure and limit of the
grant.
The State shall protect the nations marine wealth in its archipelagic waters, territorial sea, and
exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.
The Congress may, by law, allow small-scale utilization of natural resources by Filipino
citizens, as well as cooperative fish farming, with priority to subsistence fishermen and fish workers
in rivers, lakes, bays, and lagoons.
The President may enter into agreements with foreign-owned corporations involving either
technical or financial assistance for large-scale exploration, development, and utilization of
minerals, petroleum, and other mineral oils according to the general terms and conditions
provided by law, based on real contributions to the economic growth and general welfare of

the country. In such agreements, the State shall promote the development and use of local
scientific and technical resources.
The President shall notify the Congress of every contract entered into in accordance with this
provision, within thirty days from its execution.
**Petitioners assert that the first paragraph of Section 2 Article XII permits the government
to enter into FTAAs only with foreign-owned corporations. Petitioners insist that the first
paragraph of this 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. However, nowhere in the
provision is there any express limitation or restriction insofar as arrangements other than the
three contractual schemes are concerned.
2. Financial and Technical Assistance Agreements (FTAA) is an agreement for the largescale exploration, development and utilization (EDU) of minerals.
Transfer of FTAA:
If transferee is a Filipino corporation, the need for securing the prior approval of the President and
notification to Congress is not critical. The lack of the same may not deem the transfer invalid.
If transferee is a foreign corporation, the approval and notification are appropriate safeguards
3. R.A. 7942 (Philippine Mining Act of 1995)
Section 40 : 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.

RESOLUTION
Ponente: Panganiban, J.

All mineral resources are owned by the State

The State may secure the help of foreign companies in all relevant matters- especially
financial and technical assistance- provided that the State maintains its right of full control
The idea of full control is similar to that which is exercised by the board of directors of a
private corporation- functions may be delegated but the board retains full control of the
business

The President (the Chief Executive) is the official constitutionally mandated to enter into
agreements with foreign owned corporations. The Congress may review the action of the
President once notified.
Should the President and/or Congress gravely abuse their discretion, the courts may exercise
their residual duty under Article VIII
The Constitution 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
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 FTAA

The Petition for Prohibition and Mandamus challenges the constitutionality of:
1. R.A. No. 7942
2. Its Implementing Rules and Regulations1
3. The FTAA dated March 30, 1995, executed by the government with Western Mining
Corporation (Philippines), Inc. (WMCP)
The Court en banc granted the Petition and declared the unconstitutionality of certain provisions of
R.A. 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.
Service contracts, though permitted in the 1973 Constitution, 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. The 1987 Constitution (Sec.2
Art.XII) effectively banned service contracts.
The respondents filed separate Motions for Reconsideration. The Chamber of Mines of the
Philippines, Inc. (CMP) filed a Motion for Intervention. The Court required petitioners to comment
thereon. After hearing the opposing sides, the Court required the parties to submit their respective
Memoranda in amplification of their arguments. In a resolution issued on the same day, the Court
noted the Manifestation and Motion filed by the Office of the Solicitor General (OSG) on behalf of
public respondents.
ISSUES:
1. Has the case been rendered moot by the sale of WMC shares in WMPC 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?
1

DENR Administrative Order No. (DAO) 96-40

2. Assuming that the case has been rendered moot, would it still be proper to resolve the
constitutionality of the assailed provisions of the Mining Law, DAO 96-40 and the WMCP
FTAA?
3. What is the proper interpretation of the phrase Agreements Involving Either Technical or
Financial Assistance contained in par.4 of Sec.2, Art. XII of the Constitution?
The respondents and intervenors Motions for Reconsideration should be granted.
ISSUE 1: Mootness

