G.R. NO.
134030 mining perlite ore, through an operating agreement or any other method;
ASAPHIL CONSTRUCTION AND DEVELOPMENT
CORPORATION, Petitioner,
- versus -
VICENTE TUASON, JR., INDUPLEX, INC. and MINES ADJUDICATION BOARD,
DECISION
AUSTRIA-MARTINEZ, J.:
The present petition for review under Rule 45 of the Rules of Court assails the Decision of the
Mines Adjudication Board (MAB) dated August 18, 1997, modifying the Decision
dated December 11, 1991 of the Regional Executive Director, DENR-Region
V, Legaspi City. The dispositive portion of the MAB Decision reads:
WHEREFORE, the Decision dated December 11, 1991 of the Regional
Executive Director is hereby MODIFIED. The Agreement to Operate Mining
Claim, dated May 29, 1976 is hereby CANCELLED and/or REVOKED and the
appeal in so far as the Contract to Sell and Purchase Perlite Ore,
dated March 24, 1975 is hereby DISMISSED for lack of merit.
SO ORDERED.[1]
On March 24, 1975, respondent Vicente Tuason, Jr. [2] (Tuason) entered into a Contract
for Sale and Purchase of Perlite Ore with Induplex, Inc. (Induplex), wherein Induplexagreed to
buy all the perlite ore that may be found and mined in Tuasons mining claim located
in Taysa, Daraga, Albay. In exchange, Induplex will assist Tuason in securing and perfecting his
right over the mining claim.[3]
Thereafter, Tuason executed on May 29, 1976, an Agreement to Operate Mining
Claims in favor of petitioner Asaphil Construction and Development Corporation (Asaphil).[4]
On November 9, 1990, Tuason filed with the Bureau of Mines, Department of
Environment and Natural Resources (DENR), a complaint against Asaphil and Induplexfor
declaration of nullity of the two contracts, namely, the Contract for Sale and Purchase
of Perlite Ore, and the Agreement to Operate Mining Claims. Tuason alleged in his complaint
that the stockholders of Induplex formed and organized Ibalon Mineral Resources, Inc.
(Ibalon), an entity whose purpose is to mine any and all kinds of minerals, and has in fact been
mining, extracting and utilizing the perlite ore in Ibalons mining claim; that this is in violation
of the condition imposed by the Board of Investments (BOI) on Induplex in its Joint Venture
Agreement with Grefco, Inc. dated September 3, 1974, prohibiting Induplex from
that Induplex acquired the majority stocks of Asaphil on January 14, 1989, and that 95%
of Ibalons shares were also transferred to Virgilio R. Romero, who is a stockholder
of Induplex, Asaphil and Ibalon. Tuason claimed that said acts adversely affected, not only his
interest as claimowner, but the governments interest as well.[5]
Asaphil filed its Answer, praying for the dismissal of the complaint on the ground
that the DENR has no jurisdiction over the case.[6]
Induplex filed a Motion to Dismiss the complaint, also on ground of lack of
jurisdiction. Induplex contended that to fall within the jurisdiction of the DENR, the
controversy should involve a mining property and the contending parties must be claimholders
and/or mining operators; and that the dispute in this case involves mineral product and not a
mining property, and the protagonists are claimholders (Tuason) and a buyer (Induplex).[7]
The DENR, through the Regional Executive Director, found merit
in Induplexs arguments and dismissed the complaint. The dispositive portion of the Regional
Executive Directors Decision reads:
WHEREFORE, in view of the foregoing, the instant complaint should be, as
it is hereby dismissed.
SO ORDERED.[8]
On appeal, the MAB rendered the herein assailed Decision dated August 18,
1997. The MAB ruled that the complaint is for the cancellation and revocation of the
Agreement to Operate Mining Claims, which is within the jurisdiction of the DENR under
Section 7 of Presidential Decree No. 1281. The MAB also found that the acquisition
by Induplex of the majority stocks of Asaphil, and Induplexs assumption of the mining
operation violated the BOI prohibition. With regard, however, to the validity of the Contract
for Sale and Purchase of Perlite Ore, the MAB ruled that the evidence does not
support Tuasons plea for its cancellation.[9]
Asaphil and Induplex filed a motion for reconsideration which was denied by the
MAB per Order dated March 23, 1998.[10]
Hence, the herein petition by Asaphil on the following grounds:
A. THE BOARD A QUO HAS DECIDED A QUESTION OF SUBSTANCE UNDER
THE RECENTLY ENACTED MINING ACT OF 1995 (R.A. NO. 7942),
NOT THERETOFORE DETERMINED BY THIS HONORABLE
TRIBUNAL
BY VIOLATING ARTICLE 1930 OF THE CIVIL CODE OF
THE PHILIPPINES WHEN IT CANCELLED ASAPHILS AGENCY
(COUPLED WITH AN INTEREST) UNDER THE OPERATING
AGREEMENT.
 BY VIOLATING ASAPHILS CONSTITUTIONAL RIGHT TO DUE
PROCESS OF LAW WHEN THE BOARD ADJUDICATED UPON
ALLEGED VIOLATION OF THE AGREEMENT ON THE PART OF
ASAPHIL, BUT WITHOUT RECEIVING EVIDENCE OF ANY SUCH
VIOLATION.
BY IGNORING ASAPHILS 52.5% INTEREST UNDER THE
OPERATING AGREEMENT WHICH GIVES TO ASAPHIL THE
RIGHT TO DETERMINE WHETHER OR NOT THE OPERATING
AGREEMENT MUST BE CANCELLED.
BY INVALIDATING THE OPERATING AGREEMENT WITHOUT
RECEIVING EVIDENCE ON THE PURPORTED GROUND FOR
INVALIDATION.
BY NOT ADJUDICATING UPON THE RIGHTS AND OBLIGATION
OF TUASON AND ASAPHIL UNDER THE OPERATING
AGREEMENT WHICH IS ACTUALLY IN THE NATURE OF A
JOINT VENTURE AGREEMENT, BY REASON OF THE FINANCIAL
RAMIFICATIONS THEREOF.
B. THE BOARD A QUO HAS DEPARTED FROM THE ACCEPTED AND USUAL
COURSE OF JUDICIAL PROCEEDINGS
1. BY INVALIDATING THE OPERATING AGREEMENT
WITHOUT RECEIVING EVIDENCE ON THE PURPORTED
GROUND FOR INVALIDATION.
2. THE ACTUATION OF THE MINES ADJUDICATION
BOARD IS UNCONSTITUTIONAL, AS IT DEPRIVES THE
PETITIONER OF ITS RIGHT TO PRESENT EVIDENCE ON
THE ISSUE OF WHETHER OR NOT THE OPERATING
AGREEMENT HAS BEEN VIOLATED, VIRTUALLLY
DEPRIVING THE PETITIONER OF ITS PROPRIETARY
RIGHTS WITHOUT DUE PROCESS OF LAW.
3. THE MINES ADJUDICATION BOARD ERRED IN
ENTERTAINING TUASONS APPEAL FROM THE ORDER
OF DISMISSAL, AS THE LATTER WAS CONCERNED
SOLELY WITH THE ISSUE OF JURISDICTION WHICH,
BEING A MATTER OF LAW, IS COGNIZABLE BY THIS
HONORABLE TRIBUNAL AND/OR BY THE COURT OF
APPEALS.
4. GRANTING THAT THE MINES ADJUDICATION BOARD
COULD VALIDLY ASSUME THE FACTS (WITHOUT
RECEIVING EVIDENCE),
a) THE MINES ADJUDICATION BOARD NONETHELESS
ERRED IN ANNULLING THE OPERATING
AGREEMENT BETWEEN TUASON AND
ASAPHIL, ON THE MERE CIRCUMSTANCE THAT
A STOCKHOLDER OF INDUPLEX HAD BECOME
A STOCKHOLDER OF ASAPHIL IN 1990.
b) THE MINES ADJUDICATION BOARD LIKEWISE ERRED
IN ANNULING THE OPERATING AGREEMENT
BETWEEN TUASON AND ASAPHIL ON THE
BASIS OF THE ASAPAHILS PURPORTED
VIOLATION OF THE TERMS OF THE OPERATING
AGREEMENT.
5. THE MINES ADJUDICATION BOARD FURTHER ERRED IN
ANNULING THE OPERATING AGREEMENT BETWEEN
TUASON AND ASAPHIL AND AT THE SAME TIME THE
BOARD UPHELD THE VALIDITY OF THE SUPPLY
CONTRACT BETWEEN TUASON AND INDUPLEX BASED
ON THE SAME INVALIDATING CAUSE.[11] (Emphasis
supplied)
Petitioners arguments may be summed up into two basic issues: first, whether or not the DENR
has jurisdiction over Tuasons complaint for the annulment of the Contract for Sale and
Purchase of Perlite Ore between Tuason and Induplex, and the Agreement to Operate Mining
Claims between Tuason and Asaphil; and second, whether or not the MAB erred in invalidating
the Agreement to Operate Mining Claims.
As a preliminary matter, it should be stated that MAB decisions are appealable to
the Court of Appeals (CA) under Rule 43 of the Rules of Court. In Carpio v. SuluResources
Development Corp.,[12] the Court clarified that while Section 79 of the Philippine Mining Act of
1995 provides that petitions for review of MAB decisions are to be brought directly to the
Supreme Court, the MAB is a quasi-judicial agency whose decisions should be brought to the
CA. However, considering that the Carpio case was rendered in 2002, and the petition before
the Court was filed in 1999; and considering further that the issues raised, specially the issue
of the DENRs jurisdiction, and the fact that the records of the case are already before the
Court, it is more appropriate and practical to resolve the petition in order to avoid further
delay.[13]
With regard to the issue of jurisdiction, the DENR Regional Executive Director opined
that the DENR does not have jurisdiction over the case, while the MAB ruled that the DENR
has jurisdiction.
The Court upholds the finding of the DENR Regional Executive Director that the DENR
does not have jurisdiction over Tuasons complaint.
At the time of the filing of the complaint, the jurisdiction of the DENR over mining
disputes and controversies is governed by P.D. No. 1281, entitled Revising Commonwealth Act
No. 136, Creating the Bureau of Mines, and for Other Purposes.[14] Particularly, P.D. No. 1281
vests the Bureau of Mines (now the Mines and Geo-Sciences Bureau) of the DENR with
jurisdictional supervision and control over all holders of mining claims or applicants for and/or
grantees of mining licenses, permits, leases and/or operators thereof, including mining service
contracts and service contractors insofar as their mining activities are concerned. [15] Under
Section 7 of P.D. No. 1281, the Bureau of Mines also has quasi-judicial powers over cases
involving the following:
(a) a mining property subject of different agreements entered into by the
claim holder thereof with several mining operators;
(b) complaints from claimowners that the mining property subject of an
operating agreement has not been placed into actual operations within the
period stipulated therein; and
(c) cancellation and/or enforcement of mining contracts due to the refusal
of the claimowner/operator to abide by the terms and conditions thereof.
In Pearson v. Intermediate Appellate Court,[16] this Court observed that the trend has been to
make the adjudication of mining cases a purely administrative matter, although it does not
mean that administrative bodies have complete rein over mining disputes. In several cases on
mining disputes, the Court recognized a distinction between (1) the primary powers granted
by pertinent provisions of law to the then Secretary of Agriculture and Natural Resources (and
the bureau directors) of an executive or administrative nature, such as granting of license,
permits, lease and contracts, or approving, rejecting, reinstating or canceling applications, or
deciding conflicting applications, and (2) controversies or disagreements of civil or contractual
nature between litigants which are questions of a judicial nature that may be adjudicated only
by the courts of justice.[17]
The allegations in Tuasons complaint do not make out a case for a mining dispute or
controversy within the jurisdiction of the DENR. While the Agreement to Operate Mining
Claims is a mining contract, the ground upon which the contract is sought to be annulled is not
due to Asaphils refusal to abide by the terms and conditions of the agreement, but due
to Induplexs alleged violation of the condition imposed by the BOI in its Joint Venture
Agreement with Grefco, Inc.. Also, Tuason sought the nullity of the Contract for Sale and
Purchase of Perlite Ore, based on the same alleged violation. Obviously, this raises a judicial
question, which is proper for determination by the regular courts.[18] A judicial question is
raised when the determination of the question involves the exercise of a judicial function; that
is, the question involves the determination of what the law is and what the legal rights of the
parties are with respect to the matter in controversy.[19]
The DENR is not called upon to exercise its technical knowledge or expertise over
any mining operations or dispute; rather, it is being asked to determine the validity of the
agreements based on circumstances beyond the respective rights of the parties under the two
contracts. In Gonzales v. Climax Mining Ltd.,[20] the Court ruled that:
x x x whether the case involves void or voidable contracts is still a judicial
question. It may, in some instances, involve questions of fact especially
with regard to the determination of the circumstances of the execution of
the contracts. But the resolution of the validity or voidness of the
contracts remains a legal or judicial question as it requires the exercise
of judicial function. It requires the ascertainment of what laws are
applicable to the dispute, the interpretation and application of those laws,
and the rendering of a judgment based thereon. Clearly, the dispute is not
a mining conflict. It is essentially judicial. The complaint was not merely
for the determination of rights under the mining contracts since the very
validity of those contracts is put in issue. (Emphasis supplied)
Thus, the DENR Regional Executive Director was correct in dismissing the complaint for lack of
jurisdiction over Tuasons complaint; consequently, the MAB committed an error in taking
cognizance of the appeal, and in ruling upon the validity of the contracts.
Given the DENRs lack of jurisdiction to take cognizance of Tuasons complaint, the Court finds
it unnecessary to rule on the issue of validity of the contracts, as this should have been brought
before and resolved by the regular trial courts, to begin with.
WHEREFORE, the petition is GRANTED. The Decision of the Mines Adjudication Board
dated August 18, 1997 is SET ASIDE, and the Decision dated December 11, 1991 of the
Regional Executive Director, DENR-Region V, Legaspi City, dismissing the complaint for lack of
jurisdiction, is REINSTATED.
Costs against respondent.
SO ORDERED.
APEX MINING CO. vs. SOUTHEAST MINDANAO GOLD MINING CORPORATION
CHICO-NAZARIO, J.:
This resolves the motion for reconsideration dated 12 July 2006, filed by Southeast
Mindanao Gold Mining Corporation (SEM), of this Courts Decision dated 23 June
2006(Assailed Decision). The Assailed Decision held that the assignment of Exploration
Permit (EP) 133 in favor of SEM violated one of the conditions stipulated in the permit, i.e.,
that the same shall be for the exclusive use and benefit of Marcopper Mining Corporation
(MMC) or its duly authorized agents. Since SEM did not claim or submit evidence that it was a
designated agent of MMC, the latter cannot be considered as an agent of the former that can
use EP 133 and benefit from it. It also ruled that the transfer of EP 133 violated Presidential
Decree No. 463, which requires that the assignment of a mining right be made with the prior
approval of the Secretary of the Department of Environment and Natural Resources
(DENR). Moreover, the Assailed Decision pointed out that EP 133 expired by non-renewal
since it was not renewed before or after its expiration.
The Assailed Decision likewise upheld the validity of Proclamation No. 297 absent any
question against its validity. In view of this, and considering that under Section 5 of Republic
Act No. 7942, otherwise known as the Mining Act of 1995, mining operations in mineral
reservations may be undertaken directly by the State or through a contractor, the Court
deemed the issue of ownership of priority right over the contested Diwalwal Gold Rush Area
as having been overtaken by the said proclamation. Thus, it was held in the Assailed Decision
that it is now within the prerogative of the Executive Department to undertake directly the 3. Whether the assailed Decision dated 23 June 2006 of the Third Division in this case
mining operations of the disputed area or to award the operations to private entities including is contrary to and overturns the earlier Decision of this Court in Apex v. Garcia (G.R.
petitioners Apex and Balite, subject to applicable laws, rules and regulations, and provided No. 92605, 16 July 1991, 199 SCRA 278).
that these private entities are qualified.

4. Whether the issuance of Proclamation No. 297 declaring the disputed area as
mineral reservation outweighs the claims of SEM, Apex Mining Co. Inc. and Balite
SEM also filed a Motion for Referral of Case to the Court En Banc and for Oral Communal Portal Mining Cooperative over the Diwalwal Gold Rush Area.
Arguments dated 22 August 2006.

5. Whether the issue of the legality/constitutionality of Proclamation No. 297 was

Apex, for its part, filed a Motion for Clarification of the Assailed Decision, praying belatedly raised.
that the Court elucidate on the Decisions pronouncement that mining operations, are now,
therefore within the full control of the State through the executive branch. Moreover, Apex
asks this Court to order the Mines and Geosciences Board (MGB) to accept its application for
an exploration permit. 6. Assuming that the legality/constitutionality of Proclamation No. 297 was timely
raised, whether said proclamation violates any of the following:

In its Manifestation and Motion dated 28 July 2006, Balite echoes the same concern
as that of Apex on the actual takeover by the State of the mining industry in the disputed area a. Article XII, Section 4 of the Constitution;
to the exclusion of the private sector. In addition, Balite prays for this Court to direct MGB to
b. Section 1 of Republic Act No. 3092;
accept its application for an exploration permit.
c. Section 14 of the Administrative Code of 1987;

d. Section 5(a) of Republic Act No. 7586;

Camilo Banad, et al., likewise filed a motion for reconsideration and prayed that the
disputed area be awarded to them. e. Section 4(a) of Republic Act No. 6657; and

f. Section 2, Subsection 2.1.2 of Executive Order No. 318 dated 9 June 2004.
In the Resolution dated 15 April 2008, the Court En Banc resolved to accept the
instant cases. The Court, in a resolution dated 29 April 2008, resolved to set the cases for Oral
Argument on 1 July 2008.

After hearing the arguments of the parties, the Court required them to submit their
respective memoranda. Memoranda were accordingly filed by SEM, Apex, Balite and Mines
During the Oral Argument, the Court identified the following principal issues to be discussed by Adjudication Board (MAB).
the parties:

We shall resolve the second issue before dwelling on the first, third and the rest of
1. Whether the transfer or assignment of Exploration Permit (EP) 133 by MMC to SEM the issues.
was validly made without violating any of the terms and conditions set forth in
Presidential Decree No. 463 and EP 133 itself.

MMC or SEM Did Not Have Vested Rights

Over the Diwalwal Gold Rush Area
2. Whether Southeast Mindanao Mining Corp. acquired a vested right over the
disputed area, which constitutes a property right protected by the Constitution.
 Petitioner SEM vigorously argues that Apex Mining Co., Inc. v. Garcia[1] vested in
MMC mining rights over the disputed area. It claims that the mining rights that MMC acquired
under the said case were the ones assigned to SEM, and not the right to explore under MMCs
EP 133. It insists that mining rights, once obtained, continue to subsist regardless of the validity
of the exploration permit; thus, mining rights are independent of the exploration permit and
therefore do not expire with the permit. SEM insists that a mining right is a vested property
right that not even the government can take away. To support this thesis, SEM cites this Courts
ruling in McDaniel v. Apacible and Cuisia[2] and in Gold Creek Mining Corporation v.
Rodriguez,[3] which were decided in 1922 and 1938, respectively.
McDaniel and Gold Creek Mining Corporation are not in point.
In 1916, McDaniel, petitioner therein, located minerals, i.e., petroleum, on an
unoccupied public land and registered his mineral claims with the office of the mining recorder
pursuant to the Philippine Bill of 1902, where a mining claim locator, soon after locating the
mine, enjoyed possessory rights with respect to such mining claim with or without a patent
therefor. In that case, the Agriculture Secretary, by virtue of Act No. 2932, approved in 1920,
which provides that all public lands may be leased by the then Secretary of Agriculture and
Natural Resources, was about to grant the application for lease of therein respondent,
overlapping the mining claims of the subject petitioner. Petitioner argued that, being a valid
locator, he had vested right over the public land where his mining claims were located. There,
the Court ruled that the mining claim perfected under the Philippine Bill of 1902, is property
in the highest sense of that term, which may be sold and conveyed, and will pass by descent,
and is not therefore subject to the disposal of the Government. The Court then declared that
since petitioner had already perfected his mining claim under the Philippine Bill of 1902, a
subsequent statute, i.e., Act No. 2932, could not operate to deprive him of his already
perfected mining claim, without violating his property right.
Gold Creek Mining reiterated the ruling in McDaniel that a perfected mining claim
under the Philippine Bill of 1902 no longer formed part of the public domain; hence, such
mining claim does not come within the prohibition against the alienation of natural resources
under Section 1, Article XII of the 1935 Constitution.
Gleaned from the ruling on the foregoing cases is that for this law to apply, it must
be established that the mining claim must have been perfected when the Philippine Bill of 1902
was still in force and effect. This is so because, unlike the subsequent laws that prohibit the
alienation of mining lands, the Philippine Bill of 1902 sanctioned the alienation of mining lands
to private individuals. The Philippine Bill of 1902 contained provisions for, among many other
things, the open and free exploration, occupation and purchase of mineral deposits and the
land where they may be found. It declared all valuable mineral deposits in public lands in the
Philippine Islands, both surveyed and unsurveyed x x x to be free and open to exploration,
occupation, and purchase, and the land in which they are found to occupation and purchase,
by citizens of the United States, or of said Islands x x x.[4] Pursuant to this law, the holder of
the mineral claim is entitled to all the minerals that may lie within his claim, provided he does
three acts: First, he enters the mining land and locates a plot of ground measuring, where
possible, but not exceeding, one thousand feet in length by one thousand feet in breadth, in
as nearly a rectangular form as possible.[5] Second, the mining locator has to record the mineral
claim in the mining recorder within thirty (30) days after the location thereof.[6] Lastly, he must
comply with the annual actual work requirement.[7] Complete mining rights, namely, the rights
to explore, develop and utilize, are acquired by a mining locator by simply following the
foregoing requirements.
With the effectivity of the 1935 Constitution, where the regalian doctrine was
adopted, it was declared that all natural resources of the Philippines, including mineral lands
and minerals, were property belonging to the State.[8] Excluded, however, from the property
of public domain were the mineral lands and minerals that were located and perfected by
virtue of the Philippine Bill of 1902, since they were already considered private properties of
the locators.[9]
Commonwealth Act No. 137 or the Mining Act of 1936, which expressly adopted
the regalian doctrine following the provision of the 1935 Constitution, also proscribed the
alienation of mining lands and granted only lease rights to mining claimants, who were
prohibited from purchasing the mining claim itself.
When Presidential Decree No. 463, which revised Commonwealth Act No. 137, was
in force in 1974, it likewise recognized the regalian doctrine embodied in the 1973
Constitution. It declared that all mineral deposits and public and private lands belonged to the
state while, nonetheless, recognizing mineral rights that had already been existing under the
Philippine Bill of 1902 as being beyond the purview of the regalian doctrine.[10] The possessory
rights of mining claim holders under the Philippine Bill of 1902 remained intact and effective,
and such rights were recognized as property rights that the holders could convey or pass by
descent.[11]
In the instant cases, SEM does not aver or prove that its mining rights had been
perfected and completed when the Philippine Bill of 1902 was still the operative law.Surely, it
is impossible for SEM to successfully assert that it acquired mining rights over the disputed
area in accordance with the same bill, since it was only in 1984 that MMC, SEMs predecessor-
in-interest, filed its declaration of locations and its prospecting permit application in
compliance with Presidential Decree No. 463. It was on 1 July 1985 and 10 March 1986 that a
Prospecting Permit and EP 133, respectively, were issued to MMC. Considering these facts,
there is no possibility that MMC or SEM could have acquired a perfected mining claim under
the auspices of the Philippine Bill of 1902. Whatever mining rights MMC had that it invalidly
transferred to SEM cannot, by any stretch of imagination, be considered mining rights as
contemplated under the Philippine Bill of 1902 and immortalized in McDaniel and Gold Creek
Mining.

SEM likens EP 133 with a building permit. SEM likewise equates its supposed rights
attached to the exploration permit with the rights that a private property land owner has to
said landholding. This analogy has no basis in law. As earlier discussed, under the 1935, 1973
and 1987 Constitutions, national wealth, such as mineral resources, are owned by the State
and not by their discoverer. The discoverer or locator can only develop and utilize said minerals
for his own benefit if he has complied with all the requirements set forth by applicable laws
and if the State has conferred on him such right through permits, concessions or
agreements. In other words, without the imprimatur of the State, any mining aspirant does
not have any definitive right over the mineral land because, unlike a private landholding,
mineral land is owned by the State, and the same cannot be alienated to any private person as
explicitly stated in Section 2, Article XIV of the 1987 Constitution:
All lands of public domain, waters, minerals x x x and all other
natural resources are owned by the State. With the exception of
agricultural lands, all other natural resources shall not be
alienated. (Emphases supplied.)
Further, a closer scrutiny of the deed of assignment in favor of SEM reveals that MMC
assigned to the former the rights and interests it had in EP 133, thus:
1. That for ONE PESO (P1.00) and other valuable consideration received by
the ASSIGNOR from the ASSIGNEE, the ASSIGNOR hereby ASSIGNS,
TRANSFERS and CONVEYS unto the ASSIGNEE whatever rights or interest
the ASSIGNOR may have in the area situated in Monkayo, Davao del
Norte and Cateel, Davao Oriental, identified as Exploration Permit No.
133 and Application for a Permit to Prospect in Bunawan, Agusan del Sur
respectively. (Emphasis supplied.)
It is evident that what MMC had over the disputed area during the assignment was
an exploration permit. Clearly, the right that SEM acquired was limited to exploration, only
because MMC was a mere holder of an exploration permit. As previously explained, SEM did
not acquire the rights inherent in the permit, as the assignment by MMC to SEM was done in
violation of the condition stipulated in the permit, and the assignment was effected without
the approval of the proper authority in contravention of the provision of the mining law
governing at that time. In addition, the permit expired on 6 July 1994. It is, therefore, quite
clear that SEM has no right over the area.
Even assuming arguendo that SEM obtained the rights attached in EP 133, said rights
cannot be considered as property rights protected under the fundamental law.
An exploration permit does not automatically ripen into a right to extract and utilize
the minerals; much less does it develop into a vested right. The holder of an exploration permit
only has the right to conduct exploration works on the area awarded. Presidential Decree No.
463 defined exploration as the examination and investigation of lands supposed to contain
valuable minerals, by drilling, trenching, shaft sinking, tunneling, test pitting and other
means, for the purpose of probing the presence of mineral deposits and the extent
thereof. Exploration does not include development and exploitation of the minerals
found. Development is defined by the same statute as the steps necessarily taken to reach an
ore body or mineral deposit so that it can be mined, whereas exploitation is defined as the
extraction and utilization of mineral deposits. An exploration permit is nothing more than a
mere right accorded to its holder to be given priority in the governments consideration in the
granting of the right to develop and utilize the minerals over the area. An exploration permit
is merely inchoate, in that the holder still has to comply with the terms and conditions
embodied in the permit. This is manifest in the language of Presidential Decree No. 463, thus:
Sec. 8. x x x The right to exploit therein shall be awarded by the
President under such terms and conditions as recommended by the
Director and approved by the Secretary Provided, That the persons or
corporations who undertook prospecting and exploration of said area shall
be given priority.
In La Bugal-Blaan Tribal Association, Inc. v. Ramos,[12] this Court emphasized:
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. x x x.
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. (Underscoring ours.)
 The non-acquisition by MMC or SEM of any vested right over the disputed area is
supported by this Courts ruling in Southeast Mindanao Gold Mining Corporation v. Balite Portal
Mining Cooperative[13]:
Clearly then, the Apex Mining case did not invest petitioner
with any definite right to the Diwalwal mines which it could now set up
against respondent BCMC and other mining groups.
Incidentally, it must likewise be pointed out that under no
circumstances may petitioners rights under EP No. 133 be regarded as total
and absolute. As correctly held by the Court of Appeals in its challenged
decision, EP No. 133 merely evidences a privilege granted by the State,
which may be amended, modified or rescinded when the national interest
so requires. x x x. (Underscoring supplied.)
Again, this argument is not meritorious. SEM did not acquire the rights attached to
EP 133, since their transfer was without legal effect. Granting for the sake of argument that
SEM was a valid transferee of the permit, its right is not that of a mining
contractor. An exploration permit grantee is vested with the right to conduct exploration
only, while an FTAA or MPSA contractor is authorized to extract and carry off the mineral
resources that may be discovered in the area.[15] An exploration permit holder still has to
comply with the mining project feasibility and other requirements under the mining law. It has
to obtain approval of such accomplished requirements from the appropriate government
agencies. Upon obtaining this approval, the exploration permit holder has to file an application
for an FTAA or an MPSA and have it approved also. Until the MPSA application of SEM is
approved, it cannot lawfully claim that it possesses the rights of an MPSA or FTAA holder, thus:
x x x 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 x
x x.[16]

Unfortunately, SEM cannot be given priority to develop and exploit the area covered by EP 133
But again, SEM is not qualified to apply for an FTAA or any mineral agreement,
because, as discussed in the assailed Decision, EP 133 expired by non-renewal on 6 July
considering that it is not a holder of a valid exploration permit, since EP 133 expired by non-
1994. Also, as already mentioned, the transfer of the said permit to SEM was without legal
renewal and the transfer to it of the same permit has no legal value.
effect because it was done in contravention of Presidential Decree No. 463 which requires
prior approval from the proper authority. Simply told, SEM holds nothing for it to be entitled
to conduct mining activities in the disputed mineral land.
More importantly, assuming arguendo that SEM has a valid exploration permit, it
cannot assert any mining right over the disputed area, since the State has taken over the
mining operations therein, pursuant to Proclamation No. 297 issued by the President on 25
SEM wants to impress on this Court that its alleged mining rights, by virtue of its
November 2002. The Court has consistently ruled that the nature of a natural resource
being a transferee of EP 133, is similar to a Financial and Technical Assistance Agreement
exploration permit is analogous to that of a license. In Republic v. Rosemoor Mining and
(FTAA) of a foreign contractor, which merits protection by the due process clause of the
Development Corporation, this Court articulated:
Constitution. SEM cites La Bugal-Blaan Tribal Association, Inc. v.Ramos,[14] as follows:

Like timber permits, mining exploration permits do not vest in the

To say that an FTAA is just like a mere timber license or permit
grantee any permanent or irrevocable right within the purview of the
and does not involve contract or property rights which merit protection by
non-impairment of contract and due process clauses of the Constitution,
the due process clause of the Constitution, and may therefore be revoked
since the State, under its all-encompassing police power, may alter, modify
or cancelled in the blink of an eye, is to adopt a well-nigh confiscatory
or amend the same, in accordance with the demands of the general
stance; at the very least, it is downright dismissive of the property rights of
welfare.[17] (Emphasis supplied.)
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. x x x.
 As a mere license or privilege, an exploration permit can be validly amended by the
President of the Republic when national interests suitably necessitate. The Court instructed
thus:
Timber licenses, permits and license agreements are the principal
instruments by which the State regulates the utilization and disposition of
forest resources to the end that the public welfare is promoted. x x x They
may be validly amended, modified, replaced or rescinded by the Chief
Executive when national interests so require.[18]
Recognizing the importance of the countrys natural resources, not only for national
economic development, but also for its security and national defense, Section 5 of Republic
Act No. 7942 empowers the President, when the national interest so requires, to establish
mineral reservations where mining operations shall be undertaken directly by the State or
through a contractor, viz:
SEC 5. Mineral Reservations. When the national interest so requires, such
as when there is a need to preserve strategic raw materials for industries
critical to national development, or certain minerals for scientific, cultural
or ecological value, the President may establish mineral reservations upon
the recommendation of the Director through the Secretary. Mining
operations in existing mineral reservations and such other reservations
as may thereafter be established, shall be undertaken by the Department
or through a contractor x x x.(Emphasis supplied.)
Due to the pressing concerns in the Diwalwal Gold Rush Area brought about by
unregulated small to medium-scale mining operations causing ecological, health and peace
and order problems, the President, on 25 November 2002, issued Proclamation No. 297, which
declared the area as a mineral reservation and as an environmentally critical area. This
executive fiat was aimed at preventing the further dissipation of the natural environment and
rationalizing the mining operations in the area in order to attain an orderly balance between
socio-economic growth and environmental protection. The area being a mineral reservation,
the Executive Department has full control over it pursuant to Section 5 of Republic Act No.
7942. It can either directly undertake the exploration, development and utilization of the
minerals found therein, or it can enter into agreements with qualified entities. Since the
Executive Department now has control over the exploration, development and utilization of
the resources in the disputed area, SEMs exploration permit, assuming that it is still valid, has
been effectively withdrawn. The exercise of such power through Proclamation No. 297 is in
accord with jura regalia, where the State exercises its sovereign power as owner of lands of
the public domain and the mineral deposits found within. Thus, Article XII, Section 2 of the
1987 Constitution emphasizes:
SEC. 2. All lands of the public domain, water, 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 product-sharing
agreements with Filipino citizens, or corporations or associations at least
sixty per centum of whose capital is owned by such citizens. (Emphasis
supplied.)
Furthermore, said proclamation cannot be denounced as offensive to the fundamental law
because the State is sanctioned to do so in the exercise of its police power. [19] The issues on
health and peace and order, as well the decadence of the forest resources brought about by
unregulated mining in the area, are matters of national interest. The declaration of the Chief
Executive making the area a mineral reservation, therefore, is sanctioned by Section 5 of
Republic Act No. 7942.
The Assignment of EP No. 133 by MMC in
Favor of SEM Violated Section 97 of
Presidential Decree No. 463 and the Terms
and Conditions Set Forth in the Permit
SEM claims that the approval requirement under Section 97 of Presidential Decree No. 463 is
not applicable to this case, because MMC neither applied for nor was granted a mining lease
contract. The said provision states:
SEC. 97. Assignment of Mining Rights. A mining lease contract or any
interest therein shall not be transferred, assigned, or subleased without
the prior approval of the Secretary:Provided, that such transfer,
assignment or sublease may be made only to a qualified person possessing
the resources and capability to continue the mining operations of the
lessee and that the assignor has complied with all the obligations of the
lease: Provided, further, That such transfer or assignment shall be duly
registered with the office of the mining recorder concerned.(Emphasis
supplied.)

Exploration Permit 133 was issued in favor of MMC on 10 March 1986, when
Presidential Decree No. 463 was still the governing law. Presidential Decree No. 463 pertains
to the old system of exploration, development and utilization of natural resources through
license, concession or lease.[20]
Pursuant to this law, a mining lease contract confers on the lessee or his successors
the right to extract, to remove, process and utilize the mineral deposits found on or
underneath the surface of his mining claims covered by the lease. The lessee may also enter
into a service contract for the exploration, development and exploitation of the minerals from
the lands covered by his lease, to wit:
SEC. 44. A mining lease contract shall grant to the lessee, his heirs,
successors, and assigns the right to extract all mineral deposits found on
or underneath the surface of his mining claims covered by the lease,
continued vertically downward; to remove, process, and otherwise utilize
the mineral deposits for his own benefit; and to use the lands covered by
the lease for the purpose or purposes specified therein x x x That a lessee
may on his own or through the Government, enter into a service contract
for the exploration, development and exploitation of his claims and the
processing and marketing of the product thereof, subject to the rules and
regulations that shall be promulgated by the Director, with the approval of
the Secretary x x x.(Emphases supplied.)
In other words, the lessees interests are not only limited to the extraction or
utilization of the minerals in the contract area, but also to include the right to explore and
develop the same. This right to explore the mining claim or the contract area is derived from
the exploration permit duly issued by the proper authority. An exploration permit is, thus,
covered by the term any other interest therein. Section 97 is entitled, Assignment of Mining
Rights. This alone gives a hint that before mining rights -- namely, the rights to explore,
develop and utilize -- are transferred or assigned, prior approval must be obtained from the
DENR Secretary. An exploration permit, thus, cannot be assigned without the imprimatur of
the Secretary of the DENR.
It is instructive to note that under Section 13 of Presidential Decree No. 463, the
prospecting and exploration of minerals in government reservations, such as forest
reservations, are prohibited, except with the permission of the government agency
concerned. It is the government agency concerned that has the prerogative to conduct
prospecting, exploration and exploitation of such reserved lands. [21] It is only in instances
wherein said government agency, in this case the Bureau of Mines, cannot undertake said
mining operations that qualified persons may be allowed by the government to undertake such
operations. PNOC-EDC v. Veneracion, Jr.[22] outlines the five requirements for acquiring mining
rights in reserved lands under Presidential Decree No. 463: (1) a prospecting permit from the
agency that has jurisdiction over the land; (2) an exploration permit from the Bureau of Mines
and Geo-Sciences (BMGS); (3) if the exploration reveals the presence of commercial deposit,
application to BMGS by the permit holder for the exclusion of the area from the reservation;
(4) a grant by the President of the application to exclude the area from the reservation; and
(5) a mining agreement (lease, license or concession) approved by the DENR Secretary.
Here, MMC met the first and second requirements and obtained an exploration
permit over the disputed forest reserved land. Although MMC still has to prove to the
government that it is qualified to develop and utilize the subject mineral land, as it has yet to
go through the remaining process before it can secure a lease agreement, nonetheless, it is
bound to follow Section 97 of Presidential Decree No. 463. The logic is not hard to discern. If a
lease holder, who has already demonstrated to the government his capacity and qualifications
to further develop and utilize the minerals within the contract area, is prohibited from
transferring his mining rights (rights to explore, develop and utilize), with more reason will this
proscription apply with extra force to a mere exploration permit holder who is yet to exhibit
his qualifications in conducting mining operations. The rationale for the approval requirement
under Section 97 of Presidential Decree No. 463 is not hard to see. Exploration permits are
strictly granted to entities or individuals possessing the resources and capability to undertake
mining operations. Mining industry is a major support of the national economy and the
continuous and intensified exploration, development and wise utilization of mining resources
is vital for national development. For this reason, Presidential Decree No. 463 makes it
imperative that in awarding mining operations, only persons possessing the financial resources
and technical skill for modern exploratory and development techniques are encouraged to
undertake the exploration, development and utilization of the countrys natural resources. The
preamble of Presidential Decree No. 463 provides thus:
WHEREAS, effective and continuous mining operations require
considerable outlays of capital and resources, and make it imperative that
persons possessing the financial resources and technical skills for modern
exploratory and development techniques be encouraged to undertake the
exploration, development and exploitation of our mineral resources;
The Court has said that a preamble is the key to understanding the statute, written to open
the minds of the makers to the mischiefs that are to be remedied, and the purposes that are
to be accomplished, by the provisions of the statute.[23] As such, when the statute itself is
ambiguous and difficult to interpret, the preamble may be resorted to as a key to
understanding the statute.
Indubitably, without the scrutiny by the government agency as to the qualifications
of the would-be transferee of an exploration permit, the same may fall into the hands of non-
qualified entities, which would be counter-productive to the development of the mining
industry. It cannot be overemphasized that the exploration, development and utilization of the
countrys natural resources are matters vital to the public interest and the general welfare;
hence, their regulation must be of utmost concern to the government, since these natural
resources are not only critical to the nations security, but they also ensure the countrys survival
as a viable and sovereign republic.[24]
The approval requirement of the Secretary of the DENR for the assignment of
exploration permits is bolstered by Section 25 of Republic Act No. 7942 (otherwise known as
the Philippine Mining Act of 1995), which provides that:
Sec. 25. Transfer or Assignment. An exploration permit may be
transferred or assigned to a qualified person subject to the approval of the
Secretary upon the recommendation of the Director.
SEM further posits that Section 97 of Presidential Decree No. 463, which requires
the prior approval of the DENR when there is a transfer of mining rights, cannot be applied to
the assignment of EP 133 executed by MMC in favor of SEM because during the execution of
the Deed of Assignment on 16 February 1994, Executive Order No. 279[25] became the
governing statute, inasmuch as the latter abrogated the old mining system -- i.e., license,
concession or lease -- which was espoused by the former.
This contention is not well taken. While Presidential Decree No. 463 has already been repealed
by Executive Order No. 279, the administrative aspect of the former law nonetheless remains
applicable. Hence, the transfer or assignment of exploration permits still needs the prior
approval of the Secretary of the DENR. As ruled in Miners Association of the Philippines, Inc. v.
Factoran, Jr.[26]:
Presidential Decree No. 463, as amended, pertains to the old system of
exploration, development and utilization of natural resources through
license, concession or lease which, however, has been disallowed by
Article XII, Section 2 of the 1987 Constitution. By virtue of the said
constitutional mandate and its implementing law, Executive Order No.
279, which superseded Executive Order No. 211, the provisions dealing on
license, concession, or lease of mineral resources under Presidential
Decree No. 463, as amended, and other existing mining laws are deemed
repealed and, therefore, ceased to operate as the governing law. In other
words, in all other areas of administration and management of mineral
lands, the provisions of Presidential Decree No. 463, as amended, and
other existing mining laws, still govern. (Emphasis supplied.)
Not only did the assignment of EP 133 to SEM violate Section 97 of Presidential
Decree No. 463, it likewise transgressed one of the conditions stipulated in the grant of the
said permit. The following terms and conditions attached to EP 133 are as follows:[27]
1. That the permittee shall abide by the work program submitted
with the application or statements made later in support thereof, and
which shall be considered as conditions and essential parts of this permit;
2. That permittee shall maintain a complete record of all
activities and accounting of all expenditures incurred therein subject to
periodic inspection and verification at reasonable intervals by the Bureau
of Mines at the expense of the applicant;
3. That the permittee shall submit to the Director of Mines
within 15 days after the end of each calendar quarter a report under oath
of a full and complete statement of the work done in the area covered by
the permit;
4. That the term of this permit shall be for two (2) years to be
effective from this date, renewable for the same period at the discretion
of the Director of Mines and upon request of the applicant;
5. That the Director of Mines may at any time cancel this permit
for violation of its provision or in case of trouble or breach of peace arising
in the area subject hereof by reason of conflicting interests without any
responsibility on the part of the government as to expenditures for
exploration that might have been incurred, or as to other damages that
might have been suffered by the permittee;
6. That this permit shall be for the exclusive use and benefit of
the permittee or his duly authorized agents and shall be used for mineral
exploration purposes only and for no other purpose.
It must be noted that under Section 90[28] of Presidential Decree No. 463, which was
the applicable statute during the issuance of EP 133, the DENR Secretary, through the Director
of the Bureau of Mines and Geosciences, was charged with carrying out the said law. Also,
under Commonwealth Act No. 136, also known as An Act Creating the Bureau of Mines, which
was approved on 7 November 1936, the Director of Mines had the direct charge of the
administration of the mineral lands and minerals; and of the survey, classification, lease or any
other form of concession or disposition thereof under the Mining Act. [29] This power of
administration included the power to prescribe terms and conditions in granting exploration
permits to qualified entities.
Thus, in the grant of EP 133 in favor of the MMC, the Director of the BMG acted
within his power in laying down the terms and conditions attendant thereto. MMC and SEM
did not dispute the reasonableness of said conditions.
Quite conspicuous is the fact that neither MMC nor SEM denied that they were
unaware of the terms and conditions attached to EP 133. MMC and SEM did not present any
evidence that they objected to these conditions. Indubitably, MMC wholeheartedly accepted
these terms and conditions, which formed part of the grant of the permit. MMC agreed to
abide by these conditions. It must be accentuated that a party to a contract cannot deny its
validity, without outrage to ones sense of justice and fairness, after enjoying its
benefits.[30] Where parties have entered into a well-defined contractual relationship, it is
imperative that they should honor and adhere to their rights and obligations as stated in their
contracts, because obligations arising from these have the force of law between the
contracting parties and should be complied with in good faith.[31] Condition Number 6
categorically states that the permit shall be for the exclusive use and benefit of MMC or its
duly authorized agents. While it may be true that SEM, the assignee of EP 133, is a 100%
subsidiary corporation of MMC, records are bereft of any evidence showing that the former is
the duly authorized agent of the latter. This Court cannot condone such utter disregard on the
part of MMC to honor its obligations under the permit. Undoubtedly, having violated this
condition, the assignment of EP 133 to SEM is void and has no legal effect.
To boot, SEM squandered whatever rights it assumed it had under EP 133. On 6 July
1993, EP 133 was extended for twelve more months or until 6 July 1994. MMC or SEM,
however, never renewed EP 133 either prior to or after its expiration. Thus, EP 133 expired by
non-renewal on 6 July 1994. With the expiration of EP 133 on 6 July 1994, MMC lost any right
to the Diwalwal Gold Rush Area.
The assailed Decision DID NOT overturn the 16 July 1991 Decision in Apex Mining
Co., Inc. v. Garcia.
It must be pointed out that what Apex Mining Co., Inc. v. Garcia resolved was the
issue of which, between Apex and MMC, availed itself of the proper procedure in acquiring
the right to prospect and to explore in the Agusan-Davao-Surigao Forest Reserve. Apex
registered its Declarations of Location (DOL) with the then BMGS, while MMC was granted a
permit to prospect by the Bureau of Forest Development (BFD) and was subsequently granted
an exploration permit by the BMGS. Taking into consideration Presidential Decree No. 463,
which provides that mining rights within forest reservation can be acquired by initially applying
for a permit to prospect with the BFD and subsequently for a permit to explore with the BMGS,
the Court therein ruled that MMC availed itself of the proper procedure to validly operate
within the forest reserve or reservation.
While it is true that Apex Mining Co., Inc. v. Garcia settled the issue of which between
Apex and MMC was legally entitled to explore in the disputed area, such rights, though, were
extinguished by subsequent events that transpired after the decision was promulgated. These
subsequent events, which were not attendant in Apex Mining Co., Inc. v. Garcia[33] dated 16
July 1991, are the following:
(1) the expiration of EP 133 by non-renewal on 6 July 1994;
(2) the transfer/assignment of EP 133 to SEM on 16 February 1994 which
was done in violation to the condition of EP 133 proscribing its
transfer;
(3) the transfer/assignment of EP 133 to SEM is without legal effect for
violating PD 463 which mandates that the assignment of mining
rights must be with the prior approval of the Secretary of the
DENR.

The Assailed Decision Resolved Facts and

Issues That Transpired after the
Promulgation of Apex Mining Co., Inc. v.
Garcia Moreover, in Southeast Mindanao Gold Mining Corporation v. Balite Portal Mining
Cooperative,[34] the Court, through Associate Justice Consuelo Ynares-Santiago (now retired),
declared that Apex Mining Co., Inc. v. Garcia did not deal with the issues of the expiration of
EP 133 and the validity of the transfer of EP 133 to SEM, viz:

SEM asserts that the 23 June 2006 Decision reversed the 16 July 1991 Decision of the
Court en banc entitled, Apex Mining Co., Inc. v. Garcia.[32]
 Neither can the Apex Mining case foreclose any question
pertaining to the continuing validity of EP No. 133 on grounds
which arose after the judgment in said case was promulgated.
While it is true that the Apex Mining case settled the issue of
who between Apex and Marcopper validly acquired mining
rights over the disputed area by availing of the proper
procedural requisites mandated by law, it certainly did not deal
with the question raised by the oppositors in the Consolidated
Mines cases, i.e., whether EP No. 133 had already expired and
remained valid subsequent to its transfer by Marcopper to
petitioner. (Emphasis supplied.)
What is more revealing is that in the Resolution dated 26 November 1992, resolving
the motion for reconsideration of Apex Mining Co., Inc. v. Garcia, the Court clarified that the
ruling on the said decision was binding only between Apex and MMC and with respect the
particular issue raised therein. Facts and issues not attendant to the said decision, as in these
cases, are not settled by the same. A portion of the disposition of the Apex Mining Co., Inc. v.
Garcia Resolution dated 26 November 1992 decrees:
x x x The decision rendered in this case is conclusive only
between the parties with respect to the particular issue herein raised and
under the set of circumstances herein prevailing. In no case should the
decision be considered as a precedent to resolve or settle claims of
persons/entities not parties hereto. Neither is it intended to unsettle
rights of persons/entities which have been acquired or which may have
accrued upon reliance on laws passed by the appropriate
agencies. (Emphasis supplied.)
The Issue of the Constitutionality of
Proclamation Is Raised Belatedly
In its last-ditch effort to salvage its case, SEM contends that Proclamation No. 297,
issued by President Gloria Macapagal-Arroyo and declaring the Diwalwal Gold Rush Area as a
mineral reservation, is invalid on the ground that it lacks the concurrence of Congress as
mandated by Section 4, Article XII of the Constitution; Section 1 of Republic Act No. 3092;
Section 14 of Executive Order No. 292, otherwise known as the Administrative Code of 1987;
Section 5(a) of Republic Act No. 7586, and Section 4(a) of Republic Act No. 6657.
It is well-settled that when questions of constitutionality are raised, the court can
exercise its power of judicial review only if the following requisites are present: (1) an actual
and appropriate case exists; (2) there is a personal and substantial interest of the party raising
the constitutional question; (3) the exercise of judicial review is pleaded at the earliest
opportunity; and (4) the constitutional question is the lis mota of the case.
Taking into consideration the foregoing requisites of judicial review, it is readily clear
that the third requisite is absent. The general rule is that the question of constitutionality must
be raised at the earliest opportunity, so that if it is not raised in the pleadings, ordinarily it may
not be raised at the trial; and if not raised in the trial court, it will not be considered on
appeal.[35]
In the instant case, it must be pointed out that in the Reply to Respondent SEMs
Consolidated Comment filed on 20 May 2003, MAB mentioned Proclamation No. 297, which
was issued on 25 November 2002. This proclamation, according to the MAB, has rendered
SEMs claim over the contested area moot, as the President has already declared the same as
a mineral reservation and as an environmentally critical area. SEM did not put to issue the
validity of said proclamation in any of its pleadings despite numerous opportunities to question
the same. It was only after the assailed Decision was promulgated -- i.e., in SEMs Motion for
Reconsideration of the questioned Decision filed on 13 July 2006 and its Motion for Referral of
the Case to the Court En Banc and for Oral Arguments filed on 22 August 2006 -- that it assailed
the validity of said proclamation.
Certainly, posing the question on the constitutionality of Proclamation No. 297 for
the first time in its Motion for Reconsideration is, indeed, too late.[36]
In fact, this Court, when it rendered the Decision it merely recognized that the
questioned proclamation came from a co-equal branch of government, which entitled it to a
strong presumption of constitutionality.[37] The presumption of its constitutionality stands
inasmuch as the parties in the instant cases did not question its validity, much less present any
evidence to prove that the same is unconstitutional. This is in line with the precept that
administrative issuances have the force and effect of law and that they benefit from the same
presumption of validity and constitutionality enjoyed by statutes. [38]
Proclamation No. 297 Is in Harmony with
Article XII, Section 4, of the Constitution
At any rate, even if this Court were to consider the arguments belatedly raised by
SEM, said arguments are not meritorious.

