A.
THE LAW ON NATURAL RESOURCES controversy within the jurisdiction of DENR—this raises a judicial
PART THREE: MINING LAWS
II. RA 7076/ PEOPLE’S SMALL-SCALE MINING ACT OF 1991
G.R. No. 134030. April 25, 2006. * The allegations in Tuason’s complaint do not make out a case for a
ASAPHIL CONSTRUCTION AND DEVELOPMENT
CORPORATION, petitioner, vs. VICENTE TUASON, JR.,
INDUPLEX, INC. and MINES ADJUDICATION BOARD,
respondents.
Administrative Law; Administrative
Agencies; Appeals; Pleadings and Practice; Mines Adjudication
Board (MAB) decisions are appealable to the Court of Appeals under
Rule 43 of the Rules of Court.—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. Sulu
Resources Development Corp., 387 SCRA 128 (2002), 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 DENR’s 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.
_______________
*FIRST DIVISION.
127
VOL. 488, APRIL 25, 2006 127
Asaphil Construction and Development Corporation vs.
Tuason, Jr.
Same; Courts; Jurisdictions; Department of Environment and
Natural Resources (DENR); Judicial Questions; Words and
Phrases; The act seeking to nullify a Contract of Sale and Purchase
of Perlite Ore does not make out a case for a mining dispute or
question, which is proper for determination by the regular courts; 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.—
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 Asaphil’s refusal to abide by the terms and
conditions of the agreement, but due to Induplex’s 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. 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.
Same; Same; Same; Same; Same; The resolution of the validity
or voidness of contracts remains a legal or judicial question as it
requires the exercise of judicial function.—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., 452 SCRA 607, 623 (2005), 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 dis-
128
128 SUPREME COURT REPORTS
ANNOTATED
 Asaphil Construction and Development Corporation vs.
Tuason, Jr.
pute, 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 Tuason’s complaint; consequently, the MAB
committed an error in taking cognizance of the appeal, and in ruling
upon the validity of the contracts.
PETITION for review on certiorari of a decision of the Mines
Adjudication Board (MAB).
The facts are stated in the opinion of the Court.
Oliver Olaybal for petitioner.
Arnulfo L. Perete for private respondents.
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
_______________
1Rollo, p. 35.
129
VOL. 488, APRIL 25, 2006 129
Asaphil Construction and Development Corporation vs.
Tuason, Jr.
On March 24, 1975, respondent Vicente Tuason, Jr. (Tuason)
2
entered into a Contract for Sale and Purchase of Perlite Ore
with Induplex, Inc. (Induplex), wherein Induplex agreed to
buy all the perlite ore that may be found and mined in
Tuason’s 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 Induplex for
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 Ibalon’s 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 mining
perlite ore, through an operating agreement or any other
method; that Induplex acquired the majority stocks of Asaphil
on January 14, 1989, and that 95% of Ibalon’s 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
government’s interest as well. 5
_______________
 2 Now deceased, and succeeded in this case by John Lyndon H. Tuason. _______________
3 Rollo, pp. 94, et seq.
4 Id., at pp. 90-93. 6 Id., at pp. 102-104.
5 Id., at pp. 86-88. 7 Id., at pp. 105-108.
130 8 Id., at p. 115.

9 Id., at pp. 29-35.

130 SUPREME COURT REPORTS ANNOTATED
131
Asaphil Construction and Development Corporation vs.
VOL. 488, APRIL 25, 2006 131
Tuason, Jr.
Asaphil Construction and Development Corporation vs.
Asaphil filed its Answer, praying for the dismissal of the
Tuason, Jr.
complaint on the ground that the DENR has no jurisdiction
over the case. 6
Asaphil and Induplex filed a motion for reconsideration which
Induplex filed a Motion to Dismiss the complaint, also on was denied by the MAB per Order dated March 23, 1998. 10

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 Induplex’s arguments and dismissed the complaint.
The dispositive portion of the Regional Executive Director’s
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 Induplex’s 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 Tuason’s plea for its cancellation. 9
Hence, the herein petition by Asaphil on the following
grounds:
1. 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
ASAPHIL’S AGENCY (COUPLED WITH AN INTEREST)
UNDER THE OPERATING AGREEMENT.
• BY VIOLATING ASAPHIL’S 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 ASAPHIL’S 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 WAS CONCERNED SOLELY WITH THE ISSUE
WITHOUT RECEIVING EVIDENCE ON THE OF JURISDICTION WHICH, BEING A MATTER
PURPORTED GROUND FOR INVALIDATION. OF LAW, IS COGNIZABLE BY THIS
 • BY NOT ADJUDICATING UPON THE RIGHTS AND HONORABLE TRIBUNAL AND/OR BY THE
OBLIGATION OF TUASON AND ASAPHIL UNDER THE COURT OF APPEALS.
OPERATING AGREEMENT WHICH IS ACTUALLY IN 4. 4.GRANTING THAT THE MINES ADJUDICATION
THE NATURE OF A JOINT VENTURE AGREEMENT, BY BOARD COULD VALIDLY ASSUME THE FACTS
REASON OF THE FINANCIAL RAMIFICATIONS (WITHOUT RECEIVING EVIDENCE),
THEREOF.
1. a)THE MINES ADJUDICATION BOARD
_______________ NONETHELESS ERRED IN ANNULLING THE
OPERATING AGREEMENT BETWEEN TUASON
Id., at pp. 81-85.
10

132 AND AS-APHIL, ON THE MERE CIRCUMSTANCE

132 SUPREME COURT REPORTS ANNOTATED THAT A STOCKHOLDER OF INDUPLEX HAD
Asaphil Construction and Development Corporation vs. BECOME A STOCKHOLDER OF ASAPHIL IN 1990.
Tuason, Jr. 2. b)THE MINES ADJUDICATION BOARD LIKEWISE
ERRED IN ANNULING THE OPERATING
1. B.THE BOARD A QUO HAS DEPARTED FROM THE AGREEMENT BETWEEN TUASON AND ASAPHIL
ACCEPTED AND USUAL COURSE OF JUDICIAL ON THE BASIS OF THE ASAPAHIL’S PURPORTED
PRO-CEEDINGS— VIOLATION OF THE TERMS OF THE OPERATING
AGREEMENT.
1. 1.BY INVALIDATING THE OPERATING
AGREEMENT WITHOUT RECEIVING EVIDENCE 1. 5.THE MINES ADJUDICATION BOARD FURTHER
ON THE PURPORTED GROUND FOR ERRED IN ANNULING THE OPERATING
INVALIDATION. AGREEMENT
2. 2.THE ACTUATION OF THE MINES
133
ADJUDICATION BOARD IS VOL. 488, APRIL 25, 2006 133
UNCONSTITUTIONAL, AS IT DEPRIVES THE
Asaphil Construction and Development Corporation vs.
PETITIONER OF ITS RIGHT TO PRESENT
Tuason, Jr.
EVIDENCE ON THE ISSUE OF WHETHER OR NOT
THE OPERATING AGREEMENT HAS BEEN
1. BETWEEN TUASON AND ASAPHIL AND AT THE
VIOLATED, VIRTUALLLY DEPRIVING THE
SAME TIME THE BOARD UPHELD THE VALIDITY
PETITIONER OF ITS PROPRIETARY RIGHTS
OF THE SUPPLY CONTRACT BETWEEN TUASON
WITHOUT DUE PROCESS OF LAW.
AND INDUPLEX BASED ON THE SAME
3. 3.THE MINES ADJUDICATION BOARD ERRED
INVALIDATING CAUSE. (Emphasis supplied)
11

IN ENTERTAINING TUASON’S APPEAL FROM

THE ORDER OF DISMISSAL, AS THE LATTER
Petitioner’s arguments may be summed up into two basic
issues: first, whether or not the DENR has jurisdiction over
Tuason’s 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. Sulu Resources
Development Corp., the Court clarified that while Section 79
12
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 DENR’s
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.
_______________
11 Rollo, pp. 17-19.
12 435 Phil. 836, 842; 387 SCRA 128 (2002).
13 Philippine Amusement and Gaming Corporation v. Angara, G.R. No.
142937, November 15, 2005, 475 SCRA 41.
134
134 SUPREME COURT REPORTS ANNOTATED
Asaphil Construction and Development Corporation vs.
Tuason, Jr.
The Court upholds the finding of the DENR Regional
Executive Director that the DENR does not have jurisdiction
over Tuason’s 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.” Particularly, P.D. No. 1281 vests the Bureau of
14
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. Under Section 7 of P.D.
15
No. 1281, the Bureau of Mines also has quasi-judicial powers
over cases involving the following:
1. (a)a mining property subject of different agreements
entered into by the claim holder thereof with several
mining operators;
2. (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
3. (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, this Court16
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 pow-
_______________
14 P.D. 1281 took effect on January 16, 1978.
 15Benguet Corporation v. Leviste, G.R. No. 65021, November 21, 1991, 204
SCRA 99, 103-104.
16 356 Phil. 341, 358; 295 SCRA 27, 44 (1998).
135
VOL. 488, APRIL 25, 2006 135
Asaphil Construction and Development Corporation vs.
Tuason, Jr.
ers 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 Tuason’s 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 Asaphil’s refusal to abide
by the terms and conditions of the agreement, but due to
Induplex’s 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. A judicial question is
18
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.
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
_______________
17 Gonzales v. Climax Mining, Ltd., G.R. No. 161957, February 28,
2005, 452 SCRA 607, 620-621.
18 Id., at p. 620.
19 Id.
136
136 SUPREME COURT REPORTS ANNOTATED
Asaphil Construction and Development Corporation vs.
Tuason, Jr.
rights of the parties under the two contracts. In Gonzales v.
Climax Mining Ltd., the Court ruled that:
20
“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 Tuason’s
complaint; consequently, the MAB committed an error in
taking cognizance of the appeal, and in ruling upon the
validity of the contracts.
Given the DENR’s lack of jurisdiction to take cognizance of
Tuason’s 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
19
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.

_______________

Supra note 17, at p. 623.

20

137
VOL. 488, APRIL 25, 2006 137
Go vs. Rico
SO ORDERED.
Panganiban (C.J., Chairperson), Ynares-
Santiago, Callejo, Sr. and Chico-Nazario, JJ., concur.
Petition granted, judgment of Mines and Adjudication
Board set aside.
Notes.—In the exceptional events where warrant is not
necessary to effect a valid search or seizure, or when the latter
cannot be performed except without a warrant, what
constitutes a reasonable or unreasonable search or seizure is
purely a judicial question. (Caballes vs. Court of Appeals, 373
SCRA 221 [2002])
A judicial question is a question that is proper for
determination by the court, as opposed to a moot question or
one properly decided by the executive or legislative branch
while a mining dispute is a dispute involving (a) rights to
mining areas, (b) mineral agreements, FTAAs, or permits, and
(c) surface owners, occupants and
claimholders/concessionaires. (Gonzales vs. Climax Mining
Ltd., 452 SCRA 607 [2005])

——o0o——

© Copyright 2019 Central Book Supply, Inc. All rights reserved.

 G.R. No. 157882. March 30, 2006. * ANANAYO, MAURA DUYAPAT, ARTEMEO ANANAYO,
DIDIPIO EARTH-SAVERS’ MULTI-PURPOSE
ASSOCIATION, INCORPORATED (DESAMA), MANUEL
BUTIC, CESAR MARIANO, LAURO ABANCE, BEN
TAYABAN, ANTONIO DINGCOG, TEDDY B. KIMAYONG,
ALONZO ANANAYO, ANTONIO MALAN-UYA, JOSE
BAHAG, ANDRES INLAB, RUFINO LICYAYO, ALFREDO
CULHI, CATALILNA INABYUHAN, GUAY DUMMANG,
GINA PULIDO, EDWIN ANSIBEY, CORAZON SICUAN,
LOPEZ DUMULAG, FREDDIE AYDINON, VILMA JOSE,
FLORENTINA MADDAWAT, LINDA DINGCOG, ELMER
SICUAN, GARY ANSIBEY, JIMMY MADDAWAT, JIMMY
GUAY,
_______________
*FIRST DIVISION.
587
VOL. 485, MARCH 30, 2006
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
ALFREDO CUT-ING, ANGELINA UDAN, OSCAR INLAB,
JUANITA CUT-ING, ALBERT PINKIHAN, CECILIA
TAYABAN, CRISTA BINWAK, PEDRO DUGAY, SR.,
EDUARDO ANANAYO, ROBIN INLAB, JR., LORENZO
PULIDO, TOMAS BINWAG, EVELYN BUYA, JAIME
DINGCOG, DINAOAN CUT-ING, PEDRO DONATO,
MYRNA GUAY, FLORA ANSIBEY, GRACE DINAMLING,
EDUARDO MENCIAS, ROSENDA JACOB, SIONITA
DINGCOG, GLORIA JACOB, MAXIMA GUAY, RODRIGO
PAGGADUT, MARINA ANSIBEY, TOLENTINO INLAB,
RUBEN DULNUAN, GERONIMO LICYAYO, LEONCIO
CUMTI, MARY DULNUAN, FELISA BALANBAN, MYRNA
DUYAN, MARY MALAN-UYA, PRUDENCIO ANSIBEY,
GUILLERMO GUAY, MARGARITA CULHI, ALADIN
ANSIBEY, PABLO DUYAN, PEDRO PUGUON, JULIAN
INLAB, JOSEPH NACULON, ROGER BAJITA, DINAON
GUAY, JAIME ANANAYO, MARY ANSIBEY, LINA
MARY BABLING, NORA ANSIBEY, DAVID DULNUAN,
AVELINO PUGUON, LUCAS GUMAWI, LUISA ABBAC,
CATHRIN GUWAY, CLARITA TAYABAN, FLORA JAVERA,
RANDY SICOAN, FELIZA PUTAKI, CORAZON P.
DULNUAN, NENA D. BULLONG, ERMELYN GUWAY,
GILBERT BUTALE, JOSEPH B. BULLONG, FRANCISCO
PATNAAN, JR., SHERWIN DUGAY, TIRSO GULLINGAY,
BENEDICT T. NABALLIN, RAMON PUNADWAN,
ALFONSO DULNUAN, CARMEN D. BUTALE, LOLITA
ANSIBEY, ABRAHAM DULNUAN, ARLYNDA BUTALE,
MODESTO A. ANSIBEY, EDUARDO LUGAY, ANTONIO
HUMIWAT, ALFREDO PUMIHIC, MIKE TINO, TONY
CABARROGUIS, BASILIO TAMLIWOK, JR., NESTOR
TANGID, ALEJO TUGUINAY, BENITO LORENZO, RUDY
BAHIWAG, ANALIZA BUTALE, NALLEM LUBYOC,
JOSEPH DUHAYON, RAFAEL CAMPOL, MANUEL
587 PUMALO, DELFIN AGALOOS, PABLO CAYANGA,
PERFECTO SISON, ELIAS NATAMA, LITO PUMALO,
SEVERINA DUGAY, GABRIEL PAKAYAO, JEOFFREY
SINDAP, FELIX TICUAN, MARIANO S.
588
588 SUPREME COURT REPORTS ANNOTATED
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
MADDELA, MENZI TICAWA, DOMINGA DUGAY, JOE
BOLINEY, JASON ASANG, TOMMY ATENYAYO, ALEJO
AGMALIW, DIZON AGMALIW, EDDIE ATOS, FELIMON
BLANCO, DARRIL DIGOY, LUCAS BUAY, ARTEMIO
BRAZIL, NICANOR MODI, LUIS REDULFIN, NESTOR
JUSTINO, JAIME CUMILA, BENEDICT GUINID, EDITHA
ANIN, INOH-YABAN BANDAO, LUIS BAYWONG, FELIPE
DUHALNGON, PETER BENNEL, JOSEPH T.
BUNGGALAN, JIMMY B. KIMAYONG, HENRY PUGUON,
PEDRO BUHONG, BUGAN NADIAHAN, SR., MARIA EDEN
ORLINO, SPC, PERLA VISSORO, and BISHOP RAMON
VILLENA, petitioners, vs. ELISEA GOZUN, in her capacity
as SECRETARY of the DEPARTMENT OF ENVIRONMENT
and NATURAL RESOURCES (DENR), HORACIO RAMOS,
in his capacity as Director of the Mines and Geosciences
Bureau (MGB-DENR), ALBERTO ROMULO, in his capacity
as the Executive Secretary of the Office of the President,
RICHARD N. FERRER, in his capacity as Acting
Undersecretary of the Office of the President, IAN HEATH
SANDERCOCK, in his capacity as President of CLIMAX-
ARIMCO MINING CORPORATION, respondents.
Constitutional Law; Justiciable Controversy, Defined; Words
and Phrases; 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.—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. 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.
Same; Judicial Power; Judicial power includes the duty of the
courts of justice to settle actual controversies involving rights which
are legally demandable and enforceable; Requisites of.—The
Constitution is quite explicit on this matter. It provides that judicial
power includes the duty of the courts of justice to settle actual
controversies
589
VOL. 485, MARCH 30, 2006 589
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
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.”
Same; Eminent Domain; “Taking” under the concept of eminent
domain as entering upon private property for more than a
momentary period, and, under the warrant or color of legal authority
devoting it to a public use.—Republic v. Vda. de Castellvi, 58 SCRA
336, 350 (1974), defines “taking” under the concept of eminent
domain as entering 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.
Same; Same; Eminent Domain and Police Power
Distinguished.—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. 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. Although both police
power and the power of eminent domain have the general welfare
for their object, and recent trends show a mingling of the two with
the latter being used as an implement of the former, there are still
traditional distinctions between the two.
Same; Same; When a property interest is appropriated and
applied to some public purpose, there is compensable taking.—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. However, when a property interest is
appropriated and applied to some public purpose, there is
compensable taking.
590
590 SUPREME COURT REPORTS
ANNOTATED
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
Same; Police Power; 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.—
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. Use of the property by the owner was
limited, but no aspect of the property is used by or for the public.
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.
Same; Eminent Domain; 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.—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. In Ayala de Roxas v. City of Manila,
9 Phil. 215, 221 (1907), it was held that the imposition of burden
over a private property through easement was considered taking;
hence, payment of just compensation is required.
Same; Same; Requisites of Taking in Eminent Domain.—
In Republic v. Castellvi, 58 SCRA 336, 350-352 (1974), 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.
Same; Same; Mines and Mining; The holders of mining rights
enter private lands for purposes of conducting mining activities such
as exploration, extraction and processing of minerals.—The entry
591
VOL. 485, MARCH 30, 2006 591
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
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.
Statutory Construction; In order that one law may operate to
repeal another law, the two laws must be inconsistent—the former
must be so repugnant as to be irreconcilable with the latter act—
repeals by implication are not favored, and will not be decreed unless
it is manifest that the legislature so intended.—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. 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. 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. 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.
592
 592 SUPREME COURT REPORTS
ANNOTATED
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
Constitutional Law; Eminent Domain; Mines and
Mining; 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—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—mining industry plays a pivotal role in the
economic development of the country and is a vital tool in the
government’s thrust of accelerated recovery.—The taking to be valid
must be for public use. 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. 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. Mining industry plays
a pivotal role in the economic development of the country and is a
vital tool in the government’s thrust of accelerated recovery. 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 country’s mineral resources are urgently needed
for national development. Irrefragably, mining is an industry which
is of public benefit.
Same; Same; Same; There is 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.—
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.
Same; Same; Same; The determination of just compensation in
eminent domain cases is a judicial function.—The question on the
judicial determination of just compensation has been settled in the
case of Export Processing Zone Authority v. Dulay, 149 SCRA 305,
312 (1987), 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 court’s
findings.
593
VOL. 485, MARCH 30, 2006 593
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
Same; Congress; The legislature, in enacting the mining act, is
presumed to have deliberated with full knowledge of all existing laws
and jurisprudence on the subject.—The legislature, in enacting the
mining act, is presumed to have deliberated with full knowledge of
all existing laws and jurisprudence on the subject. Thus, it is but
reasonable to 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 that
exclude the courts from their jurisdiction to determine just
compensation in expropriation proceedings involving mining
operations. Although Section 105 confers upon the Panel of
Arbitrators the authority to decide cases where surface owners,
occupants, concessionaires refuse permit holders entry, thus,
necessitating involuntary taking, this does not mean that the
determination of the just compensation by the Panel of Arbitrators
or the Mines Adjudication Board is final and conclusive. The
determination is only preliminary unless accepted by all parties
concerned. There is nothing wrong with the grant of primary
jurisdiction by the Panel of Arbitrators or the Mines Adjudication
Board to determine in a preliminary matter the reasonable
compensation due the affected landowners or occupants. The
original and exclusive jurisdiction of the courts to decide
determination of just compensation remains intact despite the
preliminary determination made by the administrative agency.
Mines and Mining; Statutes; R.A. No. 7942 provides for the
state’s control and supervision over mining operations.—Petitioners
charge that Rep. Act No. 7942, as well as its Implementing Rules
and Regulations, makes it possible for FTAA contracts to cede over
to a fully foreign-owned corporation full control and management of
mining enterprises, 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 is not acting
as the supposed 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. In effect, petitioners asserted that
the law, the implementing regulations, and the CAMC FTAA cede
beneficial ownership of the mineral resources to the foreign
contractor. It must be noted that this argument was already raised
in La Bugal-
594
594 SUPREME COURT REPORTS
ANNOTATED
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
B’Laan Tribal Association, Inc. v. Ramos, 445 SCRA 1, 132-137
(2004), where the Court answered in the following manner: RA 7942
provides for the state’s control and supervision over mining
operations.
Same; Constitutional Law; 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.—
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. 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.
SPECIAL CIVIL ACTION in the Supreme Court. Prohibition
and Mandamus.
The facts are stated in the opinion of the Court.
Melizel F. Asuncion for petitioners.
Francis Joseph G. Ballesteros collaborating counsel for
petitioners.
Roberto C. San Juan for respondent Climax-Arimco
Mining Corporation.
The Solicitor General for public respondents.
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
595
VOL. 485, MARCH 30, 2006 595
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
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 (DAO) No. 23, Series of
1995, containing the implementing guidelines of Rep. Act No.
7942. This was soon superseded by DAO No. 96-40, s. 1996,
which took effect on 23 January 1997 after due publication.
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.
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.
596
596 SUPREME COURT REPORTS ANNOTATED
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
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 Macapagal Arroyo. 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.
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.
In a letter dated 19 February 2003, the MGB rejected the
demand of counsels for petitioners for the cancellation of the
CAMC FTAA.
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:
1. 1.enjoining public respondents from acting on any
application for FTAA;
2. 2.declaring unconstitutional the Philippine Mining Act
of 1995 and its Implementing Rules and Regulations;
3. 3.canceling the FTAA issued to CAMC.
In their memorandum petitioners pose the following issues:
597
VOL. 485, MARCH 30, 2006 597
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
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.
II
WHETHER OR NOT THE MINING ACT AND ITS
IMPLEMENTING RULES AND REGULATIONS ARE VOID AND
UNCONSTITUTIONAL FOR SANCTIONING AN
UNCONSTITUTIONAL ADMINISTRATIVE PROCESS
DETERMINING JUST COMPENSATION.
III
WHETHER OR NOT THE STATE, THROUGH REPUBLIC ACT
NO. 7942 AND THE CAMC FTAA, ABDICATED ITS PRIMARY
OF Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
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. Thus, courts have no judicial
2

RESPONSIBILITY TO THE FULL CONTROL AND power to review cases involving political questions and as a
SUPERVISION OVER NATURAL RESOURCES. rule, will desist from taking cognizance of speculative or
hypothetical cases, advisory opinions and cases that have
IV become moot. The Constitution is quite explicit on this
3

matter. It provides that judicial power includes the duty of the

4

WHETHER OR NOT THE RESPONDENTS’

INTERPRETATION OF THE ROLE OF WHOLLY FOREIGN AND
courts of justice to settle actual controversies involving rights
FOREIGN-OWNED CORPORATIONS IN THEIR which are legally demandable and enforceable. Pursuant to
INVOLVEMENT IN MINING ENTERPRISES, VIOLATES this constitutional mandate, courts, through the power of
PARAGRAPH 4, SECTION 2, ARTICLE XII OF THE judicial review, are to entertain only real disputes between
CONSTITUTION. conflicting parties through the application of law. For the
courts to exercise the power of judicial review, the following
V must be extant (1) there must be an actual case calling for the
exercise of judicial power; (2) the question must be ripe for
WHETHER OR NOT THE 1987 CONSTITUTION PROHIBITS
adjudication; and (3) the person challenging must have the
SERVICE CONTRACTS. 1

“standing.” 5

Before going to the substantive issues, the procedural question

An actual case or controversy involves a conflict of legal
raised by public respondents shall first be dealt with. Public
rights, an assertion of opposite legal claims, susceptible of
respondents are of the view that petitioners’ eminent domain
judicial resolution as distinguished from a hypothetical or
claim is not ripe for adjudication as they fail to allege that
abstract difference or dispute. There must be a contrariety of
6

CAMC has actually taken their properties nor do they allege

that their property rights have been endangered or are in _______________
danger on account of CAMC’s FTAA. In effect, public
respondents insist that the issue of eminent domain is not a 2 Velarde v. Social Justice Society, G.R. No. 159357, 28 April 2004, 428

SCRA 283, 291.

justiciable controversy which this Court can take cognizance 3 PHILIPPINE POLITICAL LAW, Isagani Cruz, p. 23 (1995 ed.).

of. 4 Article VIII, Section 1. x x x Judicial power includes the duty of the courts

of justice to settle actual controversies involving rights which are legally

_______________ demandable and enforceable, and to determine whether or not there has been
a grave abuse of discretion amounting to lack or excess of jurisdiction on the
1Rollo, pp. 595-596. part of any branch or instrumentality of the Government.
598 5 Guingona, Jr. v. Court of Appeals, 354 Phil. 415, 425; 292 SCRA 402, 412-

598 SUPREME COURT REPORTS ANNOTATED 413 (1998).

6 Board of Optometry v. Hon. Colet, 328 Phil. 1187, 1206; 260 SCRA 88, 104

(1996).
 599
VOL. 485, MARCH 30, 2006
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
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 eviction of the land owners and occupants need not happen for
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. The gist of the
8
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.” Unless a person is
9
injuriously affected in any of his constitutional rights by the
operation of statute or ordinance, he has no standing.
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 Nueva Vizcaya 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 con-
_______________
7 Integrated Bar of the Philippines v. Zamora, 392 Phil. 618, 632-633; 338
SCRA 81 (2000).
8 Dumlao v. Commission on Elections, G.R. No. L-52245, 22 January
599 1980, 95 SCRA 392, 402.
9 Integrated Bar of the Philippines v. Zamora, supra note 7, p. 633.
10 Ermita-Malate Hotel and Motel Operators Association, Inc. v. City Mayor
of Manila, 128 Phil. 473, 480-481; 20 SCRA 849 (1967).
600
600 SUPREME COURT REPORTS ANNOTATED
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
troversy actual and ripe for judicial intervention. Actual 11
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
10
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. They assert that they are
14
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 country’s economy which is to a greater extent
dependent upon the mining industry. Also affected by the
_______________
11 Cruz v. Secretary of Environment & Natural Resources, G.R. No. 135385,
6 December 2000, 347 SCRA 128, 256.
12 391 Phil. 84; 336 SCRA 201 (2000).
13 Id., p. 107; p. 222.
14 La Bugal-B’Laan Tribal Association, Inc. v. Ramos, G.R. No. 127882, 27
January 2004, 421 SCRA 148, 179.
601
VOL. 485, MARCH 30, 2006
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
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.
First Substantive Issue: Validity of Section 76 of Rep.
Act No. 7942 and DAO 96-40
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 private purpose in
contradiction with Section 9, Article III of the 1987
Constitution mandating that private property shall not be
taken except for public use and the corresponding payment of
just compensation. They assert that public respondent DENR,
through the Mining Act and 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.
Interpreting Section 76 of Rep. Act No. 7942 and Section
107 of DAO 96-40, juxtaposed with the concept of taking of
property for purposes of eminent domain in the case
of Republic v. Vda. de Castellvi, petitioners assert that there
15
is indeed a “taking” upon entry into private lands and
concession areas.
_______________
15 157 Phil. 329, 344; 58 SCRA 336, 350 (1974). It defines “taking” under the
concept of eminent domain as entering 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
601 it in such a way as substantially to oust the owner and deprive him of all
beneficial enjoyment thereof.
602
602 SUPREME COURT REPORTS ANNOTATED
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
Republic v. Vda. de Castellvi defines “taking” under the
concept of eminent domain as entering 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.
From the criteria set forth in the cited case, petitioners
claim that the entry into a 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 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.
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.
603
VOL. 485, MARCH 30, 2006 603
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
Petitioners quickly add that even assuming arguendo that
there is no absolute, physical taking, 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.
To further bolster their claim that the legal easement
established is equivalent to taking, petitioners cite the case
of National Power Corporation v. Gutierrez holding that the
16
easement of right-of-way imposed against the use of the land
for an indefinite period is a taking under the power of eminent
domain.
Traversing petitioners’ assertion, public respondents argue
that Section 76 is not a taking provision but a valid exercise of
the police power and by virtue of which, the state may
prescribe regulations to promote the health, morals, peace,
education, good order, safety and general welfare of the people.
This government regulation involves the adjustment of rights
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 in all such circumstances would compel the
government to regulate by purchase.”
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 upon surface owners, occupants
and concessionaires of a mining contract area.
_______________
G.R. No. 60077, 18 January 1991, 193 SCRA 1, 7.
16
604
604 SUPREME COURT REPORTS ANNOTATED
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
Taking in Eminent Domain Distinguished from
Regulation in Police Power
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. On the other hand, police
17
power is the power of the state to promote public welfare by
restraining and regulating the use of liberty and
property. Although both police power and the power of
18
eminent domain have the general welfare for their object, and
recent trends show a mingling of the two with the latter being
19
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. Likewise, in the exercise of police power,
20
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. In U.S. v. Toribio, the court upheld the
21 22
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
_______________
17 Robern Development Corporation v. Quitain, 373 Phil. 773, 792-793; 315
SCRA 150, 165 (1999).
18 U.S. v. Toribio, 15 Phil. 85, 93 (1910); Rubi v. The Provincial Board of
Mindoro, 39 Phil. 660, 708 (1919).
19 Association of Small Landowners of the Philippines, Inc. v. Secretary of
Agrarian Reform, G.R. No. 78742, 14 July 1989, 175 SCRA 343, 371.
20 U.S. v. Toribio, supra note 18, p. 370.
21 People v. Chan, 65 Phil. 611 (1938).
22 Supra note 18, p. 97.
605
VOL. 485, MARCH 30, 2006 605
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
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. The Court nonetheless ruled
23
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 where an ordinance divided the City of Manila into
24
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. However, when a
25
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. Use of
27
the property by the owner was limited, but no aspect of the
property is used by or for the public. The deprivation of use
28
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
_______________
2390 Phil. 132 (1951).
2456 Phil. 204 (1931).
25 THE 1987 CONSTITUTION OF THE REPUBLIC OF THE
PHILIPPINES: A COMMENTARY, Bernas, p. 420.
26 Id.
27 Id., p. 421.
28 Id.
29 Id.
606
606 SUPREME COURT REPORTS ANNOTATED
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
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, it was argued by the
30
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, the municipal mayor refused Fajardo
31
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 Fajardo’s property for public benefit.
_______________
30207 Phil. 648; 122 SCRA 759 (1983).
31104 Phil. 443 (1958).
32 THE 1987 CONSTITUTION OF THE REPUBLIC OF
PHILIPPINES, supra note 25, p. 422.
607
VOL. 485, MARCH 30, 2006
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
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. In Ayala de Roxas v. City of Manila, it was held
33 34
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, despite the NPC’s protestation that the owners
35
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
32
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
THE
_______________
33 CONSTITUTIONAL LAW, Cruz, p. 66 (1995 ed.).
607 34 9 Phil. 215, 221 (1907).
35 Supra note 16.
608
608 SUPREME COURT REPORTS ANNOTATED
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
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. Here,
36 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, this Court had the occasion to spell
38
out the requisites of taking in eminent domain, to wit:
1. (1)the expropriator must enter a private property;
2. (2)the entry must be for more than a momentary period;
3. (3)the entry must be under warrant or color of legal
authority;
4. (4)the property must be devoted to public use or
otherwise informally appropriated or injuriously
affected;
_______________
36 136 Phil. 20; 26 SCRA 620 (1969).
37 Id., pp. 29-30; p. 628.
38 Supra note 15, pp. 345-347.
609
VOL. 485, MARCH 30, 2006 609
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
1. (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
610
610 SUPREME COURT REPORTS ANNOTATED
 Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
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.”
611
VOL. 485, MARCH 30, 2006 611
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
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 the two is not only irreconcilable, but also clear and
lands, viz.: convincing, and flowing necessarily from the language used,
612 unless the later
612 SUPREME COURT REPORTS ANNOTATED
Didipio Earth-Savers’ Multi-Purpose Association, _______________
Incorporated (DESAMA) vs. Gozun Valera v. Tuason, Jr., 80 Phil. 823, 827 (1948).
39

“SECTION 1. Mineral prospecting, location, exploration, United States v. Palacio, 33 Phil. 208, 216 (1916).
40

development and exploitation is hereby declared of public use and 613

benefit, and for which the power of eminent domain may be invoked VOL. 485, MARCH 30, 2006 613
and exercised for the entry, acquisition and use of private lands. x x Didipio Earth-Savers’ Multi-Purpose Association,
x.” Incorporated (DESAMA) vs. Gozun
The evolution of mining laws gives positive indication that
act fully embraces the subject matter of the earlier, or unless
mining operators who are qualified to own lands were granted
the reason for the earlier act is beyond peradventure
the authority to exercise eminent domain for the entry,
removed. Hence, every effort must be used to make all acts
41

acquisition, and use of private lands in areas open for mining

stand and if, by any reasonable construction, they can be
operations. This grant of authority extant in Section 1 of
reconciled, the latter act will not operate as a repeal of the
Presidential Decree No. 512 is not expressly repealed by
earlier.
Section 76 of Rep. Act No. 7942; and neither are the former
Considering that Section 1 of Presidential Decree No. 512
statutes impliedly repealed by the former. These two
granted the qualified mining operators the authority to
provisions can stand together even if Section 76 of Rep. Act
exercise eminent domain and since this grant of authority is
No. 7942 does not spell out the grant of the privilege to
deemed incorporated in Section 76 of Rep. Act No. 7942, the
exercise eminent domain which was present in the old law.
inescapable conclusion is that the latter provision is a taking
It is an established rule in statutory construction that in
provision.
order that one law may operate to repeal another law, the two
While this Court declares that the assailed provision is a
laws must be inconsistent. The former must be so repugnant
39

taking provision, this does not mean that it is unconstitutional

as to be irreconciliable with the latter act. Simply because a
on the ground that it allows taking of private property without
latter enactment may relate to the same subject matter as that
the determination of public use and the payment of just
of an earlier statute is not of itself sufficient to cause an
compensation.
implied repeal of the latter, since the new law may be
The taking to be valid must be for public use. Public use as42

cumulative or a continuation of the old one. As has been the

a requirement for the valid exercise of the power of eminent
ruled, repeals by implication are not favored, and will not be
domain is now synonymous with public interest, public
decreed unless it is manifest that the legislature so
benefit, public welfare and public convenience. It includes the
43

intended. As laws are presumed to be passed with deliberation

40

broader notion of indirect public benefit or advantage. Public

and with full knowledge of all existing ones on the subject, it
use as traditionally understood as “actual use by the public”
is but reasonable to conclude that in passing a statute it was
has already been abandoned. 44

not intended to interfere with or abrogate any former law

Mining industry plays a pivotal role in the economic
relating to the same matter, unless the repugnancy between
development of the country and is a vital tool in the
government’s thrust of accelerated recovery. The importance
45
of the mining industry for national development is expressed
in Presidential Decree No. 463:
_______________
41 Id.
42 Heirs of Juancho Ardona v. Reyes, 210 Phil. 187, 197; 125 SCRA
220 (1983).
43 Id.
44 Id., p. 198; p. 233.
45 Executive Order No. 211.
614
614 SUPREME COURT REPORTS ANNOTATED
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
“WHEREAS, mineral production is a major support of the national
economy, and therefore the intensified discovery, exploration,
development and wise utilization of the country’s 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, petitioners therein contended that
46
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 state’s 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
_______________
Supra note 42.
46
Id., p. 201.
47
615
VOL. 485, MARCH 30, 2006 615
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
CONTRACTOR at the CONTRACTOR’s 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 latter’s 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. The government then
48
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-B’Laan
Tribal Association, Inc. v. Ramos, the Court answered:
49
“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
_______________
48 La Bugal-B’Laan Tribal Association, Inc. v. Ramos, G.R. No. 127882, 1
December 2004, 445 SCRA 1, 228.
49 Id., p. 150.
616
616 SUPREME COURT REPORTS ANNOTATED
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
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.”
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. x x x 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
617
VOL. 485, MARCH 30, 2006 617
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
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 wherein the court declared that the
50
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 court’s 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 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 where
there is disagreement to the compensation or where there is
no agreement, the matter shall be brought before the Panel of
Arbitrators. Section 206 of the implementing rules and
regulations provides an aggrieved party the remedy to appeal
the decision of the Panel of Arbitrators to the Mines
Adjudication
_______________
G.R. No. L-59603, 29 April 1987, 149 SCRA 305, 312.
50
618
618 SUPREME COURT REPORTS ANNOTATED
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
Board, and the latter’s decision may be reviewed by the
Supreme Court by filing a petition for review on certiorari.51
An examination of the foregoing provisions gives no
indication that the courts are 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 owners entry into the latters’ lands and disagreement
ensues as regarding the proper 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.
The legislature, in enacting the mining act, is presumed to
have deliberated with full knowledge of all existing laws and
jurisprudence on the subject. Thus, it is but reasonable to
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
that exclude the courts from their jurisdiction to determine
just compensation in expropriation proceedings involving
mining operations. Although Section 105 confers upon the
Panel of Arbitrators the authority to decide cases where
surface owners, occupants, concessionaires refuse permit
holders entry, thus, necessitating involuntary taking, this
does not mean that the determination of the just compensation
by the Panel of Arbitrators or the Mines Adjudication Board is
final and conclusive. The determination is only preliminary
unless accepted by all parties concerned. There is nothing
wrong with the grant of primary jurisdiction by the
_______________
51 Section 211 of DAO 96-40 provides: The decision of the Board may be
reviewed by filing a petition for review with the Supreme Court within thirty
(30) days from receipt of the order or decision of the Board.
619
VOL. 485, MARCH 30, 2006 619
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
Panel of Arbitrators or the Mines Adjudication Board to
determine in a preliminary matter the reasonable
compensation due the affected landowners or occupants. The
52
original and exclusive jurisdiction of the courts to decide
determination of just compensation remains intact despite the
preliminary determination made by the administrative
agency. As held in Philippine Veterans Bank v. Court of
Appeals: “The jurisdiction of the Regional Trial Courts is not
53
any less “original and exclusive” because the question is first
passed upon by the DAR, as the judicial proceedings are not a
continuation of the administrative determination.”
Third Substantive Issue: Sufficient Control by the State
Over Mining Operations
Anent the third issue, petitioners charge that Rep. Act No.
7942, as well as its Implementing Rules and Regulations,
makes it possible for FTAA contracts to cede over to a fully
foreign-owned corporation full control and management of
mining enterprises, 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 is
not acting as the supposed 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. In effect,
petitioners asserted that the law, the implementing
regulations, and the CAMC FTAA cede beneficial ownership
of the mineral resources to the foreign contractor.
It must be noted that this argument was already raised
in La Bugal-B’Laan Tribal Association, Inc. v. Ramos, where 54
the Court answered in the following manner:
_______________
52 Philippine Veterans Bank v. Court of Appeals, 379 Phil. 141, 147; 322
SCRA 139, 145 (2000).
53 Id., p. 149; p. 147.
54 Supra note 48, pp. 132-137.
620
620 SUPREME COURT REPORTS ANNOTATED
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
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. 1.Sec. 8 which provides for the DENR’s power of overall
supervision and periodic review for “the conservation,
management, development and proper use of the State’s
mineral resources”;
2. 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. 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. 4.Sec. 35, which incorporates into all FTAAs the following
terms, conditions and warranties:
1. “(g)Mining operations shall be conducted in accordance with
the provisions of the Act and its IRR.
2. “(h)Work programs and minimum expenditures
commitments.
xxxx
3. “(k)Requiring proponent to effectively use appropriate anti-
pollution technology and facilities to protect the
environment and restore or rehabilitate mined-out areas.
4. “(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.
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Didipio Earth-Savers’ Multi-Purpose Association,
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1. “(m)Requiring the proponent to dispose of the minerals at the
highest price and more advantageous terms and
conditions.
xxxx
 2. “(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).
622
622 SUPREME COURT REPORTS ANNOTATED
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
 • 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. 1.Approved mining project feasibility study (Section 53-
d, DAO 96-40)
2. 2.Approved three-year work program (Section 53-a-4,
DAO 96-40)
3. 3.Environmental compliance certificate (Section 70, RA
7942)
4. 4.Approved environmental protection and enhancement
program (Section 69, RA 7942)
5. 5.Approval by the Sangguniang Panlalawigan/Bayan/
Barangay (Section 70, RA 7942; Section 27, RA 7160)
6. 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. 1.Exploration
2. 2.Drilling
3. 3.Mineral resources and reserves
 4. 4.Energy consumption
5. 5.Production
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Didipio Earth-Savers’ Multi-Purpose Association,
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1. 6.Sales and marketing
2. 7.Employment
3. 8.Payment of taxes, royalties, fees and other Government
Shares
4. 9.Mine safety, health and environment
5. 10.Land use
6. 11.Social development
7. 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.
624
624 SUPREME COURT REPORTS ANNOTATED
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
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.
625
VOL. 485, MARCH 30, 2006 625
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
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.
626
626 SUPREME COURT REPORTS ANNOTATED
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
Again, this issue has already been succinctly passed upon by
this Court in La Bugal-B’Laan Tribal Association, Inc. v.
Ramos. In discrediting such argument, the Court
55
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
country’s natural resources. They maintain that this Court’s
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 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.”
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—heir
_______________
55 Id., pp. 101-105.
627
VOL. 485, MARCH 30, 2006 627
Didipio Earth-Savers’ Multi-Purpose Association,
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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 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
628
628 SUPREME COURT REPORTS ANNOTATED
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
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. The 1987 Constitution allows the continued use
56
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. We ruled, thus:
57
“To our mind, however, such intent cannot be definitively and
conclusively established from the mere failure to carry the same
_______________
Id.
56
Id.
57
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Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
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 omissionof 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 contractsfor 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.
630
630 SUPREME COURT REPORTS ANNOTATED
Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
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.
_______________
Id., pp. 105-128.
58
631
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Didipio Earth-Savers’ Multi-Purpose Association,
Incorporated (DESAMA) vs. Gozun
SO ORDERED.
Panganiban (C.J., Chairperson), Ynares-
Santiago, Austria-Martinez and Callejo, Sr., JJ., concur.
Petition for prohibition and mandamus dismissed.
Notes.—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. (Robern Development
Corporation vs. Quitain, 315 SCRA 150 [1999])
The provisions of Republic Act No. 7942 (Philippine Mining
Act of 1995) do not necessarily repeal Republic Act No. 3931
(Pollution Control Law), as amended by Presidential Decree
No. 984 and Executive Order No. 192—repeals of laws by
implication are not favored and courts must generally assume
their congruent application. (Republic vs. Marcopper Mining
Corporation, 335 SCRA 386 [2000])
Police power cannot be diminished by any contract. (Agan,
Jr. vs. Philippine International Air Terminals Co., Inc., 420
SCRA 575[2004])
The judicial power to declare a law or an executive order
unconstitutional is limited to actual cases and controversies to
be exercised after full opportunity of argument by the parties
and limited further to the constitutional question raised or the
very lis mota presented; Fourfold requisites in deciding
constitutional law issues. (Sanlakas vs. Executive
Secretary, 421 SCRA 656 [2004])
——o0o——
632
632 SUPREME COURT REPORTS ANNOTATED
PAL Employees Savings and Loan Association, Inc. vs.
Philippine Airlines, Inc.
© Copyright 2019 Central Book Supply, Inc. All rights reserved.
 G.R. No. 149927. March 30, 2004. * defines an existing mining/quarrying right as “a valid and
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.
Constitutional Law; Mining; Presidential Decree (P.D.) No.
463; The Court in Miners Association of the Philippines vs. Factoran,
Jr. declared the provisions of P.D. 463 as contrary to or violative of
the express mandate of the 1987 Constitution.—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. declared the provisions of P.D. 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.
Same; Same; Licenses; 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.—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. As noted in Miners
Association of the Philippines v. Factoran, Jr., the deliberations of
the Constitutional Commission emphasized the intent to apply the
said constitutional provision prospectively.
Same; Same; Same; Section 3(p) of Republic Act (R.A.) 7942
defines an existing mining/quarry right.—Section 3(p) of R.A. 7942
subsisting mining claim or permit or quarry permit or any mining
lease contract or agreement cover-
_______________
*FIRST DIVISION.
518
518 SUPREME COURT REPORTS
ANNOTATED
Republic vs. Rosemoor Mining and Development
Corporation
ing 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.
Same; Same; Same; EP No. 133 merely evidences a privilege
granted by the State, which may be amended, modified or rescinded
when the national interest so requires.—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 country’s 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.”
Same; Same; Same; Timber licenses, permits and license
agreements are not deemed contracts within the purview of the due
process of law clause.—“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, amended.]
Same; Same; Same; 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.—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. 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.
Same; Same; Ex Post Facto Law; There are six recognized
instances when a law is considered as such.—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
519
VOL. 426, MARCH 30, 2004 519
Republic vs. Rosemoor Mining and Development
Corporation
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.
Proclamation No. 84 does not fall under any of the enumerated
categories; hence, it is not an ex post facto law.
PETITION FOR REVIEW on certiorari of the decision and
resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
The Solicitor General for petitioners.
Hector Reuben D. Feliciano for respondents.
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 under Rule 45 of the Rules
1
of Court, seeking to nullify the May 29, 2001 Decision and the 2
September 6, 2001 Resolution of the Court of Appeals (CA) in
3
CA-GR SP No. 46878. The CA disposed as follows:
“WHEREFORE, premises considered, the appealed Decision is
hereby AFFIRMED in toto.” 4
_______________
1 Rollo, pp. 17-59.
2 Penned by Justice Eliezer R. de Los Santos and concurred in by Justice
Godardo A. Jacinto (chairman, Special Eighth Division) and Justice Hilarion
L. Aquino.
3 Rollo, p. 72.
4 CA Decision, p. 8; Rollo, p. 69.
520
520 SUPREME COURT REPORTS ANNOTATED
Republic vs. Rosemoor Mining and Development Corporation
The questioned Resolution denied petitioners’ Motion for
Reconsideration.
On the other hand, trial court’s Decision, which was
affirmed by the CA, had disposed as follows:
“WHEREFORE, judgment is hereby rendered as follows:
1. ‘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. ‘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. ‘3.Making the Writ of preliminary injunction and the Writ of
Preliminary Mandatory Injunction issued as permanent.
4. ‘4.Ordering the cancellation of the bond filed by the
Petitioners in the sum of 1 Million.
5. ‘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
may be set by the Court; and
6. ‘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 xxx
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
_______________
5 RTC Decision, pp. 11-12; Rollo, pp. 157-158; penned by Judge Pedro M. Areola.
521
VOL. 426, MARCH 30, 2004 521
Republic vs. Rosemoor Mining and Development Corporation
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.
xxx xxx xxx
“After compliance with numerous required conditions, License
No. 33 was issued by the Bureau of Mines in favor of the herein
petitioners.
xxx xxx xxx
“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).
xxx xxx
“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
_______________
6CA Decision, pp. 3-4; Rollo, pp. 64-65.
522
522 SUPREME COURT REPORTS ANNOTATED
Republic vs. Rosemoor Mining and Development Corporation
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, which increased the
7 exploration, development and utilization of natural resources
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 Court’s
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 five years, except as to water rights for irrigation, water supply, fisheries, or industrial
_______________
7 The Mining Act of 1995, effective March 3, 1995.
The Petition was deemed submitted for decision on September 5, 2002,
8
upon the Court’s receipt of the Manifestation of respondents, adopting as their
Memorandum the Comment to the Petition for Review they had filed on
January 28, 2002. Their Manifestation was signed by Atty. Hector Reuben D.
Feliciano. Petitioners’ Memorandum, which was received by the Court on July
26, 2002, was signed by Assistant Solicitor General Cecilio O. Estoesta and
Solicitor Evaristo M. Padilla.
9 Petitioners’ Memorandum, p. 19; Rollo, p. 319.
523
VOL. 426, MARCH 30, 2004 523
Republic vs. Rosemoor Mining and Development Corporation
The Court’s 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. In effect, they ask 10
for the dismissal of the Petition on the ground of mootness.
PD 463, as amended, pertained to the old system of
through licenses, concessions or leases. While these 11
arrangements were provided under the 1935 and the 12
1973 Constitutions, they
13
_______________
10Respondents’ Comment to the Petition for Review, p. 22; Rollo, p. 252.
11Miners Association of the Philippines, Inc. v. Factoran, Jr., 240 SCRA 100,
113-114, January 16, 1995.
12 Section 1, Article XIII of the 1935 Constitution, reads:
“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-
uses other than the development of water power, in which cases beneficial use may be
the measure and limit of the grant.” (Italics supplied)
 13 Section 8, Article XIV of the 1973 Constitution, is quoted thus:
“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,
524
524 SUPREME COURT REPORTS ANNOTATED
Republic vs. Rosemoor Mining and Development Corporation
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. declared the provisions of PD 463 as contrary to or
15
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
_______________
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 limit of the grant.” (Italics supplied)
14 The pertinent provision of Section 2 of Article XII of the 1987 Constitution
provides:
“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 case 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.
xxx xxx x x x.” (Italics supplied)
Supra, p. 114.
15
Section 115 of RA 7942.
16
525
VOL. 426, MARCH 30, 2004 525
Republic vs. Rosemoor Mining and Development Corporation
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. As noted in Miners 17
Association of the Philippines v. Factoran, Jr., the
deliberations of the Constitutional Commission emphasized 18
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.
“x x x xxx xxx
“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
______________
17 Miners Association of the Philippines v. Factoran, Jr., supra, p. 116.
18 Ibid.
526
526 SUPREME COURT REPORTS ANNOTATED
Republic vs. Rosemoor Mining and Development Corporation
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:
1. (a)In military and other government reservations, except
upon prior written clearance by the government agency
concerned;
2. (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;
3. (c)In areas covered by valid and existing mining rights;
4. (d)In areas expressly prohibited by law;
5. (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
6. (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.
527
VOL. 426, MARCH 30, 2004 527
Republic vs. Rosemoor Mining and Development Corporation
“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.” (Italics 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, is dated August 3,
19
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. By the20
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:
_______________
19 Rollo, pp. 86-89.
20 No. 1 of the terms and conditions of the license.
21 Dispositive provision of Proclamation No. 2204.
528
528 SUPREME COURT REPORTS ANNOTATED
Republic vs. Rosemoor Mining and Development Corporation
“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
province and 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-perprovince limit, no regard is
given to the size or the number of mining claims under Section
14, which we quote:
_______________
22 Del Mar v. Philippine Amusement and Gaming Corporation, 411 Phil.
430, 463; 358 SCRA 768, June 19, 2001; Republic v. Court of Appeals, 359 Phil.
530, 559; 299 SCRA 199, November 25, 1998; Land Bank of the Philippines v.
Court of Appeals, 327 Phil. 1047, 1052; 258 SCRA 404, July 5, 1996.
23 Padilla v. Court of Appeals, 421 Phil. 883, 894; 370 SCRA 208, November
22, 2001; Lim v. Court of Appeals, 380 Phil. 61, 74; 323 SCRA 102, January 24,
2000; Complex Electronics Employees Association v. National Labor Relations
Commission, 369 Phil. 666, 681; 310 SCRA 403, July 19, 1999.
529
 VOL. 426, MARCH 30, 2004 529
Republic vs. Rosemoor Mining and Development Corporation
“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 Maceda’s letter did not cancel or
revoke QLP No. 33, but merely declared the latter’s 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)
530
530 SUPREME COURT REPORTS ANNOTATED
Republic vs. Rosemoor Mining and Development Corporation
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, which held:
24
“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 country’s 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 with regard to a timber license, a pronouncement
26
that was reiterated in Ysmael v. Deputy Executive
Secretary, the pertinent portion of which reads:
27
“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, amended. Also, Tan
v. Director of Forestry, G.R. No. L-24548, October 27, 1983, 125
SCRA 302].” (Italics supplied)
28
_______________
24 380 SCRA 145, April 3, 2002.
Id., pp. 155-156, per Ynares-Santiago, J.
25
26 210 Phil. 244, 265; 125 SCRA 302, October 27, 1983.
27 190 SCRA 673, October 18, 1990.
28 Id., p. 684, per Cortes, J.
531
VOL. 426, MARCH 30, 2004 531
Republic vs. Rosemoor Mining and Development Corporation
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. Respondents themselves
29
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[.]” (Italics supplied)
30
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 former’s 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
_______________
29 Oposa v. Factoran, Jr., 224 SCRA 792, 811, July 30, 1993.
30 Rollo, p. 87.
31 Ysmael, Jr. & Co., Inc. v. Deputy Executive Secretary, supra; as cited in C
& M Timber Corporation (CMTC) v. Alcala, 339 Phil. 589, 603; 273 SCRA 402,
June 13, 1997.
32 Miners Association of the Philippines, Inc. v. Factoran, supra, p.
118; Surigao Electric Co., Inc. v. Municipality of Surigao, 133 Phil. 860, 866; 24
SCRA 898, August 30, 1968.
532
532 SUPREME COURT REPORTS ANNOTATED
Republic vs. Rosemoor Mining and Development Corporation
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. This Regalian doctrine is
33
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. Even if 35
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. As it is, the non-impairment clause must yield to the
36
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.” Its declaration that QLP
38
No. 33 is a patent nullity is certainly not a declaration of
39
guilt. Neither is the
_______________
33 Supra; La Bugal-B’Laan Tribal Association, Inc. v. Ramos, G.R. No.
127882, January 27, 2004, 421 SCRA 148; United Paracale Mining Company,
Inc. v. Dela Rosa, 221 SCRA 108, 116, April 7, 1993.
34 United Paracale Mining Company, Inc. v. Dela Rosa, supra; Republic v.
Court of Appeals, 160 SCRA 228, 239, April 15, 1988; Santa Rosa Mining
Company, Inc. v. Leido, Jr., 156 SCRA 1, pp. 8-9, December 1, 1987.
35 Oposa v. Factoran Jr., supra, p. 812.
36 JMM Production and Management, Inc. v. Court of Appeals, 329 Phil. 87,
101; 260 SCRA 319, August 5, 1996.
37 Bogo-Medellin Sugarcane Panters Association, Inc. v. National Labor
Relations Commission, 357 Phil. 110, 126; 296 SCRA 108, 125, September 25,
1998; Republic Planters Bank v. Agana, Sr., 336 Phil. 1, 12; 269 SCRA 1, 12,
March 3, 1997; JMM Production and Management, Inc. v. Court of Appeals,
supra, citing Philippine Association of Service Exporters, Inc. v. Drilon, 163
SCRA 386, 397, June 30, 1988.
38 Misolas v. Panga, 181 SCRA 648, 659, January 30, 1990; Bataan
Shipyard & Engineering Co., Inc. v. Presidential Commission on Good
Government, 150 SCRA 181, 233, May 27, 1987.
39 The second Whereas clause of Proclamation No. 84 provides:
“WHEREAS, the award to Rosemoor Mining and Development Corporation under
Proclamation No. 2204 denominated as Quarry License No. 33 dated August 3, 1982, is
a patent violation of the
533
VOL. 426, MARCH 30, 2004 533
Republic vs. Rosemoor Mining and Development Corporation
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. Proclamation No.40
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. Proclamation 84, which
41
merely restored the area excluded from the Biak-na-Bato
National Park by cancelling 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
_______________
then, and presently, existing policy of the Government to limit quarry licenses or
permits to cover only an area of not more than one hundred (100) hectares in any one
province as provided for in Section 69, Chapter XIII of Presidential Decree No. 463, as
amended[.]”
40 Benedicto v. Court of Appeals, 416 Phil. 722, 748; 364 SCRA 334, 352-353,
September 4, 2001, citing In the Matter of the Petition for the Declaration of the
Petitioner’s Rights and Duties under Sec. 8 of RA 6132, 146 Phil. 429, 432; 35
SCRA 429, October 22, 1970; Republic v. Desierto, 416 Phil. 59, 74; 363 SCRA
585, August 23, 2001.
41 Sevilleja v. Commission on Elections, 194 Phil. 132, 152; 107 SCRA 141,
157, August 31, 1981, citing Santos v. Commission on Elections, 191 Phil. 212,
221; 103 SCRA 628, 637, March 31, 1981.
534
534 SUPREME COURT REPORTS ANNOTATED
Republic vs. Rosemoor Mining and Development Corporation
1986. Section 1 of Article II of Proclamation No. 3, which
42

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.
Davide, Jr. (C.J., Chairman), Ynares-
Santiago, Carpio and Azcuna, JJ., concur.
Petition granted, assailed decision set aside.
Note.—Republic Act No. 7659, which amended Article 258
of the Revised Penal Code, which imposes a heavier penalty
for the crime of murder cannot be given retroactive effect since
this would violate the constitutional injunction against ex post
facto law. (People vs. Gadia, 365 SCRA 557 [2001])

——o0o——

_______________

42 The Provisional Constitution was promulgated under Proclamation No.

3. See JG Summit Holdings, Inc, v. Court of Appeals, 345 SCRA 143, 160,
November 20, 2000; Roxas v. Court of Appeals, 378 Phil. 727, 745; 321 SCRA
106, December 17, 1999.
43 Section 6 of the Transitory Provisions reads:

“SEC. 6. The incumbent President shall continue to exercise legislative powers until the
first Congress is convened.”
535
VOL. 426, MARCH 30, 2004 535
Lopez vs. David, Jr.
© Copyright 2019 Central Book Supply, Inc. All rights reserved.
 G.R. No. 127882. January 27, 2004. * NARVADEZ, JR., ROSERIO MARALAG LINGATING,
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. MAM
_______________
*EN BANC.
149
VOL. 421, JANUARY 27, 2004
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
PARAIR, 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.
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, ROSE LILIA S. ROMANO, ROBERTO S.
1
VERZOLA, EDUARDO AURELIO C. REYES, LEAN LOUEL
A. PERIA, represented by his father ELPIDIO V.
PERIA, GREEN FORUM PHILIPPINES, GREEN FORUM
2
WESTERN VISAYAS, (GF-WV), ENVIRONMENTAL LEGAL
ASSISTANCE CENTER (ELAC), PHILIPPINE KAISAHAN
TUNGO SA KAUNLARAN NG KANAYUNAN AT
REPORMANG PANSAKAHAN (KAISAHAN), KAISAHAN 3
TUNGO SA KAUNLARAN NG KANAYUNAN AT
REPORMANG PANSAKAHAN (KAISAHAN),
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
149 ALTERNATIBONG LINGAP PANLIGAL (SALIGAN),
LEGAL RIGHTS AND NATURAL RESOURCES
_______________
1 Appears as “Nequito” in the caption of the Petition by “Nequinto” in the
body. (Rollo, p. 12.)
2 As appears in the body of the Petition. (Id., at p. 13.) The caption of the
petition does not include Louel A. Peria as one of the petitioners but the name
of his father Elpidio V. Peria appears therein.
3 Appears as “Kaisahan Tungo sa Kaunlaran ng Kanayunan at Repormang
Pansakahan (KAISAHAN)” in the caption of the Petition by
“Philippine Kaisahan Tungo sa Kaunlaran ng Kanayunan at Repormang
Pansakahan (KAISAHAN)” in the body. (Id., at p. 14.)
150
150 SUPREME COURT REPORTS ANNOTATED
 La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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., respondents.
4
Judicial Review; Requisites.—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 motaof the
case.
Same; Same; Words and Phrases; An actual case or controversy
means an existing case or controversy that is appropriate or ripe for
determination, not conjectural or anticipatory.—An actual case or
controversy means an existing case or controversy that is
appropriate or ripe for determination, not conjectural or
anticipatory, lest the decision of the court would amount to an
advisory opinion. The power does not extend to hypothetical
questions since any attempt at abstraction could only lead to
dialectics and barren legal questions and to sterile conclusions
unrelated to actualities.
Same; Same; Same; Locus Standi; “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, alleging
more than a generalized grievance.—“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, alleging
more than a generalized grievance. 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.”
Unless a person is injuriously affected in any of his constitutional
rights by the operation of statute or ordinance, he has no standing.
_______________
4 Erroneously designated in the Petition as “Western Mining Philippines
Corporation.” (Id., at p. 212.) Subsequently, WMC (Philippines), Inc. was renamed
“Tampakan Mineral Resources Corporation.” (Id., at p. 778.)
151
VOL. 421, JANUARY 27, 2004 151
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Same; Same; 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.—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: 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].)
Same; Same; The third requisite for judicial review 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.—
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. 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.
Same; Prohibition; Words and Phrases; Prohibition is a
preventive remedy; While the execution of the contract itself may be
fait accompli, its implementation is not.—Prohibition is a preventive
remedy. It seeks a
152
152 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
judgment ordering the defendant to desist from continuing
with the commission of an act perceived to be illegal. 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.
Same; Hierarchy of Courts; 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 the Supreme Court in
the first instance.—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. When the
issues raised are of paramount importance to the public, this Court
may brush aside technicalities of procedure.
National Economy and Patrimony; Regalian Doctrine; The first
sentence of Section 2, Article XII of the Constitution, 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.—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. 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.
Same; Same; The Regalian doctrine extends not only to land but
also to “all natural wealth that may be found in the bowels of the
earth.”—The Philippines having passed to Spain by virtue of
discovery and conquest, earlier Spanish decrees declared that “all
lands were held from the
153
VOL. 421, JANUARY 27, 2004 153
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Crown.” The Regalian doctrine extends not only to land but also
to “all natural wealth that may be found in the bowels of the earth.”
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. Mining laws
during the Spanish regime reflected this perspective.
Same; Same; 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; 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 while under
the American doctrine, mineral rights are included in a grant of land
by the government.—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. 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. Thus, earlier jurisprudence 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, perfect 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.
Same; Same; Concession System; Words and Phrases; Under
the concession system, the concessionaire makes a direct equity
investment for the purpose of exploiting a particular natural resource
within a given area—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.—Section 21 also made possible the concession
(frequently styled “permit,” “license” or “lease”) system. 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.). Under the concession
system, the concessionaire makes a direct equity investment for the
purpose of exploiting a particular natural resource within a given
area. Thus, the
154
154 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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. 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.
Same; Same; Same; 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.—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. 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.
Same; Same; Same; Nationalization; Objectives of
Nationalization;The nationalization and conservation of the natural
resources of the country was one of the fixed and dominating
objectives of the 1935 Constitutional Convention.—The
nationalization and conservation of the natural resources of the
country was one of the fixed and dominating objectives of the 1935
Constitutional Convention. 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.
Same; Same; Same; Same; Parity Amendments; The swell of
nationalism that suffused the 1935 Constitution was radically
diluted when in November 1946, the Parity Amendment, which came
in the form of an “Ordinance Appended to the Constitution,” was
ratified in a plebiscite.—The swell of nationalism that suffused the
1935 Constitution was radically diluted when on November l946,
the Parity Amendment, which came in the form of an “Ordinance
Appended to the Constitution,” was ratified in a plebiscite. 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. 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.
Same; Same; Service Contracts; The Oil Exploration and
Development Act of 1972 (Presidential Decree No. 87); Words and
Phrases; The Oil Exploration and Development Act of 1972 signaled
a transformation from the concession system to the exploration for
and production of indigenous
155
VOL. 421, JANUARY 27, 2004 155
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
petroleum through “service contracts”; “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.—The promulgation on December 31, 1972 of
Presidential Decree No. 87, 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.” “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. 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.
Same; Same; Same; It has been opined, though, that, in the
Philippines, the concept of a service contract, at least in the
petroleum industry, was basically a concession regime with a
production-sharing element.—Ostensibly, the service contract
system had certain advantages over the concession regime. 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.
Same; Same; Same; While Section 9, Article XIV of the 1973
Constitution 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.—On
January 17, 1973, then President Ferdinand E. Marcos proclaimed
the ratification of a new Constitution. Article 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: 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
156
156 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
with any person or entity for the exploration or utilization of
natural resources.
Same; Same; Same; Conspicuously absent in Section 2, Article
XII of the 1987 Constitution 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.—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. Under
this provision, the State assumes “a more dynamic role” in the
exploration, development and utilization of natural resources.
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.
Same; Same; Under the 1987 Constitution, the State itself may
undertake the operation of a concession or enter into joint ventures.—
Having omitted the provision on the concession system, Section 2
proceeded to introduce “unfamiliar language”: 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.” One, the State may directly
undertake these activities itself; or two, it may enter into
coproduction, joint venture, or production-sharing agreements with
Filipino citizens, or entities at least 60% of whose capital is owned-
by such citizens.
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Same; Same; Same; Limitations on Technical or Financial
Assistance Agreements.—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-scaleexploration, development, and utilization is allowed.
The term “large-scale usually refers to very capital-intensive
activities.” 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. 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 standardsfor 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.
Same; Same; Same; Modes by Which the State May Explore,
Develop and Utilize 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.
Except to charge the Mines and Geosciences Bureau of the DENR
with performing researches and surveys, and a passing mention of
government-owned or controlled corporations, 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.
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158 SUPREME COURT REPORTS ANNOTATED
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7076 (the People’s Small-Scale Mining Act of 1991) and other
pertinent laws. R.A. No. 7942 primarily concerns itself with the
second and fourth modes.
Same; Same; Same; Words and Phrases; “Production Sharing
Agreements,” “Co-Production Agreements,” and “Joint Venture
Agreements,” Explained.—Mineral production sharing, co-
production and joint venture agreements are collectively classified
by R.A. No. 7942 as “mineral agreements.” The Government
participates the least in a mineral production sharing agreement
(MPSA). In an MPSA, the Government grants the contractor the
exclusive right to conduct mining operations within a contract area
and shares in the gross output. The MPSA contractor provides the
financing, technology, management and personnel necessary for the
agreement’s implementation. The total government share in an
MPSA is the excise tax on mineral products under Republic Act No.
7729, amending Section 151 (a) of the National Internal Revenue
Code, as amended. In a co-production agreement (CA), the
Government provides inputs to the mining operations other than
the mineral resource, 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. Aside from earnings in equity, the
Government in a JVA is also entitled to a share in the gross output.
The Government may enter into a CA or JVA with one or more
contractors.
Same; Statutes; Statutory Construction; Executive Order (E.O.)
No. 279; 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.—
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, is 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.
Same; Same; Same; 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
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Official Gazette on 3 August 1987.—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. Hence, the due process clause, 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 Gazette 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.
Same; Same; Same; 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.—
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. 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.
Same; Same; 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; 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.—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. 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. 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. 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.
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160 SUPREME COURT REPORTS ANNOTATED
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Same; Same; 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.—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. 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.
Same; Same; Service Contracts; If the Constitutional
Commission 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”).—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. 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.
Same; Same; Same; The insights of the proponents of the U.P.
Law Draft are instructive in interpreting the phrase “technical or
financial assistance.”—It appears that Proposed Resolution No. 496,
which was the draft Article on National Economy and Patrimony,
adopted the concept of
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“agreements . . . involving either technical or financial
assistance” contained in the “Draft of the 1986 U.P. Law
Constitution Project” (U.P. Law draft) which was taken into
consideration during the deliberation of the CONCOM. The former,
as well as Article XII, as adopted, employed the same terminology,
x x x The insights of the proponents of the U.P. Law draft are,
therefore, instructive in interpreting the phrase “technical or
financial assistance.”
Same; Same; Same; 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.—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.
Same; Same; Same; 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; 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.”—
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, necessity, 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
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162 SUPREME COURT REPORTS ANNOTATED
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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. 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.”
Same; Same; Same; Loose statements of some of the
Commissioners in the CONCOM do not necessarily translate to the
adoption of the 1973 Constitution provision allowing service
contracts.—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. 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.
Same; Same; Same; Administrative Law; 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.—WMCP cites
Opinion No. 75, s. 1987, and Opinion No. 175, s. 1990 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 preexisting law; and the
administrative interpretation, of the law is at best advisory, for it is
the courts that finally determine what the law means.
Same; Same; Same; The President may enter into FTAAs with
foreign-owned corporation in the exploitation of our natural
resources.—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,
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the provision is “very restrictive.” 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.” 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.
Same; Same; Same; Philippine Mining Act of 1995 (Republic
Act No. 7942); With the foregoing discussion in mind, this Court
finds that R.A. No. 7942 is invalid insofar as said Act authorizes
service contracts.—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.
Same; Same; Same; Same; The underlying assumption in all
some of the provisions of R.A. No. 7942 is that the foreign contractor
manages the mineral resources, just like the foreign contractor in a
service contract; 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.—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). 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,
provided that it reduces its equity in the corporation, partnership,
association or cooperative to forty percent (40%). Finally, under the
Act, an FTAA contractor warrants that it “has or has access to all
the financing, managerial, and technical expertise . . . .” 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.
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 La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Same; Same; Same; Same; Provisions of R.A. No. 7942
Violative of Section 2, Article XII of the Constitution.—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, 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, which enumerates the terms
and conditions for every financial or technical assistance agreement;
(5) Section 39, which allows the contractor in a financial and
technical assistance agreement to convert the same into a mineral
production-sharing agreement; Section 37, which prescribes the
procedure for filing and evaluation of financial or technical
assistance agreement proposals; Section 38, which limits the term
of financial or technical assistance agreements; Section 40, which
allows the assignment or transfer of financial or technical
assistance agreements; Section 41, which allows the withdrawal of
the contractor in an FTAA; The second and third paragraphs of
Section 81, which provide for the Government’s share in a financial
and technical assistance agreement; and Section 90, which provides
for incentives to contractors in FTAAs insofar as it applies to said
contractors;
Same; Same; Same; Same; 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.—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.
Same; International Law; Treaties; Equal Protection
Clause; The annulment of the FTAA would not constitute a breach of
the Agreement on the Promotion and Protection of Investments
between the Philippine and Australian Governments, for the decision
herein invalidating the subject FTAA forms part of the legal system
of the Philippines, and the equal protection clause guarantees that
such decision shall apply to all contracts belonging to the same class,
hence, upholding rather than violating, the “fair and
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equitable treatment” stipulation in said treaty.—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. The equal protection clause 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.
Same; Statutory Construction; A constitution is not to be
interpreted as demanding the impossible or the impracticable—and
unreasonable or absurd consequences, if possible, should be
avoided—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.—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
“eithertechnical 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. 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. [Italics
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. 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. That
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is a strong argument against its adoption. Accordingly,
petitioners’ interpretation must be rejected.
VITUG, J., Separate Opinion:
National Economy and Patrimony; Statutory Construction; It
could not have been the object of the framers of the Charter to limit
the contracts which the President may enter into, to mere
“agreements for financial and technical assistance; The Constitution
has not prohibited the State from itself exploring, developing, or
utilizing the country’s natural resources, and, for this purpose, it
may, enter into the necessary agreements with individuals or entities
in the pursuit of a feasible operation.”—The majority would cite the
emphatic statements of Commissioners Villegas and Davide that
the country’s natural resources are exclusively reserved for Filipino
citizens and that, according to Commissioner Villegas, “the deletion
of the phrase ‘service contracts’ (is the) 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.” These declarations do not
necessarily mean that the Government may no longer enter into
service contracts with foreign entities. In order to uphold and
strengthen the national policy of preserving and developing the
country’s natural resources exclusively for the Filipino people, the
present Constitution indeed has provided for safeguards to prevent
the execution of service contracts of the old regime, but not of service
contracts per se. It could not have been the object of the framers of
the Charter to limit the contracts which the President may enter
into, to mere “agreements for financial and technical assistance.”
One would take it that the usual terms and conditions recognized
and stipulated in agreements of such nature have been
contemplated. Basically, the financier and the owner of know-how
would understandably satisfy itself with the proper implementation
and the profitability of the project. It would be abnormal for the
financier and owner of the know-how not to assure itself that all the
activities needed to bring the project into fruition are properly
implemented, attended to, and carried out. Needless to say, no
foreign investor would readily lend financial or technical assistance
without the proper incentives, including fair returns, therefor. The
Constitution has not prohibited the State from itself exploring,
developing, or utilizing the country’s natural resources, and, for this
purpose, it may, I submit, enter into the necessary agreements with
individuals or entities in the pursuit of a feasible operation.
Same; Supreme Court; Judicial Review; Separation of
Powers; While I cannot ignore an impression of the business
community that the Supreme Court is wont, at times, to interfere
with the economic decisions of Congress and the government’s
economic managers, I must hasten to add, however, that in so voting
as above, I have not been unduly overwhelmed by that perception.—
Just a word. While I cannot ignore an impression of the busi-
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 ness community that the Court is wont, at times, to interfere
with the economic decisions of Congress and the government’s
economic managers, I must hasten to add, however, that in so voting
as above, I have not been unduly overwhelmed by that perception.
Quite the contrary, the Court has always proceeded with great
caution, such as now, in resolving cases that could inextricably
involve policy questions thought to be best left to the technical
expertise of the legislative and executive departments.
PANGANIBAN, J., Separate Opinion:
Moot and Academic Issues; I believe that the Court should
dismiss the Petition on the ground of mootness—a decision on the
constitutionality issue should await the wisdom of a new day when
the Court would have a live case before it.—With due respect, I
believe that the Court should dismiss the Petition on the ground of
mootness. I submit that a decision on the constitutionality issue
should await the wisdom of a new day when the Court would have
a live case before it. The nullity of the FTAA is unarguably premised
upon the contractor being a foreign corporation. Had the FTAA been
originally issued to a Filipino-owned corporation, we would have
had no constitutionality issue to speak of. Upon the other hand,
conveyance of the FTAA to a Filipino corporation can be likened to
the sale of land to a foreigner who subsequently acquires Filipino
citizenship, or who later re-sells 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. Since the FTAA
is now to be implemented by a Filipino corporation, how can the
Court still declare it unconstitutional? The CA case 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.
National Economy and Patrimony; Statutory Construction; If
the intention of the drafters were strictly to confine foreign
corporations to financial or technical assistance and nothing more,
their language would have been unmistakably restrictive and
stringent.—First, the drafters’ choice of words—their use of the
phrase “agreements x x x involving x x x technical or financial
assistance”—does not absolutely indicate the intent to exclude other
modes of assistance. Rather, the phrase signifies the possibility of
the inclusion of other activities, provided they bear some reasonable
relationship to and compatibility with financial or technical
assistance. If the intention of the drafters were strictly to confine
foreign corporations to financial or technical assistance and nothing
more, I am certain that their language would have
been unmistakably restrictive and stringent. They would have said,
for example: “Foreign corporations are prohibited from providing
management or other forms of assistance,” or words to that effect.
The conscious avoidance of restrictive wording bespeaks an intent
168
168 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
not to employ—in an exclusionary, inflexible and limiting
manner—the expression “agreements involving technical or
financial assistance.”
Same; Same; Service Contracts; The present Constitution still
recognizes and allows service contracts (and has not rendered them
taboo), albeit subject to several restrictions and modifications aimed
at avoiding the pitfalls of the past.—Second, I believe the foregoing
position is supported by the fact that our present Constitution still
recognizes and allows service contracts (and has not rendered them
taboo), albeit subject to several restrictions and modifications aimed
at avoiding the pitfalls of the past.Below are some excerpts from the
deliberations of the Constitutional Commission (Concom), showing
that its members discussed “technical or financial agreements” in
the same breath as “service contracts” and used the terms
interchangeably.
Same; Same; Same; In the minds of the commissioners, the
concept of technical and financial assistance agreements did not
exist at all apart from the concept of service contracts duly modified
to prevent abuses—“technical and financial agreements” were
understood by the delegates to include service contracts duly
modified to prevent abuses.—The foregoing is but a small sampling
of the lengthy discussions of the constitutional commissioners on the
subject of service contracts and technical and financial assistance
agreements. Quoting the rest of their discussions would have taken
up several more pages, and these have thus been omitted for the
sake of brevity. In any event, it would appear that the members of
the Concom actually had in mind the Marcos era
service contracts that they were familiar with (but which they duly
modified and restricted so as to prevent abuses), when they were
crafting and polishing the provisions dealing with financial and/or
technical assistance agreements. These provisions ultimately became
the fourth and the fifth paragraphs of Section 2 of Article XII of the
1987 Constitution. Put differently, “technical and financial
assistance agreements” were understood by the delegates to include
service contracts duly modified to prevent abuses. Since the drafters
were referring only to service contracts to be granted to foreigners
and to nothing else, this fact necessarily implies that we
ought not treat the idea of “agreements involving either technical or
financial assistance” as having any significance or existence apart
from service contracts. In other words, in the minds of the
commissioners, the concept of technical and financial assistance
agreements did not exist at all apart from the concept of service
contracts duly modified to prevent abuses.
Same; Same; Same; Current business practices often require
borrowers seeking huge loans to allow creditors access to financial
records and other data, and probably a seat or two on the former’s
board of directors, or at least some participation in certain
management decisions that may have an impact on the financial
health or long-term viability of the debtor,
169
VOL. 421, JANUARY 27, 2004 169
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
which of course will directly affect the latter’s capacity to repay
its loans.—Tantamount to closing one’s eyes to reality is the
insistence that the term “agreements involving technical or
financial assistance” refers only to purely technical or financial
assistance to be rendered to the State by a foreign corporation (and
must perforce exclude management and other forms of assistance).
Nowadays, securing the kind of financial assistancerequired by
large-scale explorations, which involve hundreds of millions of
dollars, is not just a matter of signing a simple promissory note in
favor of a lender. Current business practices often require borrowers
seeking huge loans to allow creditors access to financial records and
other data, and probably a seat or two on the former’s board of
directors; or at least some participation in certain management
decisions that may have an impact on the financial health or long-
term viability of the debtor, which of course will directly affect the
latter’s capacity to repay its loans. Prudent lending practices
necessitate a certain degree of involvement in the borrower’s
management process.
Same; Same; Same; If the Supreme Court closes its doors to
international realities and unilaterally sets up its own concepts of
strict technical and financial assistance, then it may unwittingly
make the country a virtual hermit—an economic isolationist—in the
real world of finance.—Given the modern-day reality that even the
World Bank (WB) and the International Monetary Fund (IMF) do
not lend on the basis merely of bare promissory notes, but on some
conditionalities designed to assure the borrowers’ financial viability,
I would like to hear in an Oral Argument in a live, not a
moot, case what these international practices are and how they
impact on our constitutional restrictions. This is not to say that we
should bend our basic law; rather, we should find out what kind of
FTAA provisions are realistic vis-à-vis these international
standards and our constitutional protection. Unless there is
a live FTAA, the Court would not be able to analyze the
provisions vis-à-vis the Constitution, the Mining Law and these
modern day lending practices. I mentioned the WB and the IMF, not
necessarily because I agree with their oftentimes stringent policies,
but because they set the standards that international and
multinational financial institutions often take bearings from. The
WB and IMF are akin (though not equivalent) to the Bangko
Sentral, which all Philippine banks must abide by. If this Court
closes its doors to these international realities and unilaterally sets
up its own concepts of strict technical and financial assistance, then
it may unwittingly make the country a virtual hermit—an economic
isolationist—in the real world of finance.
Constitutions; Statutory Construction; The commissioners fully
realized that their work would have to withstand the test of time, that
the Charter, though crafted with the wisdom born of past experiences
and lessons painfully learned, would have to be a living document
that would answer the needs of the nation well into the future.—I
believe that the
170
170 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Concom did not mean to tie the hands of the President and
restrict the latter only to agreements on rigid financial and technical
assistance and nothing else. The commissioners fully realized that
their work would have to withstand the test of time; that the
Charter, though crafted with the wisdom born of past experiences
and lessons painfully learned, would have to be a living document
that would answer the needs of the nation well into the future. Thus,
the unerring emphasis on flexibility and adaptability.
SPECIAL CIVIL ACTION in the Supreme Court. Mandamus
and Prohibition.
The facts are stated in the opinion of the Court.
Marivic M.V.F. Leonen, Edgar DL Bernal, Ingrid
Rosalie L. Gorre and Emily L. Manuel for petitioners.
Ma. Paz G. Luna for petitioner David de Vera, et al.
Magistrado A. Mendoza for petitioner KAISAHAN.
The Solicitor General for public respondents.
Factoran and Associates Law
Office; Belo, Gozon, Elma, Parel,
Asuncion and
Lucila; and Azcuna, Yorac, Sarmiento, Arroyo & Chua for
private respondent WMC (Phils.).
Mario C.V. Jalandoni co-counsel for WMC (Phils.).
CARPIO-MORALES, J.:
The present petition for mandamus and prohibition assails the
constitutionality of Republic Act No. 7942, otherwise known
5 On March 3, 1995, then President Fidel V. Ramos approved
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. 279 authorizing the DENR
6 ease-
Secretary to
_______________
5 An Act Instituting A New System of Mineral Resources Exploration,
Development, Utilization and Conservation.
6 Authorizing the Secretary of Environment and Natural Resources to
Negotiate and Conclude Joint Venture, Co-Production, or Production-
171
VOL. 421, JANUARY 27, 2004 171
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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. 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 in
a single mining unit project of at least Fifty Million Dollars in
United States currency (US $50,000,000.00). 7
R.A. No. 7942 to “govern the exploration, development,
utilization and processing of all mineral resources.” R.A. No.8
7942 defines the modes of mineral agreements for mining
operations, outlines the procedure for their filing and
9
approval, assignment/transfer and withdrawal, and fixes
10 11 12
their terms. Similar provisions govern financial or technical
13
assistance agreements. 14
The law prescribes the qualifications of contractors and 15
grants them certain rights, including timber, water and 16 17
_______________
 Sharing Agreements for the Exploration, Development and Utilization of WMCP covering 99,387 hectares of land in South Cotabato,
Mineral Resources, and Prescribing the Guidelines for such Agreements and
Sultan Kudarat, Davao del Sur and North Cotabato. 34
those Agreements involving Technical or Financial Assistance by Foreign-
Owned Corporations for Large-Scale Exploration, Development and
_______________
Utilization of Minerals.
7 Exec. Order No. 279 (1987), sec. 4.