According to petitioners, the FTAAs are limited by the fourth paragraph of the provision to
agreements involving only technical or financial assistance for large-scale exploration,
development and utilization of minerals, petroleum, and other mineral oils. The foreign
contractor is allegedly permitted by the FTAA to fully manage and control the mining
operations, to acquire beneficial ownership of our mineral resources.
The ponencia declared that the instant case had not been rendered moot by the transfer2 and
the registration of the FTAA to a Filipino-owned corporation, and the validity of the said
transfer remained in dispute and awaited final judicial determination.
The Decision is anchored on the assumption that WMCP had remained a foreign corporation
Issue of mootness: the fact that WMCP, at the time it entered into the FTAA, happened to be
wholly owned by WMC Resources International Pty., Ltd., 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 premised upon the contractor being a foreign corporation
Petitioners argue that the case has not become moot, for two reasons:
o The invalidity of the alleged sale of shares in WMCP from WMC to Sagittarius, and
of the transfer of the FTAA from WMCP to Sagittarius
Violates the fourth paragraph of Sec.2, Art. XII of the Constitution
The first paragraph limits the participation of Filipino corporations in
the EDU of natural resources to only three species of contractsproduction sharing, co-production, and joint venture, and the WMCP
FTAA may therefore not be validly assumed and implemented by
Sagittarius.
A textual analysis of the first paragraph of Sec.2 Art XII does not
support the petitioners; argument. Nowhere in the provision is there
any express limitation or restriction insofar as arrangements other
than the three aforementioned contractual schemes are concerned.
There is no basis that the framers of the Constitution could have
wanted to restrict Filipino participation

On Jan. 23, 2001, WMC sold all its shares in WMCP to Sagittarius Mines, Inc., 60% of whose equity was held by
Filipinos; and that the assailed FTAA had likewise been transferred from WMCP to Sagittarius

Assuming that a constitutional limitation barring Filipino

corporations from holding and implementing an FTAA actually
exists, such provision would apply only to the transfer of FTAA to
Sagittarius, but definitely not to the sale of WMCs equity stake in
WMCP to Sagittarius
It is contrary to the provisions of the WMCP FTAA itself
The provision does not necessarily imply that the WMCP FTAA
cannot be transferred to and assumed by a Filipino corporation like
Sagittarius
The sale of shares is suspect and should be the subject of a case in which its
validity may properly be litigated
Section 40 of RA 7942 requires the Presidents prior approval of a
transfer of the FTAA, not to the sale and transfer of shares of stock
in WMCP
The issue of approval is the subject of G.R. No. 162331, brought by
Lepanto against Sagittarius3
Petitioners also question the sale price and financial capacity of the
transferee.4 However, it would not be reasonable to conclude that
this necessarily carried negative implications; improper to invalidate
the sale on that basis
o There still exists an actual case predicated on the invalidity of RA 7942 and its
Implementing Rules and Regulations
The Decision of this Court declaring the FTAA void has not yet become
final; the Oral Argument was still heard
The FTAA does not vest in the foreign corporation full control and
supervision over the EDU, to the exclusion of the government
Petitioners claim that the citation of Chavez v. Public Estates Authority5 and
Halili v. CA are wholly inapplicable to the instant case
Petitioners are confusing themselves. Halili6 applies to the instant case:
assuming the invalidity of its prior grant to a foreign corporation, the FTAA
now held by a Filipino corporation can no longer be assailed- the objective7
of the constitutional provision has been served

Case involved the review of the Decision of the Court of Appeals dated Nov. 21, 2003 which affirmed the DENR
Order dated Dec. 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
4
The price of WMCP shares was fixed at P553 million; Sagittarius had an authorized capital stock of P250 million
and a paid up capital of P60 million
5
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.
6
Land acquired by a non-Filipino was re-conveyed to a qualified vendee and the original transaction thereby cured
7
To keep the EDU of our natural resources in Filipino hands

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

ISSUE 2: Whether the Court Can Still Decide the Case, Even Assuming It Is Moot

All protagonists are in agreement that the Court has jurisdiction to decide this controversy,
even assuming it to be moot
Petitioners stress the following:
o While a case becomes moot, what is at issues 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
o 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
o The Constitution imposes upon the Supreme Court the duty to declare invalid any
law that offends the Constitution
o No amendatory laws have been passed to make the Mining Act of 1995 conform to
constitutional strictures
The entry of the Chamber of Mines of the Philippines, Inc. has put into focus the
seriousness of the allegations of unconstitutionality of R.A. 7942 and DAO 96-40 which
converts the case to one for prohibition in the enforcement of the said law and regulations.
Note: Tanada v. Angara8
The Court should proceed to a resolution of the constitutional issues in this case

ISSUE 3: The Proper Interpretation of the Constitutional Phrase Agreements Involving Either
Technical or Financial Assistance

See paragraph 4 of Section 2 of Article XII of the 1987 Constitution

In Francisco v. The House of Representatives, this Court reiterated the principles of constitutional
construction:
o (Verba legis) Wherever possible, the words used in the Constitution must be given
their ordinary meaning except where technical terms are employed
o (Ratio legis est anima) Where there is ambiguity, the words of the Constitution should
be interpreted in accordance with the intent of its framers
o (Ut magis valeat quam pereat) The Constitution is to be interpreted as a whole
Note that in EDU the State may undertake such activities by itself or in tandem with
Filipinos or Filipino corporations except in two instances:
o In a small-scale utilization of natural resources, which Filipinos may be allowed by
law to undertake