SEM asserts that Article XII, Section 4 of the Constitution, bars the President from
excluding forest reserves/reservations and proclaiming the same as mineral reservations, since
the power to de-classify them resides in Congress.
Section 4, Article XII of the Constitution reads:
The Congress shall as soon as possible, determine by law the
specific limits of forest lands and national parks, marking clearly their
boundaries on the ground. Thereafter, such forest lands and national parks
shall be conserved and may not be increased nor diminished, except by
law. The Congress shall provide, for such periods as it may determine,
measures to prohibit logging in endangered forests and in watershed
areas.
The above-quoted provision says that the area covered by forest lands and national
parks may not be expanded or reduced, unless pursuant to a law enacted by Congress. Clear
in the language of the constitutional provision is its prospective tenor, since it speaks in this
manner: Congress shall as soon as possible. It is only after the specific limits of the forest lands
shall have been determined by the legislature will this constitutional restriction apply. SEM
does not allege nor present any evidence that Congress had already enacted a statute
determining with specific limits forest lands and national parks. Considering the absence of
such law, Proclamation No. 297 could not have violated Section 4, Article XII of the 1987
Constitution. In PICOP Resources, Inc. v. Base Metals Mineral Resources Corporation,[39] the
Court had the occasion to similarly rule in this fashion:
x x x Sec. 4, Art. XII of the 1987 Constitution, on the other hand, provides
that Congress shall determine the specific limits of forest lands and
national parks, marking clearly their boundaries on the ground. Once this
is done, the area thus covered by said forest lands and national parks may
not be expanded or reduced except also by congressional legislation. Since
Congress has yet to enact a law determining the specific limits of the
forest lands covered by Proclamation No. 369 and marking clearly its
boundaries on the ground, there can be no occasion that could give rise
to a violation of the constitutional provision.
Section 4, Article XII of the Constitution, addresses the concern of the drafters of the
1987 Constitution about forests and the preservation of national parks. This was brought
about by the drafters awareness and fear of the continuing destruction of this countrys
forests.[40] In view of this concern, Congress is tasked to fix by law the specific limits of forest
lands and national parks, after which the trees in these areas are to be taken care of.[41] Hence,
these forest lands and national parks that Congress is to delimit through a law could be
changed only by Congress.
In addition, there is nothing in the constitutional provision that prohibits the
President from declaring a forest land as an environmentally critical area and from regulating
the mining operations therein by declaring it as a mineral reservation in order to prevent the
further degradation of the forest environment and to resolve the health and peace and order
problems that beset the area.
A closer examination of Section 4, Article XII of the Constitution and Proclamation
No. 297 reveals that there is nothing contradictory between the two. Proclamation No. 297, a
measure to attain and maintain a rational and orderly balance between socio-economic
growth and environmental protection, jibes with the constitutional policy of preserving and
protecting the forest lands from being further devastated by denudation. In other words, the
proclamation in question is in line with Section 4, Article XII of the Constitution, as the former
fosters the preservation of the forest environment of the Diwalwal area and is aimed at
preventing the further degradation of the same. These objectives are the very same reasons
why the subject constitutional provision is in place.
What is more, jurisprudence has recognized the policy of multiple land use in our
laws towards the end that the countrys precious natural resources may be rationally explored,
developed, utilized and conserved.[42] It has been held that forest reserves or reservations can
at the same time be open to mining operations, provided a prior written clearance by the
government agency having jurisdiction over such reservation is obtained. In other words
mineral lands can exist within forest reservations. These two terms are not anti-thetical. This
is made manifest if we read Section 47 of Presidential Decree No. 705 or the Revised Forestry
Code of the Philippines, which provides:
Mining operations in forest lands shall be regulated and
conducted with due regard to protection, development and utilization of
other surface resources. Location, prospecting, exploration, utilization or
exploitation of mineral resources in forest reservations shall be governed
by mining laws, rules and regulations. (Emphasis supplied.)
Also, Section 6 of Republic Act No. 7942 or the Mining Act of 1995, states that mining
operations in reserved lands other than mineral reservations, such as forest
reserves/reservations, are allowed, viz:
 exclude any portion thereof except with the concurrence of
Congress.(Underscoring supplied.)
Mining operations in reserved lands other than mineral reservations may
be undertaken by the Department, subject to limitations as herein
provided. In the event that the Department cannot undertake such
activities, they may be undertaken by a qualified person in accordance
with the rules and regulations promulgated by the Secretary. (Emphasis
SEM submits that the foregoing provision is the governing statute on the exclusion of areas
supplied.)
already declared as forest reserves. Thus, areas already set aside by law as forest reserves are
no longer within the proclamation powers of the President to modify or set aside for any other
purposes such as mineral reservation.

Since forest reservations can be made mineral lands where mining operations are conducted,
then there is no argument that the disputed land, which lies within a forest reservation, can To bolster its contention that the President cannot disestablish forest reserves into
be declared as a mineral reservation as well. mineral reservations, SEM makes reference to Section 14, Chapter 4, Title I, Book III of the
Administrative Code of 1987, which partly recites:

Republic Act No. 7942 Otherwise Known as

the Philippine Mining Act of 1995, is the The President shall have the power to reserve for settlement or
Applicable Law public use, and for specific public purposes, any of the lands of the public
domain, the use of which is not otherwise directed by law. The reserved
land shall thereafter remain subject to the specific public purpose
indicated until otherwise provided by law or proclamation. (Emphases
supplied.)
Determined to rivet its crumbling cause, SEM then argues that Proclamation No. 297
is invalid, as it transgressed the statutes governing the exclusion of areas already declared as
forest reserves, such as Section 1 of Republic Act No. 3092,[43] Section 14 of the Administrative
Code of 1987, Section 5(a) of Republic Act No. 7586,[44] and Section 4(a) of Republic Act No.
6657.[45] SEM further contends that Section 7 of Republic Act No. 7586,[46] which declares that
the disestablishment of a protected area shall be done by Congress, and Section 4(a) of
Republic Act No. 6657,[47] which in turn requires a law passed by Congress before any forest
reserve can be reclassified, militate against the validity of Proclamation No. 297.
Citing Section 1 of Republic Act No. 3092, which provides as follows:

Proclamation No. 297, declaring a certain portion of land located in Monkayo,

Upon the recommendation of the Director of Forestry, with the Compostela Valley, with an area of 8,100 hectares, more or less, as a mineral reservation, was
approval of the Department Head, the President of the issued by the President pursuant to Section 5 of Republic Act No. 7942, also known as the
Philippines shall set apart forest reserves which shall include denuded Philippine Mining Act of 1995.
forest lands from the public lands and he shall by proclamation declare the
establishment of such forest reserves and the boundaries thereof, and
thereafter such forest reserves shall not be entered, or otherwise disposed
of, but shall remain indefinitely as such for forest uses. Proclamation No. 297 did not modify the boundaries of the Agusan-Davao-Surigao
Forest Reserve since, as earlier discussed, mineral reservations can exist within forest reserves
because of the multiple land use policy. The metes and bounds of a forest reservation remain
intact even if, within the said area, a mineral land is located and thereafter declared as a
The President of the Philippines may, in like manner upon the mineral reservation.
recommendation of the Director of Forestry, with the approval of the
Department head, by proclamation, modify the boundaries of any such
forest reserve to conform with subsequent precise survey but not to
 More to the point, a perusal of Republic Act No. 3092, An Act to Amend Certain
Sections of the Revised Administrative Code of 1917, which was approved on 17 August 1961,
and the Administrative Code of 1987, shows that only those public lands declared by the
President as reserved pursuant to these two statutes are to remain subject to the specific
purpose. The tenor of the cited provisions, namely: the President of the Philippines shall set
apart forest reserves and the reserved land shall thereafter remain, speaks of future public
reservations to be declared, pursuant to these two statutes. These provisions do not apply to
forest reservations earlier declared as such, as in this case, which was proclaimed way back
on 27 February 1931, by Governor General Dwight F. Davis under Proclamation No. 369.
Over and above that, Section 5 of Republic Act No. 7942 authorizes the President to
establish mineral reservations, to wit:
Sec. 5. Mineral Reservations. - When the national interest so
requires, such as when there is a need to preserve strategic raw materials
for industries critical to national development, or certain minerals for
scientific, cultural or ecological value, the President may establish mineral
reservations upon the recommendation of the Director through the
Secretary.Mining operations in existing mineral reservations and such
other reservations as may thereafter be established, shall be undertaken
by the Department or through a contractor x x x.(Emphasis supplied.)
It is a rudimentary principle in legal hermeneutics that where there are two acts or
provisions, one of which is special and particular and certainly involves the matter in question,
the other general, which, if standing alone, would include the matter and thus conflict with
the special act or provision, the special act must as intended be taken as constituting an
exception to the general act or provision, especially when such general and special acts or
provisions are contemporaneous, as the Legislature is not to be presumed to have intended a
conflict.
Hence, it has become an established rule of statutory construction that where one
statute deals with a subject in general terms, and another deals with a part of the same subject
in a more detailed way, the two should be harmonized if possible; but if there is any conflict,
the latter shall prevail regardless of whether it was passed prior to the general statute. Or
where two statutes are of contrary tenor or of different dates but are of equal theoretical
application to a particular case, the one specially designed therefor should prevail over the
other.
It must be observed that Republic Act No. 3092, An Act to Amend Certain Sections
of the Revised Administrative Code of 1917, and the Administrative Code of 1987, are general
laws. Section 1 of Republic Act No. 3092 and Section 14 of the Administrative Code of 1987
require the concurrence of Congress before any portion of a forest reserve can be validly
excluded therefrom. These provisions are broad since they deal with all kinds of exclusion or
reclassification relative to forest reserves, i.e., forest reserve areas can be transformed into all
kinds of public purposes, not only the establishment of a mineral reservation. Section 5 of
Republic Act No. 7942 is a special provision, as it specifically treats of the establishment of
mineral reservations only. Said provision grants the President the power to proclaim a mineral
land as a mineral reservation, regardless of whether such land is also an existing forest
reservation.
Sec. 5(a) of Republic Act No. 7586 provides:
Sec. 5. Establishment and Extent of the System. The establishment and
operationalization of the System shall involve the following:
(a) All areas or islands in the Philippines proclaimed, designated
or set aside, pursuant to a law, presidential decree, presidential
proclamation or executive order as national park, game refuge, bird and
wildlife sanctuary, wilderness area, strict nature reserve, watershed,
mangrove reserve, fish sanctuary, natural and historical landmark,
protected and managed landscape/seascape as well as identified virgin
forests before the effectivity of this Act are hereby designated as initial
components of the System. The initial components of the System shall be
governed by existing laws, rules and regulations, not inconsistent with this
Act.
Glaring in the foregoing enumeration of areas comprising the initial component of the NIPAS
System under Republic Act No. 7586 is the absence of forest reserves. Only protected areas
enumerated under said provision cannot be modified. Since the subject matter of
Proclamation No. 297 is a forest reservation proclaimed as a mineral reserve, Republic Act No.
7586 cannot possibly be made applicable. Neither can Proclamation No. 297 possibly violate
said law.
Similarly, Section 4(a) of Republic Act No. 6657 cannot be made applicable to the
instant case.
 Section 4(a) of Republic Act No. 6657 reads:
All alienable and disposable lands of the public domain devoted
to or suitable for agriculture. No reclassification of forest or mineral lands
to agricultural lands shall be undertaken after the approval of this Act
until Congress, taking into account ecological, developmental and equity
considerations, shall have determined by law, the specific limits of the
public domain. (Underscoring supplied.)
Section 4(a) of Republic Act No. 6657 prohibits the reclassification of forest or
mineral lands into agricultural lands until Congress shall have determined by law the specific
limits of the public domain. A cursory reading of this provision will readily show that the same
is not relevant to the instant controversy, as there has been no reclassification of a forest or
mineral land into an agricultural land.
Furthermore, the settled rule of statutory construction is that if two or more laws of
different dates and of contrary tenors are of equal theoretical application to a particular case,
the statute of later date must prevail being a later expression of legislative will.[48]
In the case at bar, there is no question that Republic Act No. 7942 was signed into
law later than Republic Act No. 3092, the Administrative Code of 1987,[49]Republic Act No. 7586
and Republic Act No. 6657. Applying the cited principle, the provisions of Republic Act No.
3092, the Administrative Code of 1987, Republic Act No. 7586 and Republic Act No. 6657 cited
by SEM must yield to Section 5 of Republic Act No. 7942.
Camilo Banad, et al., Cannot Seek Relief
from This Court
Camilo Banad and his group admit that they are members of the Balite Cooperative. They,
however, claim that they are distinct from Balite and move that this Court recognize them as
prior mining locators.
Unfortunately for them, this Court cannot grant any relief they seek. Records reveal
that although they were parties to the instant cases before the Court of Appeals, they did not
file a petition for review before this Court to contest the decision of the appellate court. The
only petitioners in the instant cases are the MAB, SEM, Balite and Apex. Consequently, having
no personality in the instant cases, they cannot seek any relief from this Court.
Apexs Motion for Clarification and Balites
Manifestation and Motion
In its Motion for Clarification, Apex desires that the Court elucidate the assailed
Decisions pronouncement that mining operations, are now, therefore within the full control
of the State through the executive branch and place the said pronouncement in the proper
perspective as the declaration in La Bugal-BLaan, which states that
The concept of control adopted in Section 2 of Article XII must
be taken to mean less than dictatorial, all-encompassing control; but
nevertheless sufficient to give the State the power to direct, restrain,
regulate and govern the affairs of the extractive enterprise.[50]
Apex states that the subject portion of the assailed Decision could send a chilling effect to
potential investors in the mining industry, who may be of the impression that the State has
taken over the mining industry, not as regulator but as an operator. It is of the opinion that the
State cannot directly undertake mining operations.
Moreover, Apex is apprehensive of the following portion in the questioned Decision
The State can also opt to award mining operations in the mineral reservation to private entities
including petitioner Apex and Balite, if it wishes. It avers that the phrase if it wishes may
whimsically be interpreted to mean a blanket authority of the administrative authority to
reject the formers application for an exploration permit even though it complies with the
prescribed policies, rules and regulations.
Apex likewise asks this Court to order the MGB to accept its application for an
exploration permit.
Balite echoes the same concern as that of Apex on the actual take-over by the State
of the mining industry in the disputed area to the exclusion of the private sector. In addition,
Balite prays that this Court direct MGB to accept Balites application for an exploration permit.
Contrary to the contention of Apex and Balite, the fourth paragraph of Section 2, Article XII of
the Constitution and Section 5 of Republic Act No. 7942 sanctions the State, through the
executive department, to undertake mining operations directly, as an operator and not as a
mere regulator of mineral undertakings. This is made clearer by the fourth paragraph of
Section 2, Article XII of the 1987 Constitution, which provides in part:
 SEC. 2. x x x 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.
(Emphasis supplied.)
Also, Section 5 of Republic Act No. 7942 states that the mining operations in mineral
reservations shall be undertaken by the Department of Environment and Natural Resources or
a contractor, to wit:
SEC. 5. Mineral Reservations. When the national interest so
requires, such as when there is a need to preserve strategic raw materials
for industries critical to national development, or certain minerals for
scientific, cultural or ecological value, the President may establish mineral
reservations upon the recommendation of the Director through the
Secretary. Mining operations in existing mineral reservations and such
other reservations as may thereafter be established, shall be undertaken
by the Department or through a contractor x x x.(Emphasis supplied.)
Undoubtedly, the Constitution, as well as Republic Act No. 7942, allows the executive
department to undertake mining operations. Besides, La Bugal-BLaan, cited by Apex, did not
refer to the fourth sentence of Section 2, Article XII of the Constitution, but to the third
sentence of the said provision, which 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. x x x.
Pursuant to Section 5 of Republic Act No. 7942, the executive department has the
option to undertake directly the mining operations in the Diwalwal Gold Rush Area or to award
mining operations therein to private entities. The phrase if it wishes must be understood
within the context of this provision. Hence, the Court cannot dictate this co-equal branch to
choose which of the two options to select. It is the sole prerogative of the executive
department to undertake directly or to award the mining operations of the contested area.
Even assuming that the proper authority may decide to award the mining operations
of the disputed area, this Court cannot arrogate unto itself the task of determining who, among
the applicants, is qualified. It is the duty of the appropriate administrative body to determine
the qualifications of the applicants. It is only when this administrative body whimsically denies
the applications of qualified applicants that the Court may interfere. But until then, the Court
has no power to direct said administrative body to accept the application of any qualified
applicant.
In view of this, the Court cannot grant the prayer of Apex and Balite asking the Court
to direct the MGB to accept their applications pending before the MGB.
SEMs Manifestation and Motion dated 25 January 2007
SEM wants to emphasize that its predecessor-in-interest, Marcopper or MMC,
complied with the mandatory exploration work program, required under EP 133, by attaching
therewith quarterly reports on exploration work from 20 June 1986 to March 1994.
It must be observed that this is the very first time at this very late stage that SEM has
presented the quarterly exploration reports. From the early phase of this controversy, SEM did
not disprove the arguments of the other parties that Marcopper violated the terms under EP
133, among other violations, by not complying with the mandatory exploration work
program. Neither did it present evidence for the appreciation of the lower tribunals. Hence,
the non-compliance with the mandatory exploration work program was not made an issue in
any stage of the proceedings. The rule is that an issue that was not raised in the lower court or
tribunal cannot be raised for the first time on appeal, as this would violate the basic rules of
fair play, justice and due process.[51] Thus, this Court cannot take cognizance of the issue of
whether or not MMC complied with the mandatory work program.
In sum, this Court finds:
1. The assailed Decision did not overturn the 16 July 1991 Decision in Apex
Mining Co., Inc. v. Garcia. The former was decided on facts and issues that
were not attendant in the latter, such as the expiration of EP 133, the
violation of the condition embodied in EP 133 prohibiting its assignment,
and the unauthorized and invalid assignment of EP 133 by MMC to SEM,
since this assignment was effected without the approval of the Secretary
of DENR;
 2. SEM did not acquire vested right over the disputed area because its
supposed right was extinguished by the expiration of its exploration permit
and by its violation of the condition prohibiting the assignment of EP 133
by MMC to SEM. In addition, even assuming that SEM has a valid
exploration permit, such is a mere license that can be withdrawn by the
State. In fact, the same has been withdrawn by the issuance of
Proclamation No. 297, which places the disputed area under the full
control of the State through the Executive Department;
3. The approval requirement under Section 97 of Presidential Decree No.
463 applies to the assignment of EP 133 by MMC to SEM, since the
exploration permit is an interest in a mining lease contract;
4. The issue of the constitutionality and the legality of Proclamation No. 297
was raised belatedly, as SEM questions the same for the first time in its
Motion for Reconsideration. Even if the issue were to be entertained, the
said proclamation is found to be in harmony with the Constitution and
other existing statutes;
5. The motion for reconsideration of Camilo Banad, et al. cannot be passed
upon because they are not parties to the instant cases;
6. The prayers of Apex and Balite asking the Court to direct the MGB to
accept their applications for exploration permits cannot be granted, since
it is the Executive Department that has the prerogative to accept such
applications, if ever it decides to award the mining operations in the
disputed area to a private entity;
7. The Court cannot pass upon the issue of whether or not MMC complied
with the mandatory exploration work program, as such was a non-issue
and was not raised before the Court of Appeals and the lower tribunals.
WHEREFORE, premises considered, the Court holds:
1. The Motions for Reconsideration filed by Camilo Banad, et al. and Southeast
Mindanao Gold Mining Corporation are DENIED for lack of merit;
2. The Motion for Clarification of Apex Mining Co., Inc. and the Manifestation and
Motion of the Balite Communal Portal Mining Cooperative, insofar as these
motions/manifestation ask the Court to direct the Mines and Geo-Sciences Bureau to accept
their respective applications for exploration permits, are DENIED;
3. The Manifestation and Urgent Motion dated 25 January 2007 of Southeast
Mindanao Gold Mining Corporation is DENIED.
4. The State, through the Executive Department, should it so desire, may now award
mining operations in the disputed area to any qualified entities it may determine.The Mines
and Geosciences Bureau may process exploration permits pending before it, taking into
consideration the applicable mining laws, rules and regulations relative thereto.
SO ORDERED.
DIPIDIO EARTH-SAVERS’ MULTI-PURPOSE ASSOCIATION vs. GOZUN
CHICO-NAZARIO, J.:
This petition for prohibition and mandamus under Rule 65 of the Rules of Court assails the
constitutionality of Republic Act No. 7942 otherwise known as the Philippine Mining Act of
1995, together with the Implementing Rules and Regulations issued pursuant thereto,
Department of Environment and Natural Resources (DENR) Administrative Order No. 96-40, s.
1996 (DAO 96-40) and of the Financial and Technical Assistance Agreement (FTAA) entered
into on 20 June 1994 by the Republic of the Philippines and Arimco Mining Corporation (AMC),
a corporation established under the laws of Australia and owned by its nationals.
.
On 25 July 1987, then President Corazon C. Aquino promulgated Executive Order No. 279
which authorized the DENR Secretary to accept, consider and evaluate proposals from foreign-
owned corporations or foreign investors for contracts of agreements involving either technical
or financial assistance for large-scale exploration, development, and utilization of minerals,
which, upon appropriate recommendation of the Secretary, the President may execute with
the foreign proponent.
On 3 March 1995, then President Fidel V. Ramos signed into law Rep. Act No. 7942 entitled,
An Act Instituting A New System of Mineral Resources Exploration, Development, Utilization
and Conservation, otherwise known as the Philippine Mining Act of 1995.
On 15 August 1995, then DENR Secretary Victor O. Ramos issued DENR Administrative Order 1. enjoining public respondents from acting on any application
(DAO) No. 23, Series of 1995, containing the implementing guidelines of Rep. Act No. for FTAA;
7942. This was soon superseded by DAO No. 96-40, s. 1996, which took effect on 23 January
1997 after due publication.
2. declaring unconstitutional the Philippine Mining Act of 1995
and its Implementing Rules and Regulations;
Previously, however, or specifically on 20 June 1994, President Ramos executed an FTAA with
AMC over a total land area of 37,000 hectares covering the provinces of Nueva Vizcaya
and Quirino. Included in this area is Barangay Dipidio, Kasibu, Nueva Vizcaya.
3. canceling the FTAA issued to CAMC.

Subsequently, AMC consolidated with Climax Mining Limited to form a single company that
now goes under the new name of Climax-Arimco Mining Corporation (CAMC), the controlling
99% of stockholders of which are Australian nationals. In their memorandum petitioners pose the following issues:

On 7 September 2001, counsels for petitioners filed a demand letter addressed to then DENR
Secretary Heherson Alvarez, for the cancellation of the CAMC FTAA for the primary reason
that Rep. Act No. 7942 and its Implementing Rules and Regulations DAO 96-40 are
unconstitutional. The Office of the Executive Secretary was also furnished a copy of the said
letter. There being no response to both letters, another letter of the same content dated 17
June 2002 was sent to President Gloria MacapagalArroyo. This letter was indorsed to the DENR
Secretary and eventually referred to the Panel of Arbitrators of the Mines and Geosciences
Bureau (MGB), Regional Office No. 02, Tuguegarao, Cagayan, for further action.
I
WHETHER OR NOT REPUBLIC ACT NO. 7942 AND THE CAMC FTAA ARE
VOID BECAUSE THEY ALLOW THE UNJUST AND UNLAWFUL TAKING OF
PROPERTY WITHOUT PAYMENT OF JUST COMPENSATION , IN VIOLATION
OF SECTION 9, ARTICLE III OF THE CONSTITUTION.

On 12 November 2002, counsels for petitioners received a letter from the Panel of Arbitrators
of the MGB requiring the petitioners to comply with the Rules of the Panel of Arbitrators
before the letter may be acted upon.
Yet again, counsels for petitioners sent President Arroyo another demand letter dated 8
November 2002. Said letter was again forwarded to the DENR Secretary who referred the same
to the MGB, Quezon City.
II
WHETHER OR NOT THE MINING ACT AND ITS IMPLEMENTING RULES AND
REGULATIONS ARE VOID AND UNCONSTITUTIONAL FOR SANCTIONING AN
UNCONSTITUTIONAL ADMINISTRATIVE PROCESS OF DETERMINING JUST
COMPENSATION.

In a letter dated 19 February 2003, the MGB rejected the demand of counsels for petitioners
for the cancellation of the CAMC FTAA.

III
Petitioners thus filed the present petition for prohibition and mandamus, with a prayer for a
temporary restraining order. They pray that the Court issue an order:

WHETHER OR NOT THE STATE, THROUGH REPUBLIC ACT NO. 7942 AND
THE CAMC FTAA, ABDICATED ITS PRIMARY RESPONSIBILITY TO THE FULL
CONTROL AND SUPERVISION OVER NATURAL RESOURCES.

IV
WHETHER OR NOT THE RESPONDENTS INTERPRETATION OF THE ROLE OF
WHOLLY FOREIGN AND FOREIGN-OWNED CORPORATIONS IN THEIR
INVOLVEMENT IN MINING ENTERPRISES, VIOLATES PARAGRAPH 4,
SECTION 2, ARTICLE XII OF THE CONSTITUTION.
V
WHETHER OR NOT THE 1987 CONSTITUTION PROHIBITS SERVICE
CONTRACTS.[1]
Before going to the substantive issues, the procedural question raised by public
respondents shall first be dealt with. Public respondents are of the view that petitioners
eminent domain claim is not ripe for adjudication as they fail to allege that CAMC has actually
taken their properties nor do they allege that their property rights have been endangered or
are in danger on account of CAMCs FTAA. In effect, public respondents insist that the issue of
eminent domain is not a justiciable controversy which this Court can take cognizance of.
A justiciable controversy is defined as a definite and concrete dispute touching on the legal
relations of parties having adverse legal interests which may be resolved by a court of law
through the application of a law.[2] Thus, courts have no judicial power to review cases
involving political questions and as a rule, will desist from taking cognizance of speculative or
hypothetical cases, advisory opinions and cases that have become moot.[3] The Constitution is
quite explicit on this matter.[4] It provides that judicial power includes the duty of the courts of
justice to settle actual controversies involving rights which are legally demandable and
enforceable. Pursuant to this constitutional mandate, courts, through the power of judicial
review, are to entertain only real disputes between conflicting parties through the application
of law. For the courts to exercise the power of judicial review, the following must be extant (1)
there must be an actual case calling for the exercise of judicial power; (2) the question must
be ripe for adjudication; and (3) the person challenging must have the standing.[5]
An actual case or controversy involves a conflict of legal rights, an assertion of
opposite legal claims, susceptible of judicial resolution as distinguished from a hypothetical or
abstract difference or dispute.[6] There must be a contrariety of legal rights that can be
interpreted and enforced on the basis of existing law and jurisprudence.
Closely related to the second requisite is that the question must be ripe for adjudication. A
question is considered ripe for adjudication when the act being challenged has had a direct
adverse effect on the individual challenging it.[7]
The third requisite is legal standing or locus standi. It is defined as a personal or substantial
interest in the case such that the party has sustained or will sustain direct injury as a result of
the governmental act that is being challenged, alleging more than a generalized
grievance.[8] The gist of the question of standing is whether a party alleges such personal stake
in the outcome of the controversy as to assure that concrete adverseness which sharpens the
presentation of issues upon which the court depends for illumination of difficult constitutional
questions.[9] Unless a person is injuriously affected in any of his constitutional rights by the
operation of statute or ordinance, he has no standing.[10]
In the instant case, there exists a live controversy involving a clash of legal rights as Rep. Act
No. 7942 has been enacted, DAO 96-40 has been approved and an FTAAs have been entered
into. The FTAA holders have already been operating in various provinces of the
country. Among them is CAMC which operates in the provinces
of NuevaVizcaya and Quirino where numerous individuals including the petitioners are
imperiled of being ousted from their landholdings in view of the CAMC FTAA. In light of this,
the court cannot await the adverse consequences of the law in order to consider the
controversy actual and ripe for judicial intervention.[11] Actual eviction of the land owners and
occupants need not happen for this Court to intervene. As held in Pimentel, Jr. v. Hon.
Aguirre[12]:
By the mere enactment of the questioned law or the approval of the
challenged act, the dispute is said to have ripened into a judicial
controversy even without any other overt act. Indeed, even a singular
violation of the Constitution and/or the law is enough to awaken judicial
duty.[13]
Petitioners embrace various segments of the society. These include Didipio Earth-
Savers Multi-Purpose Association, Inc., an organization of farmers and indigenous peoples
organized under Philippine laws, representing a community actually affected by the mining
activities of CAMC, as well as other residents of areas affected by the mining activities of
CAMC. These petitioners have the standing to raise the constitutionality of the questioned
FTAA as they allege a personal and substantial injury.[14] They assert that they are affected by
the mining activities of CAMC. Likewise, they are under imminent threat of being displaced
from their landholdings as a result of the implementation of the questioned FTAA. They thus
meet the appropriate case requirement as they assert an interest adverse to that of
respondents who, on the other hand, claim the validity of the assailed statute and the FTAA of
CAMC.
 Besides, the transcendental importance of the issues raised and the magnitude of
the public interest involved will have a bearing on the countrys economy which is to a greater
extent dependent upon the mining industry. Also affected by the resolution of this case are
the proprietary rights of numerous residents in the mining contract areas as well as the social
existence of indigenous peoples which are threatened. Based on these considerations, this
Court deems it proper to take cognizance of the instant petition.
Having resolved the procedural question, the constitutionality of the law under attack must be
addressed squarely.
Petitioners also stress that even without the doctrine in the Castellvi case, the nature of the
mining activity, the extent of the land area covered by the CAMC FTAA and the various rights
granted to the proponent or the FTAA holder, such as (a) the right of possession of the
Exploration Contract Area, with full right of ingress and egress and the right to occupy the
same; (b) the right not to be prevented from entry into private lands by surface owners and/or
occupants thereof when prospecting, exploring and exploiting for minerals therein; (c) the
right to enjoy easement rights, the use of timber, water and other natural resources in the
Exploration Contract Area; (d) the right of possession of the Mining Area, with full right of
ingress and egress and the right to occupy the same; and (e) the right to enjoy easement rights,
water and other natural resources in the Mining Area, result in a taking of private property.

Petitioners quickly add that even assuming arguendo that there is no absolute, physical taking,
First Substantive Issue: Validity of Section 76 of Rep. Act No. 7942 and DAO 96-40
at the very least, Section 76 establishes a legal easement upon the surface owners, occupants
and concessionaires of a mining contract area sufficient to deprive them of enjoyment and use
of the property and that such burden imposed by the legal easement falls within the purview
of eminent domain.

In seeking to nullify Rep. Act No. 7942 and its implementing rules DAO 96-40 as
unconstitutional, petitioners set their sight on Section 76 of Rep. Act No. 7942 and Section 107
of DAO 96-40 which they claim allow the unlawful and unjust taking of private property for To further bolster their claim that the legal easement established is equivalent to taking,
private purpose in contradiction with Section 9, Article III of the 1987 Constitution mandating petitioners cite the case of National Power Corporation v. Gutierrez[16] holding that the
that private property shall not be taken except for public use and the corresponding payment easement of right-of-way imposed against the use of the land for an indefinite period is a
of just compensation. They assert that public respondent DENR, through the Mining Act and taking under the power of eminent domain.
its Implementing Rules and Regulations, cannot, on its own, permit entry into a private
property and allow taking of land without payment of just compensation.
Traversing petitioners assertion, public respondents argue that Section 76 is not a taking
Interpreting Section 76 of Rep. Act No. 7942 and Section 107 of DAO 96-40, juxtaposed with
provision but a valid exercise of the police power and by virtue of which, the state may
the concept of taking of property for purposes of eminent domain in the case ofRepublic
prescribe regulations to promote the health, morals, peace, education, good order, safety and
v. Vda. de Castellvi,[15] petitioners assert that there is indeed a taking upon entry into private
general welfare of the people. This government regulation involves the adjustment of rights
lands and concession areas.
for the public good and that this adjustment curtails some potential for the use or economic
exploitation of private property. Public respondents concluded that to require compensation
Republic v. Vda. de Castellvi defines taking under the concept of eminent domain as entering
in all such circumstances would compel the government to regulate by purchase.
upon private property for more than a momentary period, and, under the warrant or color of
legal authority, devoting it to a public use, or otherwise informally appropriating or injuriously
affecting it in such a way as to substantially oust the owner and deprive him of all beneficial
enjoyment thereof. Public respondents are inclined to believe that by entering private lands and
concession areas, FTAA holders do not oust the owners thereof nor deprive them of all
beneficial enjoyment of their properties as the said entry merely establishes a legal easement
From the criteria set forth in the cited case, petitioners claim that the entry into a upon surface owners, occupants and concessionaires of a mining contract area.
private property by CAMC, pursuant to its FTAA, is for more than a momentary period, i.e., for
25 years, and renewable for another 25 years; that the entry into the property is under the
warrant or color of legal authority pursuant to the FTAA executed between the government
and CAMC; and that the entry substantially ousts the owner or possessor and deprives him of Taking in Eminent Domain Distinguished from Regulation in Police Power
all beneficial enjoyment of the property. These facts, according to the petitioners, amount to
taking. As such, petitioners question the exercise of the power of eminent domain as
unwarranted because respondents failed to prove that the entry into private property is
devoted for public use.
 The power of eminent domain is the inherent right of the state (and of those entities
to which the power has been lawfully delegated) to condemn private property to public use
upon payment of just compensation.[17] On the other hand, police power is the power of the
state to promote public welfare by restraining and regulating the use of liberty and
property.[18] Although both police power and the power of eminent domain have the general
welfare for their object, and recent trends show a mingling[19] of the two with the latter being
used as an implement of the former, there are still traditional distinctions between the two.
Property condemned under police power is usually noxious or intended for a noxious
purpose; hence, no compensation shall be paid.[20] Likewise, in the exercise of police power,
property rights of private individuals are subjected to restraints and burdens in order to secure
the general comfort, health, and prosperity of the state. Thus, an ordinance prohibiting
theaters from selling tickets in excess of their seating capacity (which would result in the
diminution of profits of the theater-owners) was upheld valid as this would promote the
comfort, convenience and safety of the customers.[21] In U.S. v. Toribio,[22] the court upheld the
provisions of Act No. 1147, a statute regulating the slaughter of carabao for the purpose of
conserving an adequate supply of draft animals, as a valid exercise of police power,
notwithstanding the property rights impairment that the ordinance imposed on cattle
owners. A zoning ordinance prohibiting the operation of a lumber yard within certain areas
was assailed as unconstitutional in that it was an invasion of the property rights of the lumber
yard owners in People v. de Guzman.[23] The Court nonetheless ruled that the regulation was a
valid exercise of police power. A similar ruling was arrived at in Seng Kee S Co. v. Earnshaw and
Piatt[24] where an ordinance divided the City of Manila into industrial and residential areas.
A thorough scrutiny of the extant jurisprudence leads to a cogent deduction that
where a property interest is merely restricted because the continued use thereof would be
injurious to public welfare, or where property is destroyed because its continued existence
would be injurious to public interest, there is no compensable taking.[25]However, when a
property interest is appropriated and applied to some public purpose, there is compensable
taking.[26]
According to noted constitutionalist, Fr. Joaquin Bernas, SJ, in the exercise of its
police power regulation, the state restricts the use of private property, but none of the
property interests in the bundle of rights which constitute ownership is appropriated for use
by or for the benefit of the public.[27] Use of the property by the owner was limited, but no
aspect of the property is used by or for the public.[28] The deprivation of use can in fact be total
and it will not constitute compensable taking if nobody else acquires use of the property or
any interest therein.[29]
If, however, in the regulation of the use of the property, somebody else acquires the
use or interest thereof, such restriction constitutes compensable taking. Thus, in City
Government of Quezon City v. Ericta,[30] it was argued by the local government that an
ordinance requiring private cemeteries to reserve 6% of their total areas for the burial of
paupers was a valid exercise of the police power under the general welfare clause. This court
did not agree in the contention, ruling that property taken under the police power is sought to
be destroyed and not, as in this case, to be devoted to a public use. It further declared that the
ordinance in question was actually a taking of private property without just compensation of
a certain area from a private cemetery to benefit paupers who are charges of the local
government. Being an exercise of eminent domain without provision for the payment of just
compensation, the same was rendered invalid as it violated the principles governing eminent
domain.
In People v. Fajardo,[31] the municipal mayor refused Fajardo permission to build a
house on his own land on the ground that the proposed structure would destroy the view or
beauty of the public plaza. The ordinance relied upon by the mayor prohibited the construction
of any building that would destroy the view of the plaza from the highway. The court ruled
that the municipal ordinance under the guise of police power permanently divest owners of
the beneficial use of their property for the benefit of the public; hence, considered as a taking
under the power of eminent domain that could not be countenanced without payment of just
compensation to the affected owners. In this case, what the municipality wanted was to
impose an easement on the property in order to preserve the view or beauty of the public
plaza, which was a form of utilization of Fajardos property for public benefit.[32]
While the power of eminent domain often results in the appropriation of title to or
possession of property, it need not always be the case. Taking may include trespass without
actual eviction of the owner, material impairment of the value of the property or prevention
of the ordinary uses for which the property was intended such as the establishment of an
easement.[33] In Ayala de Roxas v. City of Manila,[34] it was held that the imposition of burden
over a private property through easement was considered taking; hence, payment of just
compensation is required. The Court declared:
And, considering that the easement intended to be established,
whatever may be the object thereof, is not merely a real right that will
encumber the property, but is one tending to prevent the exclusive use of
one portion of the same, by expropriating it for public use which, be it what
it may, can not be accomplished unless the owner of the property
condemned or seized be previously and duly indemnified, it is proper to
protect the appellant by means of the remedy employed in such cases, as
it is only adequate remedy when no other legal action can be resorted to,
against an intent which is nothing short of an arbitrary restriction imposed
by the city by virtue of the coercive power with which the same is invested.
And in the case of National Power Corporation v. Gutierrez,[35] despite
the NPCs protestation that the owners were not totally deprived of the use of the land and
could still plant the same crops as long as they did not come into contact with the wires, the
Court nevertheless held that the easement of right-of-way was a taking under the power of
eminent domain. The Court said:
In the case at bar, the easement of right-of-way is definitely a
taking under the power of eminent domain. Considering the nature and
effect of the installation of 230 KV Mexico-Limay transmission lines, the
limitation imposed by NPC against the use of the land for an indefinite
period deprives private respondents of its ordinary use.
A case exemplifying an instance of compensable taking which does not entail
transfer of title is Republic v. Philippine Long Distance Telephone Co.[36] Here, the Bureau of
Telecommunications, a government instrumentality, had contracted with the PLDT for the
interconnection between the Government Telephone System and that of the PLDT, so that the
former could make use of the lines and facilities of the PLDT. In its desire to expand services to
government offices, the Bureau of Telecommunications demanded to expand its use of the
PLDT lines. Disagreement ensued on the terms of the contract for the use of the PLDT
facilities. The Court ruminated:
Normally, of course, the power of eminent domain results in the
taking or appropriation of title to, and possession of, the expropriated
property; but no cogent reason appears why said power may not be
availed of to impose only a burden upon the owner of the condemned
property, without loss of title and possession. It is unquestionable that real
property may, through expropriation, be subjected to an easement right
of way.[37]
In Republic v. Castellvi,[38] this Court had the occasion to spell out the requisites of
taking in eminent domain, to wit:
(1) the expropriator must enter a private property;
(2) the entry must be for more than a momentary period.
(3) the entry must be under warrant or color of legal authority;
(4) the property must be devoted to public use or otherwise
informally appropriated or injuriously affected;
(5) the utilization of the property for public use must be in such a
way as to oust the owner and deprive him of beneficial
enjoyment of the property.
As shown by the foregoing jurisprudence, a regulation which substantially deprives
the owner of his proprietary rights and restricts the beneficial use and enjoyment for public
use amounts to compensable taking. In the case under consideration, the entry referred to in
Section 76 and the easement rights under Section 75 of Rep. Act No. 7942 as well as the various
rights to CAMC under its FTAA are no different from the deprivation of proprietary rights in
the cases discussed which this Court considered as taking. Section 75 of the law in question
reads:
Easement Rights. - When mining areas are so situated that for
purposes of more convenient mining operations it is necessary to build,
construct or install on the mining areas or lands owned, occupied or leased
by other persons, such infrastructure as roads, railroads, mills, waste dump
sites, tailing ponds, warehouses, staging or storage areas and port
facilities, tramways, runways, airports, electric transmission, telephone or
telegraph lines, dams and their normal flood and catchment areas, sites
for water wells, ditches, canals, new river beds, pipelines, flumes, cuts,
shafts, tunnels, or mills, the contractor, upon payment of just
compensation, shall be entitled to enter and occupy said mining areas or
lands.
Section 76 provides:
Entry into private lands and concession areas Subject to prior
notification, holders of mining rights shall not be prevented from entry into
private lands and concession areas by surface owners, occupants, or
concessionaires when conducting mining operations therein.
 The CAMC FTAA grants in favor of CAMC the right of possession of the Exploration
Contract Area, the full right of ingress and egress and the right to occupy the same. It also
bestows CAMC the right not to be prevented from entry into private lands by surface owners
or occupants thereof when prospecting, exploring and exploiting minerals therein.
The entry referred to in Section 76 is not just a simple right-of-way which is ordinarily
allowed under the provisions of the Civil Code. Here, the holders of mining rights enter private
lands for purposes of conducting mining activities such as exploration, extraction and
processing of minerals. Mining right holders build mine infrastructure, dig mine shafts and
connecting tunnels, prepare tailing ponds, storage areas and vehicle depots, install their
machinery, equipment and sewer systems. On top of this, under Section 75, easement rights
are accorded to them where they may build warehouses, port facilities, electric transmission,
railroads and other infrastructures necessary for mining operations. All these will definitely
oust the owners or occupants of the affected areas the beneficial ownership of their
lands. Without a doubt, taking occurs once mining operations commence.
Section 76 of Rep. Act No. 7942 is a Taking Provision
Moreover, it would not be amiss to revisit the history of mining laws of this country
which would help us understand Section 76 of Rep. Act No. 7942.
This provision is first found in Section 27 of Commonwealth Act No. 137 which took
effect on 7 November 1936, viz:
Before entering private lands the prospector shall first apply in
writing for written permission of the private owner, claimant, or holder
thereof, and in case of refusal by such private owner, claimant, or holder
to grant such permission, or in case of disagreement as to the amount of
compensation to be paid for such privilege of prospecting therein, the
amount of such compensation shall be fixed by agreement among the
prospector, the Director of the Bureau of Mines and the surface owner,
and in case of their failure to unanimously agree as to the amount of
compensation, all questions at issue shall be determined by the Court of
First Instance.
Similarly, the pertinent provision of Presidential Decree No. 463, otherwise known
as The Mineral Resources Development Decree of 1974, provides:
SECTION 12. Entry to Public and Private Lands. A person who desires to
conduct prospecting or other mining operations within public lands
covered by concessions or rights other than mining shall first obtain the
written permission of the government official concerned before entering
such lands. In the case of private lands, the written permission of the
owner or possessor of the land must be obtained before entering such
lands. In either case, if said permission is denied, the Director, at the
request of the interested person may intercede with the owner or
possessor of the land. If the intercession fails, the interested person may
bring suit in the Court of First Instance of the province where the land is
situated. If the court finds the request justified, it shall issue an order
granting the permission after fixing the amount of compensation and/or
rental due the owner or possessor: Provided, That pending final
adjudication of such amount, the court shall upon recommendation of the
Director permit the interested person to enter, prospect and/or undertake
other mining operations on the disputed land upon posting by such
interested person of a bond with the court which the latter shall consider
adequate to answer for any damage to the owner or possessor of the land
resulting from such entry, prospecting or any other mining operations.
Hampered by the difficulties and delays in securing surface rights for the entry into private
lands for purposes of mining operations, Presidential Decree No. 512 dated 19 July 1974 was
passed into law in order to achieve full and accelerated mineral resources development. Thus,
Presidential Decree No. 512 provides for a new system of surface rights acquisition by mining
prospectors and claimants. Whereas in Commonwealth Act No. 137 and Presidential Decree
No. 463 eminent domain may only be exercised in order that the mining claimants can build,
construct or install roads, railroads, mills, warehouses and other facilities, this time, the power
of eminent domain may now be invoked by mining operators for the entry, acquisition and
use of private lands, viz:
SECTION 1. Mineral prospecting, location, exploration, development and
exploitation is hereby declared of public use and benefit, and for which the
power of eminent domain may be invoked and exercised for the entry,
acquisition and use of private lands. x x x.
The evolution of mining laws gives positive indication that mining operators who are qualified
to own lands were granted the authority to exercise eminent domain for the entry, acquisition,
and use of private lands in areas open for mining operations. This grant of authority extant in
Section 1 of Presidential Decree No. 512 is not expressly repealed by Section 76 of Rep. Act
No. 7942; and neither are the former statutes impliedly repealed by the former. These two
provisions can stand together even if Section 76 of Rep. Act No. 7942 does not spell out the
grant of the privilege to exercise eminent domain which was present in the old law.
It is an established rule in statutory construction that in order that one law may operate to
repeal another law, the two laws must be inconsistent. [39] The former must be so repugnant
as to be irreconciliable with the latter act. Simply because a latter enactment may relate to the
same subject matter as that of an earlier statute is not of itself sufficient to cause an implied
repeal of the latter, since the new law may be cumulative or a continuation of the old one. As
has been the ruled, repeals by implication are not favored, and will not be decreed unless it is
manifest that the legislature so intended.[40] As laws are presumed to be passed with
deliberation and with full knowledge of all existing ones on the subject, it is but reasonable to
conclude that in passing a statute it was not intended to interfere with or abrogate any former
law relating to the same matter, unless the repugnancy between the two is not only
irreconcilable, but also clear and convincing, and flowing necessarily from the language used,
unless the later act fully embraces the subject matter of the earlier, or unless the reason for
the earlier act is beyond peradventure removed.[41] Hence, every effort must be used to make
all acts stand and if, by any reasonable construction, they can be reconciled, the latter act will
not operate as a repeal of the earlier.
Considering that Section 1 of Presidential Decree No. 512 granted the qualified mining
operators the authority to exercise eminent domain and since this grant of authority is deemed
incorporated in Section 76 of Rep. Act No. 7942, the inescapable conclusion is that the latter
provision is a taking provision.
While this Court declares that the assailed provision is a taking provision, this does not mean
that it is unconstitutional on the ground that it allows taking of private property without the
determination of public use and the payment of just compensation.
The taking to be valid must be for public use.[42] Public use as a requirement for the valid
exercise of the power of eminent domain is now synonymous with public interest, public
benefit, public welfare and public convenience.[43] It includes the broader notion of indirect
public benefit or advantage. Public use as traditionally understood as actual use by the public
has already been abandoned.[44]
Mining industry plays a pivotal role in the economic development of the country and is a vital
tool in the governments thrust of accelerated recovery.[45] The importance of the mining
industry for national development is expressed in Presidential Decree No. 463:
WHEREAS, mineral production is a major support of the national economy,
and therefore the intensified discovery, exploration, development and
wise utilization of the countrys mineral resources are urgently needed for
national development.
Irrefragably, mining is an industry which is of public benefit.
That public use is negated by the fact that the state would be taking private
properties for the benefit of private mining firms or mining contractors is not at all
true. In Heirs of Juancho Ardona v. Reyes,[46] petitioners therein contended that the promotion
of tourism is not for public use because private concessionaires would be allowed to maintain
various facilities such as restaurants, hotels, stores, etc., inside the tourist area. The Court thus
contemplated:
The rule in Berman v. Parker [348 U.S. 25; 99 L. ed. 27] of deference to
legislative policy even if such policy might mean taking from one private
person and conferring on another private person applies as well in the
Philippines.
. . . Once the object is within the authority of Congress,
the means by which it will be attained is also for
Congress to determine. Here one of the means chosen
is the use of private enterprise for redevelopment of
the area. Appellants argue that this makes the project
a taking from one businessman for the benefit of
another businessman. But the means of executing the
project are for Congress and Congress alone to
determine, once the public purpose has been
established. x x x[47]
Petitioners further maintain that the states discretion to decide when to take private property
is reduced contractually by Section 13.5 of the CAMC FTAA, which reads:
If the CONTRACTOR so requests at its option, the GOVERNMENT shall use
its offices and legal powers to assist in the acquisition at reasonable cost
of any surface areas or rights required by the CONTRACTOR at
the CONTRACTORs cost to carry out the Mineral Exploration and the
Mining Operations herein.
All obligations, payments and expenses arising from, or incident to, such
agreements or acquisition of right shall be for the account of the
CONTRACTOR and shall be recoverable as Operating Expense.

According to petitioners, the government is reduced to a sub-contractor upon the request of
the private respondent, and on account of the foregoing provision, the contractor can compel
the government to exercise its power of eminent domain thereby derogating the latters power
to expropriate property.
The provision of the FTAA in question lays down the ways and means by which 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. [48] The
government then acquires ownership of the surface land areas on behalf of the contractor,
through a voluntary transaction in order to enable the latter to proceed to fully implement the
FTAA. Eminent domain is not yet called for at this stage since there are still various avenues by
which surface rights can be acquired other than expropriation. The FTAA provision under
attack merely facilitates the implementation of the FTAA given to CAMC and shields it from
violating the Anti-Dummy Law. Hence, when confronted with the same question in La Bugal-
BLaan Tribal Association, Inc. v. Ramos,[49] the Court answered:
Clearly, petitioners have needlessly jumped to unwarranted
conclusions, without being aware of the rationale for the said
provision. That provision does not call for the exercise of the power of
eminent domain -- and determination of just compensation is not an issue
-- as much as it calls for a qualified party to acquire the surface rights on
behalf of a foreign-owned contractor.
Rather than having the foreign contractor act through a dummy
corporation, having the State do the purchasing is a better
alternative. This will at least cause the government to be aware of such
transaction/s and foster transparency in the contractors dealings with the
local property owners. The government, then, will not act as a
subcontractor of the contractor; rather, it will facilitate the transaction
and enable the parties to avoid a technical violation of the Anti-Dummy
Law.
There is also no basis for the claim that the Mining Law and its implementing rules
and regulations do not provide for just compensation in expropriating private
properties. Section 76 of Rep. Act No. 7942 and Section 107 of DAO 96-40 provide for the
payment of just compensation:
Section 76. xxx Provided, that any damage to the property of the
surface owner, occupant, or concessionaire as a consequence of such
operations shall be properly compensated as may be provided for in the
implementing rules and regulations.
Section 107. Compensation of the Surface Owner and Occupant- Any
damage done to the property of the surface owners, occupant, or
concessionaire thereof as a consequence of the mining operations or as a
result of the construction or installation of the infrastructure mentioned in
104 above shall be properly and justly compensated.
Such compensation shall be based on the agreement entered into
between the holder of mining rights and the surface owner, occupant or
concessionaire thereof, where appropriate, in accordance with P.D. No.
512. (Emphasis supplied.)
Second Substantive Issue: Power of Courts to Determine Just Compensation
Closely-knit to the issue of taking is the determination of just compensation. It is
contended that Rep. Act No. 7942 and Section 107 of DAO 96-40 encroach on the power of the
trial courts to determine just compensation in eminent domain cases inasmuch as the same
determination of proper compensation are cognizable only by the Panel of Arbitrators.
The question on the judicial determination of just compensation has been settled in
the case of Export Processing Zone Authority v. Dulay[50] wherein the court declared that the
determination of just compensation in eminent domain cases is a judicial function. Even as the
executive department or the legislature may make the initial determinations, the same cannot
prevail over the courts findings.
Implementing Section 76 of Rep. Act No. 7942, Section 105 of DAO 96-40 states that
holder(s) of mining right(s) shall not be prevented from entry into its/their contract/mining
areas for the purpose of exploration, development, and/or utilization. That in cases where
surface owners of the lands, occupants or concessionaires refuse to allow the permit holder
or contractor entry, the latter shall bring the matter before the Panel of Arbitrators for proper
disposition. Section 106 states that voluntary agreements between the two parties permitting
the mining right holders to enter and use the surface owners lands shall be registered with the
Regional Office of the MGB. In connection with Section 106, Section 107 provides that the
compensation for the damage done to the surface owner, occupant or concessionaire as a
consequence of mining operations or as a result of the construction or installation of the Third Substantive Issue: Sufficient Control by the State Over Mining Operations
infrastructure shall be properly and justly compensated and that such compensation shall be
based on the agreement between the holder of mining rights and surface owner, occupant or
concessionaire, or where appropriate, in accordance with Presidential Decree No. 512. In cases
Anent the third issue, petitioners charge that Rep. Act No. 7942, as well as its
where there is disagreement to the compensation or where there is no agreement, the matter
Implementing Rules and Regulations, makes it possible for FTAA contracts to cede over to a
shall be brought before the Panel of Arbitrators. Section 206 of the implementing rules and
fully foreign-owned corporation full control and management of mining enterprises, with the
regulations provides an aggrieved party the remedy to appeal the decision of the Panel of
result that the State is allegedly reduced to a passive regulator dependent on submitted plans
Arbitrators to the Mines Adjudication Board, and the latters decision may be reviewed by the
and reports, with weak review and audit powers. The State is not acting as the supposed owner
Supreme Court by filing a petition for review on certiorari.[51]
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. In effect, petitioners asserted that the law, the
implementing regulations, and the CAMC FTAA cede beneficial ownership of the mineral
An examination of the foregoing provisions gives no indication that the courts are resources to the foreign contractor.
excluded from taking cognizance of expropriation cases under the mining law. The
disagreement referred to in Section 107 does not involve the exercise of eminent domain,
rather it contemplates of a situation wherein the permit holders are allowed by the surface
It must be noted that this argument was already raised in La Bugal-BLaan Tribal
owners entry into the latters lands and disagreement ensues as regarding the proper
Association, Inc. v. Ramos,[54] where the Court answered in the following manner:
compensation for the allowed entry and use of the private lands. Noticeably, the provision
points to a voluntary sale or transaction, but not to an involuntary sale.