8 Rep. Act No. 7942 (1995), sec. 15.

18 Id., sec. 75.
9Id., sec. 26 (a)-(c).
19 Id., sec. 74.
20 Id., sec. 76.
10 Id., sec. 29.
21 Id., ch. XIII.
11 Id., sec. 30.
22 Id., secs. 20-22.
12 Id., sec. 31.
23 Id., secs. 43, 45.
13 Id., sec. 32.
24 Id., secs. 46-49, 51-52.
14 Id., ch. VI.
25 Id., ch. IX.
15 Id., secs. 27 and 33 in relation to sec. 3 (aq).
26 Id., ch. X.
16 Id., sec. 72.
27 Id., ch. XI.
17 Id., sec. 73.
28 Id., ch. XIV.
172
29 Id., ch. XV.

172 SUPREME COURT REPORTS ANNOTATED 30 Id., ch. XVI.

La Bugal-B’Laan Tribal Association, Inc. vs. Ramos 31 Id., ch. XIX

32 Id., ch. XVII.

ment rights, and the right to possess explosives. Surface
18 19
33 Section 116, R.A. No. 7942 provides that the Act “shall take effect thirty

owners, occupants, or concessionaires are forbidden from (30) days following its complete publication in two (2) newspapers of general
preventing holders of mining rights from entering private circulation in the Philippines.”
lands and concession areas. A procedure for the settlement of
20 34 WMCP FTAA, sec. 4.1.

conflicts is likewise provided for. 21

173
The Act restricts the Conditions for VOL. 421, JANUARY 27, 2004 173
exploration, quarry and other permits. It regulates the
22 23 24
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
transport, sale and processing of minerals, and promotes the
25 On August 15, 1995, then DENR Secretary Victor O. Ramos
development of mining communities, science and mining issued DENR Administrative Order (DAO) No. 95-23, s. 1995,
technology, and safety and environmental protection.
26 27 otherwise known as the Implementing Rules and Regulations
The government’s share in the agreements is spelled out of R.A. No. 7942. This was later repealed by DAO No. 96-40, s.
and allocated, taxes and fees are imposed, incentives
28 29 1996 which was adopted on December 20, 1996.
granted. Aside from penalizing certain acts, the law likewise
30 31 On January 10, 1997, counsels for petitioners sent a letter
specifies grounds for the cancellation, revocation and to the DENR Secretary demanding that the DENR stop the
termination of agreements and permits. 32 implementation of R.A. No, 7942 and DAO No. 96-40, giving 35

On April 9, 1995, 30 days following its publication on March the DENR fifteen days from receipt to act thereon. The
36

10, 1995 in Malaya and Manila Times, two newspapers of DENR, however, has yet to respond or act on petitioners’
general circulation, R.A. No. 7942 took effect. 33 letter. 37

Shortly before the effectivity of R.A. No. 7942, however, or Petitioners thus filed the present petition for prohibition
on March 30, 1995, the President entered into an FTAA with and mandamus, with a prayer for a temporary restraining
order. They allege that at the time of the filing of the petition,
100 FTAA applications had already been filed, covering an
area of 8.4 million hec-tares, 64 of which applications are by
38
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
Petitioners claim that the DENR Secretary acted without
or in excess of jurisdiction:
I wealth contrary to Section 2, paragraph 2 of Article XII of the
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 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;
II
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;
_______________
35 Rollo, p. 22.
36 Ibid.
37 Ibid.
38 Ibid. The number has since risen to 129 applications when the petitioners
filed their Reply. (Rollo, p. 363.)
39 Id., at p. 22.
174
174 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
III
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
Constitution;
V
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 priority to foreign and fully foreign
owned corporations in the exploration, development and utilization
of mineral resources contrary to Article XII of the Constitution;
VI
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 inequitable sharing of wealth
contrary to Sections [sic] 1, paragraph 1, and Section 2, paragraph
4[,] [Article XII] of the Constitution;
VII
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
Corporation Philippines, Inc. because the same is illegal and
unconstitutional. 40
They pray that the Court issue an order:
1. (a)Permanently enjoining respondents from acting on
any application for Financial or Technical Assistance
Agreements;
 2. (b)Declaring the Philippine Mining Act of 1995 or
Republic Act No. 7942 as unconstitutional and null
and void;
3. (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
_______________
Id., at pp. 23-24.
40
175
VOL. 421, JANUARY 27, 2004 175
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
1. (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 andexploration
company.” By WMCP’s information, “it is a 100% owned
42
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. WMCP was subsequently renamed “Tampakan Mineral
44
Resources Corporation.” WMCP claims that at least 60% of
45
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. It further claims that
46
by such sale and transfer of shares, “WMCP has ceased to be
connected in any way with WMC.” 47
_______________
41 Id., at pp. 52-53. Emphasis and italics supplied.
42 WMCP FTAA, p. 2.
43 Rollo, p. 220.
44 Id., at p. 754.
45 Vide Note 4.
46 Rollo, p. 754.
47 Id., at p. 755.
176
176 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
By virtue of such sale and transfer, the DENR Secretary, by
Order of December 18, 2001, approved the transfer and
48
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. Its motion for 49
reconsideration having been denied by the Office of the
President by Resolution of November 12, 2002, Lepanto filed 50
a petition for review before the Court of Appeals. Incidentally,
51
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. The validity of the transfer remains in dispute and
53
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, each of which was a holder of an approved
54
Mineral Production Sharing Agreement
_______________
Id., at pp. 761-763.
48
49 Id., at pp. 764-776.
50 Id., at pp. 782-786.
51 Docketed as C.A.-G.R. No. 74161.
52 G.R. No. 153885, entitled Lepanto Consolidated Mining Company v.
WMC Resources International Pty. Ltd., et al., decided September 24, 2003, 412
SCRA 101and G.R. No. 156214, entitled Lepanto Mining Company v. WMC
Resources International Pty. Ltd., WMC (Philippines), Inc., Southcot Mining
Corporation, Tampakan Mining Corporation and Sagittarius Mines, Inc.,
decided September 23, 2003.
53 Section 12, Rule 43 of the Rules of Court, invoked by private respondent,
states, “The appeal shall not stay the award, judgment, final order or
resolution sought to be reviewed unless the Court of Appeals shall direct
otherwise upon such terms as it may deem just.”
54 WMCP’s Reply (dated May 6, 2003) to Petitioners’ Comment (to the
Manifestation and Supplemental Manifestation), p. 3.
177
VOL. 421, JANUARY 27, 2004 177
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
awarded in 1994, albeit their respective mineral claims were
subsumed in the WMCP FTAA; and that these three55
companies are the same companies that consolidated their
interests in Sagittarius to whom WMC sold its 100% equity in
WMCP. WMCP concludes that in the event that the FTAA is
56
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. (1)The existence of an actual and appropriate case;
2. (2)A personal and substantial interest of the party
raising the constitutional question;
3. (3)The exercise of judicial review is pleaded at the
earliest opportunity; and
4. (4)The constitutional question is the lis mota of the
case. 58
_______________
55Ibid.
56Ibid.
57 WMCP’s Reply (dated May 6, 2003) to Petitioners’ Comment (to the
Manifestation and Supplemental Manifestation), p. 4.
 58Philippine Constitution Association v. Enriquez, 235 SCRA
506 (1994); National Economic Protectionism Association v. Ongpin, 171 SCRA
657 (1989); Dumlao v. Commission on Elections, 95 SCRA 392 (1980).
178
178 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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, lest the decision of the court
60
would amount to an advisory opinion. The power does not
61
extend to hypothetical questions since any attempt at
62
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, alleging more 64
than a generalized grievance. The gist of the question of
65
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.” Unless a person is injuriously
66
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
_______________
59 Dumlao v. Commission on Elections, supra.
60 Board of Optometry v. Colet, 260 SCRA 88 (1996).
61 Dumlao v. Commission on Elections, supra.
62 Subic Bay Metropolitan Authority v. Commission on Elections, 262 SCRA
492(1996).
63 Angara v. Electoral Commission, 63 Phil. 139 (1936).
64 Integrated Bar of the Philippines v. Zamora, 338 SCRA 81, 100
(2000); Dumlao v. Commission on Elections, supra; People v. Vera, 65 Phil.
56 (1937).
65 Dumlao v. Commission on Elections, supra.
66 Integrated Bar of the Philippines v. Zamora, supra.
67 Ermita-Malate Hotel and Motel Operators Association, Inc. v. City Mayor
of Manila, 21 SCRA 449 (1967).
179
VOL. 421, JANUARY 27, 2004 179
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
people’s cooperative organized under Philippine laws
representing a community actually affected by the mining
activities of WMCP, members of said cooperative, as well as 68
other residents of areas also affected by the mining activities
of WMCP. These petitioners have standing to raise the
69
constitutionality of the questioned FTAA as they allege a
personal and substantial injury. They claim that they would
suffer “irremediable displacement” as a result of the
70
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. In other words, they contend that
71
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
_______________
Petitioners Roberto P. Amloy, Raqim L. Dabie, Simeon H. Dolojo, Imelda
68
Gandon, Leny B. Gusanan, Marcelo L. Gusanan, Quintal A. Labuayan, Lomingges
Laway, and Benita P. Tacuayan.
69 Petitioners F’long Agustin M. Dabie, Mario L. Mangcal, Alden S. Tusan, Sr.
Susuan O. Bolanio, OND, Lolita G. Demonteverde, Benjie L. Nequinto, Rose Lilia
S. Romano and Amparo S. Yap.
70 Rollo, p. 6.
71 Id., at p. 337, citing Malabanan v. Gaw Ching, 181 SCRA 84 (1990).
72 246 SCRA 540 (1995).
180
180 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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,
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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. A 73
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
proceeding in the action or matter specified therein.
Prohibition is a preventive remedy. It seeks a judgment
74
ordering the defendant to desist from continuing with the
commission of an act perceived to be illegal. 75
_______________
73 People v. Vera, supra.
74 Militante v. Court of Appeals, 330 SCRA 318 (2000).
75 Ibid.
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182 SUPREME COURT REPORTS ANNOTATED
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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 to 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 pre
183
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vent further over-crowding of the Court’s docket x x x. [Emphasis
76
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. When the issues raised are of paramount
77
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. (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. (2)It allows foreign-owned companies to extend both
technical and financial assistance, instead of
“either technical orfinancial 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:
_______________
76 Cruz v. Secretary, of Environment and Natural Resources, 347 SCRA
128(2000), Kapunan, J., Separate Opinion. [Emphasis supplied.]
77 Joya v. Presidential Commission on Good Government, 225 SCRA
568 (1993).
78 Integrated Bar of the Philippines v. Zamora, supra.
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184 SUPREME COURT REPORTS ANNOTATED
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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 case 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 J. Bernas, S.J., The 1987 Constitution of the Philippines:
Commentary 1009 (1996).
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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, earlier Spanish decrees declared that “all lands
81
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
_______________
80 Cruz v. Secretary of Environment and Natural Resources, supra,
Kapunan, J., Separate Opinion.
81 Id., Puno, J., Separate Opinion, and Panganiban, J., Separate Opinion.
82 Cariño v. Insular Government, 212 US 449, 53 L.Ed. 595 (1909). For
instance, Law 14, Title 12, Book 4 of the Recopilacion de Leyes de las
Indias proclaimed:
We having acquired full sovereignty over the Indies, and all lands, territories, and
possessions not heretofore ceded away by our royal predecessors, or by us, or in our
name, still pertaining to the royal crown and patrimony, it is our will that all lands
which are held without proper and true deeds of grant be restored to us according as
they belong to us, in order that after reserving before all what to us or to our viceroys,
79
audiencias, and governors may seem necessary for public squares, ways, pastures, and
commons in those places which are peopled, taking into consideration not only their
present condition, but also their future and their probable increase, and after
distributing to the natives what may be necessary for tillage and pasturage, confirming
A them in what they now have and giving them more if necessary, all the rest of said lands
may remain free and unencumbered for us to dispose of as we may wish.
83 Republic v. Court of Appeals, 160 SCRA 228 (1988). It has been noted,
however, that “the prohibition in the [1935] Constitution against alienation by
the state of mineral lands and minerals is not properly a part of the Regalian
doctrine but a separate national policy designed to
186
186 SUPREME COURT REPORTS ANNOTATED
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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. Mining laws during the Spanish regime reflected
84
this perspective. 85
_______________
conserve our mineral resources and prevent the state from being deprived
of such minerals as are essential to national defense.” (A. Noblejas, Philippine
Law on Natural Resources 126-127 [1959 ed.], citing V. Francisco, The New
Mining Law.)
84 Cruz v. Secretary of Environment and Natural Resources, supra,
Kapunan, J., Separate Opinion, citing A. Noblejas, Philippine Law on Natural
Resources 6 (1961). Noblejas continues:
Thus, they asserted their right of ownership over mines and minerals or precious metals,
golds, and silver as distinct from the right of ownership of the land in which the minerals
were found. Thus, when on a piece of land mining was more valuable than agriculture,
the sovereign retained ownership of mines although the land has been alienated to
private ownership. Gradually, the right to the ownership of minerals was extended to
base metals. If the sovereign did not exploit the minerals, they grant or sell it as a right
separate from the land. (Id., at p. 6.)
85 In the unpublished case of Lawrence v. Garduño (L-10942, quoted in V.
FRANCISCO, Philippine Law on Natural Resources 14-15 [1956]), this Court
observed:
The principle underlying Spanish legislation on mines is that these are subject to the
eminent domain of the state. The Spanish law of July 7, 1867, amended by the law of
March 4, 1868, in article 2 says: “The ownership of the substances enumerated in the
preceding article (among them those of inflammable nature), belong[s] to the state, and
they cannot be disposed of without the government authority.”
The first Spanish mining law promulgated for these Islands (Decree of Superior
Civil Government of January 28, 1964), in its Article I, says: “The supreme ownership
of mines throughout the kingdom belong[s] to the crown and to the king. They shall not
be exploited except by persons who obtained special grant from this superior
government and by those who may secure it thereafter, subject to this regulation.”
Article 2 of the royal decree on ownership of mines in the Philippine Islands, dated
May 14, 1867, which was the law in force at the time of the cession of these Islands to
the Government of the United States, says: “The ownership of the substances
enumerated in the preceding article (among them those of inflammable nature)
187
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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. Among the principal organic acts of the Philippines was
86
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. Section 20 of said Bill reserved the disposition of
87
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 on
_______________
belongs to the state, and they cannot be disposed of without an authorization
issued by the Superior Civil Governor.”
Furthermore, all those laws contained provisions regulating the manner of
prospecting, locating and exploring mines in private property by persons other than
the owner of the land as well as the granting of concessions, which goes to show
that private land did not include, without express grant, the mines that might be
found therein.
Analogous provisions are found in the Civil Code of Spain determining the
ownership of mines. In its Article 339 (Article 420, New Civil Code) enumerating
properties of public ownership, the mines are included until specially granted to
private individuals. In its article 350 (Art. 437, New Civil Code) declaring that the
proprietor of any parcel of land is the owner of its surface and of everything under
it, an exception is made as far as mining laws are concerned. Then in speaking of
minerals, the Code in its articles 426 and 427 (Art. 519, New Civil Code) provides
rules governing the digging of pits by third persons on private-owned lands for the
purpose of prospecting for minerals.
86 Atok Big-Wedge Mining Co. v. Intermediate Appellate Court, 261 SCRA
528 (1996).
87 Ibid.
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188 SUPREME COURT REPORTS ANNOTATED
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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. A person who acquired ownership over a parcel of
88
private mineral land pursuant to the laws then prevailing
could exclude other persons, even the State, from exploiting
minerals within his property. Thus, earlier
89
jurisprudence held that:
90
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, perfect 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
_______________
88 Cruz
v. Secretary of Environment and Natural Resources, supra,
Kapunan, J., Separate Opinion.
89 Ibid.
90 McDaniel v. Apacible and Cuisia, 42 Phil. 749 (1922).
91 NOBLEJAS, supra, at p. 5.
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Section 21 also made possible the concession (frequently styled
“permit,” “license” or “lease”) system. This was the
92 93
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. Thus, the
95
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. In consideration for the right to exploit a
96
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. For instance, Act No. 2932, approved on August
98 99
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, approved on May100
14, 1917, which provided for the leasing and development of
coal lands in the Philippines, both utilized the concession
system. 101
_______________
92 V.M.A. Dimagiba, Service Contract Concepts in Energy, 57 PHIL. L. J.
307, 313 (1982).
93 P.A. Agabin, Service Contracts: Old Wine in New Bottles?, in II DRAFT
PROPOSAL OF THE 1986 U.P. Law Constitution Project 3.
94 Id., at pp. 2-3.
95 Id., at p. 3.
96 Ibid.
97 Ibid.
98 Ibid.
99 An Act to Provide for the Exploration, Location and Lease of Lands
Containing Petroleum and other Mineral Oils and Gas in the Philippine
Islands.
100 An Act to Provide for the Leasing and Development of Coal Lands in the
Philippine Islands.
101 Agabin, supra, at p. 3.
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190 SUPREME COURT REPORTS ANNOTATED
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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. On July 30, 1934, the Constitutional
102
Convention met for the purpose of drafting a constitution, and
the Constitution subsequently drafted was approved by the
Convention on February 8, 1935. The Constitution was
103
submitted to the President of the United States on March 18,
1935. On March 23, 1935, the President of the United States
104
certified that the Constitution conformed substantially with
the provisions of the Act of Congress approved on March 24,
1934. On May 14, 1935, the Constitution was ratified by the
105
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. As adopted in a republican system, the medieval
107
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
_______________
102 People v. Linsangan, 62 Phil. 646 (1935).
103 Ibid.
104 Ibid.
105 Ibid.
106 Ibid.
107 Atok Big-Wedge Mining Co. v. Intermediate Appellate Court, supra.
108 BERNAS, S.J., supra, at pp. 1009-1010, citing Lee Hong Hok v. David, 48
SCRA 372(1972).
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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 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. One delegate relates:
109
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
_______________
109 II J. Aruego, The Framing of the Philippine Constitution 592 (1949).
Id., at pp. 600-601.
110
 111Id., at p. 604. Delegate Aruego expounds: At the time of the framing of
the Philippine Constitution, Filipino capital had been known to be rather shy.
Filipinos hesitated as
192
192 SUPREME COURT REPORTS ANNOTATED
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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.
The swell of nationalism that suffused the 1935
Constitution was radically diluted when on November l946,
the Parity Amendment, which came in the form of an
“Ordinance Appended to the
_______________
a general rule to invest a considerable sum of their capital for the
development, exploitation, and utilization of the natural resources of the
country. They had not as yet been so used to corporate enterprises as the
peoples of the West. This general apathy, the delegates knew, would mean the
retardation of the development of the natural resources, unless foreign capital
would be encouraged to come in and help in that development. They knew that
the nationalization of the natural resources would certainly not encourage the
investment of foreign capital into them. But there was a general feeling in the
Convention that it was better to have such development retarded or even
postponed altogether until such time when the Filipinos would be ready and
willing to undertake it rather than permit the natural resources to be placed
under the ownership or control of foreigners in order that they might be
immediately developed, with the Filipinos of the future serving not as owners
but at most as tenants or workers under foreign masters. By all means, the
delegates believed, the natural resources should be conserved for Filipino
posterity.
The nationalization of natural resources was also intended as an
instrument of national defense. The Convention felt that to permit foreigner to
own or control the natural resources would be to weaken the national defense.
It would be making possible the gradual extension of foreign influence into our
politics, thereby increasing the possibility of foreign control. x x x.
Not only these. The nationalization of the natural resources, it was
believed, would prevent making the Philippines a source of international
conflicts with the consequent danger to its internal security and independence.
For unless the natural resources were nationalized, with the nationals of
foreign countries having the opportunity to own or control them, conflicts of
interest among them might arise inviting danger to the safety and
independence of the nation. (Id., at pp. 605-606.)
193
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Constitution,” was ratified in a plebiscite. The Amendment
112
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
_______________
112 Palting v. San Jose Petroleum Inc., 18 SCRA 924 (1966); Republic v.
Quasha, 46 SCRA 160 (1972).
113 Atok Big-Wedge Mining Co. v. Intermediate Appellate Court, supra.
114 Article VI thereof provided:
1. The disposition, exploitation, development and utilization of all agricultural, timber, 115 An Act to Promote the Exploration, Development, Exploitation, and
and mineral lands of the public domain, waters, minerals, coal, petroleum and other Utilization of the Petroleum Resources of the Philippines; to Encourage the
mineral oils, all forces and of sources of potential energy, and other natural resources of Conservation of such Petroleum Resources; to Authorize the Secretary of
either Party, and the operation of public utilities, shall, if open to any person, be open
Agriculture and Natural Resources to Create an Administration Unit and a
to citizens of the other Party and to all forms of business enterprise owned or controlled
directly or indirectly, by citizens of such other Party in the same manner as to and under
Technical Board in the Bureau of Mines; to Appropriate Funds therefor; and
the same conditions imposed upon citizens or corporations or associations owned or for other purposes.
116 Rep. Act No. 387 (1949), as amended, art. 10 (b).
controlled by citizens of the Party granting the right.
117 Id., art. 10 (c).
194
118 Id., art. 5.
194 SUPREME COURT REPORTS ANNOTATED
195
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The Petroleum Act of 1949 and La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
The Concession System
tence, and skills necessary to conduct the operations to be
In the meantime, Republic Act No. 387, also known as the 115

under-taken. 119

Petroleum Act of 1949, was approved on June 18, 1949. The

Nevertheless, the Government reserved the right to
Petroleum Act of 1949 employed the concession system for the
undertake such work itself. This proceeded from the theory
120

exploitation of the nation’s petroleum resources. Among the

that all natural deposits or occurrences of petroleum or
kinds of concessions it sanctioned were exploration and
natural gas in public and/or private lands in the Philippines
exploitation concessions, which respectively granted to the
belong to the State. Exploration and exploitation concessions
121

concessionaire the exclusive right to explore for or 116

did not confer upon the concessionaire ownership over the

develop petroleum within specified areas.
117

petroleum lands and petroleum deposits. However, they did 122

Concessions may be granted only to duly qualified

grant concessionaires the right to explore, develop, exploit,
persons who have sufficient finances, organization, resources,
118

and utilize them for the period and under the conditions
technical compe-
determined by the law. 123

_______________ Concessions were granted at the complete risk of the

concessionaire; the Government did not guarantee the
2. The rights provided for in Paragraph 1 may be exercised x x x in the case existence of petroleum or undertake, in any case, title
of citizens of the United States, with respect to natural resources in the public
domain in the Philippines, only through the medium of a corporation organized
warranty. 124

under the laws of the Philippines and at least 60% of the capital stock of which Concessionaires were required to submit information as
is owned and controlled by citizens of the United States x x x. maybe required by the Secretary of Agriculture and Natural
3. The United States of America reserves the rights of the several States of Resources, including reports of geological and geophysical
the United States to limit the extent to which citizens or corporations or
associations owned or controlled by citizens of the Philippines may engage in
examinations, as well as production
the activities specified in this article. The Republic of the Philippines reserves reports. Exploration and exploitation concessionaires were
125 126 127

the power to deny and of the rights specified in this Article to citizens of the also required to submit work programs.
United States who are citizens of States, or to corporations or associations at
least 60% of whose capital stock or capital is owned or controlled by citizens of _______________
States, which deny like rights to citizens of the Philippines, or to corporations
or associations which are owned or controlled by citizens of the Philippines x x 119 Id., art. 31. The same provision recognized the rights of American citizens

x. under the Parity Amendment:

During the effectivity and subject to the provisions of the ordinance appended to the
Constitution of the Philippines, citizens of the United States and all forms of business
enterprises owned and controlled, directly or indirectly, by citizens of the United States
shall enjoy the same rights and obligations under the provisions of this Act 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.
120 Id., art. 10.
121 Id., art 3.
122 Id., art. 9.
123 Ibid.
124 Rep. Act No. 387 (1949), as amended, art. 8.
125 Id., art. 25.
126 Id., art. 47.
127 Id., art. 60.
196
196 SUPREME COURT REPORTS ANNOTATED
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Exploitation concessionaires, in particular, were obliged to
pay an annual exploitation tax, the object of which is to
128
induce the concessionaire to actually produce petroleum, and
not simply to sit on the concession without developing or
exploiting it. These concessionaires were also bound to pay
129
the Government royalty, which was not less than 12 1/2% of
the petroleum produced and saved, less that consumed in the
operations of the concessionaire. Under Article 66, R.A. No.
130
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, or the royalty due to the Government
132
within one year from the date it becomes due, constituted 133
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. Upon termination of such
135
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. The Act granted the Secretary the
137
authority to inspect any operation of the concessionaire and to
examine all the books
_______________
128 Id., art. 64. Article 49, R.A. No. 387 originally imposed an annual
exploration tax on exploration concessionaires but this provision was repealed
by Section 1, R.A. No. 4304.
129 Francisco, supra, at p. 103.
130 Rep. Act No. 387 (1949), as amended, art. 65.
131 Francisco, supra, at p.103.
132 Rep. Act No. 387 (1949), as amended, art. 90 (b) 3.
133 Id., art. 90 (b) 4.
134 Id., art. 93-A.
135 Id., art. 93.
136 Ibid.
137 Rep. Act No. 387 (1949), as amended, art. 94.
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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. The 139
Administration Unit was charged, inter alia, with the
enforcement of the provisions of the law. The Technical 140
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
_______________
138 Id., art. 106.
139 Id., art. 95.
140 Ibid.
141 Rep. Act No. 387 (1949), as amended, art. 95 (e).
142 Dimagiba, supra, at p. 315, citing Fabrikant, Oil Discovery and Technical
Change in Southeast Asia, Legal Aspects of Production Sharing
198
198 SUPREME COURT REPORTS ANNOTATED
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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 in 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 within 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.
_______________
Contracts in the Indonesian Petroleum Industry, pp. 101-102, sections
13C.24 and 13C.25 (1972).
143 Agabin, supra, at p. 4.
144 Dimagiba, supra, at p. 318.
199
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Presidential Decree No. 87, The 1973 Constitution
and the Service Contract System
The promulgation on December 31, 1972 of Presidential
Decree No. 87, otherwise known as THE OIL
145
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. A functional definition of
147
“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. The contractor must be
149
technically competent and financially capable to undertake
the operations required in the contract. 150
_______________
145 Amending Presidential Decree No. 8 issued on October 2, 1972, and
Promulgating an Amended Act to Promote the Discovery and Production of
Indigenous Petroleum and Appropriate Funds Therefor.
146 Pres. Decree No. 87 (1972), sec. 4.
147 Agabin, supra, at p. 6.
148M. Magallona, Service Contracts in Philippine Natural Resources, 9
WORLD BULL. 1, 4 (1993).
149 Pres. Decree No. 87 (1972), sec. 6.
150 Id., sec. 4.
200
200 SUPREME COURT REPORTS ANNOTATED
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Financing is supposed to be provided by the Government to
which all petroleum produced belongs. In case the 151
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. The contractor shall undertake, manage and
152
execute petroleum operations, subject to the government
overseeing the management of the operations. The contractor
153
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. Once 154
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. It also granted the contractor certain
156
privileges, including exemption from taxes and payment of
tariff duties, and permitted the repatriation of capital and
157
retention of profits abroad. 158
Ostensibly, the service contract system had certain
advantages over the concession regime. It has been opined,
159
though, that, in
_______________
151 Id., sec. 6.
152 Id., sec. 7.
153 Id., sec. 8.
154 Ibid.
155 Ibid.
156 Pres. Decree No. 87 (1972), sec. 9.
 157 Id., sec. 12.
158 Id., sec. 13.
159 Dimagiba draws the following comparison between the service contract
scheme and the concession system: In both the concession system and the
service contract scheme, work and financial obligations are required of the
developer. Under Republic Act No. 387 and Presidential Decree No. 87, the
concessionaire and the service contractors are extracted certain taxes in favor
of the government. In both arrangements, the explorationist/developer is given
incentives in the form of tax exemptions in the importation or disposition of
machinery, equipment, materials and spare parts needed in petroleum
operations.
201
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the Philippines, our concept of a service contract, at least in
the petroleum industry, was basically a concession regime
with a production-sharing element. On January 17, 1973,160
then President Ferdinand E. Marcos proclaimed the
ratification of a new Constitution. Article XIV on the
161
_______________
The concessionaire and the service contractor are required to keep in their files
valuable data and information and may be required to submit needed technological or
accounting reports to the Government. Duly authorized representatives of the
Government could, under the law, inspect or audit the books of accounts of the contract
holder.
In both systems, signature, discovery or production bonuses may be given by the
developer to the host Government. The concession system, however, differs considerably
from the service contract system in important areas of the operations. In the concession
system, the Government merely receives fixed royalty which is a certain percentage of
the crude oil produced or other units of measure, regardless of whether the concession
holder makes profits or not. This is not so in the service contract system. A certain
percentage of the gross production is set aside for recoverable expenditures by the
contractor. Of the net proceeds the parties are entitled percentages of share that will
accrue to each of them.
In the royalty system, the concessionaire may be discouraged to produce more for
the reason that since the royalty paid to the host country is closely linked to the volume
of production, the greater the produce, the more amount or royalty would be allocated
to the Government. This is not so in the production sharing system. The share of the
Government depends largely on the net proceeds of production after reimbursing the
service contractor of its recoverable expenses. As a general rule, the Government plays
a passive role in the
concession system, more particularly, interested in receiving royalties from the
concessionaire. In the production-sharing arrangement, the Government plays a more
active role in the management and monitoring of oil operations and requires the service
contractor entertain obligations designed to bring more economic and technological
benefits to the host country. (Dimagiba, supra, at pp. 330-331.)
160Agabin, supra, at p. 6.
161The antecedents leading to the Proclamation are narrated in Javellana
v. Executive Secretary, 50 SCRA 55 (1973):
On March 16, 1967, Congress of the Philippines passed Resolution No. 2, which was
amended by Resolution No. 4, of said body,adopted on June 17, 1967, calling a
convention to propose amend
202
202 SUPREME COURT REPORTS ANNOTATED
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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
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.
_______________
ments to the Constitution of the Philippines. Said Resolution No. 2, as
amended, was implemented by Republic Act No. 6132 approved on August 24,
1970, pursuant to the provisions of which the election of delegates to said
convention was held on November 10, 1970, and the 1971 Convention began to
perform its functions on June 1, 1971. While the Convention was in session on
September 21, 1972, the President issued Proclamation No. 1081 placing the
entire Philippines under Martial Law. On November 29, 1972, the President
of the Philippines issued Presidential Decree No. 73, submitting to the Filipino
people for ratification or rejection the Constitution of the Republic of the
Philippines proposed by the 1971 Constitutional Convention, and
appropriating funds therefor, as well as setting the plebiscite for such
ratification on January 15, 1973. On January 17, 1973, the President issued
Proclamation No. 1102 certifying and proclaiming that the Constitution
proposed by the 1971 Constitutional Convention “has been ratified by an
overwhelming majority of all the votes cast by the members of all the
Barangays (Citizens Assemblies) throughout the Philippines, and has thereby
come into effect.”
203
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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. The provision allowing such contracts,
162
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. As finally approved, however, a citizen or private
164
entity could be allowed by the National Assembly to enter into
such service contract. The prior approval of the National
165
Assembly was deemed sufficient to protect the national
interest. Notably, none of the laws allowing service contracts
166
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. The law allowed Filipino citizens or entities which
167
have
_______________
162 BERNAS, S.J., supra, at p. 1016, Note 28, citing Session of November 25,
1972.
163 Agabin, supra, at p. 1, quoting Sanvictores, The Economic Provisions in
the 1973 Constitution, in Espiritu, 1979 Philconsa Reader on Constitutional
and Policy Issues 449.
164 BERNAS, S.J., supra, at p. 1016, Note 28, citing Session of November 25,
1972.
165 Ibid.
166 Ibid.
167 Allowing Citizens of the Philippines or Corporations or Associations at
least Sixty Per Centum of the Capital of which is Owned by such Citizens to
Enter into Service Contracts with Foreign Persons, Corpora
204
204 SUPREME COURT REPORTS ANNOTATED
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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, also known as THE
169
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. 704 (THE FISHERIES DECREE
170
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. Presidential Decree No. 705 (THE REVISED
171 172
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
_______________
tions for the Exploration, Development, Exploitation or Utilization of
Lands of the Public Domain, Amending for the purpose certain provisions of
Commonwealth Act No. 141.
168 Pres. Decree No. 151 (1973), sec. 1.
169 Providing for A Modernized System of Administration and Disposition of
Mineral Lands and to Promote and Encourage the Development and
Exploitation thereof.
170 Revising and Consolidating All Laws and Decrees Affecting Fishing and
Fisheries.
171 Pres. Decree No. 704 (1975), sec. 21.
172 Revising Presidential Decree No. 389, otherwise known as The Forestry
Reform Code of the Philippines.
173 Pres. Decree No. 705 (1975), sec. 62.
205
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Yet another law allowing service contracts, this time for
geothermal resources, was Presidential Decree No.
1442, which was signed into law on June 11, 1978. Section 1
174
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, promulgating the Provisional Constitution, more
176
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,
_______________
174 An Act to Promote the Exploration and Development of Geothermal
Resources.
175 Magallona, supra, at p. 6.
176 Declaring a National Policy to Implement the Reforms Mandated by the
People, Protecting their Basic Rights, Adopting a Provisional Constitution, and
Providing for an Orderly Transition to a Government under a New
Constitution.
177 CONST., art. XVIII, sec. 27; De Leon v. Esguerra, 153 SCRA 602 (1987).
206
206 SUPREME COURT REPORTS ANNOTATED
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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. Under this provision, the State assumes “a more
178
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.” One, the State may directly undertake these
182
activities itself; or two, it
_______________
178 Miners Association of the Philippines, Inc. v. Factoran, Jr., 240 SCRA
100(1995).
179 Ibid.
180 Ibid.
J. Bernas, S.J., The Intent of the 1986 Constitution Writers 812 (1995).
181
Miners Association of the Philippines, Inc. v. Factoran, Jr., supra.
182
207
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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
_______________
III Records of the Constitutional Commission 255.
183
208
208 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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, President Aquino, on July 10, 1987, signed into
185
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 natural 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.]
_______________
Id., at pp. 355-356.
184
Const. (1986), art. II, sec. 1.
185
209
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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:
1. (1)The State may directly undertake such activities.
2. (2)The State may enter into co-production, joint venture
or production-sharing agreements with Filipino
citizens or qualified corporations.
3. (3)Congress may, by law, allow small-scale utilization
of natural resources by Filipino citizens.
4. (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, and a 187
passing mention of government-owned or controlled
corporations, R.A.188
_______________
186 Cruz v. Secretary of Environment and Natural Resources, supra,
Puno, J., Separate Opinion.
187 Rep. Act No. 7942 (1995), sec. 9.
188 SEC. 82. Allocation of Government Share.—The Government share as
referred to in the preceding sections shall be shared and allocated in
accordance with Sections 290 and 292 of Republic Act No. 7160 other
210
210 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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. 7076 (the People’s Small-Scale Mining Act
189
of 1991) and other pertinent laws. R.A. No. 7942 primarily
190
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.” The Government participates the
191
least in a mineral production sharing agreement (MPSA). In
an MPSA, the Government grants the contractor the 192
exclusive right to conduct mining operations within a contract
area and shares in the gross output. The MPSA contractor
193 194
provides the financing, technology, management and
personnel necessary for the agreement’s
implementation. The total government share in an MPSA is
195
the excise tax on mineral products under Republic Act No.
7729, amending Section 151 (a) of the National Internal
196
Revenue Code, as amended. 197
_______________
wise known as the Local Government Code of 1991. In case the
development and utilization of mineral resources is undertaken by a
government-owned or controlled corporation, the sharing and allocation shall
be in accordance with Sections 291 and 292 of the said Code.
189 An Act Creating A People’s Small-Scale Mining Program and for other
purposes.
190 Rep. Act No. 7942 (1995), sec. 42.
191 Id., secs. 3 (ab) and 26.
192 “Contractor” means a qualified person acting alone or in consortium who
is a party to a mineral agreement or to a financial or technical assistance
agreement. (Id., sec. 3[g].)
193 “Contract area” means land or body of water delineated for purposes of
exploration, development, or utilization of the minerals found therein. (Id., sec.
3[f].)
194 “Gross output” means the actual market value of minerals or mineral
products from its mining area as defined in the National Internal Revenue
Code (Id., sec. 3[v]).
195 Id., sec. 26 (a).
196 An Act Reducing 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.
197 Rep. Act No. 7942 (1995), sec. (80).
211
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In a co-production agreement (CA), the Government provides
198
inputs to the mining operations other than the mineral
resource, while in a joint venture agreement (JVA), where the
199
Government’s enjoys the greatest participation, the
Government and the JVA contractor organize a company with
both parties having equity shares. Aside from earnings in
200
equity, the Government in a JVA is also entitled to a share in
the gross output. The Government may enter into a CA or
201
JVA with one or more contractors. The Government’s share
203
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 to 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. A “qualified 204
person” may enter into any of the mineral agreements with
the Government. A “qualified person” is
205
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 accor-
_______________
198 Id., Sec. 26 (b).
199 “Mineral resource” means any concentration of minerals/rocks with potential
economic value. (Id., sec. 3[ad].)
200 Id., sec. 26 (c).
201 Ibid.
202 Id., sec. 3 (h).
203 Id., sec. 3 (x).
204 Id., sec. 26, last par.
205 Id., sec. 27.
212
212 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
202
dance 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.” Any 207
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. For the purpose of granting an FTAA, a legally
208
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) is deemed a “qualified person.”
209 210
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. “Large-scale” under R.A. No. 7942 is
211
determined by the
_______________
206 Id., sec. 3 (aq).
207 Id., sec. 3 (r).
208 Id., sec. 33.
209 Id., sec. 3 (t).
210 Id., sec. 3 (aq). Id., sec. 3 (aq).
211 The maximum areas in cases of mineral agreements are prescribed in
Section 28 as follows:
SEC. 28. Maximum Areas for Mineral Agreement.—The maximum area that a qualified
person may hold at any time under a mineral agreement shall be:
(a) Onshore, in any one province—
 1. (1)For individuals, ten (10) blocks; and
2. (2)For partnerships, cooperatives, associations, or corporations, one hundred
(100) blocks.
(b) Onshore, in the entire Philippines—
1. (1)For individuals, twenty (20) blocks; and
2. (2)For partnerships, cooperatives, associations, or corporations, two hundred
(200) blocks.
(c) Offshore, in the entire Philippines—
1. (1)For individuals, fifty (50) blocks;
213
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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. 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
assistance agreement shall commence after the
technical assistance agreement contractor has fully
pre-operating expenses, exploration, and
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.
_______________
1. (2)For partnerships, cooperatives, associations, or corporations five
hundred (500) blocks; and
2. (3)For the exclusive economic area, a larger area to be determined by
the Secretary.
The maximum areas mentioned above that a contractor may hold under a
mineral agreement shall not include mining/quarry areas under operating
agreements between the contractor and a
claimowner/lessee/permittee/licensee entered into under Presidential Decree
No. 463.
On the other hand, Section 34, which governs the maximum area for FTAAs
provides:
SEC. 34. Maximum Contract Area.—The maximum contract area that may
be granted per qualified person, subject to relinquishment shall be:
(a) 1,000 meridional blocks onshore;
(b) 4,000 meridional blocks offshore; or
(c) Combinations of (a) and (b) provided that it shall not exceed the
maximum limits for onshore and offshore areas.
212 Id., sec. 33.
213 Id., sec. 81.
214
214 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
The Effectivity of Executive Order No. 279
212
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
or technical July 27, 1987. Section 8 of the E.O. states that the same
214
financial or “shall take effect immediately.” This provision, according to
recovered its petitioners, runs counter to Section 1 of E.O. No. 200, which 215
development 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. [Emphasis supplied.]
216
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.
_______________
214 Kapatiran v. Tan, 163 SCRA 371 (1988).
215 Providing for the Publication of Laws either in the Official Gazette or in
a Newspaper of General Circulation in the Philippines as a Requirement for
their Effectivity.
216 Section 1, E.O. No. 200 was subsequently incorporated in the
Administrative Code of 1987 (Executive Order No. 292 as Section 18, Chapter
5 (Operation and Effect of Laws), Book 1 (Sovereignty and General
Administration).
215
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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, is
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. Hence, the 218
due process clause, which, so Tañada held, mandates the
219
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 Gazette on August 3, 1987.
220
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. Article XVIII (Transitory Provisions) of the
221
1987 Constitution explicitly states:
SEC. 6. The incumbent President shall continue to exercise
legislative powers until the first Congress is convened.
_______________
217 136 SCRA 27 (1985).
218 Manila Prince Hotel v. Government Service Insurance System, 267 SCRA
408(1997).
219 CONST., art. 3, sec. 1.
220 83 O.G. (Suppl.) 3528-115 to 3528-117 (August 1987).
221 Miners Association of the Philippines, Inc. v. Factoran, Jr., supra.
216
217
216 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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
_______________
222 Petitioners note in their Memorandum that the FTAA: x x x guarantees
that wholly foreign owned [WMCP] entered into the FTAA in order to facilitate
“the large scale exploration, development and commercial exploitation of
mineral deposits that may be found to exist within the Contract area.” [Section
1.1] As a contractor it also has the “exclusive right to explore, exploit, utilize,
process and dispose of all mineral products and by-products thereof that may
be derived or produced from the Contract Area.” [Section 1.3] Thus, it is divided
into an “exploration and feasibility phase” [Section 3.2 (a)] and a “construction,
development and production phase.” [Section 3. 2 (b).]
Thus, it is this wholly foreign owned corporation that, among other things:
1. (a)operates within a prescribed contract area [Section 4],
2. (b)opts to apply for a Mining Production Sharing Agreement [Section
4.2],
3. (c)relinquishes control over portions thereof at their own choice
[Section 4.6],
4. (d)submits work programs, incurs expenditures, and makes reports
during the exploration period [Section 5],
5. (e)submits a Declaration of Mining Feasibility [Sections 5.4 and 5.5],
6. (f)during the development period, determines the timetable, submits
work programs, provides the reports and
217
VOL. 421, JANUARY 27, 2004 217
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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. This intention is to be sought in the
223
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. What the Constitution says according to the
224
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. Accordingly, following the literal text of the
225
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.” It thus posits that it may also
226
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
_______________
1. determines and executes expansions, modifications, improvements
and replacements of new mining facilities within the area [Section
6],
2. (g)complies with the conditions for environmental protection and
industrial safety, posts the necessary bonds and makes
representations and warranties to the government [Section 10.5].
The contract subsists for an initial term of twenty-five (25) years from the date of its
effectivity [Section 3.1] and renewable for a further period of twenty-five years under
the same terms and conditions upon application by private respondent [Section 3.3].
(Rollo, pp. 458-459.)
223 H. C. Black, Handbook on the Construction and Interpretation of the
Laws § 8.
224 Ibid.
225 J.M. Tuason & Co., Inc. v. Land Tenure Association, 31 SCRA 413 (1970).
226 Rollo, p. 580.
227 Ibid. Emphasis supplied.
218
218 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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. As will be shown later, the management or
228
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.’” 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. [Emphasis 230
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:
_______________
228 People v. Manantan, 115 Phil. 657; 5 SCRA 684 (1962); Commission on
Audit of the Province of Cebu v. Province of Cebu, 371 SCRA 196 (2001).
229 Rollo, p. 569.
230 III Record of the Constitutional Commission pp. 351-352.
219
VOL. 421, JANUARY 27, 2004 219
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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. [Emphasis supplied.]
231
x x x.
MR. GARCIA. Thank you.
I vote no. x x x.
Service contracts are given constitutional Iegitimization in
Section 3, even when they have been proven to be inimical to the
229
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’ natural resources, especially
with regard to those which are nonrenewable. [Emphasis 232
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 or 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. [Emphasis supplied.]
233
 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
_______________
231 V Record of the Constitutional Commission 844.
232 Id., at p. 841.
233 Id., at p. 842.
220
220 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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. [Emphasis supplied.]
234
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. If, as respondents suggest, the
235
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.
_______________
Id., at p. 844.
234
Vide Cherey v. Long Beach, 282 NY 382, 26 NE 2d 945, 127 ALR 1210
235
(1940), cited in 16 Am Jur 2d Constitutional Law §79.
221
VOL. 421, JANUARY 27, 2004 221
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
[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 co-production 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 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. [Emphasis supplied.]
237
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?
_______________
Civil Liberties Union v. Executive Secretary, 194 SCRA 317, 325 (1991).
236
III Record of the Constitutional Commission 278.
237
222
222 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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 suggest
that:
The exploration, development, and utilization of natural
resources . . . may be directly undertaken by the State, or it may
enter into coproduction, joint venture, production-sharing
agreements with . . . corporations or associations at least sixty
percent 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. [Emphasis
238
supplied.]
_______________
 Id., at pp. 316-317.
238
223
VOL. 421, JANUARY 27, 2004 223
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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. [Emphasis supplied.]
239
The opinion of another member of the CONCOM is
persuasive and leaves no doubt as to the intention of the
240
framers to eliminate service contracts altogether. He writes:
_______________
III Record of the Constitutional Commission 358-359.
239
Vera v. Avelino, 77 Phil. 192 (1946).
240
224
224 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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.
Are service contracts allowed under the new Constitution? No.
Under the new Constitution, foreign investors (fully alien-owned)
can NOT participate in Filipino enterprises except to provide: (1)
Technical Assistance for highly technical enterprises; and (2)
Financial Assistance for large-scale enterprises.
The intent of this provision, as well as other provisions on foreign
investments, is to prevent the practice (prevalent in the Marcos
government) of skirting the 60/40 equation using the cover of service
contracts. [Emphasis supplied.]
241
Furthermore, it appears that Proposed Resolution No.
496, which was the draft Article on National Economy and
242
Patrimony, adopted the concept of “agreements . . . involving
either technical or financial assistance” contained in the
“Draft of the 1986 U.P. Law Constitution Project” (U.P. Law
draft) which was taken into consideration during the
deliberation of the CONCOM. The for-243
_______________
 241 J. Nolledo, The New Constitution of the Philippines Annotated 924-926 DRAFT OF THE PROPOSED ARTICLE XII OF
(1990).
242 Resolution to Incorporate in the New Constitution an Article on National
UP LAW RESOLUTION NO. THE 1987
Economy and Patrimony. CONSTITUTION 496 OF THE CONSTITUTION
243 The Chair of the Committee on National Economy and Patrimony,
PROJECT CONSTITUTIONAL
alluded to it in the discussion on the capitalization requirement:
MR. VILLEGAS. We just had a long discussion with the members of the team from the
COMMISSION
UP Law Center who provided us a draft. The phrase that is contained here which we agricultural lands, alienated. The exception of
adopted from the UP draft is “60 percent of voting stock.” (III Record of the all other natural exploration, agricultural lands,
Constitutional Commission 255.)
Likewise, in explaining the reasons for the deletion of the term resources shall not development, and all other natural
“exploitation”: be alienated. The utilization of natural resources shall not
MR. VILLEGAS. Madam President, following the recommendation in the UP draft, we
omitted “exploitation” first of all because it is believed to be subsumed under
exploration, resources shall be be alienated. The
“development” and secondly because it has a derogatory connotation. (Id., at p. 358.) development and under the full control exploration,
225 utilization of and supervision of the development, and
VOL. 421, JANUARY 27, 2004 225 natural resources State. Such activities utilization of
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos shall be under the may be directly natural resources
mer, as well as Article XII, as adopted, employed the same full control and undertaken by the shall be under the
terminology, as the comparative table below shows: supervision of the State, or it may enter full control and
DRAFT OF THE PROPOSED ARTICLE XII OF State. Such into co-production, supervision of the
UP LAW RESOLUTION NO. THE 1987 activities may be joint venture, State. The State
CONSTITUTION 496 OF THE CONSTITUTION directly production-sharing may directly
PROJECT CONSTITUTIONAL undertaken by the agreements with undertake such
COMMISSION state, or it may Filipino citizens or activities or it may
Sec. 1. All Sec. 3. All lands of Sec. 2. All enter into co- corporations or enter into co-
lands of the public the public domain, lands of the public production, joint associations at least production, joint
domain, waters, waters, minerals, domain, waters, venture, sixty percent of venture, or
minerals, coal, coal, petroleum and minerals, coal, production sharing whose voting stock or production-
petroleum and other mineral oils, all petroleum, and agreements with controlling interest is sharing
other mineral oils, forces of potential other mineral oils, Filipino citizens or owned by such citi- agreements with
all forces of energy, all forces of corporations or Filipino citizens,
potential energy, fisheries,forests, flora potential energy, associations sixty or corporations or
fisheries, flora and and fauna, and other fisheries, forests percent of whose associations at
fauna and other natural resources are or timber, wildlife, voting stock or least sixty per
natural resources owned by the State. flora and fauna, controlling interest centum of whose
of the Philippines With the exception of and other natural is owned by such capital is owned
are owned by the agricultural lands, all resources are citizens for a by such citizens.
State. With the other natural owned by the period of not more Such agreements
exception of resources shall not be State. With the than twenty-five
DRAFT OF THE PROPOSED ARTICLE XII OF exclusively to Filipino
UP LAW RESOLUTION NO. THE 1987 citizens.
CONSTITUTION 496 OF THE CONSTITUTION The National The Congress The Congress may,
PROJECT CONSTITUTIONAL Assembly may by may by law allow by law, allow small-
COMMISSION law allow small- small-scale scale utilization of
years, renewable may be for a scale utilization utilization of natural resources by
for not more than period not ex- of natural natural resources Filipino citizens, as
twenty-five years resources by by Filipino well as cooperative
226 Filipino citizens. citizens, as well as fish farming, with
226 SUPREME COURT REPORTS cooperative fish priority to subsistence
ANNOTATED farming in rivers, fishermen and fish-
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos lakes, bays, and workers in rivers,
and under such zens. Such ceeding twenty-five lagoons. lakes, bays, and
terms and agreements shall years, renewable for lagoons.
conditions as may be for a period of not more than twenty- The National The President The President may
be provided by twenty-five years, five years, and under Assembly, may with the enter into agreements
law. In case as to renewable for not such terms and by two-thirds concurrence of with foreign owned
water rights for more than twenty- conditions as may be vote of all its Congress, by corporations
irrigation, water five years, and provided by law. In members by special law, shall involving either
supply, fisheries, under such terms case of water rights special law provide the terms technical or financial
or industrial uses and conditions as for irrigation, water, provide the terms and conditions assistance for large-
other than the may be provided supply, fisheries, or and conditions under which a scale explo
development of by law. In cases of industrial uses other under which a foreign-
water power, water rights for than the development foreign-owned
beneficial use irrigation, water of water power, corpo
may be the supply, fisheries or beneficial use may be 227
measure and limit industrial uses the measure and limit VOL. 421, JANUARY 27, 2004 227
of the grant. other than the of the grant. The State La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
development for shall protect the ration may enter owned corporation ration,
water power, nation’s marine into agreements may enter into development, and
beneficial use may wealth in its with the agreements with the utilization of
be the measure and archipelagic waters, government government minerals,
limit of the grant. territorial sea, and involving either involving either petroleum, and
exclusive economic technical or technical or other mineral oils
zone, and reserve its financial financial according to the
use and enjoyment assistance for assistance for large- general terms and
large-scale scale exploration, conditions be alienated, the service contract system renders nugatory the
exploration, development, and provided by law, constitutional provisions cited.” He elaborates:
244

development, or utilization of based on real Looking at the Philippine model, we can discern the following ves-
utilizat ion of natural resources. contributions to the tiges of the concession regime, thus:
natural resources. [Emphasis economic growth _______________
[Emphasis supplied.] and general welfare
supplied.] of the country. In 244 Id., at p. 12.
228
such agreements,
228 SUPREME COURT REPORTS ANNOTATED
the State shall
promote the La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
1. Bidding of a selected area, or leasing the choice of the area to
development and
the interested party and then negotiating the terms and conditions
use of local of the contract; (Sec. 5, P.D. 87)
scientific and 2. Management of the enterprise vested on the contractor,
technical resources. including operation of the field if petroleum is discovered; (Sec. 8,
[Emphasis P.D. 87)
supplied.] The 3. Control of production and other matters such as expansion and
President shall development; (Sec. 8)
notify the Congress 4. Responsibility for downstream operations—marketing,
distribution, and processing may be with the contractor (Sec. 8);
of every contract 5. Ownership of equipment, machinery, fixed assets, and other
entered into in properties remain with contractor (Sec. 12, P.D. 87);
accordance with 6. Repatriation of capital and retention of profits abroad
this provision, guaranteed to the contractor (Sec. 13, P.D. 87); and
within thirty days 7. While title to the petroleum discovered may nominally be in the
from its execution. name of the government, the contractor has almost unfettered control
The insights of the proponents of the U.P. Law draft are, over its disposition and sale, and even the domestic requirements of
therefore, instructive in interpreting the phrase “technical or 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
financial assistance.”
old concession regime x x x. Some people have pulled an old rabbit
In his position paper entitled Service Contracts: Old Wine out of a magician’s hat, and foisted it upon us as a new and different
in New Bottles?, Professor Pacifico A. Agabin, who was a animal.
member of the working group that prepared the U.P. Law The service contract as we know it here is antithetical to the
draft, criticized service contracts for they “lodge exclusive principle of sovereignty over our natural resources restated in the
management and control of the enterprise to the service same article of the [1973] Constitution containing the provision for
contractor, which is reminiscent of the old concession regime. service contracts. If the service contractor happens to be a foreign
Thus, notwithstanding the provision of the Constitution that corporation, the contract would also run counter to the constitutional
natural resources belong to the State, and that these shall not provision on nationalization or Filipinization, of the exploitation of
our natural resources. [Emphasis supplied. Italics in the original.]
245
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
_______________
245 Id., at pp. 15-16.
229
VOL. 421, JANUARY 27, 2004 229
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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 or 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. [Emphasis
246
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. [Emphasis supplied.]
247
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
_______________
246 M. Magallona, Nationalism and Its Subversion in the Constitution 5, in II
DRAFT PROPOSAL OF THE 1986 U.P. Law Constitution Project.
247 Agabin, supra, at p. 16.
230
230 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
get around the nationality requirement of the
constitution. [Emphasis supplied.]
248
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. [Emphasis supplied.]
249
The U.P. Law draft proponents viewed service contracts under
the 1973 Constitution as grants of beneficial ownership of the
_______________
248 E. Labitag, Philippine Natural Resources: Some Problems and
Perspectives 17 in II DRAFT PROPOSAL of the 1986 U.P. Law Constitution
Project.
249 I Draft Proposal of the 1986 U.P. Law Constitution Project 11-13.
231
VOL. 421, JANUARY 27, 2004 231
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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, necessity, 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
232
232 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
by itself; second, by virtue of co-production, joint venture,
production sharing agreements with Filipino citizens or
corporations or associations sixty percent (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.”
_______________
250 Id., at pp. 9-11. Professor Labitag also suggests that: x x x. The concession
regime of natural resources disposition should be discontinued. Instead the
State shall enter into such arrangements and agreements like co-production,
joint ventures, etc. as shall bring about effective control and a larger share in
the proceeds, harvest or production. (Labitag, supra, at p. 17.)
233
VOL. 421, JANUARY 27, 2004 233
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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. The commissioners may have
251
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. However, such remark is far outweighed by his more
252
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. Commissioner Gascon was not
254
totally averse to foreign participation, but favored stricter
restrictions in the form of majority congressional
concurrence. On the other hand, Commis-
255
_______________
251 Vide Note 147.
252 Vide Note 230. The question was posed before the Jamir amendment and
subsequent proposals introducing other limitations. Comm. Villegas’ response
that there was no requirement in the 1973 Constitution for a law to govern
service contracts and that, in fact, there were then no such laws is inaccurate.
The 1973 Charter required similar legislative approval, although it did not
specify the form it should take: “The Batasang Pambansa, in the national
interest, may allow such citizens . . . to enter into service contracts . . . .” As
previously noted, however, laws authorizing service contracts were actually
enacted by presidential decree.
253 Vide Note 238.
254 Vide Note 241.
255 Vide Note 231.
234
234 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
sioners 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, and Opinion No. 175,
256
s. 1990 of the Secretary of Justice, expressing the view that
257
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 preexisting 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.” Commissioner Nolledo also remarked that
259
“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.” Indeed, exceptions
260
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.
_______________
Dated July 28, 1987.
256
257 Dated October 3, 1990.
258 Peralta v. Civil Service Commission, 212 SCRA 425 (1992).
259 Vide Note 238.
260 III Record of the Constitutional Commission 354.
261 Salaysay v. Castro, 98 Phil. 364 (1956).
235
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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, trenching, 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.
A legally organized foreign-owned corporation may be granted
an exploration permit, which vests it with the right to
263
conduct exploration for all minerals in specified areas, i.e., to 264
enter, occupy and explore the same. Eventually, the foreign-
265
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 hiring, including the construction of necessary
infrastructure and related facilities. 267
“Utilization” “means the extraction or disposition of
minerals.” A stipulation that the proponent shall dispose of
268
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
_______________
262Rep. Act No. 7942 (1995), sec. 3 (q).
263 Id., sec. 3 (aq).
264 Id., sec. 20.
265 Id., sec. 23, first par.
266 Id., sec. 23, last par.
267 Id., sec. 3 (j).
268 Id., sec. 3 (az).
269 Id., sec. 35 (m).
236
236 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
A foreign-owned/controlled corporation may likewise be
granted a mineral processing permit. “Mineral processing” is
270
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 its4 implementing rules and 272
262
for work programs and minimum expenditures and
commitments. And it obliges itself to furnish the Government
273
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). Parenthetically,
276
_______________
270 Id., secs. 3 (aq) and 56.
271 Id., sec. 3 (y).
272 Id., sec. 35 (g).
273 Id., sec. 35 (h).
274 Id., sec. 35 (1).
275 Id., sec. 3 (af).
276 SEC. 72. Timber Rights.—Any provision of the law to the contrary
notwithstanding, a contractor may be granted a right to cut trees or timber
within his mining areas as may be necessary for his mining operations subject
to forestry laws, rules and regulations: Provided, That if the land covered by
the mining area is already covered by exiting timber concessions, the volume
of timber needed and the manner of cutting and removal thereof shall be
determined by the mines regional director, upon consultation with
the contractor, the timber concessionaire/permittee and the Forest
Management Bureau of the Department: Provided, further, That in case of
disagreement between the contractor and the timber concessionaire, the
matter shall be submitted to the Secretary whose decision shall be final.
The contractor shall perform reforestation work within his mining area in
accordance with forestry laws, rules and regulations. [Emphasis supplied.]
SEC. 73. Water Rights.—A contractor shall have water rights for
mining operations upon approval of application with the appropriate gov
237
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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
_______________
ernment agency in accordance with existing water laws, rules and
regulations promulgated thereunder: Provided, That water rights already
granted or vested through long use, recognized and acknowledged by local
customs, laws and decisions of courts shall not thereby be impaired: Provided,
further, That the Government reserves the right to regulate water rights and
the reasonable and equitable distribution of water supply so as to prevent the
monopoly of the use thereof. [Emphasis supplied.]
SEC. 74. Right to Possess Explosives.—A contractor/exploration
permittee shall have the right to possess and use explosives within his
contract/permit area as may be necessary for his mining operations upon
approval of an application with the appropriate government agency in
accordance with existing laws, rules and regulations promulgated
thereunder: Provided, That the Government reserves the right to regulate and
control the explosive accessories to ensure safe mining operations. [Emphasis
supplied.]
SEC. 75. 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,
tailings 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. [Emphasis supplied.]
SEC. 76. 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: Provided, That
any damage done 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: Provided, further, That to guarantee such compensation, the
person authorized to conduct mining operation shall, prior thereto, post a bond
with the regional director based on the type of properties, the prevailing prices
in and around the area where the mining operations are to be conducted, with
surety or sureties satisfactory to the regional director. [Emphasis supplied.]
238
238 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
viability of the contract area is found to be inadequate to
justify large-scale mining operations, provided that it
277
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 . . . .” This suggests that an FTAA
279
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. (1)The proviso in Section 3 (aq), which defines “qualified SEC. 35. Terms and Conditions.—The following terms, conditions, and
281

warranties shall be incorporated in the financial or technical assistance

person,” to wit:
agreement, to wit:

Provided, That a legally organized foreign-owned corporation shall 1. (a)A firm commitment in the form of sworn statement, of an amount
be deemed a qualified person for purposes of granting an exploration corresponding to the expenditure obligation that will be invested in
permit, financial or technical assistance agreement or mineral the contract area: Provided, That such amount shall be subject to
processing permit. changes as may be provided for in the rules and regulations of this
act;
2. (b)A financial guarantee bond shall be posted in favor of the
1. (2)Section 23, which specifies the rights and
280
Government in an amount equivalent to the expenditure obligation
obligations of an exploration permittee, insofar as said of the applicant for any year;
section applies to a financial or technical assistance 3. (c)Submission of proof of technical competence, such as, but not limited
agreement; to, its track record in mineral resource exploration, development, and
utilization; details of technology to be employed in the proposed
operation; and details of technical personnel to undertake the
_______________ operation;
4. (d)Representations and warranties that the applicant has all the
277 Id., sec. 39, first par. qualifications and none of the disqualifications for entering into the
278 Id., sec. 39, second par. agreement;
279 Id., sec. 35 (e).
5. (e)Representations and warranties that the contractor has or has
280 SEC. 23. Rights and Obligations of the Permittee.—x x x. The permittee
access to all the financing managerial and technical expertise and, if
may apply for a mineral production sharing agreement, joint venture circumstances demand, the technology required to promptly and
agreement, co-production agreement or financial or technical assistance effectively carry out the objectives of the agreement with the
agreement over the permit area, which application shall be granted if the understanding to timely deploy these resources under its supervision
permittee meets the neces pursuant to the periodic work programs and related budgets, when
239 proper, providing an exploration period up to two (2) years,
VOL. 421, JANUARY 27, 2004 239 extendible for another two (2) years but subject to annual review by
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos the Secretary in accordance with the implementing rules and
regulations of this Act, and further, subject to the relinquishment
obligations;
1. (3)Section 33, which prescribes the eligibility of a 6. (f)Representations and warranties that, except for payments for
contractor in a financial or technical assistance dispositions for its equity, foreign investments in local enterprises
which are qualified for repatriation, and local supplier’s credits and
agreement;
such other generally accepted and permissible financial schemes for
2. (4)Section 35, 281 which enumerates the terms and raising funds for valid business purposes, the contractor
conditions for every financial or technical assistance
agreement; 240
240 SUPREME COURT REPORTS ANNOTATED
_______________ La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
sary qualifications and the terms and conditions of any such (5) Section 39, which allows the contractor in a financial and
282

agreement: ProvidedThat the exploration period covered by the exploration technical assistance agreement to convert the same into a
period of the mineral agreement or financial or technical assistance agreement. mineral production-sharing agreement;

_______________
 1. shall not raise any form of financing from domestic sources of funds,
whether in Philippine or foreign currency, for conducting its mining
operations for and in the contract area;
2. (g)The mining operations shall be conducted in accordance with the
provisions of this Act and its implementing rules and regulations;
3. (h)Work programs and minimum expenditures commitments;
4. (i)Preferential use of local goods and services to the maximum extent
practicable;
5. (j)A stipulation that the contractors are obligated to give preference to
Filipinos in all types of mining employment for which they are
qualified and that technology shall be transferred to the same;
6. (k)Requiring the proponent to effectively use appropriate anti-
pollution technology and facilities to protect the environment and to
restore or rehabilitate mined out areas and other areas affected by
mine tailings and other forms of pollution or destruction;
7. (l)The contractors shall furnish the Government records of geologic,
accounting, and other relevant data for its mining operation, and that
book of accounts and records shall be open for inspection by the
government;
8. (m)Requiring the proponent to dispose of the minerals and byproducts
produced under a financial or technical assistance agreement at the
highest price and more advantageous terms and conditions as
provided for under the rules and regulations of this Act;
9. (n)Provide for consultation and arbitration with respect to the
interpretation and implementation of the terms and conditions of the
agreements; and
10. (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.
282SEC. 39. Option to Convert into Mineral Agreement.—The contractor has
the option to convert the financial or technical assistance agreement to a
mineral agreement at any time during the term of the agreement, if the
economic viability of the contract area is found to be inadequate to justify large-
scale mining operations, after proper notice to the Secretary as provided for
under the implementing rules and regula-
241
VOL. 421, JANUARY 27, 2004 241
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
(6) Section 56, which authorizes the issuance of a mineral
283
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), which defines the term “contractor,”
284
insofar as it applies to a financial or technical assistance
agreement.
Section 34, which prescribes the maximum contract area
285
in a financial or technical assistance agreements;
Section 36, which allows negotiations for financial or
286
technical assistance agreements;
_______________
tions; Provided, That the mineral agreement shall only be for the
remaining period of the original agreement.
In the case of a foreign contractor, it shall reduce its equity to forty percent
(40%) in the corporation, partnership, association, or cooperative. Upon
compliance with this requirement by the contractor, the Secretary shall
approve the conversion and execute the mineral production-sharing
agreement.
283 SEC. 56. Eligibility of Foreign-owned/-controlled Corporation.—A foreign
owned/-controlled corporation may be granted a mineral processing permit.
284 SEC. 3. Definition of Terms.—As used in and for purposes of this Act, the
following terms, whether in singular or plural, shall mean:
xxx
(g) “Contractor” means a qualified person acting alone or in consortium who is a
party to a mineral agreement or to a financial or technical assistance agreement.
SEC. 34. Maximum Contract Area.—The maximum contract area that
285
may be granted per qualified person, subject to relinquishment shall be:
(a) 1,000 meridional blocks onshore;
(b) 4,000 meridional blocks offshore; or
(c) Combinations of (a) and (b) provided that it shall not exceed the maximum limits
for onshore and offshore areas.
SEC. 36. Negotiations.—A financial or technical assistance agreement
286
shall be negotiated by the Department and executed and approved by the
President. The President shall notify Congress of all financial or technical
assistance agreements within thirty (30) days from execution and approval
thereof.
242
242 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Section 37, which prescribes the procedure for filing and
287
evaluation of financial or technical assistance agreement
proposals;
Section 38, which limits the term of financial or technical
288
assistance agreements;
Section 40, which allows the assignment or transfer of
289
financial or technical assistance agreements;
Section 41, which allows the withdrawal of the contractor
290
in an FTAA;
The second and third paragraphs of Section 81, which 291
provide for the Government’s share in a financial and
technical assistance agreement; and
_______________
287 SEC. 37. Filing and Evaluation of Financial or Technical Assistance
Agreement Proposals.—All financial or technical assistance agreement
proposals shall be filed with the Bureau after payment of the required
processing fees. If the proposal is found to be sufficient and meritorious in form
and substance after evaluation, it shall be recorded with the appropriate
government agency to give the proponent the prior right to the area covered by
such proposal: Provided, That existing mineral agreements, financial or
technical assistance agreements and other mining rights are not impaired or
prejudiced thereby. The Secretary shall recommend its approval to the
President.
288 SEC. 38. Term of Financial or Technical Assistance Agreement.—A
financial or technical assistance agreement shall have a term not exceeding
twenty-five (25) years to start from the execution thereof, renewable for not
more than twenty-five (25) years under such terms and conditions as may be
provided by law.
289 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.
290 SEC. 41. Withdrawal from Financial or Technical Assistance
Agreement.—The contractor shall manifest in writing to the Secretary his
intention to withdraw from the agreement, if in his judgment the mining
project is no longer economically feasible, even after he has exerted reasonable
diligence to remedy the cause or the situation. The Secretary may accept the
withdrawal: Provided, That the contractor has complied or satisfied all his
financial, fiscal or legal obligations.
291 SEC. 81. Government Share in Other Mineral Agreements.—
x x x.
243
VOL. 421, JANUARY 27, 2004 243
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Section 90, which provides for incentives to contractors in
292
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.” The FTAA also imbues
294
WMCP with the following rights:
_______________
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.
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.
292 SEC. 90. Incentives.—The contractors in mineral agreements, and
financial or technical assistance agreements shall be entitled to the applicable
fiscal and non-fiscal incentives as provided for under Executive Order No. 226,
otherwise known as the Omnibus Investments Code of 1987: Provided, That
holders of exploration permits may register with the Board of Investments and
be entitled to the Fiscal incentives granted under the said Code for the
duration of the permits or extensions thereof: Provided, further, That mining
activities shall always be included in the investment priorities plan.
293 Lidasan v. Commission on Elections, 21 SCRA 496 (1967).
 Vide also WMCP FTAA, sec. 10.2 (a).
294
244
244 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
1. (b)to extract and carry away any Mineral samples from
the Contract area for the purpose of conducting tests
and studies in respect thereof;
2. (c)to determine the mining and treatment processes to
be utilized during the Development/Operating Period
and the project facilities to be constructed during the
Development and Construction Period;
3. (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 lands by surface
owners and/or occupants thereof when prospecting,
exploring and exploiting for minerals therein;
xxx
1. (f)to construct roadways, mining, drainage, power
generation and transmission facilities and all other
types of works on the Contract Area;
2. (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;
3. (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
1. (l)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,
_______________
WMCP, sec. 10.2.
295
Id., sec. 11.
296
245
VOL. 421, JANUARY 27, 2004 245
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
technology and financing in connection therewith,” and to 297
“furnish all materials, labour, equipment and other
installations that may be required for carrying on all Mining
Operations.” WMCP may make expansions, improvements
298
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.
_______________
297 Id., sec. 10.1 (a).
298 Id., sec. 10.1 (c).
299 Id., sec. 6.4.
246
246 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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. [Emphasis and italics by private respondents.]
300
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. The equal protection clause guarantees that
301 302
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.
_______________
300 Rollo, pp. 563-564.
301 Civil Code, Art. 8.
302 Const., Art III, Sec. 1.
 247 _______________
VOL. 421, JANUARY 27, 2004 247
303 Vide Note 223.
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos 304 Rollo, p. 243.
Petitioners’ contention does not lie. To adhere to the literal 305 Civil Liberties Union v. Executive Secretary, supra.