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.

o 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 believe there is no ambiguity in the phrase
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 and technical
assistance
There is a need for ration legis est anima
Service contracts are also not deconstitutionalized, but used interchangeably with
agreements involving either technical or financial assistance9
Agreements involving either technical or financial assistance are service contracts with
safeguards- such may be entered into only with respect to minerals, petroleum, and other
mineral oils. The grant is subject to several safeguards:
o 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
o The President shall be the signatory for the government
Within 30 days of the executed agreement, the President shall report it to the Congress to
give an opportunity to look over the agreement and interpose timely objections, if any

The decision of January 27, 2004 is reversed.

SOME OBJECTIONS
1. A possible collision of constitutional provisions
Paragraph 1 of Section 2, Article XII mandates the State to exercise full control and supervision
over the EDU of natural resources. Paragraph 4 permits safeguarded service contracts with foreign
corporation. There is a legitimate ground to be concerned that either the States full control and
supervision may rule out any exercise of management authority by the foreign contractor, or the
other way around.
Control by the State may be on a macro level (such as policy-making); R.A. 7942 provides for the
States control and supervision over mining operations, also confirmed by DAO 96-4010.
In other words, the FTAA contractor is not free to do whatever it pleases and get away with it. It
will have to follow the government line if it wants to stay in the enterprise.
2. An objection to Section 3 of R.A. 7942

As shown in exchange between Commissioners Jamir and Suarez

See La Bugal v. Ramos 445 SCRA 134

10

Section 3 allows a foreign contractor to apply for and hold an exploration permit. It 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. Section 3 of R.A. 7942 may not be deemed
unconstitutional.
3. Clause 8.2, 8.3, and 8.511 of the WMCP FTAA (No Surrender of Control)
Petitioners take aim at Clause 8.2, 8.3, and 8.512 of the WMCP FTAA which they say amount to a
relinquishment of control by the State. The clauses provide the contractor certain amount of
flexibility but does not constitute proof that the State has relinquished control.
4. Discretion to Select Contract Area Not an Abdication of Control
Petitioners complain that the contractor has full discretion to select (and the government has no say)
the parts of the contract area to be relinquished pursuant to Clause 4.6 of the WMCP FTAA. This
clause does not constitute abdication of control. The State cannot just substitute its judgment for
that of the contractor and dictate upon the latter which areas to give up.
5. Government Not a Subcontractor
Petitioners maintain that the contractor can compel the government to exercise its power of eminent
domain to acquire surface areas within the contract area for the contractors use. Private respondent
has proffered a logical explanation for the provision. Section 10.2 illustrates the mechanism whereby
the foreign-owned contractor 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 shoulders the purchase price of the land. The
provision allows it, after termination of the FTAA, to be reimbursed from proceeds of the sal13e of
the surface areas, which the government will dispose of through public bidding. Rather than having
the foreign contractor act through a dummy corporation, having the State do the purchasing is a
better alternative.
6. 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. The Court believes 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
11

See La Bugal v. Ramos 445 SCRA 144

See La Bugal v. Ramos 445 SCRA 144
13
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
12

and discretion. What is critical is that 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.
7. Contractors Right to Ask For Amendment Not Absolute
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. The
Court finds nothing wrong with this because the clause also says the government shall cooperate
with the contractor in such efforts provided that such financing arrangements will in no event
reduce the Contractors obligations or the Governments rights hereunder. The provision 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.
8. Governments Share in an FTAA Not Consisting Solely of Taxes, Duties, and Fees
A criticism has been leveled at the second paragraph of Sec.81 of R.A. 7942.14 The law provides no
definition of the term among other things, 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.
The additional share may be a) an amount that will result in a 50-50 sharing of the cumulative
present value of the cash flows of the enterprise; b) an amount equivalent to 25% 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 50-50 sharing of the cumulative net mining revenue from the end of the
recovery period up to the taxable year in question.
9. Collections Not Made Uncertain by the Third Paragraph of Section 81
The objection has been advanced that, collection of the States share is not even certain, as there is
no time limit in R.A. 7942 for this grace period or recovery period. The Court believes that Congress
did not set any time limit on account of their technical expertise and training, in a better position to
determine the appropriate durations for such recovery periods15.
10. Approval of Pre-Operating Expenses Required by R.A. 7942
R.A. 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. This argument is based on incorrect information as well
as speculation. Even at the stage of application for an exploration permit, the applicant is required to
submit a proposed work program for exploration containing a yearly budget for approval. With the
14