RA 7942 provides for the states control and supervision over

mining operations. The following provisions thereof establish the
The legislature, in enacting the mining act, is presumed to have deliberated with full mechanism of inspection and visitorial rights over mining operations and
knowledge of all existing laws and jurisprudence on the subject. Thus, it is but reasonable to institute reportorial requirements in this manner:
conclude that in passing such statute it was in accord with the existing laws and jurisprudence
on the jurisdiction of courts in the determination of just compensation and that it was not
intended to interfere with or abrogate any former law relating to the same matter. Indeed,
there is nothing in the provisions of the assailed law and its implementing rules and regulations 1. Sec. 8 which provides for the DENRs power of over-
that exclude the courts from their jurisdiction to determine just compensation in expropriation all supervision and periodic review for the
proceedings involving mining operations. Although Section 105 confers upon the Panel of conservation, management, development and
Arbitrators the authority to decide cases where surface owners, occupants, concessionaires proper use of the States mineral resources;
refuse permit holders entry, thus, necessitating involuntary taking, this does not mean that 2. Sec. 9 which authorizes the Mines and Geosciences
the determination of the just compensation by the Panel of Arbitrators or the Mines Bureau (MGB) under the DENR to exercise direct
Adjudication Board is final and conclusive. The determination is only preliminary unless charge in the administration and disposition of
accepted by all parties concerned. There is nothing wrong with the grant of primary jurisdiction mineral resources, and empowers the MGB to
by the Panel of Arbitrators or the Mines Adjudication Board to determine in a preliminary monitor the compliance by the contractor of the
matter the reasonable compensation due the affected landowners or occupants. [52] The terms and conditions of the mineral agreements,
original and exclusive jurisdiction of the courts to decide determination of just compensation confiscate surety and performance bonds, and
remains intact despite the preliminary determination made by the administrative agency. As deputize whenever necessary any member or
held in Philippine Veterans Bank v. Court of Appeals[53]: unit of the Phil. National Police, barangay, duly
registered non-governmental organization
(NGO) or any qualified person to police mining
The jurisdiction of the Regional Trial Courts is not any less activities;
original and exclusive because the question is first passed upon by the
3. Sec. 66 which vests in the Regional Director exclusive
DAR, as the judicial proceedings are not a continuation of the
jurisdiction over safety inspections of all
administrative determination.
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.
xxxx
(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.
xxxx
(o) Such other terms and conditions
consistent with the Constitution
and with this Act as the Secretary
may deem to be for the best
interest of the State and the
welfare of the Filipino people.
The foregoing provisions of Section 35 of RA 7942 are also
reflected and implemented in Section 56 (g), (h), (l), (m) and (n) of the
Implementing Rules, DAO 96-40.
Moreover, RA 7942 and DAO 96-40 also provide various
stipulations confirming the governments control over mining enterprises:
The contractor is to relinquish to the government those portions of
the contract area not needed for mining operations and not covered
by any declaration of mining feasibility (Section 35-e, RA 7942;
Section 60, DAO 96-40).
The contractor must comply with the provisions pertaining to mine
safety, health and environmental protection (Chapter XI, RA 7942;
Chapters XV and XVI, DAO 96-40).
For violation of any of its terms and conditions, government may
cancel an FTAA. (Chapter XVII, RA 7942; Chapter XXIV, DAO 96-40).
An FTAA contractor is obliged to open its books of accounts and
records for 0inspection by the government (Section 56-m, DAO 96-
40).
An FTAA contractor has to dispose of the minerals and by-products
at the highest market price and register with the MGB a copy of the
sales agreement (Section 56-n, DAO 96-40).
MGB is mandated to monitor the contractors compliance with the
terms and conditions of the FTAA; and to deputize, when necessary,
any member or unit of the Philippine National Police,
the barangay or a DENR-accredited nongovernmental organization
to police mining activities (Section 7-d and -f, DAO 96-40).
An FTAA cannot be transferred or assigned without prior approval by
the President (Section 40, RA 7942; Section 66, DAO 96-40).
A mining project under an FTAA cannot proceed to the
construction/development/utilization stage, unless its Declaration
of Mining Project Feasibility has been approved by government
(Section 24, RA 7942).
The Declaration of Mining Project Feasibility filed by the contractor
cannot be approved without submission of the following documents:
1. Approved mining project feasibility study (Section
53-d, DAO 96-40)
2. Approved three-year work program (Section 53-a-4,
DAO 96-40)
3. Environmental compliance certificate (Section 70, RA
7942)
4. Approved environmental protection and
enhancement program (Section 69, RA 7942)
5. Approval by
the Sangguniang Panlalawigan/Bayan/Barangay (Se
ction 70, RA 7942; Section 27, RA 7160)
6. Free and prior informed consent by the indigenous
peoples concerned, including payment of royalties
through a Memorandum of Agreement (Section 16,
RA 7942; Section 59, RA 8371)
 The FTAA contractor is obliged to assist in the development of its
mining community, promotion of the general welfare of its
inhabitants, and development of science and mining technology
(Section 57, RA 7942).
The FTAA contractor is obliged to submit reports (on quarterly,
semi-annual or annual basis as the case may be; per Section 270,
DAO 96-40), pertaining to the following:
1. Exploration
2. Drilling
3. Mineral resources and reserves
4. Energy consumption
5. Production
6. Sales and marketing
7. Employment
8. Payment of taxes, royalties, fees and other
Government Shares
9. Mine safety, health and environment
10. Land use
11. Social development
12. Explosives consumption
An FTAA pertaining to areas within government reservations cannot
be granted without a written clearance from the government
agencies concerned (Section 19, RA 7942; Section 54, DAO 96-40).
An FTAA contractor is required to post a financial guarantee bond
in favor of the government in an amount equivalent to its
expenditures obligations for any particular year. This requirement
is apart from the representations and warranties of the contractor
that it has access to all the financing, managerial and technical
expertise and technology necessary to carry out the objectives of
the FTAA (Section 35-b, -e, and -f, RA 7942).
Other reports to be submitted by the contractor, as required under
DAO 96-40, are as follows: an environmental report on the
rehabilitation of the mined-out area and/or mine waste/tailing
covered area, and anti-pollution measures undertaken (Section 35-
a-2); annual reports of the mining operations and records of
geologic accounting (Section 56-m); annual progress reports and
final report of exploration activities (Section 56-2).
Other programs required to be submitted by the contractor,
pursuant to DAO 96-40, are the following: a safety and health
program (Section 144); an environmental work program (Section
168); an annual environmental protection and enhancement
program (Section 171).
The foregoing gamut of requirements, regulations, restrictions
and limitations imposed upon the FTAA contractor by the statute and
regulations easily overturns petitioners contention. The setup under RA
7942 and DAO 96-40 hardly relegates the State to the role of a passive
regulator dependent on submitted plans and reports. On the contrary, the
government agencies concerned are empowered to approve or disapprove
-- hence, to influence, direct and change -- the various work programs and
the corresponding minimum expenditure commitments for each of the
exploration, development and utilization phases of the mining enterprise.
Once these plans and reports are approved, the contractor is
bound to comply with its commitments therein. Figures for mineral
production and sales are regularly monitored and subjected to
government review, in order to ensure that the products and by-products
are disposed of at the best prices possible; even copies of sales agreements
have to be submitted to and registered with MGB. And the contractor is
mandated to open its books of accounts and records for scrutiny, so as to
enable the State to determine if the government share has been fully paid.
The State may likewise compel the contractors compliance with
mandatory requirements on mine safety, health and environmental
protection, and the use of anti-pollution technology and
facilities. Moreover, the contractor is also obligated to assist in the
development of the mining community and to pay royalties to the
indigenous peoples concerned.
Cancellation of the FTAA may be the penalty for violation of any
of its terms and conditions and/or noncompliance with statutes or
regulations. This general, all-around, multipurpose sanction is no trifling
matter, especially to a contractor who may have yet to recover the tens or
hundreds of millions of dollars sunk into a mining project.
Overall, considering the provisions of the statute and the
regulations just discussed, we believe that the State definitely possesses
the means by which it can have the ultimate word in the operation of the
enterprise, set directions and objectives, and detect deviations and
noncompliance by the contractor; likewise, it has the capability to enforce
compliance and to impose sanctions, should the occasion therefor arise.
In other words, the FTAA contractor is not free to do whatever it
pleases and get away with it; on the contrary, it will have to follow the
government line if it wants to stay in the enterprise. Ineluctably then, RA
7942 and DAO 96-40 vest in the government more than a sufficient degree
of control and supervision over the conduct of mining operations.
Fourth Substantive Issue: The Proper Interpretation of the Constitutional Phrase Agreements
Involving Either Technical or Financial Assistance
In interpreting the first and fourth paragraphs of Section 2, Article XII of the
Constitution, petitioners set forth the argument that foreign corporations are barred from
making decisions on the conduct of operations and the management of the mining project. The
first paragraph of Section 2, Article XII reads:
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 percentum 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
x x x.
The fourth paragraph of Section 2, Article XII provides:
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 x x x.
Petitioners maintain that the first paragraph bars aliens and foreign-owned
corporations from entering into any direct arrangement with the government including those
which involve co-production, joint venture or production sharing agreements. They likewise
insist that the fourth paragraph allows foreign-owned corporations to participate in the large-
scale exploration, development and utilization of natural resources, but such participation,
however, is merely limited to an agreement for either financial or technical assistance only.
Again, this issue has already been succinctly passed upon by this Court in La Bugal-
BLaan Tribal Association, Inc. v. Ramos.[55] In discrediting such argument, the Court
ratiocinated:
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.
This restrictive interpretation, petitioners believe, is in line with
the general policy enunciated by the Constitution reserving to Filipino
citizens and corporations the use and enjoyment of the countrys natural
resources. They maintain that this Courts Decision of January 27,
2004 correctly declared the WMCP FTAA, along with pertinent provisions
of RA 7942, void for allowing a foreign contractor to have direct and
exclusive management of a mining enterprise. Allowing such a privilege
not only runs counter to the full control and supervision that the State is
constitutionally mandated to exercise over the exploration, development
and utilization of the countrys natural resources; doing so also vests in the
foreign company beneficial ownership of our mineral resources. It will be
recalled that the Decision of January 27, 2004 zeroed in on management
or other forms of assistance or other activities associated with the service
contracts of the martial law regime, since the management or operation of
mining activities by foreign contractors, which is the primary feature of
service contracts, was precisely the evil that the drafters of the 1987
Constitution sought to eradicate.
xxxx
We do not see how applying a strictly literal
or verba legis interpretation of paragraph 4 could inexorably lead to the
conclusions arrived at in the ponencia. First, the drafters choice of words
-- their use of the phrase agreements x x x involving either technical or
financial assistance -- does not indicate the intent to exclude other modes
of assistance. The drafters opted to use involving when they could have
simply said agreements for financial or technical assistance, if that was
their intention to begin with. In this case, the limitation would be very
clear and no further debate would ensue.
In contrast, the use of the word involving signifies the possibility
of the inclusion of other forms of assistance or activities having to do
with, otherwise related to or compatible with financial or technical
assistance. The word involving as used in this context has three
connotations that can be differentiated thus: one, the sense of concerning,
having to do with, or affecting; two, entailing, requiring, implying or
necessitating; and three, including, containing or comprising.
Plainly, none of the three connotations convey a sense of
exclusivity. Moreover, the word involving, when understood in the sense
of including, as in including technical or financial assistance, necessarily
implies that there are activities other than those that are being
 included. In other words, if an agreement includes technical or financial
assistance, there is apart from such assistance -- something else already in,
and covered or may be covered by, the said agreement.
In short, it allows for the possibility that matters, other
than those explicitly mentioned, could be made part of the
agreement. Thus, we are now led to the conclusion that the use of the
word involving implies that these agreements with foreign corporations
are not limited to mere financial or technical assistance. The difference in
sense becomes very apparent when we juxtapose
agreements for technical or financial assistance against
agreements including technical or financial assistance. This much is
unalterably clear in a verba legis approach.
Second, if the real intention of the drafters was to confine foreign
corporations to financial or technical assistance and nothing more, their
language would have certainly been so unmistakably restrictive and
stringent as to leave no doubt in anyones mind about their true intent. For
example, they would have used the sentence foreign corporations
are absolutely prohibited from involvement in the management or
operation of mining or similar ventures or words of similar import. A
search for such stringent wording yields negative results. Thus, we come
to the inevitable conclusion that there was a conscious and deliberate
decision to avoid the use of restrictive wording that bespeaks an intent
not to use the expression agreements x x x involving either technical or
financial assistance in an exclusionary and limiting manner.
Fifth Substantive Issue: Service Contracts Not Deconstitutionalized
Lastly, petitioners stress that the service contract regime under the 1973
Constitution is expressly prohibited under the 1987 Constitution as the term service contracts
found in the former was deleted in the latter to avoid the circumvention of constitutional
prohibitions that were prevalent in the 1987 Constitution. According to them, the framers of
the 1987 Constitution only intended for foreign-owned corporations to provide either
technical assistance or financial assistance. Upon perusal of the CAMC FTAA, petitioners are of
the opinion that the same is a replica of the service contract agreements that the present
constitution allegedly prohibit.
Again, this contention is not well-taken. The mere fact that the term service
contracts found in the 1973 Constitution was not carried over to the present constitution, sans
any categorical statement banning service contracts in mining activities, does not mean that
service contracts as understood in the 1973 Constitution was eradicated in the 1987
Constitution.[56] The 1987 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; this time, however, safety
measures were put in place to prevent abuses of the past regime.[57] We ruled, thus:
To our mind, however, such intent cannot be definitively and
conclusively established from the mere failure to carry the same
expression or term over to the new Constitution, absent a more specific,
explicit and unequivocal statement to that effect. What petitioners seek
(a complete ban on foreign participation in the management of mining
operations, as previously allowed by the earlier Constitutions) is nothing
short of bringing about a momentous sea change in the economic and
developmental policies; and the fundamentally capitalist, free-enterprise
philosophy of our government. We cannot imagine such a radical
shift being undertaken by our government, to the great prejudice of the
mining sector in particular and our economy in general, merely on the
basis of the omission of the terms service contract from or the failure to
carry them over to the new Constitution. There has to be a much more
definite and even unarguable basis for such a drastic reversal of policies.
xxxx
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. Mr. Garcia explained, Service contracts are given constitutional
legitimization in Sec. 3, even when they have been proven to be inimical to
the interests of the nation, providing, as they do, the legal loophole for the
exploitation of our natural resources for the benefit of foreign
interests. Likewise, Mr. Tadeo cited inter alia the fact that service
contracts continued to subsist, enabling foreign interests to benefit from
our natural resources. It was hardly likely that these gentlemen would
have objected so strenuously, had the provision called for mere technical
or financial assistance and nothing more.
The deliberations of the ConCom and some commissioners
explanation of their votes leave no room for doubt that the service
contract concept precisely underpinned the commissioners understanding
of the agreements involving either technical or financial assistance.
xxxx
 From the foregoing, we are impelled to conclude that the
phrase agreements involving either technical or financial
assistance, referred to in paragraph 4, are in fact service contracts. But
unlike those of the 1973 variety, the new ones are between foreign
corporations acting as contractors on the one hand; and on the other, the
government as principal or owner of the works. In the new service
contracts, the foreign contractors provide capital, technology and
technical know-how, and managerial expertise in the creation and
operation of large-scale mining/extractive enterprises; and the
government, through its agencies (DENR, MGB), actively exercises control
and supervision over the entire operation.
xxxx
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.[58]
WHEREFORE, the instant petition for prohibition and mandamus is hereby
DISMISSED. Section 76 of Republic Act No. 7942 and Section 107 of DAO 96-40; Republic Act
No. 7942 and its Implementing Rules and Regulations contained in DAO 96-40 insofar as they
relate to financial and technical assistance agreements referred to in paragraph 4 of Section 2
of Article XII of the Constitution are NOT UNCONSTITUTIONAL.
SO ORDERED.
G.R. No. 149927
REPUBLIC OF THE PHILIPPINES, Represented by the Department of Environment and Natural
Resources (DENR) Under then Minister ERNESTO R. MACEDA; and Former
Government Officials CATALINO MACARAIG, FULGENCIO S. FACTORAN, ANGEL C.
ALCALA, BEN MALAYANG, ROBERTO PAGDANGANAN, MARIANO Z. VALERA and
ROMULO SAN JUAN, petitioners, vs. ROSEMOOR MINING AND DEVELOPMENT
CORPORATION, PEDRO DEL CONCHA, and ALEJANDRO and RUFO DE
GUZMAN, respondents.
DECISION
PANGANIBAN, J.:
A mining license that contravenes a mandatory provision of the law under which it is
granted is void. Being a mere privilege, a license does not vest absolute rights in the
holder.Thus, without offending the due process and the non-impairment clauses of the
Constitution, it can be revoked by the State in the public interest.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to nullify
the May 29, 2001 Decision[2] and the September 6, 2001 Resolution[3] of the Court of Appeals
(CA) in CA-GR SP No. 46878. The CA disposed as follows:
WHEREFORE, premises considered, the appealed Decision is hereby AFFIRMED in toto.[4]
The questioned Resolution denied petitioners Motion for Reconsideration.
On the other hand, trial courts Decision, which was affirmed by the CA, had disposed as
follows:
WHEREFORE, judgment is hereby rendered as follows:
1. Declaring that the cancellation of License No. 33 was done without jurisdiction
and in gross violation of the Constitutional right of the petitioners against
deprivation of their property rights without due process of law and is hereby set
aside.
2. Declaring that the petitioners right to continue the exploitation of the marble
deposits in the area covered by License No. 33 is maintained for the duration of the
period of its life of twenty-five (25) years, less three (3) years of continuous
operation before License No. 33 was cancelled, unless sooner terminated for
violation of any of the conditions specified therein, with due process.
3. Making the Writ of preliminary injunction and the Writ of Preliminary Mandatory
Injunction issued as permanent.
4. Ordering the cancellation of the bond filed by the Petitioners in the sum of 1
Million.
5. Allowing the petitioners to present evidence in support of the damages they
claim to have suffered from, as a consequence of the summary cancellation of
License No. 33 pursuant to the agreement of the parties on such dates as maybe
set by the Court; and
6. Denying for lack of merit the motions for contempt, it appearing that actuations
of the respondents were not contumacious and intended to delay the proceedings
or undermine the integrity of the Court.
 No pronouncement yet as to costs.[5]
The Facts
The CA narrated the facts as follows:
The four (4) petitioners, namely, Dr. Lourdes S. Pascual, Dr. Pedro De la Concha, Alejandro De
La Concha, and Rufo De Guzman, after having been granted permission to prospect for
marble deposits in the mountains of Biak-na-Bato, San Miguel, Bulacan, succeeded in
discovering marble deposits of high quality and in commercial quantities in Mount Mabio
which forms part of the Biak-na-Bato mountain range.
Having succeeded in discovering said marble deposits, and as a result of their tedious efforts
and substantial expenses, the petitioners applied with the Bureau of Mines, now Mines and
Geosciences Bureau, for the issuance of the corresponding license to exploit said marble
deposits.
xxxxxxxxx
After compliance with numerous required conditions, License No. 33 was issued by the
Bureau of Mines in favor of the herein petitioners.
xxxxxxxxx
Shortly after Respondent Ernesto R. Maceda was appointed Minister of the Department of
Energy and Natural Resources (DENR), petitioners License No. 33 was cancelled by him
through his letter to ROSEMOOR MINING AND DEVELOPMENT CORPORATION dated
September 6, 1986 for the reasons stated therein. Because of the aforesaid cancellation, the
original petition was filed and later substituted by the petitioners AMENDED PETITION dated
August 21, 1991 to assail the same.
Also after due hearing, the prayer for injunctive relief was granted in the Order of this Court
dated February 28, 1992. Accordingly, the corresponding preliminary writs were issued after
the petitioners filed their injunction bond in the amount of ONE MILLION PESOS
(P1,000,000.00).
xxxxxxxxx
On September 27, 1996, the trial court rendered the herein questioned decision.[6]
The trial court ruled that the privilege granted under respondents license had already
ripened into a property right, which was protected under the due process clause of the
Constitution. Such right was supposedly violated when the license was cancelled without
notice and hearing. The cancellation was said to be unjustified, because the area that could be
covered by the four separate applications of respondents was 400 hectares. Finally, according
to the RTC, Proclamation No. 84, which confirmed the cancellation of the license, was an ex
post facto law; as such, it violated Section 3 of Article XVIII of the 1987 Constitution.
On appeal to the Court of Appeals, herein petitioners asked whether PD 463 or the
Mineral Resources Development Decree of 1974 had been violated by the award of the
330.3062 hectares to respondents in accordance with Proclamation No. 2204. They also
questioned the validity of the cancellation of respondents Quarry License/Permit (QLP) No. 33.
Ruling of the Court of Appeals
Sustaining the trial court in toto, the CA held that the grant of the quarry license covering
330.3062 hectares to respondents was authorized by law, because the license was embraced
by four (4) separate applications -- each for an area of 81 hectares. Moreover, it held that the
limitation under Presidential Decree No. 463 -- that a quarry license should cover not more
than 100 hectares in any given province -- was supplanted by Republic Act No. 7942,[7] which
increased the mining areas allowed under PD 463.
It also ruled that the cancellation of respondents license without notice and hearing was
tantamount to a deprivation of property without due process of law. It added that under the
clause in the Constitution dealing with the non-impairment of obligations and contracts,
respondents license must be respected by the State.
Hence, this Petition.[8]
Issues
Petitioners submit the following issues for the Courts consideration:
(1) [W]hether or not QLP No. 33 was issued in blatant contravention of Section 69, P.D. No.
463; and (2) whether or not Proclamation No. 84 issued by then President Corazon Aquino is
valid. The corollary issue is whether or not the Constitutional prohibition against ex post
facto law applies to Proclamation No. 84[9]
The Courts Ruling
The Petition has merit.
First Issue:
 Validity of License
Respondents contend that the Petition has no legal basis, because PD 463 has already
been repealed.[10] In effect, they ask for the dismissal of the Petition on the ground of
mootness.
PD 463, as amended, pertained to the old system of exploration, development and
utilization of natural resources through licenses, concessions or leases. [11] While these
arrangements were provided under the 1935[12] and the 1973[13] Constitutions, they have been
omitted by Section 2 of Article XII of the 1987 Constitution.[14]
With the shift of constitutional policy toward full control and supervision of the State
over natural resources, the Court in Miners Association of the Philippines v. Factoran
Jr. [15]declared the provisions of PD 463 as contrary to or violative of the express mandate of
the 1987 Constitution. The said provisions dealt with the lease of mining claims; quarry permits
or licenses covering privately owned or public lands; and other related provisions on lease,
licenses and permits.
RA 7942 or the Philippine Mining Act of 1995 embodies the new constitutional
mandate. It has repealed or amended all laws, executive orders, presidential decrees, rules
and regulations -- or parts thereof -- that are inconsistent with any of its provisions.[16]
It is relevant to state, however, that Section 2 of Article XII of the 1987 Constitution does
not apply retroactively to a license, concession or lease granted by the government under the
1973 Constitution or before the effectivity of the 1987 Constitution on February 2, 1987.[17] As
noted in Miners Association of the Philippines v. Factoran Jr., the deliberations of the
Constitutional Commission[18] emphasized the intent to apply the said constitutional provision
prospectively.
While RA 7942 has expressly repealed provisions of mining laws that are inconsistent
with its own, it nonetheless respects previously issued valid and existing licenses, as follows:
SECTION 5. Mineral Reservations. When the national interest so requires, such as when there
is a need to preserve strategic raw materials for industries critical to national development,
or certain minerals for scientific, cultural or ecological value, the President may establish
mineral reservations upon the recommendation of the Director through the
Secretary. Mining operations in existing mineral reservations and such other reservations as
may thereafter be established, shall be undertaken by the Department or through a
contractor: Provided, That a small scale-mining cooperative covered by Republic Act No.
7076 shall be given preferential right to apply for a small-scale mining agreement for a
maximum aggregate area of twenty-five percent (25%) of such mineral reservation, subject
to valid existing mining/quarrying rights as provided under Section 112 Chapter XX hereof. All
submerged lands within the contiguous zone and in the exclusive economic zone of the
Philippines are hereby declared to be mineral reservations.
xxxxxxxxx
SECTION 7. Periodic Review of Existing Mineral Reservations. The Secretary shall periodically
review existing mineral reservations for the purpose of determining whether their continued
existence is consistent with the national interest, and upon his recommendation, the
President may, by proclamation, alter or modify the boundaries thereof or revert the same to
the public domain without prejudice to prior existing rights.
SECTION 18. Areas Open to Mining Operations. Subject to any existing rights or reservations
and prior agreements of all parties, all mineral resources in public or private lands, including
timber or forestlands as defined in existing laws, shall be open to mineral agreements or
financial or technical assistance agreement applications. Any conflict that may arise under
this provision shall be heard and resolved by the panel of arbitrators.
SECTION 19. Areas Closed to Mining Applications. -- Mineral agreement or financial or
technical assistance agreement applications shall not be allowed:
(a) In military and other government reservations, except upon prior written clearance by the
government agency concerned;
(b) Near or under public or private buildings, cemeteries, archeological and historic sites,
bridges, highways, waterways, railroads, reservoirs, dams or other infrastructure projects,
public or private works including plantations or valuable crops, except upon written consent
of the government agency or private entity concerned;
(c) In areas covered by valid and existing mining rights;
(d) In areas expressly prohibited by law;
(e) In areas covered by small-scale miners as defined by law unless with prior consent of the
small-scale miners, in which case a royalty payment upon the utilization of minerals shall be
agreed upon by the parties, said royalty forming a trust fund for the socioeconomic
development of the community concerned; and
(f) Old growth or virgin forests, proclaimed watershed forest reserves, wilderness areas,
mangrove forests, mossy forests, national parks, provincial/municipal forests, parks,
greenbelts, game refuge and bird sanctuaries as defined by law and in areas expressly
prohibited under the National Integrated Protected Areas System (NIPAS) under Republic Act
No. 7586, Department Administrative Order No. 25, series of 1992 and other laws.
SECTION 112. Non-impairment of Existing Mining/ Quarrying Rights. All valid and existing
mining lease contracts, permits/licenses, leases pending renewal, mineral production-sharing
agreements granted under Executive Order No. 279, at the date of effectivity of this Act, shall
remain valid, shall not be impaired, and shall be recognized by the Government: Provided,
That the provisions of Chapter XIV on government share in mineral production-sharing
agreement and of Chapter XVI on incentives of this Act shall immediately govern and apply to
a mining lessee or contractor unless the mining lessee or contractor indicates his intention to
the secretary, in writing, not to avail of said provisions: Provided, further, That no renewal of
mining lease contracts shall be made after the expiration of its term: Provided, finally, That
such leases, production-sharing agreements, financial or technical assistance agreements
shall comply with the applicable provisions of this Act and its implementing rules and
regulations.
SECTION 113. Recognition of Valid and Existing Mining Claims and Lease/Quarry
Application. Holders of valid and existing mining claims, lease/quarry applications shall be
given preferential rights to enter into any mode of mineral agreement with the
government within two (2) years from the promulgation of the rules and regulations
implementing this Act. (Underscoring supplied)
Section 3(p) of RA 7942 defines an existing mining/quarrying right as a valid and
subsisting mining claim or permit or quarry permit or any mining lease contract or agreement
covering a mineralized area granted/issued under pertinent mining laws. Consequently,
determining whether the license of respondents falls under this definition would be relevant
to fixing their entitlement to the rights and/or preferences under RA 7942. Hence, the present
Petition has not been mooted.
Petitioners submit that the license clearly contravenes Section 69 of PD 463, because it
exceeds the maximum area that may be granted. This incipient violation, according to them,
renders the license void ab initio.
Respondents, on the other hand, argue that the license was validly granted, because it
was covered by four separate applications for areas of 81 hectares each.
The license in question, QLP No. 33,[19] is dated August 3, 1982, and it was issued in the
name of Rosemoor Mining Development Corporation. The terms of the license allowed the
corporation to extract and dispose of marbleized limestone from a 330.3062-hectare land in
San Miguel, Bulacan. The license is, however, subject to the terms and conditions of PD 463,
the governing law at the time it was granted; as well as to the rules and regulations
promulgated thereunder.[20] By the same token, Proclamation No. 2204 -- which awarded to
Rosemoor the right of development, exploitation, and utilization of the mineral site -- expressly
cautioned that the grant was subject to existing policies, laws, rules and regulations.[21]
The license was thus subject to Section 69 of PD 463, which reads:
Section 69. Maximum Area of Quarry License Notwithstanding the provisions of Section 14
hereof, a quarry license shall cover an area of not more than one hundred (100) hectares in
any one provinceand not more than one thousand (1,000) hectares in the entire
Philippines. (Italics supplied)
The language of PD 463 is clear. It states in categorical and mandatory terms that a
quarry license, like that of respondents, should cover a maximum of 100 hectares in any given
province. This law neither provides any exception nor makes any reference to the number of
applications for a license. Section 69 of PD 463 must be taken to mean exactly what it
says.Where the law is clear, plain, and free from ambiguity, it must be given its literal meaning
and applied without attempted interpretation.[22]
Moreover, the lower courts ruling is evidently inconsistent with the fact that QLP No. 33
was issued solely in the name of Rosemoor Mining and Development Corporation, rather than
in the names of the four individual stockholders who are respondents herein. It likewise
brushes aside a basic postulate that a corporation has a separate personality from that of its
stockholders.[23]
The interpretation adopted by the lower courts is contrary to the purpose of Section 69
of PD 463. Such intent to limit, without qualification, the area of a quarry license strictly to 100
hectares in any one province is shown by the opening proviso that reads: Notwithstanding the
provisions of Section 14 hereof x x x. The mandatory nature of the provision is also
underscored by the use of the word shall. Hence, in the application of the 100-hectare-per-
province limit, no regard is given to the size or the number of mining claims under Section 14,
which we quote:
SECTION 14. Size of Mining Claim. -- For purposes of registration of a mining claim under this
Decree, the Philippine territory and its shelf are hereby divided into meridional blocks or
quadrangles of one-half minute (1/2) of latitude and longitude, each block or quadrangle
containing area of eighty-one (81) hectares, more or less.
A mining claim shall cover one such block although a lesser area may be allowed if warranted
by attendant circumstances, such as geographical and other justifiable considerations as may
be determined by the Director: Provided, That in no case shall the locator be allowed to
register twice the area allowed for lease under Section 43 hereof. (Italics supplied)
Clearly, the intent of the law would be brazenly circumvented by ruling that a license
may cover an area exceeding the maximum by the mere expediency of filing several
applications. Such ruling would indirectly permit an act that is directly prohibited by the law.
Second Issue:
Validity of Proclamation No. 84
Petitioners also argue that the license was validly declared a nullity and consequently
withdrawn or terminated. In a letter dated September 15, 1986, respondents were informed
by then Minister Ernesto M. Maceda that their license had illegally been issued, because it
violated Section 69 of PD 463; and that there was no more public interest served by the
continued existence or renewal of the license. The latter reason, they added, was confirmed
by the language of Proclamation No. 84. According to this law, public interest would be served
by reverting the parcel of land that was excluded by Proclamation No. 2204 to the former
status of that land as part of the Biak-na-Bato national park.
They also contend that Section 74 of PD 463 would not apply, because Minister Macedas
letter did not cancel or revoke QLP No. 33, but merely declared the latters nullity. They further
argue that respondents waived notice and hearing in their application for the license.
On the other hand, respondents submit that, as provided for in Section 74 of PD 463,
their right to due process was violated when their license was cancelled without notice and
hearing. They likewise contend that Proclamation No. 84 is not valid for the following
reasons: 1) it violates the clause on the non-impairment of contracts; 2) it is an ex post
facto law and/or a bill of attainder; and 3) it was issued by the President after the effectivity
of the 1987 Constitution.
This Court ruled on the nature of a natural resource exploration permit, which was akin
to the present respondents license, in Southeast Mindanao Gold Mining Corporation v. Balite
Portal Mining Cooperative,[24] which held:
x x x. As correctly held by the Court of Appeals in its challenged decision, EP No. 133 merely
evidences a privilege granted by the State, which may be amended, modified or rescinded
when the national interest so requires. This is necessarily so since the exploration,
development and utilization of the countrys natural mineral resources are matters impressed
with great public interest. Like timber permits, mining exploration permits do not vest in the
grantee any permanent or irrevocable right within the purview of the non-impairment of
contract and due process clauses of the Constitution, since the State, under its all-
encompassing police power, may alter, modify or amend the same, in accordance with the
demands of the general welfare.[25]
This same ruling had been made earlier in Tan v. Director of Forestry[26] with regard to a
timber license, a pronouncement that was reiterated in Ysmael v. Deputy Executive
Secretary,[27] the pertinent portion of which reads:
x x x. Timber licenses, permits and license agreements are the principal instruments by which
the State regulates the utilization and disposition of forest resources to the end that public
welfare is promoted. And it can hardly be gainsaid that they merely evidence a privilege
granted by the State to qualified entities, and do not vest in the latter a permanent or
irrevocable right to the particular concession area and the forest products therein. They may
be validly amended, modified, replaced or rescinded by the Chief Executive when national
interests so require. Thus, they are not deemed contracts within the purview of the due
process of law clause [See Sections 3(ee) and 20 of Pres. Decree No. 705, as amended. Also,
Tan v. Director of Forestry, G.R. No. L-24548, October 27, 1983, 125 SCRA 302].[28] (Italics
supplied)
In line with the foregoing jurisprudence, respondents license may be revoked or
rescinded by executive action when the national interest so requires, because it is not a
contract, property or a property right protected by the due process clause of the
Constitution.[29] Respondents themselves acknowledge this condition of the grant under
paragraph 7 of QLP No. 33, which we quote:
7. This permit/license may be revoked or cancelled at any time by the Director of Mines and
Geo-Sciences when, in his opinion public interests so require or, upon failure of the
permittee/licensee to comply with the provisions of Presidential Decree No. 463, as
amended, and the rules and regulations promulgated thereunder, as well as with the terms
and conditions specified herein; Provided, That if a permit/license is cancelled, or otherwise
terminated, the permittee/licensee shall be liable for all unpaid rentals and royalties due up
to the time of the termination or cancellation of the permit/license[.][30](Italics supplied)
The determination of what is in the public interest is necessarily vested in the State as
owner of all mineral resources. That determination was based on policy considerations
formally enunciated in the letter dated September 15, 1986, issued by then Minister Maceda
and, subsequently, by the President through Proclamation No. 84. As to the exercise of
prerogative by Maceda, suffice it to say that while the cancellation or revocation of the license
is vested in the director of mines and geo-sciences, the latter is subject to the formers control
as the department head. We also stress the clear prerogative of the Executive Department in
the evaluation and the consequent cancellation of licenses in the process of its formulation of
policies with regard to their utilization. Courts will not interfere with the exercise of that
discretion without any clear showing of grave abuse of discretion.[31]
Moreover, granting that respondents license is valid, it can still be validly revoked by the
State in the exercise of police power.[32] The exercise of such power through Proclamation No.
84 is clearly in accord with jura regalia, which reserves to the State ownership of all natural
resources.[33] This Regalian doctrine is an exercise of its sovereign power as owner of lands of
the public domain and of the patrimony of the nation, the mineral deposits of which are a
valuable asset.[34]
Proclamation No. 84 cannot be stigmatized as a violation of the non-impairment
clause. As pointed out earlier, respondents license is not a contract to which the protection
accorded by the non-impairment clause may extend.[35] Even if the license were, it is settled
that provisions of existing laws and a reservation of police power are deemed read into it,
because it concerns a subject impressed with public welfare.[36] As it is, the non-impairment
clause must yield to the police power of the state.[37]
We cannot sustain the argument that Proclamation No. 84 is a bill of attainder; that is, a
legislative act which inflicts punishment without judicial trial. [38] Its declaration that QLP No.
33 is a patent nullity[39] is certainly not a declaration of guilt. Neither is the cancellation of the
license a punishment within the purview of the constitutional proscription against bills of
attainder.
Too, there is no merit in the argument that the proclamation is an ex post
facto law. There are six recognized instances when a law is considered as such: 1) it criminalizes
and punishes an action that was done before the passing of the law and that was innocent
when it was done; 2) it aggravates a crime or makes it greater than it was when it was
committed; 3) it changes the punishment and inflicts one that is greater than that imposed by
the law annexed to the crime when it was committed; 4) it alters the legal rules of evidence
and authorizes conviction upon a less or different testimony than that required by the law at
the time of the commission of the offense; 5) it assumes the regulation of civil rights and
remedies only, but in effect imposes a penalty or a deprivation of a right as a consequence
of something that was considered lawful when it was done; and 6) it deprives a person
accused of a crime of some lawful protection to which he or she become entitled, such as the
protection of a former conviction or an acquittal or the proclamation of an
amnesty.[40]Proclamation No. 84 does not fall under any of the enumerated categories; hence,
it is not an ex post facto law.
It is settled that an ex post facto law is limited in its scope only to matters criminal in
nature.[41] Proclamation 84, which merely restored the area excluded from the Biak-na-Bato
national park by canceling respondents license, is clearly not penal in character.
 Finally, it is stressed that at the time President Aquino issued Proclamation No. 84 on
March 9, 1987, she was still validly exercising legislative powers under the Provisional
Constitution of 1986.[42] Section 1 of Article II of Proclamation No. 3, which promulgated the
Provisional Constitution, granted her legislative power until a legislature is elected and
convened under a new Constitution. The grant of such power is also explicitly recognized and
provided for in Section 6 of Article XVII of the 1987 Constitution.[43]
WHEREFORE, this Petition is hereby GRANTED and the appealed Decision of the Court of
Appeals SET ASIDE. No costs.
SO ORDERED.
G.R. No. 127882 January 27, 2004
LA BUGAL-B'LAAN TRIBAL ASSOCIATION, INC., represented by its Chairman F'LONG MIGUEL
M. LUMAYONG, WIGBERTO E. TAÑADA, PONCIANO BENNAGEN, JAIME TADEO, RENATO R.
CONSTANTINO, JR., F'LONG AGUSTIN M. DABIE, ROBERTO P. AMLOY, RAQIM L. DABIE,
SIMEON H. DOLOJO, IMELDA M. GANDON, LENY B. GUSANAN, MARCELO L. GUSANAN,
QUINTOL A. LABUAYAN, LOMINGGES D. LAWAY, BENITA P. TACUAYAN, minors JOLY L.
BUGOY, represented by his father UNDERO D. BUGOY, 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),
ENVIRONMETAL LEGAL ASSISTANCE CENTER (ELAC), PHILIPPINE KAISAHAN TUNGO SA
KAUNLARAN NG KANAYUNAN AT REPORMANG PANSAKAHAN (KAISAHAN), 3 KAISAHAN
TUNGO SA KAUNLARAN NG KANAYUNAN AT REPORMANG PANSAKAHAN (KAISAHAN),
PARTNERSHIP FOR AGRARIAN REFORM and RURAL DEVELOPMENT SERVICES, INC.
(PARRDS), PHILIPPINE PART`NERSHIP 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), 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.
DECISION
CARPIO-MORALES, J.:
The present petition for mandamus and prohibition assails the constitutionality of Republic
Act No. 7942,5 otherwise known as the PHILIPPINE MINING ACT OF 1995, along with the
Implementing Rules and Regulations issued pursuant thereto, Department of Environment
and Natural Resources (DENR) Administrative Order 96-40, and of the Financial and Technical
Assistance Agreement (FTAA) entered into on March 30, 1995 by the Republic of the
Philippines and WMC (Philippines), Inc. (WMCP), a corporation organized under Philippine
laws.
On July 25, 1987, then President Corazon C. Aquino issued Executive Order (E.O.) No.
2796 authorizing the DENR Secretary to accept, consider and evaluate proposals from
foreign-owned corporations or foreign investors for contracts or agreements involving either
technical or financial assistance for large-scale exploration, development, and utilization of
minerals, which, upon appropriate recommendation of the Secretary, the President may
execute with the foreign proponent. In entering into such proposals, the President shall
consider the real contributions to the economic growth and general welfare of the country
that will be realized, as well as the development and use of local scientific and technical
resources that will be promoted by the proposed contract or agreement. Until Congress shall
determine otherwise, large-scale mining, for purpose of this Section, shall mean those
proposals for contracts or agreements for mineral resources exploration, development, and
utilization involving a committed capital investment in a single mining unit project of at least
Fifty Million Dollars in United States Currency (US $50,000,000.00).7
On March 3, 1995, then President Fidel V. Ramos approved R.A. No. 7942 to "govern the
exploration, development, utilization and processing of all mineral resources." 8 R.A. No. 7942
defines the modes of mineral agreements for mining operations,9 outlines the procedure for
their filing and approval,10 assignment/transfer11 and withdrawal,12and fixes their
terms.13 Similar provisions govern financial or technical assistance agreements.14
The law prescribes the qualifications of contractors15 and grants them certain rights,
including timber,16 water17 and easement18 rights, and the right to possess
explosives.19 Surface owners, occupants, or concessionaires are forbidden from preventing
holders of mining rights from entering private lands and concession areas.20 A procedure for
the settlement of conflicts is likewise provided for.21
The Act restricts the conditions for exploration,22 quarry23 and other24 permits. It regulates
the transport, sale and processing of minerals,25 and promotes the development of mining
communities, science and mining technology,26and safety and environmental protection.27
The government's share in the agreements is spelled out and allocated,28 taxes and fees are
imposed,29 incentives granted.30 Aside from penalizing certain acts,31 the law likewise
specifies grounds for the cancellation, revocation and termination of agreements and
permits.32
On April 9, 1995, 30 days following its publication on March 10, 1995 in Malaya and Manila
Times, two newspapers of general circulation, R.A. No. 7942 took effect.33 Shortly before the
effectivity of R.A. No. 7942, however, or on March 30, 1995, the President entered into an
FTAA with WMCP covering 99,387 hectares of land in South Cotabato, Sultan Kudarat, Davao
del Sur and North Cotabato.34
x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing
Republic Act No. 7942, the latter being unconstitutional in that it violates Sec. 1, Art. III of the
Constitution;
IV
x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing
Republic Act No. 7942, the latter being unconstitutional in that it allows enjoyment by
foreign citizens as well as fully foreign owned corporations of the nation's marine wealth
contrary to Section 2, paragraph 2 of Article XII of the Constitution;

On August 15, 1995, then DENR Secretary Victor O. Ramos issued DENR Administrative Order V
(DAO) No. 95-23, s. 1995, otherwise known as the Implementing Rules and Regulations of
R.A. No. 7942. This was later repealed by DAO No. 96-40, s. 1996 which was adopted on
x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing
December 20, 1996.
Republic Act No. 7942, the latter being unconstitutional in that it allows priority to foreign
and fully foreign owned corporations in the exploration, development and utilization of
On January 10, 1997, counsels for petitioners sent a letter to the DENR Secretary demanding mineral resources contrary to Article XII of the Constitution;
that the DENR stop the implementation of R.A. No. 7942 and DAO No. 96-40,35 giving the
DENR fifteen days from receipt36 to act thereon. The DENR, however, has yet to respond or
VI
act on petitioners' letter.37

x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing

Petitioners thus filed the present petition for prohibition and mandamus, with a prayer for a
Republic Act No. 7942, the latter being unconstitutional in that it allows the inequitable
temporary restraining order. They allege that at the time of the filing of the petition, 100
sharing of wealth contrary to Sections [sic] 1, paragraph 1, and Section 2, paragraph 4[,]
FTAA applications had already been filed, covering an area of 8.4 million hectares,38 64 of
[Article XII] of the Constitution;
which applications are by fully foreign-owned corporations covering a total of 5.8 million
hectares, and at least one by a fully foreign-owned mining company over offshore areas.39
VII
Petitioners claim that the DENR Secretary acted without or in excess of jurisdiction:
x x x in recommending approval of and implementing the Financial and Technical Assistance
Agreement between the President of the Republic of the Philippines and Western Mining
I
Corporation Philippines Inc. because the same is illegal and unconstitutional.40

x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing

They pray that the Court issue an order:
Republic Act No. 7942, the latter being unconstitutional in that it allows fully foreign owned
corporations to explore, develop, utilize and exploit mineral resources in a manner contrary
to Section 2, paragraph 4, Article XII of the Constitution; (a) Permanently enjoining respondents from acting on any application for Financial
or Technical Assistance Agreements;
II
(b) Declaring the Philippine Mining Act of 1995 or Republic Act No. 7942 as
unconstitutional and null and void;
x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing
Republic Act No. 7942, the latter being unconstitutional in that it allows the taking of private
property without the determination of public use and for just compensation; (c) Declaring the Implementing Rules and Regulations of the Philippine Mining Act
contained in DENR Administrative Order No. 96-40 and all other similar
administrative issuances as unconstitutional and null and void; and
III