language of the Constitution would lead to absurd 306 Automotive Parts & Equipment Company, Inc. v. Lingad, 30 SCRA

248 (1969).
consequences. As WMCP correctly put it:
303
307 Ibid.

x x x such a theory of petitioners would compel the government 248

(through the President) to enter into contract with two (2) foreign- 248 SUPREME COURT REPORTS ANNOTATED
owned corporations, one for financial assistance agreement and
with the other, for technical assistance over one and the same
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
mining area or land; or to execute two (2) contracts with only one
foreign-owned corporation which has the capability to provide both 1. (f)Section 90.
financial and technical assistance, one for financial assistance and
another for technical assistance, over the same mining area. Such (2) All provisions of Department of Environment and Natural
an absurd result is definitely not sanctioned under the canons of Resources Administrative Order 96-40, s. 1996 which are not
constitutional construction. [Italics in the original.]
304
in conformity with this Decision, and
Surely, the framers of the 1987 Charter did not contemplate (3) The, Financial and Technical Assistance Agreement
such an absurd result from their use of “either/or.” A between the Government of the Republic of the Philippines
constitution is not to be interpreted as demanding the and WMC Philippines, Inc.
impossible or the impracticable; and unreasonable or absurd SO ORDERED.
consequences, if possible, should be avoided. Courts are not
305
Davide,
to give words a meaning that would lead to absurd or Jr. (C.J.), Puno, Quisumbing, Carpio, Corona,Callejo,
unreasonable consequences and a literal interpretation is to Sr. and Tinga, JJ., concur.
be rejected if it would be unjust or lead to absurd Vitug, J., Please see separate opinion.
results. That is a strong argument against its
306
Panganiban, J., Please see separate opinion.
adoption. Accordingly, petitioners’ interpretation must be
307
Ynares-Santiago, I join J. Panganiban’s separate
rejected. opinion.
The foregoing discussion has rendered unnecessary the Sandoval-Gutierrez, J., I join Mr. Justice Panganiban
resolution of the other issues raised by the petition. in his separate opinion.
WHEREFORE, the petition is GRANTED. The Court Austria-Martinez, J., I join Justice Panganiban in
hereby declares unconstitutional and void: his separate opinion.
(1) The following provisions of Republic Act No. 7942: Azcuna, J., I take no part—one of the parties was a
client.
1. (a)The proviso in Section 3 (aq), SEPARATE OPINION
2. (b)Section 23,
3. (c)Section 33 to 41, VITUG, J.:
4. (d)Section 56,
5. (e)The second and third paragraphs of Section 81, and
Petitioners, in the instant petition for prohibition
and mandamus, assail the constitutionality of Republic Act
No. 7942, otherwise also known as the Philippine Mining Act
of 1995, as well as its Implementing Rules and Regulations
(Administrative Order [DAO] 96-40) issued by the
Department of Environment and Natural Resources, and the
Financial and Technical Assistance Agreement (FTAA)
entered into pursuant to Executive Order (EO) No. 279, by the
Republic of the Philippines and Western Mining Corporation
(Philippines), Inc. (WMCP). WMCP is owned by WMC
Resources International Pty., Ltd, a wholly owned subsidiary
of Western Mining Corporation Holdings Limited, a publicly-
listed major Australian mining and exploration company.
The premise for the constitutional challenge is Section 2,
Article XII, of the 1987 Constitution which provides:
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
“All lands of public domain, waters, minerals, coal, petroleum, and
other mineral oils, all forces of potential energy, fisheries, forests or
timber, wild life, 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. x x x.
“x x x xxx x x x.
“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.”
After a careful reading of the provisions of Republic Act No.
7942, I join the majority in invalidating the following portions
of the law: a) Section 3 (aq) which considers a foreign-owned
corporation itself qualified, not only to enter into financial or
technical assistance agreements, but also for an exploration or
mineral processing permit; b) Section 35 (g), (l), (m) which
state the rights and obligations of a foreign-owned
corporations pursuant to its “mining operations”; and c)
Section 56 which provides that foreign-owned or controlled
corporations are eligible to be granted a mineral processing
permit.
The ponencia, so eloquently expressed and so well
ratiocinated, would also say that the Philippine Mining Act
and its implementing rules or decrees contain provisions
which, in effect, authorize the Government to enter into
service contracts with foreign-owned corporations, thereby
granting beneficial ownership over natural resources to
foreign contractors in violation of the fundamental law. Thus,
it would strike down Sections 3 (aq), 23, 33 to 41, 56, 81, and
90 of the statute and related sections in DAO 96-40. The FTAA
executed between the Government and WMCP is being
invalidated for being in the nature of a service contract.
The ponencia posits
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250 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
that the adoption of the terms “agreements x x x involving
either technical or financial assistance” in the 1987
Constitution, in lieu of “service contracts” found in the 1973
Charter, reflects the intention of the framers to disallow the
execution of service contracts with foreign entities for the
exploration, development, exploitation and utilization of the
country’s natural resources.
 The proposition is one that I, most respectfully, cannot fully
share. The deliberations of the Constitutional Commission do
not disclose, in any evident manner, such intention on the part
of the drafters, viz.:
“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.
“x x x
“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, the 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.” 1
_______________
1III Record of the Constitutional Commission 348.
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The significance of the change in the terminology is clarified
in the following exchanges during the deliberations:
“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.”
2
The Constitutional Commission has also agreed to include the
additional requirement that said agreements must be “based
on real contributions to the economic growth and general
welfare of the country.” Upon the suggestion of then
Commissioner Davide, the scope of “these service contracts”
has likewise been limited to large-scale exploration,
development, and utilization of minerals, petroleum, and
other mineral oils. The then Commissioner, explains: “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 x x x.”3
The majority would cite the emphatic statements of
Commissioners Villegas and Davide that the country’s natural
resources are exclusively reserved for Filipino citizens and
4
that, according to Commissioner Villegas, “the deletion of the
phrase ‘service contracts’ (is the) 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.” These declarations do
5
not necessarily mean that the Government may no longer
enter into service contracts with foreign entities. In order to
uphold and strengthen the national policy of preserving and
developing the country’s natural resources exclusively for the
Filipino people, the present Constitution indeed has provided
for safeguards to prevent the execution of service contracts of
the old regime, but not of service contracts per se. It could
_______________
2Id., p. 352.
Id., p. 355.
3
4 Decision, pp. 69-71.
5Id., p. 69.
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252 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
not have been the object of the framers of the Charter to limit
the contracts which the President may enter into, to mere
“agreements for financial and technical assistance.” One
would take it that the usual terms and conditions recognized
and stipulated in agreements of such nature have been
contemplated. Basically, the financier and the owner of know-
how would understandably satisfy itself with the proper
implementation and the profitability of the project. It would
be abnormal for the financier and owner of the know-how not
to assure itself that all the activities needed to bring the
project into fruition are properly implemented, attended to,
and carried out. Needless to say, no foreign investor would
readily lend financial or technical assistance without the
proper incentives, including fair returns, therefor.
The Constitution has not prohibited the State from itself
exploring, developing, or utilizing the country’s natural
resources, and, for this purpose, it may, I submit, enter into
the necessary agreements with individuals or entities in the
pursuit of a feasible operation.
The fundamental law is deemed written in every contract.
The FTAA entered into by the government and WMCP
recognizes this vital principle. Thus, two of the agreement’s
whereas clauses provide:
“WHEREAS, the 1987 Constitution of the Republic of the
Philippines provides in Article XII, Section 2 that all lands of the
public domain, waters, minerals, coal, petroleum, and other natural
resources are owned by the State, and that the exploration,
development and utilization of natural resources shall be under the
full control and supervision of the State; and
“WHEREAS, the Constitution further provides that the
Government may enter into agreements with foreign-owned
corporations involving either technical or financial assistance for
large scale exploration, development and utilization of minerals.”
The assailed contract or its provisions must then be read in
conformity with abovementioned constitutional mandate.
Hence, Section 10.2 (a) of the FTAA, for instance, which states
that “the Contractor shall have the exclusive right to explore
for, exploit, utilize, process, market, export and dispose of all
minerals and products and by-products thereof that may be
derived or produced from the Contract Area and to otherwise
conduct Mining Operations in the Contract Area in accordance
with the terms and conditions hereof,
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
must be taken to mean that the foregoing rights are to be
exercised by WMCP for and in behalf of the State and that
WMCP, as the Contractor, would be bound to carry out the
terms and conditions of the agreement acting for and in behalf
of the State. In exchange for the financial and technical
assistance, inclusive of its services, the Contractor enjoys an
exclusivity of the contract and a corresponding compensation
therefor.
Except as so expressed elsewhere above, I see, therefore, no
constitutional impairment in the enactment of Republic Act
No. 7942, as well as its implementing rules, and in the
execution by the Government of the Financial and Technical
Agreement with WMCP; and I so vote accordingly.
Just a word. While I cannot ignore an impression of the
business community that the Court is wont, at times, to
interfere with the economic decisions of Congress and the
government’s economic managers, I must hasten to add,
however, that in so voting as above, I have not been unduly
overwhelmed by that perception. Quite the contrary, the Court
has always proceeded with great caution, such as now, in
resolving cases that could inextricably involve policy questions
thought to be best left to the technical expertise of the
legislative and executive departments.
SEPARATE OPINION
PANGANIBAN, J.:
Petitioners challenge the constitutionality of (1) RA 7942 (The
Philippine Mining Act of 1995), (2) its Implementing Rules
and Regulations (DENR Administrative Order [DAO] 96-40);
and (3) the Financial and Technical Assistance Agreement
(FTAA) dated March 30, 1995, by and between the government
and Western Mining Corporation (Phils.), Inc. (WMCP).
Crux of the Controversy
The crux of the controversy is the fact that WMCP, at the time
it entered into the FTAA, was 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.
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254 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Petitioners thus argue that the FTAA was executed in
violation of Section 2 of Article XII of the 1987 Constitution.
Allegedly, according to the fourth paragraph thereof, FTAAs
entered into by the government with foreign-owned
corporations are limited to agreements involving
merely technical or financial assistance to the State for large-
scale exploration, development and utilization of minerals,
petroleum and other mineral oils. The FTAA in question
supposedly permits the foreign contractor to manage and
control the mining operations fully, and is therefore no
different from the “service contracts” that were prevalent
under the martial law regime, and that are now disallowed by
Section 2 of Article XII of the present Constitution.
On January 23, 2001, all the shares of WMC in WMCP—
according to the latter’s Manifestation subsequently filed with
this Court—had been sold to Sagittarius Mines, Inc., in which
60 percent of the equity is Filipino-owned. In the same
Manifestation, the Court was further informed that the
assailed FTAA had likewise been transferred from WMCP to
Sagittarius.
The well-researched ponencia of esteemed justice Conchita
Carpio-Morales nevertheless declares that the instant case
has notbeen rendered moot by the FTAA’s transfer to and
registration in the name of a Filipino-owned corporation, and
that the validity of that transfer remains in dispute and
awaits final judicial determination. It then proceeds to decide
1
the instant case on the assumption that WMCP remains a
foreign corporation.
Controversy Now Moot
With due respect, I believe that the Court should dismiss the
Petition on the ground of mootness. I submit that a decision
on the constitutionality issue should await the wisdom of a
new day when the Court would have a live case before it.
The nullity of the FTAA is unarguably premised upon the
contractor being a foreign corporation. Had the FTAA been
originally issued to a Filipino-owned corporation, we would
have had no con-
_______________
1 That is, the Court of Appeals’ resolution of the petition for review—
docketed as CA-G.R. No. 74161 and lodged by Lepanto Consolidated Mining—
of the Decision of the Office of the President, which upheld the Order of the
DENR secretary approving the transfer to, and the registration of the FTAA
in the name of, Sagittarius Mines, Inc.
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stitutionality issue to speak of. Upon the other hand,
conveyance of the FTAA to a Filipino corporation can be
likened to the sale of land to a foreigner who subsequently
acquires Filipino citizenship, or who later re-sells 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. 2 La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Since the FTAA is now to be implemented by a Filipino
corporation, how can the Court still declare it
unconstitutional? The CA case 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.
Furthermore, there being no more justiciable controversy,
the plea to nullify the Mining Law has become a virtual
petition for declaratory relief, over which the Supreme Court
has no original jurisdiction. 3 would be lacking. Suffice it to say, at this point, that the issue
At bottom, I rely on the well-settled doctrine that this Court
does not decide constitutional issues, unless they are the very
lis mota of the case. 4 “agreements x x x involving x x x technical or financial
Not Limited to Technical or Financial Assistance Only
At any rate, following the literal text of the present
Constitution, the ponencia limits to strict technical or
5 possibility of the inclusion of other activities, provided they
financial only the assistance to be provided to the State by
foreign-owned corporations for the large-scale exploration,
development and utilization of minerals, petroleum, and
mineral oils. Such assistance may not
_______________
2 Chavez v. Public Estates Authority and Amari, G.R. No. 133250, July 9,
2002, 384 SCRA 152; May 6, 2003, 403 SCRA 1, and November 11, 2003, 415
SCRA 403.
3 United Residents of Dominican Hill, Inc. v. Commission on the Settlement
of Land Problems, 353 SCRA 782, March 7, 2001; In Re: Saturnino V.
Bermudez, 145 SCRA 163, October 24, 1986; Darnoc Realty Development Corp.
v. Ayala Corp., 202 Phil. 865; 117 SCRA 538, September 30, 1982; De la Llana
v. Alba, 198 Phil. 1; 112 SCRA 294, March 12, 1982.
4 Mirasol v. Court of Appeals, 351 SCRA 44, February 1, 2001; Lalican v.
Hon. Vergara, 342 Phil. 485; 276 SCRA 518, July 31, 1997; Ty v. Trampe, 321
Phil. 103; 250 SCRA 500, December 1, 1995; People v. Vera, 65 Phil. 56,
November 16, 1937.
5 Par. 4, Sec. 2 of Art XII.
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256 SUPREME COURT REPORTS ANNOTATED
include “management or other forms of assistance” or other
activities associated with the “service contracts” of the past
unlamented regime. Precisely, “the management or operation
of mining activities by foreign contractors, which is the
primary feature of service contracts, was x x x the evil that the
drafters of the 1987 Constitution sought to eradicate.”
Again, because of the mootness problem, it would be risky
to take a definitive position on this question. The Court would
be speculating on the contents of the FTAA of a prospective
foreign company. The requirements of “case and controversy”
even in a live case is not quite that easy to tackle.
First, the drafters’ choice of words—their use of the phrase
assistance”—does not absolutely indicate the intent to exclude
other modes of assistance. Rather, the phrase signifies the
bear some reasonable relationship to and compatibility
with financial or technical assistance.
If the intention of the drafters were strictly to confine
foreign corporations to financial or technical assistance
and nothing more, I am certain that their language would
have been unmistakably restrictive and stringent. They would
have said, for example: “Foreign corporations
are prohibited from providing management or other forms of
assistance,” or words to that effect. The conscious avoidance of
restrictive wording bespeaks an intent not to employ—in an
exclusionary, inflexible and limiting manner—the expression
“agreements involving technical or financial assistance.”
Second, I believe the foregoing position is supported by the
fact that our present Constitution still recognizes and allows
service contracts (and has not rendered them taboo),
albeit subject to several restrictions and modifications aimed
at avoiding the pitfalls of the past. Below are some excerpts
from the deliberations of the Constitutional Commission
(Concom), showing that its members discussed “technical or
financial agreements” in the same breath as “service
contracts” and used the terms interchangeably:
“MR. JAMIR: Yes, Madam President. With respect to the
second paragraph of Section 3, my amendment by
substitution reads:
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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 x x x.
MR. SUAREZ: Thank you, Madam President x x x.
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 x x x
xxx xxx xxx
THE PRESIDENT: The amendment has been accepted by the
Committee. May we first vote on the last paragraph?
MR. GASCON: Madam President, that is the point of my
inquiry x x x Commissioner Jamir had proposed an
amendment with regard to special service contracts which
was accepted by the Committee. Since the Committee has
accepted it, I would like to ask some questions x x x As it is
proposed now, such service contracts will be entered into by
the President with the guidelines of a general law on service
contracts to be enacted by Congress. Is that correct?
MR. VILLEGAS: The Commissioner is right, Madam
President.
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258 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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 direct contrast to my proposed amendment, so I
would like to object and present my proposed amendment
to the body x x x.
xxx xxx xxx
MR. GASCON: Yes, it will be up to the body. I feel that the
general law to be set by Congress as regards service
contract agreementswhich 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 x x x
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. x x x.
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
con-
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straints 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 x x x.
xxx xxx xxx
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 CONTRACTENTERED 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
contractsare 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.
xxx xxx xxx
SR. TAN: Madam President, may I ask a question? x x x 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.
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260 SUPREME COURT REPORTS ANNOTATED
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SR. TAN: So those are the safeguards.
MR. VILLEGAS: Yes. There was no law at all governing
service contracts before. x x x.
xxx xxx xxx
MR. SARMIENTO: Maybe we can simplify my proposed
amendment, so that it will read: IT SHALL BE THE
POLICY OF THE STATE TO PROMOTE, DEVELOP AND
EMPLOY LOCAL SCIENTIFIC AND TECHNOLOGICAL
RESOURCES x x x.
MR. DAVIDE: Could it not be properly accommodated either
in the Article on Declaration of Principles and State Policies
or in the Article on Human Resources because it would not
be germane to the Article on National Economy and
Patrimony which we are now treating?
MR. VILLEGAS: I think the intention here, if I understand
the amendment to the amendment, is to make sure that
when these technical and scientific services are rendered by
foreigners there would be a deliberate attempt to develop
local talents so that we are not forever dependent on these
foreigners. Am I right?
MR. DAVIDE: So it is in relation to the service contracts? x x
x Can it not be stated that the general law providing
for service contracts shall give priority to the adjective of
Commissioner Sarmiento’s amendment? It should be in the
law itself.
MR VILLEGAS: That is why it says, ‘IT SHALL BE THE
POLICY OF THE STATE’ immediately following the
statement about Congress.
xxx xxx xxx
THE PRESIDENT: Does Commissioner Gascon insist on his
proposed amendment?
MR. GASCON: I objected to that amendment and after
listening to it again, I feel that I still object on basic
principles, that every service contract to be entered into by
the President should be with the concurrence of Congress.
I had earlier presented a proposed amendment of
‘CONCURRENCE OF TWO-THIRDS VOTE OF ALL THE
MEMBERS OF CONGRESS,’ but at this point in time,
perhaps to simplify choices, since basically the proposal of
Commissioner Jamir is to set a general law with regard
to service contracts, my proposal is to require concurrence
of Congress every time a service contract is to be made.
THE PRESIDENT: That is clear now. So can we proceed to
vote?
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MR. NOLLEDO: x x x 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 x x x x 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) x x x.”
The foregoing is but a small sampling of the lengthy
discussions of the constitutional commissioners on the subject
of service contracts and technical and financial assistance
agreements. Quoting the rest of their discussions would have
taken up several more pages, and these have thus been
omitted for the sake of brevity. In any event, it would appear
that the members of the Concom actually had in mind the
Marcos era service contracts that they were familiar with (but
which they duly modified and restricted so as to prevent
abuses), when they were crafting and polishing the provisions
262
262 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
dealing with financial and/or technical assistance agreements.
These provisions ultimately became the fourth and the fifth
paragraphs of Section 2 of Article XII of the 1987
Constitution. Put differently, “technical and financial
assistance agreements” were understood by the delegates to
include service contracts duly modified to prevent abuses.
I respectfully submit that the statements of Commissioner
Jose Nolledo, quoted above, are especially pertinent, since
they refer specifically to service contracts in favor of aliens.
From his perspective, it is clear to me that the Concom
discussions in their entirety had to do with service contracts
that might be given to foreign-owned corporations as
exceptions to the general principle of Filipino control of the
economy.
Commissioner Nolledo sums up these statements by
saying: “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. x x x x x x
x x x. 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. x x x.”
Since the drafters were referring only to service contracts
to be granted to foreigners and to nothing else, this fact
necessarily implies that we ought not treat the idea of
“agreements involving either technical or financial assistance”
as having any significance or existence apart from service
contracts. In other words, in the minds of the commissioners,
the concept of technical and financial assistance agreements
did not exist at all apart from the concept of service
contracts duly modified to prevent abuses.
Interpretation of the Constitution
in the Light of Present-Day Realities
Tantamount to closing one’s eyes to reality is the insistence
that the term “agreements involving technical or financial
assistance”
 263
VOL. 421, JANUARY 27, 2004 263
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
refers only to purely technical or financial assistance to be
rendered to the State by a foreign corporation (and must
perforce exclude management and other forms of assistance).
Nowadays, securing the kind of financial assistance required
by large-scale explorations, which involve hundreds of
millions of dollars, is not just a matter of signing a simple
promissory note in favor of a lender. Current business
practices often require borrowers seeking huge loans to allow
creditors access to financial records and other data, and
probably a seat or two on the former’s board of directors; or at
least some participation in certain management decisions that
may have an impact on the financial health or long-term
viability of the debtor, which of course will directly affect the
latter’s capacity to repay its loans. Prudent lending practices
necessitate a certain degree of involvement in the borrower’s
management process.
Likewise, technical assistance, particularly in certain
industries like mining and oil exploration, would likely be
from the industry’s leading players. It may involve the
training of personnel and some form of supervision and
oversight with respect to the correct and proper
implementation of the technical assistance. The purpose is to
ensure that the technical assistance rendered will not go to
waste, and that the lender's business reputation and
successful track record in the industry will be adequately
safeguarded. Thus the technical assistance arrangements
often necessarily include interface with the management
process itself.
The mining industry is in the doldrums, precisely because
of lack of technical and financial resources in our country. If
activated properly, the industry could meaningfully contribute
to our economy and lead to the employment of many of our
jobless compatriots. A hasty and premature decision on the
constitutionality of the herein FTAA and the Philippine
Mining Act could unnecessarily burden the recovery of the
industry and the employment opportunities it would likely
generate.
Oral Argument Needed
Given the modern-day reality that even the World Bank (WB)
and the International Monetary Fund (IMF) do not lend on the
basis merely of bare promissory notes, but on some
conditionalities designed to assure the borrowers’ financial
viability, I would like to hear in an Oral Argument in a live,
not a moot, case what these
264
264 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
international practices are and how they impact on our
constitutional restrictions. This is not to say that we should
bend our basic law; rather, we should find out what kind of
FTAA provisions are realistic vis-à-vis these international
standards and our constitutional protection. Unless there is
a live FTAA, the Court would not be able to analyze the
provisions vis-à-vis the Constitution, the Mining Law and
these modern day lending practices.
I mentioned the WB and the IMF, not necessarily because
I agree with their oftentimes stringent policies, but because
they set the standards that international and multinational
financial institutions often take bearings from. The WB and
IMF are akin (though not equivalent) to the Bangko
Sentral, which all Philippine banks must abide by. If this
Court closes its doors to these international realities and
unilaterally sets up its own concepts of strict technical and
financial assistance, then it may unwittingly make the country
a virtual hermit—an economic isolationist—in the real world
of finance.
I understand that a live case, challenging the Mining Law
and an FTAA relevant thereto, is pending before the Second
Division of this Court, where it is docketed as G.R. No.
157882 (Dipdio Earth Savers Multi-Purpose Association v.
Hon. Elisea Gozun). Can we not consolidate that case with the
current one, call an Oral Argument, and then decide the
matter more definitively? During the Oral Argument, I believe
that the Court should invite as amici curiae(1) a lawyer versed
in international finance like retired Justice Florentino P.
Feliciano, (2) a representative of the Banker’s Association of
the Philippines, and (3) a leader of the University of the
Philippines Law Constitution Project.
Constitutional Interpretation and the
Vagaries of Contemporary Events
Finally, I believe that the Concom did not mean to tie the
hands of the President and restrict the latter only to
agreements on rigid financial and technical assistance
and nothing else. The commissioners fully realized that their
work would have to withstand the test of time; that the
Charter, though crafted with the wisdom born of past
experiences and lessons painfully learned, would have to be a
living document that would answer the needs of the nation well
into the future. Thus, the unerring emphasis on flexibility and
adaptability.
265
VOL. 421, JANUARY 27, 2004 265
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Commissioner Joaquin Bernas stressed that he voted in favor
of the Article, “because it is flexible enough to allow future
legislators to correct whatever mistakes we may have
made.” Commissioner Felicitas Aquino noted that “unlike the
6
other articles of this Constitution, this article whether we like
it or not would have to yield to flexibility and elasticity which
inheres in the interpretation of this provision. Why? Precisely
because the forces of economics are dynamic and are
perpetually in motion.” 7
Along the same line, the Court, in Tañada v.
Angara, stressed the need to interpret the Constitution to
8
cover “refreshing winds of change necessitated by unfolding
events”:
“x x x. Constitutions are designed to meet not only the vagaries of
contemporary events. They should be interpreted to cover even
future and unknown circumstances. It is to the credit of its drafters
that a Constitution can withstand the assaults of bigots and infidels
but at the same time bend with the refreshing winds of change
necessitated by unfolding events.”
Accordingly, I vote to DISMISS the Petition.
Petition granted.
Notes.—The provision of Article 9 of Administrative Order
No. 57 that “all such leases or agreements shall be converted
into production sharing agreements” could not possibly
contemplate a unilateral declaration on the part of the
Government that all existing mining leases and agreements
are automatically converted into production-sharing
agreements, as the use of the term “production-sharing
agreement” implies negotiation between the Government and
the applicants, if they are so minded. (Miners Association of
the Philippines, Inc. vs. Factoran, Jr., 240 SCRA 100 [1995])
It is not the date of filing of the petition that determines
whether the constitutional issue was raised at the earliest
opportunity—the earliest opportunity to raise a constitutional
issue is to raise it in the pleadings before a competent court
that can resolve the same, such that, “if it is not raised in the
pleadings, it cannot
_______________
6Id., p. 840.
7Ibid.
8 272 SCRA 18, May 2, 1997.
266
266 SUPREME COURT REPORTS ANNOTATED
Estate of the Late Juliana Diez Vda. de Gabriel vs.
Commissioner of Internal Revenue
be considered at the trial, and, if not considered at the trial, it
cannot be considered on appeal.” (Matibag vs. Benipayo, 380
SCRA 49[2002])
——o0o——
© Copyright 2019 Central Book Supply, Inc. All rights reserved.