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.
15
The 1995 and 1996 Implementing Rules and Regulations of R.A. 7942 specify that the period of recovery,
reckoned from the date of commercial operation, shall be for a period not exceeding 5 years, or until the date of
actual recovery, whichever comes earlier

submission of this, the government will be able to scrutinize and approve or reject such
expenditures.
11. No Deprivation of Beneficial Rights
It is also claimed that Sections 80, 84, and 112 of R.A. 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. This Court, on considerations of due process, cannot rule upon them here. If
later on these Sections are declared unconstitutional, such declaration will not affect the other
portions since they are clearly separable from the rest.
12. Our Mineral Resources Not Given Away for Free by R.A. 7942
There is a contention that our mineral resources are effectively given away for free by the law,
Sections 80, 81, 84, and 112 in particular. Assuming the foreign contractors are successful in finding
ore bodies, they need to expend a great deal more of their funds. In the process of recouping their
investments and costs, the foreign contractors do not actually pull out money from the economy.
13. 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. This is premised on erroneous assumptions.
First, the government is entitled to an additional share16. Second, the foreign contractors can hardly
repatriate the entire after-tax income to their home countries.
14. The States Receipt of Sixty Percent of an FTAA Contractors After-Tax Income Not
Mandatory
The next objection: the State must receive at least 60% of the after-tax income from the exploitation
of its mineral resources. The Charter did not intend to fix an iron-clad rule on the 60% share,
applicable to all situations at all times and in all circumstances. If we are really serious in attracting
the investments that are indispensable and key element in generating the monetary benefits of which
we wish to take the lions share. Fairness is a credo not only in law, but also in business. We cannot
just ignore the realities of the distinctly different situations and stubbornly insist on the minimum
60%.
15. Deductions Allowed by the WMCP FTAA Reasonable
Petitioners question whether the States weak control might render the sharing arrangements
ineffective. Mere suspicions will not suffice to propel this Court into taking action.

16

See number 8

16. Section 7.917 of the WMCP Invalid and Disadvantageous

Section 7.9 is grossly disadvantageous to the government, detrimental to the interests of the Filipino
people, and violative of public policy. This provision is very much separable 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.
17. Section 7.8(e)18 of the WMCP FTAA Also Invalid and Disadvantageous
Allowing this deduction results in benefiting the contractor twice over. This provision can also easily
be stricken off without affecting the rest of the FTAA.
18. Nothing Left Over After Deductions
Will the State ever receive anything for its ownership of the mineral resources? The answer will be
Yes.
Receipts from an FTAA = basic govt. share + addtl. govt. share
19. Section 3.3 of the WMCP FTAA Constitutional
Section 3.319 of the WMCP FTAA is assailed for violating supposed constitutional restrictions on
the term of FTAAs. The remedy is the renegotiation of the provision in order to provide the State
the option to not renew the FTAA.
20. Financial Benefits for Foreigners Not Forbidden by the Constitution
There is nothing inherently wrong with or constitutionally objectionable about the idea of foreign
individuals and entities having or enjoying beneficial interest the EDU of our natural resources.
21. Developmental Policy on the Mining Industry
Petitioners invite attention to the OXFAM America Reports warning to developing nations that
mining brings with it serious economic problems, including increased regional inequality,
unemployment, and poverty. 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.

17

Section 7.9 provides: The percentage of Net Mining Revenues payable to the Government pursuant to Clause 7.7
shall be reduced by 1% of Net Mining Revenues for every 1% ownership interest in the Contractor (i.e. WMCP) held
by a Qualified Entity
18
See La Bugal v. Ramos, 445 SCRA 197
19
See La Bugal v. Ramos 445 SCRA 200

The Court RESOLVES to GRANT the respondents and the intervenors Motion for
Reconsideration; to REVERSE and SET ASIDE this Courts January 27, 2004 Decision; to
DISMISS the Petition; and to issue this new judgment declaring the CONSTITUTIONAL 1) R.A.
No. 7942 (the Philippine Mining Law), 2) its Implementing Rules and Regulations contained in the
DENR Administrative Order (DAO) No. 96-40- insofar as they relate to financial and technological
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.