(d) Cancelling the Financial and Technical Assistance Agreement issued to Western
Mining Philippines, Inc. as unconstitutional, illegal and null and void.41
Impleaded as public respondents are Ruben Torres, the then Executive Secretary, Victor O.
Ramos, the then DENR Secretary, and Horacio Ramos, Director of the Mines and Geosciences
Bureau of the DENR. Also impleaded is private respondent WMCP, which entered into the
assailed FTAA with the Philippine Government. WMCP is owned by WMC Resources
International Pty., Ltd. (WMC), "a wholly owned subsidiary of Western Mining Corporation
Holdings Limited, a publicly listed major Australian mining and exploration company."42 By
WMCP's information, "it is a 100% owned subsidiary of WMC LIMITED."43
Respondents, aside from meeting petitioners' contentions, argue that the requisites for
judicial inquiry have not been met and that the petition does not comply with the criteria for
prohibition and mandamus. Additionally, respondent WMCP argues that there has been a
violation of the rule on hierarchy of courts.
After petitioners filed their reply, this Court granted due course to the petition. The parties
have since filed their respective memoranda.
WMCP subsequently filed a Manifestation dated September 25, 2002 alleging that on
January 23, 2001, WMC sold all its shares in WMCP to Sagittarius Mines, Inc. (Sagittarius), a
corporation organized under Philippine laws.44WMCP was subsequently renamed "Tampakan
Mineral Resources Corporation."45 WMCP claims that at least 60% of the equity of Sagittarius
is owned by Filipinos and/or Filipino-owned corporations while about 40% is owned by
Indophil Resources NL, an Australian company.46 It further claims that by such sale and
transfer of shares, "WMCP has ceased to be connected in any way with WMC."47
By virtue of such sale and transfer, the DENR Secretary, by Order of December 18,
2001,48 approved the transfer and registration of the subject FTAA from WMCP to
Sagittarius. Said Order, however, was appealed by Lepanto Consolidated Mining Co.
(Lepanto) to the Office of the President which upheld it by Decision of July 23, 2002.49 Its
motion for reconsideration having been denied by the Office of the President by Resolution
of November 12, 2002,50 Lepanto filed a petition for review51 before the Court of Appeals.
Incidentally, two other petitions for review related to the approval of the transfer and
registration of the FTAA to Sagittarius were recently resolved by this Court.52
It bears stressing that this case has not been rendered moot either by the transfer and
registration of the FTAA to a Filipino-owned corporation or by the non-issuance of a
temporary restraining order or a preliminary injunction to stay the above-said July 23, 2002
decision of the Office of the President.53 The validity of the transfer remains in dispute and
awaits final judicial determination. This assumes, of course, that such transfer cures the
FTAA's alleged unconstitutionality, on which question judgment is reserved.
WMCP also points out that the original claimowners of the major mineralized areas included
in the WMCP FTAA, namely, Sagittarius, Tampakan Mining Corporation, and Southcot Mining
Corporation, are all Filipino-owned corporations,54 each of which was a holder of an
approved Mineral Production Sharing Agreement awarded in 1994, albeit their respective
mineral claims were subsumed in the WMCP FTAA;55 and that these three companies are the
same companies that consolidated their interests in Sagittarius to whom WMC sold its 100%
equity in WMCP.56 WMCP concludes that in the event that the FTAA is invalidated, the
MPSAs of the three corporations would be revived and the mineral claims would revert to
their original claimants.57
These circumstances, while informative, are hardly significant in the resolution of this case, it
involving the validity of the FTAA, not the possible consequences of its invalidation.
Of the above-enumerated seven grounds cited by petitioners, as will be shown later, only the
first and the last need be delved into; in the latter, the discussion shall dwell only insofar as it
questions the effectivity of E. O. No. 279 by virtue of which order the questioned FTAA was
forged.
I
Before going into the substantive issues, the procedural questions posed by respondents
shall first be tackled.
REQUISITES FOR JUDICIAL REVIEW
When an issue of constitutionality is raised, this Court can exercise its power of judicial
review only if the following requisites are present:
(1) The existence of an actual and appropriate case;
(2) A personal and substantial interest of the party raising the constitutional
question;
(3) The exercise of judicial review is pleaded at the earliest opportunity; and
(4) The constitutional question is the lis mota of the case. 58
Respondents claim that the first three requisites are not present.
Section 1, Article VIII of the Constitution states that "(j)udicial power includes the duty of the
courts of justice to settle actual controversies involving rights which are legally demandable
and enforceable." The power of judicial review, therefore, is limited to the determination of
actual cases and controversies.59
An actual case or controversy means an existing case or controversy that is appropriate or
ripe for determination, not conjectural or anticipatory,60 lest the decision of the court would
amount to an advisory opinion.61 The power does not extend to hypothetical
questions62 since any attempt at abstraction could only lead to dialectics and barren legal
questions and to sterile conclusions unrelated to actualities.63
"Legal standing" or locus standi has been defined as a personal and substantial interest in the
case such that the party has sustained or will sustain direct injury as a result of the
governmental act that is being challenged,64alleging more than a generalized grievance.65 The
gist of the question of standing is whether a party alleges "such personal stake in the
outcome of the controversy as to assure that concrete adverseness which sharpens the
presentation of issues upon which the court depends for illumination of difficult
constitutional questions."66 Unless a person is injuriously affected in any of his constitutional
rights by the operation of statute or ordinance, he has no standing.67
Petitioners traverse a wide range of sectors. Among them are La Bugal B'laan Tribal
Association, Inc., a farmers and indigenous people's cooperative organized under Philippine
laws representing a community actually affected by the mining activities of WMCP, members
of said cooperative,68 as well as other residents of areas also affected by the mining activities
of WMCP.69 These petitioners have standing to raise the constitutionality of the questioned
FTAA as they allege a personal and substantial injury. They claim that they would suffer
"irremediable displacement"70 as a result of the implementation of the FTAA allowing WMCP
to conduct mining activities in their area of residence. They thus meet the appropriate case
requirement as they assert an interest adverse to that of respondents who, on the other
hand, insist on the FTAA's validity.
In view of the alleged impending injury, petitioners also have standing to assail the validity of
E.O. No. 279, by authority of which the FTAA was executed.
Public respondents maintain that petitioners, being strangers to the FTAA, cannot sue either
or both contracting parties to annul it.71 In other words, they contend that petitioners are
not real parties in interest in an action for the annulment of contract.
Public respondents' contention fails. The present action is not merely one for annulment of
contract but for prohibition and mandamus. Petitioners allege that public respondents acted
without or in excess of jurisdiction in implementing the FTAA, which they submit is
unconstitutional. As the case involves constitutional questions, this Court is not concerned
with whether petitioners are real parties in interest, but with whether they have legal
standing. As held in Kilosbayan v. Morato:72
x x x. "It is important to note . . . that standing because of its constitutional and public policy
underpinnings, is very different from questions relating to whether a particular plaintiff is the
real party in interest or has capacity to sue. Although all three requirements are directed
towards ensuring that only certain parties can maintain an action, standing restrictions
require a partial consideration of the merits, as well as broader policy concerns relating to
the proper role of the judiciary in certain areas.["] (FRIEDENTHAL, KANE AND MILLER, CIVIL
PROCEDURE 328 [1985])
Standing is a special concern in constitutional law because in some cases suits are brought
not by parties who have been personally injured by the operation of a law or by official
action taken, but by concerned citizens, taxpayers or voters who actually sue in the public
interest. Hence, the question in 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." (Baker v. Carr, 369 U.S. 186, 7 L.Ed.2d 633
[1962].)
As earlier stated, petitioners meet this requirement.
The challenge against the constitutionality of R.A. No. 7942 and DAO No. 96-40 likewise
fulfills the requisites of justiciability. Although these laws were not in force when the subject
FTAA was entered into, the question as to their validity is ripe for adjudication.
The WMCP FTAA provides:
14.3 Future Legislation
Any term and condition more favourable to Financial &Technical Assistance Agreement
contractors resulting from repeal or amendment of any existing law or regulation or from the
enactment of a law, regulation or administrative order shall be considered a part of this
Agreement.
It is undisputed that R.A. No. 7942 and DAO No. 96-40 contain provisions that are more
favorable to WMCP, hence, these laws, to the extent that they are favorable to WMCP,
govern the FTAA.
In addition, R.A. No. 7942 explicitly makes certain provisions apply to pre-existing
agreements.
SEC. 112. Non-impairment of Existing Mining/Quarrying Rights. – x x x That the provisions of
Chapter XIV on government share in mineral production-sharing agreement and of Chapter
XVI on incentives of this Act shall immediately govern and apply to a mining lessee or
contractor unless the mining lessee or contractor indicates his intention to the secretary, in
writing, not to avail of said provisions x x x Provided, finally, That such leases, production-
sharing agreements, financial or technical assistance agreements shall comply with the
applicable provisions of this Act and its implementing rules and regulations.
As there is no suggestion that WMCP has indicated its intention not to avail of the provisions
of Chapter XVI of R.A. No. 7942, it can safely be presumed that they apply to the WMCP
FTAA.
Misconstruing the application of the third requisite for judicial review – that the exercise of
the review is pleaded at the earliest opportunity – WMCP points out that the petition was
filed only almost two years after the execution of the FTAA, hence, not raised at the earliest
opportunity.
The third requisite should not be taken to mean that the question of constitutionality must
be raised immediately after the execution of the state action complained of. That the
question of constitutionality has not been raised before is not a valid reason for refusing to
allow it to be raised later.73 A contrary rule would mean that a law, otherwise
unconstitutional, would lapse into constitutionality by the mere failure of the proper party to
promptly file a case to challenge the same.
PROPRIETY OF PROHIBITION AND MANDAMUS
Before the effectivity in July 1997 of the Revised Rules of Civil Procedure, Section 2 of Rule 65
read:
SEC. 2. Petition for prohibition. – When the proceedings of any tribunal, corporation, board,
or person, whether exercising functions judicial or ministerial, are without or in excess of its
or his jurisdiction, or with grave abuse of discretion, and there is no appeal or any other
plain, speedy, and adequate remedy in the ordinary course of law, a person aggrieved
thereby may file a verified petition in the proper court alleging the facts with certainty and
praying that judgment be rendered commanding the defendant to desist from further
proceeding in the action or matter specified therein.
Prohibition is a preventive remedy.74 It seeks a judgment ordering the defendant to desist
from continuing with the commission of an act perceived to be illegal.75
The petition for prohibition at bar is thus an appropriate remedy. While the execution of the
contract itself may be fait accompli, its implementation is not. Public respondents, in behalf
of the Government, have obligations to fulfill under said contract. Petitioners seek to prevent
them from fulfilling such obligations on the theory that the contract is unconstitutional and,
therefore, void.
The propriety of a petition for prohibition being upheld, discussion of the propriety of the
mandamus aspect of the petition is rendered unnecessary.
HIERARCHY OF COURTS
The contention that the filing of this petition violated the rule on hierarchy of courts does not
likewise lie. The rule has been explained thus:
Between two courts of concurrent original jurisdiction, it is the lower court that should
initially pass upon the issues of a case. That way, as a particular case goes through the
hierarchy of courts, it is shorn of all but the important legal issues or those of first
impression, which are the proper subject of attention of the appellate court. This is a
procedural rule borne of experience and adopted to improve the administration of justice.
This Court has consistently enjoined litigants to respect the hierarchy of courts. Although this
Court has concurrent jurisdiction with the Regional Trial Courts and the Court of Appeals to
issue writs of certiorari, prohibition, mandamus, quo warranto, habeas corpus and
injunction, such concurrence does not give a party unrestricted freedom of choice of court
forum. The resort to this Court's primary jurisdiction to issue said writs shall be allowed only
where the redress desired cannot be obtained in the appropriate courts or where
exceptional and compelling circumstances justify such invocation. We held in People v.
Cuaresma that:
A becoming regard for judicial hierarchy most certainly indicates that petitions for the
issuance of extraordinary writs against first level ("inferior") courts should be filed with the
Regional Trial Court, and those against the latter, with the Court of Appeals. A direct
invocation of the Supreme Court's original jurisdiction to issue these writs should be allowed
only where there are special and important reasons therefor, clearly and specifically set out
in the petition. This is established policy. It is a policy necessary to prevent inordinate
demands upon the Court's time and attention which are better devoted to those matters
within its exclusive jurisdiction, and to prevent further over-crowding of the Court's docket x
x x.76 [Emphasis supplied.]
The repercussions of the issues in this case on the Philippine mining industry, if not the
national economy, as well as the novelty thereof, constitute exceptional and compelling
circumstances to justify resort to this Court in the first instance.
In all events, this Court has the discretion to take cognizance of a suit which does not satisfy
the requirements of an actual case or legal standing when paramount public interest is
involved.77 When the issues raised are of paramount importance to the public, this Court
may brush aside technicalities of procedure.78
II
Petitioners contend that E.O. No. 279 did not take effect because its supposed date of
effectivity came after President Aquino had already lost her legislative powers under the
Provisional Constitution.
And they likewise claim that the WMC FTAA, which was entered into pursuant to E.O. No.
279, violates Section 2, Article XII of the Constitution because, among other reasons:
(1) It allows foreign-owned companies to extend more than mere financial or
technical assistance to the State in the exploitation, development, and utilization of
minerals, petroleum, and other mineral oils, and even permits foreign owned
companies to "operate and manage mining activities."
(2) It allows foreign-owned companies to extend both technical and financial
assistance, instead of "either technical or financial assistance."
To appreciate the import of these issues, a visit to the history of the pertinent constitutional
provision, the concepts contained therein, and the laws enacted pursuant thereto, is in
order.
Section 2, Article XII reads in full:
Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral
oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and
other natural resources are owned by the State. With the exception of agricultural lands, all
other natural resources shall not be alienated. The exploration, development, and utilization
of natural resources shall be under the full control and supervision of the State. The State
may directly undertake such activities or it may enter into co-production, joint venture, or
production-sharing agreements with Filipino citizens, or corporations or associations at least
sixty per centum of whose capital is owned by such citizens. Such agreements may be for a
period not exceeding twenty-five years, renewable for not more than twenty-five years, and
under such terms and conditions as may be provided by law. In cases of water rights for
irrigation, water supply, fisheries, or industrial uses other than the development of water
power, beneficial use may be the measure and limit of the grant.
The State shall protect the 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.
THE SPANISH REGIME AND THE REGALIAN DOCTRINE
The first sentence of Section 2 embodies the Regalian doctrine or jura regalia. Introduced by
Spain into these Islands, this feudal concept is based on the State's power of dominium,
which is the capacity of the State to own or acquire property.79
In its broad sense, the term "jura regalia" refers to royal rights, or those rights which the King
has by virtue of his prerogatives. In Spanish law, it refers to a right which the sovereign has
over anything in which a subject has a right of property or propriedad. These were rights
enjoyed during feudal times by the king as the sovereign.
The theory of the feudal system was that title to all lands was originally held by the King, and
while the use of lands was granted out to others who were permitted to hold them under
certain conditions, the King theoretically retained the title. By fiction of law, the King was
regarded as the original proprietor of all lands, and the true and only source of title, and from
him all lands were held. The theory of jura regalia was therefore nothing more than a natural
fruit of conquest.80
The Philippines having passed to Spain by virtue of discovery and conquest,81 earlier Spanish
decrees declared that "all lands were held from the Crown."82
The Regalian doctrine extends not only to land but also to "all natural wealth that may be
found in the bowels of the earth."83 Spain, in particular, recognized the unique value of
natural resources, viewing them, especially minerals, as an abundant source of revenue to
finance its wars against other nations.84 Mining laws during the Spanish regime reflected this
perspective.85
THE AMERICAN OCCUPATION AND THE CONCESSION REGIME
By the Treaty of Paris of December 10, 1898, Spain ceded "the archipelago known as the
Philippine Islands" to the United States. The Philippines was hence governed by means of
organic acts that were in the nature of charters serving as a Constitution of the occupied
territory from 1900 to 1935.86 Among the principal organic acts of the Philippines was the Act
of Congress of July 1, 1902, more commonly known as the Philippine Bill of 1902, through
which the United States Congress assumed the administration of the Philippine
Islands.87 Section 20 of said Bill reserved the disposition of mineral lands of the public domain
from sale. Section 21 thereof allowed the free and open exploration, occupation and
purchase of mineral deposits not only to citizens of the Philippine Islands but to those of the
United States as well:
Sec. 21. That all valuable mineral deposits in public lands in the Philippine Islands, both
surveyed and unsurveyed, are hereby declared to be free and open to exploration,
occupation and purchase, and the land in which they are found, to occupation and purchase,
by citizens of the United States or of said Islands: Provided, That when on any lands in said
Islands entered and occupied as agricultural lands under the provisions of this Act, but not
patented, mineral deposits have been found, the working of such mineral deposits is
forbidden until the person, association, or corporation who or which has entered and is
occupying such lands shall have paid to the Government of said Islands such additional sum
or sums as will make the total amount paid for the mineral claim or claims in which said
deposits are located equal to the amount charged by the Government for the same as
mineral claims.
Unlike Spain, the United States considered natural resources as a source of wealth for its
nationals and saw fit to allow both Filipino and American citizens to explore and exploit
minerals in public lands, and to grant patents to private mineral lands.88 A person who
acquired ownership over a parcel of private mineral land pursuant to the laws then prevailing
could exclude other persons, even the State, from exploiting minerals within his
property.89 Thus, earlier jurisprudence90 held that:
A valid and subsisting location of mineral land, made and kept up in accordance with the
provisions of the statutes of the United States, has the effect of a grant by the United States
of the present and exclusive possession of the lands located, and this exclusive right of
possession and enjoyment continues during the entire life of the location. x x x.
x x x.
The discovery of minerals in the ground by one who has a valid mineral location perfects his
claim and his location not only against third persons, but also against the Government. x x x.
[Italics in the original.]
The Regalian doctrine and the American system, therefore, differ in one essential respect.
Under the Regalian theory, mineral rights are not included in a grant of land by the state;
under the American doctrine, mineral rights are included in a grant of land by the
government.91
Section 21 also made possible the concession (frequently styled "permit", license" or
"lease")92 system.93 This was the traditional regime imposed by the colonial administrators
for the exploitation of natural resources in the extractive sector (petroleum, hard minerals,
timber, etc.).94
Under the concession system, the concessionaire makes a direct equity investment for the
purpose of exploiting a particular natural resource within a given area.95 Thus, the concession
amounts to complete control by the concessionaire over the country's natural resource, for it
is given exclusive and plenary rights to exploit a particular resource at the point of
extraction.96 In consideration for the right to exploit a natural resource, the concessionaire
either pays rent or royalty, which is a fixed percentage of the gross proceeds.97
Later statutory enactments by the legislative bodies set up in the Philippines adopted the
contractual framework of the concession.98 For instance, Act No. 2932,99 approved on August
31, 1920, which provided for the exploration, location, and lease of lands containing
petroleum and other mineral oils and gas in the Philippines, and Act No. 2719,100 approved
on May 14, 1917, which provided for the leasing and development of coal lands in the
Philippines, both utilized the concession system.101
THE 1935 CONSTITUTION AND THE NATIONALIZATION OF NATURAL RESOURCES
By the Act of United States Congress of March 24, 1934, popularly known as the Tydings-
McDuffie Law, the People of the Philippine Islands were authorized to adopt a
constitution.102 On July 30, 1934, the Constitutional Convention met for the purpose of
drafting a constitution, and the Constitution subsequently drafted was approved by the
Convention on February 8, 1935.103 The Constitution was submitted to the President of the
United States on March 18, 1935.104 On March 23, 1935, the President of the United States
certified that the Constitution conformed substantially with the provisions of the Act of
Congress approved on March 24, 1934.105 On May 14, 1935, the Constitution was ratified by
the Filipino people.106
The 1935 Constitution adopted the Regalian doctrine, declaring all natural resources of the
Philippines, including mineral lands and minerals, to be property belonging to the State.107 As
adopted in a republican system, the medieval concept of jura regalia is stripped of royal
overtones and ownership of the land is vested in the State.108
Section 1, Article XIII, on Conservation and Utilization of Natural Resources, of the 1935
Constitution provided:
SECTION 1. All agricultural, timber, and mineral lands of the public domain, waters,
minerals, coal, petroleum, and other mineral oils, all forces of potential energy, and
other natural resources of the Philippines belong to the State, and their disposition,
exploitation, development, or utilization shall be limited to citizens of the
Philippines, or to corporations or associations at least sixty per centum of the
capital of which is owned by such citizens, subject to any existing right, grant, lease,
or concession at the time of the inauguration of the Government established under
this Constitution. Natural resources, with the exception of public agricultural land,
shall not be alienated, and no license, concession, or lease for the exploitation,
development, or utilization of any of the natural resources shall be granted for a
period exceeding twenty-five years, except as to water rights for irrigation, water
supply, fisheries, or industrial uses other than the development of water power, in
which cases beneficial use may be the measure and the limit of the grant.
The nationalization and conservation of the natural resources of the country was one of the
fixed and dominating objectives of the 1935 Constitutional Convention.109 One delegate
relates:
There was an overwhelming sentiment in the Convention in favor of the principle of state
ownership of natural resources and the adoption of the Regalian doctrine. State ownership
of natural resources was seen as a necessary starting point to secure recognition of the
state's power to control their disposition, exploitation, development, or utilization. The
delegates of the Constitutional Convention very well knew that the concept of State
ownership of land and natural resources was introduced by the Spaniards, however, they
were not certain whether it was continued and applied by the Americans. To remove all
doubts, the Convention approved the provision in the Constitution affirming the Regalian
doctrine.
The adoption of the principle of state ownership of the natural resources and of the Regalian
doctrine was considered to be a necessary starting point for the plan of nationalizing and
conserving the natural resources of the country. For with the establishment of the principle
of state ownership of the natural resources, it would not be hard to secure the recognition of
the power of the State to control their disposition, exploitation, development or
utilization.110
The nationalization of the natural resources was intended (1) to insure their conservation for
Filipino posterity; (2) to serve as an instrument of national defense, helping prevent the
extension to the country of foreign control through peaceful economic penetration; and (3)
to avoid making the Philippines a source of international conflicts with the consequent
danger to its internal security and independence.111
The same Section 1, Article XIII also adopted the concession system, expressly permitting the
State to grant licenses, concessions, or leases for the exploitation, development, or utilization
of any of the natural resources. Grants, however, were limited to Filipinos or entities at least
60% of the capital of which is owned by Filipinos.lawph!l.ne+
The swell of nationalism that suffused the 1935 Constitution was radically diluted when on
November 1946, the Parity Amendment, which came in the form of an "Ordinance Appended
to the Constitution," was ratified in a plebiscite.112 The Amendment extended, from July 4,
1946 to July 3, 1974, the right to utilize and exploit our natural resources to citizens of the
United States and business enterprises owned or controlled, directly or indirectly, by citizens
of the United States:113
Notwithstanding the provision of section one, Article Thirteen, and section eight, Article
Fourteen, of the foregoing Constitution, during the effectivity of the Executive Agreement
entered into by the President of the Philippines with the President of the United States on
the fourth of July, nineteen hundred and forty-six, pursuant to the provisions of
Commonwealth Act Numbered Seven hundred and thirty-three, but in no case to extend
beyond the third of July, nineteen hundred and seventy-four, the disposition, exploitation,
development, and utilization of all agricultural, timber, and mineral lands of the public
domain, waters, minerals, coals, petroleum, and other mineral oils, all forces and sources of
potential energy, and other natural resources of the Philippines, and the operation of public
utilities, shall, if open to any person, be open to citizens of the United States and to all forms
of business enterprise owned or controlled, directly or indirectly, by citizens of the United
States in the same manner as to, and under the same conditions imposed upon, citizens of
the Philippines or corporations or associations owned or controlled by citizens of the
Philippines.
The Parity Amendment was subsequently modified by the 1954 Revised Trade Agreement,
also known as the Laurel-Langley Agreement, embodied in Republic Act No. 1355.114
THE PETROLEUM ACT OF 1949 AND THE CONCESSION SYSTEM
In the meantime, Republic Act No. 387,115 also known as the Petroleum Act of 1949, was
approved on June 18, 1949.
The Petroleum Act of 1949 employed the concession system for the exploitation of the
nation's petroleum resources. Among the kinds of concessions it sanctioned were
exploration and exploitation concessions, which respectively granted to the concessionaire
the exclusive right to explore for116 or develop117 petroleum within specified areas.
Concessions may be granted only to duly qualified persons118 who have sufficient finances,
organization, resources, technical competence, and skills necessary to conduct the
operations to be undertaken.119
Nevertheless, the Government reserved the right to undertake such work itself.120 This
proceeded from the theory that all natural deposits or occurrences of petroleum or natural
gas in public and/or private lands in the Philippines belong to the State.121 Exploration and
exploitation concessions did not confer upon the concessionaire ownership over the
petroleum lands and petroleum deposits.122 However, they did grant concessionaires the
right to explore, develop, exploit, and utilize them for the period and under the conditions
determined by the law.123
Concessions were granted at the complete risk of the concessionaire; the Government did
not guarantee the existence of petroleum or undertake, in any case, title warranty.124
Concessionaires were required to submit information as maybe required by the Secretary of
Agriculture and Natural Resources, including reports of geological and geophysical
examinations, as well as production reports.125Exploration126 and
exploitation127 concessionaires were also required to submit work programs.lavvphi1.net
Exploitation concessionaires, in particular, were obliged to pay an annual exploitation
tax,128 the object of which is to induce the concessionaire to actually produce petroleum, and
not simply to sit on the concession without developing or exploiting it.129 These
concessionaires were also bound to pay the Government royalty, which was not less than
12½% of the petroleum produced and saved, less that consumed in the operations of the
concessionaire.130 Under Article 66, R.A. No. 387, the exploitation tax may be credited
against the royalties so that if the concessionaire shall be actually producing enough oil, it
would not actually be paying the exploitation tax.131
Failure to pay the annual exploitation tax for two consecutive years,132 or the royalty due to
the Government within one year from the date it becomes due,133 constituted grounds for
the cancellation of the concession. In case of delay in the payment of the taxes or royalty
imposed by the law or by the concession, a surcharge of 1% per month is exacted until the
same are paid.134
As a rule, title rights to all equipment and structures that the concessionaire placed on the
land belong to the exploration or exploitation concessionaire.135 Upon termination of such
concession, the concessionaire had a right to remove the same. 136
The Secretary of Agriculture and Natural Resources was tasked with carrying out the
provisions of the law, through the Director of Mines, who acted under the Secretary's
immediate supervision and control.137 The Act granted the Secretary the authority to inspect
any operation of the concessionaire and to examine all the books and accounts pertaining to
operations or conditions related to payment of taxes and royalties.138
The same law authorized the Secretary to create an Administration Unit and a Technical
Board.139 The Administration Unit was charged, inter alia, with the enforcement of the
provisions of the law.140 The Technical Board had, among other functions, the duty to check
on the performance of concessionaires and to determine whether the obligations imposed
by the Act and its implementing regulations were being complied with.141
Victorio Mario A. Dimagiba, Chief Legal Officer of the Bureau of Energy Development,
analyzed the benefits and drawbacks of the concession system insofar as it applied to the
petroleum industry:
Advantages of Concession. Whether it emphasizes income tax or royalty, the most positive
aspect of the concession system is that the State's financial involvement is virtually risk free
and administration is simple and comparatively low in cost. Furthermore, if there is a
competitive allocation of the resource leading to substantial bonuses and/or greater royalty
coupled with a relatively high level of taxation, revenue accruing to the State under the
concession system may compare favorably with other financial arrangements.
Disadvantages of Concession. There are, however, major negative aspects to this system.
Because the Government's role in the traditional concession is passive, it is at a distinct
disadvantage in managing and developing policy for the nation's petroleum resource. This is
true for several reasons. First, even though most concession agreements contain covenants
requiring diligence in operations and production, this establishes only an indirect and passive
control of the host country in resource development. Second, and more importantly, the fact
that the host country does not directly participate in resource management decisions inhibits
its ability to train and employ its nationals in petroleum development. This factor could delay
or prevent the country from effectively engaging in the development of its resources. Lastly,
a direct role in management is usually necessary in order to obtain a knowledge of the
international petroleum industry which is important to an appreciation of the host country's
resources in relation to those of other countries.142
Other liabilities of the system have also been noted:
x x x there are functional implications which give the concessionaire great economic power
arising from its exclusive equity holding. This includes, first, appropriation of the returns of
the undertaking, subject to a modest royalty; second, exclusive management of the project;
third, control of production of the natural resource, such as volume of production,
expansion, research and development; and fourth, exclusive responsibility for downstream
operations, like processing, marketing, and distribution. In short, even if nominally, the state
is the sovereign and owner of the natural resource being exploited, it has been shorn of all
elements of control over such natural resource because of the exclusive nature of the
contractual regime of the concession. The concession system, investing as it does ownership
of natural resources, constitutes a consistent inconsistency with the principle embodied in
our Constitution that natural resources belong to the state and shall not be alienated, not to
mention the fact that the concession was the bedrock of the colonial system in the
exploitation of natural resources.143
Eventually, the concession system failed for reasons explained by Dimagiba:
Notwithstanding the good intentions of the Petroleum Act of 1949, the concession system
could not have properly spurred sustained oil exploration activities in the country, since it
assumed that such a capital-intensive, high risk venture could be successfully undertaken by
a single individual or a small company. In effect, concessionaires' funds were easily
exhausted. Moreover, since the concession system practically closed its doors to interested
foreign investors, local capital was stretched to the limits. The old system also failed to
consider the highly sophisticated technology and expertise required, which would be
available only to multinational companies.144
A shift to a new regime for the development of natural resources thus seemed imminent.
PRESIDENTIAL DECREE NO. 87, THE 1973 CONSTITUTION AND THE SERVICE CONTRACT
SYSTEM
The promulgation on December 31, 1972 of Presidential Decree No. 87,145 otherwise known
as The Oil Exploration and Development Act of 1972 signaled such a transformation. P.D. No.
87 permitted the government to explore for and produce indigenous petroleum through
"service contracts."146
"Service contracts" is a term that assumes varying meanings to different people, and it has
carried many names in different countries, like "work contracts" in Indonesia, "concession
agreements" in Africa, "production-sharing agreements" in the Middle East, and
"participation agreements" in Latin America.147 A functional definition of "service contracts"
in the Philippines is provided as follows:
A service contract is a contractual arrangement for engaging in the exploitation and
development of petroleum, mineral, energy, land and other natural resources by which a
government or its agency, or a private person granted a right or privilege by the government
authorizes the other party (service contractor) to engage or participate in the exercise of
such right or the enjoyment of the privilege, in that the latter provides financial or technical
resources, undertakes the exploitation or production of a given resource, or directly manages
the productive enterprise, operations of the exploration and exploitation of the resources or
the disposition of marketing or resources.148
In a service contract under P.D. No. 87, service and technology are furnished by the service
contractor for which it shall be entitled to the stipulated service fee.149 The contractor must
be technically competent and financially capable to undertake the operations required in the
contract.150
Financing is supposed to be provided by the Government to which all petroleum produced
belongs.151 In case the Government is unable to finance petroleum exploration operations,
the contractor may furnish services, technology and financing, and the proceeds of sale of
the petroleum produced under the contract shall be the source of funds for payment of the
service fee and the operating expenses due the contractor.152 The contractor shall undertake,
manage and execute petroleum operations, subject to the government overseeing the
management of the operations.153 The contractor provides all necessary services and
technology and the requisite financing, performs the exploration work obligations, and
assumes all exploration risks such that if no petroleum is produced, it will not be entitled to
reimbursement.154 Once petroleum in commercial quantity is discovered, the contractor shall
operate the field on behalf of the government.155
P.D. No. 87 prescribed minimum terms and conditions for every service contract.156 It also
granted the contractor certain privileges, including exemption from taxes and payment of
tariff duties,157 and permitted the repatriation of capital and retention of profits abroad.158
Ostensibly, the service contract system had certain advantages over the concession
regime.159 It has been opined, though, that, in the Philippines, our concept of a service
contract, at least in the petroleum industry, was basically a concession regime with a
production-sharing element.160
On January 17, 1973, then President Ferdinand E. Marcos proclaimed the ratification of a
new Constitution.161Article XIV on the National Economy and Patrimony contained provisions
similar to the 1935 Constitution with regard to Filipino participation in the nation's natural
resources. Section 8, Article XIV thereof provides:
Sec. 8. All lands of the public domain, waters, minerals, coal, petroleum and other mineral
oils, all forces of potential energy, fisheries, wildlife, and other natural resources of the
Philippines belong to the State. With the exception of agricultural, industrial or commercial,
residential and resettlement lands of the public domain, natural resources shall not be
alienated, and no license, concession, or lease for the exploration, development,
exploitation, or utilization of any of the natural resources shall be granted for a period
exceeding twenty-five years, renewable for not more than twenty-five years, except as to
water rights for irrigation, water supply, fisheries, or industrial uses other than the
development of water power, in which cases beneficial use may be the measure and the limit
of the grant.
While Section 9 of the same Article maintained the Filipino-only policy in the enjoyment of
natural resources, it also allowed Filipinos, upon authority of the Batasang Pambansa, to
enter into service contracts with any person or entity for the exploration or utilization of
natural resources.
Sec. 9. The disposition, exploration, development, exploitation, or utilization of any of the
natural resources of the Philippines shall be limited to citizens, or to corporations or
associations at least sixty per centum of which is owned by such citizens. The Batasang
Pambansa, in the national interest, may allow such citizens, corporations or associations to
enter into service contracts for financial, technical, management, or other forms of
assistance with any person or entity for the exploration, or utilization of any of the natural
resources. Existing valid and binding service contracts for financial, technical, management,
or other forms of assistance are hereby recognized as such. [Emphasis supplied.]
The concept of service contracts, according to one delegate, was borrowed from the
methods followed by India, Pakistan and especially Indonesia in the exploration of petroleum
and mineral oils.162 The provision allowing such contracts, according to another, was
intended to "enhance the proper development of our natural resources since Filipino citizens
lack the needed capital and technical know-how which are essential in the proper
exploration, development and exploitation of the natural resources of the country."163
The original idea was to authorize the government, not private entities, to enter into service
contracts with foreign entities.164 As finally approved, however, a citizen or private entity
could be allowed by the National Assembly to enter into such service contract.165 The prior
approval of the National Assembly was deemed sufficient to protect the national
interest.166 Notably, none of the laws allowing service contracts were passed by the Batasang
Pambansa. Indeed, all of them were enacted by presidential decree.
On March 13, 1973, shortly after the ratification of the new Constitution, the President
promulgated Presidential Decree No. 151.167 The law allowed Filipino citizens or entities
which have acquired lands of the public domain or which own, hold or control such lands to
enter into service contracts for financial, technical, management or other forms of assistance
with any foreign persons or entity for the exploration, development, exploitation or
utilization of said lands.168
Presidential Decree No. 463,169 also known as The Mineral Resources Development Decree of
1974, was enacted on May 17, 1974. Section 44 of the decree, as amended, provided that a
lessee of a mining claim may enter into a service contract with a qualified domestic or foreign
contractor for the exploration, development and exploitation of his claims and the processing
and marketing of the product thereof.
Presidential Decree No. 704170 (The Fisheries Decree of 1975), approved on May 16, 1975,
allowed Filipinos engaged in commercial fishing to enter into contracts for financial, technical
or other forms of assistance with any foreign person, corporation or entity for the
production, storage, marketing and processing of fish and fishery/aquatic products.171
Presidential Decree No. 705172 (The Revised Forestry Code of the Philippines), approved on
May 19, 1975, allowed "forest products licensees, lessees, or permitees to enter into service
contracts for financial, technical, management, or other forms of assistance . . . with any
foreign person or entity for the exploration, development, exploitation or utilization of the
forest resources."173
Yet another law allowing service contracts, this time for geothermal resources, was
Presidential Decree No. 1442,174 which was signed into law on June 11, 1978. Section 1
thereof authorized the Government to enter into service contracts for the exploration,
exploitation and development of geothermal resources with a foreign contractor who must
be technically and financially capable of undertaking the operations required in the service
contract.
Thus, virtually the entire range of the country's natural resources –from petroleum and
minerals to geothermal energy, from public lands and forest resources to fishery products –
was well covered by apparent legal authority to engage in the direct participation or
involvement of foreign persons or corporations (otherwise disqualified) in the exploration
and utilization of natural resources through service contracts.175
THE 1987 CONSTITUTION AND TECHNICAL OR FINANCIAL ASSISTANCE AGREEMENTS
After the February 1986 Edsa Revolution, Corazon C. Aquino took the reins of power under a
revolutionary government. On March 25, 1986, President Aquino issued Proclamation No.
3,176 promulgating the Provisional Constitution, more popularly referred to as the Freedom
Constitution. By authority of the same Proclamation, the President created a Constitutional
Commission (CONCOM) to draft a new constitution, which took effect on the date of its
ratification on February 2, 1987.177
The 1987 Constitution retained the Regalian doctrine. The first sentence of Section 2, Article
XII states: "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."
Like the 1935 and 1973 Constitutions before it, the 1987 Constitution, in the second sentence
of the same provision, prohibits the alienation of natural resources, except agricultural lands.
The third sentence of the same paragraph is new: "The exploration, development and
utilization of natural resources shall be under the full control and supervision of the State."
The constitutional policy of the State's "full control and supervision" over natural resources
proceeds from the concept of jura regalia, as well as the recognition of the importance of the
country's natural resources, not only for national economic development, but also for its
security and national defense.178 Under this provision, the State assumes "a more dynamic
role" in the exploration, development and utilization of natural resources.179
Conspicuously absent in Section 2 is the provision in the 1935 and 1973 Constitutions
authorizing the State to grant licenses, concessions, or leases for the exploration,
exploitation, development, or utilization of natural resources. By such omission, the
utilization of inalienable lands of public domain through "license, concession or lease" is no
longer allowed under the 1987 Constitution.180
Having omitted the provision on the concession system, Section 2 proceeded to introduce
"unfamiliar language":181
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.
Consonant with the State's "full supervision and control" over natural resources, Section 2
offers the State two "options."182 One, the State may directly undertake these activities itself;
or two, it may enter into co-production, joint venture, or production-sharing agreements
with Filipino citizens, or entities at least 60% of whose capital is owned by such citizens.
A third option is found in the third paragraph of the same section:
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.
While the second and third options are limited only to Filipino citizens or, in the case of the
former, to corporations or associations at least 60% of the capital of which is owned by
Filipinos, a fourth allows the participation of foreign-owned corporations. The fourth and
fifth paragraphs of Section 2 provide:
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.
Although Section 2 sanctions the participation of foreign-owned corporations in the
exploration, development, and utilization of natural resources, it imposes certain limitations
or conditions to agreements with such corporations.
First, the parties to FTAAs. Only the President, in behalf of the State, may enter into
these agreements, and only with corporations. By contrast, under the 1973
Constitution, a Filipino citizen, corporation or association may enter into a service
contract with a "foreign person or entity."
Second, the size of the activities: only large-scale exploration, development, and
utilization is allowed. The term "large-scale usually refers to very capital-intensive
activities."183
Third, the natural resources subject of the activities is restricted to minerals,
petroleum and other mineral oils, the intent being to limit service contracts to
those areas where Filipino capital may not be sufficient.184
Fourth, consistency with the provisions of statute. The agreements must be in
accordance with the terms and conditions provided by law.
Fifth, Section 2 prescribes certain standards for entering into such agreements. The
agreements must be based on real contributions to economic growth and general
welfare of the country.
Sixth, the agreements must contain rudimentary stipulations for the promotion of
the development and use of local scientific and technical resources.
Seventh, the notification requirement. The President shall notify Congress of every
financial or technical assistance agreement entered into within thirty days from its
execution.
 Finally, the scope of the agreements. While the 1973 Constitution referred to
"service contracts for financial, technical, management, or other forms of
assistance" the 1987 Constitution provides for "agreements. . . involving either
financial or technical assistance." It bears noting that the phrases "service
contracts" and "management or other forms of assistance" in the earlier
constitution have been omitted.
By virtue of her legislative powers under the Provisional Constitution,185 President Aquino, on
July 10, 1987, signed into law E.O. No. 211 prescribing the interim procedures in the
processing and approval of applications for the exploration, development and utilization of
minerals. The omission in the 1987 Constitution of the term "service contracts"
notwithstanding, the said E.O. still referred to them in Section 2 thereof:
Sec. 2. Applications for the exploration, development and utilization of mineral resources,
including renewal applications and applications for approval of operating agreements and
mining service contracts, shall be accepted and processed and may be approved x x x.
[Emphasis supplied.]
The same law provided in its Section 3 that the "processing, evaluation and approval of all
mining applications . . . operating agreements and service contracts . . . shall be governed by
Presidential Decree No. 463, as amended, other existing mining laws, and their implementing
rules and regulations. . . ."
As earlier stated, on the 25th also of July 1987, the President issued E.O. No. 279 by authority
of which the subject WMCP FTAA was executed on March 30, 1995.
On March 3, 1995, President Ramos signed into law R.A. No. 7942. Section 15 thereof
declares that the Act "shall govern the exploration, development, utilization, and processing
of all mineral resources." Such declaration notwithstanding, R.A. No. 7942 does not actually
cover all the modes through which the State may undertake the exploration, development,
and utilization of natural resources.
The State, being the owner of the natural resources, is accorded the primary power and
responsibility in the exploration, development and utilization thereof. As such, it may
undertake these activities through four modes:
The State may directly undertake such activities.
(2) The State may enter into co-production, joint venture or production-sharing
agreements with Filipino citizens or qualified corporations.
(3) Congress may, by law, allow small-scale utilization of natural resources by
Filipino citizens.
(4) For the large-scale exploration, development and utilization of minerals,
petroleum and other mineral oils, the President may enter into agreements with
foreign-owned corporations involving technical or financial assistance.186
Except to charge the Mines and Geosciences Bureau of the DENR with performing researches
and surveys,187 and a passing mention of government-owned or controlled
corporations,188 R.A. No. 7942 does not specify how the State should go about the first mode.
The third mode, on the other hand, is governed by Republic Act No. 7076189(the People's
Small-Scale Mining Act of 1991) and other pertinent laws.190 R.A. No. 7942 primarily concerns
itself with the second and fourth modes.
Mineral production sharing, co-production and joint venture agreements are collectively
classified by R.A. No. 7942 as "mineral agreements."191 The Government participates the
least in a mineral production sharing agreement (MPSA). In an MPSA, the Government grants
the contractor192 the exclusive right to conduct mining operations within a contract
area193 and shares in the gross output.194 The MPSA contractor provides the financing,
technology, management and personnel necessary for the agreement's
implementation.195 The total government share in an MPSA is the excise tax on mineral
products under Republic Act No. 7729,196 amending Section 151(a) of the National Internal
Revenue Code, as amended.197
In a co-production agreement (CA),198 the Government provides inputs to the mining
operations other than the mineral resource,199 while in a joint venture agreement (JVA),
where the Government enjoys the greatest participation, the Government and the JVA
contractor organize a company with both parties having equity shares.200 Aside from
earnings in equity, the Government in a JVA is also entitled to a share in the gross
output.201The Government may enter into a CA202 or JVA203 with one or more contractors.
The Government's share in a CA or JVA is set out in Section 81 of the law:
The share of the Government in co-production and joint venture agreements shall be
negotiated by the Government and the contractor taking into consideration the: (a) capital
investment of the project, (b) the risks involved, (c) contribution of the project to the
economy, and (d) other factors that will provide for a fair and equitable sharing between the
Government and the contractor. The Government shall also be entitled to compensations for
its other contributions which shall be agreed upon by the parties, and shall consist, among
other things, the contractor's 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 stockholders, in case of a foreign national and all such other taxes, duties and
fees as provided for under existing laws.
All mineral agreements grant the respective contractors the exclusive right to conduct mining
operations and to extract all mineral resources found in the contract area.204 A "qualified
person" may enter into any of the mineral agreements with the Government.205 A "qualified
person" is
any citizen of the Philippines with capacity to contract, or a corporation, partnership,
association, or cooperative organized or authorized for the purpose of engaging in mining,
with technical and financial capability to undertake mineral resources development and duly
registered in accordance with law at least sixty per centum (60%) of the capital of which is
owned by citizens of the Philippines x x x.206
The fourth mode involves "financial or technical assistance agreements." An FTAA is defined
as "a contract involving financial or technical assistance for large-scale exploration,
development, and utilization of natural resources."207 Any qualified person with technical
and financial capability to undertake large-scale exploration, development, and utilization of
natural resources in the Philippines may enter into such agreement directly with the
Government through the DENR.208 For the purpose of granting an FTAA, a legally organized
foreign-owned corporation (any corporation, partnership, association, or cooperative duly
registered in accordance with law in which less than 50% of the capital is owned by Filipino
citizens)209 is deemed a "qualified person."210
Other than the difference in contractors' qualifications, the principal distinction between
mineral agreements and FTAAs is the maximum contract area to which a qualified person
may hold or be granted.211 "Large-scale" under R.A. No. 7942 is determined by the size of the
contract area, as opposed to the amount invested (US $50,000,000.00), which was the
standard under E.O. 279.
Like a CA or a JVA, an FTAA is subject to negotiation.212 The Government's contributions, in
the form of taxes, in an FTAA is identical to its contributions in the two mineral agreements,
save that in an FTAA:
The collection of Government share in financial or technical assistance agreement shall
commence after the financial or technical assistance agreement contractor has fully
recovered its pre-operating expenses, exploration, and development expenditures,
inclusive.213
III
Having examined the history of the constitutional provision and statutes enacted pursuant
thereto, a consideration of the substantive issues presented by the petition is now in order.
THE EFFECTIVITY OF EXECUTIVE ORDER NO. 279
Petitioners argue that E.O. No. 279, the law in force when the WMC FTAA was executed, did
not come into effect.
E.O. No. 279 was signed into law by then President Aquino on July 25, 1987, two days before
the opening of Congress on July 27, 1987.214 Section 8 of the E.O. states that the same "shall