G.R. No. 127882. December 1, 2004. * MANUEL E. NARVADEZ, JR.; ROSERIO MARALAG
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.
_______________
*EN BANC.
2 1 Spelled as “Nequito” in the caption of the Petition, but “Nequinto” in the
2 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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
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; ROSE LILIA S. ROMANO; ROBERTO S.
1
VERZOLA; EDUARDO AURELIO C. REYES; LEAN LOUEL
A. PERIA, Represented by His Father ELPIDIO V.
PERIA; GREEN FORUM PHILIPPINES; GREEN FORUM
2
WESTERN VISAYAS (GF-WV); ENVIRONMENTAL LEGAL
ASSISTANCE CEN
_______________
body. Rollo, p. 12.
2 As spelled in the body of the Petition. Id., p. 13. The caption of the Petition
does not include Louel A. Peria as one of the petitioners; only the name of his
father, Elpidio V. Peria, appears therein.
3
VOL. 445, DECEMBER 1, 2004 3
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
TER (ELAC); KAISAHAN TUNGO SA KAUNLARAN NG
KANAYUNAN AT REPORMANG PANSAKAHAN
(KAISAHAN); PARTNERSHIP FOR AGRARIAN REFORM
3
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., respondents.
4 expressly applies to the assignment of the FTAA, not to the sale and
National Economy and Patrimony; Natural
Resources; Philippine Mining Act of 1995 (R.A. No. 7942); Financial
and Technical Assistance Agreements (FTAA); FTAAs not limited to
foreign-owned corporations only.—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
_______________
3 Stated as “Kaisahan Tungo sa Kaunlaran at Repormang Pansakahan
(KAISAHAN)” in the caption of the Petition, but “Philippine Kaisahan Tungo sa
Kaunlaran at Repormang Pansakahan (KAISAHAN)” in the body. Id., p. 14.
4 Erroneously designated in the Petition as “Western Mining Philippines
Corporation.” Id., p. 212.
4 Court of Appeals dated November 21, 2003 in CA-G.R. SP No.
4 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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 coproduction, 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.
Same; Same; Same; Same; Section 40 of R.A. No. 7942
transfer of shares of stock in a foreign corporation to a Filipino
corporation; When the transferee of the FTAA happens to be a
Filipino corporation, the need for the safeguard of securing the prior
approval of the President and notification to Congress is not critical,
and the lack of the same may not be deemed fatal as to render the
transfer invalid.—Section 40 expressly applies to the assignment or
transfer of the FTAA, not to the sale and transfer of shares of stock
in WMCP. 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, the issue of approval is the subject
of one of the cases brought by Lepanto against Sagittarius in G.R.
No. 162331. That case involved the review of the Decision of the
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.
5
VOL. 445, DECEMBER 1, 2004 5
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Same; Same; Same; Same; Assuming arguendo the invalidity
of a FTAA’s prior grant to a foreign-corporation, where said
Agreement has been transferred to, and is now held by, a Filipino
corporation, the FTAA can no longer be assailed—the objective of the
constitutional provision to keep the exploration, development and
utilization of our natural resources in Filipino hands would have
been served.—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, for all intents and
purposes, the FTAA must be deemed valid and constitutional.
Same; Same; Same; Same; The Court finds outlandish
petitioners’ contention that an FTAA could be entered into by the
government only with a foreign corporation, never with a Filipino
enterprise; 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.—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 under-
6 judicial controversy even without any other overt act.—The mootness
6 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
stand that what the Constitution grants to foreigners should be
equally available to Filipinos.
Same; Same; Same; Same; Moot Questions; The Court,
recognizing 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,
must now resolve the constitutionality issue raised.—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, it is
evident that strong reasons of public policy demand that the
constitutionality issue be resolved now. In further support of the
immediate resolution of the constitutionality issue, public
respondents cite Acop v. Guingona, to the effect that the courts will
decide a question—otherwise moot and academic—if it is “capable
of repetition, yet evading review.” 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, 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.”
Same; Same; Same; Same; Same; Judicial Review; When 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
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
7
VOL. 445, DECEMBER 1, 2004 7
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
 controversy and the plea to nullify the Mining Law has become
a virtual petition for declaratory relief. 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 prohibition 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.”
Same; Same; Same; Same; Statutory Construction; Words and
Phrases; The drafters’ choice of words—their use of the phrase
agreements*** involving either technical or financial assistance—
does not indicate the intent to exclude other modes of assistance; 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.—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.”
8
8 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Same; Same; Same; Same; Same; Same; 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—the use of the
word “involving” implies that these agreements with foreign
corporations are not limited to mere financial or technical
assistance.—The word “involving,” when understood in the sense of
“including,” as in including technical or financial
assistance,necessarily implies that there are activities other
than those that are being included. 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 includingtechnical or
financial assistance.” This much is unalterably clear in a verba
legis approach.
Same; Same; Same; Same; Same; Same; 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.—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.
9 need for a constitutional provision specifically allowing foreign-
VOL. 445, DECEMBER 1, 2004 9 owned corporations to render financial or technical assistance,
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Same; Same; Same; Same; Same; Same; Service Contracts; An
intent to eradicate service contracts 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.—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.
Same; Same; Same; Same; Same; Same; Same; 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).—There was therefore no
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
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10 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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.
Same; Same; Same; Same; Same; Same; Same; Judicial
Notice; 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.—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 solelyundertaking 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.
Same; Same; Same; Same; Same; Same; Same; 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.—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 implausibil-
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
ity 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.
Same; Same; Same; Same; Same; Same; Same; By specifying
such “agreements involving assistance,” the drafters necessarily gave
implied assent to everything that these agreements necessarily
entailed.—By specifying such “agreements involving assistance,”
the drafters necessarily gave implied assent to everything that
these agreements necessarily entailed; or that could reasonably be
deemed necessary to make them tenable and effective, including
management authority with respect to the day-to-day operations of
the enterprise and measures for the protection of the interests of the
foreign corporation, PROVIDED THAT Philippine sovereignty over
natural resources and full control over the enterprise undertaking
the EDU activities remain firmly in the State.
Same; Same; Same; Same; Same; Same; Same; In regard to the
plain-language approach, one of the practical difficulties that results
from it is the fact that there is nothing by way of transitory provisions
that would serve to confirm the theory that the omission of the term
“service contract” from the 1987 Constitution signaled the demise of
service contracts—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.—
Regarding the plain-language approach, one of the practical
difficulties that results from it is the fact that there is nothing by
way of transitory provisions that would serve to confirm the theory
that the omission of the term “service contract” from the 1987
Constitution signaled the demise of service contracts. The framers
knew at the time they were deliberating that there were various
service contracts extant and in force and effect, including those in
the petroleum industry. Many of these service contracts were long-
term (25 years) and had several more years to run. If they had meant
to ban service contracts altogether, they would have had to provide
for the termination or pretermination of the existing contracts.
Accordingly, they would have supplied the specifics and
the when and how of effecting
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12 SUPREME COURT REPORTS ANNOTATED
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the extinguishment of these existing contracts (or at least the
mechanics for determining them); and of putting in place the means
to address the just claims of the contractors for compensation for
their investments, lost opportunities, and so on, if not for the recovery
thereof. If the framers had intended to put an end to service
contracts, they would have at least left specific instructions to
Congress to deal with these closing-out issues, perhaps by way of
general guidelines and a timeline within which to carry them out.
Same; Same; Same; Same; Same; Same; Same; 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.—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.
Same; Same; Same; Same; Same; Same; Same; The phrase
agreements involving either technical or financial assistance,
referred to in paragraph 4, are in fact service contracts.—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.
Same; Same; Same; Same; Same; Same; Same; Constitutional
Commission; We cannot completely denigrate the value or usefulness
of the record of the Constitutional Commission simply because
certain members chose not to speak out.—The notion that the
deliberations
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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.
Same; Same; Same; Same; Same; Same; Same; Same; 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—we
believe that in reality, a good percentage of those who voted in favor
of it did so more out of faith and trust.—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.
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14 SUPREME COURT REPORTS ANNOTATED
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Same; Same; Same; Same; Same; Same; Same; Same; By
voting yes, many of the voters 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; 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.—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
delegateswith 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.
Same; Same; Same; Same; Same; Same; Same; Same; 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.—
It is therefore reasonable and unavoidable to make the following
conclusion, based on the above arguments. As written by the
framers and ratified and
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VOL. 445, DECEMBER 1, 2004 15
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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.
Same; Same; Same; Same; Same; Same; Same; Every part of
the Constitution is to be given effect, and the Constitution is to be
read and understood as a harmonious whole—“full control and
supervision” by the State must be understood as one that does not
preclude the legitimate exercise of management prerogatives by the
foreign contractor; “Full control 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.—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.
Same; Same; Same; Same; Same; Same; 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 enterprises.—The concept of control adopted
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16 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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.
Same; Same; Same; Same; 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.—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.
Same; Same; Same; Same; Exploration Permits; 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.—An objection has been expressed that Section 3(aq)
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
17
VOL. 445, DECEMBER 1, 2004 17
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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.
Same; Same; Same; Same; Same; An exploration permit merely
grants to a qualified person the right to conduct exploration for all
minerals in specified areas—it does not amount to an authorization
to extract and carry off the mineral resources that may be
discovered.—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 preapproved 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.
Same; Same; Same; Same; Same; 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.—In brief, the exploration permit serves a practical and
legitimate purpose in that it protects the interests and preserves the
rights of the exploration
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18 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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.
Same; Same; Same; Same; The discretion given to the
contractor to select the contract area does not constitute abdication
of control—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.—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. This
clause, however, does not constitute abdication of control. Rather, it
is a mere acknowledgment of the fact that the contractor will have
determined, after appropriate exploration works, which portions of
the contract area do not contain minerals in commercial quantities
sufficient to justify developing the same and ought therefore to be
relinquished. The State cannot just substitute its judgment for that
of the contractor and dictate upon the latter which areas to give up.
Moreover, we can be certain that the contractor’s self-interest will
propel proper and efficient relinquishment. According to private
respondent, 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.
Same; Same; Same; Same; Eminent Domain; A mechanism
whereby the foreign-owned contractor, disqualified to own land,
identifies to the government the specific surface areas within the
19
VOL. 445, DECEMBER 1, 2004 19
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
FTAA contract area to be acquired for the mine infrastructure
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.—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.
Same; Same; Same; Same; Mortgages; Contractor’s right to
mortgage and encumber its rights and interests in the FTAA and the
infrastructure and improvements introduced, as well as the mineral
products extracted, is not objectionable per se—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 loan;
Banks even lend on the security of accounts receivable that are
collectible within 90 days.—Petitioners also question the absolute
right of the contractor under Clause 10.2 (1) 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
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20 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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. 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.
Same; Same; Same; Same; Corporation Law; 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.—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.
Same; Same; Same; Same; Ownership; Words and
Phrases; 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; 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.—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. Black’s Law
Dictionaryindicates 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
21
VOL. 445, DECEMBER 1, 2004 21
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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. 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.
Same; Same; Same; Same; Same; 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.—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.
Same; Same; Same; Same; 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.—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
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22 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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.
Same; Same; Same; Same; DAO 99-56 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.—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 incentives 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.
Same; Same; Same; Same; Statutory Construction; Words and
Phrases; The inclusion of the term “among other things” in the
second paragraph of Section 81 of R.A. No. 7942 clearly and
unmistakably reveals the legislative intent to have the State collect
more than just the usual taxes, duties and fees—such additional
government share to consist not of taxes, but of a share in the
earnings or cash flows of the mining enterprise.—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, the DENR structured and formulated in
DAO 99-56 the said additional government share.
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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-De Vera paper, the explanation of the three options or
formulas—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.
Same; Same; Same; Same; Same; Same; The legislature acted
judiciously in not defining the term “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; The Court does not share the view that
in FTAAs with foreign contractors under RA 7942, the government’s
share is limited to taxes, fees and duties.—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.
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24 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Same; Same; Same; Same; Congress did not set any time limit
for the grace period, preferring to leave it to the concerned agencies,
which are, on account of their technical expertise and training, in a
better position to determine the appropriate durations for such
recovery periods after which the government share in the FTAA may
be collected.—The third or last paragraph of Section 81 provides that
the government share in FTAAs shall be collected when the
contractor shall have recovered its pre-operating expenses and
exploration and development expenditures. The objection has been
advanced that, on account of the proviso, the collection of the State’s
share is not even certain, as there is no time limit in RA 7942 for
this grace period or recovery period. We believe that Congress did
not set any time limit for the grace period, preferring to leave it to
the concerned agencies, which are, on account of their technical
expertise and training, in a better position to determine the
appropriate durations for such recovery periods. After all, these
recovery periods are determined, to a great extent, by technical and
technological factors peculiar to the mining industry. Besides, with
developments and advances in technology and in the geosciences,
we cannot discount the possibility of shorter recovery periods. At
any rate, the concerned agencies have not been remiss in this area.
The 1995 and 1996 Implementing Rules and Regulations of RA 7942
specify that the period of recovery, reckoned from the date of
commercial operation, shall be for a period not exceeding five years,
or until the date of actual recovery, whichever comes earlier.
Same; Same; Same; Same; Mineral Production Sharing
Agreements (MPSA); Section 80 and the colatilla in Section 84,
limiting the State’s share in a mineral production-sharing
agreement to just the excise tax on the mineral product, pertain only
to MPSAs and have no application to FTAAs.—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.
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Same; Same; Same; Same; Same; Due Process; Basic due
process requires that the Court 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.—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.
Same; Same; Same; Same; 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.—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.
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26 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Same; Same; Same; Same; 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; The Court definitely
disagrees 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.—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.
Same; Same; Same; Same; It is not correct to say that all of the
after-tax income will accrue to the foreign FTAA contractor—the
government effectively receives a significant portion thereof.—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.
Same; Same; Same; Same; 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—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 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
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
entire “net profit” earned in any particular year will be taken
out and repatriated. The “net income” figure reflected in the bottom
line is a mere accounting figure not necessarily corresponding to
cash in the bank, or other quick assets. In order to produce and set
aside cash in an amount equivalent to the bottom line figure, one
may need to sell off assets or immediately collect receivables or
liquidate short-term investments; but doing so may very likely
disrupt normal business operations. In terms of cash flows, the
funds corresponding to the net income as of a particular point in
time are actually in use in the normal course of business operations.
Pulling out such net income disrupts the cash flows and cash
position of the enterprise and, depending on the amount being taken
out, could seriously cripple or endanger the normal operations and
financial health of the business enterprise. In short, no sane
business person, concerned with maintaining the mining enterprise
as a going concern and keeping a foothold in its market, can afford
to repatriate the entire after-tax income to the home country.
Same; Same; Same; Same; The Court fails 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 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.—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.
Same; Same; Same; Same; Oil Industry; The 60 percent rule in
the petroleum industry cannot be insisted upon at all times in the
mining business—the numerous intrinsic differences involved in
their
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28 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
respective operations and requirements, cost structures and
investment needs render it highly inappropriate to use petroleum
operations FTAAs as benchmarks for mining FTAAs.—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 differentsituations and stubbornly insist on the
“minimum 60 percent.”
Same; Same; Same; Same; Same; 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.—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 comparatively less need for fresh investments
and technology. On the other hand, even if minerals are found in
viable quantities, there is still need for continuous fresh capital and
expertise to dig the mineral ores from the mines. Just because
deposits of mineral ores are found in one area is no guarantee that
an equal amount can be found in the adjacent areas. There are
simply continuing risks and need for more capital, expertise and
industry all the time. Note,
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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.
Same; Same; Same; Same; Same; 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.—
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.
Same; Same; Same; Same; Same; Separation of Powers; 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.—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 contrac-
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30 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
tors 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.
Same; Same; Same; Same; Same; Same; Judicial
Legislation; 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.—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, 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.
Same; Same; Same; Same; It is quite well known 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
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
related to marketing offices also located abroad.—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.
Same; Same; Same; Same; As finally structured, Section 7.9 of
the FTAA 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, an outcome which is completely
unacceptable.—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.
Same; Same; Same; Same; Anti-Graft and Corrupt Practices
Act; 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—the outcome likewise constitutes unjust
enrichment on the part of the local and foreign stockholders of
WMCP; 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; Being precisely
violative of anti-graft provisions and contrary to public policy,
Section 7.9 must therefore be stricken off as invalid.—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
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32 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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 decisions 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. Being precisely violative of
anti-graft provisions and contrary to public policy, Section 7.9 must
therefore be stricken off as invalid.
Same; Same; Same; Same; Same; Estoppel; Administrative
Law; Law on Public Officers; It is hornbook doctrine that the
principle of estoppel does not operate against the government for the
act of its agents, and that it is never estopped by any mistake or error
on their part.—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, and that it is never estopped by any mistake or
error on their part. 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.
Same; Same; Same; Same; It makes no sense why 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, constituting unjust enrichment
on the part of the contractor at the expense of the government.—
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
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VOL. 445, DECEMBER 1, 2004 33
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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. 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.
Same; Same; Same; Same; The term limitation of twenty-five
years for agreements for the exploration, development and utilization
of natural resources provided for in the paragraph 1, Section 2,
Article XII does not apply to FTAAs—it refers only to co-production
agreements, joint venture agreements and mineral production-
sharing agreements.—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.
Same; Same; Same; Same; It is certainly not illegal for the
government to waive its option to refuse the renewal of a commercial
contract.—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
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34 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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.
Same; Same; Same; Same; The Constitution has never
prohibited foreign corporations from acquiring and enjoying
“beneficial interest” in the development of Philippine natural
resources.—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. x x x 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.
Same; Same; Same; Same; The Court believes the FTAA is a
more advantageous proposition for the government as compared with
other agreements permitted by the Constitution.—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. 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. On the other hand, in an MPSA, the
government
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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.
Same; Same; Same; Same; Separation of Powers; Political
Questions; 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 as it is
not for the Supreme Court to decide—the Court declares what the
Constitution and the laws say, interprets only when necessary, and
refrains from delving into matters of policy.—Whatever priority or
preference may be given to mining vis-à-visother economic or
noneconomic 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.
Same; Same; Same; Same; Due Process; 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.—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,
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36 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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.
Same; Same; Same; Same; 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.—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.
Same; Same; Same; Same; Presidency; Power of
Control; Qualified Political Agency; Administrative Law; 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.—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 crys-
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
tal 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.
Same; Same; Same; Same; Same; Same; Same; Same; 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.—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.” (italics 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
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38 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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.
CARPIO, J., Dissenting Opinion:
 National Economy and Patrimony; Natural
Resources; Philippine Mining Act of 1995 (R.A. No. 7942); Financial
and Technical Assistance Agreements (FTAA); Section 3(aq), Section
39, Section 80, the second paragraph of Section 81, the proviso in
Section 84, and the first proviso in Section 112 of Republic Act No.
7942 violate Section 2, Article XII of the 1987 Constitution and are
therefore unconstitutional.—I dissent and vote to deny respondents’
motions for reconsideration. I find that Section 3(aq), Section 39,
Section 80, the second paragraph of Section 81, the proviso in
Section 84, and the first proviso in Section 112 of Republic Act No.
7942 (“RA 7942”) violate Section 2, Article XII of the 1987
Constitution and are therefore unconstitutional. In essence, these
provisions of RA 7942 waive the State’s ownership rights under the
Constitution over mineral resources.These provisions also abdicate
the State’s constitutional duty to control and supervise fully the
exploitation of mineral resources.
Same; Same; Same; Same; The change in language in the
Constitution was a clear rejection of the old system of “license,
concession or lease.”—To carry out this intent, the 1987 Constitution
uses a different phraseology from that used in the 1935 and 1973
Constitutions. The previous Constitutions used the phrase “license,
concession or lease” in referring to exploitation of natural resources.
The 1987 Constitution uses the phrase “co-production, joint venture
or production-sharing agreements,” with “full control and
supervision” by the State. The change in language was a clear
rejection of the old system of “license, concession or lease.”
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Same; Same; Same; Same; The State as owner of the natural
resources must receive income from the exploitation of its natural
resources—the payment of taxes, fees and charges, derived from the
taxing or police power of the State, is not a substitute.—The 1935 and
1973 Constitutions also used the words “belong to” in stating the
Regalian doctrine, thus declaring that natural resources “belong to
the State.” The 1987 Constitution uses the word “owned,” thus
prescribing that natural resources are “owned” by the State. In
using the word “owned,” the 1987 Constitution emphasizes the
attributes of ownership, among which is the right to the income of
the property owned. The State as owner of the natural resources
must receive income from the exploitation of its natural
resources. The payment of taxes, fees and charges, derived from the
taxing or police power of the State, is not a substitute. The State is
duty bound to secure for the Filipino people a fair share of the
income from any exploitation of the nation’s precious and
exhaustible natural resources.
Same; Same; Same; Same; Exploration Permits; Since the
State is directly undertaking the exploitation of its natural resources,
all exploration permits and similar authorizations are in the name
of the Philippine government, which then authorizes the contractor
to act on its behalf.—Whether the FTAA contractor is local or
foreign, the State must retain its fair share of the income from the
exploitation of the natural resources that it owns. To insure it
retains its fair share of the income, the State must exercise full
control and supervision over the exploitation of its natural
resources. And whether the FTAA contractor is local or foreign, the
State is directly undertaking the exploitation of its natural
resources, with the FTAA contractor providing technical services or
financing to the State. Since the State is directly undertaking the
exploitation, all exploration permits and similar authorizations are
in the name of the Philippine Government, which then authorizes
the contractor to act on its behalf.
Same; Same; Same; Same; Two basic constitutional principles
govern the exploitation of natural resources in the country—first, the
State owns the country’s natural resources and must benefit as owner
from any exploitation of its natural resources, and, second, to insure
that it receives its fair share as owner of the natural resources, the
State must exercise full control and supervision over the exploitation
of its natural resources.—No government should contract with a
corporation, local or foreign, to exploit commercially the nation’s
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40 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
natural resources without the State receiving any income as
owner of the natural resources. Natural resources are non-
renewable and exhaustible assets of the State. Certainly, no
government in its right mind should give away for free its natural
resources to private business enterprises, local or foreign, amidst
widespread poverty among its people. In sum, two basic
constitutional principles govern the exploitation of natural
resources in the country. First, the State owns the country’s natural
resources and must benefit as owner from any exploitation of its
natural resources. Second, to insure that it receives its fair share as
owner of the natural resources, the State must exercise full control
and supervision over the exploitation of its natural resources.
Same; Same; Same; Same; Mineral Production-Sharing
Agreements (MPSA); Section 80 of RA 7942 limits to the excise tax
the State’s share in a mineral production-sharing agreement—under
Section 80, the State does not receive as owner of the mineral
resources any income from the exploitation of its mineral resources.—
Section 80 of RA 7942 limits to the excise tax the State’s share in a
mineral production-sharing agreement (“MPSA”). Section 80
expressly states that the excise tax on mineral
products shall constitute the “total government share in a mineral
production-sharing agreement.” Under Section 151(A) of the Tax
Code, this excise tax on metallic and non-metallic minerals is only
2% of the market value, as follows: x x x Section 80 of RA 7942 does
not allow the State to receive any income as owner of the mineral
resources. The proviso in Section 84 of RA 7942 reiterates this when
it states that “the excise tax on mineral products shall be the
government share under said agreement.” The State receives only an
excise tax flowing from its taxing power, not from its ownership of
the mineral resources. The excise tax is imposed not only on mineral
products, but also on alcohol, tobacco and automobiles produced by
companies that do not exploit natural resources owned by the State.
The excise tax is not payment for the exploitation of the State’s
natural resources, but payment for the “privilege of engaging in
business.” Clearly, under Section 80 of RA 7942, the State does not
receive as owner of the mineral resources any income from the
exploitation of its mineral resources.
Same; Same; Same; Same; Statutory Construction; Ejusdem
Generis; Words and Phrases; The second paragraph of Section 81 of
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
RA 7492 also limits the State’s share in FTAAs with foreign
contractors to taxes, duties and fees; The phrase “among other
things” is an ejusdem generis phrase, and means “among other taxes,
duties and fees” since the items specifically enumerated are all taxes,
duties and fees.—The second paragraph of Section 81 of RA 7942
also limits the State’s share in FTAAs with foreign contractors to
taxes, duties and fees. Section 81 of RA 7942 provides that the
State’s share in FTAAs with foreign contractors—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 stock-holder in case of a foreign national and all
such other taxes, duties and fees as provided for under existing laws.
(Emphasis supplied) RA 7942 does not explain the phrase “among
other things.” The Solicitor General states correctly that the phrase
refers to taxes. The phrase is an ejusdem generisphrase, and means
“among other taxes, duties and fees” since the items specifically
enumerated are all taxes, duties and fees. The last phrase “all such
other taxes, duties and fees as provided for under existing laws” at
the end of the sentence clarifies further that the phrase “among
other things” refers to taxes, duties and fees.
Same; Same; Same; Same; Section 81 does not recognize the
State’s contribution of mineral resources as worthy of any share of
the net proceeds from the mining operations.—In a co-production or
joint venture agreement, the Government contributes other inputs
or equity in addition to its mineral resources. Thus, the first
paragraph of Section 81 requires the Government and the 60%
Filipino owned company to negotiate the State’s share. However, in
an FTAA with a foreign contractor under the second paragraph of
Section 81, the Government’s contribution is only the mineral
resources. Section 81 does not require the Government and the
foreign contractor to negotiate the State’s share from the net
proceeds because there is no share for the State. Section 81 does not
recognize the State’s contribution of mineral resources as worthy of
any share of the net proceeds from the mining operations. Thus, in
FTAAs with foreign contractors under RA 7942, the State’s share is
limited to taxes, fees and duties. The taxes include “withholding tax
due from the contractor’s foreign stockholders arising from dividend
or interest payments.” All these taxes, fees and duties are imposed
pursuant to the State’s taxing power. The tax on income, including
dividend and interest income, is
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42 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
 imposed on all taxpayers whether or not they are stockholders
of mining companies. These taxes, fees and duties are not
contractual payments to the State as owner of the mineral resources
but are mandatory exactions based on the taxing power of the State.
Same; Same; Same; Same; In allowing the payment of the
excise tax as the only share of the government in any mineral
agreement, whether co-production, joint venture or production-
sharing, Section 112 of RA 7942 reinstates the old “license,
concession or lease” system where the State receives only minimal
taxes, duties and fees, violates Section 2, Article XII of the
Constitution—Section 112 is a sweeping negation of the clear letter
and intent of the 1987 Constitution that the exploitation of the State’s
natural resources must benefit primarily the Filipino people.—
Section 112 of RA 7942 is another provision that violates Section 2,
Article XII of the 1987 Constitution. Section 112 “immediately”
reverts all mineral agreements to the old and discredited “license,
concession or lease” system outlawed by the 1987 Constitution.
Section 112 states that “the provisions of Chapter XIV on
government share in mineral production-sharing agreement x x x
shall immediately govern and apply to a mining lessee or contractor.”
The contractor, local or foreign, will now pay only the “government
share in a mineral production-sharing agreement” under RA
7942. Section 80 of RA 7942, which specifically governs MPSAs,
limits the “government share” solely to the excise tax on mineral
products—2% on metallic and non-metallic minerals and 3% on
indigenous petroleum. In allowing the payment of the excise tax as
the only share of the government in any mineral agreement,
whether co-production, joint venture or production-sharing, Section
112 of RA 7942 reinstates the old “license, concession or lease”
system where the State receives only minimal taxes, duties and fees.
This clearly violates Section 2, Article XII of the Constitution and is
therefore unconstitutional. Section 112 of RA 7942 is a sweeping
negation of the clear letter and intent of the 1987 Constitution that
the exploitation of the State’s natural resources must benefit
primarily the Filipino people.
Same; Same; Same; Same; Section 39 of R.A. 7942 grants the
foreign contractor the option to revert to the “license, concession or
lease” system which the 1987 Constitution has banned.—Another
provision that violates Section 2, Article XII of the Constitution is
Section 39 of RA 7942. Section 39 grants the foreign contractor the
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
option to convert the FTAA into a “mineral production-sharing
agreement” if the foreign contractor finds that the mineral deposits
do not justify large-scale mining operations. Section 39 of RA 7942
operates to deprive the State of income from the mining operations
and limits the State to the excise tax on mineral products. Section
39 grants the foreign contractor the option to revert to the “license,
concession or lease” system which the 1987 Constitution has
banned. The only requirement for the exercise of the option is for
the foreign contractor to divest 60% of its equity to a Philippine
citizen or to a corporation 60% Filipino owned. Section 39 states,
“Upon compliance with this requirement by the contractor, the
Secretary shall approve the conversion and execute the mineral
production-sharing agreement.” The foreign contractor only needs to
give “proper notice to the Secretary as provided for under the
implementing rules and regulations” if the contractor finds the
contract area not viable for large-scale mining. Thus, Section 39 of
RA 7942 is unconstitutional.
Same; Same; Same; Same; Taxation; While the legislature has
the discretion to impose merely a 2% excise tax on mineral products,
it has no power to waive for free the benefits accruing to the State
from its ownership of mineral resources—any surrender by the
legislature of the nation’s mineral resources, especially to foreign
private enterprises, is repugnant to the concept of national
patrimony.—The legislature has discretion whether to tax a
business or product. If the legislature chooses to tax a business or
product, it is free to determine the rate or amount of the tax,
provided it is not confiscatory. The legislature has the discretion to
impose merely a 2% excise tax on mineral products. Courts cannot
inquire into the wisdom of the amount of such tax, no matter how
meager it may be. This discretion of the legislature emanates from
the State’s taxing power, a power vested solely in the legislature.
However, the legislature has no power to waive for free the benefits
accruing to the State from its ownership of mineral resources.
Absent considerations of social justice, the legislature has no power
to give away for free what forms part of the national patrimony of
the State. Any surrender by the legislature of the nation’s mineral
resources, especially to foreign private enterprises, is repugnant to
the concept of national patrimony. Mineral resources form part of
the national patrimony under Article XII (National Economy and
Patrimony) of the 1987 Constitution.
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44 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Same; Same; Same; Same; Separation of Powers; Under the
last paragraph of Section 81, the collection of the State’s so-called
“share” (consisting of taxes) in FTAAs with foreign contractors is not
even certain; The Executive Department cannot correct these
deficiencies in RA 7942 through remedial implementing rules—the
correction involves substantive legislation, not merely filling in the
implementing details of the law.—Under the last paragraph of
Section 81, the collection of the State’s so-called “share” (consisting
of taxes) in FTAAs with foreign contractors is not even certain. This
paragraph provides that the State’s “share x x x shall commence
after the financial or technical assistance agreement contractor has
fully recovered its pre-operating expenses, exploration, and
development expenditures.” There is no time limit in RA 7942 for
this grace period when the collection of the State’s “share” does not
run. RA 7942 itself does not require government approval for the
pre-operating, exploration and development expenses of the foreign
contractor. The determination of the amount of pre-operating,
exploration and development expenses is left solely to the discretion
of the foreign contractor. Nothing prevents the foreign contractor
from recording preoperating, exploration and development expenses
equal to the mining revenues it anticipates for the first 10 years. If
that happens, the State’s share is ZERO for the first 10 years. The
Government cannot tell the Filipino people when the State will start
to receive its “share” (consisting of taxes) in mining revenues under
the FTAA. The Executive Department cannot correct these
deficiencies in RA 7942 through remedial implementing rules. The
correction involves substantive legislation, not merely filling in the
implementing details of the law.
Same; Same; Same; Same; Under the 1987 Constitution, the
State must receive its fair share as owner of the mineral resources,
separate from taxes, fees and duties paid by taxpayers.—Taxes, fees
and duties cannot constitute payment for the State’s share as owner
of the mineral resources. This was the mode of payment used under
the old system of “license, concession or lease” which the 1987
Constitution abrogated. Obviously, Sections 80, 81, 84 and 112 of
RA 7942 constitute an ingenious attempt to resurrect the old and
discredited system, which the 1987 Constitution has now
outlawed.Under the 1987 Constitution, the State must receive its
fair share as owner of the mineral resources, separate from taxes,
fees and duties paid
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
by taxpayers. The legislature may waive taxes, fees and duties,
but it cannot waive the State’s share in mining operations.
Same; Same; Same; Same; Under the 1987 Constitution, for a
co-production, joint venture or production-sharing agreement to be
valid the State must exercise full control and supervision over the
mining operations, which means that the State should approve all
capital and operating expenses in the exploitation of the natural
resources.—Under the 1987 Constitution, for a co-production, joint
venture or production-sharing agreement to be valid the State must
exercise full control and supervision over the mining operations.
This means that the State should approve all capital and operating
expenses in the exploitation of the natural resources. Approval of
capital expenses determines how much capital is recoverable by the
mining contractor. Approval of operating expenses determines the
reasonable amounts deductible from the annual income from
mining operations. Such approvals are essential because the net
income from mining operations, which is the basis of the State’s
share, depends on the allowable amount of capital and operating
expenses. There is approval of capital and operating expenses when
the State approves them, or if the State disapproves them and a
dispute arises, when their final allowance is subject to arbitration.
Same; Same; Same; Same; Clearly, 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.—The fourth paragraph of
Section 2, Article XII of the 1987 Constitution requires that FTAAs
with foreign contractors must make “real contributions to the
economic growth and general welfare of the country.” Under Section
81 of RA 7942, all the net proceeds arising from the exploitation of
mineral resources accrue to the foreign contractor even if the State
owns the mineral resources. The foreign contractor will naturally
repatriate the entire after-tax net proceeds to its home country.
Sections 94(a) and 94(b) of RA 7942 guarantee the foreign contractor
the right to repatriate its after-tax net proceeds, as well as its entire
capital investment, after the termination of its mining operations in
the country. Clearly, 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. The foreign contractor, after it ceases to
operate in the country, can even remit to its home country the scrap
value of its capital equipment. Thus, the second paragraph of
Section 81 of RA
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
7942 is unconstitutional for failure to meet the constitutional
requirement that the FTAA with a foreign contractor should make
a real contribution to the national economy and general welfare.
Same; Same; Same; Same; In FTAAs with a foreign contractor,
the State must receive at least 60% percent of the net proceeds from
the exploitation of its mineral resources, which share is the
equivalent of the constitutional requirement that at least 60% of the
capital, and hence 60% of the income, of mining companies should
remain in Filipino hands.—In FTAAs with a foreign contractor, the
State must receive at least 60% percent of the net proceeds from the
exploitation of its mineral resources. This share is the equivalent of
the constitutional requirement that at least 60% of the capital, and
hence 60% of the income, of mining companies should remain in
Filipino hands. Intervenor CMP and even respondent WMCP agree
that the State has a 60% interest in the mining operations under an
FTAA with a foreign contractor. Intervenor CMP asserts that the
Philippine Government “stands in the place of the 60% Filipino-
owned company.” Intervenor CMP also states that “the contractor
will get 40% of the financial benefits,” admitting that the State,
which is the owner of the mineral resources, will retain the
remaining 60% of the net proceeds.
Same; Same; Same; Same; The State’s right to receive 60% of
the net proceeds and its exercise of full control and supervision are
the essential constitutional requirements for the validity of any
FTAA.—The Occidental-Shell FTAA satisfies these constitutional
requirements because the State receives 60% of the net proceeds
and exercises full control and supervision of the petroleum
operations. The State’s right to receive 60% of the net proceeds and
its exercise of full control and supervision are the essential
constitutional requirements for the validity of any FTAA. The name
given to the contract is immaterial—whether a “Service Contract”
or any other name—provided these two essential constitutional
requirements are present. Thus, the designation of the Occidental-
Shell FTAA as a “Service Contract” is inconsequential since the two
essential constitutional requirements for the validity of the contract
as an FTAA are present.
Same; Same; Same; Same; Exploration Permits; The State, as
the party directly undertaking the exploitation of its natural
resources, must hold through the Government all exploration permits
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
and similar authorizations—Section 3(aq) of RA 7942, in
allowing foreign-owned corporations to hold exploration permits, is
unconstitutional.—Section 3(aq) of RA 7942 allows the foreign
contractor to hold the exploration permit under the FTAA. However,
Section 2, Article XII of the 1987 Constitution does not allow foreign
owned corporations to undertake directly mining operations.
Foreign owned corporations can only act as contractors of the State
under the FTAA, which is one method for the State to undertake
directly the exploitation of its natural resources. The State, as the
party directly undertaking the exploitation of its natural resources,
must hold through the Government all exploration permits and
similar authorizations. Section 3(aq) of RA 7942, in allowing foreign
owned corporations to hold exploration permits, is unconstitutional.
Same; Same; Same; Same; Oil Industry; The Occidental-Shell
FTAA, involving a far riskier offshore venture than land-based
mining operations, is a model for emulation if foreign contractors
want to comply with the constitutional requirements; Section 112 of
RA 7942 is unconstitutional since it is contrary to Section 2, Article
XII of the 1987 Constitution—it allows the foreign contractor to pay
only the “government share in a mineral production-sharing
agreement” which limits the “government share” solely to the excise
tax.—The Occidental-Shell FTAA, involving a far riskier offshore
venture than land-based mining operations, is a modelfor emulation
if foreign contractors want to comply with the constitutional
requirements. Section 112 of RA 7942, however, negates the benefits
of the State from the Occidental-Shell FTAA. Occidental-Shell can
invoke Section 112 of RA 7942 and deny the State its 60% share of
the net proceeds from the exploitation of petroleum. Section 112
allows the foreign contractor to pay only the “government share in a
mineral production-sharing agreement” under RA 7942. Section 80
of RA 7942 on MPSAs limits the “government share” solely to the
excise tax—2% on metallic and non-metallic mineral products and
3% on petroleum. Section 112 of RA 7942 is unconstitutional since
it is contrary to Section 2, Article XII of the 1987 Constitution.
Same; Same; Same; Same; Ownership; The Solicitor General
has redefined the civil law concept of ownership, by giving the owner
full control in the exploitation of the property he owns but denying
him the fruits or income from such exploitation.—The so-called
“share” of the State consists only of direct and indirect taxes, as well
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
as other operating expenses not even payable to the State. The
Solicitor General in effect concedes that under the second paragraph
of Section 81, the State does not receive any share of the net
proceeds from the mining operations of the FTAA contractor.
Despite this, the Solicitor General insists that the State remains the
owner of the mineral resources and exercises full control over the
mining operations of the FTAA contractor. The Solicitor General has
redefined the civil law concept of ownership, by giving the owner full
control in the exploitation of the property he owns but denying him
the fruits or income from such exploitation. The only satisfaction of
the owner is that the FTAA contractor pays taxes to the
Government.
Same; Same; Same; Same; National Economic and
Development Authority (NEDA); Under the Constitution, the NEDA
is the “independent (economic) planning agency of the government,”
but in this case the NEDA Secretary has joined the chorus of the
foreign chambers of commerce to uphold the validity of RA 7942 as
essential to entice foreign investors to exploit the nation’s mineral
resources.—Secretary Romulo L. Neri of the National Economic and
Development Authority (“NEDA”) has warned this Court of the
supposed dire repercussions to the nation’s long-term economic
growth if this Court declares the assailed provisions of RA 7942
unconstitutional. Under the Constitution, the NEDA is the
“independent (economic) planning agency of the government.”
However, in this case the NEDA Secretary has joined the chorus of
the foreign chambers of commerce to uphold the validity of RA 7942
as essential to entice foreign investors to exploit the nation’s
mineral resources. We cannot fault the foreign chambers of
commerce for driving a hard bargain to maximize the profits of
foreign investors. We are, however, saddened that the NEDA
Secretary is willing to give away for free to foreign investors the
State’s share of the income from its ownership of mineral resources.
If the NEDA Secretary owns the mineral resources instead of the
State, will he allow the foreign contractor to exploit his mineral
resources for free, the only obligation of the foreign contractor being
to pay taxes to the Government?
Same; Same; Same; Same; The clear intent of RA 7942 is to
limit the State’s share from mining operations to taxes, duties and
fees, unless the State contributes equity in addition to the mineral
resources—RA 7942 does not recognize the mere contribution of
mineral resources as entitling the State to receive a share in the net
min-
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ing revenues separate from taxes, duties and fees.—The clear
intent of RA 7942 is to limit the State’s share from mining
operations to taxes, duties and fees, unless the State contributes
equity in addition to the mineral resources. RA 7942 does not
recognize the mere contribution of mineral resources as entitling the
State to receive a share in the net mining revenues separate from
taxes, duties and fees. Thus, Section 80 expressly states that the
“total government share in a mineral production sharing agreement
shall be the excise tax on mineral products.” Section 84 reiterates
this by stating that “with respect to mineral production sharing
agreement, the excise tax on mineral products shall be the
government share under said agreement.” The only share of the
State in an MPSA is the excise tax. Ironically, Sections 80 and 84
disallow the State from sharing in the production or income, even
as the contract itself is called a mineral production sharing
agreement.
Same; Same; Same; Same; Delegation of
Power; Administrative Law; Section 81 of RA 7942 does not delegate
any legislative power to the DENR Secretary to adopt the formulae
in determining the share of the State—the DENR Secretary acted
without authority or jurisdiction in issuing DAO 99-56.—Section 81
of RA 7942 does not delegate any legislative power to the DENR
Secretary to adopt the formulae in determining the share of the
State. There is absolutely no language in the second paragraph of
Section 81 granting the DENR Secretary any delegated legislative
power. Thus, the DENR Secretary acted without authority or
jurisdiction in issuing DAO 99-56 based on a supposed delegated
power in the second paragraph of Section 81. This makes DAO 99-
56 void.
Same; Same; Same; Same; Same; Same; Even assuming, for
the sake of argument, that there is language in Section 81 delegating
legislative power to the DENR Secretary to adopt the formulae in
DAO 56-99, such delegation is void—Section 81 has no standards by
which the delegated power shall be exercised.—Even assuming, for
the sake of argument, that there is language in Section 81
delegating legislative power to the DENR Secretary to adopt the
formulae in DAO 99-56, such delegation is void.Section 81 has no
standards by which the delegated power shall be exercised. There is
no specification on the minimum or maximum share that the State
must receive from mining operations under FTAAs. No parameters
on the extent of the delegated power to the DENR Secretary are
found in Section
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50 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
81. Neither were such parameters ever discussed even remotely
by Congress when it enacted RA 7942. In sharp contrast, the first
paragraph of the same Section 81, in prescribing the State’s share
in coproduction and joint venture agreements, expressly specifies
the standards in determining the State’s share as follows: “(a)
capital investment of the project, (b) 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 reason for the absence of similar standards in the
succeeding paragraph of Section 81 in determining the State’s share
in FTAAs is obvious—the State’s share in FTAAs is limited solely to
taxes, duties and fees. Thus, such standards are inapplicable and
irrelevant.
Same; Same; Same; Same; Same; Same; The DENR Secretary,
in issuing DAO 99-56, has arrogated to himself the power to approve
FTAAs, a power vested by the Constitution solely in the President.—
Section 5 of DAO 99-56 violates paragraphs 4 and 5 of Section 2,
Article XII of the 1987 Constitution mandating that the President
shall approve all FTAAs and send copies of all approved FTAAs to
Congress. The consideration of the FTAA is the most important part
of the FTAA as far as the State and the Filipino people are
concerned. The DENR Secretary, in issuing DAO 99-56, has
arrogated to himself the power to approve FTAAs, a power vested by
the Constitution solely in the President. By not even informing the
President of changes in the fiscal regime and thus preventing such
changes from reaching Congress, DAO 99-56 even seeks to hide
changes in the fiscal regime from Congress. By its provisions alone,
DAO 99-56 is clearly unconstitutional and void.
Same; Same; Same; Same; Same; Same; The DENR has no
legislative power to correct constitutional infirmities in RA 7942, and
the DENR does not also possess the constitutional power to prescribe
the sharing of mining income between the State and mining
companies, the act the DENR attempts to do in adopting DAO 99-
56.—The DENR conceived and developed the formulae to save
Section 81 not only from constitutional infirmity, but also from
blatantly depriving the State and Filipino people from any share in
the income of mining companies. However, the DENR’s admittedly
“admirable job” cannot amend Section 81 of RA 7942. The DENR
has no legislative power to correct constitutional infirmities in RA
7942. The DENR does not
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also possess the constitutional power to prescribe the sharing
of mining income between the State and mining companies, the act
the DENR attempts to do in adopting DAO 99-56.
Same; Same; Same; Same; Judicial Legislation; The majority
opinion is re-writing the 1987 Constitution and even RA 7492; There
is no doubt whatsoever that it is Congress that prescribes the terms
and conditions of FTAAs, not the President as the majority opinion
claims.—The majority opinion is re-writing the 1987 Constitution
and even RA 7942. Paragraph 4, Section 2, Article XII of the 1987
Constitution expressly 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. x x x. (Emphasis supplied) Clearly, the 1987 Constitution
mandates that the President may enter into FTAAs only “according
to the general terms and conditions provided by law.” There is no
doubt whatsoever that it is Congress that prescribes the terms and
conditions of FTAAs, not the President as the majority opinion
claims. The 1987 Constitution mandates the President to comply
with the terms and conditions prescribed by Congress for FTAAs.
Same; Same; Same; Same; If the term limit does not apply to
FTAAs because the term limit is found in the first paragraph of
Section 2, then the other limitations in the same first paragraph of
Section 2 do not also apply to FTAAs.—The majority opinion,
however, makes the startling assertion that FTAAs are not covered
by the term limit under Section 2, Article XII of the 1987
Constitution. The majority opinion states: I believe that the
constitutional term limits do 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. (Emphasis supplied) If the term limit does not
apply to FTAAs because the term limit is found in the first
paragraph of Section 2, then the other limitations in the same first
paragraph of Section 2 do not also apply to FTAAs. These
limitations are three: first, that the State owns the natural
resources; second, except for agricultural lands, natural resources
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52 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
shall not be alienated; third, the State shall exercise full control
and supervision in the exploitation of natural resources. Under the
majority opinion’s interpretation, these three limitations will no
longer apply to FTAAs, leading to patently absurd results. The
majority opinion will also contradict its own admission that even in
FTAAs the State must exercise full control and supervision in the
exploitation of natural resources.
Same; Same; Same; Same; Statutory Construction; It defies
common sense, simple logic and plain English to assert that Section
112 of RA 7942 does not apply to FTAAs.—There are no ifs or buts
in Section 112. The plain, simple and clear language of Section 112
makes FTAAs, like the WMCP FTAA, subject to Section 112. We
repeat the express words of Section 112—(1) “All valid and
existing mining lease contracts x x x mineral production-sharing
agreements granted under Executive Order No. 279, at the date
of effectivity of this Act x x x.” (2) the “x x x government share in
mineral production-sharing agreement x x x shall immediately
govern and apply to a mining lessee or contractor x x x.” (3)
“financial or technical assistance agreements shall comply
with the applicable provisions of this Act and its implementing rules
and regulations.” With such clear and unequivocal language, how
can the majority opinion blithely state that Section 112 “cannot be
made to apply to FTAAs”? It defies common sense, simple logic and
plain English to assert that Section 112 does not apply to FTAAs. It
defies the fundamental rule of statutory construction as repeated
again and again in jurisprudence.
Same; Same; Same; Same; The activity of exploration of
natural resources, which requires an exploration permit, is a
reserved activity not allowed to foreign contractors or foreign
corporations.—The plain language of Section 2, Article XII of the
1987 Constitution clearly limits to Philippine citizens or to
corporations 60% Filipino owned the right to engage in the
“exploration x x x of natural resources.” To engage in “exploration”
is simply to explore, not to develop, utilize or extract. To engage in
exploration one must secure an exploration permit. The mere
issuance of the exploration permit is the authority to engage in the
exploration of natural resources. This activity of exploration, which
requires an exploration permit, is a reserved activity not allowed to
foreign contractors or foreign corporations. Foreign contractors and
foreign corporations cannot secure
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exploration permits because they cannot engage in the
exploration of natural resources. If, as the majority opinion asserts,
foreign contractors or foreign corporations can secure and hold
exploration permits, then they can engage in the “exploration x x x
of natural resources.” This violates Section 2, Article XII of the 1987
Constitution. Consequently, Section 3(aq) of RA 7942, which
provides that “a legally organized foreign-owned corporation shall
be deemed a qualified person for purposes of granting an exploration
permit,” is void and unconstitutional.
Same; Same; Same; Same; Where the State directly undertakes
to explore, develop and utilize the natural resources, it may contract
with a foreign corporation to conduct the physical act of exploration
in the State’s behalf as in an FTAA, in which case the foreign FTAA
contractor is merely an agent of the State which holds the right to
explore.—The State may directly undertake to explore, develop and
utilize the natural resources. To do this the State may contract a
foreign corporation to conduct the physical act of exploration in the
State’s behalf, as in an FTAA. In such a case, the foreign FTAA
contractor is merely an agent of the State which holds the right to
explore. No exploration permit is given to the foreign contractor
because it is the State that is directly undertaking the exploration,
development and utilization of the natural resources.
Same; Same; Same; Same; The State cannot allow foreign
corporations, except as contractual agents under the full control and
supervision of the State, to explore our natural resources because
information derived from such exploration may have national
security implications.—The requirement reserving “exploration x x
x of natural resources” to Philippine citizens or to corporations 60%
Filipino owned is not a matter of constitutional whim. The State
cannot allow foreign corporations, except as contractual agents
under the full control and supervision of the State, to explore our
natural resources because information derived from such
exploration may have national security implications.
Same; Same; Same; Same; The majority opinion refused to
accept that the State is entitled to what the entire mining industry is
willing to pay the State—oddly, the majority opinion cites only the
personal experience of the ponente, who had previously “been
engaged in private business for many years”; The majority opinion
ponente’s
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54 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
business judgment cannot supplant the unanimous business
judgment of the entire mining industry; What is obvious is that it is
not fair to deprive the Filipino people, many of whom live in hand to
mouth existence, of what is legally their share of the national
patrimony, in light of the willingness of the entire mining industry
to pay the Filipino people their rightful share.—The entire mining
industry, as represented by intervenor CMP, is willing to pay the
State a share equivalent to 60% of the net mining revenues. Even
the foreign contractor WMCP agrees to pay the State 60% of its net
mining revenues, albeit dishonestly. However, the majority opinion
refuses to accept that the State is entitled to what the entire mining
industry is willing to pay the State. Incredibly, the majority opinion
claims that “there is no independent showing that the taking of at
least 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.” Despite the willingness of the entire mining
industry to pay the State a 60% share without exception, the
majority opinion insists that such sharing is not fair and reasonable
to the mining industry “under most if not all circumstances.” What
is the basis of the majority opinion in saying this when the entire
mining industry already admits, concedes and accepts that the
State is entitled, without exception, to 60% of the net mining
revenues? Oddly, the majority opinion cites only the personal
experience of the ponente, who had previously “been engaged in
private business for many years.” The majority opinion even states,
in insisting that the State should receive less than 60% share,
that “[F]airness is a credo not only in law, but also in business.” The
majority opinion cannot be more popish than the Pope. The majority
opinion ponente’s business judgment cannot supplant the
unanimous business judgment of the entire mining industry, as
manifested by intervenor CMP before this Court. What is obvious is
that it is not fair to deprive the Filipino people, many of whom live
in hand to mouth existence, of what is legally their share of the
national patrimony, in light of the willingness of the entire mining
industry to pay the Filipino people their rightful share.
Same; Same; Same; Same; The State can “conserve” our
mineral resources only if the majority of the net proceeds from the
exploitation of mineral resources accrue to the State.—The 1987
Constitution ordains the State to “conserve and develop our
patrimony.” The nation’s mineral resources are part of our national
patrimony. The
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
 State can “conserve” our mineral resources only if the majority
of the net proceeds from the exploitation of mineral resources accrue
to the State.
Same; Same; Same; Same; Only Congress, through a law, may
allow a share lesser than 60% if certain compelling conditions are
present.—More than anything else, the intent and language of the
1987 Constitution require that the State receive the bulk of the
income from mining operations. Only Congress, through a law, may
allow a share lesser than 60% if certain compelling conditions are
present. Congress may authorize the President to make such
determination subject to standards and limitations that Congress
shall prescribe. The majority opinion wants to give the President the
absolute discretion to determine the State’s share from mining
revenues. The President will be hard put accepting anything less
than 60% of the net proceeds. If the President accepts less than 60%,
the President is open to a charge of entering into a manifestly and
grossly disadvantageous contract to the Government because the
entire mining industry, including WMCP, has already agreed to pay
60% of the net proceeds to the State. The only way to avoid this is
for Congress to enact a law providing for the conditions when the
State may receive less than 60% of the net proceeds.
Same; Same; Same; Same; No amount of dire warnings or
media publicity should intimidate this Court into resurrecting the
old and discredited system that has caused the denudation of almost
all of the nation’s virgin forests without any visible benefit to the
Filipino people.—In Miners Association, this Court ruled that the
1987 Constitution has abandoned the old system of “license,
concession or lease” and instead installed full State control and
supervision over the exploitation of natural resources. No amount of
dire warnings or media publicity should intimidate this Court into
resurrecting the old and discredited system that has caused the
denudation of almost all of the nation’s virgin forests without any
visible benefit to the Filipino people. The framers of the 1987
Constitution have wisely instituted the new system to prevent a
repeat of the denudation of our forestlands that did not even make
any real contribution to the economic growth of the nation. This
Court must do its solemn duty to uphold the intent and letter of the
Constitution and, in the words of the Preamble of the 1987
Constitution, “conserve and develop our patrimony” for the benefit
of the Filipino people.
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
CARPIO-MORALES, J., Dissenting Opinion:
Actions; Pleadings and Practice; Oral Arguments; There is no
rule of procedure, whether in Rule 52 or elsewhere, which restricts
the resolution of a case to the issues taken up in the oral arguments.—
There is no rule of procedure, whether in Rule 52 or elsewhere,
which restricts the resolution of a case to the issues taken up in the
oral arguments. The reason is obvious. The issues for resolution in
any given case are determined by the conflicting arguments of the
parties as set forth in their pleadings. On the other hand, the
matters to be taken up in an oral argument may be limited, by order
of the court, to only such points as the court may deem necessary.
Thus, Section 1 of Rule 49 provides: Section 1. When allowed.—At
its own instance or upon motion of a party, the court may hear the
parties in oral argument on the merits of a case, or on any material
incident in connection therewith. The oral argument shall be limited
to such matters as the court may specify in its order or
resolution. (Emphasis supplied) A narrow delimitation of matters to
be taken up during oral argument is a matter of practical necessity
since often not all the relevant issues can be thoroughly discussed
without unduly imposing on the time of the Court. However, unlike
a pre-trial order, the delimitation does not control or limit the issues
to be resolved. These issues may be subject matter of the parties’
memoranda, as in this case.
National Economy and Patrimony; Natural
Resources; Philippine Mining Act of 1995 (R.A. No. 7942); Financial
and Technical Assistance Agreements (FTAA); Judicial
Review; Political Questions; Words and Phrases; The distinction
between a truly political question and an ostensible one lies in the
answer to the question of whether there are constitutionally imposed
limits on powers or functions conferred upon political bodies—if
there are constitutionally imposed limits, then the issue is justiciable,
and a court is duty-bound to examine whether the branch or
instrumentality of the government properly acted within those
limits.—The Constitution delineates the parameters of the powers
of the legislative, the executive and the judiciary. Whether the first
and second great departments of government exceeded those
parameters is the function of the third. Thus, the Constitution
defines judicial power to include “the duty . . . to determine whether
or not there has been a grave abuse of discretion amounting to lack
or excess of jurisdiction on the part of any
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VOL. 445, DECEMBER 1, 2004 57
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
branch or instrumentality of the Government.” Judicial power
does not extend to political questions, which are concerned with
issues dependent upon the wisdom, not the legality, of a particular
measure. The reason is that, under our system of government, policy
issues are within the domain of the political branches of government
and of the people themselves as the repository of all state power. In
short, the judiciary does not settle policy issues. The distinction
between a truly political question and an ostensible one lies in the
answer to the question of whether there are constitutionally
imposed limits on powers or functions conferred upon political
bodies. If there are constitutionally imposed limits, then the issue is
justiciable, and a court is duty-bound to examine whether the
branch or instrumentality of the government properly acted within
those limits.
Same; Same; Same; Same; Same; Same; The questions
involved in this case are not political—the provisions of paragraph
4, Section 2 of Article XII of the Constitution, incorporate limitations
on the scope of FTAAs, limitations on the powers of the legislative to
determine their terms, as well as the powers of the Executive to enter
into them.—Respondent WMCP argues that the “exploration,
development, and utilization of natural resources are matters of
policy, in other words, political matters or questions,” over which
this Court has no jurisdiction. Respondent is mistaken. The
questions involved in this case are not political. The provisions of
paragraph 4, Section 2 of Article XII of the Constitution, including
the phrase “agreements… involving either technical or financial
assistance,” incorporate limitations on the scope of such agreements
or FTAAs. Consequently, they constitute limitations on the powers
of the legislative to determine their terms, as well as the powers of
the Executive to enter into them. In its Decision, this Court found
that, by enacting the objectionable portions of the Mining Act and
in entering into the subject FTAA, the Congress and the President
went beyond the constitutionally delimited scope of such
agreements and thereby transgressed the boundaries of their
constitutional powers.
Same; Same; Same; Same; Words and
Phrases; Trusts; Beneficial ownership, as the plain meaning of the
words implies, refers to the right to the gains, rewards and
advantages generated by the property—the concept is well
entrenched in the law of trusts.—Beneficial ownership, as the plain
meaning of the words implies, refers to the right to the gains,
rewards and advantages generated
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58 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
by the property. The concept is not new, but in fact is well
entrenched in the law of trusts. Thus, while the trustee holds the
legal title to or ownership of the property entrusted to him, he is
nevertheless not the beneficial owner. Rather, he holds and
administers the property for the benefit of another, called the
beneficiary or the cestui que trust. Hence, the profits realized from
the administration and management of the property by the trustee,
who is the “naked owner,” less any lawful fees due to the latter,
accrue to the cestui que trust, who is the “beneficial” or “equitable”
owner.
Same; Same; Same; Same; Same; Same; The phrase “natural
resources are owned by the State” simultaneously vests the legal title
to the nation’s natural resources in the Government, and the
beneficial ownership of these resources in the sovereign Filipino
people, from whom all governmental authority emanates.—The
words “owned” and “State” should both be understood on two levels.
“Owned” or “ownership” refers to both the legal title to and the
beneficial ownership of the natural resources. Similarly, “State”
should be understood as denoting both the body politic making up
the Republic of the Philippines, i.e., the Filipino people, as well as
the Government which represents them and acts on their behalf.
Thus, the phrase “natural resources are owned by the State”
simultaneously vests the legal title to the nation’s natural resources
in the Government, and the beneficial ownership of these resources
in the sovereign Filipino people, from whom all governmental
authority emanates.
 Same; Same; Same; Same; Same; Same; In the exploration,
development and utilization of the nation’s natural resources, the
Government is in a position analogous to a trustee, holding title to
and managing these resources for the benefit of the Filipino people,
including future generations—corollary to this, the Government
cannot, without violating its sacred trust, enter into any agreement
or arrangement which effectively deprives the Filipino people of their
beneficial ownership of these resources.—In the exploration,
development and utilization of the nation’s natural resources, the
Government is in a position analogous to a trustee, holding title to
and managing these resources for the benefit of the Filipino people,
including future generations. As the trustee of the sovereign, the
Government has a fiduciary duty to ensure that the gains, rewards
and advantages generated by the Philippines’ natural resources
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VOL. 445, DECEMBER 1, 2004 59
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
accrue to the benefit of the Filipino people. Corollary to this,
the Government cannot, without violating its sacred trust, enter
into any agreement or arrangement which effectively deprives the
Filipino people of their beneficial ownership of these resources—
e.g., when it enters into an agreement whereby the vast majority of
the resources, or the profit generated from the resources, is
bargained away in favor of a foreign entity.
Same; Same; Same; Same; Same; Same; In the context of its
role as trustee, the Government’s “full control and supervision” over
the exploration, development and utilization of the nation’s natural
resources, in its most basic and fundamental sense, is accomplished
by maintaining a position whereby it can carry out its fiduciary duty
to protect the beneficial interest of its cestui que trust in these re-
sources.—Significantly, Section 2, Article XII of the Constitution
provides that the Government may undertake the exploration,
development and utilization of these resources by itself or together
with a third party. In the first case, where no third party is involved,
the Government’s “full control and supervision” over the resources
is easily achieved. In the second case, where the third party may
naturally be expected to seek participation in the operation of the
venture and ask for compensation in proportion to its
contribution(s), the Government must still maintain a position vis-
à-vis its third party partner whereby it can adequately protect the
interest of the Filipino people, who are the beneficial owners of the
resources.
Same; Same; Same; Same; The provision of Section 2, Article
XII Constitution which requires that “agreements . . . involving
financial or technical assistance” be “based on real contributions to
the economic growth and general welfare of the country” articulates
the value which the Constitution places on natural resources, and
recognizes their potential benefits, as well as acknowledges the fact
that the impact of mining operations is not confined to the economy
but, perhaps to a greater extent, affects Philippine society as a whole
as well.—Section 2, Article XII likewise requires that “agreements .
. . involving financial or technical assistance” be “based on real
contributions to the economic growth and general welfare of the
country.” This provision articulates the value which the
Constitution places on natural resources, and recognizes their
potential benefits. It likewise acknowledges the fact that the impact
of mining operations is not confined to the economy but, perhaps to
a greater extent, affects
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60 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Philippine society as a whole as well. “Minerals, petroleum and
other mineral oils,” are part of the non-renewable wealth of the
Filipino people. By pursuing large scale exploration, development
and utilization of these resources, the State would be allowing the
consumption or exhaustion of these resources, and thus deprive
future Filipino generations the enjoyment thereof. Mining—
especially large-scale mining—often results in the displacement of
local residents. Its negative effects on the environment are well-
documented.
Same; Same; Same; Same; Real benefits are intergenerational
benefits because the motherland’s natural resources are the
birthright not only of the present generation of Filipinos but of future
generations as well.—Thus, for benefits from the exploration,
development and utilization of these resources to be real, they must
yield profits over and above 1) the capital and operating costs
incurred, 2) the resulting damage to the environment, and 3) the
social costs to the people who are immediately and adversely
affected thereby. Moreover, the State must ensure that the real
benefits from the utilization of these resources are sufficient to offset
the corresponding loss of these resources to future generations. Real
benefits are intergenerational benefits because the motherland’s
natural resources are the birthright not only of the present
generation of Filipinos but of future generations as well.
Same; Same; Same; Same; Statutory Construction; Words and
Phrases; To interpret the term “involving” in the fourth paragraph of
Section 2, Article XII of the Constitution to mean “including,” as the
majority contends, would run counter to the restrictive spirit of the
provision—notably, the 1987 Constitution uses “involving” not
“including”; That the fourth paragraph does not employ the terms
“solely,” “only,” or “limited to” to qualify “either technical or financial
assistance” does not detract from the provision’s restrictive nature.—
To interpret the term “involving” in the fourth paragraph to mean
“including,” as the majority contends, would run counter to the
restrictive spirit of the provision. Notably, the 1987 Constitution
uses “involving” not “including.” As admitted in the majority
opinion, the word “involve” may also mean concerning, having to do
with or affecting. Following the majority opinion’s own methodology
of substitution, “agreements . . . involving either technical or
financial assistance” means “agreements . . . concerning either
technical or financial assistance.” And the word “concerning”
according to Webster’s
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Third New International Dictionary means “regarding,”
“respecting” or “about.” To reiterate, these terms indicate
exclusivity. More tellingly, the 1987 Constitution not only deleted
the term “management” in the 1973 Constitution, but also the catch-
all phrase “or other forms of assistance,” thus reinforcing the
exclusivity of “either technical or financial assistance.” That the
fourth paragraph does not employ the terms “solely,” “only,” or
“limited to” to qualify “either technical or financial assistance” does
not detract from the provision’s restrictive nature. Moreover, the
majority opinion’s illustration conveniently omits “either . . . or.” As
Senior Associate Justice Reynato S. Puno pointed out during the
oral arguments, the use of the disjunctive “either . . . or” denotes
restriction.
Same; Same; Same; Same; Same; Same; The traditional rule
holds that “either” should be used only to refer to one of two items
and that “any” is required when more than two items are involved.—
According to the Penguin Dictionary, the word “either” may be used
as (1) an adjective or (2) a pronoun or (3) a conjunction or (4) an
adverb. As an adjective, the word “either” means (1) any one of two;
one or the other; or (2) one and the other; each. As a pronoun, the
word “either” means the one or the other. As a conjunction, the
word “either” is used before two or more sentence elements of the same
class or function joined usually by “or” to indicate what
immediately follows is the first of two or more
alternatives. Lastly, as an adverb, “either” is used for emphasis
after a negative or implied negation (i.e. for that matter or likewise).
The traditional rule holds that “either” should be used only to refer
to one of two items and that “any” is required when more than two
items are involved. However, modern English usage has relaxed this
rule when “either” is used as a conjunction. Thus, the word “either”
may indicate the choice between two or more possibilities.
Same; Same; Same; Same; Same; Same; The use of the word
“either” clearly limits the President to only two possibilities, financial
and technical assistance; In accordance with the intent of the
provision, “agreements... involving either technical or financial” is
deemed restrictive and not just descriptive—it is a condition, a
limitation, not a mere description.—“Either” in paragraph 4, section
2, Article XII, is clearly used as a conjunction, joining two (and only
two) concepts—financial and technical. The use of the word “either”
clearly limits the President to only two possibilities, financial and
technical
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assistance. Other forms of assistance are plainly not allowed,
since only the words “financial and technical” follow the word
“either.” In accordance with the intent of the provision, “agreements
. . . involving either technical or financial” is deemed restrictive and
not just descriptive. It is a condition, a limitation, not a mere
description.
Same; Same; Same; Same; Same; Same; Casus Omisus; That
there is a difference between technical or financial assistance
contemplated by the 1987 Constitution and the service contracts
under the 1973 Constitution is gathered from the omission of the
phrase “management or other forms of assistance”—a person, object
or thing omitted from an enumeration must be held to have been
omitted intentionally.—The majority however argues that the
deletion or omission from the 1987 Constitution of the term “service
contracts” found in the 1973 Constitution does not sufficiently prove
the drafters’ intent to exclude foreigners from management since
such intent cannot be definitively and conclusively established. This
argument overlooks three basic principles of statutory construction.
First, casus omisus pro omisso habendus est. As recently as 2001
in Commission on Audit of the Province of Cebu v. Province of Cebu,
this Court held that a person, object or thing omitted from an
enumeration must be held to have been omitted intentionally. That
there is a difference between technical or financial assistance
contemplated by the 1987 Constitution and the service contracts
under the 1973 Constitution is gathered from the omission of the
phrase “management or other forms of assistance.” x x x
Second, expressio unius est exclusio alterius. The express mention of
one person, thing, act, or consequence excludes all others. Third and
lastly, expressium facit cessare tacitum. What is expressed puts an
end to that which is implied. Since the constitutional provision, by
its terms, is expressly limited to financial or technical agreements,
it may not, by interpretation or construction, be extended to other
forms of assistance.
Same; Same; Same; Same; Same; Same; This Court may not,
in the guise of interpretation, enlarge the scope of a constitutional
provision and include therein situations not provided nor intended
by the framers.—These three principles of statutory construction,
derived from the well-settled principle of verba legis, proceed from
the premise that the Constitutional Commission would not have
made specific enumerations in the provision if it had the intention
not to restrict its meaning and confine its terms to those expressly
mentioned. And
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this Court may not, in the guise of interpretation, enlarge the
scope of a constitutional provision and include therein situations not
provided nor intended by the framers. To do so would be to do
violence to the very language of the Constitution, the same
Constitution which this Court has sworn to uphold.
Same; Same; Same; Same; There is merit in the contention that
a foreign-owned corporation is not prevented from having limited
participation in the management assistance or participation so long
as it is incidental to the financial or technical assistance being
rendered.—Foreign-owned corporations, however, are not precluded
from a limited participation in the management of the exploration,
development and utilization of natural resources. Some degree of
participation by the contractor in management, to assure the proper
application of its investment and/or to facilitate the technical
assistance and transfer of technology may be unavoidable and not
necessarily undesirable. Thus, there is merit in respondent WMCP’s
contention, to which even petitioners conceded during the oral
arguments, that a foreign-owned corporation is not prevented from
having limited participation in the management assistance or
participation so long as it is incidental to the financial or technical
assistance being rendered.
Same; Same; Same; Same; Conspicuously absent from the
Mining Act are effective means by which the Government can protect
the beneficial interest of the Filipino people in the exploration,
development and utilization of their resources.—To be sure, the
majority opinion cites a litany of documents, plans, reports and
records which the foreign FTAA contractor is obliged to submit or
make available under the Mining Act and DAO 96-40. However, the
mere fact that the Act requires the submission of work programs
and minimum expenditure commitments does not provide adequate
protection. These were also required under the old concession and
service contract systems, but did not serve to place full control and
supervision of the country’s natural resources in the hands of the
Government. Conspicuously absent from the Mining Act are effective
means by which the Government can protect the beneficial interest of
the Filipino people in the exploration, development and utilization of
their resources. It appears from the provisions of the Mining Act that
the Government, once it has determined that a foreign corporation
is
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eligible for an FTAA and enters into such an agreement, has
very little say in the corporation’s actual operations.
 Same; Same; Same; Same; The provisions of the Mining Act
and its Implementing Rules give scarcely more than lip service to the
constitutional mandate for the State to exercise full control and
supervision over the exploration, development and utilization of
Philippine Natural Resources—in effect, they abdicate control over
mining operations in favor of the foreign FTAA contractor.—In fine,
the provisions of the Mining Act and its Implementing Rules give
scarcely more than lip service to the constitutional mandate for the
State to exercise full control and supervision over the exploration,
development and utilization of Philippine Natural Resources.
Evaluated as a whole and in comparison with other government
agencies, the provisions of the Mining Act and its Implementing
Rules fail to meet even the reduced standard of effective regulatory
control over mining operations. In effect, they abdicate control over
mining operations in favor of the foreign FTAA contractor. For this
reason, the provisions of the Mining Act, insofar as they pertain to
FTAA contracts, must be declared unconstitutional and void.
Same; Same; Same; Same; Taxation; The collection of taxes
and fees cannot be considered a return on the resources mined
corresponding to beneficial ownership of the Filipino people—taxes
are collected under the State’s power to generate funds to finance the
needs of the citizenry and to advance the common weal, not a return
on investment or property.—Under the foregoing provisions, the
Government does not receive a share in the proceeds of the mining
operation. All it receives are taxes and fees from the foreign
corporation, just as in the old concession and service contract
regimes. The collection of taxes and fees cannot be considered a
return on the resources mined corresponding to beneficial ownership
of the Filipino people. Taxes are collected under the State’s power to
generate funds to finance the needs of the citizenry and to advance
the common weal. They are not a return on investment or property.
Similarly, fees are imposed under the police power primarily for
purposes of regulation. Again, they do not correspond to a return on
investment or property.
Same; Same; Same; Same; The Mining Act gives the foreign-
owned corporation virtually complete control, not mere “incidental”
participation in management, over the entire operations—the law is
thus at its core a retention of the concession system, still granting
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beneficial ownership of the natural resources to the foreign
contractor and does little to affirm the State’s ownership over them,
and its supervision and control over their exploration, development
and utilization.—It is, therefore, clearly evident that the foregoing
provisions of the Mining Act effectively transfer the beneficial
ownership over the resources covered by the agreement to a
foreigner, in contravention of the letter and spirit of the
Constitution. Consequently, the assailed Decision inescapably
concluded that: 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. The Mining Act
gives the foreign-owned corporation virtually complete control, not
mere “incidental” participation in management, over the entire
operations. The law is thus at its core a retention of the concession
system. It still grants beneficial ownership of the natural resources
to the foreign contractor and does little to affirm the State’s
ownership over them, and its supervision and control over their
exploration, development and utilization.
Same; Same; Same; Same; Exploration Permits; The grant of
an exploration permit—which is not an agreement—cannot possibly
be construed as being favorably sanctioned by paragraph 4 of Section
2, Article XII of the Constitution.—However, by the majority
opinion’s express admission, the grant of an exploration permit does
not even contemplate the entry into an agreement between the State
and the applicant foreign corporation since “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.” Consequently, the
grant of an exploration permit—which is not an agreement—cannot
possibly be construed as being favorably sanctioned by paragraph 4
of Section 2, Article XII of the Constitution which refers to
“agreements . . . involving either financial or technical assistance.”
Not falling within the exception embodied in paragraph 4 of Section
2, Article XII of the Constitution, the grant of such a permit to a
foreign corporation is prohibited and the proviso providing for such
grant in Section 3 (aq) of the Mining Act is void for being
unconstitutional.
Same; Same; Same; Same; Divestment by a foreigner of an
illegally acquired right to mine Philippine resources does not alter
the illegal character of the right being divested or sold.—As above-
stated the doctrine enunciated in Halili is based on the premise that
the
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purpose of the Constitution in prohibiting alien ownership of
agricultural land is to retain the ownership or legal title of the land
in the hands of Filipinos. This purpose is not identical or even
analogous to that in Section 2, Article XII of the Constitution. As
priorly discussed, the primary purpose of the provisions on National
Patrimony is to preserve to the Filipino people the beneficial
ownership of their natural resources—i.e. the right to the gains,
rewards and advantages generated by their natural resources.
Except under the terms of Section 2, Article XII, foreigners are
prohibited from involving themselves in the exploration,
development or utilization of these resources, much less from
profiting from them. Divestment by a foreigner of an illegally
acquired right to mine Philippine resources does not alter the illegal
character of the right being divested or sold. Indeed, such
divestment or sale is obviously a method by which the foreigner may
derive pecuniary benefit from his unlawful act since he receives
payment for his illegally acquired interest in the country’s natural
resources.
Same; Same; Same; Same; To allow a foreigner to profit from
illegally obtained mining rights or FTAAs subverts and circumvents
the letter and intent of Article XII of the Constitution.—To allow a
foreigner to profit from illegally obtained mining rights or FTAAs
subverts and circumvents the letter and intent of Article XII of the
Constitution. It facilitates rather than prevents the rape and
plunder of the nation’s natural resources by unscrupulous neo-
colonial entities. It thwarts, rather than achieves, the purpose of the
fundamental law. As applied to the facts of this case, respondent
WMCP, in essence, claims that now that the operation and
management of the WMCP FTAA is in the hands of a Filipino
company, no serious question as to the FTAA’s validity need arise.
Same; Same; Same; Same; Moot Questions; The transfer of the
shares in WMCP from WMC Resources International Pty. Ltd.
(WMC), a foreign-owned corporation, to a Filipino-owned one,
whether Sagittarius or Lepanto, now presently engaged in a dispute
over said shares, did not “cure” the FTAA nor moot the petition at
bar.—Evidently, the transfer of the shares in WMCP from WMC
Resources International Pty. Ltd. (WMC), a foreign-owned
corporation, to a Filipino-owned one, whether Sagittarius or
Lepanto, now presently engaged in a dispute over said shares, did
not “cure” the FTAA nor moot the petition at bar. On the contrary,
it is the Deci-
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sion in this case that rendered those pending cases moot for the
invalidation of the FTAA leaves Sagittarius and Lepanto with
nothing to dispute.
Same; Same; Same; Same; Words and Phrases; “Open Pit
Mining,” Explained; The majority opinion does not take into account
open pit mining.—The majority opinion posits that “[t]he 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 thus concludes that “5,000 hectares is way too much
for the needs of a mining operator.” Evidently, the majority opinion
does not take into account open pit mining. Open pit or opencut
mining, as differentiated from methods that require tunneling into
the earth, is a method of extracting minerals by their removal from
an open pit or borrow; it is a mine working in which excavation is
performed from the surface. It entails a surface mining operation in
which blocks of earth are dug from the surface to extract the ore
contained in them. During the mining process, the surface of the
land is excavated forming a deeper and deeper pit until the end of
mining operations. It is used extensively in mining metal ores,
copper, gold, iron, aluminum—the very minerals which the
Philippines is believed to possess in vast quantities; and is
considered the most cost-effective mining method.
Same; Same; Same; Same; The majority opinion does not
consider the fact that “opportunity cost” is more theoretical rather
than actual and, for that reason, is not an allowable deduction from
gross income in an income statement.—The majority opinion also
argues that, although entitled to reimbursement of its acquisition
cost at the end of the contract term, the FTAA contractor does not
acquire its surface rights for free since “the contractor will have been
cash-out for the entire duration of the term of the contract—25 to 50
years, depending,” thereby foregoing any interest income he might
have earned. This is the “opportunity cost” of the contractor’s
decision to use its money to acquire the surface rights instead of
leaving it in the bank. The majority opinion does not consider the
fact that “opportunity cost” is more theoretical rather than actual
and, for that reason, is not an allowable deduction from gross income
in an income statement. In layman’s terms it is equivalent to “the
value of the chickens that might have been hatched if only the cook
had not
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scrambled the eggs.” Neither does it consider the fact that the
contractor’s foregone interest income does not find its way to the
pockets of either the previous land owner (in this case, the Bugal
B’Laans) or the State.
Same; Same; Same; Same; Clearly, Section 3 and 10.2 (e) of the
WMCP FTAA in conjunction with Section 60 of DAO 40-96, amount
to a conveyance to a foreign corporation of the beneficial ownership
of both the minerals and the surface rights over the same, in
contravention of the clear provisions of the Constitution.—But even
if the contractor does incur some opportunity cost in holding the
surface rights for 35 to 50 years. The fact remains that, under the
terms of the WMCP FTAA, the contractor is given the power to
hold inalienable mineral land of up to 5,000 hectares, with
the assistance of the State’s power of eminent domain for a
period of up to 50 years in contravention of Section 3, Article
XII of the Constitution.Clearly, Section 3 and 10.2 (e) of the
WMCP FTAA in conjunction with Section 60 of DAO 40-96, amount
to a conveyance to a foreign corporation of the beneficial ownership
of both the minerals and the surface rights over the same, in
contravention of the clear provisions of the Constitution.
Same; Same; Same; Same; To any reasonable mind, the
absence of an effective means to enforce even administrative
determinations over an FTAA contractor, except to terminate the
contract itself falls far too short of the concept of “full control and
supervision” as to cause the offending FTAA to fall outside the ambit
of Section 2, Article XII of the Constitution.—To any reasonable
mind, the absence of an effective means to enforce even
administrative determinations over an FTAA contractor, except to
terminate the contract itself, falls far too short of the concept of “full
control and supervision” as to cause the offending FTAA to fall
outside the ambit of Section 2, Article XII of the Constitution. Verily,
viewed in its entirety, the WMCP FTAA cannot withstand a rigid
constitutional scrutiny since, by its provisions, it conveys both the
beneficial ownership of Philippine minerals and control over their
exploration, development and utilization to a foreign corporation.
Being contrary to both the letter and intent of Section 2, Article XII
of the Constitution, the WMCP FTAA must be declared void and of
no effect whatsoever.
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Same; Same; Same; Same; It is understandable, however
regrettable, that a government, strapped for cash and in the midst of
a self proclaimed fiscal crisis, would be inclined to turn a blind eye
to the consequences of unconstitutional legislation in the hope,
however false or empty, of obtaining fabulous amounts of hard
currency; As always, the one overriding consideration of this Court
should be the will of the sovereign Filipino people as embodied in
their Constitution.—It is not surprising that an industry, overly
dependent on foreign support and now in decline, should implore
this Court to reverse itself if only to perpetuate its otherwise
economically unsustainable conduct. It is even understandable,
however regrettable, that a government, strapped for cash and in
the midst of a self-proclaimed fiscal crisis, would be inclined to turn
a blind eye to the consequences of unconstitutional legislation in the
hope, however false or empty, of obtaining fabulous amounts of hard
currency. But these considerations should not outweigh the
Constitution. As always, the one overriding consideration of this
Court should be the will of the sovereign Filipino people as embodied
in their Constitution. The Constitution which gives life to and
empowers this Court. The same Constitution to which the members
of this Court have sworn their unshakable loyalty and their
unwavering fidelity.
Same; Same; Same; Same; The task of reclaiming Filipino
control over Philippine natural resources now belongs to another
generation.—Now, the unmistakable letter and intent of the 1987
Constitution notwithstanding, the majority of this Court has chosen
to reverse its earlier Decision which, to me, would once again open
the doors to foreign control and ownership of Philippine natural
resources. The task of reclaiming Filipino control over Philippine
natural resources now belongs to another generation.
TINGA, J., Separate Opinion:
Judicial Review; Statutory Construction; When the task of
judicial construction of the Constitution comes to the fore, clarity is
demanded from the Supreme Court.—The Constitution was crafted
by men and women of divergent backgrounds and varying
ideologies. Understandably, the resultant document is
accommodative of these distinct, at times competing philosophies.
Untidy as any mélange would seem, our fundamental law
nevertheless hearkens to the core democratic ethos over and above
the obvious inconveniences it spawns. However, when the task of
judicial construction of the Con-
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stitution comes to the fore, clarity is demanded from this Court.
In turn, there is a need to balance and reconcile the diverse views
that animate the provisions of the Constitution, so as to effectuate
its true worth as an instrument of national unity and progress.
National Economy and Patrimony; Natural Resources; Section
2, Article XII of the Constitution is one Janus-faced creature—it
seems to close the door on foreign handling of our natural resources,
but at the same time it leaves open a window for alien participation
in some aspects.—The variances and consequent challenges are
vividly reflected in Article XII of the Constitution on National
Patrimony, in a manner akin to Article II on Declaration of
Principles and State Policies. Some of the provisions impress as
protectionist, yet there is also an undisguised accommodation of
liberal economic policies. Section 2, Article XII, the provision key to
this case, is one such Janus-faced creature. It seems to close the door
on foreign handling of our natural resources, but at the same time
it leaves open a window for alien participation in some aspects. The
central question before us is how wide is the entry of opportunity
created by the provision.
Same; Same; Presidency; Power to Contract; As a necessary
incident of the functions of the executive office, it can be concluded
that the President has the authority to enter into contracts in behalf
of the State in matters which are not denied him or her or not
otherwise assigned to the other great branches of the government,
even if such general power is not categorically recognized in the
Constitution; The power to contract in behalf of the State is clearly
an executive function, as opposed to legislative or judicial.—
Undeniably, the particular power now in question is expressly
provided for by Section 2, Article XII of the Constitution. Still, it
originates from the concept of executive power that is not explicitly
provided for by the Constitution. As a necessary incident of the
functions of the executive office, it can be concluded that the
President has the authority to enter into contracts in behalf of the
State in matters which are not denied him or her or not otherwise
assigned to the other great branches of government, even if such
general power is not categorically recognized in the Constitution.
Among these traditional functions of the executive branch is the
power to determine economic policy. As once noted by Justice
Feliciano, the Republic of the Philippines is itself a body corporate
and juridical person vested with the full panoply of powers
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
and attributes which are compendiously described as “legal
personality.” As “Chief of State” the President is also regarded as
the head of this body corporate, and thus is capacitated to represent
the State when engaging with other entities. Such executive
function, in theory, does not require a constitutional provision, or
even a Constitution, in order to be operative. It is a power possessed
by every duly constituted presidency starting with Aguinaldo’s. This
faculty is complementary to the traditional regard of a Head of State
as emblematic of the State he/she represents. The power to contract
in behalf of the State is clearly an executive function, as opposed to
legislative or judicial. This is easily discernible through the process
of exclusion. The other branches of government—the legislative and
the judiciary—are not similarly capacitated since their core
functions pertain to legislating and adjudicating respectively.
Same; Same; Same; The exclusion of timber resources from the
scope of financial/technical assistance agreements marks a
significant distinction from the service contracts of old.—It is
noteworthy that a previous version of the fourth paragraph of
Section 2 deliberated upon during the 1987 Constitutional
Commission allowed agreements with foreign-owned corporations
with respect to all classes of natural resources. However, on the
initiative of Commissioner (now Chief Justice) Davide, the provision
was amended to limit the scope of such agreements to minerals,
petroleum and other mineral oils, which Commissioner Davide
recognized as “those particular areas where Filipino capital may not
be sufficient.” The exclusion of timber resources from the scope of
financial/technical assistance agreements marks a significant
distinction from the service contracts of old. This does not come as a
surprise, considering well-reported abuses under the old regime of
issuing timber licensing agreements, which numbered in the
thousands prior to the 1987 Constitution. On the other hand, no
similar extensive collateral damage has been reported for the
petroleum and mining industry, capitalintensive industries whose
potential for government revenues in billions of pesos has long been
sought after by the State. Hence, the variance in treatment from the
timber industry and the rest of the natural resources.
Same; Same; Same; Congress; The value of legislative input as
a means of influencing policy should not be discounted—policy
initiatives grounded on particular economic ideologies may find
enactment
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through legislation when approved by the necessary majorities
in Congress.—These agreements must be in accord with the general
terms and conditions provided by law. This proviso by itself, and
more so when taken together, as it should, with another provision,
entails legislative intervention and affirmance in the exercise of this
executive power. While it is the President who enters into these
contracts, he/she must act within such terms and conditions as may
be prescribed by Congress through legislation. The value of
legislative input as a means of influencing policy should not be
discounted. Policy initiatives grounded on particular economic
ideologies may find enactment through legislation when approved
by the necessary majorities in Congress. Legislative work includes
consultative processes with persons of diverse interests, assuring
that economic decisions need not be made solely from an ivory tower.
There is also the possible sanction of repudiation by the voters of
legislators who prove insensate to the economic concerns of their
constituents.
Same; Same; Financial and Technical Assistance Agreements
(FTAA); Statutory Construction; The actual art of governing under
our Constitution does not and cannot conform to judicial definitions
of the power of any of its branches based on isolated clauses or even
single articles torn from context; The proper approach in interpreting
Section 2, Article XII is to tilt in favor of asserting the right rather
than view the provision as a limitation on a privilege.—The Court’s
previous Decision, now for reconsideration, insisted on another
restriction purportedly imposed by the fourth paragraph of Section
2. It is argued that foreign–owned corporations are allowed to
render only technical or financial assistance in the large-scale
exploration, development and utilization of minerals, petroleum and
mineral oils. This conservative view is premised on the sentiment
that the Constitution limits foreign involvement only to areas where
they are needed, the overpowering intent being to allow Filipinos to
benefit from Filipino resources. Towards that end, the perception
arises that the power of the executive to enter into agreements with
foreign-owned corporations is an executive privilege, hampered by
the limitations that generally attach to the grant of privileges. On
the fundamental nature of this power, I harbor an entirely different
view. The actual art of governing under our Constitution does not
and cannot conform to judicial definitions of the power of any of its
branches based on isolated clauses or even single articles torn from
context. The previously adopted approach is rigidly formalist, and
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impervious to the traditional prerogatives of executive power.
As I stated earlier, the executive authority to contract is a right
emanating from traditional executive functions, and is connected
with the power of the executive branch to determine economic
policy. Hence, the proper approach in interpreting Section 2, Article
XII is to tilt in favor of asserting the right rather than view the
provision as a limitation on a privilege. To subscribe to the Court’s
previous view will necessitate adopting as a fundamental premise
that absent an express grant of power, the executive branch has no
capacity to contract since such capacity arises from a privilege.
Same; Same; Same; Any decision by any enterprise to assist in
the exploration, development or utilization of mineral resources does
not arise from a philanthropic impulse—it is a pure and simple
investment, and one that is not engaged in unless there is the
expectation or hope of a reasonable return.—Perhaps there is need
to be explicit and incisive about the implications of Section 2. The
word “assistance,” shorn of context, implies a charitable grant
offered without any quid pro quo attached. Unconditional foreign
aid may be more prevalent this day and age with the acceptance of
the notion that there are base minimum standards of decent living
which all persons are entitled to. However, such concept is alien to
the mining industry. There is no such entity as an International
Benevolent Association for Extraction of Minerals. If “assistance” is
to be restrictively interpreted according to ordinary parlance, no
entity would be interested in undertaking this regulated industry.
Any decision by any enterprise to assist in the exploration,
development or utilization of mineral resources does not arise from
a philanthropic impulse. It is a pure and simple investment, and one
that is not engaged in unless there is the expectation or hope of a
reasonable return. I hasten to add that the deliberate incorporation
of the fourth paragraph of Section 2 has created a window of
opportunity for foreign investments in the extractive enterprises
involving petroleum and other mineral oils, subject of course to
limitations under the law. The term may prove discomfiting to the
ideologically committed, the sentimental nationalist or the visceral
oppositionist. Still, the notion is not inconsistent with the general
power of the executive to enter into agreements for the purpose of
enticing foreign investments.
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Same; Same; Same; While the 1987 Constitution does not
utilize the term “service contracts,” it actually contemplates a broader
expanse of agreements beyond mere contracts for services rendered;
The test should be whether the law and the contract take away the
State’s full control and supervision over the exploration, development
and utilization of the country’s mineral resources and negate or
defeat the State’s ownership thereof.—The Court had earlier
premised the invalidity of several provisions of the Mining Act on
the argument that those provisions authorized service
contracts. But while the 1987 Constitution does not utilize the term
“service contracts,” it actually contemplates a broader expanse of
agreements beyond mere contracts for services rendered. Still,
although the provision sanctions a more numerous class of
agreements, these are subjected to more stringent restrictions than
what had been allowed under the 1973 Constitution. Thus, the test
should be whether the law and the contract take away the State’s full
control and supervision over the exploration, development and
utilization of the country’s mineral resources and negate or defeat the
State’s ownership thereof.
Same; Same; Same; Judicial Review; I do not subscribe to
judicial pre-emptive strikes, as they preclude the application of still
undisclosed considerations which may prove illuminating and even
crucial to the proper disposition of the case.—These concerns are
valid and raise troubling questions. Yet equally troubling is that the
Court is being called upon to rule on a premature question. There is
no such creature yet as an FTAA converted into an MPSA, and so
there is no occasion that calls for the application of Sections 39, 80
and 84. I do not subscribe to judicial pre-emptive strikes, as they
preclude the application of still undisclosed considerations which
may prove illuminating and even crucial to the proper disposition of
the case. By seeking invalidation of these “MPSA provisions,” the
Court is also asked to strike down an enactment of a co-equal branch
which has not given rise to an actual case or controversy. After all,
such enactment deserves due respect from this branch of
government. Assuming that the provisions are indeed invalid, the
Court will not hesitate, at the proper time, to strike them down or
at least impose a proper interpretation that does not run afoul of the
Constitution. However, in the absence of any actual attempt to
convert an FTAA to an MPSA, the time is not now.
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Same; Same; Same; In this age of specialization, corporations
have benefited with the devolution of operational control to
specialists, rather than generalists—the era of the buccaneer
entrepreneur chartering his industry solely on gut feel is over;
Because the Constitution does not prescribe a particular manner of
management we can conclude that the State is not compelled to adopt
outmoded methods that could tend to minimize profits.—It must be
conceded that whichever party obtains managerial control must be
allowed considerable elbow room in the exercise of management
prerogatives. Management is in the most informed position to make
resources productive in the pursuit of the enterprise’s objectives. In
this age of specialization, corporations have benefited with the
devolution of operational control to specialists, rather than
generalists. The era of the buccaneer entrepreneur chartering his
industry solely on gut feel is over. The vagaries of international
finance have dictated that prudent capitalists cede to the opinion of
their experts who are hired because they trained within their
particular fields to know better than the persons who employ them.
The Constitution does not prescribe a particular manner of
management; thus, we can conclude that the State is not compelled
to adopt outmoded methods that could tend to minimize profits.
Same; Same; Same; There is barely any support of the view that
only the State may exert managerial control; Ideally of course, the
most qualified party should be allowed to manage the enterprise, and
we should not allow an interpretation that compels a possibly
unsuited entity, such as the State, to operationalize the business—
such a limited construction would be inconvenient and absurd, not
to mention potentially wasteful.—There is barely any support of the
view that only the State may exert managerial control. Even the
minority concede that these foreign corporations are not precluded
from participating in the management of the project. I think it
unwise to construe “full supervision and control” to the effect that
the State’s assent or opinion is necessary before any day-to-day
operational questions may be resolved. There is neither an express
rule to that effect, nor any law of construction that necessitates such
interpretation. Ideally of course, the most qualified party should be
allowed to manage the enterprise, and we should not allow an
interpretation that compels a possibly unsuited entity, such as the
State, to operationalize the business. Such a limited construction
would be inconvenient and absurd, not to mention potentially
wasteful.
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76 SUPREME COURT REPORTS ANNOTATED
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Same; Same; Same; Government-Owned or Controlled
Corporations; I might as well add that, in my view, the constitutional
objective of maintaining full control and supervision over the
exploration, development and utilization of the country’s mineral
resources in the State would be best served by the creation of a public
corporation for the development and utilization of these resources,
accountable to the State for all actions in its behalf.—As to “business
decisions,” I think that the State may exercise control for the
purpose of ensuring profit of the enterprise as a whole. This may
involve visitorial activity, the conduct of periodic audits, and such
powers normally attributed to an overseer of a business. Just as the
foreign corporation is expected to guard against waste of financial
capital, the State is expected likewise to guard against the waste of
resource capital. I might as well add that, in my view, the
constitutional objective of maintaining full control and supervision
over the exploration, development and utilization of the country’s
mineral resources in the State would be best served by the creation
of a public corporation for the development and utilization of these
resources, accountable to the State for all actions in its behalf. The
device of a corporation properly utilized provides sufficient
protection to the State’s interests while affording flexibility and
efficiency in the conduct of mining operations.
CHICO-NAZARIO, J., Concurring Opinion:
National Economy and Patrimony; Natural
Resources; Financial and Technical Assistance Agreements
(FTAA); To the extent that the corporate board governs and manages
the operations for the exploration and use of natural resources, to
that extent the “full control and supervision” thereof by the State is
diminished.—From the foregoing, it can be clearly inferred that it
was NOT the intention of the framers of the Constitution to deprive
governing boards of domestic corporations with non-Filipino
members, the right to control and administer the corporation that
explores, develops and utilizes natural resources insofar as
agreements with the State for coproduction, joint venture and
production-sharing are concerned, otherwise the Davide
amendment would have been approved and, like the prohibition in
above-quoted Section 4(2), Article XIV, control and supervision of all
business involved in the exploration and development of mineral
resources would have been left solely in Filipino hands. Accordingly,
to the extent that the corporate board governs and manages the
operations for the exploration and use of
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
natural resources, to that extent the “full control and
supervision” thereof by the State is diminished. In effect, therefore,
when the State enters into such agreements as provided in the
Constitution, it allows itself to surrender part of its sovereign right
to full control and supervision of said activities, the State having the
right to partly surrender the exercise of sovereign powers under the
doctrine of auto-limitation.
Same; Same; Same; Statutory Construction; Words and
Phrases; There would have been no need to include the phrase
“among other things” in paragraph 2 of Section 81 of R.A. 7942 if all
it means is “all other taxes” since the latter is already expressly stated
in the provision.—The controversy revolves around the proper
interpretation of “among other things” stated in the second
paragraph of Section 81. Mr. Justice Carpio is of the opinion that
“among other things” could only mean “among other taxes,”
referring to the unnamed “other taxes, duties, and fees as provided
for under existing laws” contained in the last clause of Section 81,
paragraph 2. If such were the correct interpretation, then truly, the
provision is unconstitutional as a sharing based only on taxes
cannot be considered as contributing to the economic growth and
general welfare of the country. I am bothered, however, by the
interpretation that the phrase “among other things” refers to “and
all such other taxes, duties and fees as provided for under existing
laws” since it would render the former phrase superfluous. In other
words, there would have been no need to include the phrase “among
other things” if all it means is “all other taxes” since the latter is
already expressly stated in the provision. As it is a truism that all
terms/phrases used in a statute has relevance to the object of the
law, then I find the view of Mr. Justice Panganiban—that “all other
things” means “additional government share” in the form of
“earnings or cash flow of the mining enterprise” as interpreted by
the DENR—more compelling. Besides, such an interpretation would
affirm the constitutionality of the provision which would then be in
keeping with the rudimentary principle that a law shall not be
declared invalid unless the conflict with the Constitution is clear
beyond reasonable doubt. To justify nullification of a law, there
must be a clear and unequivocal breach of the Constitution, not a
doubtful and argumentative implication.
SPECIAL CIVIL ACTION in the Supreme Court. Prohibition
and Mandamus.
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
The facts are stated in the resolution of the Court.
Marivic M.V.F. Leonen, Edgar DL Bernal, Ingrid
Rosalie L. Gorre, Emily L. Manuel, Frederick Michail I.
Farolan, Francis Joseph G. Ballesteros for petitioners.
Ma. Paz G. Luna for petitioner David de Vera.
Magistrado A. Mendoza for petitioner (KAISAHAN).
Florentino Feliciano for intervenor Chamber of Mines of
the Philippines.
Mario C.V. Jalandoni for Tampacan Companies and
WMCP.
Belo, Gozon, Elma, Parel, Asuncion and Lucila and Phil
ip Sigfrid A. Fortun for respondent WMCP.
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
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VOL. 445, DECEMBER 1, 2004 79
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
similar to that which is exercised by the board of directors of
a private corporation: the performance of managerial,
operational, financial, marketing and other functions may be
delegated to subordinate officers or given to contractual
entities, but the board retains full residual control of the
business.
Who or what organ of government actually exercises this
power of control on behalf of the State? The Constitution is
crystal clear: the President. Indeed, the Chief Executive is the
official constitutionally mandated to “enter into agreements
with foreign owned corporations.” On the other hand,
Congress may review the action of the President once it is
notified of “every contract entered into in accordance with this
[constitutional] provision within thirty days from its
execution.” In contrast to this express mandate of the
President and Congress in the EDU of natural resources,
Article XII of the Constitution is silent on the role of the
judiciary. However, should the President and/or Congress
gravely abuse their discretion in this regard, the courts may—
in a proper case—exercise their residual duty under Article
VIII. Clearly then, the judiciary should not inordinately
interfere in the exercise of this presidential power of control
over the EDU of our natural resources.
The Constitution should be read in broad, life-giving
strokes. It should not be used to strangulate economic growth
or to serve narrow, parochial interests. Rather, it should be
construed to grant the President and Congress sufficient
discretion and reasonable leeway to enable them to attract
foreign investments and expertise, as well as to secure for our
people and our posterity the blessings of prosperity and peace.
On the basis of this control standard, this Court upholds
the constitutionality of the Philippine Mining Law, its
Implementing Rules and Regulations—insofar as they relate
to
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80 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
financial and technical agreements—as well as the subject
Financial and Technical Assistance Agreement (FTAA). 5
Background
The Petition for Prohibition and Mandamus before the Court
challenges the constitutionality of (1) Republic Act No. [RA]
7942 (The Philippine Mining Act of 1995); (2) its Implementing
Rules and Regulations (DENR Administrative Order No.
[DAO] 96-40); and (3) the FTAA dated March 30,
1995, executed by the government with Western Mining
6
Corporation (Philippines), Inc. (WMCP). 7
_______________
5 This is without prejudice to the discussion, infra, of the invalidity of
Sections 7.8(e) and 7.9 of the subject FTAA, for violation of the Civil Code and
the Anti-Graft Law—these provisions being contrary to public policy and
grossly disadvantageous to the government.
6 The FTAA is for the exploration, development and commercial
exploitation of mineral deposits in South Cotabato, Sultan Kudarat, Davao del
Sur and North Cotabato, covering an area of 99,387 hectares.
7 At the time of execution of the subject FTAA in 1995, WMCP was 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.” See WMCP FTAA, p. 2.
On Jan. 23, 2001, WMC sold all its shares in WMCP to Sagittarius Mines, Inc.
(Sagittarius), a corporation organized under Philippine laws, 60% the equity of
which is owned by Filipino citizens or Filipino-owned corporations and 40% by
Indophil Resources, NL, an Australian company. WMCP was then renamed
“Tampakan Mineral Resources Corporation,” and now it claims that by virtue
of the sale and transfer of shares, it has ceased to be connected in any way with
WMC. On account of such sale and transfer of shares, the then DENR
Secretary approved by Order dated Dec. 18, 2001 the transfer and registration
of the subject FTAA from WMCP to Sagittarius (Tampakan). Lepanto
Consolidated Mining Co., which was interested in acquiring the shares in
WMCP, appealed this Order of the DENR Secretary, but the Office
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VOL. 445, DECEMBER 1, 2004 81
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
On January 27, 2004, the Court en banc promulgated its
Decision granting
8 the Petition and declaring the
unconstitutionality of certain provisions of RA 7942, DAO 96-
40, as well as of the entire FTAA executed between the
government and WMCP, mainly on the finding that FTAAs
are service contracts prohibited by the 1987 Constitution.
The Decision struck down the subject FTAA for being
similar to service contracts, which, though permitted under
9
the
_______________
of the President, and subsequently, the Court of Appeals (CA), upheld said
Order.
8 Penned by the esteemed Justice Conchita Carpio-Morales, the Decision
was promulgated on a vote of 8-5-1. Chief Justice Davide and Justices Puno,
Quisumbing, Carpio, Corona, Callejo, and Tinga concurred. Justices Santiago,
Gutierrez, and Martinez joined the Dissent of Justice Panganiban, while
Justice Vitug wrote a separate Dissent. Justice Azcuna took no part.
9 Promulgated on Dec. 31, 1972, Presidential Decree No. 87 (PD 87,
otherwise known as “The Oil Exploration and Development Act of 1972” in §1
thereof) permitted the government to explore for and produce indigenous
petroleum through service contracts. A service contract has been defined as a
contractual arrangement for engaging in the exploitation and development of
petroleum, mineral, energy, land and other natural resources, whereby a
government or an agency thereof, or a private person granted a right or
privilege by said government, authorizes the other party—the service
contractor—to engage or participate in the exercise of such right or the
enjoyment of the privilege, by providing financial or technical resources,
undertaking the exploitation or production of a given resource, or directly
managing the productive enterprise, operations of the exploration and
exploitation of the resources, or the disposition or marketing of said
resources. See Prof. M. Magallona, Service Contracts in Philippine Natural
Resources, 9 World Bulletin 1, 4 (1993).
Under PD 87, the service contractor undertook and managed the petroleum
operations subject to government oversight. The service contractor was
required to be technically competent and financially capable to undertake the
necessary operations, as it provided all needed services, technology and
financing; performed the explora
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82 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
1973 Constitution, were subsequently denounced for being
10
antithetical to the principle of sovereignty over our natural
_______________
tion work obligations; and assumed all related risks. It could not recover
any of its expenditures, if no petroleum was produced. In the event petroleum
is discovered in commercial quantity, the contractor operated the field for the
government. Proceeds of sale of the petroleum produced under the contract
were then applied to pay the service fee due the contractor and reimburse it
for its operating expenses incurred.
10 Sec. 9 of Art. XIV (National Economy and Patrimony) of the 1973
Constitution allowed Filipino citizens, with the approval of the Batasang
Pambansa, to enter into service contracts with any person or entity for the
exploration and 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.”
The intention behind the provision, according to a delegate, was to promote
proper development of the natural resources, given the lack of Filipino capital
and technical skills needed therefor. The original proposal was to authorize
government to enter into such service contracts with foreign entities, but as
finally approved, the provision permitted the Batasang Pambansa to authorize
a citizen or private entity to be party to such contract. Following the
ratification of the 1973 Charter, PD Nos. 151, 463, 704, 705, 1442 were
promulgated, authorizing service contracts for exploration, development,
exploitation or utilization of lands of the public domain; exploration,
development, etc. of a lessee’s mining claims and the processing and marketing
of the products thereof; production, storage, marketing and processing of fish
and fishery/aquatic products; exploration,
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
resources, because they allowed foreign control over the
exploitation of our natural resources, to the prejudice of the
Filipino nation.
 The Decision quoted several legal scholars and authors who
had criticized service contracts for, inter alia, vesting in the
foreign contractor exclusive management and control of the
enterprise, including operation of the field in the event
petroleum was discovered; control of production, expansion
and development; nearly unfettered control over the
disposition and sale of the products discovered/extracted;
effective ownership of the natural resource at the point of
extraction; and beneficial ownership of our economic
resources. According to the Decision, the 1987 Constitution
(Section 2 of Article XII) effectively banned such service
contracts.
Subsequently, respondents filed separate Motions for
Reconsideration. In a Resolution dated March 9, 2004, the
Court required petitioners to comment thereon. In the
Resolution of June 8, 2004, it set the case for Oral Argument
on June 29, 2004.
After hearing the opposing sides, the Court required the
parties to submit their respective Memoranda in amplification
of their arguments. In a Resolution issued later the same day,
June 29, 2004, the Court noted, inter alia, the Manifestation
and Motion (in lieu of comment) filed by the Office of the
Solicitor General (OSG) on behalf of public respondents. The
OSG said that it was not interposing any objection to the
Motion for Intervention filed by the Chamber of Mines of the
Philippines, Inc. (CMP) and was in fact joining and adopting
the latter’s Motion for Reconsideration.
Memoranda were accordingly filed by the intervenor as well
as by petitioners, public respondents, and private respondent,
dwelling at length on the three issues discussed below. Later,
WMCP submitted its Reply Memorandum,
_______________
development, and utilization of forest resources; and exploration,
development, and exploitation of geothermal resources, respectively.
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84 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
while the OSG—in obedience to an Order of this Court—filed
a Compliance submitting copies of more FTAAs entered into
by the government.
Three Issues Identified by the Court
During the Oral Argument, the Court identified the three
issues to be resolved in the present controversy, as follows:
1. 1.Has the case been rendered moot by the sale of WMC
shares in WMCP to Sagittarius (60 percent of
Sagittarius’ equity is owned by Filipinos and/or
Filipino-owned corporations while 40 percent is owned
by Indophil Resources NL, an Australian company)
and by the subsequent transfer and registration of the
FTAA from WMCP to Sagittarius?
2. 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. 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
85
VOL. 445, DECEMBER 1, 2004 85
 La Bugal-B’Laan Tribal Association, Inc. vs. Ramos DENR Secretary approving the transfer and registration of the FTAA to
Sagittarius Mines, Inc.
XII of the 1987 Constitution. According to petitioners, the 86
FTAAs entered into by the government with foreign-owned 86 SUPREME COURT REPORTS ANNOTATED
corporations are limited by the fourth paragraph of the said La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
provision to agreements involving only technical or financial
originally issued to a Filipino-owned corporation, there would
assistance for large-scale exploration, development and
have been no constitutionality issue to speak of. Upon the
utilization of minerals, petroleum and other mineral oils.
other hand, the conveyance of the WMCP FTAA to a Filipino
Furthermore, the foreign contractor is allegedly permitted by
corporation can be likened to the sale of land to a foreigner
the FTAA in question to fully manage and control the mining
who subsequently acquires Filipino citizenship, or who later
operations and, therefore, to acquire “beneficial ownership” of
resells the same land to a Filipino citizen. The conveyance
our mineral resources.
would be validated, as the property in question would no
The Decision merely shrugged off the Manifestation by
longer be owned by a disqualified vendee.
WMPC informing the Court (1) that on January 23, 2001,
And, inasmuch as the FTAA is to be implemented now by a
WMC had sold all its shares in WMCP to Sagittarius Mines,
Filipino corporation, it is no longer possible for the Court to
Inc., 60 percent of whose equity was held by Filipinos; and (2)
declare it unconstitutional. The case pending in the Court of
that the assailed FTAA had likewise been transferred from
Appeals is a dispute between two Filipino companies
WMCP to Sagittarius. The ponenciadeclared that the instant
11

(Sagittarius and Lepanto), both claiming the right to purchase

case had not been rendered moot by the transfer and
the foreign shares in WMCP. So, regardless of which side
registration of the FTAA to a Filipino-owned corporation, and
eventually wins, the FTAA would still be in the hands of a
that the validity of the said transfer remained in dispute and
qualified Filipino company. Considering that there is no
awaited final judicial determination. Patently therefore, the
12

longer any justiciable controversy, the plea to nullify the

Decision is anchored on the assumption that WMCP had
Mining Law has become a virtual petition for declaratory
remained a foreign corporation.
relief, over which this Court has no original jurisdiction.
The crux of this issue of mootness is the fact that WMCP, at
In their Final Memorandum, however, petitioners argue
the time it entered into the FTAA, happened to be wholly owned
that the case has not become moot, considering the invalidity
by WMC Resources International Pty., Ltd. (WMC), which in
of the alleged sale of the shares in WMCP from WMC to
turn was a wholly owned subsidiary of Western Mining
Sagittarius, and of the transfer of the FTAA from WMCP to
Corporation Holdings Ltd., a publicly listed major Australian
Sagittarius, resulting in the change of contractor in the FTAA
mining and exploration company.
in question. And even assuming that the said transfers were
The nullity of the FTAA was obviously premised upon the
valid, there still exists an actual case predicated on the
contractor being a foreign corporation. Had the FTAA been
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
11Renamed Tampakan Mineral Resources Corporation. the FTAA. We shall take up the alleged invalidity of RA 7942
That is, the Court of Appeals’ resolution of the petition for review—
and DAO 96-40 later on in the discussion of the third issue.
12

docketed as CA-G.R. No. 74161 and lodged by Lepanto Consolidated Mining—

of the decision of the Office of the President which upheld the order of the
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
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VOL. 445, DECEMBER 1, 2004 87
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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,
coproduction 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
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88 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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.
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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 foreigncorporation, 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, the issue of approval is the
13
subject of one of the cases brought by Lepanto against
Sagittarius in G.R. No. 162331. 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.
Petitioners also question the sale price and the financial
capacity of the transferee. According to the Deed of Absolute
_______________
At p. 68.
13
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90 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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 senecessarily 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
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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, and Halili v. CA, claiming that the doctrines in
14 15
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
_______________
14 433 Phil. 506; 384 SCRA 152, July 9, 2002; 403 SCRA 1, May 6, 2003;
and 415 SCRA 403, November 11, 2003.
15 300 Phil. 906; 287 SCRA 465, March 12, 1998.
1
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92 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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.
_______________
16 Chavez v. Public Estates Authority, 403 SCRA 1, 28-29, supra, per Carpio,
J.
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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.
_______________
The pendency of a motion for reconsideration shall stay the final
17
resolution sought to be reconsidered. §4 of Rule 52, and §4 of Rule 56B of the
93 Rules of Court.
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94 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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,” what is at issue in the
18
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 Mindanao — 19
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.
_______________
18 See Enrile v. Senate Electoral Tribunal, G.R. No. 132986, May 19,
2004, 428 SCRA 472.
19 Per the “List of Finacial/Technical Assistance Agreement (FTAA
applications)” as of June 30, 2002 prepared by the Mines and Geosciences
Bureau’s (MGB) Mining Tenements Management Division, cited in petitioners’
Final Memorandum.
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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, it is evident that strong reasons of public policy
21
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, to the effect that the courts will decide a question—
23
otherwise moot and academic—if it is “capable of repetition,
_______________
20Instead of allowing Sec. Gen. Neri to speak during the Oral Argument,
the Court in its Resolution of June 29, 2004 required him to submit his Position
Paper through the Office of the Solicitor Genenral. Said paper was made part
of the Memorandum of the public respondents.
21 27 SCRA 853, April 18, 1969.
22 Gonzales v. Commission on Elections, 137 Phil. 471, 489; 27 SCRA 835,
853, April 18, 1969, per Fernando, J.
23 433 Phil. 62, 68; 383 SCRA 577, 582, July 2, 2002, citing Alunan III v.
Mirasol, 342 Phil. 467, 477; 276 SCRA 501, 508, July 31, 1997 and Viola v.
Alunan III, 343 Phil. 184, 191; 277 SCRA 409, 416-417, August 15, 1997.
96
96 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
yet evading review.” Public respondents ask the Court to
24
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, in which this Court declared
25
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. The entry of the Chamber of
26
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
prohibition in the enforcement of the said law and
27
regulations.
_______________
24 Southern Pacific Terminal Co. v. ICC, 219 US 498, 31 S.Ct. 279, 283,
February 20, 1911, per McKenna, J.
25 134 SCRA 438, 463-464, February 18, 1985, per Gutierrez, Jr., J.
26 §1 of Rule 63 of the Rules of Court:
“Section 1. Who may file petition.—Any person interested under a deed, will, contract or
other written instrument, whose rights are affected by a statute, executive order or
regulation, ordinance, or any other governmental regulation may, before breach or
violation thereof, bring an action in the appropriate Regional Trial Court to determine
any question of construction or validity arising, and for a declaration of his rights or
duties, thereunder.”
27 §2 of Rule 65 of the Rules of Court:
“Section 2. Petition for prohibition.—When the proceedings of any tribunal, corporation,
board, officer or person, whether exercising judicial, quasi-judicial or ministerial func
97
VOL. 445, DECEMBER 1, 2004 97
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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, in which 29
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.
xxx xxx xxx
“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
_______________
tions, are without or in excess of its or his jurisdiction, or with grave abuse of discretion
amounting to lack or excess of jurisdiction, 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 respondent to desist from further proceedings in the
action or matter specified therein, or otherwise granting such incidental reliefs as law and
justice may require.”
28 Pimentel, Jr. v. Aguirre, 391 Phil. 84, 107; 336 SCRA 201, 223, July 19, 2000,
per Panganiban, J.
29 338 Phil. 546, May 2, 1997; 272 SCRA 18.
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98 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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.
_______________
Tañada v. Angara, pp. 47-49, per Panganiban, J. Italics supplied.
30
99
VOL. 445, DECEMBER 1, 2004
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
“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 Constitu-
_______________
99 31 Emphasis supplied.
100
100 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
tional 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, this Court indeed had the occasion to
33
reiterate the well-settled principles of constitutional
construction:
“First, verba legis, that is, wherever possible, the words used in the 2. (b)By (i) co-production; (ii) joint venture; or (iii)
Constitution must be given their ordinary meaning except where production sharing agreements with Filipino citizens
technical terms are employed. x x x. or corporations, at least 60 percent of the capital of
xxx xxx xxx which is owned by such citizens
“Second, where there is ambiguity, ratio legis est anima. The
words of the Constitution should be interpreted in
1. 4.Small-scale utilization of natural resources may be
accordance with the intent of its framers. x x x.
xxx xxx xxx allowed by law in favor of Filipino citizens.
“Finally, ut magis valeat quam pereat. The Constitution is to be 2. 5.For large-scale EDU of minerals, petroleum and other
interpreted as a whole.” 34 mineral oils, the President may enter into “agreements
For ease of reference and in consonance with verba legis, we with foreign-owned corporations involving either
reconstruct and stratify the aforequoted Section 2 as follows: technical or financial assistance according to the
general terms and conditions provided by law x x x.”
1. 1.All natural resources are owned by the State. Except
for agricultural lands, natural resources cannot be Note that in all the three foregoing mining activities—
alienated by the State. exploration, development and utilization—the State may
2. 2.The exploration, development and utilization (EDU) undertake such EDU activities by itself or in tandem with
of natural resources shall be under the full control and Filipinos or Filipino corporations, except in two
supervision of the State. 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
32 Ang Bagong Bayani v. Commission on Elections, 412 Phil. 308, 338-
State via“agreements with foreign-owned corporations
339; 359 SCRA 698, 724, June 26, 2001, per Panganiban, J., citing JM Tuason
& Co., Inc. v. Land Tenure Administration, 31 SCRA 413, 422-423, February involving either technical or financial assistance” as provided
18, 1970, as cited in Agpalo, Statutory Construction (1990), pp. 311 and 313. by law.
33 G.R. Nos. 160261, 160262, 160263, 160277, 160292, 160295, 160310,
Petitioners claim that the phrase “agreements x x x
160318, 160342, 160343, 160360, 160365, 160370, 160376, 160392, 160397,
160403, an 160405, November 10, 2003; 415 SCRA 44, per Carpio-Morales, J.
involving either technical or financial assistance” simply
34 Francisco v. The House of Representatives, 415 SCRA 44, 126-127, means technical assistance or financial assistance agreements,
November 10, 2003, per Carpio-Morales, J. Citations omitted. nothing more and nothing else. They insist that there is no
101 ambiguity in the phrase, and that a plain reading of paragraph
VOL. 445, DECEMBER 1, 2004 101 4 quoted above leads to the inescapable conclusion that what
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos a foreign-owned corporation may enter into with the
government is merely an agreement for eitherfinancial or
1. 3.The State may undertake these EDU activities technical assistance only, for the large-scale exploration,
through either of the following: development and utilization of minerals, petroleum and other
mineral oils;
1. (a)By itself directly and solely 102
102 SUPREME COURT REPORTS ANNOTATED
 La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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 Decision of January 27, 2004 correctly
36
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
mar-
_______________
35 During the Oral Argument, petitioner’s counsel, Atty. Marvic Leonen
conceded that the foreign contractor may exercise limited management
prerogatives to the extent of the financial or technical assistance given. TSN,
pp. 181-186. How such “limited management” can be operationalized was not
explained.
36 In the January 27, 2004 Decision, this Court held that the fourth
paragraph of Section 2 of Art. XII limits foreign involvement in the local mining
industry to agreements strictly for financial and/or technical assistance only,
and precludes agreement which grant to foreign corporations the management
of local operations, since the latter agreements are purportedly in the nature
of service contracts, as this concept was understood under the 1973
Constitution. Such contracts were supposedly deconstitutionalized and
proscribed by the omission of the phrase “service contracts” from the 1987
Constitution. Since the WMCP FTAA contains provisions that permit the
contractor’s management of the concern, the Decision struck down the FTAA
for being a prohibited service contract. Provisions of RA 7942 which granted
managerial authority to the foreign contractor were also declared
unconstitutional.
103
VOL. 445, DECEMBER 1, 2004 103
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
tial 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 intervenor and public respondents
37
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
legisinterpretation 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 activitieshaving 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,” “requir-
_______________ 1. 5.To occupy or engage the interest of: a story that completely involved me for
the rest of the evening.
Intervenor’s Memorandum, pp. 7, 11 and 12.
37
2. 6.To make complex or intricate; complicate.
3. 7.To wrap; envelop: a castle that was involved in mist.
104
4. 8.Archaic. To wind or coil about.
104 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos 105
ing,” “implying” or “necessitating”; and three, “including,” VOL. 445, DECEMBER 1, 2004 105
“containing” or “comprising.” 38 La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Plainly, none of the three connotations conveys a sense of financial assistance” against “agreements including technical
exclusivity. Moreover, the word “involving,” when understood or financial assistance.” This much is unalterably clear in
in the sense of “including,” as in including technical or a verba legisapproach.
financial assistance, necessarily implies that there Second, if the real intention of the drafters was to confine
are activities other than those that are being foreign corporations to financial or technical assistance and
included. In other words, if an agreement includes technical nothing more, their language would have certainly been
or financial assistance, there is—apart from such assistance— so unmistakably restrictive and stringent as to leave no doubt
something else already in, and covered or may be covered by, in anyone’s mind about their true intent. For example, they
the said agreement. would have used the sentence foreign corporations
In short, it allows for the possibility that matters, other are absolutely prohibited from involvement in the
than those explicitly mentioned, could be made part of the management or operation of mining or similar ventures or
agreement. Thus, we are now led to the conclusion that the words of similar import. A search for such stringent wording
use of the word “involving” implies that these agreements with yields negative results. Thus, we come to the inevitable
foreign corporations are not limited to mere financial or conclusion that there was a conscious and deliberate decision
technical assistance. The difference in sense becomes very to avoid the use of restrictive wording that bespeaks an intent
apparent when we juxtapose “agreements for technical or not to use the expression “agreements x x x involving either
technical or financial assistance” in an exclusionary and
_______________
limiting manner.
38 www.dictionary.com provides the following meanings for “involving”: Deletion of “Service Contracts” to Avoid Pitfalls of
Previous Constitutions, Not to Ban Service Contracts
1. 1.To contain as a part; include. Per Se
2. 2.To have as a necessary feature or consequence; entail: was told that the job
would involve travel.
Third, we do not see how a verba legis approach leads to the
3. 3.To engage as a participant; embroil: involved the bystanders in his dispute conclusion that “the management or operation of mining
with the police. activities by foreign contractors, which is the primary feature
4. 4.
of service contracts, was precisely the evil that the drafters of
1. a.To connect closely and often incriminating; implicate: evidence that involved the 1987 Constitution sought to eradicate.” Nowhere in the
the governor in the scandal. above-quoted Section can be discerned the objective to keep
2. b.To influence or affect: The matter is serious because it involves your
reputation. 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
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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.
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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 VII of the 1987
39
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
_______________
39 It reads as follows: “Section 20. The President may contract or guarantee
foreign loans on behalf of the Republic of the Philippines with the prior
concurrence of the Monetary Board, and subject to such limitations as may be
provided by law. The Monetary Board shall, within thirty days from the end of
every quarter of the calendar year, submit to the Congress a complete report of
its decision on applications for loans to be contracted or guaranteed by the
Government or government-owned and controlled corporations which would
have the effect of increasing the foreign debt, and containing other matters as
may be provided by law.”
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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
legisconstruction 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
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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. To say so would
41
be
_______________
40 According to estimates by the MGB, the success-to-failure ratio of large
scale mining or hydrocarbon projects is about 1:1,000. It goes without saying
that such a miniscule success ratio hardly encourages the investment of
tremendous amounts of risk capital and modern technology required for the
discovery, extraction and treatment of mineral ores, and oil and gas deposits.
41 The Constitutional Commission (ConCom) began its work in 1986, three
short years after the assassination in August 21, 1983 of former Senator
Benigno “Ninoy” Aquino, Jr. During the early part of this three-year period,
the country underwent a wracking economic crisis characterized by scarcity of
funds, capital flight, stringent import controls, grave lack of foreign exchange
needed to fund critical importations of raw materials, panic buying, hoarding
of com
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tantamount to asserting that the provision was purposely
designed to saddle the large-scale development and utilization
of mineral, petroleum and related resources with impossible
conditions; and to let them 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 closely at the plain language of the
Charter and examine 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 given a say in the management, for
instance, of day-
_______________
modities, and grave lack of foreign exchange needed to fund critical
importations of raw materials. Many businesses were on the verge of failure
and collapse, and many in fact did. The members of the ConCom were unlikely
to forget the critical condition of the Philippine economy and the penury of its
government.
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to-day operations of the joint venture. They would demand the
appointment of their own men as, for example, operations
managers, technical experts, quality control heads, internal
auditors or comptrollers. Furthermore, they would probably
require seats on the Board of Directors—all these to ensure
the success of the enterprise and the repayment of the loans
and other financial assistance and to make certain that the
funding and the technology they supply would not go to waste.
Ultimately, they would also want to protect their business
reputation and bottom lines. 42
In short, the drafters will have to be credited with enough
pragmatism and savvy to know that these foreign entities will
not enter into such “agreements involving assistance” without
requiring arrangements for the protection of their
investments, gains and benefits.
Thus, by specifying such “agreements involving
assistance,” the drafters necessarily gave implied assent to
everything that these agreements necessarily entailed; or that
could reasonably be deemed necessary to make them tenable
and effective, including management authority with respect to
the day-to-day operations of the enterprise and measures for
the protection of the interests of the foreign corporation,
PROVIDED THAT Philippine sovereignty over natural
resources and full control over the enterprise undertaking the
EDU activities remain firmly in the State.
Petitioners’ Theory Deflated by the Absence of Closing-
Out Rules or Guidelines
_______________
42 The management of every business has two primary objectives. The first
is to earn profit. The second is to stay solvent, that is, to have on hand sufficient
cash to pay debts as they fall due. Other objectives may be targeted, but a
business cannot hope to accomplish them, unless it meets these two basic tests
of survival—operating profitably and staying solvent. Meigs and
Meigs, Accounting: The Basis for Business Decisions (5th ed., 1982), p. 11.
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Seventh and final point regarding the plain-language
approach, one of the practical difficulties that results from it
is the fact that there is nothing by way of transitory provisions
that would serve to confirm the theory that the omission of the
term “service contract” from the 1987 Constitution signaled
the demise of service contracts.
The framers knew at the time they were deliberating that
there were various service contracts extant and in force and
effect, including those in the petroleum industry. Many of
these service contracts were long-term (25 years) and had
several more years to run. If they had meant to ban service
contracts altogether, they would have had to provide for the
termination or pretermination of the existing contracts.
Accordingly, they would have supplied the specifics and the
when and how of effecting the extinguishment of these
existing contracts (or at least the mechanics for determining
them); and of putting in place the means to address the just
claims of the contractors for compensation for their
investments, lost opportunities, and so on, if not for the
recovery thereof.
If the framers had intended to put an end to service
contracts, they would have at least left specific instructions to
Congress to deal with these closing-out issues, perhaps by way
of general guidelines and a timeline within which to carry
them out. The following are some extant examples of such
transitory guidelines set forth in Article XVIII of our
Constitution:
“Section 23. Advertising entities affected by paragraph (2), Section
11 of Article XVI of this Constitution shall have five years from its
ratification to comply on a graduated and proportionate basis with
the minimum Filipino ownership requirement therein.
xxx xxx xxx
“Section 25. After the expiration in 1991 of the Agreement
between the Republic of the Philippines and the United States of
America concerning military bases, foreign military bases, troops,
or facilities shall not be allowed in the Philippines except under a
treaty duly concurred in by the Senate and, when the Congress so
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requires, ratified by a majority of the votes cast by the people in a
national referendum held for that purpose, and recognized as a
treaty by the other contracting State.
“Section 26. The authority to issue sequestration or freeze orders
under Proclamation No. 3 dated March 25, 1986 in relation to the
recovery of ill-gotten wealth shall remain operative for not more
than eighteen months after the ratification of this Constitution.
However, in the national interest, as certified by the President, the
Congress may extend such period.
A sequestration or freeze order shall be issued only upon showing
of a prima facie case. The order and the list of the sequestered or
frozen properties shall forthwith be registered with the proper
court. For orders issued before the ratification of this Constitution,
the corresponding judicial action or proceeding shall be filed within
six months from its ratification. For those issued after such
ratification, the judicial action or proceeding shall be commenced
within six months from the issuance thereof.
The sequestration or freeze order is deemed automatically lifted
if no judicial action or proceeding is commenced as herein
provided.” 43
It is inconceivable that the drafters of the Constitution would
leave such an important matter—an expression of sovereignty
as it were—indefinitely hanging in the air in a formless and
ineffective state. Indeed, the complete absence of even a
general framework only serves to further deflate petitioners’
theory, like a child’s balloon losing its air.
Under the circumstances, the logical inconsistencies
resulting from petitioners’ literal and purely verba legis
approach to paragraph 4 of Section 2 of Article XII compel a
resort to other aids to interpretation.
Petitioners’ Posture Also Negated
by Ratio Legis Et Anima
Thus, in order to resolve the inconsistencies, incongruities and
ambiguities encountered and to supply the deficiencies of
_______________
Art. XVIII, “Transitory Provisions,” of the 1987 Constitution.
43
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the plain-language approach, there is a need for recourse to
the proceedings of the 1986 Constitutional Commission. There
is a need for ratio legis et anima.
Service Contracts Not
“Deconstitutionalized”
Pertinent portions of the deliberations of the members of the
Constitutional Commission (ConCom) conclusively show that
they discussed agreements involving either technical or
financial assistance in the same breadth 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?
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MR. JAMIR. Yes, Madam President.
MR. SUAREZ. As it is formulated, the President may enter
into service contracts but subject to the guidelines that may
be promulgated by Congress?
MR. JAMIR. That is correct.
MR. SUAREZ. Therefore, that aspect of negotiation and
consummation will fall on the President, not upon
Congress?
MR. JAMIR. That is also correct, Madam President.
MR. SUAREZ. Except that all of these contracts, service or
otherwise, must be made strictly in accordance with
guidelines prescribed by Congress?
MR. JAMIR. That is also correct.
MR. SUAREZ. And the Gentleman is thinking in terms of a
law that uniformly covers situations of the same nature?
MR. JAMIR. That is 100 percent correct.
MR. SUAREZ. I thank the Commissioner.
MR. JAMIR. Thank you very much. 44
The following exchange leaves no doubt that the
commissioners knew exactly what they were dealing with:
service contracts.
THE PRESIDENT. Commissioner Gascon is recognized.
MR. GASCON. Commissioner Jamir had proposed an
amendment with regard to special service contracts which
was accepted by the Committee. Since the Committee has
accepted it, I would like to ask some questions.
THE PRESIDENT. Commissioner Gascon may proceed.
MR. GASCON. As it is proposed now, such service contracts
will be entered into by the President with the guidelines of
a general law on service contract to be enacted by Congress.
Is that correct?
MR. VILLEGAS. The Commissioner is right, Madam
President.
_______________
III Record of the Constitutional Commission, p. 348. Emphasis supplied.
44
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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.
xxx xxx xxx
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.
xxx xxx xxx
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
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 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.
xxx xxx xxx
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
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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.
xxx xxx xxx
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
_______________
 Id., pp. 349-352. Emphasis supplied.
45
requiring a two-thirds vote of all the Members of Congress
119
as a safeguard. I think we should not mistrust the future
VOL. 445, DECEMBER 1, 2004 119 Members of Congress by saying that the purpose of this
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos provision is to avoid corruption. We cannot claim that they
are less patriotic than we are. I
More Than Mere Financial 120
and Technical Assistance 120 SUPREME COURT REPORTS ANNOTATED
Entailed by the Agreements La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
think the Members of this Commission should know that
The clear words of Commissioner Jose N. Nolledo quoted
entering into service contracts is an exception to the rule on
below explicitly and eloquently demonstrate that the drafters
protection of natural resources for the interest of the nation,
knew that the agreements with foreign corporations were
and therefore, being an exception it should be subject,
going to entail not mere technical or financial assistance but,
whenever possible, to stringent rules. It seems to me that we
rather, foreign investment in and management of an
are liberalizing the rules in favor of aliens.
enterprise involved in large-scale exploration, development
I say these things with a heavy heart, Madam President. I
and utilization of minerals, petroleum, and other mineral oils.
do not claim to be a nationalist, but I love my country.
THE PRESIDENT. Commissioner Nolledo is recognized.
Although we need investments, we must adopt safeguards
MR. NOLLEDO. Madam President, I have the permission of
that are truly reflective of the sentiments of the people and not
the Acting Floor Leader to speak for only two minutes in
mere cosmetic safeguards as they now appear in the Jamir
favor of the amendment of Commissioner Gascon.
amendment. (Applause)
THE PRESIDENT. Commissioner Nolledo may proceed.
Thank you, Madam President. 46