take effect immediately." This provision, according to petitioners, runs counter to Section 1
of E.O. No. 200,215 which provides:
SECTION 1. Laws shall take effect after fifteen days following the completion of their
publication either in the Official Gazette or in a newspaper of general circulation in the
Philippines, unless it is otherwise provided.216 [Emphasis supplied.]
On that premise, petitioners contend that E.O. No. 279 could have only taken effect fifteen
days after its publication at which time Congress had already convened and the President's
power to legislate had ceased.
Respondents, on the other hand, counter that the validity of E.O. No. 279 was settled in
Miners Association of the Philippines v. Factoran, supra. This is of course incorrect for the
issue in Miners Association was not the validity of E.O. No. 279 but that of DAO Nos. 57 and
82 which were issued pursuant thereto.
Nevertheless, petitioners' contentions have no merit.
It bears noting that there is nothing in E.O. No. 200 that prevents a law from taking effect on
a date other than – even before – the 15-day period after its publication. Where a law
provides for its own date of effectivity, such date prevails over that prescribed by E.O. No.
200. Indeed, this is the very essence of the phrase "unless it is otherwise provided" in Section
1 thereof. Section 1, E.O. No. 200, therefore, applies only when a statute does not provide
for its own date of effectivity.
What is mandatory under E.O. No. 200, and what due process requires, as this Court held in
Tañada v. Tuvera,217is the publication of the law for without such notice and publication,
there would be no basis for the application of the maxim "ignorantia legis n[eminem]
excusat." It would be the height of injustice to punish or otherwise burden a citizen for the
transgression of a law of which he had no notice whatsoever, not even a constructive one.
While the effectivity clause of E.O. No. 279 does not require its publication, it is not a ground
for its invalidation since the Constitution, being "the fundamental, paramount and supreme
law of the nation," is deemed written in the law.218 Hence, the due process clause,219 which,
so Tañada held, mandates the publication of statutes, is read into Section 8 of E.O. No. 279.
Additionally, Section 1 of E.O. No. 200 which provides for publication "either in the Official
Gazette or in a newspaper of general circulation in the Philippines," finds suppletory
application. It is significant to note that E.O. No. 279 was actually published in the Official
Gazette220 on August 3, 1987.
From a reading then of Section 8 of E.O. No. 279, Section 1 of E.O. No. 200, and Tañada v.
Tuvera, this Court holds that E.O. No. 279 became effective immediately upon its publication
in the Official Gazette on August 3, 1987.
That such effectivity took place after the convening of the first Congress is irrelevant. At the
time President Aquino issued E.O. No. 279 on July 25, 1987, she was still validly exercising
legislative powers under the Provisional Constitution.221 Article XVIII (Transitory Provisions)
of the 1987 Constitution explicitly states:
Sec. 6. The incumbent President shall continue to exercise legislative powers until the first
Congress is convened.
The convening of the first Congress merely precluded the exercise of legislative powers by
President Aquino; it did not prevent the effectivity of laws she had previously enacted.
There can be no question, therefore, that E.O. No. 279 is an effective, and a validly enacted,
statute.
THE CONSTITUTIONALITY OF THE WMCP FTAA
Petitioners submit that, in accordance with the text of Section 2, Article XII of the
Constitution, FTAAs should be limited to "technical or financial assistance" only. They
observe, however, that, contrary to the language of the Constitution, the WMCP FTAA allows
WMCP, a fully foreign-owned mining corporation, to extend more than mere financial or
technical assistance to the State, for it permits WMCP to manage and operate every aspect
of the mining activity. 222
Petitioners' submission is well-taken. It is a cardinal rule in the interpretation of constitutions
that the instrument must be so construed as to give effect to the intention of the people who
adopted it.223 This intention is to be sought in the constitution itself, and the apparent
meaning of the words is to be taken as expressing it, except in cases where that assumption
would lead to absurdity, ambiguity, or contradiction.224 What the Constitution says according
to the text of the provision, therefore, compels acceptance and negates the power of the
courts to alter it, based on the postulate that the framers and the people mean what they
say.225 Accordingly, following the literal text of the Constitution, assistance accorded by
foreign-owned corporations in the large-scale exploration, development, and utilization of
petroleum, minerals and mineral oils should be limited to "technical" or "financial" assistance
only.
WMCP nevertheless submits that the word "technical" in the fourth paragraph of Section 2 of
E.O. No. 279 encompasses a "broad number of possible services," perhaps, "scientific and/or
technological in basis."226 It thus posits that it may also well include "the area of
management or operations . . . so long as such assistance requires specialized knowledge or
skills, and are related to the exploration, development and utilization of mineral
resources."227
This Court is not persuaded. As priorly pointed out, the phrase "management or other forms
of assistance" in the 1973 Constitution was deleted in the 1987 Constitution, which allows
only "technical or financial assistance." Casus omisus pro omisso habendus est. A person,
object or thing omitted from an enumeration must be held to have been omitted
intentionally.228 As will be shown later, 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.
Respondents insist that "agreements involving technical or financial assistance" is just
another term for service contracts. They contend that the proceedings of the CONCOM
indicate "that although the terminology 'service contract' was avoided [by the Constitution],
the concept it represented was not." They add that "[t]he concept is embodied in the phrase
'agreements involving financial or technical assistance.'"229 And point out how members of
the CONCOM referred to these agreements as "service contracts." For instance:
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.230 [Emphasis supplied.]
WMCP also cites the following statements of Commissioners Gascon, Garcia,
Nolledo and Tadeo who alluded to service contracts as they explained their
respective votes in the approval of the draft Article:
MR. GASCON. Mr. Presiding Officer, I vote no primarily because of two reasons:
One, the provision on service contracts. 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. x x
x.231 [Emphasis supplied.]
x x x.
MR. GARCIA. Thank you.
I vote no. x x x.
Service contracts are given constitutional legitimization in Section 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. They constitute a serious negation of Filipino control on
the use and disposition of the nation's natural resources, especially with regard to
those which are nonrenewable.232[Emphasis supplied.]
xxx
MR. NOLLEDO. While there are objectionable provisions in the Article on National
Economy and Patrimony, going over said provisions meticulously, setting aside
prejudice and personalities will reveal that the article contains a balanced set of
provisions. I hope the forthcoming Congress will implement such provisions taking
into account that Filipinos should have real control over our economy and
patrimony, and if foreign equity is permitted, the same must be subordinated to
the imperative demands of the national interest.
x x x.
It is also my understanding that service contracts involving foreign corporations or
entities are resorted to only when no Filipino enterprise or Filipino-controlled
enterprise could possibly undertake the exploration or exploitation of our natural
resources and that compensation under such contracts cannot and should not
equal what should pertain to ownership of capital. In other words, the service
contract should not be an instrument to circumvent the basic provision, that the
exploration and exploitation of natural resources should be truly for the benefit of
Filipinos.
Thank you, and I vote yes.233 [Emphasis supplied.]
x x x.
MR. TADEO. Nais ko lamang ipaliwanag ang aking boto.
Matapos suriin ang kalagayan ng Pilipinas, ang saligang suliranin, pangunahin ang
salitang "imperyalismo." Ang ibig sabihin nito ay ang sistema ng lipunang
pinaghaharian ng iilang monopolyong kapitalista at ang salitang "imperyalismo" ay
buhay na buhay sa National Economy and Patrimony na nating ginawa. Sa
pamamagitan ng salitang "based on," naroroon na ang free trade sapagkat tayo ay
mananatiling tagapagluwas ng hilaw na sangkap at tagaangkat ng yaring produkto.
Pangalawa, naroroon pa rin ang parity rights, ang service contract, ang 60-40 equity
sa natural resources. Habang naghihirap ang sambayanang Pilipino, ginagalugad
naman ng mga dayuhan ang ating likas na yaman. Kailan man ang Article on
National Economy and Patrimony ay hindi nagpaalis sa pagkaalipin ng ating
ekonomiya sa kamay ng mga dayuhan. Ang solusyon sa suliranin ng bansa ay
dalawa lamang: ang pagpapatupad ng tunay na reporma sa lupa at ang national
industrialization. Ito ang tinatawag naming pagsikat ng araw sa Silangan. Ngunit
ang mga landlords and big businessmen at ang mga komprador ay nagsasabi na ang
free trade na ito, ang kahulugan para sa amin, ay ipinipilit sa ating sambayanan na
ang araw ay sisikat sa Kanluran. Kailan man hindi puwedeng sumikat ang araw sa
Kanluran. I vote no.234 [Emphasis supplied.]
This Court is likewise not persuaded.
As earlier noted, the phrase "service contracts" has been deleted in the 1987 Constitution's
Article on National Economy and Patrimony. If the CONCOM intended to retain the concept
of service contracts under the 1973 Constitution, it could have simply adopted the old
terminology ("service contracts") instead of employing new and unfamiliar terms
("agreements . . . involving either technical or financial assistance"). Such a difference
between the language of a provision in a revised constitution and that of a similar provision
in the preceding constitution is viewed as indicative of a difference in purpose.235 If, as
respondents suggest, the concept of "technical or financial assistance" agreements is
identical to that of "service contracts," the CONCOM would not have bothered to fit the
same dog with a new collar. To uphold respondents' theory would reduce the first to a mere
euphemism for the second and render the change in phraseology meaningless.
An examination of the reason behind the change confirms that technical or financial
assistance agreements are not synonymous to service contracts.
[T]he Court in construing a Constitution should bear in mind the object sought to be
accomplished by its adoption, and the evils, if any, sought to be prevented or remedied. A
doubtful provision will be examined in light of the history of the times, and the condition and
circumstances under which the Constitution was framed. The object is to ascertain the
reason which induced the framers of the Constitution to enact the particular provision and
the purpose sought to be accomplished thereby, in order to construe the whole as to make
the words consonant to that reason and calculated to effect that purpose.236
As the following question of Commissioner Quesada and Commissioner Villegas' answer
shows the drafters intended to do away with service contracts which were used to
circumvent the capitalization (60%-40%) requirement:
MS. QUESADA. The 1973 Constitution used the words "service contracts." In this
particular Section 3, is there a safeguard against the possible control of foreign
interests if the Filipinos go into coproduction with them?
MR. VILLEGAS. Yes. In fact, the deletion of the phrase "service contracts" was our
first attempt to avoid some of the abuses in the past regime in the use of service
contracts to go around the 60-40 arrangement. The safeguard that has been
introduced – and this, of course can be refined – is found in Section 3, lines 25 to
30, where Congress will have to concur with the President on any agreement
entered into between a foreign-owned corporation and the government involving
technical or financial assistance for large-scale exploration, development and
utilization of natural resources.237 [Emphasis supplied.]
In a subsequent discussion, Commissioner Villegas allayed the fears of
Commissioner Quesada regarding the participation of foreign interests in Philippine
natural resources, which was supposed to be restricted to Filipinos.
MS. QUESADA. Another point of clarification is the phrase "and utilization of
natural resources shall be under the full control and supervision of the State." In
the 1973 Constitution, this was limited to citizens of the Philippines; but it was
 removed and substituted by "shall be under the full control and supervision of the
State." Was the concept changed so that these particular resources would be
limited to citizens of the Philippines? Or would these resources only be under the
full control and supervision of the State; meaning, noncitizens would have access to
these natural resources? Is that the understanding?
MR. VILLEGAS. No, Mr. Vice-President, if the Commissioner reads the next
sentence, it states:
Such activities may be directly undertaken by the State, or it may enter into co-production,
joint venture, production-sharing agreements with Filipino citizens.
So we are still limiting it only to Filipino citizens.
x x x.
MS. QUESADA. Going back to Section 3, the section suggests that:
The exploration, development, and utilization of natural resources… may be directly
undertaken by the State, or it may enter into co-production, joint venture or production-
sharing agreement with . . . corporations or associations at least sixty per cent of whose
voting stock or controlling interest is owned by such citizens.
Lines 25 to 30, on the other hand, suggest that in the large-scale exploration, development
and utilization of natural resources, the President with the concurrence of Congress may
enter into agreements with foreign-owned corporations even for technical or financial
assistance.
I wonder if this part of Section 3 contradicts the second part. I am raising this point for fear
that foreign investors will use their enormous capital resources to facilitate the actual
exploitation or exploration, development and effective disposition of our natural resources
to the detriment of Filipino investors. I am not saying that we should not consider borrowing
money from foreign sources. What I refer to is that foreign interest should be allowed to
participate only to the extent that they lend us money and give us technical assistance with
the appropriate government permit. In this way, we can insure the enjoyment of our natural
resources by our own people.
MR. VILLEGAS. Actually, the second provision about the President does not permit foreign
investors to participate. It is only technical or financial assistance – they do not own anything
– but on conditions that have to be determined by law with the concurrence of Congress. So,
it is very restrictive.
If the Commissioner will remember, this removes the possibility for service contracts which
we said yesterday were avenues used in the previous regime to go around the 60-40
requirement.238 [Emphasis supplied.]
The present Chief Justice, then a member of the CONCOM, also referred to this limitation in
scope in proposing an amendment to the 60-40 requirement:
MR. DAVIDE. May I be allowed to explain the proposal?
MR. MAAMBONG. Subject to the three-minute rule, Madam President.
MR. DAVIDE. It will not take three minutes.
The Commission had just approved the Preamble. In the Preamble we clearly stated that the
Filipino people are sovereign and that one of the objectives for the creation or establishment
of a government is to conserve and develop the national patrimony. The implication is that
the national patrimony or our natural resources are exclusively reserved for the Filipino
people. No alien must be allowed to enjoy, exploit and develop our natural resources. As a
matter of fact, that principle proceeds from the fact that our natural resources are gifts from
God to the Filipino people and it would be a breach of that special blessing from God if we
will allow aliens to exploit our natural resources.
I voted in favor of the Jamir proposal because it is not really exploitation that we granted to
the alien corporations but only for them to render financial or technical assistance. It is not
for them to enjoy our natural resources. Madam President, our natural resources are
depleting; our population is increasing by leaps and bounds. Fifty years from now, if we will
allow these aliens to exploit our natural resources, there will be no more natural resources
for the next generations of Filipinos. It may last long if we will begin now. Since 1935 the
aliens have been allowed to enjoy to a certain extent the exploitation of our natural
resources, and we became victims of foreign dominance and control. The aliens are
interested in coming to the Philippines because they would like to enjoy the bounty of nature
exclusively intended for Filipinos by God.
And so I appeal to all, for the sake of the future generations, that if we have to pray in the
Preamble "to preserve and develop the national patrimony for the sovereign Filipino people
and for the generations to come," we must at this time decide once and for all that our
natural resources must be reserved only to Filipino citizens.
Thank you.239 [Emphasis supplied.]
The opinion of another member of the CONCOM is persuasive240 and leaves no doubt as to
the intention of the framers to eliminate service contracts altogether. He writes:
Paragraph 4 of Section 2 specifies large-scale, capital-intensive, highly technological
undertakings for which the President may enter into contracts with foreign-owned
corporations, and enunciates strict conditions that should govern such contracts. x x x.
This provision balances the need for foreign capital and technology with the need to
maintain the national sovereignty. It recognizes the fact that as long as Filipinos can
formulate their own terms in their own territory, there is no danger of relinquishing
sovereignty to foreign interests. utilization of natural resources shall be utilization of natural
resources shall be under the full control resources shall be
Are service contracts allowed under the new Constitution? No. Under the new Constitution, under the full control and supervision of the under the full control
foreign investors (fully alien-owned) can NOT participate in Filipino enterprises except to and supervision of the State. Such activities and supervision of the
provide: (1) Technical Assistance for highly technical enterprises; and (2) Financial Assistance State. Such activities may be directly State. The State may
for large-scale enterprises. may be directly undertaken by the directly undertake
undertaken by the State, or it may enter such activities or it
The intent of this provision, as well as other provisions on foreign investments, is to prevent state, or it may enter into co-production, may enter into co-
the practice (prevalent in the Marcos government) of skirting the 60/40 equation using the into co-production, joint venture, production, joint
cover of service contracts.241 [Emphasis supplied.] joint venture, production-sharing venture, or
production sharing agreements with production-sharing
agreements with Filipino citizens or agreements with
Furthermore, it appears that Proposed Resolution No. 496,242 which was the draft Article on
Filipino citizens or corporations or Filipino citizens, or
National Economy and Patrimony, adopted the concept of "agreements . . . involving either
corporations or associations at least corporations or
technical or financial assistance" contained in the "Draft of the 1986 U.P. Law Constitution
associations sixty per sixty per cent of associations at least
Project" (U.P. Law draft) which was taken into consideration during the deliberation of the
cent of whose voting whose voting stock or sixty per centum of
CONCOM.243 The former, as well as Article XII, as adopted, employed the same terminology,
stock or controlling controlling interest is whose capital is
as the comparative table below shows:
interest is owned by owned by such owned by such
such citizens for a citizens. Such citizens. Such
period of not more agreements shall be agreements may be
DRAFT OF THE UP PROPOSED ARTICLE XII OF THE than twenty-five for a period of twenty- for a period not
LAW CONSTITUTION RESOLUTION NO. 496 1987 CONSTITUTION years, renewable for five years, renewable exceeding twenty-five
PROJECT OF THE not more than twenty- for not more than years, renewable for
CONSTITUTIONAL five years and under twenty-five years, and not more than twenty-
COMMISSION such terms and under such term and five years, and under
conditions as may be conditions as may be such terms and
provided by law. In provided by law. In conditions as may be
case as to water rights cases of water rights provided by law. In
Sec. 1. All lands of the Sec. 3. All lands of the Sec. 2. All lands of the for irrigation, water for irrigation, water case of water rights
public domain, waters, public domain, waters, public domain, waters, supply, fisheries, or supply, fisheries or for irrigation, water
minerals, coal, minerals, coal, minerals, coal, industrial uses other industrial uses other supply, fisheries, or
petroleum and other petroleum and other petroleum, and other than the development than the development industrial uses other
mineral oils, all forces mineral oils, all forces mineral oils, all forces of water power, for water power, than the development
of potential energy, of potential energy, of potential energy, beneficial use may be beneficial use may be of water power,
fisheries, flora and fisheries, forests, flora fisheries, forests or the measure and limit the measure and limit beneficial use may be
fauna and other and fauna, and other timber, wildlife, flora of the grant. of the grant. the measure and limit
natural resources of natural resources are and fauna, and other of the grant.
the Philippines are owned by the State. natural resources are
The National Assembly The Congress may by
owned by the State. With the exception of owned by the State.
may by law allow law allow small-scale The State shall protect
With the exception of agricultural lands, all With the exception of
small scale utilization utilization of natural the nation's marine
agricultural lands, all other natural agricultural lands, all
of natural resources resources by Filipino wealth in its
other natural resources shall not be other natural
by Filipino citizens. citizens, as well as archipelagic waters,
resources shall not be alienated. The resources shall not be
cooperative fish territorial sea, and
alienated. The exploration, alienated. The
The National farming in rivers, exclusive economic
exploration, development, and exploration,
Assembly, may, by zone, and reserve its
development and utilization of natural development, and
use and enjoyment
two-thirds vote of all lakes, bays, and exclusively to Filipino every contract entered
its members by special lagoons. citizens. into in accordance
law provide the terms with this provision,
and conditions under The President with the The Congress may, by within thirty days from
which a foreign- concurrence of law, allow small-scale its execution.
owned corporation Congress, by special utilization of natural
may enter into law, shall provide the resources by Filipino
agreements with the terms and conditions citizens, as well as
government The insights of the proponents of the U.P. Law draft are, therefore, instructive in interpreting
under which a foreign- cooperative fish the phrase "technical or financial assistance."
involving either owned corporation farming, with priority
technical or financial may enter into to subsistence
assistance for large- agreements with the fishermen and fish- In his position paper entitled Service Contracts: Old Wine in New Bottles?, Professor Pacifico
scale exploration, government workers in rivers, A. Agabin, who was a member of the working group that prepared the U.P. Law draft,
development, or involving either lakes, bays, and criticized service contracts for they "lodge exclusive management and control of the
utilization of natural technical or financial lagoons. enterprise to the service contractor, which is reminiscent of the old concession regime. Thus,
resources. [Emphasis assistance for large- notwithstanding the provision of the Constitution that natural resources belong to the State,
supplied.] scale exploration, and that these shall not be alienated, the service contract system renders nugatory the
The President may constitutional provisions cited."244 He elaborates:
development, and enter into agreements
utilization of natural with foreign-owned
resources. [Emphasis corporations Looking at the Philippine model, we can discern the following vestiges of the concession
supplied.] involving either regime, thus:
technical or financial
assistance for large- 1. Bidding of a selected area, or leasing the choice of the area to the interested
scale exploration, party and then negotiating the terms and conditions of the contract; (Sec. 5, P.D.
development, and 87)
utilization of minerals,
petroleum, and other 2. Management of the enterprise vested on the contractor, including operation of
mineral oils according the field if petroleum is discovered; (Sec. 8, P.D. 87)
to the general terms
and conditions
3. Control of production and other matters such as expansion and development;
provided by law,
(Sec. 8)
based on real
contributions to the
economic growth and 4. Responsibility for downstream operations – marketing, distribution, and
general welfare of the processing may be with the contractor (Sec. 8);
country. In such
agreements, the State 5. Ownership of equipment, machinery, fixed assets, and other properties remain
shall promote the with contractor (Sec. 12, P.D. 87);
development and use
of local scientific and 6. Repatriation of capital and retention of profits abroad guaranteed to the
technical resources. contractor (Sec. 13, P.D. 87); and
[Emphasis supplied.]
7. While title to the petroleum discovered may nominally be in the name of the
The President shall government, the contractor has almost unfettered control over its disposition and
notify the Congress of sale, and even the domestic requirements of the country is relegated to
a pro rata basis (Sec. 8).
In short, our version of the service contract is just a rehash of the old concession regime x x x.
Some people have pulled an old rabbit out of a magician's hat, and foisted it upon us as a
new and different animal.
The service contract as we know it here is antithetical to the principle of sovereignty over our
natural resources restated in the same article of the [1973] Constitution containing the
provision for service contracts. If the service contractor happens to be a foreign corporation,
the contract would also run counter to the constitutional provision on nationalization or
Filipinization, of the exploitation of our natural resources.245 [Emphasis supplied.
Underscoring in the original.]
Professor Merlin M. Magallona, also a member of the working group, was harsher in his
reproach of the system:
x x x the nationalistic phraseology of the 1935 [Constitution] was retained by the [1973]
Charter, but the essence of nationalism was reduced to hollow rhetoric. The 1973 Charter
still provided that the exploitation or development of the country's natural resources be
limited to Filipino citizens or corporations owned or controlled by them. However, the
martial-law Constitution allowed them, once these resources are in their name, to enter into
service contracts with foreign investors for financial, technical, management, or other forms
of assistance. Since foreign investors have the capital resources, the actual exploitation and
development, as well as the effective disposition, of the country's natural resources, would
be under their direction, and control, relegating the Filipino investors to the role of second-
rate partners in joint ventures.
Through the instrumentality of the service contract, the 1973 Constitution had legitimized at
the highest level of state policy that which was prohibited under the 1973 Constitution,
namely: the exploitation of the country's natural resources by foreign nationals. The drastic
impact of [this] constitutional change becomes more pronounced when it is considered that
the active party to any service contract may be a corporation wholly owned by foreign
interests. In such a case, the citizenship requirement is completely set aside, permitting
foreign corporations to obtain actual possession, control, and [enjoyment] of the country's
natural resources.246 [Emphasis supplied.]
Accordingly, Professor Agabin recommends that:
Recognizing the service contract for what it is, we have to expunge it from the Constitution
and reaffirm ownership over our natural resources. That is the only way we can exercise
effective control over our natural resources.
This should not mean complete isolation of the country's natural resources from foreign
investment. Other contract forms which are less derogatory to our sovereignty and control
over natural resources – like technical assistance agreements, financial assistance
[agreements], co-production agreements, joint ventures, production-sharing – could still be
utilized and adopted without violating constitutional provisions. In other words, we can
adopt contract forms which recognize and assert our sovereignty and ownership over natural
resources, and where the foreign entity is just a pure contractor instead of the beneficial
owner of our economic resources.247 [Emphasis supplied.]
Still another member of the working group, Professor Eduardo Labitag, proposed that:
2. Service contracts as practiced under the 1973 Constitution should be discouraged, instead
the government may be allowed, subject to authorization by special law passed by an
extraordinary majority to enter into either technical or financial assistance. This is justified by
the fact that as presently worded in the 1973 Constitution, a service contract gives full
control over the contract area to the service contractor, for him to work, manage and
dispose of the proceeds or production. It was a subterfuge to get around the nationality
requirement of the constitution.248[Emphasis supplied.]
In the annotations on the proposed Article on National Economy and Patrimony, the U.P. Law
draft summarized the rationale therefor, thus:
5. The last paragraph is a modification of the service contract provision found in Section 9,
Article XIV of the 1973 Constitution as amended. This 1973 provision shattered the
framework of nationalism in our fundamental law (see Magallona, "Nationalism and its
Subversion in the Constitution"). Through the service contract, the 1973 Constitution had
legitimized that which was prohibited under the 1935 constitution—the exploitation of the
country's natural resources by foreign nationals. Through the service contract, acts
prohibited by the Anti-Dummy Law were recognized as legitimate arrangements. Service
contracts lodge exclusive management and control of the enterprise to the service
contractor, not unlike the old concession regime where the concessionaire had complete
control over the country's natural resources, having been given exclusive and plenary rights
to exploit a particular resource and, in effect, having been assured of ownership of that
resource at the point of extraction (see Agabin, "Service Contracts: Old Wine in New
Bottles"). Service contracts, hence, are antithetical to the principle of sovereignty over our
natural resources, as well as the constitutional provision on nationalization or Filipinization of
the exploitation of our natural resources.
Under the proposed provision, only technical assistance or financial assistance agreements
may be entered into, and only for large-scale activities. These are contract forms which
recognize and assert our sovereignty and ownership over natural resources since the foreign
entity is just a pure contractor and not a beneficial owner of our economic resources. The
proposal recognizes the need for capital and technology to develop our natural resources
without sacrificing our sovereignty and control over such resources by the safeguard of a
special law which requires two-thirds vote of all the members of the Legislature. This will
ensure that such agreements will be debated upon exhaustively and thoroughly in the
National Assembly to avert prejudice to the nation.249 [Emphasis supplied.]
The U.P. Law draft proponents viewed service contracts under the 1973 Constitution as
grants of beneficial ownership of the country's natural resources to foreign owned
corporations. While, in theory, the State owns these natural resources – and Filipino citizens,
their beneficiaries – service contracts actually vested foreigners with the right to dispose,
explore for, develop, exploit, and utilize the same. Foreigners, not Filipinos, became the
beneficiaries of Philippine natural resources. This arrangement is clearly incompatible with
the constitutional ideal of nationalization of natural resources, with the Regalian doctrine,
and on a broader perspective, with Philippine sovereignty.
The proponents nevertheless acknowledged the need for capital and technical know-how in
the large-scale exploitation, development and utilization of natural resources – the second
paragraph of the proposed draft itself being an admission of such scarcity. Hence, they
recommended a compromise to reconcile the nationalistic provisions dating back to the 1935
Constitution, which reserved all natural resources exclusively to Filipinos, and the more
liberal 1973 Constitution, which allowed foreigners to participate in these resources through
service contracts. Such a compromise called for the adoption of a new system in the
exploration, development, and utilization of natural resources in the form of technical
agreements or financial agreements which, necessarily, are distinct concepts from service
contracts.
The replacement of "service contracts" with "agreements… involving either technical or
financial assistance," as well as the deletion of the phrase "management or other forms of
assistance," assumes greater significance when note is taken that the U.P. Law draft
proposed other equally crucial changes that were obviously heeded by the CONCOM. These
include the abrogation of the concession system and the adoption of new "options" for the
State in the exploration, development, and utilization of natural resources. The proponents
deemed these changes to be more consistent with the State's ownership of, and its "full
control and supervision" (a phrase also employed by the framers) over, such resources. The
Project explained:
3. In line with the State ownership of natural resources, the State should take a more active
role in the exploration, development, and utilization of natural resources, than the present
practice of granting licenses, concessions, or leases – hence the provision that said activities
shall be under the full control and supervision of the State. There are three major schemes by
which the State could undertake these activities: first, directly by itself; second, by virtue of
co-production, joint venture, production sharing agreements with Filipino citizens or
corporations or associations sixty per cent (60%) of the voting stock or controlling interests of
which are owned by such citizens; or third, with a foreign-owned corporation, in cases of
large-scale exploration, development, or utilization of natural resources through agreements
involving either technical or financial assistance only. x x x.
At present, under the licensing concession or lease schemes, the government benefits from
such benefits only through fees, charges, ad valorem taxes and income taxes of the exploiters
of our natural resources. Such benefits are very minimal compared with the enormous profits
reaped by theses licensees, grantees, concessionaires. Moreover, some of them disregard
the conservation of natural resources and do not protect the environment from degradation.
The proposed role of the State will enable it to a greater share in the profits – it can also
actively husband its natural resources and engage in developmental programs that will be
beneficial to them.
4. Aside from the three major schemes for the exploration, development, and utilization of
our natural resources, the State may, by law, allow Filipino citizens to explore, develop,
utilize natural resources in small-scale. This is in recognition of the plight of marginal
fishermen, forest dwellers, gold panners, and others similarly situated who exploit our
natural resources for their daily sustenance and survival.250
Professor Agabin, in particular, after taking pains to illustrate the similarities between the
two systems, concluded that the service contract regime was but a "rehash" of the
concession system. "Old wine in new bottles," as he put it. The rejection of the service
contract regime, therefore, is in consonance with the abolition of the concession system.
In light of the deliberations of the CONCOM, the text of the Constitution, and the adoption of
other proposed changes, there is no doubt that the framers considered and shared the intent
of the U.P. Law proponents in employing the phrase "agreements . . . involving either
technical or financial assistance."
While certain commissioners may have mentioned the term "service contracts" during the
CONCOM deliberations, they may not have been necessarily referring to the concept of
service contracts under the 1973 Constitution. As noted earlier, "service contracts" is a term
that assumes different meanings to different people.251 The commissioners may have been
using the term loosely, and not in its technical and legal sense, to refer, in general, to
agreements concerning natural resources entered into by the Government with foreign
corporations. These loose statements do not necessarily translate to the adoption of the
1973 Constitution provision allowing service contracts.
It is true that, as shown in the earlier quoted portions of the proceedings in CONCOM, in
response to Sr. Tan's question, Commissioner Villegas commented that, other than
congressional notification, the only difference between "future" and "past" "service
contracts" is the requirement of a general law as there were no laws previously authorizing
the same.252 However, such remark is far outweighed by his more categorical statement in
his exchange with Commissioner Quesada that the draft article "does not permit foreign
investors to participate" in the nation's natural resources – which was exactly what service
contracts did – except to provide "technical or financial assistance."253
In the case of the other commissioners, Commissioner Nolledo himself clarified in his work
that the present charter prohibits service contracts.254 Commissioner Gascon was not totally
averse to foreign participation, but favored stricter restrictions in the form of majority
congressional concurrence.255 On the other hand, Commissioners Garcia and Tadeo may have
veered to the extreme side of the spectrum and their objections may be interpreted as votes
against any foreign participation in our natural resources whatsoever.
WMCP cites Opinion No. 75, s. 1987,256 and Opinion No. 175, s. 1990257 of the Secretary of
Justice, expressing the view that a financial or technical assistance agreement "is no different
in concept" from the service contract allowed under the 1973 Constitution. This Court is not,
however, bound by this interpretation. When an administrative or executive agency renders
an opinion or issues a statement of policy, it merely interprets a pre-existing law; and the
administrative interpretation of the law is at best advisory, for it is the courts that finally
determine what the law means.258
In any case, the constitutional provision allowing the President to enter into FTAAs with
foreign-owned corporations is an exception to the rule that participation in the nation's
natural resources is reserved exclusively to Filipinos. Accordingly, such provision must be
construed strictly against their enjoyment by non-Filipinos. As Commissioner Villegas
emphasized, the provision is "very restrictive."259 Commissioner Nolledo also remarked 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."260 Indeed, exceptions should be strictly but
reasonably construed; they extend only so far as their language fairly warrants and all doubts
should be resolved in favor of the general provision rather than the exception.261
With the foregoing discussion in mind, this Court finds that R.A. No. 7942 is invalid insofar as
said Act authorizes service contracts. Although the statute employs the phrase "financial and
technical agreements" in accordance with the 1987 Constitution, it actually treats these
agreements as service contracts that grant beneficial ownership to foreign contractors
contrary to the fundamental law.
Section 33, which is found under Chapter VI (Financial or Technical Assistance Agreement) of
R.A. No. 7942 states:
SEC. 33. Eligibility.—Any qualified person with technical and financial capability to undertake
large-scale exploration, development, and utilization of mineral resources in the Philippines
may enter into a financial or technical assistance agreement directly with the Government
through the Department. [Emphasis supplied.]
"Exploration," as defined by R.A. No. 7942,
means the searching or prospecting for mineral resources by geological, geochemical or
geophysical surveys, remote sensing, test pitting, trending, drilling, shaft sinking, tunneling or
any other means for the purpose of determining the existence, extent, quantity and quality
thereof and the feasibility of mining them for profit.262
A legally organized foreign-owned corporation may be granted an exploration
permit,263 which vests it with the right to conduct exploration for all minerals in specified
areas,264 i.e., to enter, occupy and explore the same.265Eventually, the foreign-owned
corporation, as such permittee, may apply for a financial and technical assistance
agreement.266
"Development" is the work undertaken to explore and prepare an ore body or a mineral
deposit for mining, including the construction of necessary infrastructure and related
facilities.267
"Utilization" "means the extraction or disposition of minerals." 268 A stipulation that the
proponent shall dispose of the minerals and byproducts produced at the highest price and
more advantageous terms and conditions as provided for under the implementing rules and
regulations is required to be incorporated in every FTAA.269
A foreign-owned/-controlled corporation may likewise be granted a mineral processing
permit.270 "Mineral processing" is the milling, beneficiation or upgrading of ores or minerals
and rocks or by similar means to convert the same into marketable products. 271
An FTAA contractor makes a warranty that the mining operations shall be conducted in
accordance with the provisions of R.A. No. 7942 and its implementing rules272 and for work
programs and minimum expenditures and commitments.273 And it obliges itself to furnish the
Government records of geologic, accounting, and other relevant data for its mining
operation.274
"Mining operation," as the law defines it, means mining activities involving exploration,
feasibility, development, utilization, and processing.275
The underlying assumption in all these provisions is that the foreign contractor manages the
mineral resources, just like the foreign contractor in a service contract.
Furthermore, Chapter XII of the Act grants foreign contractors in FTAAs the same auxiliary
mining rights that it grants contractors in mineral agreements (MPSA, CA and
JV).276 Parenthetically, Sections 72 to 75 use the term "contractor," without distinguishing
between FTAA and mineral agreement contractors. And so does "holders of mining rights" in
Section 76. A foreign contractor may even convert its FTAA into a mineral agreement if the
economic viability of the contract area is found to be inadequate to justify large-scale mining
operations,277 provided that it reduces its equity in the corporation, partnership, association
or cooperative to forty percent (40%).278
Finally, under the Act, an FTAA contractor warrants that it "has or has access to all the
financing, managerial, and technical expertise. . . ."279 This suggests that an FTAA contractor
is bound to provide some management assistance – a form of assistance that has been
eliminated and, therefore, proscribed by the present Charter.
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.
Moreover, the same provisions, whether by design or inadvertence, permit a circumvention
of the constitutionally ordained 60%-40% capitalization requirement for corporations or
associations engaged in the exploitation, development and utilization of Philippine natural
resources.
In sum, the Court finds the following provisions of R.A. No. 7942 to be violative of Section 2,
Article XII of the Constitution:
(1) The proviso in Section 3 (aq), which defines "qualified person," to wit:
 Provided, That a legally organized foreign-owned corporation shall be deemed a
qualified person for purposes of granting an exploration permit, financial or
technical assistance agreement or mineral processing permit.
(2) Section 23,280 which specifies the rights and obligations of an exploration
permittee, insofar as said section applies to a financial or technical assistance
agreement,
(3) Section 33, which prescribes the eligibility of a contractor in a financial or
technical assistance agreement;
(4) Section 35,281 which enumerates the terms and conditions for every financial or
technical assistance agreement;
(5) Section 39,282 which allows the contractor in a financial and technical assistance
agreement to convert the same into a mineral production-sharing agreement;
(6) Section 56,283 which authorizes the issuance of a mineral processing permit to a
contractor in a financial and technical assistance agreement;
The following provisions of the same Act are likewise void as they are dependent on the
foregoing provisions and cannot stand on their own:
(1) Section 3 (g),284 which defines the term "contractor," insofar as it applies to a
financial or technical assistance agreement.
Section 34,285 which prescribes the maximum contract area in a financial or
technical assistance agreements;
Section 36,286 which allows negotiations for financial or technical assistance
agreements;
Section 37,287
which prescribes the procedure for filing and evaluation of financial
or technical assistance agreement proposals;
Section 38,288 which limits the term of financial or technical assistance agreements;
Section 40,289 which allows the assignment or transfer of financial or technical
assistance agreements;
Section 41,290 which allows the withdrawal of the contractor in an FTAA;
The second and third paragraphs of Section 81,291 which provide for the
Government's share in a financial and technical assistance agreement; and
Section 90,292 which provides for incentives to contractors in FTAAs insofar as it
applies to said contractors;
When the parts of the statute are so mutually dependent and connected as conditions,
considerations, inducements, or compensations for each other, as to warrant a belief that
the legislature intended them as a whole, and that if all could not be carried into effect, the
legislature would not pass the residue independently, then, if some parts are
unconstitutional, all the provisions which are thus dependent, conditional, or connected,
must fall with them.293
There can be little doubt that the WMCP FTAA itself is a service contract.
Section 1.3 of the WMCP FTAA grants WMCP "the exclusive right to explore, exploit, utilise[,]
process and dispose of all Minerals products and by-products thereof that may be produced
from the Contract Area."294 The FTAA also imbues WMCP with the following rights:
(b) to extract and carry away any Mineral samples from the Contract area for the
purpose of conducting tests and studies in respect thereof;
(c) to determine the mining and treatment processes to be utilised during the
Development/Operating Period and the project facilities to be constructed during
the Development and Construction Period;
(d) have the right of possession of the Contract Area, with full right of ingress and
egress and the right to occupy the same, subject to the provisions of Presidential
Decree No. 512 (if applicable) and not be prevented from entry into private ands by
surface owners and/or occupants thereof when prospecting, exploring and
exploiting for minerals therein;
xxx
(f) to construct roadways, mining, drainage, power generation and transmission
facilities and all other types of works on the Contract Area;
(g) to erect, install or place any type of improvements, supplies, machinery and
other equipment relating to the Mining Operations and to use, sell or otherwise
dispose of, modify, remove or diminish any and all parts thereof;
(h) enjoy, subject to pertinent laws, rules and regulations and the rights of third
Parties, easement rights and the use of timber, sand, clay, stone, water and other
natural resources in the Contract Area without cost for the purposes of the Mining
Operations;
xxx
 (i) have the right to mortgage, charge or encumber all or part of its interest and
obligations under this Agreement, the plant, equipment and infrastructure and the
Minerals produced from the Mining Operations;
x x x. 295
All materials, equipment, plant and other installations erected or placed on the Contract Area
remain the property of WMCP, which has the right to deal with and remove such items
within twelve months from the termination of the FTAA.296
Pursuant to Section 1.2 of the FTAA, WMCP shall provide "[all] financing, technology,
management and personnel necessary for the Mining Operations." The mining company
binds itself to "perform all Mining Operations . . . providing all necessary services, technology
and financing in connection therewith,"297 and to "furnish all materials, labour, equipment
and other installations that may be required for carrying on all Mining Operations." 298>
WMCP may make expansions, improvements and replacements of the mining facilities and
may add such new facilities as it considers necessary for the mining operations. 299
These contractual stipulations, taken together, grant WMCP beneficial ownership over
natural resources that properly belong to the State and are intended for the benefit of its
citizens. These stipulations are abhorrent to the 1987 Constitution. They are precisely the
vices that the fundamental law seeks to avoid, the evils that it aims to suppress.
Consequently, the contract from which they spring must be struck down.
In arguing against the annulment of the FTAA, WMCP invokes the Agreement on the
Promotion and Protection of Investments between the Philippine and Australian
Governments, which was signed in Manila on January 25, 1995 and which entered into force
on December 8, 1995.
x x x. Article 2 (1) of said treaty states that it applies to investments whenever made and thus
the fact that [WMCP's] FTAA was entered into prior to the entry into force of the treaty does
not preclude the Philippine Government from protecting [WMCP's] investment in [that]
FTAA. Likewise, Article 3 (1) of the treaty provides that "Each Party shall encourage and
promote investments in its area by investors of the other Party and shall [admit] such
investments in accordance with its Constitution, Laws, regulations and investment policies"
and in Article 3 (2), it states that "Each Party shall ensure that investments are accorded fair
and equitable treatment." The latter stipulation indicates that it was intended to impose an
obligation upon a Party to afford fair and equitable treatment to the investments of the
other Party and that a failure to provide such treatment by or under the laws of the Party
may constitute a breach of the treaty. Simply stated, the Philippines could not, under said
treaty, rely upon the inadequacies of its own laws to deprive an Australian investor (like
[WMCP]) of fair and equitable treatment by invalidating [WMCP's] FTAA without likewise
nullifying the service contracts entered into before the enactment of RA 7942 such as those
mentioned in PD 87 or EO 279.
This becomes more significant in the light of the fact that [WMCP's] FTAA was executed not
by a mere Filipino citizen, but by the Philippine Government itself, through its President no
less, which, in entering into said treaty is assumed to be aware of the existing Philippine laws
on service contracts over the exploration, development and utilization of natural resources.
The execution of the FTAA by the Philippine Government assures the Australian Government
that the FTAA is in accordance with existing Philippine laws.300 [Emphasis and italics by
private respondents.]
The invalidation of the subject FTAA, it is argued, would constitute a breach of said treaty
which, in turn, would amount to a violation of Section 3, Article II of the Constitution
adopting the generally accepted principles of international law as part of the law of the land.
One of these generally accepted principles is pacta sunt servanda, which requires the
performance in good faith of treaty obligations.
Even assuming arguendo that WMCP is correct in its interpretation of the treaty and its
assertion that "the Philippines could not . . . deprive an Australian investor (like [WMCP]) of
fair and equitable treatment by invalidating [WMCP's] FTAA without likewise nullifying the
service contracts entered into before the enactment of RA 7942 . . .," the annulment of the
FTAA would not constitute a breach of the treaty invoked. For this decision herein
invalidating the subject FTAA forms part of the legal system of the Philippines.301 The equal
protection clause302 guarantees that such decision shall apply to all contracts belonging to
the same class, hence, upholding rather than violating, the "fair and equitable treatment"
stipulation in said treaty.
One other matter requires clarification. Petitioners contend that, consistent with the
provisions of Section 2, Article XII of the Constitution, the President may enter into
agreements involving "either technical or financial assistance" only. The agreement in
question, however, is a technical and financial assistance agreement.
Petitioners' contention does not lie. To adhere to the literal language of the Constitution
would lead to absurd consequences.303 As WMCP correctly put it:
x x x such a theory of petitioners would compel the government (through the President) to
enter into contract with two (2) foreign-owned corporations, one for financial assistance
agreement and with the other, for technical assistance over one and the same mining area or
land; or to execute two (2) contracts with only one foreign-owned corporation which has the
capability to provide both financial and technical assistance, one for financial assistance and
another for technical assistance, over the same mining area. Such an absurd result is
definitely not sanctioned under the canons of constitutional construction.304 [Underscoring in
the original.]
Surely, the framers of the 1987 Charter did not contemplate such an absurd result from their
use of "either/or." A constitution is not to be interpreted as demanding the impossible or the
impracticable; and unreasonable or absurd consequences, if possible, should be
avoided.305 Courts are not to give words a meaning that would lead to absurd or
unreasonable consequences and a literal interpretation is to be rejected if it would be unjust
or lead to absurd results.306 That is a strong argument against its adoption.307 Accordingly,
petitioners' interpretation must be rejected.
The foregoing discussion has rendered unnecessary the resolution of the other issues raised
by the petition.
WHEREFORE, the petition is GRANTED. The Court hereby declares unconstitutional and void:
(1) The following provisions of Republic Act No. 7942:
(a) The proviso in Section 3 (aq),
(b) Section 23,
(c) Section 33 to 41,
(d) Section 56,
(e) The second and third paragraphs of Section 81, and
(f) Section 90.
(2) All provisions of Department of Environment and Natural Resources
Administrative Order 96-40, s. 1996 which are not in conformity with this Decision,
and
(3) The Financial and Technical Assistance Agreement between the Government of
the Republic of the Philippines and WMC Philippines, Inc.
SO ORDERED.
G.R. No. 127882 December 1, 2004
LA BUGAL-B'LAAN TRIBAL ASSOCIATION, INC., Represented by its Chairman F'LONG
MIGUEL M. LUMAYONG; WIGBERTO E. TAÑADA; PONCIANO BENNAGEN; JAIME TADEO;
RENATO R. CONSTANTINO JR.; F'LONG AGUSTIN M. DABIE; ROBERTO P. AMLOY; RAQIM L.
DABIE; SIMEON H. DOLOJO; IMELDA M. GANDON; LENY B. GUSANAN; MARCELO L.
GUSANAN; QUINTOL A. LABUAYAN; LOMINGGES D. LAWAY; BENITA P. TACUAYAN; Minors
JOLY L. BUGOY, Represented by His Father UNDERO D. BUGOY and ROGER M. DADING;
Represented by His Father ANTONIO L. DADING; ROMY M. LAGARO, Represented by His
Father TOTING A. LAGARO; MIKENY JONG B. LUMAYONG, Represented by His Father
MIGUEL M. LUMAYONG; RENE T. MIGUEL, Represented by His Mother EDITHA T. MIGUEL;
ALDEMAR L. SAL, Represented by His Father DANNY M. SAL; DAISY RECARSE, Represented
by Her Mother LYDIA S. SANTOS; EDWARD M. EMUY; ALAN P. MAMPARAIR; MARIO L.
MANGCAL; ALDEN S. TUSAN; AMPARO S. YAP; VIRGILIO CULAR; MARVIC M.V.F. LEONEN;
JULIA REGINA CULAR, GIAN CARLO CULAR, VIRGILIO CULAR JR., Represented by Their
Father VIRGILIO CULAR; PAUL ANTONIO P. VILLAMOR, Represented by His Parents JOSE
VILLAMOR and ELIZABETH PUA-VILLAMOR; ANA GININA R. TALJA, Represented by Her
Father MARIO JOSE B. TALJA; SHARMAINE R. CUNANAN, Represented by Her Father
ALFREDO M. CUNANAN; ANTONIO JOSE A. VITUG III, Represented by His Mother ANNALIZA
A. VITUG, LEAN D. NARVADEZ, Represented by His Father MANUEL E. NARVADEZ JR.;
ROSERIO MARALAG LINGATING, Represented by Her Father RIO OLIMPIO A. LINGATING;
MARIO JOSE B. TALJA; DAVID E. DE VERA; MARIA MILAGROS L. SAN JOSE; Sr. SUSAN O.
BOLANIO, OND; LOLITA G. DEMONTEVERDE; BENJIE L. NEQUINTO;1 ROSE LILIA S. ROMANO;
ROBERTO S. VERZOLA; EDUARDO AURELIO C. REYES; LEAN LOUEL A. PERIA, Represented by
His Father ELPIDIO V. PERIA;2 GREEN FORUM PHILIPPINES; GREEN FORUM WESTERN
VISAYAS (GF-WV); ENVIRONMENTAL LEGAL ASSISTANCE CENTER (ELAC); KAISAHAN TUNGO
SA KAUNLARAN NG KANAYUNAN AT REPORMANG PANSAKAHAN
(KAISAHAN);3 PARTNERSHIP FOR AGRARIAN REFORM and RURAL DEVELOPMENT SERVICES,
INC. (PARRDS); PHILIPPINE PARTNERSHIP FOR THE DEVELOPMENT OF HUMAN RESOURCES
IN THE RURAL AREAS, INC. (PHILDHRRA); 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.
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.