MR. NOLLEDO. With due respect to the members of the

Another excerpt, featuring then Commissioner (now Chief
Committee and Commissioner Jamir, I am in favor of the
Justice) Hilario G. Davide Jr., indicates the limitations of the
objection of Commissioner Gascon.
scope of such service contracts—they are valid only in regard
Madam President, I was one of those who refused to sign
to minerals, petroleum and other mineral oils, not to all
the 1973 Constitution, and one of the reasons is that there
natural resources.
were many provisions in the Transitory Provisions therein
THE PRESIDENT. Commissioner Davide is recognized.
that favored aliens. I was shocked when I read a provision
MR. DAVIDE. Thank you, Madam President. This is an
authorizing service contracts while we, in this
amendment to the Jamir amendment and also to the Ople
Constitutional Commission, provided for Filipino control of
amendment. I propose to delete “NATURAL RESOURCES”
the economy. We are, therefore, providing for exceptional
and substitute it with the following: MINERALS,
instances where aliens may circumvent Filipino control of
PETROLEUM AND OTHER MINERAL OILS. On the Ople
our economy. And one way of circumventing the rule in
amendment, I propose to add: THE NOTIFICATION TO
favor of Filipino control of the economy is to recognize
CONGRESS SHALL BE WITHIN THIRTY DAYS FROM
service contracts.
THE EXECUTION OF THE SERVICE CONTRACT.
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
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,
_______________
Id., p. 354. Emphasis supplied.
46
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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,
_______________
Id., pp. 355-356. Emphasis supplied.
47
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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.” Mr. Garcia 49
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
50
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
51
have
_______________
48 Id., p. 361. Emphasis supplied.
49 V Records of the Constitutional Commission, p. 845.
50 Id., p. 341.
51 Id., p. 844.
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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.
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 • 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
knowhow, 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
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thereof is subject to several safeguards, among which are
these requirements:
1. (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. (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. (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
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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
_______________
52 Civil Liberties Union v. Executive Secretary, 194 SCRA 317, 337-338,
February 22, 1991, per Fernan, C.J.
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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
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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.
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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
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the minutest details, and makes all decisions required in the especially by government directive (as in price controls). From Merriam-
Webster Online, Online Dictionary, www.m-w.com.
mining operations. This strained concept of control and
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impossible the legitimate exercise by the contractors of a
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
reasonable degree of management prerogative and authority
would be compatible with permitting the foreign contractor
necessary and indispensable to their proper functioning.
sufficient and reasonable management authority over the
For one thing, such an interpretation would discourage
enterprise it invested in, in order to ensure that it is operating
foreign entry into large-scale exploration, development and
efficiently and profitably, to protect its investments and to
utilization activities; and result in the unmitigated stagnation
enable it to succeed.
of this sector, to the detriment of our nation’s development.
The question to be answered, then, is whether RA
This scenario renders paragraph 4 inoperative and useless.
7942 and its Implementing Rules enable the
And as respondents have correctly pointed out, the
government to exercise that degree of control sufficient
government does not have to micro-manage the mining
to direct and regulate the conduct of affairs of
operations and dip its hands into the day-to-day affairs of the
individual enterprises and restrain undesirable
enterprise in order for it to be considered as having full control
activities.
and supervision.
On the resolution of these questions will depend the
The concept of control adopted in Section 2 of Article XII
53

validity and constitutionality of certain provisions of the

must be taken to mean less than dictatorial, all-encompassing
Philippine Mining Act of 1995 (RA 7942) and its Implementing
control; but nevertheless sufficient to give the State the power
Rules and Regulations (DAO 96-40), as well as the WMCP
to direct, restrain, regulate and govern the affairs of the
FTAA.
extractive enterprises. Control by the State may be on a macro
Indeed, petitioners charge that RA 7942, as well as its
level, through the establishment of policies, guidelines,
54

Implementing Rules and Regulations, makes it possible for

regulations, industry standards and similar measures that
FTAA contracts to cede full control and management of mining
would enable the government to control the conduct of affairs
enterprises over to fully foreign-owned corporations, with the
in various enterprises and restrain activities deemed not
result that the State is allegedly reduced to a passive regulator
desirable or beneficial.
dependent on submitted plans and reports, with weak review
The end in view is ensuring that these enterprises
and audit powers. The State does not supposedly act as the
contribute to the economic development and general welfare
owner of the natural resources for and on behalf of the Filipino
of the country, conserve the environment, and uplift the well-
people; it practically has little effective say in the decisions
being of the affected local communities. Such a concept of
made by the enterprise. Petitioners then conclude that the
control
law, the implementing regulations, and the WMCP FTAA cede
_______________ “beneficial ownership” of the mineral resources to the foreign
contractor.
53 The transitive verb ‘control’ has the following meanings—to exercise
A careful scrutiny of the provisions of RA 7942 and its
restraining or directing influence over; to regulate; to have power over; to rule;
to govern. The noun ‘control’ refers to an act or instance of controlling; the Implementing Rules belies petitioners’ claims. Paraphrasing
power of authority to guide or mange; and the regulation of economic activity
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
_______________
54 On p. 2 of the Final Memorandum for Petitioners.
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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. 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. 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
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1. organization (NGO) or any qualified person to police
mining activities;
2. 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.
3. 4.Sec. 35, which incorporates into all FTAAs the
following terms, conditions and warranties:
1. “(g)Mining operations shall be conducted in accordance
with the provisions of the Act and its IRR.
2. “(h)Work programs and minimum expenditures
commitments.
xxx xxx xxx
1. “(k)Requiring proponent to effectively use appropriate
anti-pollution technology and facilities to protect the
environment and restore or rehabilitate mined-out
areas.
 2. “(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.
3. “(m)Requiring the proponent to dispose of the minerals
at the highest price and more advantageous terms and
conditions.
4. “(n)x x x xxx xxx
5. “(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:
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 • 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. 1.Approved mining project feasibility study (Section 53-
d, DAO 96-40)
2. 2.Approved three-year work program (Section 53-a-4,
DAO 96-40)
3. 3.Environmental compliance certificate (Section 70, RA
7942)
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
1. 4.Approved environmental protection and enhancement
program (Section 69, RA 7942)
 2. 5.Approval by the Sangguniang
Panlalawigan/Bayan/Barangay (Section 70, RA 7942;
Section 27, RA 7160)
3. 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. 1.Exploration
2. 2.Drilling
3. 3.Mineral resources and reserves
4. 4.Energy consumption
5. 5.Production
6. 6.Sales and marketing
7. 7.Employment
8. 8.Payment of taxes, royalties, fees and other
Government Shares
9. 9.Mine safety, health and environment
10. 10.Land use
11. 11.Social development
12. 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
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136 SUPREME COURT REPORTS ANNOTATED
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 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.
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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) of RA 55
7942—which allows a foreign contractor to apply for and hold
_______________
55 Sec. 3(aq) of RA 7942 reads as follows: “aq. Qualified person means any
citizen of the Philippines with capacity to contract, or a corporation,
partnership, association, or cooperative organized or
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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 preapproved
by the government, without any right to recover anything
should no minerals in commercial quantities be
_______________
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 percent) of the
capital of which is owned by citizens of the Philippines: 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.” Italics supplied.
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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
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140 SUPREME COURT REPORTS ANNOTATED
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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. 1.The contractor is obligated to account for the value of
production and sale of minerals (Clause 1.4).
2. 2.The contractor’s work program, activities and budgets
must be approved by/on behalf of the State (Clause
2.1).
 3. 3.The DENR secretary has the power to extend the
exploration period (Clause 3.2-a).
4. 4.Approval by the State is necessary for incorporating
lands into the FTAA contract area (Clause 4.3-c).
5. 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. 6.The contractor is obliged to relinquish periodically
parts of the contract area not needed for exploration
and development (Clause 4.6).
7. 7.A Declaration of Mining Feasibility must be
submitted for approval by the State (Clause 4.6-b).
8. 8.The contractor is obligated to report to the State its
exploration activities (Clause 4.9).
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).
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1. 10.The contractor is required to obtain State approval
for its proposed expenditures for exploration activities
(Clause 5.2).
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).
3. 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).
4. 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).
5. 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).
6. 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).
7. 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).
8. 17.Any expansions, modifications, improvements and
replacements of mining facilities shall be subject to the
approval of the secretary (Clause 6.4).
9. 18.The State has control with respect to the amount of
funds that the contractor may borrow within the
Philippines (Clause 7.2).
10. 19.The State has supervisory power with respect to
technical, financial and marketing issues (Clause 10.1-
a).
11. 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).
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 1. 21.The State has the right to terminate the FTAA for
the contractor’s unremedied substantial breach
thereof (Clause 13.2);
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
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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 welfareof 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 such 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
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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 thereof submitted by the
Contractor unless within sixty (60) days after submission by the
Contractor the Secretary gives notice declining such approval or
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proposing a revision of certain features and specifying its reasons
therefor (‘the Rejection Notice’).
1. 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.
2. 8.4.x x x xxx xxx
3. 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 (20 percent) 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
sup-
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posed 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
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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. This clause, however, does not constitute abdication of
56
control. Rather, it is a mere
_______________
56 Per Clause 4.6 of the WMCP FTAA, the contractor is required to
relinquish each year during the exploration period at least ten percent (10%)
of the original contract area, by identifying and dropping from the FTAA
coverage those areas which do not have mineral potentials, in order that by the
time actual mining operations commence, the FTAA contract area shall have
been reduced to only 5,000 hectares.
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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, a mining company tries to
57
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
_______________
57 Memorandum (in support of WMCP’s Motion and Supplemental Motion
for Reconsideration), p. 61.
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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. Section 10.2(e) contemplates a
58
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.
_______________
Id., pp. 63-64.
58
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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,
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which incorporates into all FTAAs certain terms, conditions
and warranties, including the following:
1. “(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
 2. (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
_______________
59 Account receivables may be converted to cash in one of three ways: (1)
assignment of receivables, which is a borrowing arrangement with receivables
pledged as security on the loan; (2) factoring
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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.
_______________
receivables, which is a sale of receivables without recourse for cash to a
third party, usually a bank or other financial institutions; and (3) the transfer
of receivables with recourse, which is a hybrid of the other two forms of
receivable financing. Smith and Skousen, Intermediate Accounting, (1992,
11th ed.), pp. 317-321.
Banks usually prefer lending against the security of accounts receivable
backed up by postdated checks. They refer to these facilities as bills discounting
lines.”
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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 ar-
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rangements 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.
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In fine, the foregoing evaluation and analysis of the
aforementioned FTAA provisions sufficiently overturn
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.” As the WMCP FTAA contained similar provisions
60
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. Black’s Law 61
Dictionary indicates
_______________
60 Decision, p. 83; italic types supplied.
61 “Beneficial interest has been defined as the profit, benefit, or advantage
resulting from a contract, or the ownership of an estate as distinct from the
legal ownership or control.” Christiansen v. Department of Social Security, 131
P. 2D 189, 191, 15 Wash. 2d 465, 467, November 25, 1942, per Driver, J.
Beneficial use, ownership or interest in property means “such a right to its
enjoyment bas exists where the legal title is in one person and the right to such
beneficial use or interest is in another x x x.” Montana Catholic Missions v.
Missoula County, 26 S. Ct. 197, 200, 200 U.S. 118, 127-128, January 2, 1906,
per Peckham, J.
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156 SUPREME COURT REPORTS ANNOTATED
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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. Usually, beneficial ownership is distinguished from
62
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.
_______________
See p. 1138 thereof.
62
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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 incentives to help support the
64
_______________
63 Ramos and De Vera, “The Fiscal Regime of Financial or Technical
Assistance Agreements,” p. 2. A photocopy of their paper is attached as Annex
2 to the Motion for Reconsideration of Public Respondents.
64 These incentives consist principally of the waiver of national taxes during
the cost recovery period of the FTAA. During such period, the contractor pays
only part of the basic government’s share in taxes consisting of local
government taxes and fees. The se are the local business tax, real property tax,
community tax, occupation fees, regulatory fees, all other local taxes and fees
in force, and royalty payments to indigenous cultural communities, if any.
These national taxes, however, are not to be paid by the contractor: (i)
excise tax on minerals; (ii) contractor’s income tax; (iii) customs duties and fees
on imported capital equipment; (iv) value
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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
_______________
added tax on purchases to fees on imported equipment, goods and services;
(v) withholding tax on interest payments on foreign loans; (vi) withholding tax
on dividends to foreign stockholders; and (vii) royalties due the government on
mineral reservations.
Other incentives to the contractor include those under the Omnibus
Investment Code of 1997; those for the use of pollution control devices and
facilities; income tax carry-forward of losses (five-year net loss carry forward);
and income tax accelerated depreciation.
65 See §3(g), DAO 99-56. According to the paper by Messrs. Ramos and De
Vera, supra, who are, respectively, the director of the MGB and chief of the
Mineral Economics, Information and Publication Division of the MGB,
majority of the payments listed under Sec. 3(g) are relatively small in value.
The most significant payments in
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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.
_______________
terms of amount are the excise tax, royalties to mineral reservations and
indigenous cultural communities, income tax and real property tax.
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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.)
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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
_______________
66 Per Messrs. Ramos and De Vera, supra, “(t)he term of a successful FTAA
may be divided into a pre-operating period, a cost recovery period and a post
recovery period. The pre-operating period consists of the exploration, pre-
feasibility, feasibility, development and construction phases. The aggregate of
this period is a maximum of eleven (11) years. The cost recovery period, on the
other hand, consists of the initial years of commercial operation where the
contractor is allowed to recover its pre-operating expenses. The end of this period
is when the aggregate of the net cash flow from the mining operation becomes
equal to the total pre-operating expenses or a maximum of five (5) years from
commencement of commercial production, whichever comes first. The post
recovery period is the remaining term of the FTAA immediately following the
cost recovery period. The additional government share from an FTAA is
collected after the cost recovery period.”
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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
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second paragraph of Section 81, the DENR structured and
67
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 formulas —presented in DAO
68
_______________
Ramos and De Vera, supra, pp. 3-4.
67
The discussion on pp. 4-7 of the Ramos-De Vera report, focusing on the
68
modes of computation of the additional government share as spelled out in
DAO 99-56, is significant:
The phrase “among other things” demands that Government is entitled to additional
share aside from the normal taxes and fees paid during operation. Simple as it was
formulated, the phrase is another challenging task to operationalize. In 1997, the
Philippine government conducted several consultative meetings with various investor
groups, national government agencies concerned with taxation and incentives and other
stakeholders of the agencies concerned with taxation and incentives and other
stakeholders of the mining industry to formulate the possible modes of determining the
additional government share for FTAA. The negotiation took into consideration the
following:
 • Capital investment in the project;
 • Risks involved;
 • Contribution of the project to the economy;
 • Contribution of the project to community and local government;
 • Technical complexity of the project; and
 • Other factors that will provide for a fair and equitable sharing between the
government and the contractor.
During these consultations, some investor groups have repeatedly expressed their
objections to the imposition of an additional government share. However, since
Government is firmly committed to adhere to its interpretation of Section 81
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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.
_______________
of the mining law on government share in an FTAA, it decided to push through with the
collection of this additional government share by formally making part of the mining
regulation through the issuance by the Department of Environment and Natural
Resources of Administrative Order No. 99-56 providing for the guidelines in establishing
the fiscal regime of Financial or Technical Assistance Agreements.
There were three schemes for computing the additional government share presented
in the administrative order.
5.1 Net Mining Revenue-Based Option
Net mining revenue means the gross output from mining operations during a
calendar year less deductible expenses. These deductible expenses consist of expenses
incurred by the Contractor directly, reasonably and necessarily related to mining
operations in the contract area during a calendar year, namely:
 • Mining, milling, transport and handling expenses together with smelting and
refining costs other than smelting and refining costs paid to third parties;
 • General and administrative expenses actually incurred by the Contractor in the
Philippines;
 • Consulting fees incurred for work related to the project; provided that those
expenses incurred outside of the Philippines are justifiable and allowable subject to
the approval of the Director of Mines and Geosciences Bureau;
 • Environmental expenses of the Contractor including such expenses necessary to
fully comply with its environmental obligations;
 • Expenses for the development of host and neighboring communities and for the
development of geoscience and mining technology together with training costs and
expenses;
 • Royalty payments to claim owners or surface land owners relating to the Contract
Area during the Operating Phase;
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Unfortunately, the Office of the Solicitor General—although
in possession of the relevant data—failed to fully
_______________
 • Continuing exploration and mine development expenses within the Contract Area
after the pre-operating period; and
 • Interest expenses charged on loans or such other financing-related expenses
incurred by the Contractor subject to limitations in debt/equity ratio as given in the
contract and which shall not be more than the prevailing international rates charged
for similar types of transactions at the time the financing was arranged, and where
such loans are necessary for the operations; and
 • Government taxes, duties and fees.
The additional government share from this option for any year i is the difference
between 50% of the cumulative annual net mining revenues CN i and the cumulative
total government share CGi (basic and additional). The intention is to distribute the
cumulative net mining revenue equally between the Government and the contractor. It
can be expressed through the following formula:
If 50% of CNi < CGi
Additional Government Share = 0
Else, if 50% of CNi > CGi
Additional Gov’t Share = (50% x CNi) - CGi
 5.2 Cash Flow-Based Option
Project cash flow before financing and tax (CFi) is calculated as follows:
CFi = GO - DE + I - PE - OC
In this formula, GO is the gross output; DE are the deductible expenses; I is the
interest expense; PE is unrecovered pre-operating expense; and OC is on-going capital
expenditures. This option provides that Government gets an additional share from the
project cash flow if the cumulative present value of the previous total government share
collected (basic and additional) is less than 50% of the cumulative present value of the
project cash flows. The additional government
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replicate or echo the pertinent elucidation in the Ramos-De
_______________
share AGS is therefore the difference between 50% and the percentage of the cumulative
present value of total government shares CGA over the cumulative present value of the
project cash flows CP. The cumulative present value of project cash flow for any year i is
given by the following formula:
CPi = CPi-1 x (1.10) + CFi
The factor 1.10 is a future value factor based on the cost of borrowed money with
allowance for inflation of the US dollar. The cumulative present value of the total
government share before additional government share CGB for year i is:
CGBi = CGAi-1 x (1 + Cost of Capital) + BGSi
where CGAi is the cumulative present value of total government share inclusive of
the additional government share during the year is CGAi = CGBi + AGSi.
If CGBi > 50% of CPi :
Additional Government Share = 0
Else, if CGBi < 50% of CPi :
Additional Government Share = (50% x CPi) – CGBi
5.3 Profit-Based Option
This third option provides that Government shall receive an additional share of
twenty-five percent (25%) of the additional or excess profits during a taxable year when
the two-year average ratio of the net income after tax (NIAT) to gross output (GO) is
0.40 or better. The trigger level of 0.40 ratio is approximately equivalent to a 20% return
on investment when computed based on the life of the project. Investors have indicated
that their minimum return on investment before they would invest on a mining project
in the Philippine is 15%. It was agreed upon that a return on investment below 20% but
not lower than 15% is normal profit. If the project reaches 20% or better, there is then
an additional or excess profits. The computation of the 0.40 trigger shall be based on a
2-year moving average which is the average of the previous year’s ratio and the current
year’s ratio. The additional or excess profit is computed using the following formula:
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Vera 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
_______________
Additional Profits = [NIAT - (0.40 x GO)] / (1 - ITR)
In the above formula, ITR refers to the prevailing income tax rate applied by the Bureau
of Internal Revenue in computing the income tax of the contractor during a taxable year.
If the two-year average ratio is less than 0.40:
Additional Government Share = 0
Else, if the two-year average ratio is 0.40 or better:
Additional Government Share = 25% x Excess Profits
The government shares 25% of any marginal profit derived by the contractor at 20%
or higher return on investment.
In all of these three options, the basis of computation are all in US dollars based on
prevailing foreign exchange rate at the time the expenses were incurred. Alternatives
or options aside from these three schemes are studied by Government for possible
improvement of the current fiscal system. The basic guideline, however, is that the total
government share should not be less than fifty percent of the sharing.
6. Collection of the Additional Government Share
The term of a successful FTAA may be divided into a preoperating period, a cost
recovery period and a post recovery period. The pre-operating period consists of the
exploration, pre-feasibility, feasibility, development and construction phases. The
aggregate of this period is a maximum of eleven (11) years. The cost recovery period, on
the other hand, consists of the initial years of commercial operation where the contractor
is allowed to recover its pre-operating expenses. The end of this period is when the
aggregate of the net cash flow from the mining operation becomes equal to the total pre-
operating expenses or a maximum of five (5) years from commencement of commercial
production, whichever comes first. The post recovery period is the remaining term of the
FTAA immediately following the cost recovery period. The additional government share
from an FTAA is collected after the cost recovery period. (italics supplied)
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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 flows of the 69
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.
_______________
69 The cash flows of a business concern tend to be more accurate and
realistic indicia of the financial capacity of the enterprise, rather than the net
income or taxable income, which are arrived at after netting out non-cash items
like depreciation, doubtful accounts expense for probable losses, and write-offs
of bad debts.
Cash flows provide relevant information about the cash effects of an entity’s
operations, and its investing and financing transactions. Smith and
Skousen, supra, p. 184.
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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 taxes and 70
other financial contributions of mining projects. These
71
indirect taxes and other contributions are real and actual
benefits
_______________
70 Some of these indirect taxes are: fuel taxes; withholding tax on payrolls,
on royalty payments to claim owners and surface owners and on royalty
payments for technology transfer; value added tax on local equipment, supplies
and services.
71 Other contributions of mining projects include: infrastructure (hospitals,
roads, schools, public markets, churches, and the like) and social development
projects; payroll and fringe benefits (direct and indirect employment);
expenditures by the contractor for development of host and neighboring
communities; expenditures for the development of geosciences/mining
technology; expenditures for social infrastructures; and the resulting
multiplier effects of mining operations.
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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-De Vera 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 thingsrefers 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.
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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 81 provides that the
72
government share in FTAAs shall be collected when the
contractor shall have recovered its pre-operating expenses and
exploration and development expenditures. The objection has
been advanced that, on account of the proviso, the collection of
the State’s share is not even certain, as there is no time limit
in RA 7942 for this grace period or recovery period.
We believe that Congress did not set any time limit for the
grace period, preferring to leave it to the concerned agencies,
which are, on account of their technical expertise and training,
in a better position to determine the appropriate durations for
such recovery periods. After all, these recovery periods are
determined, to a great extent, by technical and technological
factors peculiar to the mining industry. Besides,
_______________
72 The third paragraph of §81, RA 7942 states: “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.”
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with developments and advances in technology and in the
geosciences, we cannot discount the possibility of shorter
recovery periods. At any rate, the concerned agencies have not
been remiss in this area. The 1995 and 1996 Implementing
Rules and Regulations of RA 7942 specify that the period of
recovery, reckoned from the date of commercial operation,
shall be for a period not exceeding five years, or until the date
of actual recovery, whichever comes earlier.
Approval of Pre-Operating Expenses Required by RA
7942
Still, RA 7942 is criticized for allegedly not requiring
government approval of pre-operating, exploration and
development expenses of the foreign contractors, who are in
effect given unfettered discretion to determine the amounts of
such expenses. Supposedly, nothing prevents the contractors
from recording such expenses in amounts equal to the mining
revenues anticipated for the first 10 or 15 years of commercial
production, with the result that the share of the State will be
zero for the first 10 or 15 years. Moreover, under the
circumstances, the government would be unable to say when
it would start to receive its share under the FTAA.
We believe that the argument is based on incorrect
information as well as speculation. Obviously, certain crucial
provisions in the Mining Law were overlooked. Section 23,
dealing with the rights and obligations of the exploration
permit grantee, states: “The permittee shall undertake
exploration work on the area as specified by its permit based on
an approved work program.” The next proviso reads: “Any
expenditure in excess of the yearly budget of the approved
work program may be carried forward and credited to the
succeeding years covering the duration of the permit. x x
x.” (italics supplied)
Clearly, even at the stage of application for an exploration
permit, the applicant is required to submit—for approval by
the government—a proposed work program for exploration,
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containing a yearly budget of proposed expenditures. The
State has the opportunity to pass upon (and approve or reject)
such proposed expenditures, with the foreknowledge that—if
approved—these will subsequently be recorded as pre-
operating expenses that the contractor will have to recoup over
the grace period. That is not all.
Under Section 24, an exploration permit holder who
determines the commercial viability of a project covering a
mining area may, within the term of the permit, file with the
Mines and Geosciences Bureau a declaration of mining project
feasibility. This declaration is to be accompanied by a work
program for development for the Bureau’s approval, the
necessary prelude for entering into an FTAA, a mineral
production sharing agreement (MPSA), or some other mineral
agreement. At this stage, too, the government obviously has
the opportunity to approve or reject the proposed work
program and budgeted expenditures for development works on
the project. Such expenditures will ultimately become the pre-
operating and development costs that will have to be recovered
by the contractor.
Naturally, with the submission of approved work programs
and budgets for the exploration and the
development/construction phases, the government will be able
to scrutinize and approve or reject such expenditures. It will
be well-informed as to the amounts of pre-operating and other
expenses that the contractor may legitimately recover and the
approximate period of time needed to effect such a recovery.
There is therefore no way the contractor can just randomly
post any amount of pre-operating expenses and expect to
recover the same.
The aforecited provisions on approved work programs and
budgets have counterparts in Section 35, which deals with the
terms and conditions exclusively applicable to FTAAs. The
said provision requires certain terms and conditions to be
incorporated into FTAAs; among them, “a firm commitment x
x x of an amount corresponding to the expenditure obliga-
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tion that will be invested in the contract
area” and “representations and warranties x x x to timely
deploy these [financing, managerial and technical expertise
and technological] resources under its supervision pursuant to
the periodic work programs and related budgets x x x,” as
well as “work programs and minimum expenditures
commitments.” (italics supplied)
Unarguably, given the provisions of Section 35, the State
has every opportunity to pass upon the proposed expenditures
under an FTAA and approve or reject them. It has access to all
the information it may need in order to determine in advance
the amounts of pre-operating and developmental expenses
that will have to be recovered by the contractor and the
amount of time needed for such recovery.
In summary, we cannot agree that the third or last
paragraph of Section 81 of RA 7942 is in any manner
unconstitutional.
No Deprivation of Beneficial Rights
It is also claimed that aside from the second and the third
paragraphs of Section 81 (discussed above), Sections 80, 84
and 112 of RA 7942 also operate to deprive the State of
beneficial rights of ownership over mineral resources; and give
them away for free to private business enterprises (including
foreign owned corporations). Likewise, the said provisions
have been construed as constituting, together with Section 81,
an ingenious attempt to resurrect the old and discredited
system of “license, concession or lease.”
Specifically, Section 80 is condemned for limiting the
State’s share in a mineral production-sharing agreement
(MPSA) to just the excise tax on the mineral product. Under
Section 151(A) of the Tax Code, such tax is only 2 percent of
the market value of the gross output of the minerals.
The colatilla in Section 84, the portion considered offensive to
the
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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.
_______________
73 §§80 and 84 of RA 7942 are reproduced below:
Sec. 80. Government Share in Mineral Production Sharing Agreement.—The total
government share in a mineral production sharing agreement shall be the excise tax on
mineral products as provided in Republic Act No. 7729, amending Section 151(a) of the
National Internal Revenue Code, as amended.
Sec. 84. Excise Tax on Mineral Products.—The contractor shall be liable to pay the
excise tax on mineral products as provided for under Section 151 of the National Internal
Revenue Code: Provided, however, That with respect to a mineral production sharing
agreement, the excise tax on mineral products shall be the government share under said
agreement. (Italics supplied)
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On the other hand, Section 112 is disparaged for allegedly
74
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.” (emphasis supplied) This provision is construed
as signifying that the 2 percent excise tax which, pursuant to
Section 80, comprises the government share in MPSAs shall
now also constitute the government share in FTAAs—as well
as in coproduction agreements and joint venture
agreements—to the exclusion of revenues of any other nature
or from any other source.
Apart from the fact that Section 112 likewise does not come
within the issues delineated by this Court during the Oral
Argument, and was never touched upon by the parties in their
pleadings, it must also be noted that the criticism hurled
_______________
74 §112 of RA 7942 is reproduced below:
Sec. 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 Exec. 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 agreementand 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 such provisions: Provided, further, That no renewal of mining lease contract
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. (Italics supplied)
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against this Section is rooted in unwarranted conclusions
made without considering other relevant provisions in the
statute. Whether Section 112 may properly apply to
coproduction 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
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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
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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
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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, duties, fees, and
75
royalties. All told, the exploration, pre-feasibility, feasibility,
development and construction phases together add up to as
many as eleven years. The contractors have to continually
76
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 years counted from the commencement of
77
commercial production.
_______________
75 Even during the cost recovery period, the contractor will still have to pay
a portion of the basic government share consisting of local government taxes
and fees, such as local business taxes, real property taxes and fees, such as
local business taxes, real property taxes, community taxes, occupation fees,
regulatory fees, and all other local taxes and fees, plus royalty payments to
indigenous cultural communities, if any.
76 Ramos and De Vera, supra, p. 7.
77 Ibid., p. 11. See also §3e of DAO 99-56.
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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 mar-
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ketable 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 illconceived 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 repatri-
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ate the said after-tax income to their home countries, thereby
resulting in no real contribution to the economic growth of this
country. Clearly, this contention is premised on erroneous
assumptions.
First, as already discussed in detail hereinabove, the
concerned agencies have correctly interpreted the second
paragraph of Section 81 of RA 7942 to mean that the
government is entitled to an additional share, to be computed
based on any one of the following factors: net mining revenues,
the present value of the cash flows, or excess profits reckoned
against a benchmark rate of return on investments. So it is
not correct to say that all of the after-tax income will accrue to
the foreign FTAA contractor, as the government effectively
receives a significant portion thereof.
Second, the foreign contractors can hardly “repatriate the
entire after-tax income to their home countries.” Even a bit of
knowledge of corporate finance will show that it will be
impossible to maintain a business as a “going concern” if the
entire “net profit” earned in any particular year will be taken
out and repatriated. The “net income” figure reflected in the
bottom line is a mere accounting figure not necessarily
corresponding to cash in the bank, or other quick assets. In
order to produce and set aside cash in an amount equivalent
to the bottom line figure, one may need to sell off assets or
immediately collect receivables or liquidate short-term
investments; but doing so may very likely disrupt normal
business operations.
In terms of cash flows, the funds corresponding to the net
income as of a particular point in time are actually in use in
the normal course of business operations. Pulling out such net
income disrupts the cash flows and cash position of the
enterprise and, depending on the amount being taken out,
could seriously cripple or endanger the normal operations and
financial health of the business enterprise. In short, no sane
business person, concerned with maintaining the mining
enterprise as a going concern and keeping a foothold in its mar-
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ket, 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 simplifiedillustration. 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 income of
P100. A corporate income tax of 32 percent results in P32 of
taxable
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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 tun-
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nels 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 lawmak-
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ers 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 comparatively less need for fresh investments and
technology.
On the other hand, even if minerals are found in viable
quantities, there is still need for continuous fresh capital and
expertise to dig the mineral ores from the mines. Just because
deposits of mineral ores are found in one area is no guarantee
that an equal amount can be found in the adjacent areas.
There are simply continuing risks and need for more capital,
expertise and industry all the time.
Note, however, that the indirect benefits—apart from the
cash revenues—are much more in the mineral industry. As
mines are explored and extracted, vast employment is created,
roads and other infrastructure are built, and other mul-
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188 SUPREME COURT REPORTS ANNOTATED
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tiplier 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
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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 FTAAat 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, or 78
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.
_______________
78 Justice Carpio argues thus: The WMCP FTAA grants the State 60 percent
of net profit; CMP likewise agrees to 60 percent; the Malampaya-Shell FTAA
provides for 60 percent also; so the Court should decree a minimum of 60
percent. Our answer: no law authorizes this Court to issue such a decree. It is
up to the State to negotiate the most advantageous percentage. This Court
cannot be stampeded into the realm of legislation.
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190 SUPREME COURT REPORTS ANNOTATED
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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 risks of the 79
business, as mentioned earlier. These risks are indeed
_______________
79 Clause 1.2 thereof states: “All financing, technology, management and
personnel necessary for the Mining Operations shall be provided by the
Contractor in accordance with the provisions of this Agreement. If no minerals
in commercial quantity are developed and produced, the Contractor
acknowledges that it will not be entitled to reimbursement of its expenses
incurred in conducting the Mining Operations.”
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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 Arearelating to the Mining
Operations,” “consulting
80 fees incurred both inside
and outside the Philippines for work related directly to the
Mining Opera-
_______________
WMC FTAA Clause 2.1 (iv), p. 6.
80
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192 SUPREME COURT REPORTS ANNOTATED
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tions,” and “the establishment and administration of field
81
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.
_______________
Id., Clause 2.1 (v), p. 6.
81
Id., Clause 2.1 (vii), p. 6.
82
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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 1 percent 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, con-
_______________
83 “Qualified Entity” is defined as “an entity that at the relevant time is
qualified to enter into a mineral production sharing agreement with the
Government under the laws restricting foreign ownership and equity in natural
resource projects.” §2—Definitions, WMCP FTAA, p. 10. (Emphasis supplied.)
Pursuant to §26a in relation to §§3g and 3aq of RA 7942, a contractor in an
MPSA should be a citizen of the Philippines or a corporation at least 60 percent
of the capital of which is owned by citizens of the Philippines.
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194 SUPREME COURT REPORTS ANNOTATED
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sisting 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” as essential guiding principles to be kept in mind
85
when negotiating the terms and conditions of FTAAs.
_______________
84 Since we assume that the buyer-corporation, which buys up 60% equity
in WMCP, is 60% Filipino owned and 40% foreign owned, therefore, the foreign
stockholders in such buyer-corporation hold 24% beneficial interest in WMCP.
85 Fourth paragraph of Sec. 2, Art. XII of the 1987 Constitution.
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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.
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Moreover, it has been reiterated in numerous decisions that86
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. Being precisely violative of anti-graft provisions
87
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, and that it is never
88
estopped by any mistake or error on their part. It is therefore
89
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 inter-
_______________
86 See, for instance, Maestrado v. Court of Appeals, 327 SCRA 678, 692,
March 9, 2000 and Philippine Telegraph and Telephone Co. v. National labor
Relations Commission, 338 Phil. 1093, 1111; 272 SCRA 596, May 23, 1997.
87 Art. 1306 of the Civil Code provides: “The contracting parties may
establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy.”
88 Republic v. Court of Appeals, 354 SCRA 148, March 9, 2001, per Ynares-
Santiago, J.
89 Philippine Basketball Association v. Court of Appeals, 337 SCRA 358,
369, August 8, 2000. Likewise, §11 of Book I of Chapter 3 of Exec. Order No.
292, otherwise known as “The Administrative Code of 1987,” states: “Sec. 11.
The State’s Responsibility for Acts of Agents.—(1) The State shall be legally
bound and responsible only through the acts performed in accordance with the
Constitution and the laws by its duly authorized representatives. (2) The State
shall not be bound by the mistakes or errors of its officers or agents in the
exercise of their function.”
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est, the contractual provisions and stipulations must yield to
the common good and the national interest.
Since the offending provision is very much separable from 90
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:
1. “7.8The Government Share shall be deemed to include
all of the following sums:
 1. “(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;
2. “(b)any payments to local and regional government,
including taxes, fees, levies, costs, imposts, duties,
royalties, occupation and regulatory fees and
infrastructure contributions;
3. “(c)any payments to landowners, surface rights holders,
occupiers, indigenous people or Claimowners;
_______________
90 Art. 1420 of the Civil Code provides: “In case of a divisible contract, if the
illegal terms can be separated from the legal ones, the latter may be enforced.”
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198 SUPREME COURT REPORTS ANNOTATED
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1. “(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);
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;
3. “(f)all of the foregoing items which have not previously
been offset against the Government Share in an earlier
Fiscal Year, adjusted for inflation.” (italics 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. For being grossly disadvantageous and prejudicial
91
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 “deduc-
_______________
Sarmiento v. Court of Appeals, 291 SCRA 656, July 2, 1998.
91
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
tion” 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-De
Vera paper concisely presents the fiscal contribution of an
92
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 sharecomputed 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
_______________
Ramos-De Vera, supra, p. 2.
92
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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.
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“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
_______________
Bold types supplied.
93
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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 phases
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 possiblemiscalculation on the
part of the State. If government believes that it is or will
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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), coproduction 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
stakeholdersobviously 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
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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. On the other hand, in an MPSA, the
95
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
_______________
§3[h] in relation to §26[b] of RA 7942.
94
§26[c] of RA 7942.
95
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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 cor-
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poration 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 study reportedly
96
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’swarning to developing nations that mining brings
with it serious economic problems, including increased
regional inequality, unemployment and poverty. They also cite
the final report of the Extractive Industries Review project
97
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
_______________
OXFAM America Research Report, September 2002.
96
Dated December 2003.
97
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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-visother 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.
xxx xxx xxx
“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.”
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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
Min-ing 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
_______________
 §1 of E.O. 270.
98
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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?
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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
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(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
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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: “x x x 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
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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
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214 SUPREME COURT REPORTS ANNOTATED
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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.
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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 corpora-tions.’ 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
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216 SUPREME COURT REPORTS ANNOTATED
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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.,
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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
generisrule 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 “x x x any amendment of an
FTAA other than the provision on fiscal regimeshall
require the negotiation with the Negotiation Panel and the
recommendation of the Secretary for approval of the President
x x x.” 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
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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.” (italics 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 preapproved. 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
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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 arguendothat
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
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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
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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-
scaleexploration, 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
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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
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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
gen-
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eral 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
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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
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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
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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
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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.
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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 grantany
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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.
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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.
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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
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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 com-
234
234 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
promising 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 of 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 the government and
detrimental to the Filipino people as well as violative of public
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VOL. 445, DECEMBER 1, 2004 235
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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 is likewise 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
236
236 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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.” As 99
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
_______________
99 Decena v. Malanyaon, A.M. No. RTJ-02-1669, April 14, 2004, 427 SCRA
153, per Tinga, J.
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VOL. 445, DECEMBER 1, 2004 237
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
implication conferred on it by the Organic Act.” Let the
100 Manila Electric Company v. Pasay Transportation, 57 Phil. 600, 605,
100

November 25, 1932, per Malcolm, J.

development of the mining industry be the responsibility of
238
the political branches of government. And let not this Court 238 SUPREME COURT REPORTS ANNOTATED
interfere inordinately and unnecessarily.
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
The Constitution of the Philippines is the supreme law of
This Court cannot but be mindful that any decision rendered
the land. It is the repository of all the aspirations and hopes
in this case will ultimately impact not only the cultural
of all the people. We fully sympathize with the plight of
communities which lodged the instant Petition, and not only
Petitioner La Bugal-B’laan and other tribal groups, and
the larger community of the Filipino people now struggling to
commend their efforts to uplift their communities. However,
survive amidst a fiscal/budgetary deficit, ever increasing
we cannot justify the invalidation of an otherwise
prices of fuel, food, and essential commodities and services, the
constitutional statute along with its implementing rules, or
shrinking value of the local currency, and a government
the nullification of an otherwise legal and binding FTAA
hamstrung in its delivery of basic services by a severe lack of
contract.
resources, but also countless future generations of Filipinos.
We must never forget that it is not only our less privileged
For this latter group of Filipinos yet to be born, their
brethren in tribal and cultural communities who deserve the
eventual access to education, health care and basic services,
attention of this Court; rather, all parties concerned—
their overall level of well-being, the very shape of their lives
including the State itself, the contractor (whether Filipino or
are even now being determined and affected partly by the
foreign), and the vast majority of our citizens—equally deserve
policies and directions being adopted and implemented by
the protection of the law and of this Court. To stress, the
government today. And in part by this Resolution rendered by
benefits to be derived by the State from mining activities must
this Court today.
ultimately serve the great majority of our fellow citizens. They
Verily, the mineral wealth and natural resources of this
have as much right and interest in the proper and well-ordered
country are meant to benefit not merely a select group of
development and utilization of the country’s mineral resources
people living in the areas locally affected by mining activities,
as the petitioners.
but the entire Filipino nation, present and future, to whom the
Whether we consider the near term or take the longer view,
mineral wealth really belong. This Court has therefore
we cannot overemphasize the need for an appropriate
weighed carefully the rights and interests of all concerned, and
balancing of interests and needs—the need to develop our
decided for the greater good of the greatest number. JUSTICE
stagnating mining industry and extract what NEDA Secretary
FOR ALL, not just for some; JUSTICE FOR THE PRESENT
Romulo Neri estimates is some US$840 billion (approx.
AND THE FUTURE, not just for the here and now.
PhP47.04 trillion) worth of mineral wealth lying hidden in the
WHEREFORE, the Court RESOLVES to GRANT the
ground, in order to jumpstart our floundering economy on the
respondents’ and the intervenors’ Motions for
one hand, and on the other, the need to enhance our
Reconsideration; to REVERSE and SET ASIDE this Court’s
nationalistic aspirations, protect our indigenous communities,
January 27, 2004 Decision; to DISMISS the Petition; and to
and prevent irreversible ecological damage.
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. 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; and
(3) the Finan-
239
VOL. 445, DECEMBER 1, 2004 239
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
cial 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.
Davide, Jr. (C.J.), Sandoval-Gutierrez, Austria-
Martinez and Garcia, JJ., concur.
Puno, J., In the result and I vote to invalidate sections
3.3; 7-8 and 7.9 of the WMC FTAA.
Quisumbing, J., In the result.
Ynares-Santiago, J., I join dissenting opinion of J.
Antonio Carpio and J. Conchita Carpio-Morales.
Carpio, J., See Dissenting Opinion.
Corona, J., Justice Davide—I certify that Justice
Corona voted affirmatively with the majority and he was
allowed to do so although he is on leave.
Carpio-Morales, J., Please see my Dissenting Opinion.
Callejo, Sr., J., I concur in the Dissenting opinion of J.
Carpio.
Azcuna, J., I take no part—same reason.
Tinga, J., I concur with a separate opinion.
Chico-Nazario, J., Please see Separate Opinion.
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240 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
DISSENTING OPINION
CARPIO, J.:
I dissent and vote to deny respondents’ motions for
reconsideration. I find that Section 3(aq), Section 39, Section
80, the second paragraph of Section 81, the proviso in Section
84, and the first proviso in Section 112 of Republic Act No.
7942 (“RA 7942”) violate Section 2, Article XII of the 1987
1
Constitution and are therefore unconstitutional.
In essence, these provisions of RA 7942 waive the State’s
ownership rights under the Constitution over mineral
resources.These provisions also abdicate the State’s
constitutional duty to control and supervise fully the
exploitation of mineral resources.
A. The Threshold Issue for Resolution
Petitioners claim that respondent Department of
Environment and Natural Resources Secretary Victor O.
Ramos, in issuing the rules to implement RA 7942, gravely
abused his discretion amounting to lack or excess of
jurisdiction. Petitioners assert that RA 7942 is
unconstitutional for the following reasons:
1. 1.RA 7942 “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”;
2. 2.RA 7942 “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”;
3. 3.RA 7942 “violates Section 1, Article III of the
Constitution”;
_______________
1Philippine Mining Act of 1995.
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VOL. 445, DECEMBER 1, 2004 241
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
 1. 4.RA 7942 “allows priority to foreign and fully foreign
owned corporations in the exploration, development
and utilization of mineral resources contrary to Article
XII of the Constitution”;
2. 5.RA 7942 “allows the inequitable sharing of
wealthcontrary to Section 1, paragraph 1, and
Section 2, paragraph 4, Article XII of the
Constitution.” (Emphasis supplied)
2
Petitioners also assail the validity of the Financial and
Technical Assistance Agreement between the Philippine
Government and WMCP (Philippines), Inc. dated 2 March
1995 (“WMCP FTAA”) for violation of Section 2, Article XII of
3
the 1987 Constitution.
The issues that petitioners raise boil down to whether RA
7942 and the WMCP FTAA violate Section 2, Article XII of the
1987 Constitution.
B. The Constitutional Declaration and Mandate
Section 2, Article XII of the 1987 Constitution provides as 4
follows:
_______________
2 Rollo, pp. 23–24.
3 Ibid., pp. 65-120. Then Executive Secretary Teofisto Guingona, Jr. signed
the WMCP FTAA on behalf of then President Fidel V. Ramos upon
recommendation of then DENR Secretary Angel C. Alcala.
4 Section 2, Article XII of the 1987 Constitution provides in full:
“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
242
242 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
All x x x minerals, x x x petroleum, and other mineral oils, x x x and
other natural resources are owned by the State. 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. (Emphasis supplied)
Two basic principles flow from this constitutional
provision. First, the Constitution vests in the State ownership
of all mineral resources. Second, the Constitution mandates
the State to exercise full control and supervision over the
exploitation of mineral resources.
The first principle reiterates the Regalian doctrine, which
established State ownership of natural resources since the
arrival of the Spaniards in the Philippines in the 16th century.
The 1935, 1973 and 1987 Constitutions incorporate the
_______________
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 fishworkers 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.”
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VOL. 445, DECEMBER 1, 2004 243
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Regalian doctrine. The State, as owner of the nation’s natural
5
resources, exercises the attributes of ownership over its
natural resources. An important attribute of ownership is the
6
right to receive the income from any commercial exploitation of
the natural resources. 7 by Filipino citizens can only lease the same. Necessarily,
The second principle insures that the benefits of State
ownership of natural resources accrue to the Filipino people.
The framers of the 1987 Constitution introduced the second
principle to avoid the adverse effects of the “license, concession
or lease” system of exploitation under the 1935 and 1973
8 correct?
Constitutions. The “license, concession or lease” system
9 MR. VILLEGAS: Yes.
enriched the private concessionaires who controlled the
exploitation of natural resources. However, the “license,
concession or lease” system left the Filipino people
impoverished, starkly exemplified by the nation’s denuded
forests whose exploitation did not benefit the Filipino people.
The framers of the 1987 Constitution clearly intended to
abandon the “license, concession or lease” system prevailing
under the 1935 and 1973 Constitutions. This exchange in the
deliberations of the Constitutional Commission reveals this
clear intent:
MR. DAVIDE: Thank you, Mr. Vice-President. I would like to
seek some clarifications.
MR. VILLEGAS: Yes.
_______________
5 Chavez v. Public Estates Authority, 433 Phil. 506; 384 SCRA 152 (2002).
6 The only limitation is that the State cannot alienate its natural resources
except for agricultural lands. However, the State can exploit commercially its
natural resources and sell the marketable products from such
exploitation. See note 12.
7 Article 441, Civil Code.
8 Section 1, Article XIII of the 1935 Constitution; Section 8, Article XIV of
the 1973 Constitution.
9 Miners Association of the Philippines v. Hon. Factoran, Jr., 310 Phil.
113; 240 SCRA 100 (1995).
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244 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
MR. DAVIDE: Under the proposal, I notice that except for the
lands of the public domain, all the other natural resources
cannot be alienated and in respect to lands of the public
domain, private corporations with the required ownership
insofar as other natural resources are concerned, it would
only be the State which can exploit, develop, explore and
utilize the same. However, the State may enter into a joint
venture, co-production or produc-tion-sharing. Is that not
MR. DAVIDE: Consequently, henceforth upon the approval of
this Constitution, no timber or forest concessions, permits or
authorization can be exclusively granted to any citizen of the
Philippines nor to any corporation qualified to acquire
lands of the public domain?
MR. VILLEGAS: Would Commissioner Monsod like to
comment on that? I think his answer is “yes.”
MR. DAVIDE: So, what will happen now to licenses or
concessions earlier granted by the Philippine government
to private corporations or to Filipino citizens? Would they
be deemed repealed?
MR. VILLEGAS: This is not applied retroactively. They will
be respected. (Emphasis supplied)
10
To carry out this intent, the 1987 Constitution uses a different
phraseology from that used in the 1935 and 1973
Constitutions. The previous Constitutions used the phrase
“license, concession or lease” in referring to exploitation of
natural resources. The 1987 Constitution uses the phrase “co-
production, joint venture or production-sharing agreements,”
with “full control and supervision” by the State. The change in
language was a clear rejection of the old system of “license,
concession or lease.”
The 1935 and 1973 Constitutions also used the words
“belong to” in stating the Regalian doctrine, thus declaring
that
_______________
Records of the Constitutional Commission, Vol. III, p. 260.
10
245
 VOL. 445, DECEMBER 1, 2004 245
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
natural resources “belong to the State.” The 1987 Constitution
uses the word “owned,” thus prescribing that natural
resources are “owned” by the State. In using the word “owned,”
the 1987 Constitution emphasizes the attributes of ownership,
among which is the right to the income of the property owned. 11
The State as owner of the natural resources must receive
income from the exploitation of its natural resources. The
payment of taxes, fees and charges, derived from the taxing or
police power of the State, is not a substitute. The State is duty
bound to secure for the Filipino people a fair share of the
income from any exploitation of the nation’s precious and
exhaustible natural resources. As explained succinctly by a
textbook writer:
Under the former licensing, concession, or lease schemes, the
government benefited from such activities only through fees,
charges and taxes. Such benefits were very minimal compared with
the enormous profits reaped by the licensees, concessionaires or
lessees who had control over the particular resources over which
they had been given exclusive right to exploit. Moreover, some of
them disregarded the conservation of natural resources. With the
new role, the State will be able to obtain a greater share in the
profits. It can also actively husband our natural resources and
engage in development programs that will be beneficial to the
nation. (Emphasis supplied)
12
Thus, the 1987 Constitution commands the State to exercise
full control and supervision over the exploitation of natural
resources to insure that the State receives its fair share of the
income. In Miners Association of the Philippines v. Hon.
Factoran, Jr., et al., the Court ruled that “the old system of
13
exploration, development and utilization of natural resources
through ‘license, concession or lease’ x x x has been disallowed
_______________
11See note 7.
12Hector de Leon, PHILIPPINE CONSTITUTIONAL LAW, Vol. 2, p. 804
(1999 Ed.).
See note 9.
13
246
246 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
by Article XII, Section 2 of the 1987 Constitution.” The Court
explained:
Upon the effectivity of the 1987 Constitution on February 2, 1987, the
State assumed a more dynamic role in the exploration, development
and utilization of the natural resources of the country. Article XII,
Section 2 of the said Charter explicitly ordains that the exploration,
development and utilization of natural resources shall be under
the full control and supervision of the State. Consonant therewith,
the exploration, development and utilization of natural resources
may be undertaken by means of direct act of the State, or it may opt
to enter into co-production, joint venture, or production-sharing
agreements, or it 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. (Emphasis
supplied)
The old system of “license, concession or lease” which merely
gave the State a pittance in the form of taxes, fees and charges
is now buried in history. Any attempt to resurrect it is
unconstitutional and deserves outright rejection by this Court.
The Constitution prohibits the alienation of all natural
resources except agricultural lands. The Constitution,
14
however, allows the State to exploit commercially its natural
resources and sell the marketable products from such
exploitation. This the State may do through a co-production,
joint venture or production-sharing arrangement with
companies at least 60% Filipino owned. The necessary
implication is that the State, as owner of the natural
resources, must receive a fair share of the income from such
commercial operation. The
_______________
 14Section 2, Article XII of the 1987 Constitution provides in part: “x x x With
the exception of agricultural lands, all other natural resources shall not be
alienated.”
247
VOL. 445, DECEMBER 1, 2004 247
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
State may receive its share of the net income in cash or in kind.
The State may also directly exploit its natural resources in
either of two ways. The State may set up its own company to
engage in the exploitation of natural resources. Alternatively,
the State may enter into a financial or technical assistance
agreement (“FTAA”) with private companies who act as
contractors of the State. The State may seek from such
contractors either financial or technical assistance, or both,
depending on the State’s own needs. Under an FTAA, the
contractor, foreign or local, manages the contracted work or
operations to the extent of its financial or technical
contribution, subject to the State’s control and supervision.
Except in large-scale exploitation of certain minerals, the
State’s contractors must be 60% Filipino owned companies.
The State pays such contractors, for their technical services or
financial assistance, a share of the income from the
exploitation of the natural resources. The State retains the
remainder of the income after paying the Filipino owned
contractor.
In large-scale exploitation of minerals, petroleum and other
mineral oils, the Constitution allows the State to contract with
“foreign-owned corporations” under an FTAA. This is still
a direct exploitation by the State but using a foreign instead of
a local contractor. However, the Constitution requires that the
participation of foreign contractors must make a real
contribution to the national economy and the general welfare.
The State pays the foreign contractor, for its technical services
or financial assistance, a share of the income from the
exploitation of the minerals, petroleum or other mineral oils.
The State retains the rest of the income after paying the
foreign contractor.
Whether the FTAA contractor is local or foreign, the State
must retain its fair share of the income from the exploitation
of the natural resources that it owns. To insure it retains its
fair share of the income, the State must exercise full control
and supervision over the exploitation of its natural resources.
248
248 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
And whether the FTAA contractor is local or foreign, the State
is directly undertaking the exploitation of its natural
resources, with the FTAA contractor providing technical
services or financing to the State. Since the State is directly
undertaking the exploitation, all exploration permits and
similar authorizations are in the name of the Philippine
Government, which then authorizes the contractor to act on its
behalf.
The State exercises full control and supervision over the
mining operations in the Philippines of the foreign contractor.
However, the State does not exercise control and supervision
over the foreign contractor itself or its board of directors. The
State does not also exercise any control or supervision over the
foreign contractor’s mining operations in other countries, or
even its non-mining operations in the Philippines. There is no
conflict of power between the State and the foreign
contractor’s board of directors. By entering into an FTAA, the
foreign contractor, through its board of directors, agrees to
manage the contracted work or operations to the extent of its
financial or technical contribution subject to the State’s
control and supervision.
No government should contract with a corporation, local or
foreign, to exploit commercially the nation’s natural resources
without the State receiving any income as owner of the natural
resources. Natural resources are non-renewable and
exhaustible assets of the State. Certainly, no government in
its right mind should give away for free its natural resources
to private business enterprises, local or foreign, amidst
widespread poverty among its people.
 In sum, two basic constitutional principles govern the
exploitation of natural resources in the country. First, the
State owns the country’s natural resources and must benefit
as owner from any exploitation of its natural
resources. Second, to insure that it receives its fair share as
owner of the natural resources, the State must exercise full
control and supervision over the exploitation of its natural
resources.
249
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
We shall subject RA 7942 to constitutional scrutiny based on
these two basic principles.
C. Waiver of Beneficial Rights from Ownership of
Mineral Resources
RA 7942 contains five provisions which waive the State’s right
to receive income from the exploitation of its mineral
resources. These provisions are Sections 39, 80, 81, 84 and
112:
Section 39. Option to Convert into a Mineral Agreement.—The
contractor has the option to convert the financial or technical
assistance agreement to a mineral agreement at any time during the
term of the agreement, if the economic viability of the contract area
is found to be inadequate to justify large-scale mining
operations, after proper notice to the Secretary as provided for
under the implementing rules and regulations: Provided, That the
mineral agreement shall only be for the remaining period of the
original agreement.
In the case of a foreign contractor, it shall reduce its equity to
forty percent (40%) in the corporation, partnership, association, or
cooperative. Upon compliance with this requirement by the
contractor, the Secretary shall approve the conversion and execute
the mineral production-sharing agreement.
Section 80. Government Share in Mineral Production Sharing
Agreement.—The total government share in a mineral production
sharing agreement shall be the excise tax on mineral products as
provided in Republic Act No. 7729, amending Section 151(a) of the
National Internal Revenue Code, as amended.
Section 81. Government Share in Other Mineral Agreements.—
The share of the Government in co-production and joint-venture
agreements shall be negotiated by the Government and the
contractor taking into considerationthe: (a) capital investment of
the project, (b) 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 compensation for its other
contributions which shall be agreed upon by the parties, and shall
consist,
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250 SUPREME COURT REPORTS ANNOTATED
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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.
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.
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.
Section 84. Excise Tax on Mineral Products.—The contractor
shall be liable to pay the excise tax on mineral products as provided
for under Section 151 of the National Internal Revenue
Code: Provided, however, That with respect to a mineral production
sharing agreement, the excise tax on mineral products shall be the
government share under said agreement.
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 x x x Provided, That
the provisions of Chapter XIV on government share in mineral
15
production-sharing agreement x x x 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.
(Emphasis supplied)
Section 80 of RA 7942 limits to the excise tax the State’s share
in a mineral production-sharing agreement (“MPSA”).
_______________
Chapter XIV covers Sections 80 to 82 of RA 7942.
15
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Section 80 expressly states that the excise tax on mineral
products shall constitute the “total government share in a
mineral production sharing agreement.” Under Section 151(A)
of the Tax Code, this excise tax on metallic and non-metallic
minerals is only 2% of the market value, as follows:
Section 151. Mineral Products.—
(A) Rates of Tax.—There shall be levied, assessed and collected
on minerals, mineral products and quarry resources, excise tax as
follows:
1. (1)On coal and coke, a tax of Ten pesos (P10.00) per metric
ton;
2. (2)On all nonmetallic minerals and quarry resources, a tax of
two percent (2%) based on the actual market value of the
gross output thereof at the time of removal, in the case of
those locally extracted or produced; or the value used by the
Bureau of Customs in determining tariff and customs
duties, net of excise tax and value-added tax, in the case of
importation.
xxx
3. (3)On all metallic minerals, a tax based on the actual market
value of the gross output thereof at the time of removal, in
the case of those locally extracted or produced; or the value
used by the Bureau of Customs in determining tariff and
customs duties, net of excise tax and value-added tax, in the
case of importation, in accordance with the following
schedule:
1. (a)Copper and other metallic minerals:
1. (i)On the first three (3) years upon the effectivity of Republic
Act No. 7729, one percent (1%);
2. (ii)On the fourth and the fifth years, one and a half percent
(1½%); and
3. iii)On the sixth year and thereafter, two percent (2%).
1. (b)Gold and chromite, two percent (2%).
x x x. (Emphasis supplied)
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252 SUPREME COURT REPORTS ANNOTATED
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Section 80 of RA 7942 does not allow the State to receive any
income as owner of the mineral resources. The proviso in
Section 84 of RA 7942 reiterates this when it states that “the
excise tax on mineral products shall be the government share
under said agreement.” The State receives only an excise tax
16
flowing from its taxing power, not from its ownership of the
mineral resources. The excise tax is imposed not only on
mineral products, but also on alcohol, tobacco and
automobiles produced by companies that do not exploit
17
natural resources owned by the State. The excise tax is not
payment for the exploitation of the State’s natural resources,
but payment for
_______________
16The five Mineral Production Sharing Agreements (Annexes “A” to “F”)
attached to the 20 October 2004 Compliance of the Solicitor
General uniformlycontain the following provision:
Share of the Government.—The Government Share shall be the excise tax on mineral
products at the time of removal and at the rate provided for in Republic Act No. 7729
amending Section 151(a) of the National Internal Revenue Code, as amended, as well
as other taxes, duties, and fees levied by existing laws. (Emphasis supplied)
Clearly, the State’s share is limited to taxes, duties and fees just like under
the old system of “license, concession or lease.” See the (1) Mineral Production
Sharing Agreement between the Republic of the Philippines and Ungay-
Malobago Mines, Inc. and Rapu-Rapu Minerals, Inc. dated 12 September 2000;
(2) Mineral Production Sharing Agreement between the Republic of the
Philippines and Ungay-Malobago Mines, Inc. and TVI Resource Development
(Phils.), Inc. dated 17 June 1998; (3) Mineral Production Sharing Agreement
between the Republic of the Philippines and Base Metals Mineral Resources
Corporation (BMMRC) dated 20 November 1997; (4) Mineral Production
Sharing Agreement between the Republic of the Philippines and Philex Gold
Philippines, Inc. dated 29 December 1999 (MPSA No. 148-99-XIII); and (5)
Mineral Production Sharing Agreement between the Republic of the
Philippines and Philex Gold Philippines, Inc. dated 29 December 1999 (MPSA
No. 149-99-XIII).
17 Sections 144, 145 and 149, National Internal Revenue Code.
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
the “privilege of engaging in business.” Clearly, under Section
18
80 of RA 7942, the State does not receive as owner of the
mineral resources any income from the exploitation of its
mineral resources.
The second paragraph of Section 81 of RA 7942 also limits
the State’s share in FTAAs with foreign contractors to taxes,
duties and fees. Section 81 of RA 7942 provides that the State’s
share in FTAAs with foreign contractors—
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. (Emphasis supplied)
RA 7942 does not explain the phrase “among other things.”
The Solicitor General states correctly that the phrase refers to
taxes. The phrase is an ejusdem generis phrase, and means
19
“among other taxes, duties and fees” since the items
specifically enumerated are all taxes, duties and fees. The last
phrase “all such other taxes, duties and fees as provided for
under existing laws” at the end of the sentence clarifies further
that the phrase “among other things” refers to taxes, duties
and fees.
The second paragraph of Section 81 does not require the
Government and the foreign FTAA contractor to negotiate the
State’s share. In contrast, the first paragraph of Section 81
expressly provides that the “share of the Government in
coproduction and joint-venture agreements shall be
negotiated by the Government and the contractor” which is
60% Filipino owned.
_______________
18 Commissioner of Internal Revenue v. Court of Appeals, 312 Phil. 337; 242
SCRA 289 (1995).
19 Memorandum dated 13 July 2004, p. 56.
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254 SUPREME COURT REPORTS ANNOTATED
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In a co-production or joint venture agreement, the
Government contributes other inputs or equity in addition to
its mineral resources. Thus, the first paragraph of Section 81
20
requires the Government and the 60% Filipino owned
company to negotiate the State’s share. However, in an FTAA
with a foreign contractor under the second paragraph of
Section 81, the Government’s contribution is only the mineral
resources. Section 81 does not require the Government and the
foreign contractor to negotiate the State’s share from the net
proceeds because there is no share for the State. Section 81
does not recognize the State’s contribution of mineral resources
as worthy of any share of the net proceeds from the mining
operations.
Thus, in FTAAs with foreign contractors under RA 7942, the
State’s share is limited to taxes, fees and duties. The taxes
include “withholding tax due from the contractor’s foreign
stockholders arising from dividend or interest payments.” All
these taxes, fees and duties are imposed pursuant to the
State’s taxing power. The tax on income, including dividend
and interest income, is imposed on all taxpayers whether or
not they are stockholders of mining companies. These taxes,
fees and duties are not contractual payments to the State as
owner of the mineral resources but are mandatory exactions
based on the taxing power of the State.
Section 112 of RA 7942 is another provision that violates
Section 2, Article XII of the 1987 Constitution. Section 112
“immediately” reverts all mineral agreements to the old and
discredited “license, concession or lease” system outlawed by
the 1987 Constitution. Section 112 states that “the provisions
of Chapter XIV on government share in mineral production-
21
sharing agreement x x x shall immediately govern and apply to
a mining lessee or contractor.” The contractor, local or foreign,
will now pay only the “government share in a mineral
_______________
Section 26, RA 7942.
20
Chapter XIV covers Sections 80 to 82 of RA 7942.
21
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
production-sharing agreement” under RA 7942. Section 80 of
RA 7942, which specifically governs MPSAs, limits the
“government share” solely to the excise tax on mineral
products—2% on metallic and non-metallic minerals and 3%
on indigenous petroleum.
In allowing the payment of the excise tax as the only share
of the government in any mineral agreement, whether
coproduction, joint venture or production-sharing, Section 112
of RA 7942 reinstates the old “license, concession or lease”
system where the State receives only minimal taxes, duties
and fees. This clearly violates Section 2, Article XII of the
Constitution and is therefore unconstitutional. Section 112 of
RA 7942 is a sweeping negation of the clear letter and intent
of the 1987 Constitution that the exploitation of the State’s
natural resources must benefit primarily the Filipino people.
Of course, Section 112 gives contractors the option not to
avail of the benefit of Section 112. This is in the guise that the
enactment of RA 7942 shall not impair pre-existing mining
rights, as the heading of Section 112 states. It is doubtful,
however, if any contractor of sound mind would refuse to
receive 100% rather than only 40% of the net proceeds from
the exploitation of minerals under the FTAA.
Another provision that violates Section 2, Article XII of the
Constitution is Section 39 of RA 7942. Section 39 grants the
foreign contractor the option to convert the FTAA into a
“mineral production-sharing agreement” if the foreign
contractor finds that the mineral deposits do not justify large-
scale mining operations. Section 39 of RA 7942 operates to
deprive the State of income from the mining operations and
limits the State to the excise tax on mineral products.
Section 39 grants the foreign contractor the option to revert
to the “license, concession or lease” system which the 1987
Constitution has banned. The only requirement for the
exercise of the option is for the foreign contractor to divest 60%
of its equity to a Philippine citizen or to a corporation 60%
Filipino owned. Section 39 states, “Upon compliance with this
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256 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
requirement by the contractor, the Secretary shall approve
the conversion and execute the mineral production-sharing
agreement.” The foreign contractor only needs to give “proper
notice to the Secretary as provided for under the implementing
rules and regulations” if the contractor finds the contract area
not viable for large-scale mining. Thus, Section 39 of RA 7942
is unconstitutional.
Sections 39, 80, 81, 84 and 112 of RA 7942 operate to
deprive the State of the beneficial rights arising from its
ownership of mineral resources. What Section 2, Article XII of
the 1987 Constitution vests in absolute ownership to the
State, Sections 80, 81, 84 and 112 of RA 7942 take away and
give for free to private business enterprises, including foreign-
owned companies.
The legislature has discretion whether to tax a business or
product. If the legislature chooses to tax a business or product,
it is free to determine the rate or amount of the tax, provided
it is not confiscatory. The legislature has the discretion to
22
impose merely a 2% excise tax on mineral products. Courts
cannot inquire into the wisdom of the amount of such tax, no
matter how meager it may be. This discretion of the legislature
emanates from the State’s taxing power, a power vested solely
in the legislature.
However, the legislature has no power to waive for free the
benefits accruing to the State from its ownership of mineral
resources. Absent considerations of social justice, the
legislature has no power to give away for free what forms part
of the national patrimony of the State. Any surrender by the
legislature of the nation’s mineral resources, especially to
foreign private enterprises, is repugnant to the concept of
national patrimony. Mineral resources form part of the
national pat-
_______________
22China Banking Corporation v. Court of Appeals, G.R. Nos. 146749 &
147938, 10 June 2003, 403 SCRA 634; City of Baguio v. De Leon, 134 Phil.
912; 25 SCRA 938 (1968).
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VOL. 445, DECEMBER 1, 2004 257
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
rimony under Article XII (National Economy and Patrimony)
of the 1987 Constitution.
Under the last paragraph of Section 81, the collection of the
State’s so-called “share” (consisting of taxes) in FTAAs with
foreign contractors is not even certain. This paragraph
provides that the State’s “share x x x shall commence after the
financial or technical assistance agreement contractor has
fully recovered its pre-operating expenses, exploration, and
development expenditures.” There is no time limit in RA 7942
for this grace period when the collection of the State’s “share”
does not run. 23
RA 7942 itself does not require government approval for the
pre-operating, exploration and development expenses of the
foreign contractor. The determination of the amount of pre-
operating, exploration and development expenses is left solely
to the discretion of the foreign contractor. Nothing prevents
the foreign contractor from recording pre-operating,
exploration and development expenses equal to the mining
revenues it anticipates for the first 10 years. If that happens,
the State’s share is ZERO for the first 10 years.
The Government cannot tell the Filipino people when the
State will start to receive its “share” (consisting of taxes) in
_______________
23 The 1995 Implementing Rules and Regulations of RA 7942 attempt to
limit the period to five years. Thus, Section 236 of the Implementing Rules
states that the “period of recovery which is 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 first.” However, the succeeding
sentence of Section 236 also states, “For clarification, the Government’s
entitlement to its share shall commence after the FTAA contractor has fully
recovered its pre-operating, exploration and development stage expenses,
inclusive and the contractor’s obligations under Chapter XXVII (on Taxes and
Fees) of the rules and regulations do not arise until this time.” What the first
sentence limits the succeeding sentence cancels. The 1996 Revised
Implementing Rules and Regulations of RA 7942 omit the clarificatory
sentence.
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258 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
mining revenues under the FTAA. The Executive Department
cannot correct these deficiencies in RA 7942 through remedial
implementing rules. The correction involves substantive
legislation, not merely filling in the implementing details of
the law.
Taxes, fees and duties cannot constitute payment for the
State’s share as owner of the mineral resources. This was the
mode of payment used under the old system of “license,
concession or lease” which the 1987 Constitution
abrogated. Obviously, Sections 80, 81, 84 and 112 of RA 7942
constitute an ingenious attempt to resurrect the old and
discredited system, which the 1987 Constitution has now
outlawed. Under the 1987 Constitution, the State must
receive its fair share as owner of the mineral
resources, separate from taxes, fees and duties paid by
taxpayers. The legislature may waive taxes, fees and duties,
but it cannot waive the State’s share in min-ing operations.
Any law waiving for free the State’s right to the benefits
arising from its ownership of mineral resources is
unconstitutional. Such law negates Section 2, Article XII of the
1987 Constitution vesting ownership of mineral resources in
the State. Such law will not contribute to “economic growth
and the general welfare of the country” as required in the
fourth paragraph of Section 2. Thus, in waiving the State’s
income from the exploitation of mineral resources, Section 80,
the second paragraph of Section 81, the proviso in Section 84,
and Section 112 of RA 7942 violate the Constitution and are
therefore void.
D. Abdication of the State’s Duty to Control and
Supervise Fully the Exploitation of Mineral Resources
The 1987 Constitution commands the State to exercise “full
control and supervision” over the exploitation of natural
resources. The purpose of this mandatory directive is to insure
that the State receives its fair share in the exploitation of
natural resources. The framers of the Constitution were de-
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
termined to avoid the disastrous mistakes of the past. Under
the old system of “license, concession or lease,” the State gave
full control to the concessionaires who enriched themselves
while paying the State minimal taxes, fees and charges.
Under the 1987 Constitution, for a co-production, joint
venture or production-sharing agreement to be valid the State
must exercise full control and supervision over the mining
operations. This means that the State should approve all
capital and operating expenses in the exploitation of the
natural resources. Approval of capital expenses determines
how much capital is recoverable by the mining contractor.
Approval of operating expenses determines the reasonable
amounts deductible from the annual income from mining
operations. Such approvals are essential because the net
income from mining operations, which is the basis of the
State’s share, depends on the allowable amount of capital and
operating expenses. There is approval of capital and operating
expenses when the State approves them, or if the State
disapproves them and a dispute arises, when their final
allowance is subject to arbitration.
The provisions of RA 7942 on MPSAs and FTAAs do not
give the State any control and supervision over mining
operations. The reason is obvious. The State’s so-called “share”
in a mineral production-sharing agreement under Section 80
is limited solely to the excise tax on mineral products. This
excise tax is based on the market value of the mineral product
determined without reference to the capital or operating
expenses of the mining contractor.
Likewise, the State’s “share” in an FTAA under Section 81
has no relation to the capital or operating expenses of the
foreign contractor. The State’s “share” constitutes the same
excise tax on mineral products, in addition to other direct and
indirect taxes. The basis of the excise tax is the selling price of
the mineral product. Hence, there is no reason for the State to
approve or disapprove the capital or operating expenses of the
mining contractor. Consequently, RA 7942 does not give the
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260 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
State any control and supervision over mining operations
contrary to the express command of the Constitution. This
makes Section 80, the second paragraph of Section 81, the
proviso in Section 84, and Section 112 of RA 7942
unconstitutional.
E. RA 7942 Will Not Contribute to Economic Growth or
General Welfare of the Country
The fourth paragraph of Section 2, Article XII of the 1987
Constitution requires that FTAAs with foreign contractors
must make “real contributions to the economic growth and
general welfare of the country.” Under Section 81 of RA 7942,
all the net proceeds arising from the exploitation of mineral
resources accrue to the foreign contractor even if the State
owns the mineral resources. The foreign contractor will
naturally repatriate the entire after-tax net proceeds to its
home country. Sections 94(a) and 94(b) of RA 7942 guarantee
the foreign contractor the right to repatriate its after-tax net
proceeds, as well as its entire capital investment, after the
termination of its mining operations in the country. 24
Clearly, 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. The foreign contractor, after it ceases
to operate in the country, can even remit to its home country
the scrap value of its capital equipment. Thus, the second
paragraph of Section 81 of RA 7942 is unconstitutional for
failure to meet the constitutional requirement that the FTAA
_______________
24 Section 94(a) of RA 7942 guarantees the foreign contractor the “right to
repatriate the entire proceeds of the liquidation of the foreign investment in
the currency in which the investment was originally made and at the exchange
rate prevailing at the time of repatriation.” Section 94(b) guarantees the “right
to remit earnings from the investment in the currency in which the foreign
investment was originally made and at the exchange rate prevailing at the
time of remittance.”
261
VOL. 445, DECEMBER 1, 2004 261
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
with a foreign contractor should make a real contribution to
the national economy and general welfare.
F. Example of FTAA that Complies with Section 2,
Article XII of the 1987 Constitution
The Solicitor General warns that declaring unconstitutional
RA 7942 or its provisions will endanger the Philippine
Government’s contract with the foreign contractor extracting
petroleum in Malampaya, Palawan. On the contrary, the
25
FTAA with the foreign petroleum contractor meets the
essential constitutional requirements since the State receives
a fair share of the income from the petroleum operations. The
State also exercises control and supervision over the
exploitation of the petroleum. The petroleum FTAA provides
enough safeguards to insure that the petroleum operations
will make a real contribution to the national economy and
general welfare.
The Service Contract dated 11 December 1990 between the
Philippine Government as the first party, and Occidental
Philippines, Inc. and Shell Exploration B.V. as the second
party (“Occidental-Shell
26 FTAA”), covering offshore
exploitation of petroleum in Northwest Palawan, contains the
following provisions:
1. a.There is express recognition that the “conduct of Petroleum
Operations shall be under the full control and supervision of
the Office of Energy Affairs,” now Department of Energy
27
(“DOE”), and that the “CONTRACTOR shall undertake and
execute the Petroleum Operations contemplated hereunder
under the full control and supervision of the OFFICE OF
ENERGY AFFAIRS”; 28
_______________
25 Memorandum dated 13 July 2004, p. 65.
26 Annex “8”, Compliance of the Solicitor General dated 20 October 2004.
27 Fifth Whereas Clause, Occidental-Shell FTAA.
28 Section 1.1, Occidental-Shell FTAA.
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262 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
1. b.The State receives 60% of the net proceeds from the
petroleum operations, while the foreign contractor
receives the remaining 40%; 29
2. c.The DOE has a right to inspect and audit every year
the foreign contractor’s books and accounts relating to
the petroleum operations, and object in writing to any
expense (operating and capital expenses) within 6030
 days from completion of the audit, and if there is no
amicable settlement, the dispute goes to arbitration;
3. d.The operating expenses in any year cannot exceed
70% of the gross proceeds from the sale of petroleum
in the same year, and any excess may be carried over
in succeeding years; 32
4. e.The Bureau of Internal Revenue (“BIR”) can inspect
and examine all the accounts, books and records of the
foreign contractor relating to the petroleum operations
upon 24 hours written notice; 33
5. f.The petroleum output is sold at posted or market
prices;
34
6. g.The foreign contractor pays the 32% Philippine
corporate income tax on its 40% share of the net
proceeds, including withholding tax on dividends or
remittances of profits. (Emphasis supplied)
35
The Occidental-Shell FTAA gives the State its fair share of the
income from the petroleum operations of the foreign
contractor. There is no question that the State receives its
rightful share, amounting to 60% of the net proceeds, in
recognition of its ownership of the petroleum resources. In
addition, Occidental-Shell’s 40% share in the net proceeds is
subject to the 32% Philippine income tax. The Occidental-Shell
FTAA also gives the State, through the DOE and BIR, full
control and supervision over the petroleum operations of the
foreign con-
_______________
29 Sections 7.3 and 7.4, Occidental-Shell FTAA.
30 Section 2.19, Occidental-Shell FTAA.
31 Sections 12.1 and 15.2, Occidental-Shell FTAA; Paragraph 4, Annex B on
Accounting Procedures.
32 Section 7.2, Occidental-Shell FTAA.
33 Section 6.1.i, Occidental-Shell FTAA.
34 Sections 2.16 and 2.17, Occidental-Shell FTAA.
35 Sections 2.24, 6.1.j, 6.3 and 8.1, Occidental-Shell FTAA.
263
VOL. 445, DECEMBER 1, 2004 263
31
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
tractor. The foreign contractor can recover only the capital and
operating expenses approved by the DOE or by the arbitral
panel. The Occidental-Shell FTAA also contains other
36
safeguards to protect the interest of the State as owner of the
petroleum resources. While the foreign contractor manages
the contracted work or operations to the extent of its financial
or technical contribution, there are sufficient safeguards in the
FTAA to insure compliance with the constitutional
requirements. The terms of the Occidental-Shell FTAA are
fair to the State and to Occidental-Shell.
In FTAAs with a foreign contractor, the State must receive
at least 60% percent of the net proceeds from the exploitation
of its mineral resources. This share is the equivalent of the
constitutional requirement that at least 60% of the capital,
and hence 60% of the income, of mining companies should
remain in Filipino hands. Intervenor CMP and even
respondent WMCP agree that the State has a 60% interest in
the mining operations under an FTAA with a foreign
contractor. Intervenor CMP asserts that the Philippine
Government “stands in the place of the 60% Filipino-owned
company.” Intervenor CMP also states that “the contractor
37
will get 40% of the financial benefits,” admitting that the
38
State, which is the owner of the mineral resources, will retain
the remaining 60% of the net proceeds.
Respondent WMCP likewise admits that the 60%-40%
“sharing ratio between the Philippine Government and the
Contractor is also in accordance with the 60%-40% equity
_______________
36 Under Section 12.1 of the Occidental-Shell FTAA, the three-man arbitral
panel consists of the Philippine Government’s nominee, Occidental-Shell’s
nominee, and a third member mutually chosen by the nominees of the
Government and Occidental-Shell.
37 Intervenor CMP’s Motion for Reconsideration dated 10 July 2004, p. 22.
38 Ibid.
264
264 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
requirement for Filipino-owned corporations.” Respondent
39
WMCP even adds that the 60%-40% sharing ratio is “in line
with the intent behind Section 2 of Article XII that the Filipino
people, as represented by the State, benefit primarily from the
exploration, development, and utilization of the Philippines’
natural resources.” If the State has a 60% interest in the
40
mining operations under an FTAA, then it must retain at least
60% of the net proceeds.
Otherwise, there is no sense exploiting the State’s natural
resources if all or a major part of the profits are remitted
abroad, precluding any real contribution to the national
economy or the general welfare. The constitutional
requirement of full control and supervision necessarily means
that the State must receive the income that corresponds to the
party exercising full control, and this logically means a
majority of the income.
The Occidental-Shell FTAA satisfies these constitutional
requirements because the State receives 60% of the net
proceeds and exercises full control and supervision of the
petroleum operations. The State’s right to receive 60% of the
net proceeds and its exercise of full control and supervision are
the essential constitutional requirements for the validity of
any FTAA. The name given to the contract is immaterial—
whether a “Service Contract” or any other name—provided
these two essential constitutional requirements are present.
Thus, the designation of the Occidental-Shell FTAA as a
“Service Contract” is inconsequential since the two essential
constitutional requirements for the validity of the contract as
an FTAA are present.
With the State’s right to receive 60% of the net proceeds,
coupled with its control and supervision, the petroleum
operations in the Occidental-Shell FTAA are legally and in
fact
_______________
Respondent WMCP’s Memorandum dated 15 July 2004, p. 42.
39
Ibid.
40
265
VOL. 445, DECEMBER 1, 2004 265
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
60% owned and controlled by Filipinos. Indeed, the State
is directly undertaking the petroleum exploitation with
Occidental-Shell as the foreign contractor. The Occidental-
Shell FTAA does not provide for the issuance of exploration
permits to Occidental-Shell precisely because the State itself
is directly undertaking the petroleum exploitation.
Section 3(aq) of RA 7942 allows the foreign contractor to
hold the exploration permit under the FTAA. However,
Section 2, Article XII of the 1987 Constitution does not allow
foreign owned corporations to undertake directly mining
operations. Foreign owned corporations can only act as
contractors of the State under the FTAA, which is one method
for the State to undertake directly the exploitation of its
natural resources. The State, as the party directly
undertaking the exploitation of its natural resources, must
hold through the Government all exploration permits and
similar authorizations. Section 3(aq) of RA 7942, in allowing
foreign owned corporations to hold exploration permits, is
unconstitutional.
The Occidental-Shell FTAA, involving a far riskier offshore
venture than land-based mining operations, is a model for
emulation if foreign contractors want to comply with the
constitutional requirements. Section 112 of RA 7942, however,
negates the benefits of the State from the Occidental-Shell
FTAA.
Occidental-Shell can invoke Section 112 of RA 7942 and
deny the State its 60% share of the net proceeds from the
exploitation of petroleum. Section 112 allows the foreign
contractor to pay only the “government share in a mineral
production-sharing agreement” under RA 7942. Section 80 of
RA 7942 on MPSAs limits the “government share” solely to the
excise tax—2% on metallic and non-metallic mineral products
and 3% on petroleum. Section 112 of RA 7942 is
unconstitutional since it is contrary to Section 2, Article XII of
the 1987 Constitution.
266
266 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
G. The WMCP FTAA Violates Section 2, Article XII of the
1987 Constitution
The WMCP FTAA ostensibly gives the State 60% share of the
41
net mining revenue. In reality, this 60% share is illusory.
Section 7.7 of the WMCP FTAA provides that:
From the Commencement of Commercial Production,
the Contractor shall pay a government share of sixty per centum
(60%) of Net Mining Revenues, calculated in accordance with the
following provisions (the Government Share). The Contractor shall
be entitled to retain the balance of all revenues from the Mining
Operations. (Emphasis supplied)
However, under Section 7.9 of the WMCP FTAA, if WMCP’s
foreign stockholders sell 60% of their equity to a Philippine
citizen or corporation, the State loses its right to receive its
60% share of the net mining revenues under Section 7.7. Thus,
Section 7.9 provides:
The percentage of Net Mining Revenues payable to the Government
pursuant to Clause 7.7 shall be reduced by 1% of Net Mining
Revenues for every 1% ownership interest in the Contractor held by
a Qualified Entity. (Emphasis supplied)
What Section 7.7 gives to the State, Section 7.9 takes away
without any offsetting compensation to the State. In reality,
the State has no vested right to receive any income from the
exploitation of its mineral resources. What the WMCP FTAA
gives to the State in Section 7.7 is merely by tolerance of
WMCP’s foreign stockholders, who can at anytime cut off the
State’s entire 60% share by selling 60% of WMCP’s equity to a
Philippine citizen or corporation. The proceeds of such sale
42
_______________
41 See note 3.
42The same provision appears in the FTAA between the Republic of the
Philippines and ARIMCO Mining Corporation dated 20 June 1994. ARIMCO,
a domestic corporation owned and controlled by an Australian mining
company, does not need to pay the 60%
267
VOL. 445, DECEMBER 1, 2004 267
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
do not accrue to the State but belong entirely to the foreign
stockholders of WMCP.
Section 2.1 of the WMCP FTAA defines a “Qualified Entity”
to include a corporation 60% Filipino owned and 40% foreign
owned. WMCP’s foreign stockholders can sell 60% of WMCP’s
43
equity to such corporation and the sale will still trigger the
operation of Section 7.9 of the WMCP FTAA. Thus, the State
will receive ZERO percent of the income but the foreign
stockholders will own beneficially 64% of WMCP, consisting of
their remaining 40% equity and 24% pro-rata share in the
buyer-corporation. WMCP will then invoke Section 39 of RA
7942 allowing it to convert the FTAA into an MPSA, thus
subjecting WMCP to pay only 2% excise tax on mineral
products in lieu of sharing its mining income with the State.
This violates Section 2, Article XII of the 1987 Constitution
requiring that only corporations “at least sixty per centum of
whose capital is owned by such citizens” can enter into co-
production, joint venture or production-sharing agreements
with the State.
The State, as owner of the mineral resources, must receive
a fair share of the income from any commercial exploitation of
its mineral resources. Mineral resources form part of the
national patrimony, and so are the net proceeds from such
resources. The Legislature or Executive Department cannot
_______________
share of the Philippine Government in the mining revenues if ARIMCO’s
foreign parent company sells 60% of ARIMCO’s equity to a Philippine citizen
or to a 60% Filipino owned corporation. In such event, the share of the
Philippine Government in the mining revenues is ZERO percent. ARIMCO will
only pay the Philippine Government the 2% excise tax due on mineral products
under a mineral production sharing agreement. See Annex “5”, Compliance of
Solicitor General dated 20 October 2004.
43 Section 2.1 of the WMCP FTAA defines a “Qualified Entity” as an “entity
that at the relevant time is qualified to enter into a mineral production sharing
agreement with the Government under the laws restricting foreign ownership
and equity in natural resource projects.”
268
268 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
waive the State’s right to receive a fair share of the income
from such mineral resources.
The intervenor Chamber of Mines of the Philippines
(“CMP”) admits that under an FTAA with a foreign contractor,
the Philippine Government “stands in the place of the 60%
Filipino owned company” and hence must retain 60% of the
net proceeds. Thus, intervenor CMP concedes that:
x x x In other words, in the FTAA situation, the Government stands
in the place of the 60% Filipino-owned company, and the 100%
foreign-owned contractor company takes all the risks of failure to
find a commercially viable large-scale ore body or oil deposit, for
which the contractor will get 40% of the financial
benefits. (Emphasis supplied)
44
For this reason, intervenor CMP asserts that the “contractor’s
stipulated share under the WMCP FTAA is limited to a
maximum of 40% of the net production.” Intervenor CMP 45
further insists that “60% of its (contractor’s) net returns from
mining, if any, will go to the Government under the WMCP
FTAA.” Intervenor CMP, however, fails to consider that the
46
Government’s 60% share is illusory because under Section 7.9
of the WMCP FTAA the foreign stockholders of WMCP can
reduce at any time to ZERO percent the Government’s share.
If WMCP’s foreign stockholders do not immediately sell
60% of WMCP’s equity to a Philippine citizen or corporation,
the State in the meantime receives its 60% share. However,
under Section 7.10 of the WMCP FTAA, the State shall receive
its share “after the offsetting of the items referred to in Clauses
7.8 and 7.9,” namely:
7.8. The Government Share shall be deemed to include all of the
following sums:
_______________
44 Motion for Reconsideration dated 14 July 2004, p. 22.
45 Ibid., p. 20.
46 Ibid., p. 12.
269
VOL. 445, DECEMBER 1, 2004 269
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
1. (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 accommodation, including
loans extended to the Contractor by its stockholders;
2. (b)any payments to local and regional government,
including taxes, fees, levies, costs, imposts, duties,
royalties, occupation and regulatory fees and
infrastructure contributions;
3. (c)any payments to landowners, surface rights holders,
occupiers, indigenous people or Claim-owners;
4. (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);
5. (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;
6. (f)all of the foregoing items which have not previously
been offset against the Government Share in an earlier
Fiscal year, adjusted for inflation.
 1. 7.9.The percentage of Net Mining Revenues payable to
the Government pursuant to Clause 7.7 shall be
reduced by 1% of Net Mining Revenues for every 1%
ownership interest in the Contractor held by a
Qualified Entity.
It makes no sense why under Section 7.8(e) money spent by
the Government for the benefit of the contractor, like building
roads leading to the mine site, is deductible from the State’s
60% share of the Net Mining Revenues. Unless of course the
purpose is solely to reduce further the State’s share regardless
of any reason. In any event, the numerous deductions from the
State’s 60% share make one wonder if the State will ever
receive anything for its ownership of the mineral re-
270
270 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
sources. Even assuming the State will receive something, the
foreign stockholders of WMCP can at anytime take it away by
selling 60% of WMCP’s equity to a Philippine citizen or
corporation.
In short, the State does not have any right to any share in
the net income from the mining operations under the WMCP
FTAA. The stipulated 60% share of the Government is
illusory. The State is left to collect only the 2% excise tax as
its sole share from the mining operations.
Indeed, on 23 January 2001, WMCP’s foreign stockholders
sold 100% of WMCP’s equity to Sagittarius Mines, Inc., a
domestic corporation 60% Filipino owned and 40% foreign
owned. This sale automatically triggered the operation of
47
Section 7.9 of the WMCP FTAA reducing the State’s share in
the Net Mining Revenues to ZERO percent without any
offsetting compensation to the State.Thus, as of now, the State
has no right under the WMCP FTAA to receive any share in
the mining revenues of the contractor, even though the State
owns the mineral resources being exploited under the WMCP
FTAA.
Intervenor CMP anchors its arguments on the erroneous
interpretation that the WMCP FTAA gives the State 60% of
the net income of the foreign contractor. Thus, intervenor
CMP states that “60% of its (WMCP’s) net returns from
mining, if any, will go to the Government under the WMCP
FTAA.” This basic error in interpretation leads intervenor
48
CMP to erroneous conclusions of law and fact.
Like intervenor CMP, respondent WMCP also maintains
that under the WMCP FTAA, the State is “guaranteed” a 60%
share of the foreign contractor’s Net Mining Revenues.
Respondent WMCP contends, after quoting Section 7.7 of the
WMCP FTAA, that:
_______________
Decision dated 27 January 2004.
47
Memorandum dated 14 April 2004, p.12.
48
271
VOL. 445, DECEMBER 1, 2004 271
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
In other words, the State is guaranteed a sixty per centum (60%)
share of the Mining Revenues, or 60% of the actual fruits of the
endeavor. This is in line with the intent behind Section 2 of Article
XII that the Filipino people, as represented by the State, benefit
primarily from the exploration, development, and utilization of the
Philippines’ natural resources.
Incidentally, this sharing ratio between the Philippine
Government and the Contractor is also in accordance with the 60%-
40% equity requirement for Filipino-owned corporations in
Paragraph 1 of Section 2 of Article XII. (Italics and underscoring in
49
the original)
This so-called “guarantee” is a sham. Respondent WMCP
gravely misleads this Court. Section 7.9 of the WMCP FTAA
provides that the State’s share “shall be reduced by 1% of Net
Mining Revenues for every 1% ownership interest in the
Contractor held by a Qualified Entity.” This reduction is
without any offsetting compensation to the State and
constitutes a waiver of the State’s share to WMCP’s foreign
stockholders. The Executive Department cannot give away for
free, especially to foreigners, what forms part of the national
patrimony. This negates the constitutionally mandated State
ownership of mineral resources for the benefit of the Filipino
people.
WMCP’s stockholders may also invoke Section 112 of RA
7942 allowing a mining contractor to pay the State’s share in
accordance with Section 80 of RA 7942. WMCP will end
up paying only the 2% excise tax to the Philippine Government
for the exploitation of the mineral resources the State owns. In
short, the old and discredited system of “license, concession or
lease” will govern the WMCP FTAA.
The WMCP FTAA is also emphatic in stating that WMCP
shall have exclusive right to exploit, utilize, process and
dispose of all mineral products produced under the WMCP
FTAA. Section 1.3 of the WMCP FTAA provides:
_______________
Memorandum dated 15 July 2004, p. 42.
49
272
272 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
The Contractor shall have the exclusive right to explore, exploit,
utilise, process and dispose of all Mineral products and by-products
thereof that may be derived or produced from the Contract Area but
shall not, by virtue only of this Agreement, acquire any title to lands
encompassed within the Contract Area.
Under the WMCP FTAA, the contractor has exclusive right to
exploit, utilize and process the mineral resources to the
exclusion of third parties and even the Philippine Government.
Since WMCP’s right is exclusive, the Government has no
participation in approving the operating expenses of the
foreign contractor relating to the exploitation, utilization, and
processing of mineral resources. The Government will have to
accept whatever operating expenses the contractor decides to
incur in exploiting, utilizing and processing mineral resources.
Under the WMCP FTAA, the contractor has exclusive right
to dispose of the minerals recovered in the mining operations.
This means that the contractor can sell the minerals to any
buyer, local or foreign, at the price and terms the contractor
chooses without any intervention from the State. There is no
requirement in the WMCP FTAA that the contractor must sell
the minerals at posted or market prices. The contractor has
the sole right to “mortgage, charge or encumber” the “Minerals
produced from the Mining Operations.” 50
Section 8.3 of the WMCP FTAA also makes a sham of the
DENR Secretary’s authority to approve the foreign
contractor’s Work Program. Section 8.3 provides:
If the Secretary gives a Rejection Notice the Parties shall promptly
meet and endeavour to agree on amendments to the Work Program
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
_______________
50 Section 10.2 (l), WMCP FTAA.
273
VOL. 445, DECEMBER 1, 2004 273
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
unnecessarily delay the performance of the Agreement. (Emphasis
supplied)
The DENR Secretary is the representative of the State which
owns the mineral resources. The DENR Secretary implements
the mining laws, including RA 7942. Section 8.3, however,
treats the DENR Secretary like a subservient non-entity
whom the contractor can overrule at will. Under Section 8.3 of
the WMCP FTAA, the DENR Secretary has no authority
whatsoever to disapprove the Work Program. This is not what
the Constitution means by full control and supervision by the
State of mining operations.
Section 10.4(i) of the WMCP FTAA compels the Philippine
Government to agree to any request by the foreign contractor to
amend the WMCP FTAA to satisfy the conditions of creditors
of the contractor. Thus, Section 10.4(i) states:
(i) the Government shall favourably consider any request, from
Contractor for amendments of this Agreement which are necessary
in order for the Contractor to successfully obtain the financing;
x x x. (Emphasis supplied)
This provision requires the Government to favorably consider
any request from the contractor—which means that
the Government must render a response favorable to the
contractor. In effect, the contractor has the right to amend the
WMCP FTAA even against the will of the Philippine
Government just so the contractor can borrow money from
banks.
True, the preceding Section 10.4(e) of the WMCP FTAA
provides that “such financing arrangements will in no event
reduce the Contractor’s obligations or the Government’s
rights.” However, Section 10.4(i) binds the Government to
agree to any future amendment requested by the foreign
contractor even if the Government does not agree with the
wisdom of the amendment. This provision is contrary to the
State’s full control and supervision in the exploitation of
mineral resources.
274
274 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Clearly, under the WMCP FTAA the State has no full control
and supervision over the mining operations of the contractor.
Provisions in the WMCP FTAA that grant the State full
control and supervision are negated by other provisions that
take away such control and supervision.
The WMCP FTAA also violates the constitutional limits on
the term of an FTAA. Section 2, Article XII of the 1987
Constitution limits the term of a mineral agreement to “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.” The original term cannot exceed
25 years, and at the end of such term, either the Government
or the contracting party may decide not to renew the mineral
agreement. However, both the Government and the
contracting party may also decide to renew the agreement, in
which case the renewal cannot exceed another 25 years. What
is essential is that either party has the option to renew or not
to renewthe mineral agreement at the end of the original term.
However, Section 3.3 of the WMCP FTAA binds the
Philippine Government to an ironclad 50-year term. Section
3.3 compels the Government to renew the FTAA for another 25
years after the original 25-year term expires. Thus, Section 3.3
states:
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 a
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. (Emphasis supplied)
Under Section 3.3, the contractor has the option to renew or
not to renew the agreement. The Government has no such
option and must renew the agreement once the contractor
makes a request for renewal. Section 3.3 violates the
constitutional limits because it binds the Government to a 50-
year FTAA at the sole option of the contractor.
275
VOL. 445, DECEMBER 1, 2004 275
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
H. Arguments of the Solicitor General and the NEDA
Secretary
The Solicitor General states that the “basic share” of the State
in FTAAs involving large-scale exploitation of minerals,
petroleum and other mineral oils—
x x x consists of all direct taxes, fees and royalties, as well as other
payments made by the Contractor during the term of the FTAA. The
amounts are paid to the (i) national government, (ii) local
governments, and (iii) persons directly affected by the mining
project. Some of the major taxes paid are as follows Section 3(g) of
DAO-99-56:
A. Payments to National Government
 • Excise tax on minerals—2% of gross output of mining operations
 • Contractor’s income tax—32% of taxable income for corporation
 • Customs duties and fees—rate is set by Tariff and Customs Code
 • VAT on imported equipment, goods and services—10% of value
 • Royalty on minerals extracted from mineral reservations, if
applicable—5% of the actual market value of the minerals produced
 • Documentary stamp tax—rate depends on the type of transaction
 • Capital gains tax on traded stocks—5 to 10% of the value
 • Tax on interest payments on foreign loans—15% of the interest
 • Tax on foreign stockholders dividends—15% of the dividend
 • Wharfage and port fees
 • Licensing fees (e.g., radio permit, firearms permit, professional fees)
276
276 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
B. Payments to Local Governments
 • Local business tax—maximum of 2% of gross sale or receipt
 • Real property tax—2% of the fair market value of property
based on an assessment level set by the local government
 • Local business tax—maximum of 2% of gross sale or receipt
 • Special education levy—1% of the basis used in real property
tax
 • Occupation tax—50 pesos per hectare per year; 100 pesos per
hectare per year if located in a mineral concession
 • Community tax—10,500 pesos maximum per year
 • Other local taxes and fees—rate and type depends on the local
government
C. Other Payments
 • Royalty to indigenous cultural communities, if any—not less
than 1% of the gross output from mining operations
 • Special allowance—payment to claim owners or surface right
owners
The Solicitor General argues that the phrase “among other
things” in the second paragraph of Section 81 of RA 7942
means that the State “is entitled to an additional government
share to be paid by the Contractor.” The Solicitor General
explains:
An additional government share is collected from an FTAA
contractor to fulfill the intent of Section 81 of RA No. 7942, to wit:
Sec. 81. The Government share in an FTAA 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 dividends or interest payments to the said foreign stockholders in
case of a foreign-owned corporation and all such other taxes, duties and
fees as provided for in existing laws. (Italics supplied)
277
VOL. 445, DECEMBER 1, 2004 277
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
The phrase “among other things” indicates that the Government is
entitled to an additional share to be paid by the Contractor, aside
from the basic share in order to achieve the fifty-fifty sharing of net
benefits from mining.
By including indirect taxes and other financial
contributions in the form of fuel tax; employees’ payroll and
fringe benefits; various withholding taxes on royalties to
land owners and claim owners, and employees’ income;
value added tax on local goods, equipment, supplies and
services; and expenditures for social infrastructures in the
mine site (hospitals, schools, etc.) and development of host
and neighboring communities, geosciences and mining
technology, the government share will be in the range of 60%
or more of the total financial benefits. (Bold and underscoring
in the original)
The Solicitor General enumerates this “additional government
share” as “indirect taxes and other financial contributions in
the form of fuel tax; employees’ payroll and fringe benefits;
various withholding taxes on royalties to land owners and
claim owners, and employees’ income; value added tax on local
goods, equipment, supplies and services; x x x.” The Solicitor
General’s argument merely confirms that under Section 81 of
RA 7942 the State only receives taxes, duties and fees under
the FTAA. The State does not receive, as owner of the mineral
resources, any income from the mining operations of the
contractor.
 In short, the “basic share” of the State consists of direct
taxes by the national and local governments. The “additional
share” of the State consists of indirect taxes including even
fringe benefits to employees and compensation to private
surface right owners. Direct and indirect taxes, however, are
impositions by the taxing authority, a burden borne by all
taxpayers whether or not they exploit the State’s mineral
resources. Fringe benefits of employees are compensation for
services rendered under an employer-employee relationship.
Compensation to surface right owners is payment for the
damage suffered by private landowners arising from the
mining operations. All these direct and indirect taxes, as well
as
278
278 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
other expenses of the contractor, do not constitute payment for
the share of the State as owner of the mineral resources.
Clearly, the so-called “share” of the State consists only of
direct and indirect taxes, as well as other operating expenses
not even payable to the State. The Solicitor General in
effect concedes that under the second paragraph of Section 81,
the State does not receive any share of the net proceeds from
the mining operations of the FTAA contractor. Despite this,
the Solicitor General insists that the State remains the owner
of the mineral resources and exercises full control over the
mining operations of the FTAA contractor. The Solicitor
General has redefined the civil law concept of ownership, by 51
giving the owner full control in the exploitation of the property
he owns but denying him the fruits or income from such
exploitation. The only satisfaction of the owner is that the
FTAA contractor pays taxes to the Government.
However, even this psychological satisfaction is dubious.
Under the third paragraph of Section 81 of RA 7942, the
“collection of Government share in financial and technical
assistance agreement shall commence after the financial and
technical assistance agreement contractor has fully recovered
its pre-operating expenses, exploration, and development
expenditures, inclusive.” This provision does not defer the
collection of the State’s “share,” but prevents the accrual of the
State’s “share” until the contractor has fully recovered all its
pre-operating, exploration and development
expenditures. This provision exempts for an undefined period
the contractor from all existing taxes that are part of the
Government’s so-called “share” under Section 81. The 52
Solicitor General has interpreted these taxes to include “other
national taxes and fees” as well as “other local taxes and fees.”
_______________
Article 441, Civil Code.
51
Section 2.1 of the WMCP FTAA allows WMCP to recover preoperating
52
expenses over 10 years from the start of commercial production.
279
VOL. 445, DECEMBER 1, 2004 279
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Secretary Romulo L. Neri of the National Economic and
Development Authority (“NEDA”) has warned this Court of
the supposed dire repercussions to the nation’s long-term
economic growth if this Court declares the assailed provisions
of RA 7942 unconstitutional. Under the Constitution, the
53
NEDA is the “independent (economic) planning agency of the
government.” However, in this case the NEDA Secretary has
54
joined the chorus of the foreign chambers of commerce to
uphold the validity of RA 7942 as essential to entice foreign
investors to exploit the nation’s mineral resources.
We cannot fault the foreign chambers of commerce for
driving a hard bargain to maximize the profits of foreign
investors. We are, however, saddened that the NEDA
Secretary is willing to give away for free to foreign investors
the State’s share of the income from its ownership of mineral
resources. If the NEDA Secretary owns the mineral resources
instead of the State, will he allow the foreign contractor to
exploit his mineral resources for free, the only obligation of the
foreign contractor being to pay taxes to the Government?
 Secretary Neri claims that the potential tax collection from
the mining industry alone is P57 billion as against the present
collection of P2 billion. Secretary Neri adds that the potential
tax collection from incremental activities linked to mining is
another P100 billion, thus putting the total potential tax
collection from mining and related industries at P157
billion. Secretary Neri also estimates the “potential mining
55
wealth in the Philippines” at P47 trillion or US$840 billion, 15
times our total foreign debt of US$56 billion. 56
If all that the State will receive from its P47 trillion
potential mineral wealth is the P157 billion in direct and
indirect taxes, then the State will truly receive only a pittance.
The
_______________
53 Memorandum dated 13 July 2004, p. 65.
54 Section 9, Article XII of the 1987 Constitution.
55 Memorandum dated 13 July 2004, p. 60.
56 Ibid., p. 59.
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280 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
P157 billion in taxes constitute a mere .33% or a third of 1%
of the total mineral wealth of P47 trillion. Even if the P157
billion is collected annually over 25 years, the original term of
an FTAA, the total tax collection will amount to only P3.92
trillion, or a mere 8.35% of the total mineral wealth. The rest
of the country’s mineral wealth will flow out of the country if
foreign contractors exploit our mineral resources under
FTAAs pursuant to RA 7942.
Secretary Neri also warns that foreign investors who have
acquired local cement factories in the last ten years will find
their investments illegal if the Court declares unconstitutional
the assailed provisions of RA 7942. Such specious arguments
57
deserve scant consideration. Cement manufacturing is not a
nationalized activity. Hence, foreigners can own 100% of
cement companies in this country. When the foreign investors
acquired the local cement factories, they spun off the quarry
operations into separate companies 60% owned by Filipino
citizens. The foreign investors knew the constitutional
requirements of holding quarry permits.
Besides, the quarrying requirement of cement companies is
just a simple surface mining of limestone. Such activity does
not constitute large-scale exploitation of mineral resources. It
definitely cannot qualify for FTAAs with foreign contractors
under the fourth paragraph of Section 2, Article XII of the
Constitution. Obviously, only a company at least 60% Filipino
owned can engage in such mining activity.
The offshore Occidental-Shell FTAA shows that even in
riskier ventures involving far more capital investments, the
State can negotiate and secure at least 60% of the net proceeds
from the exploitation of mineral resources. Foreign contractors
like Occidental-Shell are willing to pay the State 60% of the
net proceeds from petroleum operations, in addition to paying
the Government the 32% corporate income tax on its 40%
share of the net proceeds. Even intervenor CMP
_______________
Ibid., p. 65.
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and respondent WMCP agree that the State has a 60% interest
in mining operations under an FTAA. I simply cannot fathom
why the NEDA Secretary is willing to accept a ZERO percent
share in the income from the exploitation of inland mineral
resources.
FTAAs like the WMCP FTAA, which gives the State
an illusory60% share of the net proceeds from mining
revenues, will only impoverish further the Filipino people. The
nation’s potential mineral wealth of P47 trillion will
contribute to economic development only if the bulk of the
wealth remains in the country, not if remitted abroad by
foreign contractors.
I. Refutation of Arguments of Majority Opinion
The majority opinion advances the following arguments:
1. 1.DENR Department Administrative Order No. 99-56
(“DAO 99-56”) is the basis for determining the State’s
share in the mining income of the foreign FTAA
contractor. The DENR Secretary issued DAO 99-56
pursuant to the phrase “among other things” in Section
81 of RA 7942. The majority opinion claims that the
phrase “among other things” “clearly and
unmistakably reveals the legislative intent to have the
State collect more than just the usual taxes, duties and
fees.” The majority opinion anchors on the phrase
“among other things” its argument that RA 7942
allows the State to collect a share in the mining income
of the foreign FTAA contractor, in addition to taxes,
duties and fees. Thus, on the phrase “among other
things” depends whether the State and the Filipino
people are entitled under RA 7942 to share in the vast
mineral wealth of the nation, estimated by NEDA at
P47 trillion or US$840 billion.
2. 2.FTAAs, like the WMCP FTAA, are not subject to the
term limit in Section 2, Article XII of the 1987
Constitution. In short, while co-production, joint
venture and production-sharing agreements cannot
exceed 25 years, renewable for another 25 years, as
provided in Section 2, Article XII of the 1987
Constitution, the WMCP FTAA is not governed by the
constitutional limitation. The majority opinion states
that the “constitutional term limitations do not apply
to FTAAs.” Thus, the majority opinion upholds the
validity of Section
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1. 3.3 of the WMCP FTAA providing for a 50-year term at
the sole option of WMCP.
2. 3.Section 112 of RA 7942, placing “all valid and
existing” mining agreements under the fiscal regime
prescribed in Section 80 of RA 7942, does not apply to
FTAAs. Thus, the majority opinion states, “[W]hether
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.”
3. 4.Foreign FTAA contractors and even foreign
corporationscan hold exploration permits, despite
Section 2, Article XII of the 1987 Constitution
reserving to Philippine citizens and to corporations
60% Filipino owned the “exploration, development and
utilization of natural resources.” Thus, the majority
opinion states that “there is no prohibition at all
against foreign or local corporations or contractors
holding exploration permits.”
4. 5.The Constitution does not require that the State’s
share in FTAAs or other mineral agreements should
be at least 60% of the net mining revenues. Thus, the
majority opinion states that “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.”
I respond to the arguments of the majority opinion.
1. DAO 99-56 as Basis for Government’s Share in FTAAs
The main thrust of my separate opinion is that mineral
agreements under RA 7942, whether FTAAs under Section 81
or MPSAs under Section 80, do not allow the State to receive
any share from the income of mining companies. The State can
collect only taxes, duties and fees from mining companies.
The majority opinion, however, points to the phrase “among
other things” in the second paragraph of Section 81 as the
authority of the State to collect in FTAAs a share in the mining
income separate from taxes, duties and fees. The majority
opinion can point to no other provision in RA 7942 allowing
the State to collect any share. The majority opinion admits
that limiting the State’s share in any mineral agree-
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ment to taxes, duties and fees is unconstitutional. Thus, the
majority opinion’s case rises or falls on whether the phrase
"among other things” allows the State to collect from FTAA
contractors any income in addition to taxes, duties and fees.
In the case of MPSAs, the majority opinion cannot point to
any provision in RA 7942 allowing the State to collect any
share in MPSAs separate from taxes, duties and fees. The
language of Section 80 is so crystal clear—“the total
government share in a mineral production sharing agreement
shall be the excise tax on mineral products”—that there is no
dispute whatsoever about it. The majority opinion merely
states that the constitutionality of Section 80 is not in issue in
the present case. Section 81, the constitutionality of which the
majority opinion admits is in issue here, is intertwined with
Sections 39, 80, 84 and 112. Resolving the constitutionality of
Section 81 necessarily involves a determination of the
constitutionality of Sections 39, 80, 84 and 112.
The WMCP FTAA, the constitutionality of which is
certainly in issue, is governed not only by Section 81 but also
by Sections 39, 80 and 112. The reason is that the WMCP
FTAA is a reversible contract that gives WMCP the absolute
option at anytime to convert the FTAA into an MPSA. In short,
the WMCP FTAA is like a single coin with two sides—one an
FTAA and the other an MPSA.
a. The Integrated Intent, Plan and Structure of RA 7942
The clear intent of RA 7942 is to limit the State’s share from
mining operations to taxes, duties and fees, unless the State
contributes equity in addition to the mineral resources. RA
7942 does not recognize the mere contribution of mineral
resources as entitling the State to receive a share in the net
mining revenues separate from taxes, duties and fees. Thus,
Section 80 expressly states that the “total government share in
a mineral production sharing agreement shall be the excise tax
on mineral products.” Section 84 reiterates this by stating that
“with respect to mineral production sharing agreement, the
excise tax on mineral products shall be the government
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share under said agreement.” The only share of the State in an
MPSA is the excise tax. Ironically, Sections 80 and 84 disallow
the State from sharing in the production or income, even as
the contract itself is called a mineral production sharing
agreement.
In co-production and joint venture agreements, where the
State contributes equity in addition to the mineral resources,
the first paragraph of Section 81 expressly requires that “the
share of the government x x x shall be negotiated by the
Government and the contractor.” However, in FTAAs where
the State contributes only its mineral resources, the second
paragraph of Section 81 states—
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.
All the items enumerated in the second paragraph of Section
81 as comprising the “Government share” refer to taxes, duties
and fees.The phrase “all such other taxes, duties and fees as
provided for under existing laws” makes this clear.
Section 112 places “all valid and existing mining”
agreements “at the date of effectivity” of RA 7942 under the
fiscal regime prescribed in Section 80. Section 112 expressly
states that the “government share in mineral production
sharing agreement x x x shall immediately govern and apply to
a mining lessee or contractor.” Section 112 provides:
Section 112. Non-impairment of Existing Mining/Quarrying
Rights.—All valid and existing mining
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 provi-
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sions 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.
(Emphasis supplied)
Thus, Section 112 requires “all” FTAAs and MPSAs, as of the
date of effectivity of RA 7942, to pay only the excise tax—2%
on metallic and non-metallic minerals and 3% on petroleum —
instead of the stipulated mining income sharing, if any, in
their respective FTAAs or MPSAs.
This means that Section 112 applies even to the Occidental-
Shell FTAA, which was executed before the enactment of RA
7942. This reduces the State’s share in the Malampaya gas
extraction from 60% of net proceeds to 3% of the market price
of the gas as provided in Section 80 of RA 7942 in relation to
Section 151 of the National Internal Revenue Code. This
is disastrous to the national economy because Malampaya
under the original Occidental-Shell FTAA generates annually
some US$0.5 billion to the National Treasury.
Section 112 applies to all agreements executed “under
Executive Order No. 279.” The WMCP FTAA expressly states
in its Section 1.1, “This Agreement is a Financial & Technical
Assistance Agreement entered into pursuant to Executive Order
lease No. 279.” Thus, Section 112 applies to the WMCP FTAA.
Section 39 of RA 7942 grants the FTAA contractor the
“option to convert” the FTAA into an MPSA “at any time during
the term” of the FTAA if the contract areas are not
economically viable for large-scale mining. Once the
contractor reduces its foreign equity to not more than 40%, the
Secretary
_______________
Section 151, National Internal Revenue Code.
58
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286 SUPREME COURT REPORTS ANNOTATED
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“shall approve the conversion and execute the mineral
production sharing agreement.” Thus, Section 39 provides:
Section 39. Option to Convert into a Mineral Agreement.—
The contractor has the option to convert the financial or technical
assistance agreement to a mineral agreement at any time during the
term of the agreement, if the economic viability of the contract area
is found to be inadequate to justify large-scale mining operations,
after proper notice to the Secretary as provided for under the
58
implementing rules and regulations: Provided, That the mineral
agreement shall only be for the remaining period of the original
agreement.
In the case of a foreign contractor, it shall reduce its equity to
forty percent (40%) in the corporation, partnership, association, or
cooperative. Upon compliance with this requirement by the
contractor, the Secretary shall approve the conversion and execute
the mineral production-sharing agreement. (Emphasis supplied)
The only requirement in the second paragraph of Section 39 is
that the FTAA contractor shall reduce its foreign equity to
40%. The second paragraph states, “Upon compliance with
this requirement, the Secretary shall approve the conversion
and execute the mineral production sharing agreement.” The
determination of the economic viability of the contract area for
large-scale mining, which is left to the foreign contractor with
“proper notice” only to the DENR Secretary, is not even made
a condition for the conversion.
Under Section 3(aq) of RA 7942, the foreign contractor
holds the exploration permit and conducts the physical
exploration. The foreign contractor controls the release of the
technical data on the mineral resources. The foreign
contractor can easily justify the non-viability of the contract
area for large-scale mining. The Philippine Government will
have to depend on the foreign contractor for technical data on
whether the contract area is viable for large-scale mining.
Obviously, such a situation gives the foreign contractor actual
control in determining whether the contract area is viable for
large-scale mining.
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The conversion from an FTAA into an MPSA is solely at the
will of the foreign contractor because the contractor can choose
at any time to sell 60% of its equity to a Philippine citizen. The
price or consideration for the sale of the contractor’s 60%
equity does not go to the State but to the foreign stockholders
of the contractor. Under Section 80 of RA 7942, once the FTAA
is converted into an MPSA the only share of the State is the
2% excise tax on mineral products. Thus, under RA 7942 the
FTAA contractor has the absolute option to pay the State only
the 2% excise tax, despite any other stipulated consideration in
the FTAA.
Clearly, Sections 3(aq), 39, 80, 81, 84 and 112 are tightly
integrated under a single intent, plan and structure: unless
the State contributes equity in addition to the mineral
resources, the State shall receive only taxes, duties and fees.
The State’s contribution of mineral resources is not sufficient
to entitle the State to receive any income from the mining
operations separate from taxes, duties and fees.
b. The Meaning of the Phrase “Among Other Things”
As far as the State and the Filipino people are concerned, the
most important part of an FTAA is the consideration: how
much will the State receive from the exploitation of its non-
renewable and exhaustible mineral resources?
Section 81 of RA 7942 does not require the foreign FTAA
contractor to pay the State any share from the mining income
apart from taxes, duties and fees. The second paragraph of
Section 81, just like Section 80, only allows the State to collect
taxes, duties and fees as the State’s share from the mining
operations. The intent of RA 7942 is that the State cannot
share in the income from mining operations, separate from
taxes, duties and fees, based only on the mineral resources
that the State contributes to the mining operations.
This is also the position of the Solicitor General—that the
State’s share under Section 81 refers only to direct and
indirect taxes. Thus, the Solicitor General agrees that Section
81
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does not allow the State to collect any share from the mining
income separate from taxes, duties and fees. The majority
opinion agrees that Section 81 is unconstitutional if it does not
require the foreign FTAA contractor to pay the State any share
of the net mining income apart from taxes, duties and fees.
However, the majority opinion says that the phrase
“among other things” in Section 81 is the authority to require
the FTAA contractor to pay a consideration separate from
taxes, duties and fees. The majority opinion cites the phrase
“among other things” as the source of power of the DENR
Secretary to adopt DAO 99-56 prescribing the formulae on the
59
State’s
_______________
59 DENR ADMINISTRATIVE ORDER NO. 99-56
SUBJECT: Guidelines Establishing the Fiscal Regime of Financial or Technical
Assistance Agreements Pursuant to Section 81 and other pertinent provisions of
Republic Act No. 7942, otherwise known as the Philippine Mining Act of 1995 (the
“Mining Act”), the following guidelines establishing the fiscal regime of Financial or
Technical Assistance Agreements (FTAA) are hereby promulgated.
 SECTION 1. Scope during the Operating Phase. Allowable deductible expenses shall include the
This Administrative Order is promulgated to: following:

1. a.Establish the fiscal regime for FTAAs which the Government and the FTAA
Contractors shall adopt for the large-scale exploration, development and
commercial utilization of mineral resources in the country; and
2. b.Provide for the formulation of a Pro Forma FTAA embodying the fiscal
regime established herein and such other terms and conditions as provided
in the Mining Act and the Implementing Rules and Regulations (IRR) of the
Mining Act.
1. 1.Mining, milling, transport and handling expenses together with smelting
and refining costs other than smelting and refining costs paid to third parties;
2. 2.General and administrative expenses actually incurred by the Contractor in
the Philippines;
3. 3.Consulting fees:
1. a)incurred within the Philippines for work related to the project

SECTION 2. Objectives
290
The objectives of this Administrative Order are:
290 SUPREME COURT REPORTS ANNOTATED
1. a.To achieve an equitable sharing among the Government, both National and La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Local, the FTAA Contractor and the concerned communities of the benefits
derived from min
In short, the majority opinion says that the phrase “among
other things” is a delegation of legislative power to the DENR
289
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VOL. 445, DECEMBER 1, 2004 289
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos 1. b)incurred outside the Philippines for work related to the project: Provided,
share from mining operations separate from taxes, duties and That such fees are justifiable and subject to the approval of the Director.
fees.
1. 4.Environmental expenses of the Contractor including such expenses
necessary to fully comply with its environmental obligations as stipulated in
_______________ the environmental protection provision of the FTAA and in the IRR;
2. 5.Expenses for the development of host and neighboring communities and for
eral resources to ensure sustainable mineral resources development; and the development of geoscience and mining technology as stipulated in the
FTAA and in the IRR together with the training costs and expenses referred
1. b.To ensure a fair, equitable, competitive and stable investment regime for the to in the FTAA;
large scale exploration, development and commercial utilization of minerals. 3. 6.Royalty payments to Claimowners or surface land owners relating to the
Contract Area during the Operating Phase;
4. 7.Continuing exploration and mine development expenses within the Contract
SECTION 3. Fiscal Regime of a Financial or Technical Assistance Agreement
Area after the pre-operating period;
The Financial or Technical Assistance Agreement which the Government and the
5. 8.Interest expenses charged on loans or such other financing-related expenses
FTAA Contractor shall enter into shall have a Fiscal Regime embodying the following
incurred by the Contractor subject to the financing requirement in the FTAA,
provisions:
which shall not be more than the prevailing international rates charged for
similar types of transactions at the time the financing was arranged, and
1. a.General Principles. The Government Share derived from Mining Operations where such loans are necessary for the operations; and
after the Date of Commencement of Commercial Production shall be 6. 9.Government taxes, duties and fees.
determined in accordance with this Section.
2. b.Occupation Fees. Prior to or upon registration of the FTAA and on the same
Ongoing Capital Expenditures shall be considered as capital expenses subject to
date every year thereafter, the Contractor shall pay to the concerned
Depreciation Charges.
Treasurer of the municipality(ies) or city(ies) the required Occupation Fee
“Ongoing Capital Expenditures” shall mean expenses for approved acquisitions of
over the Contract Area at the rate provided for by existing laws, rules and
equipment and approved construction of buildings necessary for the Mining Operations
regulations.
as provided in its approved Mining Project Feasibility Study.
3. c.Deductible Expenses. Allowable deductible expenses shall include all the
“Depreciation Charges” means the annual non-cash deduction from the Operating
expenses incurred by the Contractor directly, reasonably and necessarily
Income for the use of fixed assets that are subject to exhaustion, wear and tear and
related to the Mining Operations in the Contract Area in a Calendar Year
obsolescence
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Secretary to adopt the formulae on the share of the State from
mining operations. The issue now is whether the phrase
_______________
during their employment in a Mining Operation. Its applicability and computation are
regulated by existing taxation laws, the Mining Act and the IRR. Incentives relating to
depreciation allowance shall be in accordance to the provisions of the Mining Act and
the IRR.
“Operating Income” means the Gross Output less Deductible Expenses, while “Gross
Output” has the meaning ascribed to it in the National Internal Revenue Code.
1. d.Payment of Government Taxes and Fees. The Contractor shall promptly pay
all the taxes and fees required by the Government in carrying out the
activities covered in the FTAA and in such amount, venue, procedure and
time as stipulated by the particular law and implementing rules and
regulations governing such taxes and fees subject to all rights of objection or
review as provided for in relevant laws, rules and regulations. In case of non-
collection as covered by Clause 3-g-1 of this Section, the Contractor shall
follow the prevailing procedures for availment of such non-collection in
accordance with pertinent laws, rules and regulations. Where prevailing
orders, rules and regulations do not fully recognize and implement the
provisions covered by Clause 3-g-1 of this Section, the Government shall exert
its best efforts to ensure that all such orders, rules and regulations are
revised or modified accordingly.
2. e.Recovery of Pre-Operating Expenses. Considering the high risk, high cost
and long term nature of Mining Operations, the Contractor is given the
opportunity to recover its Pre-Operating Expenses incurred during the pre-
operating period, after which the Government shall receive its rightful share
of the national patrimony. The Recovery Period, which refers to the period
allowed to the Contractor to recover its Pre-Operating Expenses as provided
in the Mining Act and the IRR, shall be for a maximum of five (5) years or at
a date when the aggregate of the Net Cash Flows from the Mining Operations
is equal to the aggregate of its Pre-operating Expenses, reckoned from the
Date of Commencement of Commercial Production, whichever comes first.
The basis for determining the
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“among other things” in the second paragraph of Section 81 is
intended as a delegation of legislative power to the DENR
_______________
Recovery Period shall be the actual Net Cash Flows from Mining Operations and actual
Pre-Operating Expenses converted into its US dollar equivalent at the time the
expenditure was incurred.
“Net Cash Flow” means the Gross Output less Deductible Expenses, Pre-Operating
Expenses, Ongoing Capital Expenditures and Working Capital charges.
1. f.Recoverable Pre-Operating Expenses. Pre-Operating Expenses for recovery
which shall be approved by the Secretary upon recommendation of the
Director shall consist of actual expenses and capital expenditures relating to
the following:
1. 1.Acquisition, maintenance and administration of any mining or exploration
tenements or agreements covered by the FTAA;
2. 2.Exploration, evaluation, feasibility and environmental studies, production,
mining, milling, processing and rehabilitation,
3. 3.Stockpiling, handling, transport services, utilities and marketing of minerals
and mineral products;
4. 4.Development within the Contract Area relating to the Mining Operations;
5. 5.All Government taxes and fees;
6. 6.Payments made to local Governments and infrastructure contributions;
7. 7.Payments to landowners, surface rights holders, Claimowners, including the
Indigenous Cultural Communities, if any;
8. 8.Expenses incurred in fulfilling the Contractor’s obligations to contribute to
national development and training of Philippine personnel;
9. 9.Consulting fees incurred inside and outside the Philippines for work related
directly to the Mining Operations; 10. The establishment and administration
of field and regional offices including administrative overheads incurred
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Secretary. If so, the issue turns on whether it is a valid
delegation of legislative power. I reproduce again the second
paragraph of Section 81 for easy reference:
_______________
within the Philippines which are properly allocatable to the Mining Operations and
directly related to the performance of the Contractor’s obligations and exercise of its
rights under the FTAA;
1. 11.Costs incurred in financial development, including interest loans payable
within or outside the Philippines, subject to the financing requirements
required in the FTAA and to a limit on debt-equity ratio of 5:1 for investments
equivalent to 200 Million US Dollars or less, or for the first 200 Million US
Dollars of investments in excess of 200 Million US Dollars, or 8:1 for that part
of the investment which exceeds 200 Million US Dollars: Provided, That the
 interests shall not be more than the prevailing international rates charged
for similar types of transaction at the time the financing was arranged;
2. 12.All costs of constructing and developing the mine incurred before the Date
of Commencement of Commercial Production, including capital and property
as hereinafter defined irrespective as to their means of financing, subject to
the limitations defined by Clause 3-f-11 hereof, and inclusive of the principal
obligation and the interests arising from any Contractor’s leasing, hiring,
purchasing or similar financing arrangements including all payments made
to Government both National and Local; and
3. 13.General and administrative expenses actually incurred by the Contractor
for the benefit of the Contract Area. The foregoing recoverable Pre-Operating
Expenses shall be subject to verification of its actual expenditure by an
independent audit recognized by the Government and chargeable against the
Contractor.
g.Government Share.
1. 1.Basic Government Share. The following taxes, fees and other such charges
shall constitute the Basic Government Share:
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The Government share in financial or technical assistance
agreement shall consist of, among other things, the contractor’s
_______________
1. a)Excise tax on minerals;
2. b)Contractor’s income tax;
3. c)Customs duties and fees on imported capital equipment;
4. d)Value added tax on the purchase of imported equipment, goods and services;
5. e)Withholding tax on interest payments on foreign loans;
6. f)Withholding tax on dividends to foreign stockholders;
7. g)Royalties due the Government on Mineral Reservations;
8. h)Documentary stamps taxes,
9. i)Capital gains tax;
10. j)Local business tax;
11. k)Real property tax,
12. l)Community tax;
13. m)Occupation fees;
14. n)All other local Government taxes, fees and imposts as of the effective date of the
FTAA;
15. o)Special Allowance, as defined in the Mining Act; and
16. p)Royalty payments to any Indigenous People(s)/ Indigenous Cultural
Community(ies).
From the Effective Date, the foregoing taxes, fees and other such charges constituting the
Basic Government Share, if applicable, shall be paid by the Contractor: Provided, That above
items (a) to (g) shall not be collected from the Contractor upon the date of approval of the
Mining Project Feasibility Study up to the end of the Recovery Period. Any taxes, fees,
royalties, allowances or other imposts, which should not be collected by the Government, but
nevertheless paid by the Contractor and are not refunded by the Government before the end
of the next taxable year, shall be included in the Government
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
corporate income tax, excise tax, special allowance, withholding
tax due from the contractor’s foreign stockholders arising from
dividend
_______________
Share in the next taxable year. Any Value-Added Tax refunded or credited shall not form part
of Government Share.
1. 2.Additional Government Share. Prior to the commencement of Development and
Construction Phase, the Contractor may select one of the formula for calculating
the Additional Government Share set out below which the Contractor wishes to
apply to all of its Mining Operations and notify the Government in writing of that
selection. Upon the issuance of such notice, the formula so selected shall thereafter
apply to all of the Contractor’s Mining Operations.
1. a)Fifty-Fifty Sharing of the Cumulative Present Value of Cash Flows. The
Government shall collect an Additional Government Share from the Contractor
equivalent to an amount which when aggregated with the cumulative present
value of Government Share during the previous Contract Years and the Basic
Government Share for the current Contract Year is equivalent to a minimum of
fifty percent (50%) of the Cumulative Present Value of Project Cash Flow before
financing for the current Contract Year. as defined below.
Computation. The computation of the Additional Government Share shall commence
immediately after the Recovery Period. If the computation covers a period of less than one
year, the Additional Government Share corresponding to this period shall be computed pro-
rata wherein the Additional Government Share during the year shall be multiplied by the
fraction of the year after recovery. The Additional Government Share shall be computed as
follows:
Project Cash Flow Before Financing and Tax (“CF”) for a taxable year shall be calculated
as follows:
CF = GO - DE +I - PE - OC
Cumulative Present Value of Project Cash Flow (“CP”) shall be the sum of the present
value of the cumulative present value of project cash flow during the previous year (CP i-1 x
1.10) and the Project Cash Flow Before Financing and Tax for the current year (“CF”), and
shall be calculated as follows:
CP = (CP i-1 x 1.10)
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or interest payments to the said foreign stockholder in case of a If the computed average ratio is 0.40 or higher:
[NIAT-(0.40xGO)]
foreign national and all such other taxes, duties and fees as provided Additional Profit = ------------------------------
(1-ITR)
_______________ The Additional Government Share from the additional profit is computed using the
following formula:
Cumulative Present Value of Total Government Share Before Additional Government Share Additional Government Share
(“CGB”) shall be the sum of: the present value of the cumulative present value of the Total From Additional Profit = 25% x Additional Profit where:
Government Share during the previous year (CGA i-J x 1.10), and the Basic Government NIAT = Net Income After Tax for the particular taxable year under consideration.
Share for the current year (BGS), and shall be calculated as follows: GO = Gross Output from operations during the same taxable year.
CGB = (CGA i-1 x 1.10) + BGS ITR = Income Tax Rate applied by the Bureau of Internal Revenue in computing the
The Additional Government Share (“AGS”) shall be: income tax of the Contractor during the taxable year.
If: CGB > CP x 0.5 then AGS = 0
If CGB < CP x 0.5 then AGS = [CP x 0.5] - CGB
298
Cumulative Present Value of Total Government Share (CGA): 298 SUPREME COURT REPORTS ANNOTATED
CGA = CGB + AGS
where: La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
BGS = Basic Government Share shall have the meaning as described in Clause 3-g-1 Section 81 of RA 7942 does not delegate any legislative power
hereof;
GO = Gross Output shall have the same meaning as defined in the National Internal to the DENR Secretary to adopt the formulae in deter-
Revenue Code;
DE = Deductible Expenses shall have the meaning as described in Clause 3-c hereof; _______________
I = Interest payments on loans included in the Deductible Expenses shall be equivalent
to those referred to in Clause 3-c-8 hereof;
PE = unrecovered Pre-Operating Expenses; 1. c)Additional Share Based from the Cumulative Net Mining Revenue. The
OC = On-going Capital Expenditures as defined in Clause 3-c hereof; Additional Government Share for a given taxable year shall be calculated as
CPi-1 = cumulative present value of project cash flow during the previous year; and follows:
CGA = cumulative present value of total Government Share during the previous year.
1. (i)Fifty percent (50%) of cumulative Net Mining Revenue from the end of the
1. b)Profit Related Additional Government Share. The Government shall collect an Recovery Period to the end of that taxable year;
Additional Government Share LESS

297 1. (ii)Cumulative Basic Government Share for that period as calculated under
VOL. 445, DECEMBER 1, 2004 297 Clause 3-g-1 hereof; AND LESS (if applicable)
2. (iii)Cumulative Additional Government Share in respect of the period
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos commencing at the end of the Recovery Period and expiring at the end of the
for under existing laws. (Emphasis supplied) taxable year immediately preceding the taxable year in question.“Net Mining
Revenue” means the Gross Output from Mining Operations during a
Calendar year less Deductible Expenses, plus Government taxes, duties and
_______________ fees included as part of Deductible Expenses.