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
Memoranda were accordingly filed by the intervenor as well as by petitioners, public
financial and technical agreements -- as well as the subject Financial and Technical Assistance
respondents, and private respondent, dwelling at length on the three issues discussed below.
Agreement (FTAA).5
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
Background government.

The Petition for Prohibition and Mandamus before the Court challenges the constitutionality Three Issues Identified by the Court
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
During the Oral Argument, the Court identified the three issues to be resolved in the present
March 30, 1995,6 executed by the government with Western Mining Corporation
controversy, as follows:
(Philippines), Inc. (WMCP).7

1. Has the case been rendered moot by the sale of WMC shares in WMCP to Sagittarius (60
On January 27, 2004, the Court en banc promulgated its Decision8 granting the Petition and
percent of Sagittarius' equity is owned by Filipinos and/or Filipino-owned corporations while
declaring the unconstitutionality of certain provisions of RA 7942, DAO 96-40, as well as of
40 percent is owned by Indophil Resources NL, an Australian company) and by the
the entire FTAA executed between the government and WMCP, mainly on the finding that
subsequent transfer and registration of the FTAA from WMCP to Sagittarius?
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
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 ponencia declared that the instant case
had not been rendered moot by the transfer and registration of the FTAA to a Filipino-owned
corporation, and that the validity of the said transfer remained in dispute and awaited final
judicial determination.12Patently therefore, the Decision is anchored on the assumption that
WMCP had remained a foreign corporation.
The crux of this issue of mootness is the fact that WMCP, at the time it entered into the
FTAA, happened to be wholly owned by WMC Resources International Pty., Ltd. (WMC),
which in turn was a wholly owned subsidiary of Western Mining Corporation Holdings Ltd., a
publicly listed major Australian mining and exploration company.
The nullity of the FTAA was obviously premised upon the contractor being
a foreign corporation. Had the FTAA been originally issued to a Filipino-owned corporation,
there would have been no constitutionality issue to speak of. Upon the other hand, the
conveyance of the WMCP FTAA to a Filipino corporation can be likened to the sale of land to
a foreigner who subsequently acquires Filipino citizenship, or who later resells the same land
to a Filipino citizen. The conveyance would be validated, as the property in question would
no longer be owned by a disqualified vendee.
And, inasmuch as the FTAA is to be implemented now by a Filipino corporation, it is no longer
possible for the Court to declare it unconstitutional. The case pending in the Court of Appeals
is a dispute between two Filipino companies (Sagittarius and Lepanto), both claiming the
right to purchase the foreign shares in WMCP. So, regardless of which side eventually wins,
the FTAA would still be in the hands of a qualified Filipino company. Considering that there is
no longer any justiciable controversy, the plea to nullify the Mining Law has become a virtual
petition for declaratory relief, over which this Court has no original jurisdiction.
In their Final Memorandum, however, petitioners argue that the case has not become moot,
considering the invalidity of the alleged sale of the shares in WMCP from WMC to Sagittarius,
and of the transfer of the FTAA from WMCP to Sagittarius, resulting in the change of
contractor in the FTAA in question. And even assuming that the said transfers were valid,
there still exists an actual case predicated on the invalidity of RA 7942 and its Implementing
Rules and Regulations (DAO 96-40). Presently, we shall discuss petitioners' objections to the
transfer of both the shares and the FTAA. We shall take up the alleged invalidity of RA 7942
and DAO 96-40 later on in the discussion of the third issue.
No Transgression of the Constitution
by the Transfer of the WMCP Shares
Petitioners claim, first, that the alleged invalidity of the transfer of the WMCP shares to
Sagittarius violates the fourth paragraph of Section 2 of Article XII of the
Constitution; second, that it is contrary to the provisions of the WMCP FTAA itself;
and third, that the sale of the shares is suspect and should therefore be the subject of a case
in which its validity may properly be litigated.
On the first ground, petitioners assert that paragraph 4 of Section 2 of Article XII permits the
government to enter into FTAAs only with foreign-owned corporations. Petitioners insist that
the first paragraph of this constitutional provision limits the participation of Filipino
corporations in the exploration, development and utilization of natural resources to only
three species of contracts -- production sharing, co-production and joint venture -- to the
exclusion of all other arrangements or variations thereof, and the WMCP FTAA may therefore
not be validly assumed and implemented by Sagittarius. In short, petitioners claim that a
Filipino corporation is not allowed by the Constitution to enter into an FTAA with the
government.
However, a textual analysis of the first paragraph of Section 2 of Article XII does not support
petitioners' argument. The pertinent part of the said provision states: "Sec. 2. x x x The
exploration, development and utilization of natural resources shall be under the full control
and supervision of the State. The State may directly undertake such activities, or it may enter
into co-production, joint venture, or production-sharing agreements with Filipino citizens, or
corporations or associations at least sixty per centum of whose capital is owned by such
citizens. x x x." Nowhere in the provision is there any express limitation or restriction insofar
as arrangements other than the three aforementioned contractual schemes are concerned.
Neither can one reasonably discern any implied stricture to that effect. Besides, there is no
basis to believe that the framers of the Constitution, a majority of whom were obviously
concerned with furthering the development and utilization of the 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 re-conveyed to a qualified vendee and the original transaction was thereby
cured. Paraphrasing Halili, the same rationale applies to the instant case:
assuming arguendo the invalidity of its prior grant to a foreign corporation, the disputed
FTAA -- being now held by a Filipino corporation -- can no longer be assailed; the objective of
the constitutional provision -- to keep the exploration, development and utilization of our
natural resources in Filipino hands -- has been served.
More accurately speaking, the present situation is one degree better than that obtaining
in Halili, in which the original sale to a non-Filipino was clearly and indisputably violative of
the constitutional prohibition and thus void ab initio. In the present case, the issuance/grant
of the subject FTAA to the then foreign-owned WMCP was not illegal, void or
unconstitutional at the time. The matter had to be brought to court, precisely for
adjudication as to whether the FTAA and the Mining Law had indeed violated the
Constitution. Since, up to this point, the decision of this Court declaring the FTAA void has yet
to become final, to all intents and purposes, the FTAA must be deemed valid and
constitutional.17
At bottom, we find completely outlandish petitioners' contention that an FTAA could be
entered into by the government only with a foreign corporation, never with a Filipino
enterprise. Indeed, the nationalistic provisions of the Constitution are all anchored on the
protection of Filipino interests. How petitioners can now argue that foreigners have the
exclusive right to FTAAs totally overturns the entire basis of the Petition -- preference for the
Filipino in the exploration, development and utilization of our natural resources. It does not
take deep knowledge of law and logic to understand that what the Constitution grants to
foreigners should be equally available to Filipinos.
Second Issue:
Whether the Court Can Still Decide the Case,
Even Assuming It Is Moot
All the protagonists are in agreement that the Court has jurisdiction to decide this
controversy, even assuming it to be moot.
Petitioners stress the following points. First, while a case becomes moot and academic
when "there is no more actual controversy between the parties or no useful purpose can be
served in passing upon the merits,"18 what is at issue in the instant case is not only the
validity of the WMCP FTAA, but also the constitutionality of RA 7942 and its Implementing
Rules and Regulations. Second, the acts of private respondent cannot operate to cure the law
of its alleged unconstitutionality or to divest this Court of its jurisdiction to decide. Third, the
Constitution imposes upon the Supreme Court the duty to declare invalid any law that
offends the Constitution.
Petitioners also argue that no amendatory laws have been passed to make the Mining Act of
1995 conform to constitutional strictures (assuming that, at present, it does not); that public
respondents will continue to implement and enforce the statute until this Court rules
otherwise; and that the said law continues to be the source of legal authority in accepting,
processing and approving numerous applications for mining rights.
Indeed, it appears that as of June 30, 2002, some 43 FTAA applications had been filed with
the Mines and Geosciences Bureau (MGB), with an aggregate area of 2,064,908.65 hectares -
- spread over Luzon, the Visayas and 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. Paraphrasing Gonzales v.
Commission on Elections,21 it is evident that strong reasons of public policy demand that the
constitutionality issue be resolved now.22
In further support of the immediate resolution of the constitutionality issue, public
respondents cite Acop v. Guingona,23 to the effect that the courts will decide a question --
otherwise moot and academic -- if it is "capable of repetition, yet evading review."24 Public
respondents ask the Court to avoid a situation in which the constitutionality issue may again
arise with respect to another FTAA, the resolution of which may not be achieved until after it
has become too late for our mining industry to grow out of its infancy. They also
recall Salonga v. Cruz Paño,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 Tañada 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 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."31
No Restriction of Meaning by
a Verba Legis Interpretation
To interpret the foregoing provision, petitioners adamantly assert that the language of the
Constitution should prevail; that the primary method of interpreting it is to seek the ordinary
meaning of the words used in its provisions. They rely on rulings of this Court, such as the
following:
"The fundamental principle in constitutional construction however is that the
primary source from which to ascertain constitutional intent or purpose is the
language of the provision itself. The presumption is that the words in which the
constitutional provisions are couched express the objective sought to be attained. In
other words, verba legis prevails. Only when the meaning of the words used is
unclear and equivocal should resort be made to extraneous aids of construction and
interpretation, such as the proceedings of the Constitutional Commission or
Convention to shed light on and ascertain the true intent or purpose of the provision
being construed."32
Very recently, in Francisco v. The House of Representatives,33 this Court indeed had the
occasion to reiterate the well-settled principles of constitutional construction:
"First, verba legis, that is, wherever possible, the words used in the Constitution
must be given their ordinary meaning except where technical terms are employed. x
x x.
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; and second, in large-scale
EDU of minerals, petroleum and mineral oils, which may be undertaken by the State via
"agreementswith 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 eitherfinancial 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 phrase agreements x x x involving either technical or financial
assistance -- does not indicate the intent to exclude other modes of assistance. The drafters
opted to use involving when they could have simply said agreements for financial or technical
assistance, if that was their intention to begin with. In this case, the limitation would be very
clear and no further debate would ensue.
In contrast, the use of the word "involving" signifies the possibility of the inclusion of other
forms of assistance or activities having to do with, otherwise related to or compatible with
financial or technical assistance. The word "involving" as used in this context has three
connotations that can be differentiated thus: one, the sense of "concerning," "having to do
with," or "affecting"; two, "entailing," "requiring," "implying" or "necessitating"; and three,
"including," "containing" or "comprising."38
Plainly, none of the three connotations convey a sense of exclusivity. Moreover, the word
"involving," when understood in the sense of "including," as in including technical or financial
assistance, necessarily implies that there are activities other than those that are being
included. In other words, if an agreement includes technical or financial assistance, there is
apart from such assistance -- something else already in, and covered or may be covered by,
the said agreement.
In short, it allows for the possibility that matters, other than those explicitly mentioned,
could be made part of the agreement. Thus, we are now led to the conclusion that the use of
the word "involving" implies that these agreements with foreign corporations are not limited
to mere financial or technical assistance. The difference in sense becomes very apparent
when we juxtapose "agreements for technical or financial assistance" against
"agreements including technical or financial assistance." This much is unalterably clear in
a verba legis approach.
Second, if the real intention of the drafters was to confine foreign corporations to financial or
technical assistance and nothing more, their language would have certainly been
so unmistakably restrictive and stringent as to leave no doubt in 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, free-enterprise philosophy of our government. We cannot imagine such a radical
shift being undertaken by our government, to the great prejudice of the mining sector in
particular and our economy in general, merely on the basis of the omission of the
terms service contract from or the failure to carry them over to the new Constitution. There
has to be a much more definite and even unarguable basis for such a drastic reversal of
policies.
Fourth, a literal and restrictive interpretation of paragraph 4, such as that proposed by
petitioners, suffers from certain internal logical inconsistencies that generate ambiguities in
the understanding of the provision. As the intervenor pointed out, there has never been any
constitutional or statutory provision that reserved to Filipino citizens or corporations, at least
60 percent of which is Filipino-owned, the rendition of financial or technical assistance to
companies engaged in mining or the development of any other natural resource. The taking
out of foreign-currency or peso-denominated loans or any other kind of financial assistance,
as well as the rendition of technical assistance -- whether to the State or to any other entity
in the Philippines -- has never been restricted in favor of Filipino citizens or corporations
having a certain minimum percentage of Filipino equity. Such a restriction would certainly be
preposterous and unnecessary. As a matter of fact, financial, and even technical
assistance, regardless of the nationality of its source, would be welcomed in the mining
industry anytime with open arms, on account of the dearth of local capital and the need to
continually update technological know-how and improve technical skills.
There was therefore no need for a constitutional provision specifically allowing foreign-
owned corporations to render financial or technical assistance, whether in respect of mining
or some other resource development or commercial activity in the Philippines. The last point
needs to be emphasized: if merely financial or technical assistance agreements are
allowed, there would be no need to limit them to large-scale mining operations, as there
would be far greater need for them in the smaller-scale mining activities (and even in non-
mining areas). Obviously, the provision in question was intended to refer to agreements
other than those for mere financial or technical assistance.
In like manner, there would be no need to require the President of the Republic to report to
Congress, if only financial or technical assistance agreements are involved. Such agreements
are in the nature of foreign loans that -- pursuant to Section 20 of Article 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 Congress within thirty days
from the end of every quarter of the calendar year, not thirty days after the agreement is
entered into.
And if paragraph 4 permits only agreements for loans and other forms of financial, or
technical assistance, what is the point of requiring that they be based on real contributions to
the economic growth and general welfare of the country? For instance, how is one to
measure and assess the "real contributions" to the "economic growth" and "general welfare"
of the country that may ensue from a foreign-currency loan agreement or a technical-
assistance agreement for, say, the refurbishing of an existing power generating plant for a
mining operation somewhere in Mindanao? Such a criterion would make more sense when
applied to a major business investment in a principal sector of the industry.
The conclusion is clear and inescapable -- a verba legis construction shows that paragraph 4
is not to be understood as one limited only to foreign loans (or other forms of financial
support) and to technical assistance. There is definitely more to it than that. These are
provisions permitting participation by foreign companies; requiring the 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 naïve 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 graduated and proportionate basis with the minimum Filipino ownership
given a say in the management, for instance, of day-to-day operations of the joint venture. requirement therein.
They would demand the appointment of their own men as, for example, operations
managers, technical experts, quality control heads, internal auditors or comptrollers. xxxxxxxxx
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
"Section 25. After the expiration in 1991 of the Agreement between the Republic of
assistance and to make certain that the funding and the technology they supply would not go
the Philippines and the United States of America concerning military bases, foreign
to waste. Ultimately, they would also want to protect their business reputation and bottom
military bases, troops, or facilities shall not be allowed in the Philippines except
lines.42
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
In short, the drafters will have to be credited with enough pragmatism and savvy to know for that purpose, and recognized as a treaty by the other contracting State.
that these foreign entities will not enter into such "agreements involving assistance" without
requiring arrangements for the protection of their investments, gains and benefits.
"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
Thus, by specifying such "agreements involving assistance," the drafters necessarily gave wealth shall remain operative for not more than eighteen months after the
implied assent to everything that these agreements necessarily entailed; or that could ratification of this Constitution. However, in the national interest, as certified by the
reasonably be deemed necessary to make them tenable and effective, including President, the Congress may extend such period.
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
A sequestration or freeze order shall be issued only upon showing of a prima facie
Philippine sovereignty over natural resources and full control over the enterprise undertaking
case. The order and the list of the sequestered or frozen properties shall forthwith
the EDU activities remain firmly in the State.
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
Petitioners' Theory Deflated by the months from its ratification. For those issued after such ratification, the judicial
Absence of Closing-Out Rules or Guidelines action or proceeding shall be commenced within six months from the issuance
thereof.
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 The sequestration or freeze order is deemed automatically lifted if no judicial action
that would serve to confirm the theory that the omission of the term "service contract" from or proceeding is commenced as herein provided." 43]
the 1987 Constitution signaled the demise of service contracts.
It is inconceivable that the drafters of the Constitution would leave such an important matter
The framers knew at the time they were deliberating that there were various service -- an expression of sovereignty as it were -- indefinitely hanging in the air in a formless and
contracts extant and in force and effect, including those in the petroleum industry. Many of ineffective state. Indeed, the complete absence of even a general framework only serves to
these service contracts were long-term (25 years) and had several more years to run. If they further deflate petitioners' theory, like a child's balloon losing its air.
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
Under the circumstances, the logical inconsistencies resulting from petitioners' literal and
supplied the specifics and the when and how of effecting the extinguishment of these existing
purely verba legisapproach to paragraph 4 of Section 2 of Article XII compel a resort to other
contracts (or at least the mechanics for determining them); and of putting in place the means
aids to interpretation.
to address the just claims of the contractors for compensation for their investments, lost
opportunities, and so on, if not for the recovery thereof.
Petitioners' Posture Also Negated
by Ratio Legis Et Anima
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 Thus, in order to resolve the inconsistencies, incongruities and ambiguities encountered and
extant examples of such transitory guidelines set forth in Article XVIII of our Constitution: 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.
"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
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 as service contracts and used the terms
interchangeably. The following exchange between Commissioner Jamir (sponsor of the
provision) and Commissioner Suarez irrefutably proves that the "agreements involving
technical or financial assistance" were none other than service contracts.
THE PRESIDENT. Commissioner Jamir is recognized. We are still on Section 3.
MR. JAMIR. Yes, Madam President. With respect to the second paragraph of
Section 3, my amendment by substitution reads: THE PRESIDENT MAY ENTER INTO
AGREEMENTS WITH FOREIGN-OWNED CORPORATIONS INVOLVING EITHER
TECHNICAL OR FINANCIAL ASSISTANCE FOR LARGE-SCALE EXPLORATION,
DEVELOPMENT AND UTILIZATION OF NATURAL RESOURCES ACCORDING TO THE
TERMS AND CONDITIONS PROVIDED BY LAW.
MR. VILLEGAS. The Committee accepts the amendment. Commissioner Suarez will
give the background.
MR. JAMIR. Thank you.
THE PRESIDENT. Commissioner Suarez is recognized.
MR. SUAREZ. Thank you, Madam President.
Will Commissioner Jamir answer a few clarificatory questions?
MR. JAMIR. Yes, Madam President.
MR. SUAREZ. This particular portion of the section has reference to what was
popularly known before as service contracts, among other things, is that correct?
MR. JAMIR. Yes, Madam President.
MR. SUAREZ. As it is formulated, the President may enter into service contracts but
subject to the guidelines that may be promulgated by Congress?
MR. JAMIR. That is correct.
MR. SUAREZ. Therefore, that aspect of negotiation and consummation will fall on
the President, not upon Congress?
MR. JAMIR. That is also correct, Madam President.
MR. SUAREZ. Except that all of these contracts, service or otherwise, must be
made strictly in accordance with guidelines prescribed by Congress?
MR. JAMIR. That is also correct.
MR. SUAREZ. And the Gentleman is thinking in terms of a law that uniformly covers
situations of the same nature?
MR. JAMIR. That is 100 percent correct.
MR. SUAREZ. I thank the Commissioner.
MR. JAMIR. Thank you very much.44
The following exchange leaves no doubt that the commissioners knew exactly what they
were dealing with: service contracts.
THE PRESIDENT. Commissioner Gascon is recognized.
MR. GASCON. Commissioner Jamir had proposed an amendment with regard to
special service contractswhich 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 such service contracts had been entered into, subject then to
the scrutiny of the Members of Congress. This pertains to a situation where
the service contracts are already entered into, and all that this amendment seeks is
the reporting requirement from the Office of the President. Will Commissioner
Jamir entertain that?
MR. JAMIR. I will gladly do so, if it is still within my power.
MR. VILLEGAS. Yes, the Committee accepts the amendment.
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 two-thirds vote of all
the Members of Congress as a safeguard. I think we should not mistrust
the future Members of Congress by saying that the purpose of this
provision is to avoid corruption. We cannot claim that they are less
patriotic than we are. I think the Members of this Commission should
know that entering into service contracts is an exception to the rule on
protection of natural resources for the interest of the nation, and
therefore, being an exception it should be subject, whenever possible, to
stringent rules. It seems to me that we are liberalizing the rules in favor
of aliens.
I say these things with a heavy heart, Madam President. I do not claim to
be a nationalist, but I love my country. Although we need investments,
we must adopt safeguards that are truly reflective of the sentiments of
the people and not mere cosmetic safeguards as they now appear in the
Jamir amendment. (Applause)
Thank you, Madam President.46
Another excerpt, featuring then Commissioner (now Chief Justice) Hilario G. Davide Jr.,
indicates the limitations of the scope of such service contracts -- they are valid only in regard
to minerals, petroleum and other mineral oils, not to all natural resources.
THE PRESIDENT. Commissioner Davide is recognized.
MR. DAVIDE. Thank you, Madam President. This is an amendment to the Jamir
amendment and also to the Ople amendment. I propose to delete "NATURAL
RESOURCES" and substitute it with the following: MINERALS, PETROLEUM AND
OTHER MINERAL OILS. On the Ople amendment, I propose to add: THE
NOTIFICATION TO CONGRESS SHALL BE WITHIN THIRTY DAYS FROM THE
EXECUTION OF THE SERVICE CONTRACT.
THE PRESIDENT. What does the Committee say with respect to the first
amendment in lieu of "NATURAL RESOURCES"?
MR. VILLEGAS. Could Commissioner Davide explain that?
MR. DAVIDE. Madam President, with the use of "NATURAL RESOURCES" here, it
would necessarily include all lands of the public domain, our marine resources,
forests, parks and so on. So we would like to limit the scope of these service
contracts to those areas really where these may be needed, the exploitation,
development and exploration of minerals, petroleum and other mineral oils. And
so, we believe that we should really, if we want to grant service contracts at all,
limit the same to only those particular areas where Filipino capital may not be
sufficient, and not to all natural resources.
MR. SUAREZ. Just a point of clarification again, Madam President. When the
Commissioner made those enumerations and specifications, I suppose he
deliberately did not include "agricultural land"?
MR. DAVIDE. That is precisely the reason we have to enumerate what these
resources are into which service contracts may enter. So, beyond the reach of
any service contract will be lands of the public domain, timberlands, forests,
marine resources, fauna and flora, wildlife and national parks.47
After the Jamir amendment was voted upon and approved by a vote of 21 to 10 with 2
abstentions, Commissioner Davide made the following statement, which is very relevant to
our quest:
THE PRESIDENT. Commissioner Davide is recognized.
 MR. DAVIDE. I am very glad that Commissioner Padilla emphasized minerals,
petroleum and mineral oils. The Commission has just approved the possible foreign
entry into the development, exploration and utilization of these minerals,
petroleum and other mineral oils by virtue of the Jamir amendment. I voted in
favor of the Jamir amendment because it will eventually give way to vesting in
exclusively Filipino citizens and corporations wholly owned by Filipino citizens the
right to utilize the other natural resources. This means that as a matter of policy,
natural resources should be utilized and exploited only by Filipino citizens or
corporations wholly owned by such citizens. But by virtue of the Jamir amendment,
since we feel that Filipino capital may not be enough for the development and
utilization of minerals, petroleum and other mineral oils, the President can enter
into service contracts with foreign corporations precisely for the development and
utilization of such resources. And so, there is nothing to fear that we will stagnate
in the development of minerals, petroleum and mineral oils because we now allow
service contracts. x x x."48
The foregoing are mere fragments of the framers' lengthy discussions of the provision
dealing with agreements x x x involving either technical or financial assistance, which
ultimately became paragraph 4 of Section 2 of Article XII of the Constitution. Beyond any
doubt, the members of the ConCom were actually debating about the martial-law-era service
contracts for which they were crafting appropriate safeguards.
In the voting that led to the approval of Article XII by the ConCom, the explanations given by
Commissioners Gascon, Garcia and Tadeo indicated that they had voted to reject this
provision on account of their objections to the "constitutionalization" of the "service
contract" concept.
Mr. Gascon said, "I felt that if we would constitutionalize any provision on service contracts,
this should always be with the concurrence of Congress and not guided only by a general law
to be promulgated by Congress."49 Mr. Garcia explained, "Service contracts are given
constitutional legitimization in Sec. 3, even when they have been proven to be inimical to the
interests of the nation, providing, as they do, the legal loophole for the exploitation of our
natural resources for the benefit of foreign interests."50 Likewise, Mr. Tadeo cited inter
alia the fact that service contracts continued to subsist, enabling foreign interests to benefit
from our natural resources.51 It was hardly likely that these gentlemen would have objected
so strenuously, had the provision called for mere technical or financial assistance and
nothing more.
The deliberations of the ConCom and some commissioners' explanation of their votes leave
no room for doubt that the service contract concept precisely underpinned the
commissioners' understanding of the "agreements involving either technical or financial
assistance."
Summation of the
Concom Deliberations
At this point, we sum up the matters established, based on a careful reading of the ConCom
deliberations, as follows:
· In their deliberations on what was to become paragraph 4, the framers used the
term service contracts in referring 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 large-
scale mining/extractive enterprises; and the government, through its agencies (DENR, MGB),
actively exercises control and supervision over the entire operation.
Such service contracts may be entered into only with respect to minerals, petroleum and
other mineral oils. The grant thereof is subject to several safeguards, among which are these
requirements:
(1) The service contract shall be crafted in accordance with a general law that will
set standard or uniform terms, conditions and requirements, presumably to attain
a certain uniformity in provisions and avoid the possible insertion of terms
disadvantageous to the country.
(2) The President shall be the signatory for the government because, supposedly
before an agreement is presented to the President for signature, it will have been
vetted several times over at different levels to ensure that it conforms to law and
can withstand public scrutiny.
(3) Within thirty days of the executed agreement, the President shall report it to
Congress to give that branch of government an opportunity to look over the
agreement and interpose timely objections, if any.
Use of the Record of the
ConCom to Ascertain Intent
At this juncture, we shall address, rather than gloss over, the use of the "framers' intent"
approach, and the criticism hurled by petitioners who quote a ruling of this Court:
"While it is permissible in this jurisdiction to consult the debates and proceedings of
the constitutional convention in order to arrive at the reason and purpose of the
resulting Constitution, resort thereto may be had only when other guides fail as said
proceedings are powerless to vary the terms of the Constitution when the meaning
is clear. Debates in the constitutional convention 'are of value as showing the views
of the individual members, and as indicating the reason for their votes, but they
give us no light as to the views of the large majority who did not talk, much less the
mass of our fellow citizens whose votes at the polls gave that instrument the force
of fundamental law. We think it safer to construe the constitution from what
appears upon its face.' The proper interpretation therefore depends more on how it
was understood by the people adopting it than in the framers' understanding
thereof."52
The notion that the deliberations reflect only the views of those members who spoke out
and not the views of the majority who remained silent should be clarified. We must never
forget that those who spoke out were heard by those who remained silent and did not react.
If the latter were silent because they happened not to be present at the time, they are
presumed to have read the minutes and kept abreast of the deliberations. By remaining
silent, they are deemed to have signified their assent to and/or conformity with at least some
of the views propounded or their lack of objections thereto. It was incumbent upon them, as
representatives of the entire Filipino people, to follow the deliberations closely and to speak
their minds on the matter if they did not see eye to eye with the proponents of the draft
provisions.
In any event, each and every one of the commissioners had the opportunity to speak out and
to vote on the matter. Moreover, the individual explanations of votes are on record, and they
show where each delegate stood on the issues. In sum, we cannot completely denigrate the
value or usefulness of the record of the ConCom, simply because certain members chose
not to speak out.
It is contended that the deliberations therein did not necessarily reflect the thinking of the
voting population that participated in the referendum and ratified the Constitution. Verily,
whether we like it or not, it is a bit too much to assume that every one of those who voted to
ratify the proposed Charter did so only after carefully reading and mulling over it, provision
by provision.
Likewise, it appears rather extravagant to assume that every one of those who did in fact
bother to read the draft Charter actually understood the import of its provisions, much less
analyzed it vis-à-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 decisions required in the mining operations. This strained
concept of control and supervision over the mining enterprise would render impossible the
legitimate exercise by the contractors of a reasonable degree of management prerogative
and authority necessary and indispensable to their proper functioning.
For one thing, such an interpretation would discourage foreign entry into large-scale
exploration, development and utilization activities; and result in the unmitigated stagnation
of this sector, to the detriment of our 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, all-encompassing control; but nevertheless sufficient to give the State the power
to direct, restrain, regulate and govern the affairs of the extractive enterprises. Control by
the State may be on a macro level, through the establishment of policies, guidelines,
regulations, industry standards and similar measures that would enable the government to
control the conduct of affairs in various enterprises and restrain activities deemed not
desirable or beneficial.
The end in view is ensuring that these enterprises contribute to the economic development
and general welfare of the country, conserve the environment, and uplift the well-being of
the affected local communities. Such a concept of control would be compatible with
permitting the foreign contractor sufficient and reasonable management authority over the
enterprise it invested in, in order to ensure that it is operating efficiently and profitably, to
protect its investments and to enable it to succeed.
The question to be answered, then, is whether RA 7942 and its Implementing Rules enable
the government to exercise that degree of control sufficient to direct and regulate the
conduct of affairs of individual enterprises and restrain undesirable activities.
On the resolution of these questions will depend the validity and constitutionality of certain
provisions of the Philippine Mining Act of 1995 (RA 7942) and its Implementing Rules and
Regulations (DAO 96-40), as well as the WMCP FTAA.
Indeed, petitioners 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.56This 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 the final say on whether to approve or disapprove such requested amendments to the
FTAA. In short, approval thereof is not mandatory on the part of the government.
In fine, the foregoing evaluation and analysis of the aforementioned FTAA provisions
sufficiently overturns petitioners' litany of objections to and criticisms of the 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 things as signifying that the government is entitled to an "additional
government share" to be paid by the contractor apart from the "basic share," in order to
attain a fifty-fifty sharing of net benefits from mining.
The additional government share is computed by using one of three options or schemes
presented in DAO 99-56: (1) a fifty-fifty sharing in the cumulative present value of cash flows;
(2) the share based on excess profits; and (3) the sharing based on the cumulative net mining
revenue. The particular formula to be applied will be selected by the contractor, with a
written notice to the government prior to the commencement of the development and
construction phase of the mining project.66
Proceeds from the government shares arising from an FTAA contract are distributed to and
received by the different levels of government in the following proportions:
National Government 50 percent
Provincial Government 10 percent
Municipal Government 20 percent
Affected Barangays 20 percent
The portion of revenues remaining after the deduction of the basic and additional
government shares is what goes to the contractor.
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 term among other things; and the Office of the Solicitor General, in its Motion for
Reconsideration, appears to have erroneously claimed that the phrase refers to indirect
taxes.
The law provides no definition of the term among other things, for the reason that Congress
deliberately avoided setting unnecessary limitations as to what may constitute compensation
to the State for the exploitation and use of mineral resources. But the inclusion of that
phrase clearly and unmistakably reveals the legislative intent to have the State collect more
than just the usual taxes, duties and fees. Certainly, there is nothing in that phrase -- or in the
second paragraph of Section 81 -- that would suggest that such phrase should be interpreted
as referring only to taxes, duties, fees and the like.
Precisely for that reason, to fulfill the legislative intent behind the inclusion of the
phrase among other things in the second paragraph of Section 81,67 the DENR structured and
formulated in DAO 99-56 the said additional government share. Such a share was to consist
not of taxes, but of a share in the earnings or cash flows of the mining enterprise. The
additional government share was to be paid by the contractor on top of the basic share, so as
to achieve a fifty-fifty sharing -- between the government and the contractor -- of net
benefits from mining. In the Ramos-DeVera paper, the explanation of the three options or
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 taxes70and 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 phrase among other things refers only to taxes, duties and fees. We are bewildered
by his position. On the one hand, he condemns the Mining Law for allegedly limiting the
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.
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
We believe that Congress did not set any time limit for the grace period, preferring to leave it
and the development/construction phases, the government will be able to scrutinize
to the concerned agencies, which are, on account of their technical expertise and training, in
and approve or reject such expenditures. It will be well-informed as to the amounts of pre-
a better position to determine the appropriate durations for such recovery periods. After all,
operating and other expenses that the contractor may legitimately recover and the
these recovery periods are determined, to a great extent, by technical and technological
approximate period of time needed to effect such a recovery. There is therefore no way the
factors peculiar to the mining industry. Besides, with developments and advances in
contractor can just randomly post any amount of pre-operating expenses and expect to
technology and in the geosciences, we cannot discount the possibility of shorter recovery
recover the same.
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 The aforecited provisions on approved work programs and budgets have counterparts in
years, or until the date of actual recovery, whichever comes earlier. 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
Approval of Pre-Operating
that will be invested in the contract area" and "representations and warranties x x x to timely
Expenses Required by RA 7942
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
Still, RA 7942 is criticized for allegedly not requiring government approval of pre-operating, well as "work programs and minimum expenditures commitments." (underscoring supplied)
exploration and development expenses of the foreign contractors, who are in effect given
unfettered discretion to determine the amounts of such expenses. Supposedly, nothing
Unarguably, given the provisions of Section 35, the State has every opportunity to pass upon
prevents the contractors from recording such expenses in amounts equal to the mining
the proposed expenditures under an FTAA and approve or reject them. It has access to all the
revenues anticipated for the first 10 or 15 years of commercial production, with the result
information it may need in order to determine in advance the amounts of pre-operating and
that the share of the State will be zero for the first 10 or 15 years. Moreover, under the
developmental expenses that will have to be recovered by the contractor and the amount of
circumstances, the government would be unable to say when it would start to receive its
time needed for such recovery.
share under the FTAA.

In summary, we cannot agree that the third or last paragraph of Section 81 of RA 7942 is in
We believe that the argument is based on incorrect information as well as speculation.
any manner unconstitutional.
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 No Deprivation of Beneficial Rights
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 It is also claimed that aside from the second and the third paragraphs of Section 81
covering the duration of the permit. x x x." (underscoring supplied) (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 co-production agreements and joint venture agreements -- to the exclusion of
revenues of any other nature or from any other source.
Apart from the fact that Section 112 likewise does not come within the issues delineated by
this Court during the Oral Argument, and was never touched upon by the parties in their
pleadings, it must also be noted that the criticism hurled against this Section is rooted in
unwarranted conclusions made without considering other relevant provisions in the statute.
Whether Section 112 may properly apply to co-production or joint venture agreements, the
fact of the matter is that it cannot be made to apply to FTAAs.
First, Section 112 does not specifically mention or refer to FTAAs; the only reason it is being
applied to them at all is the fact that it happens to use the word "contractor." Hence, it is a
bit of a stretch to insist that it covers FTAAs as well. Second, mineral agreements, of which
there are three types -- MPSAs, co-production agreements, and joint venture agreements --
are covered by Chapter V of RA 7942. On the other hand, FTAAs are covered by and in fact
are the subject of Chapter VI, an entirely different chapter altogether. The law obviously
intends to treat them as a breed apart from mineral agreements, since Section 35 (found in
Chapter VI) creates a long list of specific terms, conditions, commitments, representations
and warranties -- which have not been made applicable to mineral agreements -- to be
incorporated into FTAAs.
Third, under Section 39, the FTAA contractor is given the option to "downgrade" -- to convert
the FTAA into a mineral agreement at any time during the term if the economic viability of
the contract area is inadequate to sustain large-scale mining operations. Thus, there is no
reason to think that the law through Section 112 intends to exact from FTAA contractors
merely the same government share (a 2 percent excise tax) that it apparently demands from
contractors under the three forms of mineral agreements. In brief, Section 112 does not
apply to FTAAs.
Notwithstanding the foregoing explanation, Justices Carpio and Morales maintain that the
Court must rule now on the constitutionality of Sections 80, 84 and 112, allegedly because
the WMCP FTAA contains a provision which grants the contractor unbridled and "automatic"
authority to convert the FTAA into an MPSA; and should such conversion happen, the State
would be prejudiced since its share would be limited to the 2 percent excise tax. Justice
Carpio adds that there are five MPSAs already signed just awaiting the judgment of this Court
on respondents' and 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,75 duties, fees, and royalties. All told, the exploration,
pre-feasibility, feasibility, development and construction phases together add up to as many
as eleven years.76 The contractors have to continually shell out funds for the duration of over
a decade, before they can commence commercial production from which they would
eventually derive revenues. All that money translates into a lot of "pump-priming" for the
local economy.
Granted that the contractors are allowed subsequently to recover their pre-operating
expenses, still, that eventuality will happen only after they shall have first put out the
cash and fueled the economy. Moreover, in the process of recouping their investments and
costs, the foreign contractors do not actually pull out the money from the economy. Rather,
they recover or recoup their investments out of actual commercial production by not paying
a portion of the basic government share corresponding to national taxes, along with the
additional government share, for a period of not more than five 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 usein 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 a taxable
incomeof 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 tax or income tax, and another portion thereof income from exploitation of mineral
resources. Some might think it wonderful to be able to take the 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 of a mining company operated by a foreign contractor is fair and
reasonable under most if not all circumstances. The fact that some petroleum companies like
Shell acceded to such percentage of sharing does not ipso facto mean that it is per se
reasonable and applicable to non-petroleum situations (that is, mining companies) as well.
We can take judicial notice of the fact that there are, after all, numerous intrinsic differences
involved in their respective operations and equipment or technological requirements, costs
structures and capital investment needs, and product pricing and markets.
There is no showing, for instance, that mining companies can readily cope with a 60 percent
government share in the same way petroleum companies apparently can. What we have is a
suggestion to enforce the 60 percent quota on the basis of a disjointed analogy. The only
factor common to the two disparate situations is the extraction of natural resources.
Indeed, we should take note of the fact that Congress made a distinction between mining
firms and petroleum companies. In Republic Act No. 7729 -- "An Act Reducing the Excise Tax
Rates on Metallic and Non-Metallic Minerals and Quarry Resources, Amending for the
Purpose Section 151(a) of the National Internal Revenue Code, as amended" -- the lawmakers
fixed the excise tax rate on metallic and non-metallic minerals at two percent of the actual
market value of the annual gross output at the time of removal. However, in the case of
petroleum, the lawmakers set the excise tax rate for the first taxable sale at fifteen percent of
the fair international market price thereof.
There must have been a very sound reason that impelled Congress to impose two very
dissimilar excise tax rate. We cannot assume, without proof, that our honorable legislators
acted arbitrarily, capriciously and whimsically in this instance. We cannot just ignore the
reality of two distinctly different situations and stubbornly insist on going "minimum 60
percent."
To repeat, the mere fact that gas and oil exploration contracts grant the State 60 percent of
the net revenues does not necessarily imply that mining contracts should likewise yield a
minimum of 60 percent for the State. Jumping to that erroneous conclusion is like comparing
apples with oranges. The exploration, development and utilization of gas and oil are simply
different from those of mineral resources.
To stress again, the main risk in gas and oil is in the exploration. But once oil in commercial
quantities is struck and the wells are put in place, the risk is relatively over and black gold
simply flows out continuously with comparativelyless 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-with-you"
approach is quite perilous. True, this situation may not seem too unpalatable to the foreign
contractor during good years, when international market prices are up and the mining firm
manages to keep its costs in check. However, under unfavorable economic and business
conditions, with costs spiraling skywards and minerals prices plummeting, a mining firm may
consider itself lucky to make just minimal profits.
The inflexible, carved-in-granite demand for a 60 percent government share may spell the
end of the mining venture, scare away potential investors, and thereby further worsen the
already dismal economic scenario. Moreover, such an unbending or unyielding policy
prevents the government from responding appropriately to changing economic conditions
and shifting market forces. This inflexibility further renders our country less attractive as an
investment option compared with other countries.
And fifth, for this Court to decree imperiously that the 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 of reasonable consulting fees incurred abroad, as well as
administrative expenses and overheads related to marketing offices also located abroad --
provided that these deductions are directly related or properly allocatable to the mining
operations and reasonably related to the performance of the 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 constitutes unjust enrichment on
the part of the contractor at the expense of the government, since the latter is effectively
being made to pay twice for the same item.91 For being grossly disadvantageous and
prejudicial to the government and contrary to public policy, Section 7.8(e) is undoubtedly
invalid and must be declared to be without effect. Fortunately, this provision can also easily
be stricken off without affecting the rest of the FTAA.
Nothing Left Over
After Deductions?
In connection with Section 7.8, an objection has been raised: Specified in Section 7.8 are
numerous items of deduction from the 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 -- co-production agreements, joint venture agreements and mineral
production-sharing agreements -- which the government may enter into with Filipino citizens
and corporations, at least 60 percent owned by Filipino citizens. The word "such" clearly
refers to these three mineral agreements -- CPAs, JVAs and MPSAs -- not to FTAAs.
Specifically, FTAAs are covered by paragraphs 4 and 5 of Section 2 of Article XII of the
Constitution. It will be noted that there are no term limitations provided for in the said
paragraphs dealing with FTAAs. This shows that FTAAs are sui generis, in a class of their own.
This omission was obviously a deliberate move on the part of the framers. They probably
realized that FTAAs would be different in many ways from MPSAs, JVAs and CPAs. The reason
the framers did not fix term limitations applicable to FTAAs is that they preferred to leave the
matter to the discretion of the legislature and/or the agencies involved in implementing the
laws pertaining to FTAAs, in order to give the latter enough flexibility and elbow room to
meet changing circumstances.
Note also that, as previously stated, the exploratory phrases of an FTAA lasts up to eleven
years. Thereafter, a few more years would be gobbled up in start-up operations. It may take
fifteen years before an FTAA contractor can start earning profits. And thus, the period of 25
years may really be short for an FTAA. Consider too that in this kind of agreement, the
contractor assumes all entrepreneurial risks. If no commercial quantities of minerals are
found, the contractor bears all financial losses. To compensate for this long gestation period
and extra business risks, it would not be totally unreasonable to allow it to continue EDU
activities for another twenty five years.
In any event, the complaint is that, in essence, Section 3.3 gives the contractor the power to
compel the government to renew the WMCP FTAA for another 25 years and deprives the
State of any say on whether to renew the contract.
While we agree that Section 3.3 could have been worded so as to prevent it from favoring
the contractor, this provision does not violate any constitutional limits, since the said term
limitation does not apply at all to FTAAs. Neither can the provision be deemed in any manner
to be illegal, as no law is being violated thereby. It is certainly not illegal for the government
to waive its option to refuse the renewal of a commercial contract.
Verily, the government did not have to agree to Section 3.3. It could have said "No" to the
stipulation, but it did not. It appears that, in the process of negotiations, the other
contracting party was able to convince the government to agree to the renewal terms. Under
the circumstances, it does not seem proper for this Court to intervene and step in to undo
what might have perhaps been a possible miscalculation on the part of the State. If
government believes that it is or will be aggrieved by the effects of Section 3.3, the remedy is
the renegotiation of the provision in order to provide the State the option to not renew the
FTAA.
Financial Benefits for Foreigners
Not Forbidden by the Constitution
Before leaving this subject matter, we find it necessary for us to rid ourselves of the false
belief that the Constitution somehow forbids foreign-owned corporations from deriving
financial benefits from the development of our natural or mineral resources.
The Constitution has never prohibited foreign corporations from acquiring and enjoying
"beneficial interest" in the development of Philippine natural resources. The State itself need
not directly undertake exploration, development, and utilization activities. Alternatively, the
Constitution authorizes the government to enter into joint venture agreements (JVAs), co-
production agreements (CPAs) and mineral production sharing agreements (MPSAs) with
contractors who are Filipino citizens or corporations that are at least 60 percent Filipino-
owned. They may do the actual "dirty work" -- the mining operations.
In the case of a 60 percent Filipino-owned corporation, the 40 percent individual and/or
corporate non-Filipino stakeholders obviously participate in the beneficial interest derived
from the development and utilization of our natural resources. They may receive by way of
dividends, up to 40 percent of the 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-à-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-à-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-in-interest come to terms."
Neither has the present leadership been remiss in addressing the concerns of sustainable
mining operations. Recently, on January 16, 2004 and April 20, 2004, President Gloria
Macapagal Arroyo issued Executive Orders Nos. 270 and 270-A, respectively, "to
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 either…or, 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 naïve. 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-than-optimal levels of operation, the stream of revenues
generated may not even be enough to cover variable expenses, let alone overhead expenses;
this is a dismal situation anyone would want to avoid. In order to make money, one has to
spend money. This truism applies to the mining industry as well.
8. Mortgaging the minerals to secure a foreign FTAA 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 phrase among other things was not
intended as a delegation of legislative power to the DENR secretary, much less could it be
deemed a valid delegation of legislative power, since there is nothing in the second
paragraph of Section 81 which can be said to grant any delegated legislative power to the
DENR secretary. And even if there were, such delegation would be void, for lack of any
standards by which the delegated power shall be exercised.
While there is nothing in the second paragraph of Section 81 which can directly be construed
as a delegation of legislative power to the DENR secretary, it does not mean that DAO 99-56
is invalid per se, or that the secretary acted without any authority or jurisdiction in issuing
DAO 99-56. As we stated earlier in our Prologue, "Who or what organ of government actually
exercises this power of control on behalf of the State? The Constitution is crystal clear:
the President. Indeed, the Chief Executive is the official constitutionally mandated to 'enter
into agreements with foreign owned corporations.' On the other hand, Congress may review
the action of the President once it is notified of 'every contract entered into in accordance
with this [constitutional] provision within thirty days from its execution.'"It is the President
who is constitutionally mandated to enter into FTAAs with foreign corporations, and in doing
so, it is within the 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 phrase among other things is therefore useless, and must fall by the wayside. There is
no point trying to construe that phrase in relation to the enumeration of taxes, duties and
fees found in paragraph 2 of Section 81, precisely because "the constitutional power to
prescribe the sharing of mining income between the State and mining companies,"to quote
Justice Carpio pursuant to an FTAA is constitutionally lodged with the President, not with
Congress. It thus makes no sense to persist in giving the phrase among other things a
restricted meaning referring only to taxes, duties and fees.
13. Strangely, Justice Carpio claims that the DENR secretary can change the formulae in DAO
99-56 any time even without the approval of the President, and the secretary is the sole
authority to determine the amount of consideration that the State shall receive in an FTAA,
because Section 5 of the DAO states that "xxx any amendment of an FTAA other than the
provision on fiscal regime shall require the negotiation with the Negotiation Panel and the
recommendation of the Secretary for approval of the President xxx". Allegedly, because of
that provision, if an amendment in the FTAA involves non-fiscal matters, the amendment
requires approval of the President, but if the amendment involves a change in the fiscal
regime, the DENR secretary has the final authority, and approval of the President may be
dispensed with; hence the secretary is more powerful than the President.
We believe there is some distortion resulting from the quoted provision being taken out of
context. Section 5 of DAO 99-56 reads as follows:
"Section 5. Status of Existing FTAAs. All FTAAs approved prior to the effectivity of
this Administrative Order shall remain valid and be recognized by the Government:
Provided, That should a Contractor desire to amend its FTAA, it shall do so by filing
a Letter of Intent (LOI) to the Secretary thru the Director. Provided, further, That if
the Contractor desires to amend the fiscal regime of its FTAA, it may do so by
seeking for the amendment of its 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 the same by adopting the fiscal regime prescribed in DAO 99-56
-- i.e., solely in that manner, and in no other. Obviously, since DAO 99-56 was issued by the
secretary under the authority and with the presumed approval of the President, the
amendment of an FTAA by merely adopting the fiscal regime prescribed in said DAO 99-56
(and nothing more) need not have the express clearance of the President anymore. It is as
if the same had been pre-approved. We cannot fathom the complaint that that makes the
secretary more powerful than the President, or that the former is trying to hide things from
the President or Congress.
14. Based on the first sentence of Section 5 of DAO 99-56, which states "[A]ll FTAAs approved
prior to the effectivity of this Administrative Order shall remain valid and be recognized by
the Government", Justice Carpio concludes that said Administrative Order
allegedly 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 99-56, like
the WMCP FTAA. The majority's position has allegedly no leg to stand on since even DAO 99-
56, assuming it is valid, cannot save the WMCP FTAA from want of consideration. Even
assuming arguendo 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 assistance in respect of mining or any other commercial activity
was clearly unnecessary; the provision was meant to refer to more than mere financial or
technical assistance.
Also, if paragraph 4 permits only agreements for financial or technical assistance, there
would be no point in requiring that they be "based on real contributions to the economic
growth and general welfare of the country." And considering that there were various long-
term service contracts still in force and effect at the time the new Charter was being drafted,
the absence of any transitory provisions to govern the termination and closing-out of the
then existing service contracts strongly militates against the theory that the mere omission of
"service contracts" signaled their prohibition by the new Constitution.
Resort to the deliberations of the Constitutional Commission is therefore unavoidable, and a
careful scrutiny thereof conclusively shows that the ConCom members discussed agreements
involving either technical or financial assistance in the same sense as service contracts and
used the terms interchangeably. The drafters in fact knew that the agreements with foreign
corporations were going to entail not mere technical or financial assistance but, rather,
foreign investment in and management of an enterprise for large-scale exploration,
development and utilization of minerals.
The framers spoke about service contracts as the concept was understood in the 1973
Constitution. It is obvious from their discussions that they did not intend to ban or eradicate
service contracts. Instead, they were intent on crafting provisions to put in place safeguards
that would eliminate or minimize the abuses prevalent during the martial law regime. In
brief, they were going to permit service contracts with foreign corporations as contractors,
but with safety measures to prevent abuses, as an exception to the general norm
established in the first paragraph of Section 2 of Article XII, which reserves or limits to
Filipino citizens and corporations at least 60 percent owned by such citizens the
exploration, development and utilization of mineral or petroleum resources. This was
prompted by the perceived insufficiency of Filipino capital and the felt need for foreign
expertise in the EDU of mineral resources.
Despite strong opposition from some ConCom members during the final voting, the Article
on the National Economy and Patrimony -- including paragraph 4 allowing service contracts
with foreign corporations as an exception to the general norm in paragraph 1 of Section 2 of
the same Article -- was resoundingly and overwhelmingly approved.
The drafters, many of whom were economists, academicians, lawyers, businesspersons and
politicians knew that foreign entities will not enter into agreements involving assistance
without requiring measures of protection to ensure the success of the venture and
repayment of their investments, loans and other financial assistance, and ultimately to
protect the business reputation of the foreign corporations. The drafters, by specifying such
agreements involving assistance, necessarily gave implied assent to everything that these
agreements entailed or that could reasonably be deemed necessary to make them tenable
and effective -- including management authority with respect to the day-to-day operations of
the enterprise, and measures for the protection of the interests of the foreign corporation, at
least to the extent that they are consistent with Philippine sovereignty over natural
resources, the constitutional requirement of State control, and beneficial ownership of
natural resources remaining vested in the State.
From the foregoing, it is clear that agreements involving either technical or financial
assistance referred to in paragraph 4 are in 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 supervises everything down to the
minutest details and makes all required actions, as this would render impossible the
legitimate exercise by the contractor of a reasonable degree of management prerogative and
authority, indispensable to the proper functioning of the mining enterprise. Also,
government need not micro-manage mining operations and day-to-day affairs of the
enterprise in order to be considered as exercising full control and supervision.
Control, as utilized in Section 2 of Article XII, must be taken to mean a degree of control
sufficient to enable the State to direct, restrain, regulate and govern the affairs of the
extractive enterprises. Control by the State may be on a macro level, through the
establishment of policies, guidelines, regulations, industry standards and similar measures
that would enable government to regulate the conduct of affairs in various enterprises,
and restrain activities deemed not desirable or beneficial, with the end in view of ensuring
that these enterprises contribute to the economic development and general welfare of the
country, conserve the environment, and uplift the well-being of the local affected
communities. Such a degree of control would be compatible with permitting the foreign
contractor sufficient and reasonable management authority over the enterprise it has
invested in, to ensure efficient and profitable operation.
Government Granted Full Control
by RA 7942 and DAO 96-40
Baseless are petitioners' sweeping claims that RA 7942 and its Implementing Rules and
Regulations make it possible for FTAA contracts to cede full control and management of
mining enterprises over to fully foreign owned corporations. Equally wobbly is the assertion
that the State is reduced to a passive regulator dependent on submitted plans and reports,
with weak review and audit powers and little say in the decision-making of the enterprise, for
which reasons "beneficial ownership" of the mineral resources is allegedly ceded to the
foreign contractor.
As discussed hereinabove, the 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 pre-operating and
operating expenses, and the disposition of mineral products.
There is likewise no relinquishment of control on account of specific provisions of the WMCP
FTAA. Clause 8.2 provides a mechanism to prevent the mining operations from grinding to a
complete halt as a result of possible delays of more than 60 days in the 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 a basic government share, comprised of all direct taxes, fees
and royalties, as well as other payments made by the contractor during the term of the FTAA,
but also an additional government share, being a share in the earnings or cash flows of the
mining enterprise, so as to achieve a fifty-fifty sharing of net benefits from mining between
the government and the contractor.
The additional government share is computed using one of three (3) options or schemes
detailed in DAO 99-56, viz., (1) the fifty-fifty sharing of cumulative present value of cash
flows; (2) the excess profit-related 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 an appropriate balancing of interests and needs -- the need to develop our
stagnating mining industry and extract what NEDA Secretary Romulo Neri estimates is some
US$840 billion (approx. PhP47.04 trillion) worth of mineral wealth lying hidden in the ground,
in order to jumpstart our floundering economy on the one hand, and on the other, the need
to enhance our nationalistic aspirations, protect our indigenous communities, and prevent
irreversible ecological damage.
This Court cannot but be mindful that any decision rendered in this case will ultimately
impact not only the cultural communities which lodged the instant Petition, and not only the
larger community of the Filipino people now struggling to survive amidst a fiscal/budgetary
deficit, ever increasing prices of fuel, food, and essential commodities and services, the
shrinking value of the local currency, and a government hamstrung in its delivery of basic
services by a severe lack of resources, but also countless future generations of Filipinos.
For this latter group of Filipinos yet to be born, their eventual access to education, health
care and basic services, their overall level of well-being, the very shape of their lives are even
now being determined and affected partly by the policies and directions being adopted and
implemented by government today. And in part by the this Resolution rendered by this Court
today.
Verily, the mineral wealth and natural resources of this country are meant to benefit not
merely a select group of people living in the areas locally affected by mining activities, but
the entire Filipino nation, present and future, to whom the mineral wealth really belong. This
Court has therefore weighed carefully the rights and interests of all concerned, and decided
for the greater good of the greatest number. JUSTICE FOR ALL, not just for some; JUSTICE
FOR THE PRESENT AND THE FUTURE, not just for the here and now.
WHEREFORE, the Court RESOLVES to GRANT the respondents' and the intervenors' Motions
for Reconsideration; to REVERSE 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.
SO ORDERED.
LEPANTO CONSOLIDATED MINING CO.,
Petitioner,
- versus -
WMC RESOURCES INTL. PTY. LTD., WMC PHILIPPINES, INC. and SAGITTARIUS MINES, INC.,
Respondents.
CHICO-NAZARIO, J.:
Before Us is a Petition for Review on Certiorari under Rule 45 of the Rules of Civil
Procedure, assailing the Decision[1] of the Court of Appeals in CA-G.R. SP No. 74161, dated 21
November 2003, which dismissed herein petitioners Petition for Review of the Decision[2] of
the Office of the President dated 23 July 2002 affirming in totothe Order[3] of the Secretary of
the Department of Environment and Natural Resources (DENR) dated 18 December 2001
approving the application for and the consequent registration of FTAA No. 02-95-XI from WMC
Philippines to Sagittarius Mines, Inc.
On 22 March 1995, the Philippine Government and WMC Philippines, the local
wholly-owned subsidiary of WMC Resources International Pty. Ltd. (WMC Resources) executed
a Financial and Technical Assistance Agreement, denominated as the Columbio FTAA No. 02-
95-XI (Columbio FTAA) for the purpose of large scale exploration, development, and
commercial exploration of possible mineral resources in an initial contract area of 99,387
hectares located in the provinces of South Cotabato, Sultan Kudarat, Davao del Sur, and
North Cotabato in accordance with Executive Order No. 279 and Department Administrative
Order No. 63, Series of 1991.
The Columbio FTAA is covered in part by 156 mining claims held under various
Mineral Production Sharing Agreements (MPSA) by Southcot Mining
Corporation, Tampakan Mining Corporation, and Sagittarius Mines, Inc. (collectively called
the Tampakan Companies), in accordance with the Tampakan Option Agreement entered into
by WMC Philippines and the Tampakan Companies on 25 April 1991, as amended by
Amendatory Agreement dated 15 July 1994, for purposes of exploration of the mining claims
in Tampakan, South Cotabato. The Option Agreement, among other things, provides for the
grant of the right of first refusal to the Tampakan Companies in case WMC Philippines desires
to dispose of its rights and interests in the mining claims covering the area subject of the
agreement.
WMC Resources subsequently divested itself of its rights and interests in
the Columbio FTAA, and on 12 July 2000 executed a Sale and Purchase Agreement with
petitioner Lepanto over its entire shareholdings in WMC Philippines, subject to the exercise of
the Tampakan Companies exercise of their right of first refusal to purchase the subject
shares. On 28 August 2000, petitioner sought the approval of the 12 July 2000 Agreement from
the DENR Secretary.
In an Agreement dated 6 October 2000, however, the Tampakan Companies sought
to exercise its right of first refusal. Thus, in a letter dated 13 October 2000, petitioner assailed
the Tampakan Companies exercise of its right of first refusal, alleging that
the Tampakan Companies failed to match the terms and conditions set forth in the 12 July
2000 Agreement.
Thereafter, petitioner filed a case[4] for Injunction, Specific Performance, Annulment
of Contracts and Contractual Interference with the Regional Trial Court of Makati, Branch 135,
against WMC Resources, WMC Philippines, and the Tampakan Companies. WMC Philippines
and the Tampakan Companies moved for the dismissal of said case. Said Motion to Dismiss
having been denied, WMC Philippines challenged the order dismissing the Motion on
appeal[5] before the Court of Appeals which subsequently ordered the dismissal of the case on
the ground of forum shopping in this wise:
Nevertheless, the Court finds that private respondent is guilty of
forum-shopping. There is forum-shopping whenever, as a result of an
adverse opinion in one forum, a party seeks a favorable opinion (other
than by appeal or certiorari) in another. The principle applies not only with
respect to suits filed in courts but also in connection with litigation
commenced in the courts while an administrative processes and in
anticipation of an unfavorable administrative ruling and a favorable court
ruling.
In this case, petitioners argue that private respondent is guilty of
forum shopping for having lodged the complain before respondent Court
pending action by the Secretary of the DENR through the Mines and Geo-
Sciences Bureau (MGB) on its approval of the Sale and Purchase
Agreement dated July 12, 2000. Private respondent on the other hand,
opposes the foregoing contention arguing that the MGB will be merely
exercising its administrative not quasi-judicial power.
The action before respondent court was filed by private
respondent to compel petitioner WMC Resources to convey its equity in
WMC Phils. and Hillcrest to the former.Meanwhile, in the case before the
MGB, private respondent sought the approval of Sale and that
the MGBs authority over the case is purely administrative, but further
review shows that private respondent raised contentious issues which
need resolution by the MGB before it can recommend any approval to the
Secretary of the DENR. Particularly, in its letter dated October 13, 2000 to
the Secretary of the DENR, private respondent posed its objection to the
approval of the Sales and Purchase agreements between WMC Resources
and the TampakanCompanies, asserting that the latter failed to validly
exercise its right of first refusal. Also, in its letter to the Director of the MGB
dated December 8, 2000, private respondent spelled out in detail its
reasons for objecting to the agreement between WMC Resources and
the Tampakan Companies, and in the same breath, argued for the
approval of its own contract. And because of the opposing claims posited
by private respondent and petitioners, the MGB was constrained to
require the parties to submit their respective comments. At the juncture,
the MGBsauthority ceased to be administrative. Evidently, the MGB has to
review all these opposing contentions and resolve the same. A resolution
of the MGB on which contract to recommend or endorse to the Secretary
of the DENR for approval will necessarily include a declaration on the
validity of the different Sale and Purchase Agreements executed between
the disagreeing parties, as well as on the exercise of
the Tampakan Companies exercise of its right of first refusal and its
qualification as a contractor under the FTAA. Even the MGB is aware that
the dispute revolves around these sales and purchase agreements. Hence,
it cannot be gainsaid that the MGB will be exercising its quasi-judicial
powers in resolving the conflict before it.Whether the MGB can validly
exercise such jurisdiction over the controversy is another issue but
nonetheless immaterial in determining whether private respondent is
guilty of forum-shopping. What is determinative is the filing of two (2)
separate actions in different for a based principally on the same cause on
the supposition that one or the other court would make a favorable
disposition. Thus, it is not highly unlikely that respondent Court and MGB
will come up with conflicting pronouncements on the dispute, thereby
creating a quandary as to which one will prevail. Private respondents
act undisputably constitutes a clear case of forum-shopping, a ground for
summary dismissal with prejudice of the action. The respondent court
committed grave abuse of discretion in refusing to dismiss Civil Case No.
01-087 on ground of forum-shopping.[6]
 With the denial of petitioners Motion for Reconsideration, the case[7] was elevated
to this Court. In a Decision dated 24 September 2003, the Court affirmed the Decision of the
appellate court and dismissed the petition. In said Decision, the Court elucidated that:
True, the questioned agreements of sale between petitioner and
WMC on one hand and between WMC and the Tampakan Companies on
the other pertain to transfer of shares of stock from one entity to another.
But said shares of stock represent ownership of mining rights or interest in
mining agreements. Hence, the power of the MGB to rule on the validity
of the questioned agreements of sale, which was raised by petitioner
before the DENR, is inextricably linked to the very nature of such
agreements over which the MGB has jurisdiction under the law.
Unavoidably, there is identity of reliefs that petitioner seeks from both the
MGB and the RTC.
Forum shopping exists when both actions involve the same
transactions, same essential facts and circumstances and raise identical
causes of actions, subject matter, and issues. Such elements are evidently
present in both the proceedings before the MGB and before the trial court.
The case instituted with the RTC was thus correctly ordered dismissed by
the appellate court on the ground of forum shopping. Besides, not only did
petitioner commit forum shopping but it also failed to exhaust
administrative remedies by opting to go ahead in seeking reliefsfrom the
court even while those same reliefs were appropriately awaiting
resolution by the MGB.[8]
In the interim, on 10 January 2001, contending that the 12 July Agreement between
petitioner and WMC Philippines had expired due to failure to meet the necessary
preconditions for its validity, WMC Resources and the Tampakan Companies executed another
Sale and Purchase Agreement, where Sagittarius Mines, Inc. was designated assignee and
corporate vehicle which would acquire the shareholdings and undertake the Columbio FTAA
activities. On 15 January 2001, Sagittarius Mines, Inc. increased its authorized capitalization
to P250 million. Subsequently, WMC Resources and Sagittarius Mines, Inc. executed a Deed of
Absolute Sale of Shares of Stocks on 23 January 2001.
After due consideration and evaluation of the financial and technical qualifications
of Sagittarius Mines, Inc., the DENR Secretary approved the transfer of the Columbio FTAA
from WMC Philippines to Sagittarius Mines, Inc. in the assailed Order. According to said Order,
pursuant to Section 66 of Department Administrative Order No. 96-40, as amended, Sagittarius
Mines, Inc. meets the qualification requirements as Contractor-Transferee of FTAA No. 02-95-
XI, and that the application for transfer of said FTAA went thru the procedure and other
requirements set forth under the law.
Aggrieved by the transfer of the Columbio FTAA in favor of Sagittarius Mines, Inc.,
petitioner filed a Petition for Review of the Order of the DENR Secretary with the Office of the
President. Petitioner assails the validity of the 18 December 2001 Order on the ground that: 1)
it violates the constitutional right of Lepanto to due process; 2) it preempts the resolution of
very crucial legal issues pending with the regular courts; and 3) it blatantly violates Section 40
of the Mining Act.
In a Decision dated 23 July 2002, the Office of the President dismissed the petition
in this wise:
At the outset, it bears emphasis that quite contrary to the argument of
petitioner Lepanto, the above Order of the DENR Secretary is
not violative of the Mining Law. Since the subject Columbio FTAA was
granted in accordance with the pertinent provisions of Executive Order No.
279 and Department Administrative Order No. 63 on 22 March 1995, or
prior to the effectivity of the Philippine Mining Act of 1995, especially as it
highlights the non-impairment of existing mining and/or quarrying rights,
under Section 14.1 (b) thereof, only the consent of DENR Secretary is
required. To hold otherwise would be to unduly impose a burden on
transferor WMC and thereby restrict its freedom to dispose of or alienate
this property right without due process. Thus, under the Revised
Implementing Rules and Regulations of the Philippine Mining Act of 1995,
Chapter XXX thereof expressly echoes the guaranty:
Section 272. Non-Impairment of Existing
Mining/Quarrying Rights.- All valid and existing mining
lease contracts, permits/licenses, leases pending
renewal, Mineral Production Sharing Agreements,
FTAA granted under Executive Order No. 279, at the
date of the Act shall remain valid, shall not be impaired
and shall be recognized by the Government x x x.
x x x Provided, finally, That this provision is applicable
only to all FTAA/MPSA applications filed under
Department Administrative Order No. 63 prior to
the effectivity of the act and these implementing rules
and regulations.
 As correctly stated by the MGB Director and affirmed by the
DENR Secretary, Section 14.1 of the Columbio FTAA provides that the FTAA
may be transferred provided that the Secretary consents to the
same. Pursuant to Section 112 of the Mining Act and Section 272 of DAO
No. 96-40, as amended, on non-impairment of existing mining rights, the
subject application for transfer of the Columbio FTAA to Sagittarius
requires only the approval of the DENR Secretary.
Moreover, there is no merit in petitioner Lepantos argument
that the DENR Secretary and consequently, this Office, has no jurisdiction
over the subject matter in issue. The assailed Order of the DENR Secretary
was pursuant to the latters exercise of the well-entrenched doctrine of
primary jurisdiction of administrative agencies.
By virtue of the operation of the doctrine of primary jurisdiction,
courts cannot and will not determine a controversy involving a question
which is within the jurisdiction of an administrative tribunal, especially
where the question demands the exercise of sound administrative
discretion requiring the special knowledge, experience and services of the
tribunal to determine technical and intricate matters of fact and where a
uniformity of ruling is essential to comply with the purposes regulatory
statute administered. (Province of Zamboanga del Norte v. Court of
Appeals, 342 SCRA 549 [2000]; Factoran v. Court of Appeals, 320 SCRA 530
[1999]; Brett v. Intermediate Appellate Court, 191 SCRA 687
[1990]; QualitransLimousine Service, Inc. v. Royal Class Limousine Service,
179 SCRA 569 [1989]). Thus, even though an action may be lodged in court
that is ostensibly for annulment or rescission of what appears to be an
ordinary civil contract cognizable by a civil court, the doctrine of primary
jurisdiction still applies. (Industrial Enterprises, Inc. v. Court of Appeals, 184
SCRA 426 [1990]).
Section 4, Chapter 1, Title XIV, Book IV of the Administrative
Code of 1987 specifies the powers and functions of the DENR. Also, the
Philippine Mining Act of 1995 provides that the DENR shall be the primary
government agency responsible for the conservation, management,
development, and proper use of the States mineral resources including
those in reservations, watershed areas, and lands of the public
domain. The Secretary shall have the authority to enter into mineral
agreements on behalf of the Government upon the recommendation of
the Director, promulgate such rules and regulations as may be necessary
to implement the intent and provisions of this Act. (Chapter II, Section
8). Since an FTAA is a contract involving financial or technical assistance for
large-scale exploration, development and utilization of mineral resources
(Ibid., Chapter 1, Section 3 [r]), any issue affecting the same is indubitably
within the primary jurisdiction of the DENR, as in fact, the government
enters into FTAAs through the DENR (Ibid., Chapter VI, Section 33).
There is no dispute that the instant case involves and requires
the special technical knowledge and expertise of the DENR. In the
determination by the DENR of a qualified person pursuant to the Philippine
Mining Act of 1995, such person must possess the technical and financial
capability to undertake mineral resources development. (Chapter I,
Section 3 [aq])Obviously, this determination peculiarly lies within the
expertise of the DENR.
The validity of the successive transfers is not a civil issue,
contrary to the allegation of petitioner Lepanto, because validity of
transfer depends on technical qualifications of the transferee and
compliance with the DENR requirements on qualifications, all of which
require administrative expertise. Notably, petitioner Lepanto
is estopped from assailing the primary jurisdiction of the DENR since
petitioner Lepanto itself anchored its Petition (cf. pp. 4-5) on the
contention that, allegedly, the Tampakan Companies failed to match the
terms and conditions of the July 12 Agreement with petitioner Lepanto
in that they did not possess the financial and technical qualifications
under the Mining Act and its Implementing
Rules. Petitioner Lepantos objections therefore go into the very
qualifications of a transferee which is a technical issue.
This contention is a recognition by petitioner Lepanto itself of
the fact that the crucial and determinative issue in the instant case is
grounded on the financial and technical qualifications of a transferee,
which issue, indisputably, is within the exclusive domain and expertise of
the DENR and not of the courts.
xxxx
Moreover, petitioner Lepanto, by its conduct, is
again estopped from assailing the DENRs jurisdiction after actively
participating in the proceedings therein and seeking affirmative relief. A
party who invoked the jurisdiction [of] a tribunal and actively participated
in the proceedings therein cannot impugn such jurisdiction when faced
with an adverse decision. (cf. Briad Agro Development Corporation
v. dela Serna, 174 SCRA 524 [1989]).[9] [Emphasis ours]