from the Contractor based on twenty-five percent (25%) of the additional profits once
1. 3.Failure to Notify. If the Contractor does not notify the Government within
the arithmetic average of the ratio of Net Income After Tax To Gross Output as defined
the time contemplated by Clause 3-g-2 of the formula for calculating the
in the National Internal Revenue Code, for the current and previous taxable years is
Additional Government Share which the Contractor wishes to apply to all of
0.40 or higher rounded off to the nearest two decimal places.
its Mining Operations, the Government shall select and inform the
Computation. The computation of the Additional Government Share from additional
Contractor which option will apply to the latter.
profit shall commence immediately after the Recovery Period. If the computation covers
2. 4.Filing and Payment of Additional Government Share. Payment of the
a period of less than a year, the additional profit corresponding to this period shall be
Additional Government Share shall commence after the Recovery Period. The
computed pro-ratawherein the total additional profit during the year shall be multiplied
Additional Government Share shall be computed, filed and paid to the MGB
by the fraction of the year after recovery.
within fifteen (15) clays after the filing and payment of the final income tax
The additional profit shall be derived from the following formula:
return during the taxable year to the Bureau of Internal Revenue. Late filing
If the computed average ratio as derived from above is less than 0.40:
and payment of the Additional Government Share shall be subject to the
Additional Profit = 0
same penalties applicable to late filing of income tax returns. The Contractor
 shall furnish the Director a copy of its income tax return not later than fifteen
(15) days after the date of filing.
299
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
mining the share of the State. There is absolutely no language
in the second paragraph of Section 81 granting the DENR
_______________
A record of all transactions relating to the computation of the Additional Government
Share shall be maintained by the Contractor and shall be made available to the
Secretary or his/her authorized representative for audit.
h. Sales and Exportation.—The Contractor shall endeavor to dispose of the minerals
and by-products produced in the Contract Area at the highest commercially achievable
market price and lowest commercially achievable commissions and related fees in the
circumstances then prevailing and to negotiate for sales terms and conditions
compatible with world market conditions. The Contractor may enter into long term sales
and marketing contracts or foreign exchange and commodity hedging contracts which
the Government acknowledges to be acceptable notwithstanding that the sale price of
minerals may from time to time be lower, or that the terms and conditions of sales are
less favorable, than those available elsewhere.
The Government shall be informed by the Contractor when it enters into a
marketing agreement with both foreign and local buyers. The Contractor shall provide
the Government a copy of the final marketing agreement entered into with buyers
subject to the confidentiality clause of the FTAA.
The Government shall be entitled to check and inspect all sales and exportation of
minerals and/or mineral products including the terms and conditions of all sales
commitments.
Sales commitments with affiliates, if any, shall be made only at prices based on or
equivalent to arm’s length sales and in accordance with such terms and conditions at
which such agreement would be made if the parties had not been affiliated, with due
allowance for normal selling discounts or commissions. Such discounts or commissions
allowed the affiliates must be no greater than the prevailing rate so that such discounts
or commissions will not reduce the net proceeds of sales to the Contractor below those
which it would have received if the parties had not been affiliated. The Contractor shall,
subject to confidentiality clause of the FTAA, submit to the Gov
300
300 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Secretary any delegated legislative power. Thus, the DENR
Secretary acted without authority or jurisdiction in issuing
_______________
ernment evidence of the correctness of the figures used in computing the prices
discounts and commissions, and a copy of the sales contract.
The Contractor undertakes that any mining, processing or treatment of Ore by the
Contractor shall be conducted in accordance with such generally accepted international
standards as are economically and technically feasible, and in accordance with such
standards the Contractor undertakes to use all reasonable efforts to optimize the mining
recovery of Ore from proven reserves and metallurgical recovery of minerals from the
Ore: Provided, That it is economically and technically feasible to do so.
For purposes of this Clause 3-h, an affiliate of an affiliated company means:
1. a)any company in which the Contractor holds fifty percent (50%) or more of the
shares;
2. b)any company which holds fifty percent (50%) or more of the Contractor’s
shares;
3. c)any company affiliated by the same definition in (a) or (b) to an affiliated
company of the Contractor is itself considered an affiliated company for
purposes of the FTAA; d) any company which, directly or indirectly, is
controlled by or controls, or is under common control by the Contractor;
4. e)any shareholder or group of shareholders of the Contractor or of an affiliated
company; or
5. f)any individual or group of individuals in the employment of the Contractor
or of any affiliated company.
Control means the power exercisable, directly or indirectly, to direct or cause the
direction of the management and policies of a company exercised by any other company
and shall include the right to exercise control or power to acquire control directly or
indirectly, over the company’s affairs and the power to acquire not less than fifty percent
(50%) of the share capital or voting power of the Contractor. For this pur
301
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
DAO 99-56 based on a supposed delegated power in the second
paragraph of Section 81. This makes DAO 99-56 void.
_______________
pose, a creditor who lends, directly or indirectly, to the contractor, unless he has lent
money to the Contractor in the ordinary course of money-lending business, may be
deemed to be a Person with power to acquire not less than fifty percent (50%) of the
share capital or voting power of the Contractor if the amount of the total of its loan is
not less than fifty percent (50%) of the total loan capital of the company. cdll
If a person (“x”) would not be an affiliate of an affiliated company (“y”) on the basis
of the above definition but would be an affiliate if each reference in that definition to
“fifty percent (50%)” was read as a reference to “forty percent (40%)” and the
Government has reasonable grounds for believing that “x” otherwise controls “y” or “x”
is otherwise controlled by “y,” then, upon the Contractor being notified in writing by the
Government of that belief and the grounds therefore, “x” and “y” shall be deemed to be
affiliates unless the Contractor is able to produce reasonable evidence to the contrary.
 i. Price or Cost Transfers. The Contractor commits itself not to engage in
transactions involving price or cost transfers in the sale of minerals or mineral products
and in the purchase of input goods and services resulting either in the illegitimate loss
or reduction of Government Share or illegitimate increase in Contractor’s share. If the
Contractor engages affiliates or an affiliated company in the sale of its mineral products
or in providing goods, services, loans or other forms of financing hereunder, it shall do
so on terms no less than would be the case with unrelated persons in arms-length
transactions.
SECTION 4. Pro Forma FTAA Contract
The fiscal regime provided herein, and the terms and conditions provided in the
Mining Act and IRR shall be embodied in a Pro Forma FTAA Contract to be prepared
by the Department of Environment and Natural Resources. The Pro Forma FTAA
Contract shall also incorporate such other provisions as the DENR may formulate as a
result of consultations or negotiations conducted for that purpose with concerned
entities.
302
302 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Even assuming, for the sake of argument, that there is
language in Section 81 delegating legislative power to the
DENR Secretary to adopt the formulae in DAO 99-56, such
delegation is void. Section 81 has no standards by which the
delegated power shall be exercised. There is no specification
on the minimum or maximum share that the State must
receive from mining operations under FTAAs. No parameters
on the extent of the delegated power to the DENR Secretary
are
_______________
The Pro Forma FTAA Contract shall be used by the DENR, the
Negotiating Panel and the mining applicant for negotiation of the terms
and conditions of the FTAA: Provided, That the terms and conditions
provided in the Pro Forma FTAA Contract shall be incorporated in each
and every FTAA.
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.
SECTION 6. Repealing Clause
All orders and circulars or parts thereof inconsistent with or contrary to
the provisions of this Order are hereby repealed, amended or modified
accordingly.
SECTION 7. Effectivity
This Order shall take effect fifteen (15) days upon its complete
publication in newspaper of general circulation and fifteen (15) days after
registration with the Office of the National Administrative Register.
(SGD.) ANTONIO H. CERILLES
Secretary
303
VOL. 445, DECEMBER 1, 2004 303
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
found in Section 81. Neither were such parameters ever
discussed even remotely by Congress when it enacted RA
7942.
In sharp contrast, the first paragraph of the same Section
81, in prescribing the State’s share in co-production and joint
venture agreements, expressly specifies the standards in
determining the State’s share as follows: “(a) capital
investment of the project, (b) 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 reason for the absence
of similar standards in the succeeding paragraph of Section 81
in determining the State’s share in FTAAs is obvious—the
State’s share in FTAAs is limited solely to taxes, duties and
fees. Thus, such standards are inapplicable and irrelevant.
The majority opinion now makes the formulae in DAO 99-
56 the heart and soul of RA 7942 because the formulae
supposedly determine the consideration of the FTAA. The
consideration is the most important part of the FTAA as far as
the State and Filipino people are concerned. The formulae in
DAO 99-56 derive life solely from the phrase “among other
things.” DAO 99-56 itself states that it is issued “[P]ursuant to
Section 81 and other pertinent provisions of Republic Act No.
7942.” Without the phrase “among other things,” the majority
opinion could not point to any other provision in RA 7942 to
support the existence of the formulae in DAO 99-56.
Thus, the phrase “among other things” determines whether
the FTAA has the third element of a valid contract—the
commercial value or consideration that the State will receive.
The majority opinion in effect says that Congress made the
wealth and even the future prosperity of the nation to depend
on the phrase “among other things.”
The DENR Secretary can change the formulae in DAO 99-
56 any time even without the approval of the President or
Congress. The DENR Secretary is the sole authority to
determine the amount of consideration that the State shall
receive in an FTAA. Section 5 of DAO 99-56 states:
304
304 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
x x x any amendment of an FTAA other than the provision on fiscal
regimeshall require the negotiation with the Negotiation Panel and
the recommendation of the Secretary for approval of the President
of the Republic of the Philippines. (Emphasis supplied)
Under Section 5, if the amendment in the FTAA involves non-
fiscal matters, the amendment requires the approval of the
President. However, if the amendment involves a change in
the fiscal regime—referring to the consideration of the
FTAA—the DENR Secretary has the final authority and
approval of the President is not required. This makes the
DENR Secretary more powerful than the President.
Section 5 of DAO 99-56 violates paragraphs 4 and 5 of
Section 2, Article XII of the 1987 Constitution mandating that
the President shall approve all FTAAs and send copies of all
approved FTAAs to Congress. The consideration of the FTAA
is the most important part of the FTAA as far as the State and
the Filipino people are concerned. The DENR Secretary, in
issuing DAO 99-56, has arrogated to himself the power to
approve FTAAs, a power vested by the Constitution solely in
the President. By not even informing the President of changes
in the fiscal regime and thus preventing such changes from
reaching Congress, DAO 99-56 even seeks to hide changes in
the fiscal regime from Congress. By its provisions alone, DAO
99-56 is clearly unconstitutional and void.
Section 5 of DAO 99-56 also states that “[A]ll FTAAs
approved prior to the effectivity of this Administrative
Order shall remain valid and be recognized by the
Government.” This means that the fiscal regime of an FTAA
executed prior to the effectivity of DAO 99-56 “shall remain
valid and be recognized.” If the earlier FTAA provides for a
fiscal regime different from DAO 99-56, then the fiscal regime
in the earlier FTAA shall prevail. In effect, DAO 99-56
exempts an FTAA approved prior to its effectivity from paying
the State the share prescribed in the formulae under DAO 99-
56 if the earlier FTAA provides for a different fiscal regime.
Such is the case of the WMCP FTAA.
305
VOL. 445, DECEMBER 1, 2004 305
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Based on the majority opinion’s position that the 1987
Constitution requires payment in addition to taxes, duties and
fees, this makes DAO 99-56 unconstitutional and void. DAO
99-56 does not require prior FTAAs to pay the State the share
prescribed in the formulae under DAO 99-56 even if the
consideration in the prior FTAAs is limited only to taxes,
duties and fees. DAO 99-56 recognizes such payment of taxes,
duties and fees as a “valid” consideration. Certainly, the
DENR Secretary has no authority to exempt foreign FTAA
contractors from a constitutional requirement. Not even
Congress or the President can do so.
Ironically, DAO 99-56, the very authority the majority
opinion cites to support its 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 opinion’s position has no leg to stand on since even
DAO 99-56, assuming it is valid, cannot save the WMCP FTAA
from want of consideration.
The formulae prescribed in DAO 99-56 are totally alien to
the phrase “among other things.” There is no relationship
whatsoever between the phrase “among other things” and the
highly esoteric formulae prescribed in DAO 99-56. No one in
this Court can assure the Filipino people that the formulae in
DAO 99-56 will guarantee the State 60%, or 30% or even 10%
of the net proceeds from the mining operations. And yet the
majority opinion trumpets DAO 99-56 as the savior of Section
81 from certain constitutional infirmity.
The majority opinion gives the stamp of approval and
legitimacy on DAO 99-56. This assumes that the majority
understand fully the formulae in DAO 99-56. Can the majority
tell the Court and the Filipino people the minimum share that
the State will receive under the formulae in DAO 99-56? The
formulae in DAO 99-56 are fuzzy since they do not guarantee
the minimum share of the State, unlike the clear and specific
income sharing provisions in the Occidental-Shell
306
306 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
FTAA or in the case of Consolidated Mines, Inc. v. Court of Tax
Appeals. 60
The Solicitor General asserts that the phrase “among other
things” refers to indirect taxes, an interpretation that
contradicts the DENR Secretary’s interpretation under DAO
99-56. The Solicitor General is correct. The ejusdem
generis rule of statutory interpretation applies squarely to the
phrase “among other things.”
In Philippine Bank of Communications v. Court of
Appeals, the Court held:
61
Under the rule of ejusdem generis, where a description of things of
a particular class or kind is ‘accompanied by words of a generic
character, the generic words will usually be limited to things of a
kindred nature with those particularly enumerated x x x.’
In Grapilon v. Municipal Council of Carigara, the Court 62
construed the general word “absence” in the phrase “absence,
suspension or other temporary disability of the mayor” in
Section 2195 of the Revised Administrative Code as “on the
same level as ‘suspension’ and ‘other forms of temporary
disability.’ ” The Court quoted with approval the following
Opinion of the Secretary of Interior:
The phrase ‘other temporary disability’ found in section 2195 of the
Code, follows the words ‘absence’ and ‘suspension’ and is used as a
modifier of the two preceding words, under the principle of statutory
construction known as ejusdem generis.
In City of Manila v. Entote, the Court ruled that broad
63
expressions such as “and all others” or “any others” or “other
matters,” when accompanied by an enumeration of items of
_______________
60 G.R. Nos. L-18843 & 18844, 29 August 1974, 58 SCRA 618; Supra, note
77.
61 323 Phil. 297; 253 SCRA 241 (1996).
62 112 Phil. 24; 2 SCRA 103 (1961).
63 156 Phil. 498; 57 SCRA 497(1974).
307
VOL. 445, DECEMBER 1, 2004 307
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
the same kind or class, “are usually to be restricted to persons
or things of the same kind or class with those specifically
named” in the enumeration. Thus, the Court held:
In our jurisdiction, this Court in Ollada vs. Court of Tax Appeals, et
al.applied the rule of “ejusdem generis” to construe the purview of a
general phrase “other matters” appearing after an enumeration of
specific cases decided by the Collector of Internal Revenue and
appealable to the Court of Tax Appeals found in section 7,
paragraph 1, of Republic Act No. 1125, and it held that in order that
a matter may come under said general clause, it is necessary that it
belongs to the same kind or class of cases therein specifically
enumerated. (Emphasis supplied)
The four requisites of the ejusdem generis rule are present in
64
the phrase “among other things” as appearing in Section 81 of
RA 7942. First, the general phrase “among other things” is
accompanied by an enumeration of specific items, namely, “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.” Second, all the items enumerated are of the same kind
or class—they are all taxes, duties and fees. Third, the
enumeration of the specific items is not exhaustive because
“all such other taxes, duties and fees” are included. Thus, the
enumeration of specific items is merely illustrative. Fourth,
there is no indication of legislative intent to give the general
phrase “among other things” a broader meaning. On the
contrary, the legislative intent of RA 7942 is to limit the
State’s share from mining operations to taxes, duties and fees.
_______________
Ruben E. Agpalo, STATUTORY CONSTRUCTION, p. 217 (1998 Ed.),
64
citing Commissioner of Customs v. Court of Appeals, G.R. No. 33471, 31
January 1972, 43 SCRA 192; Asturias Sugar Central, Inc. v. Commissioner of
Customs, G.R. No. 19337, 30 September 1969, 29 SCRA 617; People v.
Kottinger, 45 Phil. 352 (1923).
308
308 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
In short, the phrase “among other things” refers to taxes,
duties and fees. The phrase “among other things” is even
followed at the end of the sentence by the phrase “and all such
other taxes, duties, and fees,” reinforcing even more the
restriction of the phrase “among other things” to taxes, duties
and fees. The function of the phrase “and such other taxes,
duties and fees” is to clarify that the taxes enumerated are not
exhaustive but merely illustrative.
c. Formulae in DAO 99-56 a Mere Creation of DENR
The majority opinion praises the DENR for “conceiving and
developing” the formulae in DAO 99-56. Thus, the majority
opinion states:
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 formulas for arriving at the additional government
share. (Emphasis supplied)
Indeed, we credit the DENR for conceiving and developing on
their own the formulae in DAO 99-56. The formulae are the
creation of DENR, not of Congress.
The DENR conceived and developed the formulae to save
Section 81 not only from constitutional infirmity, but also from
blatantly depriving the State and Filipino people from any
share in the income of mining companies. However, the
DENR’s admittedly “admirable job” cannot amend Section 81
of RA 7942. The DENR has no legislative power to correct
constitutional infirmities in RA 7942. The DENR does not also
possess the constitutional power to prescribe the sharing of
mining income between the State and mining companies, the
act the DENR attempts to do in adopting DAO 99-56.
d. DAO 99-56 is an Exercise in Futility
Even assuming arguendo the majority opinion is correct that
the phrase “among other things” constitutes sufficient legal
basis to issue DAO 99-56, the FTAA contractor can still
prevent the State from collecting any share of the mining
309
VOL. 445, DECEMBER 1, 2004 309
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
income. By invoking Section 39 of RA 7942 giving the foreign
FTAA contractor the option to convert the FTAA into an
MPSA, the FTAA contractor can easily place itself outside the
scope of DAO 99-56 which expressly applies only to FTAAs.
Also, by invoking Section 112, the foreign contractor need
not even convert its FTAA into a mineral production
agreement to place its contract under Section 80 and outside
of Section 81. Section 112 automatically and immediately
places all FTAAs under the fiscal regime applicable to MPSAs,
forcing the State to collect only the 2% excise tax. Thus, DAO
99-56 is an exercise in futility. This now compels the Court to
resolve the constitutionality of Sections 39 and 112 of RA 7942
in the present case.
e. Congress Prescribes the Terms and Conditions of FTAAs.
In a last-ditch attempt to justify the constitutionality of DAO
99-56, the majority opinion now claims that the President has
the prerogative to prescribe the terms and conditions of FTAAs,
including the fiscal regime of FTAAs. The majority opinion
states:
x x x 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 revenues between the contractor and the State.
(Emphasis in the original; italics supplied)
The majority opinion is re-writing the 1987 Constitution and
even RA 7942. Paragraph 4, Section 2, Article XII of the 1987
Constitution expressly 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. x x x. (Emphasis supplied)
310
310 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Clearly, the 1987 Constitution mandates that the President
may enter into FTAAs only “according to the general terms and
conditions provided by law.” There is no doubt whatsoever
that it is Congress that prescribes the terms and conditions of
FTAAs, not the President as the majority opinion claims. The
1987 Constitution mandates the President to comply with the
terms and conditions prescribed by Congress for FTAAs.
Indeed, RA 7942 stipulates the terms and conditions for
FTAAs. Section 35 of RA 7942 provides that the “following
terms, conditions, and warranties shall be incorporated in the
financial or technical assistance agreement to wit: x x x.”
Section 38 of RA 7942 expressly limits an FTAA to a “term not
exceeding twenty-five (25) years,” which is one of the issues in
the present case.
The majority opinion claims that the President has the
power to prescribe “the fiscal regime of FTAAs—i.e., the
sharing of the net mining revenues between the contractor and
the State.” This claim of the majority opinion renders the
entire Chapter XIV of RA 7942 an act of usurpation by
Congress of Presidential power. Chapter XIV—entitled
“Government Share”—prescribes the fiscal regimes of MPSAs
and FTAAs. The constitutionality of Sections 80 and 81 of
Chapter XIV—whether the fiscal regimes prescribed in these
sections of RA 7942 comply with the 1987 Constitution—is the
threshold issue in this case.
The majority opinion seeks to uphold the constitutionality
of Section 81 of RA 7942, an act of Congress prescribing the
fiscal regime of FTAAs. If it is the President who has the
constitutional authority to prescribe the fiscal regime of
FTAAs, then Section 81 is unconstitutional for being a
usurpation by Congress of a Presidential power. The majority
opinion not only re-writes the 1987 Constitution, it also
contradicts itself.
That is not all. By claiming that the President has the
prerogative to prescribe the fiscal regime of FTAAs, the
majority
311
VOL. 445, DECEMBER 1, 2004 311
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
opinion contradicts its basic theory that DAO 99-56 draws life
from the phrase “among other things” in Section 81 of RA 7942.
Apparently, the majority opinion is no longer confident of its
position that DAO 99-56 draws life from the phrase “among
other things.” The majority opinion now invokes a non-existent
Presidential power that directly collides with the express
constitutional power of Congress to prescribe the “general
terms and conditions” of FTAAs.
f. Sections 80 and 84 of RA 7942 are Void on their Face
Definitely, Section 80 of RA 7942 is constitutionally infirm
even based on the reasoning of the majority opinion. The
majority opinion agrees that the 1987 Constitution requires
the mining contractor to pay the State “more than just the
usual taxes, duties and fees.” Under Section 80, the excise
tax—2% for metallic and non-metallic minerals and 3% for
petroleum—is the only and total share of the State from
mining operations. Section 80 provides:
Section 80. Government Share in Mineral Production Sharing
Agreement.—The total government share in a mineral production
sharing agreement shall be the excise tax on mineral products as
provided in Republic Act No. 7729, amending Section 151(a) of the
National Internal Revenue Code, as amended. (Emphasis supplied)
Section 80 has no ifs or buts. Section 84 even reiterates Section
80 that “with respect to a mineral production sharing
agreement, the excise tax on mineral products shall be the
government share under said agreement.” There is no ejusdem
generis phrase like “among other things” in Section 80 that the
majority opinion can cling on to save it from constitutional
infirmity. DAO 99-56, the magic wand of the majority opinion,
expressly applies only to FTAAs and not to MPSAs. By any
legal yardstick, even by the arguments of the majority opinion,
Sections 80 and 84 are void and unconstitutional.
312
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g. Necessity of Resolving Constitutionality of Sections 39, 80
and 84
The majority opinion states that the constitutionality of
Sections 80 and 84 of RA 7942 is not in issue in the present
case. The majority opinion forgets that petitioners have
assailed the constitutionality of RA 7942 and the WMCP
FTAA for violation of Section 2, Article XII of the 1987
Constitution. Petitioner specifically assails the “inequitable
sharing of wealth” in the WMCP FTAA, which petitioners
assert is “con trary to Section 1, paragraph 1, and Section 2,
paragraph 4, Article XII of the Constitution.”
Section 9.1 of the WMCP FTAA grants WMCP the absolute
option, by mere notice to the DENR Secretary, to convert the
FTAA into an MPSA under Section 80. The “sharing of wealth”
in Section 80 is “inequitable” and “contrary to x x x Section 2,
paragraph 4, Article XII of the Constitution” because the State
will only collect the 2% excise tax in an MPSA. Such a pittance
of a sharing will not make any “real contributions to the
economic growth and general welfare of the country” as
required in paragraph 4, Section 2, Article XII of the 1987
Constitution.
Section 39 of RA 7942 also grants foreign FTAA contractors
the option, by mere notice to the DENR Secretary, to convert
their FTAAs into MPSAs under Section 80. Necessarily, the
constitutionality of the WMCP FTAA must be resolved in
conjunction with Section 80 of RA 7942.
The WMCP FTAA is like a coin with two sides, one side is
an FTAA, and the other an MPSA. By mere notice to the
DENR Secretary, WMCP can convert the contract from an
FTAA to an MPSA, a copy of which, complete with all terms
and conditions, is annexed to the WMCP FTAA. The DENR 65
_______________
65Section IX of the WMCP FTAA, entitled “Option to Convert into MPSA,”
provides:
9.1 The Contractor may, at any time, give notice to the Secretary of its intention to
convert this Agreement either in
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Secretary has no option but to sign the annexed MPSA. There
are only two conditions to WMCP’s exercise of this option: the
reduction of foreign equity in WMCP to 40%, and notice to the
DENR Secretary. The first condition is already fulfilled since
all the equity of WMCP is now owned by a corporation 60%
Filipino owned. The notice to the DENR Secretary is solely at
the will of WMCP.
 What this Court is staring at right now is a dual contract—
an FTAA which, by mere notice to the DENR Secretary,
immediately becomes an MPSA. The majority opinion agrees
that the provisions of the WMCP FTAA, which grant a sham
consideration to the State, are void. Since the majority opinion
agrees that the WMCP FTAA has a sham consideration, the
WMCP FTAA thus lacks the third element of a valid contract.
The majority opinion should declare the WMCP FTAA void for
want of consideration unless the majority opinion 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.
Thus, with the absence of consideration in the WMCP
FTAA, what is actually before this Court is an MPSA. This
squarely puts in issue whether an MPSA is constitutional if
the only consideration or payment to the State is the 2% excise
tax as provided in Section 80 of RA 7942.
The basic constitutional infirmity of the WMCP FTAA is
the absence of a fair consideration to the State as owner of the
mineral resources. Petitioners call this the “inequitable
sharing of wealth.” The constitutionality of the consideration
for the WMCP FTAA cannot be resolved without determining
the validity of both Sections 80 and 81 of RA 7942 because the
consideration for the WMCP FTAA is anchored on both
Sections 80 and 81.
_______________
whole or in part into one or more Mineral Production Sharing Agreements in the form
of the Agreement annexed hereto in Annexure “B” (“the MPSA”) over such part or parts
of the Contract Area as are specified in the notice.
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The majority opinion refuses to face the issue of whether the
WMCP contract can validly rely on Section 80 for its
consideration. If this issue is not resolved now, then the
WMCP FTAA has no consideration. The majority opinion
admits that the consideration in the WMCP FTAA granting
the State 60% share in the mining revenues is a sham and
thus void ab initio.
Strangely, the majority opinion claims that the share of the
State in the mining revenues is not the principal consideration
of the FTAA. The majority opinion claims that the principal
consideration of the FTAA is the “development” of the minerals
by the foreign contractor. The foreign contractor can bring
equipment to the mine site, tunnel the mines, and construct
underground rails to bring the minerals to the surface—in
short develop the mines. What will the State and the Filipino
people benefit from such activities unless they receive a share
of the mining proceeds? After the minerals are exhausted,
those equipment, tunnels and rails would be dilapidated and
even obsolete. Besides, those equipment belong to the foreign
contractor even after the expiration of the FTAA.
Plainly, even a businessman with limited experience will
not agree that the principal consideration in an FTAA, as far
as the State and Filipino people are concerned, is the
development of the mines. It is obvious why the majority
opinion will not accept that the principal consideration is the
share of the State in the mining proceeds. Otherwise, the
majority opinion will have to admit that the WMCP FTAA
lacks the third element of a valid contract—the consideration.
This will compel the majority opinion to admit that the WMCP
FTAA is void ab initio.
The only way for the majority opinion to save the WMCP
FTAA from nullity is to treat it as an MPSA and thus apply
Section 80 of RA 7942. This puts in issue the constitutionality
of Section 80. The majority opinion, however, refuses to treat
the WMCP FTAA as an MPSA. Thus, the WMCP FTAA still
lacks a valid consideration. However, the majority opinion
insists that the WMCP FTAA is valid.
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If the majority opinion puts the constitutionality of Section 80
in issue, the majority opinion will have to declare Section 80
unconstitutional. The majority opinion agrees that the 1987
Constitution requires the State to collect “more than the usual
taxes, duties and fees.” Section 80 indisputably limits the
State to collect only the excise tax and nothing more.
The equivocal stance of the majority opinion will not put an
end to this litigation. Once WMCP converts its FTAA into an
MPSA to avoid paying “more than the usual taxes, duties and
fees,” petitioners will immediately question the validity of
WMCP’s MPSA as well as the constitutionality of Section 80.
The case will end up again in this Court on the same issue of
whether there is a valid consideration for such MPSA, which
necessarily involves a determination of the constitutionality of
Section 80. Clearly, this Court has no recourse but to decide
now the constitutionality of Section 80.
As the Solicitor General reported in his Compliance dated
20 October 2004, the DENR has signed five MPSAs with
different parties. These five MPSAs uniformly contain the
66
following provision:
_______________
66The five Mineral Production Sharing Agreements (Annexes “A” to “F”)
attached to the 20 October 2004 Compliance of the Solicitor General are: (1)
Mineral Production Sharing Agreement between the Republic of the
Philippines and Ungay-Malobago Mines, Inc. and Rapu-Rapu Minerals, Inc.
dated 12 September 2000; (2) Mineral Production Sharing Agreement between
the Republic of the Philippines and Ungay-Malobago Mines, Inc. and TVI
Resource Development (Phils.), Inc. dated 17 June 1998; (3) Mineral
Production Sharing Agreement between the Republic of the Philippines and
Base Metals Mineral Resources Corporation (BMMRC) dated 20 November
1997; (4) Mineral Production Sharing Agreement between the Republic of the
Philippines and Philex Gold Philippines, Inc. dated 29 December 1999 (MPSA
No. 148-99XIII); and (5) Mineral Production Sharing Agreement between the
Republic of the Philippines and Philex Gold Philippines, Inc. dated 29
December 1999 (MPSA No. 149-99-XIII).
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Share of the Government—The Government Share shall be the excise
tax on mineral products at the time of removal and at the rate
provided for in Republic Act No. 7729 amending Section 151(a) of
the National Internal Revenue Code, as amended, as well as other
taxes, duties, and fees levied by existing laws. (Emphasis supplied)
If the constitutionality of Section 80 is not resolved now, these
five MPSAs, including the WMCP FTAA once converted into
an MPSA, will remain in limbo. There will be no
implementation of these MPSAs until the Court finally
resolves this constitutional issue.
Even if evaded now, the constitutionality of Section 80 will
certainly resurface, resulting in a repeat of this litigation,
most probably even between the same parties. To avoid
unnecessary delay, this Court must rule now on the
constitutionality of Section 80 of RA 7942.
2. The Constitutional Term Limit Applies to FTAAs
Section 3.3 of the WMCP FTAA provides a fixed contract term
of 50 years at the option of WMCP. Thus, Section 3.3 provides:
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 a
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. (Emphasis supplied)
This provision grants WMCP the absolute right to extend the
first 25-year term of the FTAA to another 25-year term upon
mere lodging of a request or notice to the Philippine
Government. WMCP has the absolute right to extend the term
of the FTAA to 50 years and all that the Government can do is
to acquiesce to the wish of WMCP.
Section 3.3 of the WMCP FTAA is void because it violates
Section 2, Article XII of the 1987 Constitution, the first
paragraph of which provides:
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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. (Emphasis supplied)
The majority opinion, however, makes the startling assertion
that FTAAs are not covered by the term limit under Section 2,
Article XII of the 1987 Constitution. The majority opinion
states:
I believe that the constitutional term limits do 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. (Emphasis supplied)
If the term limit does not apply to FTAAs because the term
limit is found in the first paragraph of Section 2, then the other
limitations in the same first paragraph of Section 2 do not also
apply to FTAAs. These limitations are three: first, that the
State owns the natural resources; second, except for
agricultural lands, natural resources shall not be
alienated; third, the State shall exercise full control and
supervision in the exploitation of natural resources. Under the
majority opinion’s interpretation, these three limitations will
no longer
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318 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
apply to FTAAs, leading to patently absurd results. The
majority opinion will also contradict its own admission that
even in FTAAs the State must exercise full control and
supervision in the exploitation of natural resources.
Section 2, Article XII of the 1987 Constitution is
a consolidationof Sections 8 and 9, Article XIV of the 1973
Constitution, which state:
Section 8. All lands of 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, or resettlement lands of the public domain,
natural resources shall not be alienated, and no license, concession,
or lease for the exploration, 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 development of water power, in which
cases, beneficial use may be the measure and the limit of the grant.
Section 9. The disposition, exploration, development,
exploitation, or utilization of any of the natural resources of the
Philippines shall be limited to citizens of the Philippines, or to
corporations or associations at least sixty per centum of the capital
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 foreign 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.
Section 9, Article XIV of the 1973 Constitution, a one-
paragraph section, contained the provision reserving the
exploration, development and utilization of natural resources
to Philippine citizens or corporations 60% Filipino owned as
well as the provision on FTAAs. The provision on the 25-year
term limit was found in the preceding Section 8 of Article XIV.
If the 25-year term limit under the 1973 Constitution did not
apply to FTAAs, then it should not also have applied to non-
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FTAA mining contracts, an interpretation that is obviously
wrong. Thus, the term limit in Section 8, Article XIV of the
1973 Constitution necessarily applied to both non-FTAA
mining contracts and FTAAs in Section 9.
What the framers of the 1987 Constitution did was to
consolidate Sections 8 and 9, Article XIV of the 1973
Constitution into one section, the present Section 2, Article XII
of the 1987 Constitution. The consolidation necessitated re-
arranging the sentences and paragraphs without any
intention of destroying their unity and coherence. Certainly,
the consolidation did not mean that the FTAAs are no longer
subject to the 25-year term limit. If anything, the
consolidation merely strengthened the need, following the
rules of statutory construction, to read and interpret together
all the paragraphs, and even the sentences, of Section 2,
Article XII of the 1987 Constitution.
In his book The 1987 Constitution of the Republic of the
Philippines: A Commentary, Father Joaquin G. Bernas, S.J.,
who was a leading member of the 1986 Constitutional
Commission, discussed the limitations on the exploitation of
natural resources.Father Bernas states:
4. Other limitations
Agreements for the exploitation of the natural resources can have
a life of only twenty-five years. This twenty-five year limit dates back
to the 1935 Constitution and is considered to be a “reasonable time
to attract capital, local and foreign, and to enable them to recover
their investment and make a profit. The twenty-five year limit on
the exploitation of natural resources is not applicable to “water
rights for irrigation, water supply, fisheries, or industrial uses other
than the development of water power.” In these cases, “beneficial
use may be the measure and the limit of the grant.” But in the case
of water rights for water power, the twenty-five year limit is
applicable.” (Emphasis supplied)
67
_______________
P. 1140, 2003 Edition.
67
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The 1935, 1973 and 1987 Constitutions all limit the
exploitation of natural resources to 25-year terms. They also
limit franchises for public utilities, leases of alienable lands of
public domain, and water rights for power development to 25-
year terms. If a different term is intended, the Constitution
expressly says so as in water rights for uses other than power
development. Under the 1973 and 1987 Constitutions, there is
no separate term for FTAAs other than the 25-year term for
the exploitation of natural resources.
The WMCP FTAA draws life from Executive Order No. 279
issued on 25 July 1987 by then President Corazon C. Aquino
when she still exercised legislative powers. Section 1.1 of the
WMCP FTAA expressly states, “This Agreement is a Financial
& Technical Assistance Agreement entered into pursuant to
Executive Order No. 279.” Section 7 of Executive Order No. 279
provides:
Section 7. All provisions of Presidential Decree No. 463, as amended,
other existing mining laws, and their implementing rules and
regulations, or parts thereof, which are not inconsistent with the
provisions of this Executive Order, shall continue in force and
effect. (Emphasis supplied)
Section 40 of Presidential Decree No. 463 (“PD 463”), as
amended by Presidential Decree No. 1385, provides:
Section 40. Issuance of Mining Lease Contracts.—x x x After the
mining claim has been verified as to its mineral contents and its
actual location on the ground as determined through reports
submitted to the Director, the Secretary shall approve and issue the
corresponding mining lease contract, which shall be for a period not
exceeding twenty-five (25) years, renewable upon the expiration
thereof for another period not exceeding twenty-five (25) years under
such terms and conditions as provided by law. (Emphasis supplied)
Thus, at the time of execution of the WMCP FTAA, statutory
law limited the term of all mining contracts to 25-year terms.
PD 463 merely implemented the mandate of the 1973
Constitution on the 25-year term limit, which is the same 25-
year
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term limit in the 1987 Constitution. Under Section 7 of
Executive Order No. 279, Section 40 of PD 463 limiting mining
contracts to a 25-year term applies to the WMCP FTAA.
Therefore, Section 3.3 of the WMCP FTAA providing for a 50-
year term is void.
Then President Aquino also issued Executive Order No. 211
on 10 July 1987, a bare 17 days before issuing Executive Order
No. 279. Section 3 of Executive Order No. 211 states:
Section 3. The processing, evaluation and approval of all mining
applications, declarations of locations, operating agreements and
service contracts as provided for in Section 2 above, shall be
governed by Presidential Decree No. 463, as amended, other
existing mining laws, and their implementing rules and
regulations: Provided, However, that the privileges granted as well
as the terms and conditions thereof shall be subject to any and all
modifications or alterations which Congress may adopt pursuant to
Section 2, Article XII of the 1987 Constitution. (Emphasis supplied)
Section 3 of Executive Order No. 211 applies to the WMCP
FTAA which was executed on 22 March 1995, more than seven
years after the issuance of Executive Order No. 211.
Subsequently, Congress enacted RA 7942 to prescribe new
terms and conditions for all mineral agreements. RA 7942 took
effect on 9 April 1995.
RA 7942 governs the WMCP FTAA because Executive
Order No. 211 expressly makes mining agreements like the
WMCP FTAA subject to “any and all modifications or
alterations which Congress may adopt pursuant to Section 2,
Article XII of the 1987 Constitution.” Section 38 of RA 7942
provides for a 25-year term limit specifically for FTAAs, thus:
Section 38. Term of Financial or Technical Assistance Agreement.—
A financial or technical assistance agreement shall have a term not
exceeding twenty-five (25) years to start from the execution thereof,
renewable for not more than twenty-five (25) years under such terms
and conditions as may be provided by law. (Emphasis supplied)
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Thus, the 25-year term limit specifically for FTAAs in Section
38 of RA 7942 applies to the WMCP FTAA. Again, Section 3.3
of the WMCP FTAA providing for a 50-year term is void.
What is clear from the foregoing is that the 25-year
statutory term limit on mining contracts is merely an
implementation of the 25-year constitutional term limit,
whether under the 1935, 1973 or 1987 Constitutions. The
majority opinion’s assertion that the 25-year term in the first
paragraph of Section 2, Article XII of the 1987 Constitutions
does not apply to FTAAs is obviously wrong.
3. Section 112 of RA 7942 Applies to the WMCP FTAA
The majority opinion insists that Section 112 of RA 7942 does
not apply to the WMCP FTAA. Section 112 provides:
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.
(Emphasis supplied)
Section 112 “immediately” applies the fiscal regime under
Section 80 on “mineral production sharing agreement” to “all
valid and existing mining” contracts, including those “granted
under Executive Order No. 279.” If Section 112 applies to the
WMCP FTAA, then the WMCP FTAA is subject only to the 2%
excise tax under Section 80 as the “total share” of the Philippine
Government.
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The majority opinion states, “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.”
This position of the majority opinion is understandable. If
Section 112 applies to FTAAs, the majority opinion would have
to rule on the constitutionality of Section 80 of RA 7942. The
majority opinion already agrees that the 1987 Constitution
requires the FTAA contractor to pay the State “more than the
usual taxes, duties and fees.” If Section 112 applies to FTAAs,
the majority opinion would have no choice but declare
unconstitutional Section 80.
Thus, the majority opinion insists that Section 112 “cannot
be made to apply to FTAAs.” This insistence of the majority
opinion collides with the very clear and plain language of
Section 112 of RA 7942 and Section 1.1 of the WMCP
FTAA. This insistence of the majority opinion will lead to
absurd results.
First, Section 112 of RA 7942 speaks of “all valid and
existing mining” contracts. The phrase “all valid and existing
mining” contracts means the entire or total mining contracts
in existence “at the date of effectivity” of RA 7942 without
exception. The word “all” negates any exception. This certainly
includes the WMCP FTAA, unless the majority opinion
concedes that the WMCP FTAA is not a mining contract, or if
it is, that it is not a valid contract.
Second, the last proviso of Section 112 itself expressly
states that “financial or technical assistance agreements shall
comply with the applicable provisions of this Act and its
implementing rules and regulations.” There is no shadow of
doubt whatsoever that Section 112, by its own plain, clear and
indisputable language, commands that FTAAs shall comply
with RA 7942. I truly cannot fathom how the majority opinion
can assert that Section 112 cannot apply to FTAAs.
Third, Section 112 expressly refers to Chapters XIV and
XVI of RA 7942. Chapter XIV refers to the “Government
Share” and covers Sections 80, 81 and 82 of RA 7942. Section
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81, as the majority opinion concedes, applies to FTAAs.
Chapter XVI refers to “Incentives” and covers Section 90 to 94
of RA 7942. Section 90 states that the “contractors in mineral
agreements, and financial technical and assistance
agreements shall be entitled to the fiscal and non-fiscal
incentives as provided under Executive Order No. 226 x x x.”
Clearly, Section 112 applies to FTAAs.
Fourth, Section 1.1 of the WMCP FTAA expressly states,
“This Agreement is a Financial & Technical Assistance
Agreement entered into pursuant to Executive Order No. 279.”
Section 112 states in unequivocal language that “all valid and
existing” agreements “granted under Executive Order No. 279”
are immediately placed under the fiscal regime of MPSAs. In
short, mining agreements granted under Executive Order No.
279 are expressly among the agreements included in Section
112 and placed under the fiscal regime prescribed in Section
80. There is no doubt whatsoever that Section 112 applies to
the WMCP FTAA which was “entered into pursuant to
Executive Order No. 279.”
Fifth, Section 3 of Executive Order No. 211 expressly
subjects all mining contracts executed by the Executive
Department to the terms and conditions of new mining laws
that Congress might enact in the future. Thus, Section 3 of
Executive Order No. 211 states:
Section 3. The processing, evaluation and approval of all mining
applications, declarations of locations, operating agreements and
service contracts as provided for in Section 2 above, shall be
governed by Presidential Decree No. 463, as amended, other
existing mining laws, and their implementing rules and
regulations: Provided, However, that the privileges granted as well
as the terms and conditions thereof shall be subject to any and all
modifications or alterations which Congress may adopt pursuant to
Section 2, Article XII of the 1987 Constitution. (Emphasis supplied)
There is no dispute that Executive Order No. 211, issued prior
to the execution of the WMCP FTAA, applies to the WMCP
FTAA. There is also no dispute that RA 7942 took
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effect after the issuance of Executive Order No. 211 and after
the execution of the WMCP FTAA. Therefore, Section 112 of
RA 7942 applies specifically to the WMCP FTAA.
Indeed, it is plain to see why Section 112 of RA 7942 applies
to FTAAs, like the WMCP FTAA, that were executed prior to
the enactment of RA 7942. Section 112 is found in Chapter XX
of RA 7942 on “Transitory and Miscellaneous Provisions.” The
title of Section 112 refers to the “[N]on-impairment of Existing
Mining Quarrying Rights.” RA 7942 is the general law
governing all kinds of mineral agreements, including
FTAAs. In fact, Chapter VI of RA 7942, covering nine sections,
deals exclusively on FTAAs. The fiscal regime in FTAAs
executed prior to the enactment of RA 7942 may differ from
the fiscal regime prescribed in RA 7942. Hence, Section 112
provides the transitory provisions to resolve differences in the
fiscal regimes, ostensibly to avoid impairment of contract
obligations. Clearly, Section 112 applies to FTAAs.
There are no ifs or buts in Section 112. The plain, simple
and clear language of Section 112 makes FTAAs, like the
WMCP FTAA, subject to Section 112. We repeat the express
words of Section 112—
1. (1)“All valid and existing mining lease contracts x x x
mineral production-sharing agreements
granted under Executive Order No. 279, at the date of
effectivity of this Act x x x.”
2. (2)the “x x x government share in mineral production-
sharing agreement x x x shall immediately govern and
apply to a mining lessee or contractor x x x.”
3. (3)“financial or technical assistance agreements shall
comply with the applicable provisions of this Act and
its implementing rules and regulations.”
With such clear and unequivocal language, how can the
majority opinion blithely state that Section 112 “cannot be
made to apply to FTAAs”? It defies common sense, simple logic
and plain English to assert that Section 112 does not apply to
FTAAs. It defies the fundamental rule of statutory
construction as repeated again and again in jurisprudence:
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Time and time again, it has been repeatedly declared by this Court
that where the law speaks in clear and categorical language, there
is no room for interpretation. There is only room for application. 68
For nothing is better settled than that the first and fundamental
duty of courts is to apply the law as they find it, not as they like it
to be. Fidelity to such a task precludes construction or
interpretation, unless application is impossible or inadequate
without it.69
Where the law is clear and unambiguous, it must be taken to
mean exactly what it says and the court has no choice but to see to
it that its mandate is obeyed.70
If Section 112 of RA 7942 does not apply to FTAAs as the
majority opinion asserts, what will govern FTAAs executed
before the enactment of RA 7942, like the WMCP
FTAA? Section 112 expressly addresses FTAAs executed
before the enactment of RA 7942, requiring these earlier
FTAAs to comply with the provisions of RA 7942 and its
implementing rules. Executive Order No. 211, issued seven
years before the execution of the WMCP FTAA, requires all
FTAAs subsequently executed to comply with the terms and
conditions of any future mining law that Congress may enact.
That law is RA 7942 which took effect after the execution of
the WMCP FTAA.
The majority opinion allows the WMCP FTAA to
become sui generis, an FTAA outside the scope of RA 7942
which expressly governs “all” mining agreements, whether
MPSAs or FTAAs. This means that the WMCP FTAA is not
even governed by Section 81 of RA 7942 and its phrase “among
other things,” which the majority opinion claims is the au-
_______________
68 Cebu Portland Cement Company v. Municipality of Naga, Cebu, 133 Phil.
695; 24 SCRA 708 (1968).
69 Resins, Inc. v. Auditor General, 134 Phil. 697; 25 SCRA 754 (1968).
70 Luzon Surety Co., Inc. v. De Garcia, 140 Phil. 509; 30 SCRA
111 (1969); Quijano v. Development Bank of the Phils., 146 Phil. 283; 35 SCRA
270 (1970); Chartered Bank Employees Association v. Ople, No. L-44717, 28
August 1985, 138 SCRA 273.
327
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
thority to subject the WMCP FTAA to the payment of
consideration that is “more than the usual taxes, duties and
fees.”
This makes the majority opinion’s position self-
contradictory and inutile. The majority opinion claims that the
WMCP FTAA is subject to the phrase “among other things” in
Section 81. At the same time, the majority opinion asserts that
Section 112, which requires earlier FTAAs to comply with
Section 81 and other provisions of RA 7942, does not apply to
the WMCP FTAA. The majority opinion is caught in a web of
self-contradictions.
This exemption by the majority opinion of the WMCP FTAA
from Section 112 is judicial class legislation. Why is the
WMCP FTAA so special that the majority opinion wants it
exempted from Section 112 of RA 7942? Why are only
“all” other FTAAs subject to the terms and conditions of RA
7942 and not the WMCP FTAA?
4. Foreign Corporations and Contractors Cannot Hold
Exploration Permits
The majority opinion states that “there is no prohibition at all
against foreign or local corporations or contractors holding
exploration permits.” This is another assertion of the majority
opinion that directly collides with the plain language of the
1987 Constitution.
Section 2, Article XII of the 1987 Constitution expressly
reserves to Philippine citizens and corporations 60% Filipino
owned the “exploration, development and utilization of natural
resources.” The majority opinion rationalizes its assertion in
this manner:
Pursuant to Section 20 of RA 7942, an exploration permit merely
grants to a qualified person the right to conduct exploration for
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. (Italics in original)
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328 SUPREME COURT REPORTS ANNOTATED
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The issue is not whether an exploration permit allows a
foreign contractor or corporation to extract mineral resources,
for apparently by its language alone a mere exploration permit
does not. There is no dispute that an exploration permit
merely means authority to explore, not to extract. The issue is
whether the issuance of an exploration permit to a foreign
contractor violates the constitutional limitation that only
Philippine citizens or corporations 60% Filipino owned can
engage in the “exploration x x x of natural resources.”
The plain language of Section 2, Article XII of the 1987
Constitution clearly limits to Philippine citizens or to
corporations 60% Filipino owned the right to engage in the
“exploration x x x of natural resources.” To engage in
“exploration” is simply to explore, not to develop, utilize or
extract. To engage in exploration one must secure
an exploration permit. The mere issuance of the exploration
permit is the authority to engage in the exploration of natural
resources.
This activity of exploration, which requires an exploration
permit, is a reserved activity not allowed to foreign contractors
or foreign corporations. Foreign contractors and foreign
corporations cannot secure exploration permits because they
cannot engage in the exploration of natural resources. If, as
the majority opinion asserts, foreign contractors or foreign
corporations can secure and hold exploration permits, then
they can engage in the “exploration x x x of natural resources.”
This violates Section 2, Article XII of the 1987 Constitution.
Consequently, Section 3(aq) of RA 7942, which provides
that “a legally organized foreign-owned corporation shall be
deemed a qualified person for purposes of granting an
exploration permit,” is void and unconstitutional.
However, the State may directly undertake to explore,
develop and utilize the natural resources. To do this the State
may contract a foreign corporation to conduct the physical act
of exploration in the State’s behalf, as in an FTAA. In such a
case, the foreign FTAA contractor is merely an agent of the
State which holds the right to explore. No exploration permit
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VOL. 445, DECEMBER 1, 2004 329
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
is given to the foreign contractor because it is the State that
is directly undertaking the exploration, development and
utilization of the natural resources.
The requirement reserving “exploration x x x of natural
resources” to Philippine citizens or to corporations 60%
Filipino owned is not a matter of constitutional whim. The
State cannot allow foreign corporations, except as contractual
agents under the full control and supervision of the State, to
explore our natural resources because information derived
from such exploration may have national security
implications.
If a Chinese company from the People’s Republic of China
is allowed to explore for oil and gas in the Spratlys, the
technical information obtained by the Chinese company may
only bolster the resolve of the Chinese Government to hold on
to their occupied reefs in the Spratlys despite these reefs being
within the Exclusive Economic Zone of the Philippines.
Certainly, we cannot expect the Chinese company to disclose
to the Philippine Government the important technical data
obtained from such exploration.
In Africa, foreign mining companies who have explored the
mineral resources of certain countries shift their support back
and forth between government and rebel forces depending on
who can give them better terms in exploiting the mineral
resources. Technical data obtained from mineral exploration
have triggered or fueled wars and rebellions in many
countries. The right to explore mineral resources is not a
trivial matter as the majority opinion would want us to
believe.
Even if the foreign companies come from countries with no
territorial dispute with the Philippines, can we expect them to
disclose fully to the Philippine Government all the technical
data they obtain on our mineral resources? These foreign
companies know that the Philippine Government will use the
very same data in negotiating from them a higher share of the
mining revenues. Why will the foreign companies give to the
Philippine Government technical data justifying a higher
share for the Philippine Government and a lower share for
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330 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
the foreign companies? The framers of the 1935, 1973 and
1986 Constitutions were acutely aware of this problem. That
is why the 1987 Constitution not only reserves the “exploration
x x x of natural resources” to Philippine citizens and to
corporations 60% Filipino owned, it also now requires the
State to exercise “full control and supervision” over the
“exploration x x x of natural resources.”
5. The State is Entitled to 60% Share in the Net Mining
Revenues
The majority opinion claims that the Constitution does not
require that the State’s share in FTAAs or other mineral
agreements should be at least 60% of the net mining revenues.
Thus, the majority opinion states that “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.”
The majority opinion makes this claim despite the express
admission by intervenor CMP and respondent WMCP that the
State, as owner of the natural resources, is entitled to 60% of
the net mining revenues. The intervenor CMP admits that
under an FTAA, the Philippine Government “stands in the
place of the 60% Filipino owned company” and hence must
retain 60% of the net income. Thus, intervenor CMP concedes
that:
x x x In other words, in the FTAA situation, the Government stands
in the place of the 60% Filipino-owned company, and the 100%
foreign-owned contractor company takes all the risks of failure to
find a commercially viable large-scale ore body or oil deposit, for
which the contractor will get 40% of the financial
benefits. (Emphasis supplied)
71
As applied to the WMCP FTAA, intervenor CMP asserts that
the “contractor’s stipulated share under the WMCP
_______________
Motion for Reconsideration dated 14 July 2004, p. 22.
71
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
FTAA is limited to a maximum of 40% of the net
production.” Intervenor CMP further insists that “60% of its
72
(contractor’s) net returns from mining, if any, will go to the
Government under the WMCP FTAA.” 73
Like intervenor CMP, respondent WMCP also maintains
that under an FTAA, the State is “guaranteed” a 60% share of
the foreign contractor’s Net Mining Revenues. Respondent
WMCP admits that:
In other words, the State is guaranteed a sixty per centum (60%)
share of the Mining Revenues, or 60% of the actual fruits of the
endeavor. This is in line with the intent behind Section 2 of Article
XII that the Filipino people, as represented by the State, benefit
primarily from the exploration, development, and utilization of the
Philippines’ natural resources.
Incidentally, this sharing ratio between the Philippine
Government and the Contractor is also in accordance with the 60%-
40% equity requirement for Filipino-owned corporations in
Paragraph 1 of Section 2 of Article XII. (Emphasis supplied)
74
In short, the entire mining industry, as represented by
intervenor CMP, is willing to pay the State a share equivalent
to 60% of the net mining revenues. Even the foreign contractor
WMCP agrees to pay the State 60% of its net mining revenues,
albeit dishonestly.
However, the majority opinion refuses to accept that the
State is entitled to what the entire mining industry is willing
to pay the State. Incredibly, the majority opinion claims that
“there is no independent showing that the taking of at least 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.” Despite the willingness of the
entire mining industry to pay the State a 60% share without
exception, the majority opinion insists that such sharing is
_______________
72 Ibid., p. 20.
73 Ibid., p. 12.
74 Memorandum dated 15 July 2004, p. 42.
1
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332 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
not fair and reasonable to the mining industry “under most if
not all circumstances.” What is the basis of the majority
opinion in saying this when the entire mining industry
already admits, concedes and accepts that the State is
entitled, without exception, to 60% of the net mining revenues?
Oddly, the majority opinion cites only the personal
experience of the ponente, who had previously “been engaged
in private business for many years.” The majority opinion even
states, in insisting that the State should receive less than 60%
share, that “[F]airness is a credo not only in law, but also in
business.” The majority opinion cannot be more popish than
the Pope. The majority opinion ponente’s business judgment
cannot supplant the unanimous business judgment of the
entire mining industry, as manifested by intervenor CMP
before this Court. What is obvious is that it is not fair to
deprive the Filipino people, many of whom live in hand to
mouth existence, of what is legally their share of the national
patrimony, in light of the willingness of the entire mining
industry to pay the Filipino people their rightful share.
The majority opinion gives a “simplified illustration” to
show that the State does not deserve a 60% share of the net
proceeds from mining revenues. The majority opinion states:
x x x Let us base it on gross revenues of, say, P500. After deducting
operating expenses, but prior to income tax, suppose a mining
makes a taxable income of P100. A corporate income tax of 32
percent results in P32 of taxable income going to the government,
leaving the mining firm with P68. Government then takes 60
percent thereof, equivalent to P40.80, leaving only P27.20 for the
mining firm.
The majority opinion’s “simplified illustration” is indeed too
simplified because it does not even consider the exploration,
development and capital expenses. The majority opinion’s
“simplified illustration” deducts from gross revenues only
“operating expenses.” This is an egregious error that makes
this “simplified illustration” misleading. Exploration,
development and other capital expenses constitute a huge part
of the deductions from gross revenues. In the early years of
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
commercial production, the exploration, development and
capital expenses, if not subject to a cap or limitation, can wipe
out the gross revenues.
The majority opinion’s operating expenses are not even
taken from mining industry rates. One can even zero out the
taxable income by simply jacking up the operating expenses.
A “simplified illustration” of an income statement of an
operating mining company, omitting the deduction of
amortized capital expenses, serves no purpose whatsoever.
What is important is the return on the investment of the
foreign contractor. The absolute amount that goes to the
contractor may be smaller than what goes to the State.
However, the amount that goes to the contractor may be a
hundred times its investment. This can only be determined if
the capital expenditures of the contractor are taken into
account.
Under an FTAA, the State is directly undertaking the
exploitation of mineral resources. The net proceeds are not
subject to income tax since there is no separate taxable entity.
The State is an entity but not a taxable corporate entity. The
State does not pay income tax to itself, and even if it does, it is
just a book entry since it is the payor and payee at the same
time. Only the 40% share of the FTAA contractor is subject to
the 32% corporate income tax. On this score alone, the
majority opinion’s “simplified illustration” is wrong.
Intervenor CMP and respondent WMCP are correct in
anchoring on Section 2, Article XII of the 1987 Constitution
their admission that the State is entitled to 60% of the net
mining revenues. Their common position is based on the
Constitution, existing laws and industry practice.
First, the State owns the mineral resources. To the owner
of the mineral resources belongs the income from any
exploitation of the mineral resources. The owner may share its
income with the contractor as compensation to the contractor,
which is an agent of the owner. The industry practice is the
owner receives an equal or larger share of the income as
against the share of the contractor or agent.
 334
334 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
In the Occidental-Shell FTAA covering Malampaya, where
the contractor contributed all the capital and technology, the
State receives 60% of the net proceeds. In addition, Occidental-
Shell’s 40% share is subject to the 32% Philippine income tax.
Occidental-Shell’s US$2 billion investment in Malampaya is
75
by far the single biggest foreign investment in the Philippines.
The offshore Malampaya gas extraction is also by far more
capital intensive and riskier than land-based mineral
extraction. Over the 20-year life of the natural gas reserves,
the State will receive US$8-10 billion from its share in the
76
Occidental-Shell FTAA.
In Consolidated Mines, Inc. v. Court of Tax Appeals, a case
77
decided under the 1973 Constitution, Consolidated Mines, the
concessionaire of the mines, shared equally the net mining
income with Benguet Consolidated Mines, the mining operator
or contractor. Thus, as quoted in Consolidated Mines, the
agreement between the concessionaire and operator stated:
X. After Benguet has been fully reimbursed for its expenditures,
advances and disbursements as aforesaid the net profits from the
operation shall be divided between Benguet and Consolidated share
and share alike, it being understood however, that the net profits as
the term is used in this agreement shall be computed by deducting
from gross income all operating expenses and all disbursements of
any nature whatsoever as may be made in order to carry out the
terms of this agreement. (Emphasis supplied)
Incidentally, in Consolidated Mines the State did not receive
any share in the net mining income because of the “license,
concession or lease” system under the 1935 and 1973
Constitutions. The State and the Filipino people received only
taxes, duties and fees.
_______________
www.malampaya.com.
75
76 Ibid.
77 157 Phil. 608; 58 SCRA 618 (1974).
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VOL. 445, DECEMBER 1, 2004 335
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Second, the State exercises “full control and supervision” over
the exploitation of mineral resources. “Full control” as used in
the Constitution means more than ordinary majority control.
In corporate practice, ordinary control of a corporation means
a simple majority control, or at least 50% plus one of the total
voting stock. In contrast, full or total control means two-thirds
of the voting stock, which enables the owner of the two-thirds
equity to amend any provision in the charter of the
corporation. However, since foreigners can own up to 40% of
the equity of mining companies, “full control” cannot exceed
the control corresponding to the State’s 60% equity. Thus, the
State’s share in the net proceeds of mining companies should
correspond to its 60% interest and control in mining
companies.
Third, Section 2, Article XII of the 1987 Constitution
requires that the FTAA must make “real contributions to the
economic growth and general welfare of the country.” As
respondent WMCP aptly admits, “the intent behind Section 2
of Article XII (is) that the Filipino people, as represented by the
State, (shall) benefit primarily from the exploration,
development, and utilization of the Philippines’ natural
resources.” For the Filipino people to benefit primarily from
the exploitation of natural resources, and for FTAAs to
make real contributions to the national economy, the majority
of the net proceeds from mining operations must accrue to the
State.
Fourth, the 1987 Constitution ordains the State to
“conserve and develop our patrimony.” The nation’s mineral
resources are part of our national patrimony. The State can
“conserve” our mineral resources only if the majority of the net
proceeds from the exploitation of mineral resources accrue to
the State.
In sum, only the majority opinion refuses to accept that the
State has a right to receive at least 60% of the net proceeds
from mining operations. The principal parties involved in this
case do not object that the State shall receive such share. The
entire mining industry and respondent WMCP admit that the
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336 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
State is entitled to a 60% share of the net proceeds. The State,
represented by the Government, will certainly not object to
such share.
More than anything else, the intent and language of the
1987 Constitution require that the State receive the bulk of
the income from mining operations. Only Congress, through a
law, may allow a share lesser than 60% if certain compelling
conditions are present. Congress may authorize the President
to make such determination subject to standards and
limitations that Congress shall prescribe.
The majority opinion wants to give the President the
absolute discretion to determine the State’s share from mining
revenues. The President will be hard put accepting anything
less than 60% of the net proceeds. If the President accepts less
than 60%, the President is open to a charge of entering into a
manifestly and grossly disadvantageous contract to the
Government because the entire mining industry, including
WMCP, has already agreed to pay 60% of the net proceeds to
the State. The only way to avoid this is for Congress to enact
a law providing for the conditions when the State may receive
less than 60% of the net proceeds.
Conclusion
Let us assume that one of the Justices of this Court is the
owner of mineral resources—say gold reserves. A foreigner
offers to extract the gold and pay for all development, capital
and operating expenses. How much will the good Justice
demand as his or her share of the gold extracted by the
foreigner? If the Justice follows the Malampaya precedent, he
or she will demand a 60% share of the net proceeds. If the
Justice follows the manifestation of intervenor CMP and
respondent WMCP before this Court, he or she will also
demand a 60% share in the net proceeds. If the Justice follows
the Consolidated Mines precedent, he or she will demand no
less than 50% of the net proceeds. In either case, the 2% excise
tax on
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VOL. 445, DECEMBER 1, 2004 337
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
the gold extracted is part of the operating expenses to be paid
by the foreigner but deducted from the gross proceeds. Now,
under the Regalian doctrine the State, not the Justice, owns
the gold reserves. How much should the State demand from
the foreigner as the State’s share of the gold that is
extracted? If we follow Sections 39, 80, 81, 84 and 112 of RA
7942, the State will receive only 2% excise tax as its “total
share” from the gold that is extracted.
Is this fair to the State and the Filipino people, many of
whom live below the poverty line? Is this what the 1987
Constitution mandates when it says that (a) the State must
conserve and develop the nation’s patrimony, (b) the State
owns all the natural resources, (c) the State must exercise full
control and supervision over the exploitation of its natural
resources, and (d) FTAAs must make real contributions to the
national economy and the general welfare?
How this Court decides the present case will determine
largely whether our country will remain poor, or whether we
can progress as a nation. Based on NEDA’s estimates, the total
mineral wealth of the nation is P47 trillion, or US$840 billion.
This is 15 times more than our US$56 billion foreign debt. Can
this Court in conscience agree that the State will receive only
2% of the P47 trillion mineral wealth of the nation?
In Miners Association, this Court ruled that the 1987
Constitution has abandoned the old system of “license,
concession or lease” and instead installed full State control
and supervision over the exploitation of natural resources. No
amount of dire warnings or media publicity should intimidate
this Court into resurrecting the old and discredited system
that has caused the denudation of almost all of the nation’s
virgin forests without any visible benefit to the Filipino people.
The framers of the 1987 Constitution have wisely instituted
the new system to prevent a repeat of the denudation of our
forestlands that did not even make any real contribution to the
economic growth of the nation. This Court must do its
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338 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
solemn duty to uphold the intent and letter of the Constitution
and, in the words of the Preamble of the 1987 Constitution,
“conserve and develop our patrimony” for the benefit of the
Filipino people.
This Court cannot trivialize the Filipino people’s right to be
the primary beneficiary of the nation’s mineral resources by
ruling that the phrase “among other things” is sufficient to
insure that FTAAs will “make real contributions to the
economic growth and general welfare of the country.” This
Court cannot tell the Filipino people that the phrase “among
other things” is sufficient to “preserve and develop the national
patrimony.” This Court cannot tell the Filipino people that the
phrase “among other things” means that they will receive the
bulk of mining revenues.
This Court cannot tell the Filipino people that Congress
deliberately used the phrase “among other things” to
guarantee that the Filipino people will receive their equitable
share from mining revenues of foreign contractors. This Court
cannot tell the Filipino people that with the phrase “among
other things,” this Court has protected the national interest as
mandated by the 1987 Constitution.
I therefore vote to deny the motions for reconsideration. I
vote to declare unconstitutional Section 3(aq), Section 39,
Section 80, the second paragraph of Section 81, the proviso in
Section 84, and the first proviso in Section 112 of RA 7942 for
violation of Section 2, Article XII of the 1987 Constitution. In
issuing the rules to implement these void provisions of RA
7942, DENR Secretary Victor O. Ramos gravely abused his
discretion amounting to lack or excess of jurisdiction.
I also vote to declare unconstitutional the present WMCP
FTAA for violation of the same Section 2, Article XII of the
1987 Constitution. However, WMCP may negotiate with the
Philippine Government for a new mineral agreement covering
the same area consistent with this Decision.
339
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
DISSENTING OPINION
CARPIO-MORALES, J.:
Regrettably, a majority of the members of this Court has voted
to reverse its January 27, 2004 Decision in La Bugal-B’Laan
Tribal Association, Inc. v. Ramos by which it declared certain
1
provisions of the Mining Act of 1995 on Financial or Technical
2 3
Assistance Agreements (FTAAs), the related provisions of
Department of Environment and Natural Resources
Administrative Order 96-40 (DAO No. 96-40), and the March
22, 1995 Financial and Technical Assistance Agreement
(FTAA) executed between the Government of the Republic of
the Philippines and WMC Philippines, Inc. (WMCP) in
violation of Section 2, Article XII of the Constitution.
Because I find that: (1) the “agreements . . . involving either
technical or financial assistance” contemplated by the fourth
paragraph of Section 2, Article XII of the 1987 Constitution
are distinct and dissimilar from the “service contracts” under
the 1973 Constitution; and (2) these certain provisions of the
Mining Act, its implementing rules, and the WMCP FTAA
unconstitutionally convey beneficial ownership and control
over Philippine mineral and petroleum resources to foreign
contractors, I most respectfully dissent.
Antecedents
By motion, private respondent WMCP seeks a reconsideration
of this Court’s Decision, it arguing essentially that FTAAs are
the same as service contracts which were sanctioned under the
1973 Constitution.
_______________
1 421 SCRA 148 (2004).
2 Section 3 (aq); Section 23; Sections 33-41; Section 56; Section 81, pars. 2-
3; and Section 90.
3 Rep. Act No. 7942 (1995).
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340 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
By Resolution of June 22, 2004, this Court, upon
motion, impleaded Philippine Chamber of Mines (PCM), as
4
respondent-in-intervention. Intervenor PCM argues that the
“agreements” referred to in paragraph 4 of Section 2, Article
XII of the Constitution were intended to involve or include the
“service contracts” provided for in the 1973 Constitution.
The parties were, on June 29, 2004, heard on oral
arguments during which two major issues were tackled: first,
the proper interpretation of the phrase “agreements . . .
involving either technical or financial assistance” in Section 2,
Article XII of the Constitution, and second, mootness.
Thereafter, the parties submitted their respective
memoranda, as required by Resolution of this Court. However,
despite the verbal request of Associate Justice Artemio V.
Panganiban during the oral arguments, intervenor PCM 5
failed to submit along with its memorandum any documents
to establish international mining practices, particularly in
developing countries.
Issues for Resolution
The majority opinion holds that the resolution of the Motions
for Reconsideration in this case should be confined to the
issues taken up during the oral arguments on June 29, 2004.
These were: (1) the proper interpretation of the phrase
“agreements . . . involving either technical or financial
assistance” in Section 2, Article XII of the Constitution, and
(2) mootness.
_______________
4 In its Motion for Intervention, intervenor PCM alleged that the Court’s
January 27, 2004 Decision in this case would adversely affect the ability of
domestic mining companies to contract with their foreign counterparts with
regard to mining operations beyond the resources of the local companies.
(Rollo, at p. 2096.)
5 Transcript of Stenographic Notes, June 29, 2004 (TSN) at p. 129.
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
It further holds that the issue of whether the Mining Act and
the WMCP FTAA are manifestly disadvantageous to the
government could not be passed upon because the same was
supposedly not raised in the original petition.
These rulings, while well intentioned, cannot be accepted.
First, there is no rule of procedure, whether in Rule 52 or
elsewhere, which restricts the resolution of a case to the issues
taken up in the oral arguments. The reason is obvious. The
issues for resolution in any given case are determined by the
conflicting arguments of the parties as set forth in their
pleadings. On the other hand, the matters to be taken up in
an oral argument may be limited, by order of the court, to only
such points as the court may deem necessary. Thus, Section 1
of Rule 49 provides:
Section 1. When allowed.—At its own instance or upon motion of a
party, the court may hear the parties in oral argument on the
merits of a case, or on any material incident in connection
therewith.
The oral argument shall be limited to such matters as the
court may specify in its order or resolution. (Emphasis
supplied)
A narrow delimitation of matters to be taken up during oral
argument is a matter of practical necessity since often not all
the relevant issues can be thoroughly discussed without
unduly imposing on the time of the Court. However, unlike a
pre-trial order, the delimitation does not control or limit the
6
issues to be resolved. These issues may be subject matter of
the parties’ memoranda, as in this case.
 Second, as noted in the Decision, the issue of whether the
7 x x x in signing and promulgating DENR Administrative Order
Mining Act and the WMCP FTAA afford the State a just
_______________
6Rules of Court, Rule 18, sec. 7.
7La Bugal-B’Laan Tribal Association, Inc. v. Ramos, 421 SCRA 148 (2004).
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342 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
share in the proceeds of its natural resources was in fact raised
by the petitioners, viz.:
Petitioners claim that the DENR Secretary acted without or in
excess of jurisdiction:
I VOL. 445, DECEMBER 1, 2004
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 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;
II
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;
III
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
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;
V
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 priority to foreign and fully foreign
owned corporations in the exploration, development and utilization
of mineral resources contrary to Article XII of the Constitution;
343
343
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
VI
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 inequitable sharing of
wealth contrary to Sections [sic] 1, paragraph 1, and Section 2,
paragraph 4[,] [Article XII] of the Constitution;
VII
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
Corporation Philippines, Inc. because the same is illegal and
unconstitutional. (Emphasis and underscoring supplied)
8
Indeed, this Court expressly passed upon this issue in the
Decision when it held that:
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 contractorscontrary to xxx
the fundamental law. (Emphasis and italics supplied)
9 One mischief inherent in past service contracts was the practice of
Moreover, the issue of whether the State is deprived of its just transfer pricing. UNCTAD defines this as the “pricing of transfers of goods,
services and other assets within a TNC network.” If government does not
share in the proceeds from mining was touched upon by the control the exploration, development and utilization of natural resources,
parties in their memoranda. Thus, respondent WMCP argues then the intra-transnational corporation pricing of expenditures may not
that: become transparent. (Emphasis supplied; footnotes omitted)
11

Section 10.2 (a) of the COLUMBIO FTAA does not prohibit the State
from partaking of the fruits of the exploration. In fact, Section 7.7 of _______________
the COLUMBIO FTAA provides:
10 Memorandum (In support of WMCP’s Motion and Supplemental Motion
“7.7 Government Share
for Reconsideration) at pp. 42-43.
11 Final Memorandum for the Petitioners at p. 9.

_______________
345
8Id., at pp. 173-174. VOL. 445, DECEMBER 1, 2004 345
9Id., at p. 234. La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
344 In fine, the majority opinion skirts an issue raised in the
344 SUPREME COURT REPORTS ANNOTATED original Petition for Prohibition and Mandamus, passed upon
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos in its Decision of January 27, 2004 and argued by the parties
From the Commencement of Commercial Production, the Contractor shall in the present Motion for Reconsideration.
pay a government share of sixty per centum (60%) of Net Mining Revenues,
calculated in accordance with the following provisions (the “Government
Instead, I find that the myriad arguments raised by the
Share”). The Contractor shall be entitled to retain the balance of all parties may be grouped according to two broad categories:
revenues from the Mining Operations.” first, the arguments pertaining to the constitutionality of
In other words, the State is guaranteed a sixty per centum (60%) FTAA provisions of the Mining Act; and second, those
share of the Net Mining Revenues, or 60% of the actual fruits of the pertaining to the validity of the WMCP FTAA. Within these
endeavor. This is in line with the intent behind Section 2 of categories, the following issues are submitted for resolution:
Article XII that the Filipino people, as represented by the (1) whether in invalidating certain provisions of the Mining
State, benefit primarily from the exploration, Act a non-justiciable political question is passed upon; (2)
development, and utilization of the Philippines’ natural
whether the FTAAs contemplated in Section 2, Article XII of
resources. (Emphasis and italics supplied)
10