With the denial of its Motion for Reconsideration, petitioner lodged an appeal before
the Court of Appeals which was consequently dismissed by the appellate court in the herein
assailed Decision. According to the Court of Appeals:
Petitioner forcefully argues that the DENR Secretary had usurped
the power of the President of the Philippines to approve the transfer of
FTAA, as under the provision of Section 40 of the Philippine Mining Act of
1995, any transfer or assignment of an FTAA has to be approved not by the
DENR Secretary but by the President.
The argument does not wash.
The issue hinges on the applicability of Section 40 of RA 7942 or
the Philippine Mining Act of 1995, which took force on 14 April 1995, on
the transfer of FTAA from WMC to the Tampakan Companies, particularly
the Sagittarius Mines, Inc.
The said law provides:
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
approval.
However, the above provision does not apply to
the Columbio FTAA which was entered into by and between the Philippine
Government and WMCP on 22 March 1995, or prior to the effectivity of RA
No. 7942. Section 14.1 of the Columbio FTAA, under which
the Tampakan Companies claim their rights to first refusal, reads:
14.1 Assignment
The Contractor may assign, transfer, convey or
otherwise dispose of all or any part of its interest in the
Agreement provided that such assignment, transfer,
conveyance or disposition does not infringe any
Philippine law applicable to foreign ownership:
(a) to an Affiliate provided that it gives notice of such
assignment to the Secretary within 30 days after
such assignment; or
(b) to any third party provided that the Secretary
consents to the same, which consent shall not be
unreasonably withheld.
Section 10, Article III of the Philippine Constitution enjoins
Congress from passing a law impairing the obligation of contracts. It is
axiomatic that a law that impairs an obligation of contract also violates the
due process clause. The obligation of an existing contract is impaired when
its terms and conditions are changed by law, ordinance, or any issuance
having the force of law, thereby weakening the position or diminishing the
rights of a party to the contract. The extent of the change is not material. It
is not a question of degree or manner or cause, but of encroaching in any
respect on its obligations or dispensing with any part of its
force. Impairment has also been predicated on laws which, without
destroying contracts, derogate from substantial contractual rights.
The condition of RA No. 7942 requiring the further approval of
the President, if made to apply retroactively to the Columbio FTAA, would
impair the obligation of contracts simply because it constitutes a
restriction on the right of the contractor to assign or transfer its interest in
an FTAA. In other words, it diminished the vested rights of the contractor
to assign or transfer its interests on mere approval of the DENR
Secretary. The restriction is therefore substantive, and not merely
procedural, contrary to the contention of petitioner.
xxxx
 Likewise militating against the petitioners side is the doctrine
that statutes are to be construed as having only a prospective operation
unless the purpose and intention of the Legislature to give them a
retrospective effect is expressly declared or is necessarily implied from the
language used. In case of doubt, the doubt must be resolved against the
retrospective effect. At any rate, even if RA No. 7942 be accorded a
retroactive effect, this does not ipso facto permit the application of the
requirement of securing a prior presidential consent to the transfer of
FTAA, for, to iterate, this would impair the obligation of contract. In such a
case, the correct application of RA No. 7942 is for the provisions to [be]
made to apply on existing FTAAs only if the same would not result in
impairment of obligation of contracts.
This is as it should be. To hold otherwise would be to unduly
impose a burden on transferor WMC and thereby restrict its freedom to
dispose of or alienate its property right without due process. It constitutes
impairment of obligation of contracts, which the Fundamental Law
enjoins, and contravenes the doctrine of prospective application of
laws.[10]
Hence, the instant Petition.
The pivotal issue to be resolved herein involves the propriety of the application to
the Columbio FTAA of Republic Act No. 7942 or the Philippine Mining Act of 1995, particularly
Section 40 thereof requiring the approval of the President of the assignment or transfer of
financial or technical assistance agreements. Petitioner maintains that respondents failed to
comprehend the express language of Section 40 of the Philippine Mining Act of 1995 requiring
the approval of the President on the transfer or assignment of a financial or technical
assistance agreement.
To resolve this matter, it is imperative at this point to stress the fact that
the Columbio FTAA was entered into by the Philippine Government and WMC Philippines
on 22 March 1995, undoubtedly before the Philippine Mining Act of 1995 took effect on 14
April 1995. Furthermore, it is undisputed that said FTAA was granted in accordance with
Executive Order No. 279 and Department Administrative Order No. 63, Series of 1991, which
does not contain any similar condition on the transfer or assignment of financial or technical
assistance agreements. Thus, it would seem that what petitioner would want this Court to
espouse is the retroactive application of the Philippine Mining Act of 1995 to
the Columbio FTAA, a valid agreement concluded prior to the naissance of said piece of
legislation.
This posture of petitioner would clearly contradict the established legal doctrine that
statutes are to be construed as having only a prospective operation unless the contrary is
expressly stated or necessarily implied from the language used in the law. As reiterated in the
case of Segovia v. Noel,[11] a sound cannon of statutory construction is that a statute operates
prospectively only and never retroactively, unless the legislative intent to the contrary is made
manifest either by the express terms of the statute or by necessary implication.
Article 4 of the Civil Code provides that: Laws shall not have a retroactive effect
unless therein otherwise provided. According to this provision of law, in order that a law may
have retroactive effect it is necessary that an express provision to this effect be made in the
law, otherwise nothing should be understood which is not embodied in the
law.[12] Furthermore, it must be borne in mind that a law is a rule established to guide our
actions without no binding effect until it is enacted, wherefore, it has no application to past
times but only to future time, and that is why it is said that the law looks to the future only
and has no retroactive effect unless the legislator may have formally given that effect to some
legal provisions.[13]
In the case at bar, there is an absence of either an express declaration or an
implication in the Philippine Mining Act of 1995 that the provisions of said law shall be made
to apply retroactively, therefore, any section of said law must be made to apply
only prospectively, in view of the rule that a statute ought not to receive a construction making
it act retroactively, unless the words used are so clear, strong, and imperative that no other
meaning can be annexed to them, or unless the intention of the legislature cannot be
otherwise satisfied.[14]
Be that as it may, assuming for the sake of argument that We are to apply the
Philippine Mining Act of 1995 retrospectively to the Columbio FTAA, the lack of presidential
approval will not be fatal as to render the transfer illegal, especially since, as in the instant
case, the alleged lack of presidential approval has been remedied when petitioner appealed
the matter to the Office of the President which approved the Order of the DENR Secretary
granting the application for transfer of the Columbio FTAA to Sagittarius Mines, Inc. As
expounded by the Court in the Resolution of the Motion for Reconsideration in the La Bugal-
BLaan Tribal Association, Inc. v. Ramos[15] case, involving the same FTAA subject of the instant
case:
x x x 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. x x x That case involved
the review of the Decision of the Court of Appeals dated November 21,
2003 in CA G.R. 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.[16] (Emphasis ours.)
Furthermore, if petitioner was indeed of the mind that Section 40 of the Philippine
Mining Act of 1995 is applicable to the Columbio FTAA, thus necessitating the approval of the
President for the validity of its transfer or assignment, it would seem contradictory that
petitioner sought the approval of the DENR Secretary, and not that of the President, of its 12
July 2000 Sale and Purchase Agreement with WMC Resources. Hence, it may be glimpsed from
the very act of petitioner that it recognized that the provision of the Columbio FTAA regarding
the consent of the DENR Secretary with respect to the transfer of said FTAA must be upheld.
It is engrained in jurisprudence that the constitutional prohibition on the impairment
of the obligation of contract does not prohibit every change in existing laws,[17]and to fall within
the prohibition, the change must not only impair the obligation of the existing contract, but
the impairment must be substantial.[18] Substantial impairment as conceived in relation to
impairment of contracts has been explained in the case of Clemons v. Nolting,[19] which stated
that: a law which changes the terms of a legal contract between parties, either in the time or
mode of performance, or imposes new conditions, or dispenses with those expressed, or
authorizes for its satisfaction something different from that provided in its terms, is law which
impairs the obligation of a contract and is therefore null and void. Section 40 of the Philippine
Mining Act of 1995 requiring the approval of the President with respect to assignment or
transfer of FTAAs, if made applicable retroactively to the Columbio FTAA, would be
tantamount to an impairment of the obligations under said contract as it would effectively
restrict the right of the parties thereto to assign or transfer their interests in the said FTAA.
By imposing a new condition apart from those already contained in the agreement,
before the parties to the Columbio FTAA may assign or transfer its rights and interest in the
said agreement, Section 40 of the Philippine Mining Act of 1995, if made to apply to
the Columbio FTAA,
will effectively modify the terms of the original contract and thus impair the obligations of the
parties thereto and restrict the exercise of their vested rights under the original
agreement. Such modification to the Columbio FTAA, particularly in the conditions imposed
for its valid transfer is equivalent to an impairment of said contract violative of the
Constitution.
WHEREFORE, premises considered, the instant petition is hereby DENIED. The
Decision of the Court of Appeals in CA G.R. SP No. 74161 dated 21 November 2003is hereby
AFFIRMED. Costs against petitioner.
SO ORDERED.
BENGUET CORPORATION, G.R. No. 163101
Petitioner,
- versus –
DEPARTMENT OF ENVIRONMENT
AND NATURAL RESOURCES
-MINES ADJUDICATION BOARD
and J.G. REALTY AND MINING
CORPORATION,
DECISION
VELASCO, JR., J.:
The instant petition under Rule 65 of the Rules of Court seeks the annulment of the December
2, 2002 Decision[1] and March 17, 2004 Resolution[2] of the Department of Environment and
Natural Resources-Mining Adjudication Board (DENR-MAB) in MAB Case No. 0124-01 (Mines
Administrative Case No. R-M-2000-01) entitled Benguet Corporation (Benguet) v. J.G. Realty
and Mining Corporation (J.G. Realty). The December 2, 2002 Decision upheld the March 19,
2001 Decision[3] of the MAB Panel of Arbitrators (POA) which canceled the Royalty Agreement
with Option to Purchase (RAWOP) dated June 1, 1987[4] between Benguet and J.G. Realty, and
excluded Benguet from the joint Mineral Production Sharing Agreement (MPSA) application
over four mining claims. The March 17, 2004 Resolution denied Benguets Motion for
Reconsideration.
The Facts
On June 1, 1987, Benguet and J.G. Realty entered into a RAWOP, wherein J.G. Realty was
acknowledged as the owner of four mining claims respectively named as Bonito-I, Bonito-II,
Bonito-III, and Bonito-IV, with a total area of 288.8656 hectares, situated in Barangay
Luklukam, Sitio Bagong Bayan, Municipality of Jose Panganiban, Camarines Norte. The parties
also executed a Supplemental Agreement[5] dated June 1, 1987. The mining claims were
covered by MPSA Application No. APSA-V-0009 jointly filed by J.G. Realty as claimowner and
Benguet as operator.
In the RAWOP, Benguet obligated itself to perfect the rights to the mining claims and/or
otherwise acquire the mining rights to the mineral claims. Within 24 months from the
execution of the RAWOP, Benguet should also cause the examination of the mining claims for
the purpose of determining whether or not they are worth developing with reasonable
probability of profitable production. Benguet undertook also to furnish J.G. Realty with a
report on the examination, within a reasonable time after the completion of the examination.
Moreover, also within the examination period, Benguet shall conduct all necessary exploration
in accordance with a prepared exploration program. If it chooses to do so and before the
expiration of the examination period, Benguet may undertake to develop the mining claims
upon written notice to J.G. Realty. Benguet must then place the mining claims into commercial
productive stage within 24 months from the written notice.[6] It is also provided in the RAWOP
that if the mining claims were placed in commercial production by Benguet, J.G. Realty should
be entitled to a royalty of five percent (5%) of net realizable value, and to royalty for any
production done by Benguet whether during the examination or development periods.
Thus, on August 9, 1989, the Executive Vice-President of Benguet, Antonio N. Tachuling, issued
a letter informing J.G. Realty of its intention to develop the mining claims. However, on
February 9, 1999, J.G. Realty, through its President, Johnny L. Tan, then sent a letter to the
President of Benguet informing the latter that it was terminating the RAWOP on the following
grounds:
a. The fact that your company has failed to perform the
obligations set forth in the RAWOP, i.e., to undertake development works
within 2 years from the execution of the Agreement;
b. Violation of the Contract by allowing high graders to
operate on our claim.
c. No stipulation was provided with respect to the term limit
of the RAWOP.
d. Non-payment of the royalties thereon as provided in the
RAWOP.[7]
In response, Benguets Manager for Legal Services, Reynaldo P. Mendoza, wrote J.G.
Realty a letter dated March 8, 1999,[8] therein alleging that Benguet complied with its
obligations under the RAWOP by investing PhP 42.4 million to rehabilitate the mines, and that
the commercial operation was hampered by the non-issuance of a Mines Temporary Permit
by the Mines and Geosciences Bureau (MGB) which must be considered as force majeure,
entitling Benguet to an extension of time to prosecute such permit. Benguet further claimed
that the high graders mentioned by J.G. Realty were already operating prior to Benguets taking
over of the premises, and that J.G. Realty had the obligation of ejecting such small scale miners.
Benguet also alleged that the nature of the mining business made it difficult to specify a time
limit for the RAWOP. Benguet then argued that the royalties due to J.G. Realty were in fact in
its office and ready to be picked up at any time. It appeared that, previously, the practice by
J.G. Realty was to pick-up checks from Benguet representing such royalties. However, starting
August 1994, J.G. Realty allegedly refused to collect such checks from Benguet. Thus, Benguet
posited that there was no valid ground for the termination of the RAWOP. It also reminded
J.G. Realty that it should submit the disagreement to arbitration rather than unilaterally
terminating the RAWOP.
On June 7, 2000, J.G. Realty filed a Petition for Declaration of Nullity/Cancellation of
the RAWOP[9] with the Legaspi City POA, Region V, docketed as DENR Case No. 2000-01 and
entitled J.G. Realty v. Benguet.
On March 19, 2001, the POA issued a Decision,[10] dwelling upon the issues of (1) whether the
arbitrators had jurisdiction over the case; and (2) whether Benguet violated the RAWOP
justifying the unilateral cancellation of the RAWOP by J.G. Realty. The dispositive portion
stated:
WHEREFORE, premises considered, the June 01, 1987 [RAWOP]
and its Supplemental Agreement is hereby declared cancelled and without
effect. BENGUET is hereby excluded from the joint MPSA Application over
the mineral claims denominated as BONITO-I, BONITO-II, BONITO-III and
BONITO-IV.
SO ORDERED.
Therefrom, Benguet filed a Notice of Appeal[11] with the MAB on April 23, 2001, docketed as
Mines Administrative Case No. R-M-2000-01. Thereafter, the MAB issued the
assailed December 2, 2002 Decision. Benguet then filed a Motion for Reconsideration of the
assailed Decision which was denied in the March 17, 2004 Resolution of the MAB. Hence,
Benguet filed the instant petition.
The Issues
1. There was serious and palpable error when the Honorable
Board failed to rule that the contractual obligation of the parties to
arbitrate under the Royalty Agreement is mandatory.
2. The Honorable Board exceeded its jurisdiction when it
sustained the cancellation of the Royalty Agreement for alleged breach of
contract despite the absence of evidence.
3. The Questioned Decision of the Honorable Board in
cancelling the RAWOP prejudice[d] the substantial rights of Benguet under
the contract to the unjust enrichment of JG Realty.[12]
Restated, the issues are: (1) Should the controversy have first been submitted to arbitration
before the POA took cognizance of the case?; (2) Was the cancellation of the RAWOP
supported by evidence?; and (3) Did the cancellation of the RAWOP amount to unjust
enrichment of J.G. Realty at the expense of Benguet?
The Courts Ruling
 Before we dwell on the substantive issues, we find that the instant petition can be
denied outright as Benguet resorted to an improper remedy.
The last paragraph of Section 79 of Republic Act No. (RA) 7942 or the Philippine Mining Act of
1995 states, A petition for review by certiorari and question of law may be filed by the
aggrieved party with the Supreme Court within thirty (30) days from receipt of the order or
decision of the [MAB].
However, this Court has already invalidated such provision in Carpio v. Sulu Resources
Development Corp.,[13] ruling that a decision of the MAB must first be appealed to the Court of
Appeals (CA) under Rule 43 of the Rules of Court, before recourse to this Court may be had. We
held, thus:
To summarize, there are sufficient legal footings authorizing a
review of the MAB Decision under Rule 43 of the Rules of
Court. First, Section 30 of Article VI of the 1987 Constitution, mandates
that [n]o law shall be passed increasing the appellate jurisdiction of the
Supreme Court as provided in this Constitution without its advice and
consent. On the other hand, Section 79 of RA No. 7942 provides that
decisions of the MAB may be reviewed by this Court on a petition for
review by certiorari. This provision is obviously an expansion of the Courts
appellate jurisdiction, an expansion to which this Court has not consented.
Indiscriminate enactment of legislation enlarging the appellate jurisdiction
of this Court would unnecessarily burden it.
Second, when the Supreme Court, in the exercise of its rule-
making power, transfers to the CA pending cases involving a review of a
quasi-judicial bodys decisions, such transfer relates only to procedure;
hence, it does not impair the substantive and vested rights of the parties.
The aggrieved partys right to appeal is preserved; what is changed is only
the procedure by which the appeal is to be made or decided. The parties
still have a remedy and a competent tribunal to grant this remedy.
Third, the Revised Rules of Civil Procedure included Rule 43 to
provide a uniform rule on appeals from quasi-judicial agencies. Under the
rule, appeals from their judgments and final orders are now required to be
brought to the CA on a verified petition for review. A quasi-judicial agency
or body has been defined as an organ of government, other than a court
or legislature, which affects the rights of private parties through either
adjudication or rule-making. MAB falls under this definition; hence, it is no
different from the other quasi-judicial bodies enumerated under Rule 43.
Besides, the introductory words in Section 1 of Circular No. 1-91among
these agencies areindicate that the enumeration is not exclusive or
conclusive and acknowledge the existence of other quasi-judicial agencies
which, though not expressly listed, should be deemed included therein.
Fourth, the Court realizes that under Batas Pambansa (BP) Blg.
129 as amended by RA No. 7902, factual controversies are usually involved
in decisions of quasi-judicial bodies; and the CA, which is likewise tasked
to resolve questions of fact, has more elbow room to resolve them. By
including questions of fact among the issues that may be raised in an
appeal from quasi-judicial agencies to the CA, Section 3 of Revised
Administrative Circular No. 1-95 and Section 3 of Rule 43 explicitly
expanded the list of such issues.
According to Section 3 of Rule 43, [a]n appeal under this Rule
may be taken to the Court of Appeals within the period and in the manner
herein provided whether the appeal involves questions of fact, of law, or
mixed questions of fact and law. Hence, appeals from quasi-judicial
agencies even only on questions of law may be brought to the CA.
Fifth, the judicial policy of observing the hierarchy of courts
dictates that direct resort from administrative agencies to this Court will
not be entertained, unless the redress desired cannot be obtained from
the appropriate lower tribunals, or unless exceptional and compelling
circumstances justify availment of a remedy falling within and calling for
the exercise of our primary jurisdiction.[14]
The above principle was reiterated in Asaphil Construction and Development Corporation v.
Tuason, Jr. (Asaphil).[15] However, the Carpio ruling was not applied to Asaphilas the petition
in the latter case was filed in 1999 or three years before the promulgation of Carpio in
2002. Here, the petition was filed on April 28, 2004 when the Carpio decision was already
applicable, thus Benguet should have filed the appeal with the CA.
Petitioner having failed to properly appeal to the CA under Rule 43, the decision of
the MAB has become final and executory. On this ground alone, the instant petition must be
denied.
Even if we entertain the petition although Benguet skirted the appeal to the CA via
Rule 43, still, the December 2, 2002 Decision and March 17, 2004 Resolution of the DENR-MAB
in MAB Case No. 0124-01 should be maintained.
First Issue: The case should have first been brought to
voluntary arbitration before the POA
Secs. 11.01 and 11.02 of the RAWOP pertinently provide:
11.01 Arbitration
Any disputes, differences or disagreements between BENGUET and the
OWNER with reference to anything whatsoever pertaining to this
Agreement that cannot be amicably settled by them shall not be cause of
any action of any kind whatsoever in any court or administrative agency
but shall, upon notice of one party to the other, be referred to a Board of
Arbitrators consisting of three (3) members, one to be selected by
BENGUET, another to be selected by the OWNER and the third to be
selected by the aforementioned two arbitrators so appointed.
xxxx
 11.02 Court Action
No action shall be instituted in court as to any matter in dispute as
hereinabove stated, except to enforce the decision of the majority of the
Arbitrators.[16]
Thus, Benguet argues that the POA should have first referred the case to voluntary arbitration
before taking cognizance of the case, citing Sec. 2 of RA 876 on persons and matters subject to
arbitration.
On the other hand, in denying such argument, the POA ruled that:
While the parties may establish such stipulations clauses, terms and
conditions as they may deem convenient, the same must not be contrary
to law and public policy. At a glance, there is nothing wrong with the terms
and conditions of the agreement. But to state that an aggrieved party
cannot initiate an action without going to arbitration would be tying ones
hand even if there is a law which allows him to do so.[17]
The MAB, meanwhile, denied Benguets contention on the ground of estoppel, stating:
Besides, by its own act, Benguet is already estopped in questioning the
jurisdiction of the Panel of Arbitrators to hear and decide the case. As
pointed out in the appealed Decision, Benguet initiated and filed an
Adverse Claim docketed as MAC-R-M-2000-02 over the same mining
claims without undergoing contractual arbitration. In this particular case
(MAC-R-M-2000-02) now subject of the appeal, Benguet is likewise in
estoppel from questioning the competence of the Panel of Arbitrators to
hear and decide in the summary proceedings J.G. Realtys petition, when
Benguet itself did not merely move for the dismissal of the case but also
filed an Answer with counterclaim seeking affirmative reliefs from the
Panel of Arbitrators.[18]
Moreover, the MAB ruled that the contractual provision on arbitration merely provides for an
additional forum or venue and does not divest the POA of the jurisdiction to hear the case.[19]
In its July 20, 2004 Comment,[20] J.G. Realty reiterated the above rulings of the POA and MAB.
It argued that RA 7942 or the Philippine Mining Act of 1995 is a special law which should prevail
over the stipulations of the parties and over a general law, such as RA 876. It also argued that
the POA cannot be considered as a court under the contemplation of RA 876 and that
jurisprudence saying that there must be prior resort to arbitration before filing a case with the
courts is inapplicable to the instant case as the POA is itself already engaged in arbitration.
On this issue, we rule for Benguet.
Sec. 2 of RA 876 elucidates the scope of arbitration:
Section 2. Persons and matters subject to arbitration.Two or
more persons or parties may submit to the arbitration of one or more
arbitrators any controversy existing between them at the time of the
submission and which may be the subject of an action, or the parties to
any contract may in such contract agree to settle by arbitration a
controversy thereafter arising between them. Such submission or
contract shall be valid, enforceable and irrevocable, save upon such
grounds as exist at law for the revocation of any contract.
Such submission or contract may include question[s] arising out
of valuations, appraisals or other controversies which may be collateral,
incidental, precedent or subsequent to any issue between the parties.
(Emphasis supplied.)
In RA 9285 or the Alternative Dispute Resolution Act of 2004, the Congress reiterated the
efficacy of arbitration as an alternative mode of dispute resolution by stating in Sec. 32 thereof
that domestic arbitration shall still be governed by RA 876. Clearly, a contractual stipulation
that requires prior resort to voluntary arbitration before the parties can go directly to court is
not illegal and is in fact promoted by the State. Thus, petitioner correctly cites several cases
whereby arbitration clauses have been upheld by this Court.[21]
Moreover, the contention that RA 7942 prevails over RA 876 presupposes a conflict between
the two laws. Such is not the case here. To reiterate, availment of voluntary arbitration before
resort is made to the courts or quasi-judicial agencies of the government is a valid contractual
stipulation that must be adhered to by the parties. As stated in Secs. 6 and 7 of RA 876:
Section 6. Hearing by court.A party aggrieved by the failure,
neglect or refusal of another to perform under an agreement in writing
providing for arbitration may petition the court for an order directing
that such arbitration proceed in the manner provided for in such
agreement. Five days notice in writing of the hearing of such application
shall be served either personally or by registered mail upon the party in
default. The court shall hear the parties, and upon being satisfied that the
making of the agreement or such failure to comply therewith is not in
issue, shall make an order directing the parties to proceed to arbitration
in accordance with the terms of the agreement. If the making of the
agreement or default be in issue the court shall proceed to summarily
hear such issue. If the finding be that no agreement in writing providing
for arbitration was made, or that there is no default in the proceeding
thereunder, the proceeding shall be dismissed. If the finding be that a
written provision for arbitration was made and there is a default in
proceeding thereunder, an order shall be made summarily directing the
parties to proceed with the arbitration in accordance with the terms
thereof.
xxxx
 Section 7. Stay of civil action.If any suit or proceeding be brought
upon an issue arising out of an agreement providing for the arbitration
thereof, the court in which such suit or proceeding is pending, upon being
satisfied that the issue involved in such suit or proceeding is referable to
arbitration, shall stay the action or proceeding until an arbitration has been
had in accordance with the terms of the agreement: Provided, That the
applicant, for the stay is not in default in proceeding with such arbitration.
(Emphasis supplied.)
In other words, in the event a case that should properly be the subject of voluntary arbitration
is erroneously filed with the courts or quasi-judicial agencies, on motion of the defendant, the
court or quasi-judicial agency shall determine whether such contractual provision for
arbitration is sufficient and effective. If in affirmative, the court or quasi-judicial agency shall
then order the enforcement of said provision. Besides, in BF Corporation v. Court of Appeals,
we already ruled:
In this connection, it bears stressing that the lower court has not
lost its jurisdiction over the case. Section 7 of Republic Act No. 876
provides that proceedings therein have only been stayed. After the special
proceeding of arbitration has been pursued and completed, then the lower
court may confirm the award made by the arbitrator.[22]
J.G. Realtys contention, that prior resort to arbitration is unavailing in the instant case because
the POAs mandate is to arbitrate disputes involving mineral agreements, is misplaced. A
distinction must be made between voluntary and compulsory arbitration. In Ludo and Luym
Corporation v. Saordino, the Court had the occasion to distinguish between the two types of
arbitrations:
Comparatively, in Reformist Union of R.B. Liner, Inc. vs. NLRC, compulsory
arbitration has been defined both as the process of settlement of labor
disputes by a government agency which has the authority to investigate
and to make an award which is binding on all the parties, and as a mode
of arbitration where the parties are compelled to accept the resolution of
their dispute through arbitration by a third party. While a voluntary
arbitrator is not part of the governmental unit or labor departments
personnel, said arbitrator renders arbitration services provided for under
labor laws.[23] (Emphasis supplied.)
There is a clear distinction between compulsory and voluntary arbitration. The arbitration
provided by the POA is compulsory, while the nature of the arbitration provision in the RAWOP
is voluntary, not involving any government agency. Thus, J.G. Realtys argument on this matter
must fail.
As to J.G. Realtys contention that the provisions of RA 876 cannot apply to the instant case
which involves an administrative agency, it must be pointed out that Section 11.01 of the
RAWOP states that:
[Any controversy with regard to the contract] shall not be cause of any
action of any kind whatsoever in any court or administrative agency but
shall, upon notice of one party to the other, be referred to a Board of
Arbitrators consisting of three (3) members, one to be selected by
BENGUET, another to be selected by the OWNER and the third to be
selected by the aforementioned two arbiters so appointed.[24] (Emphasis
supplied.)
There can be no quibbling that POA is a quasi-judicial body which forms part of the DENR, an
administrative agency. Hence, the provision on mandatory resort to arbitration, freely entered
into by the parties, must be held binding against them.[25]
In sum, on the issue of whether POA should have referred the case to voluntary arbitration,
we find that, indeed, POA has no jurisdiction over the dispute which is governed by RA 876,
the arbitration law.
However, we find that Benguet is already estopped from questioning the POAs jurisdiction. As
it were, when J.G. Realty filed DENR Case No. 2000-01, Benguet filed its answer and
participated in the proceedings before the POA, Region V. Secondly, when the adverse March
19, 2001 POA Decision was rendered, it filed an appeal with the MAB in Mines Administrative
Case No. R-M-2000-01 and again participated in the MAB proceedings. When the adverse
December 2, 2002 MAB Decision was promulgated, it filed a motion for reconsideration with
the MAB. When the adverse March 17, 2004 MAB Resolution was issued, Benguet filed a
petition with this Court pursuant to Sec. 79 of RA 7942 impliedly recognizing MABs jurisdiction.
In this factual milieu, the Court rules that the jurisdiction of POA and that of MAB can no longer
be questioned by Benguet at this late hour. What Benguet should have done was to
immediately challenge the POAs jurisdiction by a special civil action for certiorari when POA
ruled that it has jurisdiction over the dispute. To redo the proceedings fully participated in by
the parties after the lapse of seven years from date of institution of the original action with
the POA would be anathema to the speedy and efficient administration of justice.
Second Issue: The cancellation of the RAWOP
was supported by evidence
The cancellation of the RAWOP by the POA was based on two grounds: (1) Benguets
failure to pay J.G. Realtys royalties for the mining claims; and (2) Benguets failure to seriously
pursue MPSA Application No. APSA-V-0009 over the mining claims.
As to the royalties, Benguet claims that the checks representing payments for the
royalties of J.G. Realty were available for pick-up in its office and it is the latter which refused
to claim them. Benguet then thus concludes that it did not violate the RAWOP for nonpayment
of royalties. Further, Benguet reasons that J.G. Realty has the burden of proving that the
former did not pay such royalties following the principle that the complainants must prove
their affirmative allegations.
With regard to the failure to pursue the MPSA application, Benguet claims that the
lengthy time of approval of the application is due to the failure of the MGB to approve it. In
other words, Benguet argues that the approval of the application is solely in the hands of the
MGB.
Benguets arguments are bereft of merit.

Sec. 14.05 of the RAWOP provides:
14.05 Bank Account
OWNER shall maintain a bank account at ___________ or any other bank
from time to time selected by OWNER with notice in writing to BENGUET
where BENGUET shall deposit to the OWNERs credit any and all advances
and payments which may become due the OWNER under this Agreement
as well as the purchase price herein agreed upon in the event that
BENGUET shall exercise the option to purchase provided for in the
Agreement. Any and all deposits so made by BENGUET shall be a full and
complete acquittance and release to [sic] BENGUET from any further
liability to the OWNER of the amounts represented by such
deposits. (Emphasis supplied.)
Evidently, the RAWOP itself provides for the mode of royalty payment by Benguet. The fact
that there was the previous practice whereby J.G. Realty picked-up the checks from Benguet
is unavailing. The mode of payment is embodied in a contract between the parties. As such,
the contract must be considered as the law between the parties and binding on both.[26] Thus,
after J.G. Realty informed Benguet of the bank account where deposits of its royalties may be
made, Benguet had the obligation to deposit the checks. J.G. Realty had no obligation to
furnish Benguet with a Board Resolution considering that the RAWOP itself provided for such
payment scheme.
Notably, Benguets claim that J.G. Realty must prove nonpayment of its royalties is
both illogical and unsupported by law and jurisprudence.
The allegation of nonpayment is not a positive allegation as claimed by Benguet.
Rather, such is a negative allegation that does not require proof and in fact transfers the
burden of proof to Benguet. Thus, this Court ruled in Jimenez v. National Labor Relations
Commission:
As a general rule, one who pleads payment has the burden of
proving it. Even where the plaintiff must allege non-payment, the general
rule is that the burden rests on the defendant to prove payment, rather
than on the plaintiff to prove non-payment. The debtor has the burden of
showing with legal certainty that the obligation has been discharged by
payment.[27] (Emphasis supplied.)
In the instant case, the obligation of Benguet to pay royalties to J.G. Realty has been
admitted and supported by the provisions of the RAWOP. Thus, the burden to prove such
obligation rests on Benguet.
It should also be borne in mind that MPSA Application No. APSA-V-0009 has been pending with
the MGB for a considerable length of time. Benguet, in the RAWOP, obligated itself to perfect
the rights to the mining claims and/or otherwise acquire the mining rights to the mineral claims
but failed to present any evidence showing that it exerted efforts to speed up and have the
application approved. In fact, Benguet never even alleged that it continuously followed-up the
application with the MGB and that it was in constant communication with the government
agency for the expeditious resolution of the application. Such allegations would show that,
indeed, Benguet was remiss in prosecuting the MPSA application and clearly failed to comply
with its obligation in the RAWOP.
Third Issue: There is no unjust enrichment in the instant case
Based on the foregoing discussion, the cancellation of the RAWOP was based on valid grounds
and is, therefore, justified. The necessary implication of the cancellation is the cessation of
Benguets right to prosecute MPSA Application No. APSA-V-0009 and to further develop such
mining claims.
In Car Cool Philippines, Inc. v. Ushio Realty and Development Corporation, we defined unjust
enrichment, as follows:
We have held that [t]here is unjust enrichment when a
person unjustly retains a benefit to the loss of another, or when a person
retains money or property of another against the fundamental principles
of justice, equity and good conscience. Article 22 of the Civil Code provides
that [e]very person who through an act of performance by another, or any
other means, acquires or comes into possession of something at the
expense of the latter without just or legal ground, shall return the same to
him. The principle of unjust enrichment under Article 22 requires two
conditions: (1) that a person is benefited without a valid basis or
justification, and (2) that such benefit is derived at anothers expense or
damage.
There is no unjust enrichment when the person who will
benefit has a valid claim to such benefit.[28] (Emphasis supplied.)
Clearly, there is no unjust enrichment in the instant case as the cancellation of the RAWOP,
which left Benguet without any legal right to participate in further developing the mining
claims, was brought about by its violation of the RAWOP. Hence, Benguet has no one to blame
but itself for its predicament.
WHEREFORE, we DISMISS the petition, and AFFIRM the December 2, 2002 Decision and
March 17, 2004 Resolution of the DENR-MAB in MAB Case No. 0124-01 upholding the
cancellation of the June 1, 1987 RAWOP. No costs.
SO ORDERED.
G.R. No. 175368 April 11, 2013 On September 13, 2004, Atlantic Mines and Trading Corporation (AMTC) filed with the
PENRO of Bulacan an Application for Exploration Permit (AEP) covering 5,281 hectares of the
LEAGUE OF PROVINCES OF THE PHILIPPINES, Petitioner, area covered by Golden Falcon's Application for Financial and Technical Assistance
vs. Agreement.6
DEPARTMENT OF ENVIRONMENT and NATURAL RESOURCES and HON. ANGELO T. REYES, in
his capacity as Secretary of DENR, Respondents. On October 19, 2004, DENR-MGB Director Horacio C. Ramos, in response to MGB R-III
Director Arnulfo V. Cabantog's memorandum query dated September 8, 2004, categorically
DECISION stated that the MGB-Central Office's Order dated July 16, 2004 became final on August 11,
2004, fifteen (15) days after Golden Falcon received the said Order, per the Certification
dated October 8, 2004 issued by the Postmaster II of the Philippine Postal Corporation of
PERALTA, J.:
Cainta, Rizal.7

This is a petition for certiorari, prohibition and mandamus,1 praying that this Court order the
Through letters dated May 5 and May 10, 2005, AMTC notified the PENRO of Bulacan and the
following: ( 1) declare as unconstitutional Section 17(b)(3)(iii) of Republic Act (R.A.) No. 7160,
MGB R-III Director, respectively, that the subject Applications for Quarry Permit fell within its
otherwise known as The Local Government Code of 1991 and Section 24 of Republic Act
(AMTC's) existing valid and prior Application for Exploration Permit, and the the former area
(R.A.) No. 7076, otherwise known as the People's Small-Scale Mining Act of 1991; (2) prohibit
of Golden Falcon was open to mining location only on August 11, 2004 per the Memorandum
and bar respondents from exercising control over provinces; and (3) declare as illegal the
dated October 19, 2004 of the MGB Director, Central Office.8
respondent Secretary of the Department of Energy and Natural Resources' (DENR)
nullification, voiding and cancellation of the Small-Scale Mining permits issued by the
Provincial Governor of Bulacan. On June 24, 2005, Ricardo Medina, Jr., PENRO of Bulacan, indorsed AMTC's letter to the
Provincial Legal Officer, Atty. Eugenio F. Resurreccion, for his legal opinion on which date of
denial of Golden Falcon's application/appeal – April 29, 1998 or July 16, 2004 − is to be
The Facts are as follows:
considered in the deliberation of the Provincial Mining Regulatory Board (PMRB) for the
purpose of determining when the land subject of the Applications for Quarry Permit could be
On March 28, 1996, Golden Falcon Mineral Exploration Corporation (Golden Falcon) filed considered open for application.
with the DENR Mines and Geosciences Bureau Regional Office No. III (MGB R-III) an
Application for Financial and Technical Assistance Agreement (FTAA) covering an area of
On June 28, 2005, Provincial Legal Officer Eugenio Resurreccion issued a legal opinion stating
61,136 hectares situated in the Municipalities of San Miguel, San Ildefonso, Norzagaray and
that the Order dated July 16, 2004 of the MGB-Central Office was a mere reaffirmation of the
San Jose del Monte, Bulacan.2
Order dated April 29, 1998 of the MGB R-III; hence, the Order dated April 29, 1998 should be
the reckoning period of the denial of the application of Golden Falcon.
On April 29, 1998, the MGB R-III issued an Order denying Golden Falcon's Application for
Financial and Technical Assistance Agreement for failure to secure area clearances from the
On July 22, 2005, AMTC filed with the PMRB of Bulacan a formal protest against the aforesaid
Forest Management Sector and Lands Management Sector of the DENR Regional Office No.
Applications for Quarry Permit on the ground that the subject area was already covered by
III.3
its Application for Exploration Permit.9

On November 11, 1998, Golden Falcon filed an appeal with the DENR Mines and Geosciences
On August 8, 2005, MGB R-III Director Cabantog, who was the concurrent Chairman of the
Bureau Central Office (MGB-Central Office), and sought reconsideration of the Order dated
PMRB, endorsed to the Provincial Governor of Bulacan, Governor Josefina M. dela Cruz, the
April 29, 1998.4
aforesaid Applications for Quarry Permit that had apparently been converted to Applications
for Small-Scale Mining Permit of Eduardo D. Mercado, Benedicto S. Cruz, Gerardo R. Cruz and
On February 10, 2004, while Golden Falcon's appeal was pending, Eduardo D. Mercado, Lucila S. Valdez (formerly Liberato Sembrano).10
Benedicto S. Cruz, Gerardo R. Cruz and Liberato Sembrano filed with the Provincial
Environment and Natural Resources Office (PENRO) of Bulacan their respective Applications
On August 9, 2005, the PENRO of Bulacan issued four memoranda recommending to
for Quarry Permit (AQP), which covered the same area subject of Golden Falcon's Application
Governor Dela Cruz the approval of the aforesaid Applications for Small-Scale Mining
for Financial and Technical Assistance Agreement.5
Permit.11

On July 16, 2004, the MGB-Central Office issued an Order denying Golden Falcon's appeal
and affirming the MGB R-III's Order dated April 29, 1998.
On August 10, 2005, Governor Dela Cruz issued the corresponding Small-Scale Mining
Permits in favor of Eduardo D. Mercado, Benedicto S. Cruz, Gerardo R. Cruz and Lucila S.
Valdez.12
Subsequently, AMTC appealed to respondent DENR Secretary the grant of the aforesaid
Small-Scale Mining Permits, arguing that: (1) The PMRB of Bulacan erred in giving due course
to the Applications for Small-Scale Mining Permit without first resolving its formal protest; (2)
The areas covered by the Small-Scale Mining Permits fall within the area covered by AMTC's
valid prior Application for Exploration Permit; (3) The Applications for Quarry Permit were
illegally converted to Applications for Small-Scale Mining Permit; (4) DENR-MGB Director
Horacio C. Ramos' ruling that the subject areas became open for mining location only on
August 11, 2004 was controlling; (5) The Small-Scale Mining Permits were null and void
because they covered areas that were never declared People's Small-Scale Mining Program
sites as mandated by Section 4 of the People's Small-Scale Mining Act of 1991; and (6) Iron
ore is not considered as one of the quarry resources, as defined by Section 43 of the
Philippine Mining Act of 1995, which could be subjects of an Application for Quarry Permit.13
On August 8, 2006, respondent DENR Secretary rendered a Decision14 in favor of AMTC. The
DENR Secretary agreed with MGB Director Horacio C. Ramos that the area was open to
mining location only on August 11, 2004, fifteen (15) days after the receipt by Golden Falcon
on July 27, 2004 of a copy of the MGB-Central Office's Order dated July 16, 2004, which
Order denied Golden Falcon's appeal. According to the DENR Secretary, the filing by Golden
Falcon of the letter-appeal suspended the finality of the Order of denial issued on April 29,
1998 by the Regional Director until the resolution of the appeal on July 16, 2004 by the MGB-
Central Office. He stated that the Applications for Quarry Permit were filed on February 10,
2004 when the area was still closed to mining location; hence, the Small-Scale Mining
Permits granted by the PMRB and the Governor were null and void. On the other hand, the
DENR Secretary declared that AMTC filed its Application for Exploration Permit when the
area was already open to other mining applicants; thus, AMTC’s Application for Exploration
Permit was valid. Moreover, the DENR Secretary held that the questioned Small-Scale Mining
Permits were issued in violation of Section 4 of R.A. No. 7076 and beyond the authority of
the Provincial Governor pursuant to Section 43 of R.A. No. 7942, because the area was never
proclaimed to be under the People's Small-Scale Mining Program. Further, the DENR
Secretary stated that iron ore mineral is not considered among the quarry resources.
The dispositive portion of the DENR Secretary’s Decision reads:
WHEREFORE, the Application for Exploration Permit, AEP-III-02-04 of Atlantic Mines and
Trading Corp. is declared valid and may now be given due course. The Small-Scale Mining
Permits, SSMP-B-002-05 of Gerardo Cruz, SSMP-B-003-05 of Eduardo D. Mercado, SSMP-B-
004-05 of Benedicto S. Cruz and SSMP-B-005-05 of Lucila S. Valdez are declared NULL AND
VOID. Consequently, the said permits are hereby CANCELLED.15
Hence, petitioner League of Provinces filed this petition.
Petitioner is a duly organized league of local governments incorporated under R.A. No. 7160.
Petitioner declares that it is composed of 81 provincial governments, including the Province
of Bulacan. It states that this is not an action of one province alone, but the collective action
of all provinces through the League, as a favorable ruling will not only benefit one province,
but all provinces and all local governments.
Petitioner raises these issues:
I
WHETHER OR NOT SECTION 17(B)(3)(III) OF THE, 1991 LOCAL GOVERNMENT CODE AND
SECTION 24 OF THE PEOPLE'S SMALL-SCALE MINING ACT OF 1991 ARE UNCONSTITUTIONAL
FOR PROVIDING FOR EXECUTIVE CONTROL AND INFRINGING UPON THE LOCAL AUTONOMY
OF PROVINCES.
II
WHETHER OR NOT THE ACT OF RESPONDENT [DENR] IN NULLIFYING, VOIDING AND
CANCELLING THE SMALL-SCALE MINING PERMITS AMOUNTS TO EXECUTIVE CONTROL, NOT
MERELY SUPERVISION AND USURPS THE DEVOLVED POWERS OF ALL PROVINCES. 16
To start, the Court finds that petitioner has legal standing to file this petition because it is
tasked under Section 504 of the Local Government Code of 1991 to promote local autonomy
at the provincial level;17 adopt measures for the promotion of the welfare of all provinces
and its officials and employees;18 and exercise such other powers and perform such other
duties and functions as the league may prescribe for the welfare of the provinces.19
Before this Court determines the validity of an act of a co-equal and coordinate branch of the
Government, it bears emphasis that ingrained in our jurisprudence is the time-honored
principle that a statute is presumed to be valid.20This presumption is rooted in the doctrine
of separation of powers which enjoins upon the three coordinate departments of the
Government a becoming courtesy for each other's acts.21 This Court, however, may declare a
law, or portions thereof, unconstitutional where a petitioner has shown a clear and
unequivocal breach of the Constitution,22 leaving no doubt or hesitation in the mind of the
Court.23
In this case, petitioner admits that respondent DENR Secretary had the authority to nullify
the Small-Scale Mining Permits issued by the Provincial Governor of Bulacan, as the DENR
Secretary has control over the PMRB, and the implementation of the Small-Scale Mining
Program is subject to control by respondent DENR.
Control of the DENR/DENR Secretary over small-scale mining in the provinces is granted by
three statutes: (1) R.A. No. 7061 or The Local Government Code of 1991; (2) R.A. No. 7076 or
the People's Small Scale Mining Act of 1991; and (3) R.A. No. 7942, otherwise known as the
Philippine Mining Act of 1995.24 The pertinent provisions of law sought to be declared as
unconstitutional by petitioner are as follows:
R.A. No. 7061 (The Local Government Code of 1991)
SEC. 17. Basic Services and Facilities. - (a) Local government units shall endeavor to be self-
reliant and shall continue exercising the powers and discharging the duties and functions
currently vested upon them. They shall also discharge the functions and responsibilities of
national agencies and offices devolved to them pursuant to this Code. Local government
units shall likewise exercise such other powers and discharge such other functions and
responsibilities as are necessary, appropriate, or incidental to efficient and effective
provision of the basic services and facilities enumerated herein.
(b) Such basic services and facilities include, but are not limited to, the following:
xxxx
(3) For a Province:c
xxxx
(iii) Pursuant to national policies and subject to supervision, control and review of the DENR,
enforcement of forestry laws limited to community-based forestry projects, pollution control
law, small-scale mining law, and other laws on the protection of the environment; and mini-
hydro electric projects for local purposes; x x x25
R.A. No. 7076 (People's Small-Scale Mining Act of 1991)
Sec. 24. Provincial/City Mining Regulatory Board. - There is hereby created under the direct
supervision and control of the Secretary a provincial/city mining regulatory board, herein
called the Board, which shall be the implementing agency of the Department, and shall
exercise the following powers and functions, subject to review by the Secretary:
(a) Declare and segregate existing gold-rush areas for small-scale mining;
(b) Reserve future gold and other mining areas for small-scale mining;
(c) Award contracts to small-scale miners;
(d) Formulate and implement rules and regulations related to small-scale mining;
(e) Settle disputes, conflicts or litigations over conflicting claims within a people’s
small-scale mining area, an area that is declared a small-mining; and
(f) Perform such other functions as may be necessary to achieve the goals and
objectives of this Act.26
Petitioner contends that the aforecited laws and DENR Administrative Order No. 9640 (the
Implementing Rules and Regulations of the Philippine Mining Act of 1995) did not explicitly
confer upon respondents DENR and the DENR Secretary the power to reverse, abrogate,
nullify, void, or cancel the permits issued by the Provincial Governor or small-scale mining
contracts entered into by the PMRB. The statutes are also silent as to the power of
respondent DENR Secretary to substitute his own judgment over that of the Provincial
Governor and the PMRB.
Moreover, petitioner contends that Section 17 (b)(3)(iii) of the Local Government Code of
1991 and Section 24 of R.A. No. 7076, which confer upon respondents DENR and the DENR
Secretary the power of control are unconstitutional, as the Constitution states that the
President (and Executive Departments and her alter-egos) has the power of supervision only,
not control, over acts of the local government units, and grants the local government units
autonomy, thus:
The 1987 Constitution:
Article X, Section 4. The President of the Philippines shall exercise general supervision over
local governments. Provinces with respect to component cities and municipalities, and cities
and municipalities with respect to component barangays, shall ensure that the acts of their
component units are within the scope of their prescribed powers and functions.27
Petitioner contends that the policy in the above-cited constitutional provision is mirrored in
the Local Government Code, which states:
SEC. 25. National Supervision over Local Government Units. - (a) Consistent with the basic
policy on local autonomy, the President shall exercise general supervision over local
government units to ensure that their acts are within the scope of their prescribed powers
and functions.
The President shall exercise supervisory authority directly over provinces, highly urbanized
cities, and independent component cities; through the province with respect to component
cities and municipalities; and through the city and municipality with respect to barangays.28
Petitioner contends that the foregoing provisions of the Constitution and the Local
Government Code of 1991 show that the relationship between the President and the
Provinces or respondent DENR, as the alter ego of the President, and the Province of Bulacan
is one of executive supervision, not one of executive control. The term "control" has been
defined as the power of an officer to alter or modify or set aside what a subordinate officer
had done in the performance of his/her duties and to substitute the judgment of the former
for the latter, while the term "supervision" is the power of a superior officer to see to it that
lower officers perform their function in accordance with law.29
Petitioner argues that respondent DENR Secretary went beyond mere executive supervision
and exercised control when he nullified the small-scale mining permits granted by the
Provincial Governor of Bulacan, as the former substituted the judgment of the latter.
Petitioner asserts that what is involved here is a devolved power.
Under the Local Government Code of 1991, the power to regulate small-scale mining has
been devolved to all provinces. In the exercise of devolved powers, departmental approval is
not necessary.30
Petitioner contends that if the provisions in Section 24 of R.A. No. 7076 and Section 17
(b)(3)(iii) of the Local Government Code of 1991 granting the power of control to the
DENR/DENR Secretary are not nullified, nothing would stop the DENR Secretary from
nullifying, voiding and canceling the small-scale mining permits that have been issued by a
Provincial Governor.
Petitioner submits that the statutory grant of power of control to respondents is
unconstitutional, as the Constitution only allows supervision over local governments and
proscribes control by the executive departments.
In its Comment, respondents, represented by the Office of the Solicitor General, stated that
contrary to the assertion of petitioner, the power to implement the small-scale mining law is
expressly limited in Section 17 (b)(3)(iii) of the Local Government Code, which provides that it
must be carried out "pursuant to national policies and subject to supervision, control and
review of the DENR." Moreover, the fact that the power to implement the small-scale mining
law has not been fully devolved to provinces is further amplified by Section 4 of the People's
Small-Scale Mining Act of 1991, which provides, among others, that the People's Small-Scale
Mining Program shall be implemented by the DENR Secretary.
The petition lacks merit.
Paragraph 1 of Section 2, Article XII (National Economy and Patrimony) of the
Constitution31 provides that "the exploration, development and utilization of natural
resources shall be under the full control and supervision of the State."
Moreover, paragraph 3 of Section 2, Article XII of the Constitution provides that "the
Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens x x
x."
Pursuant to Section 2, Article XII of the Constitution, R.A. No. 7076 or the People's Small-
Scale Mining Act of 1991, was enacted, establishing under Section 4 thereof a People's Small-
Scale Mining Program to be implemented by the DENR Secretary in coordination with other
concerned government agencies.
The People's Small-Scale Mining Act of 1991 defines "small-scale mining" as "refer[ring] to
mining activities, which rely heavily on manual labor using simple implement and methods
and do not use explosives or heavy mining equipment."32
It should be pointed out that the Administrative Code of 198733 provides that the DENR is,
subject to law and higher authority, in charge of carrying out the State's constitutional
mandate, under Section 2, Article XII of the Constitution, to control and supervise the
exploration, development, utilization and conservation of the country's natural resources.
Hence, the enforcement of small-scale mining law in the provinces is made subject to the
supervision, control and review of the DENR under the Local Government Code of 1991,
while the People’s Small-Scale Mining Act of 1991 provides that the People’s Small-Scale
Mining Program is to be implemented by the DENR Secretary in coordination with other
concerned local government agencies.
Indeed, Section 4, Article X (Local Government) of the Constitution states that "[t]he
President of the Philippines shall exercise general supervision over local governments," and
Section 25 of the Local Government Code reiterates the same. General supervision by the
President means no more than seeing to it that laws are faithfully executed or that
subordinate officers act within the law.34
The Court has clarified that the constitutional guarantee of local autonomy in the
Constitution Art. X, Sec. 2 refers to the administrative autonomy of local government units
or, cast in more technical language, the decentralization of government authority.35 It does
not make local governments sovereign within the State.36 Administrative autonomy may
involve devolution of powers, but subject to limitations like following national policies or
standards,37 and those provided by the Local Government Code, as the structuring of local
governments and the allocation of powers, responsibilities, and resources among the
different local government units and local officials have been placed by the Constitution in
the hands of Congress38 under Section 3, Article X of the Constitution.
Section 3, Article X of the Constitution mandated Congress to "enact a local government code
which shall provide for a more responsive and accountable local government structure
instituted through a system of decentralization with effective mechanisms of recall, initiative,
and referendum, allocate among the different local government units their powers,
responsibilities, and resources, and provide for the qualifications, election, appointment and
removal, term, salaries, powers and functions and duties of local officials, and all other
matters relating to the organization and operation of the local units."
In connection with the enforcement of the small-scale mining law in the province, Section 17
of the Local Government Code provides:
SEC. 17. Basic Services and Facilities. - (a) Local government units shall endeavor to be self-
reliant and shall continue exercising the powers and discharging the duties and functions
currently vested upon them. They shall also discharge the functions and responsibilities of
national agencies and offices devolved to them pursuant to this Code. Local government
units shall likewise exercise such other powers and discharge such other functions and
responsibilities as are necessary, appropriate, or incidental to efficient and effective
provision of the basic services and facilities enumerated herein.
(b) Such basic services and facilities include, but are not limited to, the following:
xxxx
(3) For a Province:c
 xxxx (d) Formulate and implement rules and regulations related to small-scale mining;

(iii) Pursuant to national policies and subject to supervision, control and review of the DENR, (e) Settle disputes, conflicts or litigations over conflicting claims within a people’s
enforcement of forestry laws limited to community-based forestry projects, pollution control small-scale mining area, an area that is declared a small-mining; and
law, small-scale mining law, and other laws on the protection of the environment; and mini-
hydro electric projects for local purposes;39 (f) Perform such other functions as may be necessary to achieve the goals and
objectives of this Act.42
Clearly, the Local Government Code did not fully devolve the enforcement of the small-scale
mining law to the provincial government, as its enforcement is subject to the supervision, DENR Administrative Order No. 34, series of 1992, containing the Rules and Regulations to
control and review of the DENR, which is in charge, subject to law and higher authority, of implement R.A. No. 7076, provides:
carrying out the State's constitutional mandate to control and supervise the exploration,
development, utilization of the country's natural resources.40
SEC. 21. Administrative Supervision over the People's Small-Scale Mining Program. − The
following DENR officials shall exercise the following supervisory functions in the
Section 17 (b)(3)(iii) of the Local Government Code of 1991 is in harmony with R.A. No. 7076 implementation of the Program:
or the People's Small-Scale Mining Act of 1991,41 which established a People's Small-Scale
Mining Program to be implemented by the Secretary of the DENR, thus:
21.1 DENR Secretrary – direct supervision and control over the program and
activities of the small-scale miners within the people's small-scale mining area;
Sec. 2. Declaration of Policy. – It is hereby declared of the State to promote, develop, protect
and rationalize viable small-scale mining activities in order to generate more employment
21.2 Director − the Director shall:
opportunities and provide an equitable sharing of the nation's wealth and natural resources,
giving due regard to existing rights as herein provided.
a. Recommend the depth or length of the tunnel or adit taking into
account the: (1) size of membership and capitalization of the cooperative;
xxxx
(2) size of mineralized areas; (3) quantity of mineral deposits; (4) safety of
miners; and (5) environmental impact and other considerations;
Sec. 4. People's Small-Scale Mining Program. - For the purpose of carrying out the declared
policy provided in Section 2 hereof, there is hereby established a People's Small-Scale Mining
b. Determine the right of small-scale miners to existing facilities in
Program to be implemented by the Secretary of the Department of Environment and Natural
consultation with the operator, claimowner, landowner or lessor of an
Resources, hereinafter called the Department, in coordination with other concerned
affected area upon declaration of a small-scale mining area;
government agencies, designed to achieve an orderly, systematic and rational scheme for the
small-scale development and utilization of mineral resources in certain mineral areas in order
to address the social, economic, technical, and environmental problems connected with c. Recommend to the Secretary the withdrawal of the status of the
small-scale mining activities. people's small-scale mining area when it can no longer be feasibly
operated on a small-scale basis; and
xxxx
d. See to it that the small-scale mining contractors abide by small-scale
mines safety rules and regulations.
Sec. 24. Provincial/City Mining Regulatory Board. – There is hereby created under the direct
supervision and control of the Secretary a provincial/city mining regulatory board, herein
called the Board, which shall be the implementing agency of the Department, and shall xxxx
exercise the following powers and functions, subject to review by the Secretary:
SEC. 22. Provincial/City Mining Regulatory Board. − The Provincial/City Mining Regulatory
(a) Declare and segregate existing gold-rush areas for small-scale mining; Board created under R.A. 7076 shall exercise the following powers and functions, subject to
review by the Secretary:
(b) Reserve future gold and other mining areas for small-scale mining;
22.1 Declares and segregates existing gold rush area for small-scale mining;
(c) Award contracts to small-scale miners;
 22.2 Reserves for the future, mineralized areas/mineral lands for people's small-
scale mining;
22.3 Awards contracts to small-scale miners’ cooperative;
22.4 Formulates and implements rules and regulations related to R.A. 7076;
22.5 Settles disputes, conflicts or litigations over conflicting claims within ninety
(90) days upon filing of protests or complaints; Provided, That any aggrieved party
may appeal within five (5) days from the Board's decision to the Secretary for final
resolution otherwise the same is considered final and executory; and
22.6 Performs such other functions as may be necessary to achieve the goals and
objectives of R.A. 7076.
SEC. 6. Declaration of People's Small-Scale Mining Areas. – The Board created under R.A.
7076 shall have the authority to declare and set aside People's Small-Scale Mining Areas in
sites onshore suitable for small-scale mining operations subject to review by the DENR
Secretary thru the Director.43
DENR Administrative Order No. 23, otherwise known as the Implementing Rules and
Regulations of R.A. No. 7942, otherwise known as the Philippine Mining Act of 1995, adopted
on August 15, 1995, provides under Section 12344thereof that small-scale mining applications
should be filed with the PMRB45 and the corresponding permits shall be issued by the
Provincial Governor, except small-scale mining applications within the mineral reservations.
Thereafter, DENR Administrative Order No. 96-40, otherwise known as the Revised
Implementing Rules and Regulations of R.A. No. 7942, otherwise known as the Philippine
Mining Act of 1995, adopted on December 19, 1996, provides that applications for Small-
Scale Mining Permits shall be filed with the Provincial Governor/City Mayor through the
concerned Provincial/City Mining Regulatory Board for areas outside the Mineral
Reservations and with the Director though the Bureau for areas within the Mineral
Reservations.46 Moreover, it provides that Local Government Units shall, in coordination with
the Bureau/ Regional Offices and subject to valid and existing mining rights, "approve
applications for small-scale mining, sand and gravel, quarry x x x and gravel permits not
exceeding five (5) hectares."47
Petitioner contends that the Local Government Code of 1991, R.A. No. 7076, DENR
Administrative Orders Nos. 95-23 and 96-40 granted the DENR Secretary the broad statutory
power of control, but did not confer upon the respondents DENR and DENR Secretary the
power to reverse, abrogate, nullify, void, cancel the permits issued by the Provincial
Governor or small-scale mining contracts entered into by the Board.
The contention does not persuade.
The settlement of disputes over conflicting claims in small-scale mining is provided for in
Section 24 of R.A. No. 7076, thus:
Sec. 24. Provincial/City Mining Regulatory Board. − There is hereby created under the direct
supervision and control of the Secretary a provincial/city mining regulatory board, herein
called the Board, which shall be the implementing agency of the Department, and shall
exercise the following powers and functions, subject to review by the Secretary:
xxxx
(e) Settle disputes, conflicts or litigations over conflicting claims within a people's small-scale
mining area, an area that is declared a small mining area; x x x
Section 24, paragraph (e) of R.A. No. 7076 cited above is reflected in Section 22, paragraph
22.5 of the Implementing Rules and Regulations of R.A. No. 7076, to wit:
SEC. 22. Provincial/City Mining Regulatory Board. – The Provincial/City Mining Regulatory
Board created under R.A. No. 7076 shall exercise the following powers and functions, subject
to review by the Secretary:
xxxx
22.5 Settles disputes, conflicts or litigations over conflicting claims within ninety (90) days
upon filing of protests or complaints; Provided, That any aggrieved party may appeal within
five (5) days from the Board's decision to the Secretary for final resolution otherwise the
same is considered final and executory; x x x
In this case, in accordance with Section 22, paragraph 22.5 of the Implementing Rules and
Regulations of R.A. No. 7076, the AMTC filed on July 22, 2005 with the PMRB of Bulacan a
formal protest against the Applications for Quarry Permits of Eduardo Mercado, Benedicto
Cruz, Liberato Sembrano (replaced by Lucila Valdez) and Gerardo Cruz on the ground that the
subject area was already covered by its Application for Exploration Permit.48 However, on
August 8, 2005, the PMRB issued Resolution Nos. 05-8, 05-9, 05-10 and 05-11, resolving to
submit to the Provincial Governor of Bulacan the Applications for Small-Scale Mining Permits
of Eduardo Mercado, Benedicto Cruz, Lucila Valdez and Gerardo Cruz for the
granting/issuance of the said permits.49 On August 10, 2005, the Provincial Governor of
Bulacan issued the Small-Scale Mining Permits to Eduardo Mercado, Benedicto Cruz, Lucila
Valdez and Gerardo Cruz based on the legal opinion of the Provincial Legal Officer and the
Resolutions of the PMRB of Bulacan.
Hence, AMTC filed an appeal with respondent DENR Secretary, appealing from Letter-
Resolution No. 05-1317 and Resolution Nos. 05-08, 05-09, 05-10 and 05-11, all dated August
8, 2005, of the PMRB of Bulacan, which resolutions gave due course and granted, on August
10, 2005, Small-Scale Mining Permits to Eduardo D. Mercado, Benedicto S. Cruz, Lucila Valdez
and Gerardo Cruz involving parcels of mineral land situated at Camachin, Doña Remedios
Trinidad, Bulacan.
The PMRB of Bulacan filed its Answer, stating that it is an administrative body, created under
R.A. No. 7076, which cannot be equated with the court wherein a full-blown hearing could be
conducted, but it is enough that the parties were given the opportunity to present evidence.
It asserted that the questioned resolutions it issued were in accordance with the mining laws
and that the Small-Scale Mining Permits granted were registered ahead of AMTC's
Application for Exploration Permit. Further, the Board stated that the Governor of Bulacan
had the power to approve the Small-Scale Mining Permits under R.A. No. 7160.
The DENR Secretary found the appeal meritorious, and resolved these pivotal issues: (1)
when is the subject mining area open for mining location by other applicants; and (2) who
among the applicants have valid applications.1âwphi1 The pertinent portion of the decision
of the DENR Secretary reads:
We agree with the ruling of the MGB Director that the area is open only to mining location
on August 11, 2004, fifteen (15) days after the receipt by Golden Falcon on July 27, 2004 of a
copy of the subject Order of July 16, 2004.1âwphi1The filing by Golden Falcon of the letter-
appeal suspended the finality of the Order of Denial issued on April 29, 1998 by the Regional
Director until the Resolution thereof on July 16, 2004.
Although the subject AQPs/SSMPs were processed in accordance with the procedures of the
PMRB, however, the AQPs were filed on February 10, 2004 when the area is still closed to
mining location. Consequently, the SSMPs granted by the PMRB and the Governor are null
and void making thereby AEP No. III-02-04 of the AMTC valid, it having been filed when the
area is already open to other mining applicants.
Records also show that the AQPs were converted into SSMPs. These are two (2) different
applications. The questioned SSMPs were issued in violation of Section 4 of RA 7076 and
beyond the authority of the Provincial Governor pursuant to Section 43 of RA 7942 because
the area was never proclaimed as "People's Small-Scale Mining Program." Moreover, iron ore
mineral is not considered among the quarry resources.
xxxx
WHEREFORE, the Application for Exploration Permit, AEP-III-02-04 of Atlantic Mines and
Trading Corp. is declared valid and may now be given due course. The Small-Scale Mining
Permits, SSMP-B-002-05 of Gerardo Cruz, SSMP-B-003-05 of Eduardo D. Mercado, SSMP-B-
004-05 of Benedicto S. Cruz and SSMP-B-005-05 of Lucila S. Valdez are declared NULL AND
VOID. Consequently, the said permits are hereby CANCELLED.50
The Court finds that the decision of the DENR Secretary was rendered in accordance with the
power of review granted to the DENR Secretary in the resolution of disputes, which is
provided for in Section 24 of R.A. No. 707651 and Section 22 of its Implementing Rules and
Regulations.52 It is noted that although AMTC filed a protest with the PMRB regarding its
superior and prior Application for Exploration Permit over the Applications for Quarry Permit,
which were converted to Small-Scale Mining Permits, the PMRB did not resolve the same,
but issued Resolution Nos. 05-08 to 05-11 on August 8, 2005, resolving to submit to the
Provincial Governor of Bulacan the Applications for Small-Scale Mining Permits of Eduardo
Mercado, Benedicto Cruz, Lucila Valdez and Gerardo Cruz for the granting of the said
permits. After the Provincial Governor of Bulacan issued the Small-Scale Mining Permits on
August 10, 2005, AMTC appealed the Resolutions of the PMRB giving due course to the
granting of the Small-Scale Mining Permits by the Provincial Governor.
Hence, the decision of the DENR Secretary, declaring that the Application for Exploration
Permit of AMTC was valid and may be given due course, and canceling the Small-Scale Mining
Permits issued by the Provincial Governor, emanated from the power of review granted to
the DENR Secretary under R.A. No. 7076 and its Implementing Rules and Regulations. The
DENR Secretary's power to review and, therefore, decide, in this case, the issue on the
validity of the issuance of the Small-Scale Mining Permits by the Provincial Governor as
recommended by the PMRB, is a quasi-judicial function, which involves the determination of
what the law is, and what the legal rights of the contending parties are, with respect to the
matter in controversy and, on the basis thereof and the facts obtaining, the adjudication of
their respective rights.53 The DENR Secretary exercises quasi-judicial function under R.A. No.
7076 and its Implementing Rules and Regulations to the extent necessary in settling disputes,
conflicts or litigations over conflicting claims. This quasi-judicial function of the DENR
Secretary can neither be equated with "substitution of judgment" of the Provincial Governor
in issuing Small-Scale Mining Permits nor "control" over the said act of the Provincial
Governor as it is a determination of the rights of AMTC over conflicting claims based on the
law.
In determining whether Section 17 (b)(3)(iii) of the Local Government Code of 1991 and
Section 24 of R.A. No. 7076 are unconstitutional, the Court has been guided by Beltran v. The
Secretary of Health, 54 which held:
The fundamental criterion is that all reasonable doubts should be resolved in favor of the
constitutionality of a statute. Every law has in its favor the presumption of constitutionality.
For a law to be nullified, it must be shown that there is a clear and unequivocal breach of the
Constitution. The ground for nullity must be clear and beyond reasonable doubt. Those who
petition this Court to declare a law, or parts thereof, unconstitutional must clearly establish
the basis therefor. Otherwise, the petition must fail. 55
In this case, the Court finds that the grounds raised by petitioner to challenge the
constitutionality of Section 17 (b )(3)(iii) of the Local Government Code of 1991 and Section
24 'of R.A. No.7076 failed to overcome the constitutionality of the said provisions of law.
WHEREFORE, the petition is DISMISSED for lack of merit.
No costs.
SO ORDERED.
[ G.R. No. 218902, October 17, 2016 ]
 HELEN EDITH LEE TAN, PETITIONER, VS. PEOPLE OF THE PHILIPPINES, RESPONDENT.
Soon thereafter, Criminal Complaints for Falsification under Article 171 of the Revised Penal
DECISION Code (RPC) and for Violation of Section 3(e) of R.A. 3019 were filed before the Office of the
PEREZ, J.: Ombudsman-Visayas (OMB-Visayas) against the local officials involved in the project of
rechanneling the Tigum River path, including petitioner Tan.[16] The case was docketed as
Assailed in this Petition for Review on Certiorari under Rule 45 of the Rules of Court are the
OMB-VIS-CRIM-98-0372.
Decision[1] and the Resolution[2] dated 7 November 2013 and 30 June 2015, respectively, of
the Sandiganbayan in Criminal Case No. 25674. The questioned Decision found herein
The alleged Falsification was committed by Mondejar, Arnaldo Partisala
petitioner Helen Edith Lee Tan (Tan), President/Proprietor of International Builders
(Partisala),[17] Tolentino, Espejo, Gumapas, Piolo, and Velasco when they made it appear in
Corporation (IBC),[3] together with her co-accused therein, namely: Rene Mondejar
the Minutes of the Regular Session of the Sangguniang Bayan of Maasin, Iloilo City, held on
(Mondejar), Municipal Mayor; Francisco Tolentino (Tolentino), Sangguniang Bayan Secretary;
21 June 1996, that Resolution No. 30-A and Resolution No. 30-B were deliberated, approved
Ildefonso Espejo (Espejo), Sangguniang Bayan Member; Margarita Gumapas
and/or enacted by the Sangguniang Bayan on the said date. Allegedly, no such resolutions
(Gumapas), Sangguniang Bayan Member; Manuel Piolo (Piolo), Sangguniang
were passed and/or enacted by the said body on that date. It was argued that this was done
Bayan Member; and Roberto Velasco (Velasco), Sangguniang Bayan Member; all of Maasin,
to give Mondejar legal basis or authority to enter into a MOA with the IBC, through petitioner
Iloilo City, guilty beyond reasonable doubt of Violation of Section 3(e) of Republic Act (R.A.)
Tan, for the supposed rechanneling of the Tigum River path. In reality, however, such MOA is
No. 3019,[4] as amended. Each of them was meted with the penalty of imprisonment of six (6)
a grant of an authority for the IBC to engage into massive quarrying activities in the area even
years and one (1) month, as minimum, to 10 years, as maximum, as well as perpetual
without the required permit. As the argument ran, all the local officials involved in the
disqualification to hold public office.[5] The questioned Resolution, on the other hand, denied
project of rechanneling the Tigum River path, in conspiracy with petitioner Tan, indubitably
for lack of merit the separate Motions for Reconsideration of petitioner and Mondejar, as
committed also a Violation of Section 3(e) of R.A. 3019 inasmuch as they gave unwarranted
well as the joint Motion for Reconsideration of Tolentino, Gumapas, Velasco and Espejo.[6]
benefits, advantage and displayed manifest partiality in favor of the IBC. They entered into a
contract that is grossly disadvantageous to the government, particularly to the Municipality
The antecedents of this case are:
of Maasin, Iloilo City, as it has been deprived of the revenues, which could have been
collected from the IBC out of the hauling activities of the latter for sand and gravel if there
To protect Barangay Naslo in Maasin, Iloilo City, from the dangers posed by the Tigum River,
was no such MOA.[18]
which usually overflows during the rainy season, its Sangguniang Barangay enacted on 16
June 1996 Resolution No. 9[7] requesting the IBC to rechannel the path of the Tigum River
On 31 May 1999, the OMB-Visayas, through Special Prosecution Officer II Raul V. Cristoria,
and, after the temporary river control is replenished, to extract whatever surplus of sand and
issued a Resolution[19] recommending the (1) dismissal of the charge against the local officials
gravel supply, as payment for its services.[8] A day after, or on 17 June 1996, the Municipal
involved in the project of rechanneling the Tigum River path, except for Mondejar, Partisala,
Development Council (MDC) of Maasin, Iloilo City, adopted a similar
Tolentino, Espejo, Gumapas, Piolo and Velasco, for insufficiency of evidence; (2) filing of
resolution, i.e., Resolution No. 9,[9] also requesting the IBC to perform the rechanneling of the
separate Informations for Falsification under Article 171 of the RPC and for Violation of
Tigum River path because it has the necessary equipment for that kind of work, as well as the
Section 3(e) of R.A. 3019 against the afore-named public officials before the Sandiganbayan;
Department of Environment and Natural Resources (DENR) to issue the Environmental
and (3) inclusion of petitioner Tan as one of the accused in the Information for Violation of
Clearance Certificate (ECC) in connection with the implementation of the project.[10] With
Section 3(e) of R.A. 3019.[20]
these in view, the Sangguniang Bayan of Maasin, Iloilo City, enacted on 21 June 1996 the
questioned (1) Resolution No. 30-A[11] strongly endorsing the resolutions of Barangay Naslo
Upon review, the OMB, through Graft Investigation Officer II Julita M. Calderon, issued a
and MDC; and (2) Resolution No. 30-B[12] authorizing Mondejar to exercise his emergency
Memorandum dated 16 September 1999[21]approving the Resolution dated 31 May 1999 of
powers to negotiate with the IBC for the rechanneling of the Tigum River path.[13]
the OMB-Visayas, thus, approving the filing of the Informations against the mentioned
individuals. The said OMB Memorandum was later approved by the Acting Ombudsman
On 27 June 1996, pursuant to the aforesaid Sangguniang Bayan resolutions, the Municipality
Margarito P. Gervacio, Jr. on 17 September 1999.[22]
of Maasin, Iloilo City, through Mondejar, entered into a Memorandum of Agreement
(MOA)[14] with the IBC, through petitioner Tan, for the rechanneling of the Tigum River path.
Accordingly, two separate Informations were filed against Mondejar, Partisala, Tolentino,
Per the said MOA, the parties agreed that the IBC will do the rechanneling for no monetary
Espejo, Gumapas, Piolo and Velasco, before the Sandiganbayan, to wit: (1) for Violation of
considerations whatsoever, except that it can get the surplus supply of sand and gravel taken
Section 3(e) of R.A. 3019 docketed as Criminal Case No. 25674, [23] where petitioner Tan
out therefrom after the necessary dike has been established, as what has been provided for
was included as one of the accused; and (2) for Falsification under Article 171 of the RPC
in the alleged Resolution No. 30-A, on account of financial constraints since the municipality
docketed as Criminal Case No. 25675.[24]
has already exhausted all its resources due to a series of calamities.[15]
 e. [PIOLO] - S. B. Member, Maasin, Iloilo;
The Information docketed as Criminal Case No. 25674 charging Mondejar, Partisala, f. [VELASCO] - S. B. Member, Maasin, Iloilo;
Tolentino, Espejo, Gumapas, Piolo, Velasco and petitioner Tan with Violation of Section 3(e)
of R.A. 3019, by giving the latter unwarranted benefits, advantage and preference, to the While [herein petitioner Tan] was the President of [IBC].
damage and prejudice of the government, reads:

That on or about the 27th day of June 1996, and for sometime prior or subsequent thereto, in
2. That on 27 June 1996 a [MOA] was entered into between the Municipality of
the Municipality of Maasin, Province of Iloilo, Philippines and within the jurisdiction of this Maasin, Iloilo represented by Mayor [Mondejar] as the First Party and [IBC]
Honorable Court, above-named accused [Mondejar, Partisala, Tolentino, Espejo, Gumapas, represented by [petitioner Tan] as the Second Party, for the Rechanneling of the
Piolo and Velasco], public officers, having been duly elected, appointed and qualified to such Tigum River path at Barangay Naslo, Maasin, Iloilo.
public positions above-mentioned, in such capacity and committing the offense in relation to
Office, and while in the performance of their official functions, conniving, confederating
and mutually helping with each other and with [herein petitioner Tan], a private individual
and President/Proprietor of [IBC] Iloilo City with deliberate intent, with manifest partiality
and evident bad faith, did then and there willfully, unlawfully and feloniously make it
appear that Resolution No. 30-B, series of 1996, was validly enacted by the Sangguniang
3. That Resolution No. 9 Series of 1996 was passed by Barangay Naslo, Maasin, Iloilo,
Bayan of Maasin, Iloilo, authorizing Mayor [Mondejar] to exercise his emergency powers
relative to the rechanneling of the Tigum River Path at Barangay Naslo.
as in fact accused [Mondejar], entered into a [MOA] with [petitioner Tan] of IBC
authorizing the said IBC to engage in massive quarrying in the guise of rechan[n]eling the
Tigum River in Maasin, Iloilo, thus accused in the performance of their official functions
had given unwarranted benefits, advantage and preference to [petitioner Tan] and
themselves, to the damage and prejudice of the government, particularly the Municipality of
Maasin.
4. That Resolution No. 9 was also passed by the Members of the [MDC] of Maasin,
Iloilo endorsing the rechanneling of the said River Path.[28] (Emphasis and
CONTRARY TO LAW.[25] (Emphasis and italics supplied)
underscoring supplied.)

Criminal Case No. 25674 and Criminal Case No. 25675[26] were eventually consolidated.

Upon arraignment, petitioner Tan and her co-accused in Criminal Case No. 25674, except for xxx xxx xxx
Partisala, who still remains at large, pleaded NOT GUILTY to the charge.[27] The parties then
entered into a Joint Stipulation of Facts, which states, among others:
Thereafter, the Sandiganbayan jointly tried Criminal Case No. 25674 and Criminal Case No.
25675.

The prosecution presented eight witnesses, namely, Jose S. Navarra (Navarra),[29] Imelda
1. That at the time material in the Information, accused were public officials holding
Maderada (Maderada),[30] Soledad R. Sucaldito (Sucaldito),[31] Rogelio T. Trinidad
the following official positions in the government:
(Trinidad),[32] Elisa L. Trojillo (Trojillo),[33] Darell A. Cabanero (Cabanero),[34] Dr. Vicente
Albacete (Dr. Albacete)[35] and Ernie Jesus Lee Malaga (Malaga).[36] All together, their
a. [MONDEJAR] - Municipal Mayor, Maasin, Iloilo; testimonies tend to establish that (1) the accused public officials falsified the Minutes of the
b. [TOLENTINO] - S. B. Member, Maasin, Iloilo; Regular Session of the Sangguniang Bayan of Maasin, Iloilo City, held on 21 June 1996 by
c. [ESPEJO] - S. B. Member, Maasin, Iloilo; making it appear that the body enacted on that date Resolution No. 30-A and Resolution No.
d. [GUMAPAS] - S. B. Member, Maasin, Iloilo; 30-B, which resolutions led to the signing of the MOA between Mondejar and petitioner Tan
for the alleged rechanneling of the Tigum River path; and (2) the quarrying activities of
petitioner Tan's IBC at the Tigum River in the guise of rechanneling the same. [37]
After the prosecution's formal offer of documentary evidence was admitted by the
Sandiganbayan in its Order dated 23 May 2006 over the objection of petitioner Tan and her
co-accused,[38] the latter separately filed Demurrers to Evidence (with prior leave of court),
which were denied in a Resolution dated 16 March 2007. They moved for its reconsideration
but it was again denied in a Resolution dated 22 January 2008.[39]
Petitioner Tan and her co-accused then proceeded in presenting themselves as witnesses,
together with Rolando B. Sison (Sison),[40]Engineer Juan Rentoy, Jr. (Engr. Rentoy, Jr.)[41] and
Abner Tudela (Tudela).[42] Their testimonies as a whole tend to prove, among others, that (1)
the old flood control system of Barangay Naslo, Maasin, Iloilo City, was almost destroyed by
the previous typhoons that hit the community; thus, there is a great need to construct or
build another flood control system and, that is, the rechanneling of the Tigum River path
since that river always inundated Barangay Naslo during the rainy season; (2) resolutions
were passed by both the Sangguniang Barangay of Barangay Naslo and the MDC requesting
the IBC to do the rechanneling since the latter has the necessary equipment for that kind of
work; (3) the resolutions of Sangguniang Barangay of Barangay Naslo and the MDC were
endorsed by the Sangguniang Bayan of Maasin, Iloilo City, via Resolution No. 30-A; and
Resolution No. 30-B authorized Mondejar to exercise his emergency powers to negotiate
with the IBC for the rechanneling of the Tigum River path, which resolutions were validly
enacted by the body on 21 June 1996; (4) pursuant thereto, the Municipality of Maasin, Iloilo
City, through Mondejar, and the IBC, through petitioner Tan, entered into a MOA for the
rechanneling of the Tigum River path; and (5) the IBC was able to rechannel the Tigum River
path.[43]
Petitioner Tan and her co-accused subsequently made a formal offer of evidence, which was
admitted by the Sandiganbayan in its Order dated 13 January 2011 despite the objection of
the prosecution.[44]
Thereafter, the prosecution presented Shirlito A. Reyes (Reyes)[45] and Sucaldito as rebuttal
witnesses. On 20 July 2012, the prosecution submitted its supplemental offer of evidence,
which the Sandiganbayan admitted in its Order dated 21 September 2012 over the objection
of petitioner Tan.[46]
Once the parties submitted their respective Memoranda, the Sandiganbayan accordingly
rendered a joint Decision on 7 November 2013 in Criminal Case No. 25674 and in Criminal
Case No. 25675, which dispositive portion reads:
WHEREFORE, premises considered, the Court hereby rules as follows:
1. In Criminal Case No. 25674, the Court finds the accused [MONDEJAR], [TOLENTINO],
[ESPEJO], [GUMAPAS], [PIOLO], [VELASCO] and [HEREIN PETITIONER TAN] GUILTY beyond
reasonable doubt of the offense of [Violation of Section 3 (e) of [RA 3019], as amended, and
sentences each of them to suffer an indeterminate penalty of six (6) years and one (1)
month[,] as minimum[,] to ten (10) years[,] as maximum; and to suffer perpetual
disqualification from public office. Insofar as [PARTISALA] is concerned, since he is still at
large up to the present, let the case be ARCHIVED and let an alias warrant of arrest issue
against him.
2. In Criminal Case No. 25675, the Court finds the accused [MONDEJAR], [TOLENTINO],
[ESPEJO], [GUMAPAS], [PIOLO] and [VELASCO] GUILTY beyond reasonable doubt of
Falsification defined under Article 171 of the [RPC] and sentences each of them to suffer the
penalty of imprisonment of six (6) months [and] one (1) day of prision correccional[,] as
minimumf,] to eight (8) years and one (1) day ofprision mayor[,] as maximum in the absence
of any mitigating and aggravating circumstance in accordance with the provisions of the
Indeterminate Sentence Law; to pay a fine of Five Thousand Pesos ([P]5,000.00); and to
further suffer temporary absolute disqualification and that of perpetual special
disqualification from the right of suffrage. Insofar as [PARTISALA] is concerned, since he is
still at large up to the present, let the case be ARCHIVED and let an alias warrant of arrest
issue against him.[47] (Emphasis partly in the original and partly supplied; italics supplied)
In arriving at such conclusion (in Criminal Case No. 25674), the Sandiganbayan elucidated,
thus:
To be convicted of [Violation of Section 3 (e) of [RA 3019], the prosecution must prove the
following:
1) The accused must be a public officer discharging administrative, judicial or official
functions;
2) He must have acted with manifest partiality, evident bad faith or inexcusable negligence;
and
3) That his action caused any undue injury to any party, including the government, or giving
any private party unwarranted benefits, advantage or preference in the discharge of his
functions.
The first element has been established as the accused public officials have stipulated on their
public functions. [Herein petitioner Tan], on the other hand, is charged in conspiracy with
the public officials.
The second element is likewise present x x x It was established by the prosecution that the SB
never passed Resolution No. 30-B authorizing accused Mondejar to exercise his emergency
powers and for him to carry out emergency measures relative to the rechanneling of the
Tigum River. This means that accused Mondejar did not have the authority to enter into a
MOA with the IBC for the rechanneling of the Tigum River. Knowing this, the accused public
officials falsified Exh. "F" [Minutes of the 21 June 1996 Sangguniang Bayan Session] thereby
making it appear that the SB gave such authority to accused Mondejar. This act was done in
evident bad faith as they deliberately covered-up an illegal act thus justifying the extraction
of sand and gravel by the IBC at the Tigum River. Without such act by the accused, IBC would
not have any right to haul any and all "excess" sand and gravel from the said site x x x
As to third element, it was shown by the prosecution that the only way for the IBC to legally
extract sand and gravel from the Tigum River was if it could secure a quarrying permit from
the provincial government of Iloilo. This is stated clearly in Provincial Ordinance No. 11 of
the Sangguniang Panlalawigan of Iloilo dated [14 August 1995] x x x
The municipality of Maasin, through its Mayor and the SB, did not have the authority to issue
quarrying permit. What the accused were able to accomplish through the MOA was to allow
IBC to engage in quarrying activities without having to go through the trouble of securing a
quarrying permit on the justification that IBC was performing a service for the townspeople
by constructing a temporary dike and by rechanneling the Tigum River and that the
extraction of sand and gravel as its compensation for services rendered.
In effect, the accused public officers and the IBC owner [petitioner] Tan effectively bypassed
the provincial government and circumvented the requirement for a quarrying permit, with all
its conditions and limitations. By so doing, the accused gave unwarranted favor or
unwarranted benefit to [petitioner] Tan, the owner of the IBC, in the exercise of their official
functions x x x
x x x Worse the MOA did not put in necessary safeguards to prevent any abuses by the IBC. It
did not require the municipality to supervise the construction of the dike and the
rechanneling of the river nor did it require monitoring of the sand and gravel being extracted
by the IBC thereby giving IBC unfettered discretion in its implementation of the MOA and
allowing indiscriminate quarrying in the area.[48]
Aggrieved, petitioner Tan moved for its reconsideration[49] but it was denied for lack of merit
in the questioned Resolution dated 30 June 2015.
The Sandiganbayan held that:
Contrary to [herein petitioner] Tan's argument, the prosecution has proven her complicity
by her act of signing the MOA ostensibly dated 28 June 1996 but was actually executed
sometime after September 1997 which act indicates a common purpose to make it appear
that accused Mondejar had the authority to enter into said MOA with [petitioner] Tan's
IBC. While such finding had not been expressly stated in the assailed Decision, such is
necessarily implied from the finding that the falsified Minutes was executed only sometime
in 1997.
xxxx xxxx xxxx
The Information states that unwarranted benefit was given [petitioner] Tan by the act of the
accused public officers in making it appear that Resolution No. 30-B series of 1996 was
passed authorizing accused Mondejar to exercise his emergency powers and that, in fact,
Mondejar did enter into a MOA with [petitioner] Tan of IBC authorizing it to engage in
massive quarrying in the guise of rechanneling the Tigum River. These are the ultimate facts
that go into the sufficiency of the Information and which the prosecution had proven beyond
reasonable doubt. The discussion by the Court that the acts of the accused had the effect of
circumventing the rules on securing a quarry permit and that the MOA unduly benefited
[petitioner] Tan's IBC are mere details that go into the whys and the hows of the authority
granted [petitioner] Tan's IBC. Verily, an Information only needs to state the ultimate facts
constituting the offense, not the finer details of why and how the illegal acts alleged
amounted to undue injury or damage or unwarranted benefit.[50] (Emphasis supplied.)
Hence, this Petition by petitioner Tan raising the following grounds: (1) the Sandiganbayan
Decision is void on its face for non-compliance with Section 14, Article VTII of the
Constitution; (2) the Information in Criminal Case No. 25674, in regard petitioner Tan, is void
as it does not conform to the OMB-Visayas Resolution finding no probable cause to charge
the latter with Falsification of Resolution No. 30-B of the Sangguniang Bayan of Maasin, Iloilo
City; (3) the Information does not allege an offense constitutive of violation of Section 3(e) of
R.A. 3019 with regard to petitioner Tan who is a private individual; (4) The Sandiganbayan
Decision imputes to the accused public officials in Criminal Case No. 25674, including
petitioner Tan, the grant of unwarranted benefits to the IBC as the latter was able to quarry
in the Tigum River without any permit from the provincial government of Iloilo, which fact is
not alleged in the Information, much less supported by any evidence, thus, in violation of
petitioner Tan's constitutional right to be informed of the nature and cause of the
accusations against her, making the entire proceedings void; (5) the Sandiganbayan Decision
violated petitioner Tan's right to due process and even the fundamental rules of evidence as
it appreciated the evidence presented in Criminal Case No. 25675 (for Falsification) in
convicting the latter in Criminal Case No. 25674 (for Violation of Section 3(e) of R.A. 3019)
even though such evidence was never offered in the latter case; (6) both the Sandiganbayan
Decision and Resolution contain no finding of the commission of any act by petitioner Tan,
either by herself or in conspiracy with her co-accused in Criminal Case No. 25674, that
established beyond reasonable doubt the violation of each and every element of the offense
punishable under Section 3(e) of R.A. 3019 in relation to Section 4(b) of the same law;
and (7) the Sandiganbayan Decision and Resolution were rendered in violation of the
Constitution, thus, merits reversal and the petitioner deserves an acquittal.[51]
With the foregoing arguments, the main issue to be resolved in the present recourse is
whether the Sandiganbayan erred in finding petitioner Tan guilty beyond reasonable doubt
of Violation of Section 3(e) of R.A. 3019 in conspiracy with the accused public officials of
Maasin, Iloilo City.
The Petition is meritorious.
Section 3(e) of R.A. 3019, under which petitioner Tan is charged, provides:
Section 3. Corrupt practices of public officers. In addition to acts or omissions of public
officers already penalized by existing law, the following shall constitute corrupt practices of
any public officer and are hereby declared to be unlawful:
xxxx
(e) Causing any undue injury to any party, including the Government, or giving any private
party any unwarranted benefits, advantage or preference in the discharge of his official,
administrative or judicial functions through manifest partiality, evident bad faith or gross
inexcusable negligence. This provision shall apply to officers and employees of offices or
government corporations charged with the grant of licenses or permits or other concessions.
In Rivera v. People,[52] this Court held that to justify an indictment under this section;, the
existence of the following elements must be established: (1) the accused must be a public
officer discharging administrative, judicial or official functions; (2) that the accused must
have acted with manifest partiality, evident bad faith or gross inexcusable negligence; and (3)
the action of the accused caused undue injury to any party, including the
government, or gave any private party unwarranted benefits, advantage or preference in the
discharge of the functions of the accused.[53]
There are two ways by which a public official violates Section 3(e) of R.A. 3019 in the
performance of his functions, to wit: (1) by causing undue injury to any party, including the
Government; or (2) by giving any private party any unwarranted benefit, advantage or
preference. The accused may be charged under either mode or both. The disjunctive term
"or" connotes that either act qualifies as a violation of Section 3(e) of R.A. 3019.[54]
Private persons, when acting in conspiracy with public officers, may be indicted and, if found
guilty, held liable for the pertinent offenses under Section 3 of R.A. 3019, including (e)
thereof. This is in consonance with the avowed policy of the anti-graft law to repress certain
acts of public officers and private persons alike constituting graft or corrupt practices act or
which may lead thereto.[55]
Thus, for a private person to be charged with and convicted of Violation of certain offenses
under Section 3 of R.A. 3019, which in this case (e), it must be satisfactorily proven that
he/she has acted in conspiracy with the public officers in committing the offense; otherwise,
he/she cannot be so charged and convicted thereof.
In conspiracy, the act of one is the act of all; thus, it is never presumed. Like the physical acts
constituting the crime itself, the elements of conspiracy must be proven beyond reasonable
doubt.[56] To establish conspiracy, direct proof of an agreement concerning the commission
of a felony and the decision to commit it is not necessary. It may be inferred from the acts of
the accused before, during or after the commission of the crime which, when taken together,
would be enough to reveal a community of criminal design, as the proof of conspiracy is
frequently made by evidence of a chain of circumstances.[57] While direct proof is not
essential to establish conspiracy, it must be established by positive and conclusive
evidence. And conviction must be founded on facts, not on mere inferences and
presumptions.[58]
In this case, petitioner Tan was charged with and convicted of Violation of Section 3(e) of R.A.
3019 because of the alleged conspiracy between her and her co-accused public officials of
Maasin, Iloilo City, in committing the said offense. But, a perusal of the Sandiganbayan
Decision showed no instance how petitioner Tan could have conspired with her co-accused
public officials. Petitioner Tan, thus, raised this point in her Motion for Reconsideration. The
Sandiganbayan, however, in disposing the same, simply stated:
x x x the prosecution has proven her complicity by her act of signing the MOA ostensibly
dated 28 June 1996 but was actually executed sometime after September 1997 which act
indicates a common purpose to make it appear that accused Mondejar had the authority to
enter into said MOA with [petitioner] Tan's IBC. While such finding had not been expressly
stated in the assailed Decision, such is necessarily implied from the finding that the falsified
Minutes was executed only sometime in 1997.
It can be gleaned from the aforesaid Sandiganbayan disposition that their only basis in
declaring that the MOA was actually executed sometime after September 1997 was their
finding that the falsified Minutes of the Regular Session of the Sangguniang Bayan of Maasin,
Iloilo City, was executed only sometime in 1997. To the mind of this Court, this is a patently
erroneous conclusion.
There was no iota of evidence ever presented by the prosecution in Criminal Case No. 25674
that would prove that the MOA entered into between Mondejar and petitioner Tan was
actually executed on a date other than 27 January 1996. There was also nothing on the face
of the MOA that would show any irregularity in its execution. To note, the MOA signed by
petitioner Tan dated 27 June 1996 was duly notarized on 28 June 1996. Section 30 of Rule
132 of the Rules of Criminal Procedure provides:
SECTION 30. Proof of notarial document. - Every instrument duly acknowledged or proved
and certified as provided by law, may be presented in evidence without further proof, the
certificate of acknowledgement being prima facie evidence of the execution of the
instrument or document involved. (Italics supplied)
The notarization of a document carries considerable legal effect. Notarization of a private
document converts such document into a public one, and renders it admissible in court
without further proof of its authenticity.[59] With that notarial act, the MOA became a public
document. As such, it is a perfect evidence of the fact which gives rise to its execution and of
its date so long as the act which the officer witnessed and certified to or the date written by
him is not shown to be false.[60] To overcome the presumption, the rules require not just a
preponderance of evidence, but evidence that is "clear and convincing" as to exclude all
reasonable controversy as to the falsity of the certificate. In the absence of such proof, the
document must be upheld.[61]
Further, in the parties' Joint Stipulation of Facts before the Sandiganbayan, one of facts they
agreed on was:
2. That on 27 June 1996 a Memorandum of Agreement was entered into between the
Municipality of Maasin, Iloilo represented by Mayor Rene Mondejar as the First
Party, International Builders Corporation (IBC) represented by Helen Edith Lee Tan
as the Second Party, for the Rechanneling of the Tigum River path at Barangay
Naslo, Maasin, Iloilo.
As the aforesaid Joint Stipulation of Facts was reduced into writing and signed by the parties
and their counsels, thus, they are bound by it and the same becomes judicial admissions of
the facts stipulated.[62] Section 4, Rule 129 of the Rules of Court states:
Section 4. Judicial Admissions. An admission, verbal or written, made by a party in the course
of the proceedings in the same case, does not require proof. The admission may be
contradicted only by showing that, it was made through palpable mistake or that no such
admission was made.
A party may make judicial admissions in (a) the pleadings, (b) during the trial, either by verbal
or written manifestations or stipulations, or (c) in other stages of the judicial proceeding. It is
well-settled that judicial admissions cannot be contradicted by the admitter who is the party
himself and binds the person who makes the same, and absent any showing that this was
made thru palpable mistake, as in this case, no amount of rationalization can offset
it.[63] Also, in Republic of the Philippines v. D Guzman[64] citing Alfelor v. Halasan,[65] this Court
held that "a party who judicially admits a fact cannot later challenge that fact as judicial
admissions are a waiver of proof; production of evidence is dispensed with. A judicial
admission also removes an admitted fact from the field of controversy."
With the foregoing, the Sandiganbayan is precluded from ruling that the MOA was actually
executed sometime in September 1997 as it would run counter to the stipulated fact of the
parties that it was entered into on 27 June 1996, which stipulation was not shown to have
been made through palpable mistake.
Having established that the MOA was entered into on 27 June 1996 and not in September
1997 as what the Sandiganbayan would make it appear, petitioner Tan's act of signing the
same did not in anyway prove that she had conspired with her co-accused public officials in
committing the offense charged. To repeat, there is nothing in the MOA that would apprise
petitioner Tan of any irregularity or illegality that led to its execution. More so, the
prosecution did not even present evidence in Criminal Case No. 25674 to prove that
petitioner Tan (1) has knowledge that Resolution No. 30-B was a product of a falsified
document, i.e., Minutes of the Regular Session of the Sangguniang Bayan of Maasin, Iloilo
City, and that Mondejar has no authority to enter into a MOA with her; and that (2) despite
knowledge thereof, still entered into a MOA with Mondejar. It also bears stressing that none
of those who testified for the prosecution ever linked petitioner Tan to the alleged
falsification committed by the accused public officials of Maasin, Iloilo City. In fact, petitioner
Tan was not among those charged with Falsification.
Since petitioner Tan's conviction was based on the presence of conspiracy, which the
prosecution was not able to prove beyond reasonable doubt, her conviction of the offense
charged must be reversed.
WHEREFORE, premises considered, the present Petition is hereby GRANTED. The
Sandiganbayan Decision and Resolution dated 7 November 2013 and 30 June 2015,
respectively, in Criminal Case No. 25674 insofar as petitioner Tan is concerned are
hereby REVERSED and SET ASIDE. Accordingly, petitioner Tan is ACQUITTED from the charge
of Violation of Section 3(e) of Republic Act No. 3019.
SO ORDERED.