the 1987 Constitution are identical to, or inclusive of, the

while the petitioners, for their part, claim:
For instance, government share is computed on the basis of net
“service contracts” provided for in the 1973 Constitution; (3)
mining revenue. Net mining revenue is gross mining revenue less, whether the declaration of the unconstitutionality of certain
among others, deductible expenses. Some of the allowable provisions of the Mining Act should be reconsidered; (4)
deductions from the base amount to be used to compute government whether the question of validity of the WMCP FTAA was
share are suspicious. The WMCP FTAA contract, for instance, rendered moot before the promulgation of the Decision; and (5)
allows expenditures for development “outside the Contract Area,” whether the decision to declare the WMCP FTAA
consulting fees for work done “outside the Philippines,” and the unconstitutional and void should be reconsidered.
“establishment and administration of field offices including
administrative overheads incurred within and outside the
Philippines.”
 Following the foregoing framework of analysis, I now
proceed to resolve the issues raised in the motion for
reconsideration.
I Constitutionality of the Philippine Mining Act of 1995
The issues presented constitute justiciable questions.
Contrary to the posture of respondent WMCP, this Court did
not tread on a political question in rendering its Decision of
January 27, 2004.
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346 SUPREME COURT REPORTS ANNOTATED
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The Constitution delineates the parameters of the powers of
the legislative, the executive and the judiciary. Whether the
12
first and second great departments of government exceeded
those parameters is the function of the third. Thus, the 13
Constitution defines judicial power to include “the duty . . . to
determine whether or not there has been a grave abuse of
discretion amounting to lack or excess of jurisdiction on the
part of any branch or instrumentality of the Government.” 14
Judicial power does not extend to political questions, which
are concerned with issues dependent upon the wisdom, not the
legality, of a particular measure. The reason is that, under
15
our system of government, policy issues are within the domain
of the political branches of government and of the people
themselves as the repository of all state power. In short, the
16
judiciary does not settle policy issues.17
The distinction between a truly political question and an
ostensible one lies in the answer to the question of whether
there are constitutionally imposed limits on powers or
functions conferred upon political bodies. If there are
18
constitutionally imposed limits, then the issue is justiciable,
and a court is duty-bound to examine whether the branch or
instrumentality of the government properly acted within those
limits. 19
Respondent WMCP argues that the “exploration,
development, and utilization of natural resources are matters
of pol-
_______________
12 Angara v. Electoral Commission, 63 Phil. 139, 156-158 (1936).
13 Bengson v. Senate Blue Ribbon Committee, 203 SCRA 767, 775-776
(1991).
14 CONST., art. VIII, sec. 1.
15 Tañada v. Cuenco, 103 Phil. 1051, 1067 (1957).
16 Valmonte v. Belmonte, Jr., 170 SCRA 256, 268 (1989).
17 Ibid.
18 Francisco, Jr. v. House of Representatives, 415 SCRA 44, 143-151 (2003).
19 Ibid.
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
icy, in other words, political matters or questions,” over which
this Court has no jurisdiction.
Respondent is mistaken. The questions involved in this
case are not political. The provisions of paragraph 4, Section 2
of Article XII of the Constitution, including the phrase
“agreements . . . involving either technical or financial
assistance,” incorporate limitations on the scope of such
20
agreements or FTAAs. Consequently, they constitute
limitations on the powers of the legislative to determine their
terms, as well as the powers of the Executive to enter into
them. In its Decision, this Court found that, by enacting the
objectionable portions of the Mining Act and in entering into
the subject FTAA, the Congress and the President went
beyond the constitutionally delimited scope of such
agreements and thereby transgressed the boundaries of their
constitutional powers.
The “agreements” contemplated in paragraph 4, Section
2,
Article XII of the Constitution are distinct and
dissimilar from the old “service contracts.”
The majority and respondents share a common thesis: that the
fourth paragraph of Sec. 2, Article XII contemplates not only
financial or technical assistance but, just like the service
contracts which were allowed under the 1973 Constitution,
management assistance as well.
 The constitutional provision in dispute reads:
Art. XII
National Economy and Patrimony
xxx
_______________
20 Vide: La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at pp.
207-208.
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348 SUPREME COURT REPORTS ANNOTATED
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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 coproduction, 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. (Emphasis and italics supplied)
Its counterpart provision in Article XIV of the 1973
Constitution authorized “service contracts” as follows:
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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, development, 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 and italics
supplied)
Respondent WMCP contends that the fourth paragraph of
Section 2 is an exception to the rule that participation in the
country’s natural resources is reserved to Filipinos. It 21
hastens to add, however, that the word “may” therein is
permissive not restrictive; and that consistent with the
22
provision’s permissive nature, the word “involving” therein
should be construed to mean “to include,” such that the
assistance by foreign corporations should not be confined to
technical or financial, but also to management forms. And it 23
notes that the Constitution used “involving” instead of such
restrictive terms as “solely,” “only,” or “limited to.” 24
To the Office of the Solicitor General (OSG), the intent
behind the fourth paragraph is to prevent the practice under
the 1973 Constitution of allowing foreigners to circumvent the
capitalization requirement, as well as to address the absence
25
of a governing law that led to the abuse of service
contracts. The phrase “technical or financial” is merely for
26
emphasis, the OSG adds, that it is descriptive, not definitive,
of the forms of
_______________
21 Memorandum for WMCP at p. 37.
22 Id., at p. 38.
23 Id., at p. 39.
24 Ibid.
25 Memorandum for Public Respondents at p. 34.
26 Id., at p. 37.
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350 SUPREME COURT REPORTS ANNOTATED
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assistance that the State needs and which foreign corporations
may provide in the large-scale exploration, development and
utilization of the specified resources. Furthermore, the OSG
27
contends that the denomination of the subject FTAA as a
“financial and technical assistance agreement” is a misnomer
and should more properly be called “agreements for large-scale
exploration, development, and utilization of minerals,
petroleum, and other mineral oils.” It argues that the
28
President has broad discretion to enter into any agreement,
regardless of the scope of assistance, with foreign
corporations. Driving its point, the OSG poses: If the framers
29
of the Constitution intended to limit the service of foreign
corporations to “passive assistance,” such as simple loan
agreements, why confine them to large-scale ventures? Why 30
does the Constitution require that such agreements be based
on real contributions to economic growth and general welfare
of the country? Why the condition in the last paragraph of
31
Section 2 that the President report to Congress? Finally, the
32
OSG asserts that these requirements would be superfluous if
the assistance to be rendered were merely technical or
financial. And that it would make more sense if the phrase
33
“agreements . . . involving technical or financial assistance”
were construed to mean the same concept as the service
contracts under the 1973 Constitution.
The OSG’s contentions are complemented by intervenor
PCM which maintains that the FTAA “is an agreement for
[the] rendition of a whole range of services of an integrated
and comprehensive character, ranging from discovery through
development and utilization and production of minerals or
_______________
27 Id., at p. 21.
28 Id., at p. 22.
29 Rollo at pp. 1373-1374.
30 Memorandum for Public Respondents at p. 24.
31 Ibid.
32 Id., at p. 25.
33 Id., at p. 23.
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
petroleum by the foreign-owned corporation.” In fine,34
intervenor posits that the change in phraseology in the 1987
Constitution does not relate to the substance of the
agreement, otherwise, the State itself would be compelled to
35
conduct the exploration, development and utilization of
natural resources, ventures that it is ill-equipped to
undertake. 36
Primary Concepts in Article XII of the Constitution
Before passing upon the foregoing arguments and for better
clarity, it may be helpful to first examine the concepts of (a)
“beneficial ownership,” (b) “full control and supervision,” and
(c) “real contributions to the economic growth and general
welfare of the country” which are at the heart of Section 2,
Article XII of the Constitution.
Beneficial Ownership
Beneficial ownership, as the plain meaning of the words
implies, refers to the right to the gains, rewards and
advantages generated by the property. 37
 The concept is not new, but in fact is well entrenched in the
law of trusts. Thus, while the trustee holds the legal title to
38
_______________
34 Memorandum for Intervenor at p. 7.
35 Statement for Intervenor at p. 1.
36 Memorandum for Intervenor at p. 9.
37 Vide: Black’s Law Dictionary 156 (6th ed., 1991).
38 Article 1440 of the Civil Code provides:
Art. 1440. A person who establishes a trust is called a trustor; one in whom confidence
is reposed as regards property for the benefit of another person is known as the trustee;
and the person for whose benefit the trust has been created is referred to as the
beneficiary.
Justice Jose C. Vitug (ret.) describes a trust relationship as follows:
352
352 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
or ownership of the property entrusted to him, he is
nevertheless not the beneficial owner. Rather, he holds and
administers the property for the benefit of another, called the
beneficiary or the cestui que trust. Hence, the profits realized
from the administration and management of the property by
the trustee, who is the “naked owner,” less any lawful fees due
to the latter, accrue to the cestui que trust, who is the
“beneficial” or “equitable” owner. 39
The foregoing concepts are directly applicable to the
statement in Section 2, Article XII of the Constitution that
“[a]ll 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.”
The words “owned” and “State” should both be understood
on two levels. “Owned” or “ownership” refers to both the legal
title to and the beneficial ownership of the natural resources.
Similarly, “State” should be understood as denoting both the
body politic making up the Republic of the Philippines, i.e., the
Filipino people, as well as the Government which represents
them and acts on their behalf.
Thus, the phrase “natural resources are owned by the
State” simultaneously vests the legal title to the nation’s
_______________
A trust is a juridical relationship that exists between one person having the equitable
title or beneficial enjoyment of property, real or personal, and another having the legal
title thereto. The person who establishes the trust is the trustor (or grantor); one in
whom confidence is reposed as regards property for the benefit of another person is
known as the trustee (fiduciary), and the person for whose benefit the trust has been
created is referred to as the beneficiary (cestui que trust). The Code has adopted the
principles of the general law of trusts, insofar as they are not in conflict with its
provisions, the Code of Commerce, the Rules of Court and special laws. [III J.C. VI-
TUG, CIVIL LAW 175 (2003); citations omitted]
Vide: Black’s Law Dictionary 156 (6th ed., 1991).
39
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VOL. 445, DECEMBER 1, 2004 353
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
natural resources in the Government, and the beneficial
ownership of these resources in the sovereign Filipino people,
from whom all governmental authority emanates. 40
On this point, petitioners and respondent WMCP appear to
be in rare agreement. Thus, petitioners, in their Memorandum
state:
x x x With respect to exploration, development and utilization of
mineral resources, the State should not merely be concerned about
passing laws. It is expected that it holds these natural resources
covered in Article XII, Section 2 in dominium and in trust for
[the] Filipino people. (Emphasis and underscoring supplied;
41
italics in the original)
Respondent WMCP is even more emphatic:
The Regalian Doctrine, as embodied under the Constitution, is a
recognition that sovereignty resides in the Filipino people, and the
prime duty of government or the State is to serve and protect the
people. Thus, the ownership of natural resources by the State
under Section 2, Article XII of the Constitution is actually a
beneficial trust in favor of the Filipino people.
Stated differently, it is the Filipino people who own the
nation’s natural resources, and the State is merely
the guard-ian-in-trustthereof. (Emphasis and underscoring
42
supplied; italics in the original; citations omitted)
Clearly, in the exploration, development and utilization of the
nation’s natural resources, the Government is in a position
analogous to a trustee, holding title to and managing these
resources for the benefit of the Filipino people, including
future generations. As the trustee of the sovereign, the
43
Government has a fiduciary duty to ensure that the gains,
rewards and advantages generated by the Philippines’ natu-
_______________
40 CONST., art. II, sec. 1.
41 Memorandum for Petitioners at p. 11.
42 Memorandum for WMCP at p. 59.
43 Oposa v. Factoran, Jr., 224 SCRA 792, 803 (1993).
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354 SUPREME COURT REPORTS ANNOTATED
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ral resources accrue to the benefit of the Filipino people.
Corollary to this, the Government cannot, without violating its
sacred trust, enter into any agreement or arrangement which
effectively deprives the Filipino people of their beneficial
ownership of these resources—e.g., when it enters into an
agreement whereby the vast majority of the resources, or the
profit generated from the resources, is bargained away in
favor of a foreign entity.
Full Control and Supervision
In the context of its role as trustee, the Government’s “full
control and supervision” over the exploration, development
and utilization of the nation’s natural resources, in its most
basic and fundamental sense, is accomplished by maintaining
a position whereby it can carry out its fiduciary duty to protect
the beneficial interest of its cestui que trust in these resources.
Significantly, Section 2, Article XII of the Constitution
provides that the Government may undertake the exploration,
development and utilization of these resources by itself or
together with a third party. In the first case, where no third
44
party is involved, the Government’s “full control and
supervision” over the resources is easily achieved. In the
second case, where the third party may naturally be expected
to seek participation in the operation of the venture and ask
for compensation in proportion to its contribution(s), the
Government must still maintain a position vis-à-vis its third
party partner whereby it can adequately protect the interest
of the Filipino people, who are the beneficial owners of the
resources.
By way of concrete example, the Government may enter
into a joint venture agreement with a third party to explore,
45
develop or utilize certain natural resources through a jointly
_______________
44Vide: Miners Association of the Philippines, Inc. v. Factoran, Jr., 240
SCRA 100, 106 (1995).
45 Vide: Rep. Act No. 7942 (1995), sec. 26 (c).
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VOL. 445, DECEMBER 1, 2004 355
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
owned corporation, wherein the government has the
controlling interest. Under this arrangement, the Government
would clearly be in a position to protect the interest of the
beneficial owners of the natural resources.
In the alternative, as suggested by the OSG, the 46
Government may be allowed one or more directors (holding
nominal shares) on the governing board and executive
committee(s) of the private corporation contracted to
undertake mining activities in behalf of the government.
Depending on the by-laws of the private corporation, strategic
representation of the Government in its governing board and
executive committee(s) may afford sufficient protection to the
interest of the people.
However, Section 2, Article XII of the Constitution does not
limit the options available to the Government, when dealing
with prospective mining partners, to joint ventures or
representation in the contractor’s board of directors. To be
sure, the provision states that the Government may enter into
“co-production, joint venture, or production-sharing
agreements with Filipino citizens, or corporations or
associations,” or, for large scale exploration, development and
utilization, “agreements with foreign-owned corporations
involving either technical or financial assistance.” But
whatever form the agreement entered into by the Government
and its third party partner(s) may take, the same must
contain, as an absolute minimum, provisions that ensure that
the Government can effectively perform its fiduciary duty to
safeguard the beneficial interest of the Filipino people in their
natural resources, as mandated by the Constitution.
Real Contributions to the Economy and the General
Welfare of the Country
Section 2, Article XII likewise requires that “agreements . . .
involving financial or technical assistance” be “based on
_______________
Memorandum for Public Respondents at p. 49.
46
356
356 SUPREME COURT REPORTS ANNOTATED
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real contributions to the economic growth and general
welfare of the country.” This provision articulates the value
which the Constitution places on natural resources, and
recognizes their potential benefits. It likewise acknowledges
the fact that the impact of mining operations is not confined to
the economy but, perhaps to a greater extent, affects
Philippine society as a whole as well.
“Minerals, petroleum and other mineral oils,” are part of
the non-renewable wealth of the Filipino people. By pursuing
large scale exploration, development and utilization of these
resources, the State would be allowing the consumption or
exhaustion of these resources, and thus deprive future Filipino
generations the enjoyment thereof. Mining—especially large-
scale mining—often results in the displacement of local
residents. Its negative effects on the environment are well-
documented. 47
_______________
For instance an article written by Patricia Thompson describes the 1996
47
Marcopper environmental disaster:
Between 2.4 and 4 million tons of tailings solids escaped from an open pit impoundment
at Marcopper’s copper mine on the island of Marinduque in the Philippines on March
24, 1996, when a concrete drainage plug gave way. The sedimentladen water flowed into
the Boac River system at rates of 5 to 10 cubic meters per second. Although “independent
studies by the United Nations and the Philippine Department of Science and Technology
have concluded that the escaped material is not toxic,” the increased sediment load in
the Boac River led to substantial salt and freshwater kills. An impact assessment
estimated that ten years would elapse before freshwater fish would be viable in the river
again and predicted a seventy percent reduction in the “salt water fish catch from the
mouth of the Boac River,” however, there are some indications that this initial estimate
may be too high. Although the Boac River itself is not a drinking water source, the
release threatened potable water supplies along the banks of the river and necessitated
airdrops of food and medical supplies. [P. Thompson, II. Min
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VOL. 445, DECEMBER 1, 2004 357
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Thus, for benefits from the exploration, development and
utilization of these resources to be real, they must yield profits
over and above 1) the capital and operating costs incurred, 2)
the resulting damage to the environment, and 3) the social
costs to the people who are immediately and adversely affected
thereby.
Moreover, the State must ensure that the real benefits from
the utilization of these resources are sufficient to offset the
corresponding loss of these resources to future
generations. Real benefits are intergenerational benefits
because the motherland’s natural resources are the birthright
not only of the present generation of Filipinos but of future
generations as well. 48
The requirement of real benefit is applicable even when the
exploration, development and utilization are being
undertaken directly by the Government or with the aid of
Filipinos or Filipino corporations. But it takes on greater
significance when a foreign entity is involved. In the latter
instance, the foreign entity would naturally expect to be
compensated for its assistance. In that event, it is inescapable
that a foreigner would be benefiting from an activity
(i.e. mining) which also results in numerous, serious and long
term harmful consequences to the environment and to
Philippine society.
Moreover, as recognized by the 1935 Constitutional
Convention, foreign involvement in the exploitation of
Philippine natural resources has serious implications on
national security. As recounted by delegate Jose Aruego:
The nationalization of the natural resources was also intended as
an instrument of national defense. The Convention felt that to
permit foreigners to own or control the natural resources
would be to weaken the national defense. It would be
making possible the gradual extension of foreign influence
into our
_______________
ing Criminal Sanctions Sought in Philippine Mine Tailings Spill, 1996 COLO. J. INT’L
ENVT’L. L. & POL’Y 54 (1996).]
48 Vide: Oposa v. Factoran, Jr., supra.
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358 SUPREME COURT REPORTS ANNOTATED
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politics, thereby increasing the possibility of foreign control.
xxx
Not only these. The nationalization of the natural
resources, it was believed, would prevent making the
Philippines a source of international conflicts with the
consequent danger to its internal security and
independence. For unless the natural resources were
nationalized, with the nationals of foreign countries having the
opportunity to own or control them, conflicts of interest among them
might arise inviting danger to the safety and independence of the
nation. (Emphasis supplied)
49
Significantly, and contrary to the posture of the OSG, it is
immaterial whether the foreign involvement takes the form of
“active” participation in the mining concern or “passive”
assistance such as a foreign mining loan or the licensing of
mining technology. Whether the foreign involvement is
passive or active, the fact remains that the foreigner will
expect to be compensated and, as a necessary consequence, a
fraction of the gains, rewards and advantages generated by
Philippine natural resources will be diverted to foreign hands
even as the long term pernicious “side effects” of the mining
activity will be borne solely by the Filipino people.
Under such circumstances, the Executive, in determining
whether or not to avail of the assistance of a foreign
corporation in the large scale exploration, development and
utilization of Philippine natural resources, must carefully
weigh the costs and benefits if it is to faithfully discharge its
fiduciary duty to protect the beneficial interest of the Filipino
people in these resources.
These same considerations likewise explain why the last
paragraph of Section 2 mandates that the President “notify
the Congress of every contract entered into in accordance with
this provision, within thirty days from its execution.” The
_______________
49 II J. Aruego, The Framing of the Philippine Constitution 605-606
(1949); vide: La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at p.
192, note 111.
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VOL. 445, DECEMBER 1, 2004 359
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Constitution requires that the Legislative branch, which is
perceived to be more broadly representative of the people and
therefore more immediately sensitive to their concerns, be
given a timely opportunity to scrutinize and evaluate the
Executive’s decision.
With these concepts in mind, I now turn to what I believe
to be the proper interpretation of “agreements . . . involving
either technical or financial assistance” in paragraph 4 of
Section 2, Article XII of the Constitution.
Construction of paragraph 4, Section 2, Article XII of the
Constitution
The suggestion that the avoidance of the term “service
contracts” in the fourth paragraph is to prevent the
circumvention, prevalent under the 1973 Constitution, of the
60-40 capital requirement does not persuade, it being too
narrow an interpretation of that provision. If that were the
only purpose in the change of phraseology, this Court
reiterates, there would have been no need to replace the term
“service contracts” with “agreements . . . involving either
technical or financial assistance.”
The loophole in the 1973 Constitution that sanctioned
dummy-ism is easily plugged by the provision in the present
Constitution that the President, not Congress or the Batasang
Pambansa (under the 1973 Constitution), may enter into
either technical or financial agreements with foreign
corporations. The framers then could have easily employed the
more traditional term “service contracts” in designating the
agreements contemplated, and thus obviated confusion,
especially since the term was employed by the legal system
then prevailing and had a settled acceptation.
50
_______________
50Vide: Pres. Decree No. 87 (Amending Presidential Decree No. 8 issued on
October 2, 1972, and Promulgating an Amended Act to Promote the Discovery
and Production of Indigenous Petroleum and
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360 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
The other proffered raison d’être of the fourth
paragraph, i.e. to address the absence of a governing law that
led to the abuse of service contracts, is equally unpersuasive.
In truth, there were a host of laws governing service contracts
pertaining to various natural resources, as this Court noted
when it traced the history of Section 2, Article XII in its
Decision. 51
Respondent WMCP nevertheless correctly states that the
fourth paragraph establishes an exception to the rule limiting
the exploration, development and utilization of the nation’s
natural resources to Filipinos. As an exception, however, it is
illogical to deduce that the provision should be interpreted
liberally, not restrictively. It bears repeating that the
provision, being an exception, should be strictly construed
against foreign participation.
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.” Commissioner Nolledo also
remarked that “enter-ing 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
_______________
Appropriate Funds therefor), Pres. Decree No. 151 (Allowing Citizens of the
Philippines or Corporations or Associations at least Sixty Per Centum of the
Capital of which is Owned by such Citizens to Enter into Service Contracts with
Foreign Persons, Corporations for the Exploration, Development, Exploitation or
Utilization of Lands of the Public Domain, amending for the purpose certain
provisions of Commonwealth Act No. 141), Pres. Decree No. 463 (Providing for A
Modernized System of Administration and Disposition of Mineral Lands and to
Promote and Encourage the Development and Exploitation thereof), and Pres.
Decree No. 1442 (An Act to Promote the Exploration and Development of
Geothermal Resources).
51 La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at pp. 199-205 &
233, note 252.
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
possible, to stringent rules.” 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. (Emphasis and italics
52
supplied; citations omitted).
That the fourth paragraph employs the word “may” does not
make it non-restrictive. Indeed, “may” does make the
provision permissive, but only as opposed to mandatory, and 53
operates to confer discretion upon a party. Thus, as used in
54
the fourth paragraph, “may” provides the President with
the option to enter into FTAAs. It is, however, not incumbent
upon the President to do so for, as owner of the natural
resources, the “State [itself] may directly undertake such
activities.” If the President opts to exercise the prerogative to
55
enter into FTAAs, the agreement must conform to the
restrictions laid down by Section 2, including the scope of the
assistance, which must be limited to financial or technical
forms.
“May” in the fourth paragraph, therefore, should be
understood in the same sense as it is used in the first
paragraph, that is, that the State “may enter into . . .
agreements with Filipino citizens, or corporations or
association at least sixty per centum of whose capital is owned
by such citizens.”
The majority, however, opines that the “agreements
involving either technical or financial assistance” referred to
in paragraph 4 of Section 2 of Article XII of the 1987
Constitution are indeed service contracts. In support of this
conclusion, the majority maintains that the use of the phrase
“agreements . . . involving either technical or financial
assistance” does not indicate the intent to exclude other modes
of assistance because the use of the word “involving” signifies
_______________
52 Id., at p. 234.
53 Caltex (Philippines), Inc. v. Court of Appeals, 212 SCRA 448, 463 (1992).
54 Capati v. Ocampo, 113 SCRA 794, 796 (1982).
55 CONST., art. XII, sec. 2, first par.
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362 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
the possibility of the inclusion of other forms of assistance or
activities. And it proffers that the word “involving” has three
connotations that can be differentiated as follows: (1) the sense
of concerning, having to do with, or affecting; (2) entailing,
requiring, implying or necessitating; (3) including, containing
or comprising. None of these three connotations, it is
contended, convey a sense of exclusivity. Thus, it concludes
that had the framers intended to exclude other forms of
assistance, they would have simply said “agreements for
technical or financial assistance” as opposed to “agreements
including technical or financial assistance.”
To interpret the term “involving” in the fourth paragraph
to mean “including,” as the majority contends, would run
counter to the restrictive spirit of the provision. Notably, the
1987 Constitution uses “involving” not “including.” As
admitted in the majority opinion, the word “involve” may also
mean concerning, having to do with or affecting. Following the
majority opinion’s own methodology of substitution,
“agreements . . . involving either technical or financial
assistance” means “agreements . . . concerning either technical
or financial assistance.” And the word “concerning” according
to Webster’s Third New International Dictionary means
“regarding”, “respecting” or “about.” To reiterate, these terms
indicate exclusivity. More tellingly, the 1987 Constitution not
only deleted the term “management” in the 1973
Constitution, but also the catch-all phrase “or other forms of
assistance,” thus reinforcing the exclusivity of “either
56
technical or financial assistance.”
That the fourth paragraph does not employ the terms
“solely,” “only,” or “limited to” to qualify “either technical or
financial assistance” does not detract from the provision’s
restrictive nature. Moreover, the majority opinion’s
illustration conveniently omits “either . . . or.” As Senior
Associate Justice Reynato S. Puno pointed out during the oral
argu-
_______________
56La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at pp. 208 &
218-222.
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
ments, the use of the disjunctive “either . . . or” denotes
restriction. 57
 According to the Penguin Dictionary, the word “either” may
be used as (1) an adjective or (2) a pronoun or (3) a conjunction
or (4) an adverb. As an adjective, the word “either” means (1)
any one of two; one or the other; or (2) one and the other; each.
As a pronoun, the word “either” means the one or the other. As
a conjunction, the word “either” is used before two or more
sentence elements of the same class or function joined usually
by “or” to indicate what immediately follows is the first of two
or more alternatives. Lastly, as an adverb, “either” is used for
emphasis after a negative or implied negation (i.e. for that
matter or likewise). The traditional rule holds that “either”
should be used only to refer to one of two items and that “any”
is required when more than two items are involved. However,
58
modern English usage has relaxed this rule when “either” is
used as a conjunction. Thus, the word “either” may indicate
59
the choice between two or more possibilities.
“Either” in paragraph 4, section 2, Article XII, is clearly
used as a conjunction, joining two (and only two) concepts—
financial and technical. The use of the word “either” clearly
limits the President to only two possibilities, financial and
technical assistance. Other forms of assistance are plainly not
allowed, since only the words “financial and technical” follow
the word “either.”
In accordance with the intent of the provision, “agreements
. . . involving either technical or financial” is deemed
restrictive and not just descriptive. It is a condition, a
limitation, not a mere description.
The OSG’s suggestion that the President may enter into
“any” agreement, the scope of which may go beyond technical
_______________
57 TSN at pp. 37-40.
58 http://dictionary.reference.com/search?q=either
59 Ibid.
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364 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
or financial assistance, with a foreign-owned corporation, does
not impress. The first paragraph of Section 2 limits contracts
with Filipino citizens or corporations to co-production, joint
venture or production-sharing agreements. To subscribe to the
OSG’s theory would allow foreign-owned corporations
participation in the country’s natural resources equal to,
perhaps even greater than, that of Filipino citizens or
corporations.
The OSG cites the Separate Opinion of Justice Jose C.
Vitug, now retired, who proposed that, on the premise that the
State itself may undertake the exploration, development and
utilization of natural resources, a foreign-owned corporation
may engage in such activities in behalf of the State:
The Constitution has not prohibited the State from itself exploring,
developing, or utilizing the country’s natural resources, and, for this
purpose, it may, I submit, enter into the necessary agreements with
individuals or entities in the pursuit of a feasible operation.
The fundamental law is deemed written in every contract. The
FTAA entered into by the government and WMCP recognizes this
vital principle. Thus, two of the agreement’s clauses provide:
“WHEREAS, the 1987 Constitution of the Republic of the
Philippines provides in Article XII, Section 2 that all lands of the
public domain, waters, minerals, coal, petroleum, and other natural
resources are owned by the State, and that the exploration,
development and utilization of natural resources shall be under the
full control and supervision of the State; and
“WHEREAS, the Constitution further provides that the
Government may enter into agreements with foreign-owned
corporations involving either technical or financial assistance for
large scale exploration, development and utilization of minerals.”
The assailed contract or its provisions must then be read in
conformity with abovementioned constitutional mandate. Hence,
Section 10.2(a) of the FTAA, for instance, which states that “the
Contractor shall have the exclusive right to explore for, exploit,
utilize, process, market, export and dispose of all minerals and
products and by-products thereof that may be derived or produced
from the Contract
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 La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Area and to otherwise conduct Mining Operations in the Contract
Area in accordance with the terms and conditions hereof,” must be
taken to mean that the foregoing rights are to be exercised by WMCP
for and in behalf of the State and that WMCP, as the Contractor,
would be bound to carry out the terms and conditions of the
agreement acting for and in behalf of the State. In exchange for the
financial and technical assistance, inclusive of its services, the
Contractor enjoys an exclusivity of the contract and a corresponding
compensation therefor. (Italics supplied).
60
This proposition must be rejected since it sanctions the
circumvention, if not outright violation, of the fourth
paragraph by allowing foreign corporations to render more
than technical or financial assistance on the pretext that it is
an agent of the State. Quando aliquid prohibitur ex directo,
prohibitur et per obliquum.What is prohibited directly is
prohibited indi-rectly. Further, the proposition lends itself
61
to mischievous consequences. If followed to its logical
conclusion, nothing would stop the State from engaging the
services of a foreign corporation to undertake in its behalf the
exploration, development and utilization of all other natural
resources, not just “minerals, petroleum and mineral oils,”
even on a small scale, not just “large-scale.”
The present Constitution restricts foreign involvement to
large-scale activities because the idea is to limit the
participation of foreign corporations only to areas where they
are needed.
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
_______________
60 La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at pp. 252-253.
61 Laurel v. Civil Service Commission, 203 SCRA 195, 209 (1991).
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366 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
with . . . corporations or associations at least sixty percent 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 first 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 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. (Emphasis and italics supplied)
62
The intent is to allow Filipinos to benefit from Filipino
resources.
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 me three minutes.
_______________
Record of the Constitutional Commission 316-317.
62
367
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
The Commission had just approved the Preamble. In the Preamble
we clearly stated there 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 the 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. (Emphasis and italics supplied)
63
The intent loses all significance if foreign-owned corporations
are likewise allowed to participate even in small or medium-
scale ventures.
_______________
Id., at pp. 358-359.
63
368
368 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Thus, in keeping with the clear intent and rationale of the
Constitution, financial or technical assistance by foreign
corporations are allowable only where there is no Filipino or
Filipino-owned corporation (including corporations at least
60% of the capital of which are owned by Filipinos) which can
provide the same or similar assistance.
To reiterate, the over-arching letter and intent of the
Constitution is to reserve the exploration, development and
utilization of natural resources to Filipinos.
The justification for foreign involvement in the exploration,
development and utilization of natural resources was that
Filipino nationals or corporations may not possess the
necessary capital, technical knowledge or technology to mount
a large scale undertaking. In the words of the “Draft of the
1986 U.P. Law Constitution Project” (U.P. Law Draft) which
was taken into consideration during the deliberation of the
CONCOM: 64
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 x x x (Emphasis and italics supplied)
65
Thus, the contention that Section 2, Article XII allows for any
agreement for assistance by a foreign corporation “so long as
such assistance requires specialized knowledge or skills,
_______________
La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at p. 224.
64
I DRAFT PROPOSAL OF THE 1986 U.P. LAW CONSTITUTION
65
PROJECT, ARTICLE XV at pp. 12 -13.
 369
VOL. 445, DECEMBER 1, 2004 369
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
and are related to the exploration, development and
utilization of mineral resources” is erroneous. 66
Where a foreign corporation does not offer financial or
technological assistance beyond the capabilities of its
Philippine counterparts, an FTAA with such a corporation
would be highly questionable. Similarly, where the scope of
the undertaking does not qualify as “large scale,” an FTAA
with a foreign corporation is equally suspect.
“Agreements” in Section 2, Article XII do not include
“service contracts.”
This Court’s ruling in the Decision under reconsideration that
the agreements involving either technical or financial
assistance contemplated by the 1987 Constitution are
different and dissimilar from the service contracts under the
1973 Constitution must thus be affirmed. That there is this
difference, as noted in the Decision, is gathered from the
change in phraseology. There was no need to employ strongly
67
prohibitory language, like that found in the Bill of Rights. For
the framers to expressly prohibit “management and other
forms of assistance” would be redundant inasmuch as the
elimina-
_______________
La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at pp. 217-218.
66
370 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
tion of such phrase serves the same purpose. The deletion is
simply too significant to ignore and speaks just as
profoundly—it is an outright rejection.
It bears noting that the fourth paragraph does not employ
the same language adopted in the first paragraph, which
specifically denominates the agreements that the State may
enter into with Filipinos or Filipino-owned corporations. The
fourth paragraph does not state “The President may also enter
into co-production, joint venture, or production-sharing
agreements with foreign-owned corporations for large-scale
exploration, development, and utilization of minerals,
petroleum, and other mineral oils . . . .” On the other hand, the
fourth paragraph cannot be construed as a grant of boundless
discretion to the President to enter into any agreement
regardless of the scope of assistance because it would result in
a bias against Filipino citizens and corporations.
On this point, the following observations from the U.P. Law
Draft on the odious and objectionable features of service
68
contracts bear restating:
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

67 Id., at pp. 208 & 218-222.

68 Vide: Section 1 (“No person shall be deprived of life, liberty or property
without due process of law, nor shall any person be denied of the equal
protection of the laws.”); Section 4 (“No law shall be passed abridging the
freedom of speech, of expression, or of the press, or the right of the people
peaceably to assemble and petition the government for redress of grievances.”);
Section 5 (“No law shall be made respecting an establishment of religion, or
prohibiting the exercise thereof. The free exercise and enjoyment of religious
profession and worship, without discrimination or preference, shall forever be
allowed. No religious test shall be required for the exercise of civil or political
rights.”)
370
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
371
VOL. 445, DECEMBER 1, 2004 371
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
nationalization or Filipinization of the exploitation of our natural
resources. (Emphasis supplied)
69
Furthermore, Professor Pacifico A. Agabin, a member of the
working group of the U.P. Law Constitution Project and now
counsel for intervenor PCM, stated in his position paper:
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 [agreements]—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 entity is just a
pure contractor instead of the beneficial owner of our economic
resources. (Emphasis & italics supplied),
70
indicating that the proposed financial or technical assistance
agreements are contract forms different from the 1973
Constitution service contracts.
Thus the phrase “agreements with foreign-owned
corporations involving either technical or financial assistance”
in Section 2, Article XII of the Constitution must be
interpreted as restricting foreign involvement in the
exploration, development and utilization of natural resources
to large scale undertakings requiring
foreign financial or technical assis-
_______________
69 I DRAFT PROPOSAL OF THE 1986 U.P. LAW CONSTITUTION
PROJECT, ARTICLE XV at pp. 11-12.
70 P.A. Agabin, Service Contracts: Old Wines in New Bottles?, II DRAFT
PROPOSAL OF THE 1986 U.P. LAW CONSTITUTION PROJECT 16, cited
in La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at p. 229.
372
372 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
tance and not, as alleged by respondents, inclusive of any
possible agreement under the sun.
The majority however argues that the deletion or omission
from the 1987 Constitution of the term “service contracts”
found in the 1973 Constitution does not sufficiently prove the
drafters’ intent to exclude foreigners from management since
such intent cannot be definitively and conclusively
established. This argument overlooks three basic principles of
statutory construction.
First, casus omisus pro omisso habendus est. As recently
71
as 2001 in Commission on Audit of the Province of Cebu v.
Province of Cebu, this Court held that a person, object or
72
thing omitted from an enumeration must be held to have been
omitted intentionally. That there is a difference between
73
technical or financial assistance contemplated by the 1987
Constitution and the service contracts under the 1973
Constitution is gathered from the omission of the phrase
“management or other forms of assistance.”
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 would 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. 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 render the
_______________
71 A case omitted is to be held as intentionally omitted. [Black’s Law
Dictionary 219 (6th ed., 1991)]
72 371 SCRA 196 (2001).
73 Id., at p. 205.
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VOL. 445, DECEMBER 1, 2004 373
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
change in phraseology meaningless. (Emphasis 74 and italics
supplied; citation omitted)
Second, expressio unius est exclusio alterius. The express 75
mention of one person, thing, act, or consequence excludes all
others. 76
Third and lastly, expressium facit cessare tacitum. What is 77
expressed puts an end to that which is implied. Since the 78
_______________
74 La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at p. 220.
75 The expression of one thing is the exclusion of another. [Black’s Law
Dictionary 581 (6th ed., 1991)]
76 Vide: Canet v. Decena, G.R. No. 155344, January 20, 2004, 420 SCRA
388; Commissioner of Internal Revenue v. Michel J. Lhuiller Pawnshop,
Inc., 406 SCRA 178, 186 (2003); National Power Corporation v. City of
Cabanatuan, 401 SCRA 259, 280 (2003); Malinias v. Commission on
Elections, 390 SCRA 480, 491 (2002); Integrated Bar of the Philippines v.
Zamora, 338 SCRA 81, 109 (2000); People v. Mamac, 332 SCRA 547, 556
(2000); Mathay, Jr. v. Court of Appeals, 320 SCRA 703, 711 (1999); Miranda v.
Abaya, 311 SCRA 617, 624 (1999); City Government of San Pablo, Laguna v.
Reyes, 305 SCRA 353, 361 (1999); Centeno v. Villalon-Pornillos, 236 SCRA 197,
203 (1994); Phil. American Life Insurance Company v. Ansaldo, 234 SCRA 509,
515 (1994); Commissioner of Customs v. Court of Tax Appeals, 224 SCRA 665,
669-670 (1993); Ledesma v. Court of Appeals, 211 SCRA 753, 760
(1992); Montoya v. Escayo, 171 SCRA 442, 448 (1989); Singapore Airlines
Local Employees Association v. National Labor Relations Commission, 130
SCRA 472, 479 (1984); Vera v. Fernandez, 89 SCRA 199, 203 (1979); Central
Barrio v. City Treasurer of Davao, 23 SCRA 6, 9 (1968); Catuiza v. People, 13
SCRA 538, 542 (1965); Ursal v. Court of Tax Appeals, 101 Phil. 209, 212
(1957); Vega v. Mun. Board of the City of Iloilo, 94 Phil. 949, 953 (1954); Sotto
v. Commission on Elections, 76 Phil. 516, 530 (1946).
77 That which is expressed makes that which is implied to cease. [Black’s
Law Dictionary 581 (6th ed., 1991)]
78 Vide: Canet v. Decena, G.R. No. 155344, January 20, 2004, 420 SCRA
388; Malinias v. Commission on Elections, 390 SCRA 480, 491 (2002); National
Electrification Administration v. Commission
374
374 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
constitutional provision, by its terms, is expressly limited to
financial or technical agreements, it may not, by
interpretation or construction, be extended to other forms of
assistance.
These three principles of statutory construction, derived
from the well-settled principle of verba legis, proceed from the
premise that the Constitutional Commission would not have
made specific enumerations in the provision if it had the
intention not to restrict its meaning and confine its terms to
those expressly mentioned. And this Court may not, in the
guise of interpretation, enlarge the scope of a constitutional
provision and include therein situations not provided nor
intended by the framers. To do so would be to do violence to
the very language of the Constitution, the same Constitution
which this Court has sworn to uphold.
The majority counters, however, that service contracts were
not de-constitutionalized since the deliberations of the
members of the Constitutional Commission conclusively show
that they discussed agreements involving either technical or
financial assistance in the same breath as service contracts
and used the terms interchangeably. This argument merely
echoes that of private respondent WMCP which had already
been addressed in this Court’s Decision of January 27, 2004,
(the Decision) viz.:
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.
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.
_______________
on Audit, 377 SCRA 223, 232 (2002); Espiritu v. Cipriano, 55 SCRA 533,
538 (1974).
375
VOL. 445, DECEMBER 1, 2004 375
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
It is true that, as shown in the earlier quoted portions of the
proceedings in [the] 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. However, such remark is far
79
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.”
In the case of the other commissioners, Commissioner Nolledo
himself clarified in his work that the present charter prohibits
service contracts. Commissioner Gascon was not totally averse to
foreign participation, but favored stricter restrictions in the form of
_______________
79Comm. Villegas’ response that there was no requirement in the 1973
Constitution for a law to govern service contracts and that, in fact, there were then
no such laws is inaccurate. The 1973 Charter required similar legislative approval,
although it did not specify the form it should take: “The Batasang Pambansa, in
the national interest, may allow such citizens . . . to enter into service contracts . .
.” As previously noted in this Court’s Decision of January 27, 2004, however, laws
authorizing service contracts were actually enacted by presidential decree
[i.e.Presidential Decree No. 87 (Amending Presidential Decree No. 8 issued on
October 2, 1972, and Promulgating an Amended Act to Promote the Discovery and
Production of Indigenous Petroleum and Appropriate Funds therefore), Pres.
Decree No. 151 (Allowing Citizens of the Philippines or Corporations or
Associations at least Sixty Per Centum of the Capital of which is Owned by such
Citizens to Enter into Service Contracts with Foreign Persons, Corporations for the
Exploration, Development, Exploitation or Utilization of Lands of the Public
Domain, amending for the purpose certain provisions of Commonwealth Act No.
141), Pres. Decree No. 463 (Providing for a Modernized System of Administration
and Disposition of Mineral Lands and to Promote and Encourage the Development
and Exploitation thereof), and Pres. Decree No. 1442 (An Act to Promote the
Exploration and Development of Geothermal Resources)]
376
376 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
majority congressional concurrence. 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. (Emphasis and italics supplied; citations omitted)
80
In fact, the opinion of Commissioner Nolledo in his textbook
which is cited in this Court’s January 27, 2004 Decision should
leave no doubt as to the intention of the framers to eliminate
service contracts altogether.
Are service contracts allowed under the new Constitution? No.
Under the new Constitution, foreign investors (fully alien-owned)
can NOT participate in Filipino enterprises except to provide: (1)
Technical Assistance for highly technical enterprises; and (2)
Financial Assistance for large-scale enterprises.
The intention of this provision, as well as other provisions on
foreign investments, is to prevent the practice (prevalent in the
Marcos government) of skirting the 60/40 equation using the cover
of service contracts. 81
Next, the majority opinion asserts that if the framers had
meant to ban service contracts altogether, they would have
provided for the termination or pre-termination of the existing
service contracts.
There was no need for a constitutional provision to govern
the termination or pre-termination of existing service
contracts since the intention of the framers was to apply the
rule banning service contracts prospectively.
MR. DAVIDE. Under the proposal, I notice that except for the
lands of the public domain, all other natural resources
cannot be alienated and in respect to lands of the public
 domain, private corporations with the required ownership
by Filipino citizens can only lease the same. Neces-
_______________
La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at pp. 233-234.
80
Id., at p. 224.
81
377
VOL. 445, DECEMBER 1, 2004 377
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
sarily, insofar as other natural resources are concerned, it
would only be the State which can exploit, develop, explore
and utilize the same. However, the State may enter into a joint
venture, coproduction (sic) or production-sharing. Is that not
correct?
MR. VILLEGAS. Yes.
MR. DAVIDE. Consequently, henceforth upon the approval of
this Constitution, no timber or forest concessions, permits
or authorization can be exclusively granted to any citizen of
the Philippines nor to any corporation qualified to acquire
lands of the public domain?
MR. VILLEGAS. Would Commissioner Monsod like to
comment on that? I think his answer is “yes.”
MR. DAVIDE. So, what will happen now to licenses or
concessions earlier granted by the Philippine government
to private corporations or to Filipino citizens? Would they
be deemed repealed?
MR. VILLEGAS. This is not applied retroactively. They will be
respected.
MR. DAVIDE. In effect, they will be deemed repealed?
MR. VILLEGAS. No. (Emphasis and underscoring supplied)
82
Besides, a service contract is only a license or privilege, not a
contract or property right which merits protection by the due
process clause of the Constitution. Thus in the landmark case
of Oposa v. Factoran, Jr., this Court held:
83
x x x Needless to say, all licenses may thus be revoked or rescinded
by executive action. It is not a contract, property or a property right
protected by the due process clause of the Constitution. In Tan vs.
Director of Forestry, this Court held:
“x x x A timber license is an instrument by which the State regulates the
utilization and disposition of forest resources to the end that public welfare
is promoted. A timber li
_______________
82 III Record of the Constitutional Commission 260.
83 224 SCRA 792 (1993).
378
378 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
cense is not a contract within the purview of the due process clause; it
is only a license or privilege, which can be validly
withdrawn whenever dictated by public interest or public welfare as in
this case.
‘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.”
We reiterated this pronouncement in Felipe Ysmael, Jr. & Co.,
Inc. vs. Deputy Executive Secretary:
“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 clause.”
Since timber licenses are not contracts, the non-impairment
clause which reads:
“SEC. 10. No law impairing, the obligation of contracts shall be passed.”
cannot be invoked.
In the second place, even if it is to be assumed that the same are
contracts, the instant case does not involve a law or even an
executive issuance declaring the cancellation or modification of
existing timber licenses. Hence, the non-impairment clause cannot
as yet be invoked. Nevertheless, granting further that a law has
actually been passed mandating cancellations or modifications, the
same cannot still be stigmatized as a violation of the non-
impairment clause. This is because by its very nature and purpose,
such a law could have only been passed in the exercise of the police
379
VOL. 445, DECEMBER 1, 2004 379
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
power of the state for the purpose of advancing the right of the
people to a balanced and healthful ecology, promoting their health
and enhancing the general welfare. In Abe vs. Foster Wheeler Corp.,
this Court stated:
“The freedom of contract, under our system of government, is not meant to
be absolute. The same is understood to be subject to reasonable legislative
regulation aimed at the promotion of public health, moral, safety and
welfare. In other words, the constitutional guaranty of non-impairment of
obligations of contract is limited by the exercise of the police power of
the State, in the interest of public health, safety, moral and general
welfare.”
The reason for this is emphatically set forth in Nebia vs. New
Yorkquoted in Philippine American Life Insurance Co. vs. Auditor
General, to wit:
“Under our form of government the use of property and the making of
contracts are normally matters of private and not of public concern. The
general rule is that both shall be free of governmental interference. But
neither property rights nor contract rights are absolute; for government
cannot exist if the citizen may at will use his property to the detriment of
his fellows, or exercise his freedom of contract to work them harm. Equally
fundamental with the private right is that of the public to regulate it in the
common interest.”
In short, the non-impairment clause must yield to the
police power of the state. (Emphasis and italics supplied;
84
citations omitted)
The majority however argues that Oposa is not applicable
since the investment in a logging concession is not as
substantial an investment as that of a large scale mining
contractor. Such a contention is patently absurd. Taken to its
logical conclusion, the majority would have this Court exempt
firms in highly capital intensive industries from the exercise
of police power simply to protect their investment. That would
mean that the legislature would, for example, be powerless to
_______________
Id., at pp. 811-813.
84
380
380 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
revoke or amend legislative franchises of public utilities, such
as power and telecommunications firms, which no doubt
require huge sums of capital.
The majority opinion then proffers that the framers of the
Constitution were pragmatic enough to know that foreign
entities would not enter into such agreements without
requiring arrangements for the protection of their
investments, gains, and benefits or other forms of
conditionalities. It goes on to argue that “by specifying such
‘agreements involving assistance,’ the framers of the
Constitution necessarily gave implied assent to everything
that these agreements necessarily entailed; or that could
reasonably be deemed necessary to make them tenable and
effective, including management authority with respect to the
day-to-day operations of the enterprise and measures for the
protection of the interests of the foreign corporation.”
The deliberations of the Constitutional Commission,
however, do not support the immediately foregoing
contentions.
MR. TINGSON. Within the purview of what the Gentleman is
saying, would he welcome friendly foreigners to lend us
their technical expertise in helping develop our country?
MR. GARCIA. Part 2 of this proposal, Filipino control of the
economy, in fact, says that the entry of foreign capital,
technology and business enterprises into the national
economy shall be effectively regulated to ensure the
protection of the interest of our people.
In other words, we welcome them but on our own
terms. This is very similar to our position on loans. We
 welcome loans as long as they are paid on our own
terms, on our ability to pay, not on their terms. For
example, the case of Peru is instructive. They decided first
to develop and grow, and were willing to pay only 10
percent of their foreign exchange earnings. That, I think, is
a very commendable position given the economic situation
of a country such as Peru. The Philippines is a similar case,
especially when we realize that the foreign debt was made
by a government that was bankrupt in its desire to serve
the people.
381
VOL. 445, DECEMBER 1, 2004 381
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
MR. MONSOD. Mr. Vice-President, 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.
MR. GARCIA. Excuse me. The point I am trying to make is
that we do not have to borrow. If we have to borrow,
it must be on our terms. In other words, banks do not lend
out of the goodness of their hearts. Banks lend to make a
profit.
MR. TINGSON. Mr. Vice-President, I think the trouble in our
country is that we have forgotten the scriptural injunction
that the borrower becomes a slave to the lender. That is the
trouble with our country; we have borrowed and borrowed
but we forget that we become slaves to those who lend
us. (Emphasis and italics supplied)
85
By public respondent’s information, “[t]he potential mining
wealth in the Philippines is estimated at $840 billion or P47
trillion or 10 times our annual GDP, and 15 times our total
foreign debt of $56 billion. Globally, the Philippines ranks
third in gold, fourth in copper, fifth in nickel and sixth in
chromite.” With such high concentration of valuable minerals
86
coupled with the Filipino people’s willingness to protect and
preserve ownership of their natural resources at the expense
of retarding or postponing the exploration, development, and
utilization of these resources, the Philippines clearly has the
superior bargaining position and should be able to dictate its
terms. No foreign entity should be able to bully the Philippines
and intimidate the Government into conceding to certain
conditions incompatible with the Constitution.
_______________
III Record of the Constitutional Commission 319.
85
Rollo at p. 2779.
86
382
382 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Extent of foreign corporation’s participation in the
management of an FTAA
Foreign-owned corporations, however, are not precluded from
a limited participation in the management of the exploration,
development and utilization of natural resources.
Some degree of participation by the contractor in
management, to assure the proper application of its
investment and/or to facilitate the technical assistance and
transfer of technology may be unavoidable and not necessarily
undesirable. Thus, there is merit in respondent WMCP’s
contention, to which even petitioners conceded during the oral
arguments, that a foreign-owned corporation is not prevented
from having limited participation in the management
assistance or participation so long as it is incidental to the
financial or technical assistance being rendered:
JUSTICE PANGANIBAN:
Alright. Going back to verba legis, you say that the
FTAA’s are limited to financial or technical assistance
only.
ATTY. LEONEN:
Either financial or technical assistance, yes your Honor.
JUSTICE PANGANIBAN:
 Only. expect that entities, foreign entities who don’t
ATTY. LEONEN: know any
Only your Honor. thing about this country, well that is an
JUSTICE PANGANIBAN: exaggeration,
And that means management is excluded. who know not too much about this country,
ATTY. LEONEN: would not
Full management, your Honor. just extend money, period. They would want
JUSTICE PANGANIBAN: to have a say
Full management is excluded. a little bit of say management and sometimes
ATTY. LEONEN: even in au
Yes your Honor. diting of the company, isn’t it reasonable to
383 expect.
VOL. 445, 383 ATTY. LEONEN:
DECEMBER I would qualify my answer your Honor with
1, 2004 management of what your Honor. It means if
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos it’s for development and utilization of the
JUSTICE PANGANIBAN: minerals.
But incidental management to protect the JUSTICE PANGANIBAN:
financial or technical assistance should be No.
allowed. ATTY. LEONEN:
ATTY. LEONEN: Yes your Honor, but if it’s management of
If a mining company would get the technical sub-contracted activity like a symposium then
expertise to bring in drilling rig your Honor, that would be all right your Honor. Mining
and that is the sole contract, then we cannot companies do symposiums also.
imagine a situation were it is not the JUSTICE PANGANIBAN:
technicians that we will do the actual drilling Management to protect their own
your investments, whether it be technical or
Honor, but for the entire contract area your financial.
Honor as it is ATTY. LEONEN:
now in the FTAA then I think that would be Their investment, your Honor, which
different. cannot be the entire mining operation from
JUSTICE PANGANIBAN: my perspective, your Honor.
Yes I agree. In other words, the words 384
financial or technical may include parts of 384 SUPREME COURT REPORTS ANNOTATED
management, isn’t it? Its reasonable in other La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
words if I may re state it, it’s reasonable to JUSTICE PANGANIBAN:
 Yes I agree because there is the Constitutional
provision of control and supervision, full control
and supervision to the State.
ATTY. LEONEN:
And Filipino corporations your Honor.
JUSTICE PANGANIBAN:
Or even Filipino corporation, the full control and
supervision is still with the State.
ATTY. LEONEN:
Yes, your Honor.
JUSTICE PANGANIBAN:
Even with Filipino citizens being the contractors, full
control and supervision is still with the State.
ATTY. LEONEN:
Yes, your Honor.
JUSTICE PANGANIBAN:
In all these contract full control and supervision is with
the State.
ATTY. LEONEN:
Yes your Honor and we can only hope that the State is
responsive to the people we represent.
xxx
JUSTICE PANGANIBAN:
Yes, yes. Can it also not be said reading that the
Constitution that the safeguards on contracts with
foreigners was left by the Constitutional Commission or
by Constitution itself to Congress to craft out.
ATTY. LEONEN:
I can accept your Honor that there was a province of
power that was given to Congress, but it was delimited
by the fact, that they removed the word management and
other arrangement and put the words either financial
and
technical.
JUSTICE PANGANIBAN:
Yes but you just admitted earlier that these two words
would also include some form of management or other
things to protect the investment or the technology being
put by the foreign company.
385
VOL. 445, 385
DECEMBER 1,
2004
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
ATTY. LEONEN:
Yes your Honor for so long as it’s not
the entire.
JUSTICE PANGANIBAN:
Yes, yes provided the State does not
lose control and supervision, isn’t it?
ATTY. LEONEN:
Yes your Honor. (Emphasis and italics
87
supplied)
Thus, the degree of the foreign corporation’s participation in
the management of the mining concern is co-extensive with
and strictly limited to the degree of financial or technical
assistance extended. The scope of the assistance defines the
limits of the participation in management.
However, to whatever extent the foreign corporation’s
incidental participation in the management of the mining
concern may be, full control and supervision, sufficient to
protect the interest of the Filipino people, over all aspects of
mining operations must be retained by the Government. While
this does not necessarily mean that the Government must
assume the role of a back seat driver, actively second guessing
every decision made by the foreign corporation, it does mean
that sufficient safeguards must be incorporated into the FTAA
to insure that the people’s beneficial interest in their natural
resources are protected at all times.
Moreover, the foreign contractor’s limited participation in
management, as the Court held in its Decision, should not
effectively grant foreign-owned corporations beneficial
ownership over the natural resources.
The opinion, submitted by the OSG, of Bernardo M.
Villegas, who was a Member of the Constitutional Commission
and Chair of its Committee on National Economy and
Patrimony, is not inconsistent with the foregoing conclusion.
Commissioner Villegas opined:
_______________
TSN at pp. 181-186.
87
386
386 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
The phrase “service contracts” contained in the 1973 Constitution
was deleted in the 1987 Constitution because there was the general
perception among the Concom members that it was used during the
Marcos regime as an instrument to circumvent the 60-40 limit in
favor of Filipino ownership. There was also the impression that the
inclusion of the word “management” in the description of the service
contract concept in the 1973 Constitution was tantamount to
ownership by the foreign partner.
The majority of the Concom members, however, recognized the
vital need of the Philippine economy for foreign capital and
technology in the exploitation of natural resources to benefit
Filipinos, especially the poor in the countryside where the mining
sites are located. For this reason, the majority voted for “agreements
involving financial or technical assistance” or FTAA.
I maintain that the majority who voted Yes to this FTAA
provision realized that an FTAA involved more than borrowing
money and/or buying technology from foreigners. If an FTAA
involved only a loan and/or purchase of technology, there would not
have been a need for a constitutional provision because existing
laws in the Philippines more than adequately regulate these
transactions.
It can be deducted from the various comments of both those who
voted Yes and No to the FTAA provision that an FTAA also involves
the participation in management of the foreign partner. What was
then assumed in 1986 is now even clearer in the way business
organizations have evolved in the last decade or so under the
modern concept of good governance. There are numerous
stakeholders in a business other than the stockholders or equity
owners who participate actively in the management of a business
enterprise. Not only do creditors and suppliers demand
representation in boards of directors. There are also other so-called
independent directors who actively participate in management.
In summary, the word “management” was deleted from the
description of the FTAA because some CONCOM delegates identified
management with beneficial ownership. In order not to prolong the
debate, those in favor of the FTAA provision agreed not to include
the word management. But from what has been discussed above, it
was clear in the minds of those who voted YES that the FTAA
included more than just a loan and/or purchase of technology from
foreigners but necessarily allowed the active participation of the
387
VOL. 445, DECEMBER 1, 2004 387
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
foreign partners in the management of the enterprise engaged in the
exploitation of natural resources. (Emphasis supplied).
88
Under no circumstances should the execution of an FTAA be
tantamount to the grant of a roving commission whereby a
foreign contractor is given blanket and unfettered discretion
to do whatever it deems necessary—denude watersheds,
divert sources of water, drive communities from their homes—
in pursuit of its pecuniary goals.
Nor should the scope of an FTAA be broadened to include
“managerial assistance.” As discussed extensively in the
Decision, “managerial assistance”—a euphemism by which
89
full control and beneficial ownership of natural resources were
vested in foreigners—is part and parcel of the martial law era
“service contracts” and the old “concession regime” which the
1987 Constitution has consigned to the dust bin of history.
The elimination of the phrase “service contracts”
effectuates another purpose. Intervenor PCM agrees that the
Constitution tries to veer away from the old concession
system, which vested foreign-owned corporations control and
90
beneficial ownership over Philippine natural resources.
Hence, the 1987 Constitution also deleted the provision in the
1935 and 1973 Constitutions authorizing the State to grant natural resources belong to the State and shall not be alienated, not
licenses, concessions, or leases for the exploration, to mention the fact that the concession was the bedrock of the
exploitation, development, or utilization of natural resources. 91 colonial system in the exploitation of natural
Prof. Agabin had no flattering words for the concession resources. (Underscoring in the original)
92

system, which he described in his position paper as follows: Vestiges of the concession system endured in the service
contract regime, including the vesting on the contractor of the
_______________ management of the enterprise, as well as the control of
production and other matters, such as expansion and
Memorandum for Public Respondents, Annex 1.
development. Also, while title to the resource discovered was
88
93
89 La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at pp. 227-234.
90 Statement for Intervenor, p. 2. nomi-
91 La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at p.
206; vide: Miners Association of the Philippines v. Factoran, 240 SCRA 100, _______________
104 (1995).
92 P.A. Agabin, Service Contracts: Old Wines in New Bottles?, II DRAFT
388
388 SUPREME COURT REPORTS ANNOTATED PROPOSAL OF THE 1986 U.P. LAW CONSTITUTION PROJECT 3-4.
93 La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at pp. 227-228

La Bugal-B’Laan Tribal Association, Inc. vs. Ramos citing Agabin, supra, at pp. 15-16.
Under the concession system, the concessionaire makes a direct 389
equity investment for the purpose of exploiting a particular natural VOL. 445, DECEMBER 1, 2004 389
resource within a given area. Thus, the concession amounts to a La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
complete control by the concessionaire over the country’s natural
nally in the name of the government, the contractor had
resource, for it is given exclusive and plenary rights to exploit a
almost unfettered control over its disposition and sale. 94
particular resource and is in effect assured ownership of that
resource at the point of extraction. In consideration for the right to The salutary intent of the 1987 Constitution
exploit a natural resource, the concessionaire either pays rent or notwithstanding, these stubborn features of the concession
royalty which is a fixed percentage of the gross proceeds. But looking system persist in the Mining Act of 1995. The statute allows a
beyond the legal significance of the concession regime, we can see foreign-owned corporation to carry out mining
that there are functional implications which give the concessionaire operations, which95 includes the conduct of
great economic power arising from its exclusive equity holding. This exploration, development and
96 utilization of
97 the
98

includes, first, appropriation of the returns of the undertaking, resources. The same law grants foreign contractors auxiliary
99

subject to a modest royalty; second, exclusive management of the mining rights, i.e., timber rights, water rights, the right to
100 101

project; third, control of production of the natural resource, such as possess explosives, easement rights, and entry into private
102 103

volume of production, expansion, research and development; and

lands and concession areas. These are the very same rights
104

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
granted under the old concession and service contract systems.
The majority opinion proposes two alternative standards of
Government control over FTAA operations. Thus, in the
opening paragraphs it states:
Full control is not anathema 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 x x x (Emphasis and italics supplied)
However, the majority opinion subsequently substantially
reduces the scope of its definition of “control” in this wise:
_______________
94 Ibid.
95 Rep. Act No. 7942 (1995), secs. 35 (g), sec. 3 (af).
96 Id., sec. 3 (q).
97 Id., sec. 3 (j).
98 Id., sec. 3 (az).
99 Id., sec. 33.
100 Id., sec. 72.
101 Id., sec. 73.
102 Id., sec. 74.
103 Id., sec. 75.
104 Id., sec. 76.
390
390 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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
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. (Emphasis and
italics supplied; citations omitted; italics in the original)
This second definition is apparently analogous to regulatory
control which the Government is automatically presumed to
exercise over all business activities by virtue of the Police
Power. This definition of the “full control and supervision”
mandated by Section 2, Article XII of the Constitution strikes
a discordant and unconvincing chord as it gives no effect to the
mandated “full” character of the State’s control but merely
places it at par with any other business activity or industry
regulated by the Government.
But even under this second and more limited concept of
regulatory control, the provisions of the Mining Act pertaining
to FTAAs do not pass the test of constitutionality.
To be sure, the majority opinion cites a litany of documents,
plans, reports and records which the foreign FTAA contractor
is obliged to submit or make available under the Mining Act
and DAO 96-40. However, the mere fact that the Act requires
the submission of work programs and minimum expenditure
commitments does not provide adequate protection. These
105
were also required under the old concession and service 106
contract systems, but did not serve to place full con-
107
_______________
105 Id., sec. 35 (h).
106 La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at p. 195.
107 Vide: Pres. Decree No. 87, sec. 8 (c), (e) and (f).
391
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
trol and supervision of the country’s natural resources in the
hands of the Government.
Conspicuously absent from the Mining Act are effective
means by which the Government can protect the beneficial
interest of the Filipino people in the exploration, development
and utilization of their resources. It appears from the
provisions of the Mining Act that the Government, once it has
determined that a foreign corporation is eligible for an FTAA
and enters into such an agreement, has very little say in the
corporation’s actual operations.
Thus, when pressed to identify the mechanism by which the
Government can administratively compel compliance with the
foregoing requirements as well as the other terms and
conditions of the Mining Act, DAO 96-40 and DAO 99-56, the
majority can only point to the cancellation of the agreement(s)
and/or the incentives concerned under Section 95 to 99 of the
Mining Act: 108
CHAPTER XVII
Ground for Cancellation, Revocation, and Termination
SECTION 95. Late or Non-filing of Requirements.—Failure of the
permittee or contractor to comply with any of the requirements
provided in this Act or in its implementing rules and regulations,
without a valid reason, shall be sufficient ground for the suspension
of any permit or agreement provided under this Act.
SECTION 96. Violation of the Terms and Conditions of Permit or
Agreements.—Violation of the terms and conditions of the permits
or agreements shall be a sufficient ground for cancellation of the
same.
_______________
108 The DENR Secretary is also empowered to charge fines for late or non-
submission of reports under Section 111 of the Mining Act, but the majority
opinion either overlooked this provision or considered it too insubstantial to be
able to compel enforcement of the law and its implementing rules.
392
392 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
SECTION 97. Non-payment of Taxes and Fees.—Failure to pay
taxes and fees due the Government for two (2) consecutive years
shall cause the cancellation of the exploration permit, mineral
agreement, financial or technical assistance agreement and other
agreements and the re-opening of the area subject thereof to new
applicants.
SECTION 98. Suspension or Cancellation of Tax Incentives and
Credits.—Failure to abide by the terms and conditions of tax
incentives and credits shall cause the suspension or cancellation of
said incentives and credits.
SECTION 99. Falsehood or Omission of Facts in the Statement.—
All statements made in the exploration permit, mining agreement
and financial or technical assistance agreement shall be considered
as conditions and essential parts thereof and any falsehood in said
statements or omission of facts therein which may alter, change or
affect substantially the facts set forth in said statements may cause
the revocation and termination of the exploration permit, mining
agreement and financial or technical assistance agreement.
An examination of the foregoing fails to impress. For instance,
how does cancellation of the FTAA under Section 97 for
nonpayment of taxes and fees (comprising the “basic share” of
the government) for two consecutive years facilitate the
collection of the unpaid taxes and fees? How does it preserve
and protect the beneficial interest of the Filipino people? For
that matter, how does the DENR administratively compel
compliance with the anti-pollution and other
requirements? If minerals are found to have been sold
109
overseas at less than the most advantageous market prices,
how does the DENR obtain satisfaction from the offending
foreign FTAA contractor for the difference?
_______________
109 Section 108 provides a criminal penalty for violation of the terms and
conditions of an environmental compliance certificate, but this remedy is
judicial and not administrative. In any event, what is the likelihood of a
Philippine court acquiring criminal jurisdiction over the person of the foreign
corporate officers of the foreign FTAA contractor who may be responsible for
such violations?
393
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
In sum, the enforcement provisions of the Mining Act and its
Implementing Rules are scarcely effective, and, worse,
perceptibly less than the analogous provisions of other
Government Regulatory Agencies.
For instance, the Bangko Sentral Ng Pilipinas, the Central
Monetary Authority mandated by the Constitution to exercise
supervision (but not full control and supervision) over
banks, is empowered to (1) appoint a conservator with such
110
powers as shall be deemed necessary to take charge of the
assets, liabilities and management of a bank or quasi-
bank; (2) under certain well defined conditions, summarily
111
and without need for prior hearing forbid a bank from doing
business in the Philippines and appoint the Philippine Deposit
Insurance Corporation as receiver; and (3) impose a number
112
of administrative sanctions such as (a) fines not to exceed
P30,000 per day for each violation, (b) suspension of a bank’s
rediscounting privileges, (c) suspension of lending or foreign
exchange operations or authority to accept new deposits or
make new investments, (d) suspension of interbank clearing
privileges, and (e) revocation of quasi-banking license. 113
Similarly, to give effect to the Constitutional mandate to
afford full protection to labor, the Labor Code grants the
114 115
Secretary of Labor the power to (1) issue compliance orders to
give effect to the labor standards provisions of the Code; and
(2) enjoin an intended or impending strike or lockout by
assuming jurisdiction over a labor dispute in an industry
determined to be indispensable to the national interest.
_______________
110 CONST., art. XII, sec. 20.
111 Rep. Act No. 7653 (1993), sec. 29.
112 Id., sec. 30.
113 Id., sec. 37.
114 CONST., art. XIII, sec. 3.
115 Pres. Decree No. 442 as amended.
116 Id., art. 128 (b).
117 Id., art. 263 (g).
394
394 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Under the Tax Code, the Commissioner of Internal Revenue
has the power to (1) temporarily suspend the business
operations of a taxpayer found to have committed certain
specified violations; (2) order the constructive distraint of the
118
property of a taxpayer; and (3) impose the summary
119
remedies of distraint of personal property and or levy on real
property for nonpayment of taxes. 120
In comparison, the Mining Act and its Implementing Rules
conspicuously fail to provide the DENR with anything
remotely analogous to the foregoing regulatory and
enforcement powers of other government agencies.
In fine, the provisions of the Mining Act and its
Implementing Rules give scarcely more than lip service to the
constitutional mandate for the State to exercise full control
and supervision over the exploration, development and
utilization of Philippine Natural Resources. Evaluated as a
whole and in comparison with other government agencies, the
provisions of the Mining Act and its Implementing Rules fail
to meet even the reduced standard of effective regulatory
control over mining operations. In effect, they abdicate control
116 over mining operations in favor of the foreign FTAA
contractor. For this reason, the provisions of the Mining Act,
insofar as they pertain to FTAA contracts, must be declared
117 unconstitutional and void.
The majority opinion vigorously asserts that it is the Chief
Executive who exercises the power of control on behalf of the
State.
This only begs the question. How does President effectively
enforce the terms and conditions of an FTAA? What specific
powers are subsumed within the constitutionally mandated
“power of control?” On these particular matters the majority
opinion, like the Mining Act, is silent.
_______________
Rep. Act No. 8424 (1997), sec. 115.
118
119 Id., sec. 206.
120 Id., sec. 207.
395
VOL. 445, DECEMBER 1, 2004 395
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Provisions of the Mining Act per
taining to FTAAs void for conveying
beneficial ownership of Philippine
mineral resources to foreign contrac
tors
An examination of the Mining Act reveals that the law grants
the lion’s share of the proceeds of the mining operation to the
foreign corporation. Thus the second and third paragraphs of
Section 81 of the law provide:
SECTION 81. Government Share in Other Mineral Agreements.—
xxx
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.
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. (Emphasis supplied)
Under the foregoing provisions, the Government does not
receive a share in the proceeds of the mining operation. All it
receives are taxes and fees from the foreign corporation, just
as in the old concession and service contract regimes. The
121 122
collection of taxes and fees cannot be considered a return on
the resources mined corresponding to beneficial ownership of
the Filipino people. Taxes are collected under the State’s
power to generate funds to finance the needs of the citizenry
_______________
La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at p. 196.
121
Vide: Pres. Decree No. 87, sec. 8 (k) and sec. 9 (e).
122
396
396 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
and to advance the common weal. They are not a return on
123
investment or property. Similarly, fees are imposed under the
police power primarily for purposes of regulation. Again, they 124
do not correspond to a return on investment or property.
Even more galling is the stipulation in the above-quoted
third paragraph that the Government’s share (composed only
of taxes and fees) shall not be collected until after the foreign
corporation has “fully recovered its pre-operating expenses,
exploration, and development expenditures, inclusive.” In one
breath this provision virtually guarantees the foreigner a
return on his investment while simultaneously leaving the
Government’s (and People’s) share to chance.
It is, therefore, clearly evident that the foregoing provisions
of the Mining Act effectively transfer the beneficial ownership
over the resources covered by the agreement to a foreigner, in
contravention of the letter and spirit of the Constitution.
Consequently, the assailed Decision inescapably concluded
that:
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. 125
The Mining Act gives the foreign-owned corporation virtually
complete control, not mere “incidental” participation in
management, over the entire operations.
The law is thus at its core a retention of the concession
system. It still grants beneficial ownership of the natural
resources to the foreign contractor and does little to affirm the
_______________
123 National Power Corporation v. Province of Albay, 186 SCRA 198, 207
(1990).
124 Progressive Development Corporation v. Quezon City, 172 SCRA 629, 635
(1989).
125 La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at p. 236.
397
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
State’s ownership over them, and its supervision and control
over their exploration, development and utilization.
While agreeing that the Constitution vests the beneficial
ownership of Philippine minerals with the Filipino people,
entitling them to gains, rewards and advantages generated by
these minerals, the majority opinion nevertheless maintains
that the Mining Act, as implemented by DENR
Administrative Order 99-56 (DAO 99-56), is constitutional
126
as, so it claims, it does not “convey beneficial ownership of any
mineral resource or product to any foreign FTAA contractor.”
The majority opinion adds that the State’s share, as
expounded by DAO 99-56, amounts to “real contributions to
the economic growth and general welfare of the country,” at
the same time allowing the contractor to recover “a reasonable
return on its investments in the project.”
Under DAO 99-56, the “government’s share” in an FTAA is
divided into (1) a “basic government share” composed of a
number of taxes and fees and (2) an “additional government
127
_______________
126 Guidelines Establishing the Fiscal Regime of Financial or Technical
Assistance Agreements.
127 Section 3 (g) (1) of DAO 99-56 provides:
Section 3. Fiscal Regime of a Financial or Technical Assistance Agreement
xxx
g. Government Share.
1. Basic Government Share. The following taxes, fees and other such charges shall
6. j)Local business tax;
7. k)Real property tax;
8. l)Community tax;
9. m)Occupation fees;
10. n)All other local Government taxes, fees and imposts as of the effective date of
the FTAA;
11. o)Special Allowance, as defined in the Mining Act; and
12. p)Royalty payments to any Indigenous People(s)/Indigenous Cultural
Community(ies).
From the Effective Date, the foregoing taxes, fees and other such charges constituting
the Basic Government Share, if applicable, shall be paid by the Contractor: Provided,
That above items (a) to (g) shall not be collected from the Contractor upon the date of
approval of the Mining Project Feasibility Study up to the end of the Recovery Period.
Any taxes, fees, royalties, allowances or other imposts, which should not be collected by
the Government, but nevertheless paid by the Contractor and are not refunded by the
Government before the end of the next taxable year, shall be included in the Government
Share in the next taxable year. Any Value-Added Tax refunded or credited shall not
form part of Government Share.
128 Section 3 (g) (2) of DAO 99-56 provides:
2. Additional Government Share. Prior to the commencement of Development and
Construction Phase, the Contractor may select one of the formula for calculating the
Addi
399
VOL. 445, DECEMBER 1, 2004 399
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
cash flows, (b) a profit related additional government
129

constitute the Basic Government Share:

_______________
1. a)Excise tax on minerals;
2. b)Contractor’s income tax; tional Government Share set out below which the Contractor wishes to apply to all of
3. c)Customs duties and fees on imported capital equipment; its Mining Operations and notify the Government in writing of that selection. Upon the
4. d)Value added tax on the purchase of imported equipment, goods and services; issuance of such notice, the formula so selected shall thereafter apply to all of the
Contractor’s Mining Operations.
xxx
398
129 Section 3 (g) (2) (1) of DAO 99-56 provides:
398 SUPREME COURT REPORTS ANNOTATED a) Fifty-Fifty Sharing of the Cumulative Present Value of Cash Flows. The Government
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos shall collect an Additional Government Share from the Contractor equivalent to an
amount which when aggregated with the cumulative present value of Government
share” computed according to one of three possible methods—
128
Share during the previous Contract Years and the Basic Government Share for the
(a) a 50-50 sharing in the cumulative present value of current Contract Year is equivalent to a minimum of fifty percent (50%) of the
Cumulative Present Value of Project Cash Flow before financing for the current
Contract Year, as defined below.
_______________
Computation. The computation of the Additional Government Share shall
commence immediately after the Recovery Period. If the computation covers a period of
1. e)Withholding tax on interest payments on foreign loans; less than one year, the Additional Government Share corresponding to this period shall
2. f)Withholding tax on dividends to foreign stockholders; be computed pro-ratawherein the Additional Government Share during the year shall
3. g)Royalties due the Government on Mineral Reservations; be multiplied by the fraction of the year after recovery. The Additional Government
4. h)Documentary stamps taxes; Share shall be computed as follows:
5. i)Capital gains tax;
 Project Cash Flow Before Financing and Tax (“CF”) for a taxable year shall be Net Income After Tax To Gross Output as defined in the National Internal Revenue
calculated as follows: Code, for the current and previous taxable years is 0.40 or higher rounded off to the
CF = GO - DE + I - PE - OC nearest two decimal places.
Cumulative Present Value of Project Cash Flow (“CP”) shall be the sum of the Computation. The computation of the Additional Government Share from additional
present value of the cumulative present value of project cash flow during the previous profit shall commence immediately after the Recovery Period. If the computation covers
year (CP i-1 x 1.10) and the Project Cash Flow Before Financing and Tax for the current a period of less than a year, the additional profit corresponding to this period shall be
year (“CF”), and shall be calculated as follows: computed pro-ratawherein the total additional profit during the year shall be multiplied
CP = (CP i-1 x 1.10) + CF by the fraction of the year after recovery.
Cumulative Present Value of Total Government Share Before Additional The additional profit shall be derived from the following formula:
Government Share (“CGB”) shall be the sum If the computed average ratio as derived from above is less than 0.40:
400 Additional Profit = 0
If the computed average ratio is 0.40 or higher:
400 SUPREME COURT REPORTS ANNOTATED [NIAT-(0.40 x GO)]
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos Additional Profit = ------------------------
( 1 - ITR )
share or (c) an additional share based on the cumulative net
130
The Additional Government Share from the additional profit is computed using the
following formula:
_______________ Additional Government Share
From Additional Profit = 25% x Additional Profit
of: the present value of the cumulative present value of the Total Government Share where:
during the previous year (CGAi-1 x 1.10), and the Basic Government Share for the NIAT = Net Income After Tax for the particular taxable year under consideration.
current year (BGS), and shall be calculated as follows: GO = Gross Output from operations during the same taxable year.
CGB = (CGA i-1 x 1.10) + BGS ITR = Income Tax Rate applied by the Bureau of Internal Revenue in computing the
The Additional Government Share (“AGS”) shall be: income tax of the Contractor during the taxable year.
If: CGB > CP 0.5 then AGS = 0 Section 3 (g) (2) (3) of DAO 99-56 provides:
131
If: CGB < CP 0.5 then AGS = [ CP x 0.5 ] - CGB
Cumulative Present Value of Total Government Share (CGA): 402
CGA = CGB + AGS 402 SUPREME COURT REPORTS ANNOTATED
where:
BGS = Basic Government Share shall have the meaning as described in Clause 3-g-1 hereof; La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
GO = Gross Output shall have the same meaning as defined in the National Internal Revenue
Code; Thus, the majority opinion claims that the total government
DE = Deductible Expenses shall have the meaning as described in Clause 3-c hereof; share, equal to the sum of the “basic government share” and
I = Interest payments on loans included in the Deductible Expenses shall be equivalent to those
referred to in Clause 3-c-8 hereof; the “additional government share,” will achieve “a fifty-fifty
PE = unrecovered Pre-Operating Expenses;
OC = On-going Capital Expenditures as defined in Clause 3-c hereof;
sharing—between the government and the contractor—of net
CP i-1 = cumulative present value of project cash flow during the previous year; and benefits from mining.”
CGAi-1 = cumulative present value of total Government Share during the previous year.
130 Section 3 (g) (2) (2) of DAO 99-56 provides:
This claim is misleading and meaningless for two reasons:
b) Profit Related Additional Government Share. The Government shall collect an First, as priorly discussed, the taxes and fees which make
Additional Government Share from the Contractor based on twenty-five percent (25%) up the government’s “basic share” cannot be considered a
of the additional profits once the arithmetic average of the ratio of
401 return on the resources mined corresponding to the beneficial
VOL. 445, DECEMBER 1, 2004 401 ownership of the Filipino people. Again, they do not correspond
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos to a return on investment or property.
mining revenue at the option of the contractor.
131
Second, and more importantly, the provisions of the
Mining Act effectively allow the foreign contractor TO
_______________ CIRCUMVENT ALL THE PROVISIONS OF DAO 99-56,
INCLUDING ITS INTENDED “50-50 SHARING” of the net
benefits from mining, AND REDUCE GOVERNMENT’S
TOTAL SHARE to as
_______________
1. c)Additional Share Based from the Cumulative Net Mining Revenue. The
Additional Government Share for a given taxable year shall be calculated as
follows:
1. (i)Fifty percent (50%) of cumulative Net Mining Revenue from the end of the
Recovery Period to the end of that taxable year;
LESS
1. (ii)Cumulative Basic Government Share for that period as calculated under
Clause 3-g-1 hereof;
AND LESS (if applicable)
1. (iii)Cumulative Additional Government Share in respect of the period
commencing at the end of the Recovery Period and expiring at the end of the
taxable year immediately preceding the taxable year in question.
“Net Mining Revenue” means the Gross Output from Mining Operations during a
Calendar year less Deductible Expenses, plus Government taxes, duties and fees
included as part of Deductible Expenses.
403
VOL. 445, DECEMBER 1, 2004 403
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
low as TWO PERCENT (2%) OF THE VALUE OF THE
MINERALS MINED.
The foreign contractor can do this because Section 39 of the
Mining Act allows it to convert its FTAA into a Mineral
Production-Sharing Agreement (MPSA) by the simple
expedient of reducing its equity in the corporation
undertaking the FTAA to 40%:
SECTION 39. Option to Convert into a Mineral Agreement.—The
contractor has the option to convert the financial or
technical assistance agreement to a mineral agreement at
any time during the term of the agreement, if the economic
viability of the contract area is found to be inadequate to justify
large-scale mining operations, after proper notice to the Secretary
as provided for under the implementing rules and regulations:
Provided, That the mineral agreement shall only be for the
remaining period of the original agreement.
In the case of a foreign contractor, it shall reduce its
equity to forty percent (40%) in the corporation,
partnership, association, or cooperative. Upon compliance
with this requirement by the contractor, the Secretary shall
approve the conversion and execute the mineral production-
sharing agreement. (Emphasis and italics supplied)
And under Section 80 of the Mining Act, in connection with
Section 151(a) of the National Internal Revenue Code (Tax 132
Code), the TOTAL GOVERNMENT SHARE in an MPSA is
ONLY TWO PERCENT (2%) OF THE VALUE OF THE
MINERALS. Section 80 of the Mining Act provides:
SECTION 80. Government Share in Mineral Production Sharing
Agreement.—The total government share in a mineral
production sharing agreement shall be the excise tax on
mineral products as provided in Republic Act No. 7729,
amending Section 151(a) of the National Internal Revenue
Code, as amended. (Emphasis supplied)
_______________
Republic Act No. 8424 as amended.
132
404
404 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
While Section 151(a) of the Tax Code reads:
Sec. 151. Mineral Products.—(a) Rates of Tax.—There shall be
levied, assessed and collected on mineral, mineral products and
quarry resources, excise tax as follows:
1. (1)On coal and coke, a tax of ten pesos (P10.00) per metric
ton.
2. (2)On non-metallic minerals and quarry resources, a tax of
two percent (2%) based on the actual market value of the
annual gross output thereof at the time of removal, in the
case of those locally extracted or produced; or the value used
by the Bureau of Customs in determining tariff and customs
 duties, net of excise tax and value-added tax, in the case of
importation.
3. (3)On all metallic minerals, a tax based on the actual market
value of the gross output thereof at the time of removal, in
the case of those locally extracted or produced; or the value
used by the Bureau of Customs in determining tariff and
customs duties, net of excise tax and value-added tax, in the
case of importation, in accordance with the following
schedule:
1. (a)Copper and other metallic minerals:
1. (i)On the first three (3) years upon the effectivity of this Act,
one percent (1%);
2. (ii)On the fourth and fifth year, one and a half percent (1
1/2%); and
3. (iii)On the sixth year and thereafter, two percent (2%)
1. (b)Gold and chromite, two percent (2%)
1. (4)On indigenous petroleum, a tax of fifteen percent (15%) of
the fair international market price thereof, on the first
taxable sale, such tax to be paid by the buyer or purchaser
within 15 days from the date of actual or constructive
delivery to the said buyer or purchaser. The phrase ‘first
taxable sale, barter, exchange or similar transaction’ means
the transfer of indigenous petroleum in its original state to
a first taxable transferee. The fair international market
price shall be determined in consultation with an
appropriate government agency.
405
VOL. 445, DECEMBER 1, 2004 405
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
For the purpose of this subsection, ‘indigenous petroleum’ shall
include locally extracted mineral oil, hydrocarbon gas, bitumen,
crude asphalt, mineral gas and all other similar or naturally
associated substances with the exception of coal, peat, bituminous
shale and/or stratified mineral deposits. (Emphasis supplied)
By taking advantage of the foregoing provisions and selling
60% of its equity to a Filipino corporation (such as any of the
members of respondent-in-intervention Philippine Chamber
of Mines) a foreign contractor can easily reduce the total
government’s share (held in trust for the benefit of the Filipino
People) in the minerals mined to a paltry 2% while
maintaining a 40% beneficial interest in the same.
What is more, if the Filipino corporation acquiring the
foreign contractor’s stake is itself 60% Filipino-owned and 40%
foreign-owned (a “60-40” Filipino corporation such as
Sagittarius Mines, the putative purchaser of WMC’s 100%
equity in WMCP), then the total beneficial interest of
foreigners in the mineral output of the mining concern would
constitute a majority of 64% while the beneficial ownership of
133
Filipinos would, at most, amount to 36%—34% for the
134
Filipino stockholders of the 60-40 Filipino corporation and 2%
for the Government (in trust for the Filipino People).
The foregoing scheme, provided for in the Mining Act itself,
is no different and indeed is VIRTUALLY IDENTICAL to
thatembodied in SECTION 7.9 OF THE WMCP FTAA
WHICH THE MAJORITY OPINION ITSELF FOUND TO BE
“without a doubt GROSSLY DISADVANTAGEOUS TO
THE GOVERNMENT, DETRIMENTAL TO THE
INTERESTS OF
_______________
133 The 40% equity of the foreign stockholders in a 60-40 Filipino corporation
would translate to a 24% (40% x 60%) beneficial interest in the corporation
undertaking the MPSA.
134 Of course, the 60% Filipino equity in a 60-40 Filipino corporation could
also be held by another 60-40 Filipino corporation or corporations, further
diluting actual Filipino beneficial interest and increasing foreign beneficial
interest.
406
406 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
THE FILIPINO PEOPLE, AND VIOLATIVE OF
PUBLICPOLICY:”
x x x 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 1 percent of Net Mining Revenues
for every 1percent ownership interest in the Contractor (i.e., WMCP) held by
a Qualified Entity.
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 exploration 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 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; andforeign
stockholders will own beneficially up to 64 percent of
WMCP,consisting of the remaining 40percent foreign equity
therein, plus the 24 percent pro-rata share in the buyer-
corporation.
xxx
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
407
VOL. 445, DECEMBER 1, 2004 407
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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 itself thereof 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” [Footnote 75 of the Dissent omitted] as
essential guiding principles to be kept in mind when negotiating the
terms and conditions of FTAAs.
xxx
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 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. (Emphasis supplied; italics and
underscoring in the original; footnotes omitted)
The foregoing disquisition is directly applicable to the
provisions of the Mining Act. By selling 60% of its outstanding
equity to a 60% Filipino-owned and 40% foreign-owned
corporation, the foreign contractor can readily convert its
FTAA into an MPSA. Effectively, the State’s share in the net
benefits
408
408 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
from mining will be automatically and drastically reduced
from the theoretical 50% anticipated under DAO 99-56 to
merely 2%. What is given to the State by Section 81 and DAO
99-56 is all but eliminated by Sections 39 and 80. At the same
time, foreign stockholders will beneficially own up to 64% of the
mining concern, consisting of the remaining 40% foreign equity
therein plus the 24% pro-rata share in the buyer-corporation.
It is possible that, like Section 7.9 of the WMCP FTAA,
Section 39 of the Mining Act was intended to provide some
form of incentive for the foreign FTAA contractor to eventually
reduce its equity position and ultimately divest itself thereof
in favor of Filipino citizens and corporations. However, the net
effect is to allow the Filipino people to be robbed of their just
share in Philippine mineral resources. Such an outcome is
completely unacceptable and cannot be sanctioned by this
Court.
By this simple conversion, which may be availed of at any
time, the local and foreign stockholders will obtain a windfall
at the expense of the Government, which is the trustee of the
Filipino people. The share of these stockholders in the net
mining revenues from Philippine resources will be
automatically increased without their having to pay the
government anything in exchange.
On this basis alone, and despite whatever other differences
of opinion might exist, the majority must concede that the
provisions of the Mining Act are grossly disadvantageous to the
government, detrimental to the interests of the Filipino people,
and violative of Section 2, Article XII of the Constitution.
En passant, it is significant to note that Section 39 of the
Mining Act allows an FTAA holder to covert its agreement to
an MPSA “at any time during the term of the agreement.”
As any reasonable person with a modicum of business
experience can readily determine, the optimal time for the
foreign contractor to convert its FTAA into an MPSA is after
the
409
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
completion of the exploration phase and just before
undertaking the development, construction and utilization
phase. This is because under Section 56 (a) of DAO 96-40, the
requirement for a minimum investment of Fifty Million U.S.
Dollars (US$ 50,0000,000.00) is only applicable during the
135
development, construction and utilization phase and NOT
during the exploration phase where the foreign contractor
need only comply with the stipulated minimum ground
expenditures:
SECTION 56. Terms and Conditions of an FTAA.—The following
terms, conditions and warranties shall be incorporated in the FTAA,
namely:
1. a.A firm commitment, in the form of a sworn statement
during the existence of the Agreement, that the Contractor
shall comply with minimum ground expenditures during
the exploration and pre-feasibility periods as follows:
Year US $/Hectare
1 2
2 2
3 8
4 8
_______________
135 As noted in the Decision (La Bugal-B’Laan Tribal Association, Inc., supra at
212-213), unlike E.O. 279, the Mining Act does not define “large-scale” in terms of
capital expenditure although this was evidently the way it was understood by the
1986 Constitutional Commission. (vide: III RECORDS OF THE
CONSTITUTIONAL COMMISSION 255).
In fact, the Mining Act does not categorically define “large-scale” at all.
However, a comparison of the maximum areas for exploration in Section 22 for
Exploration Permits (400 meridional blocks onshore for corporations), Section 28
for Mineral Agreements (200 meridional blocks for corporations) and Section 34 for
FTAAs (1,000 meridional blocks for corporations) indicates that “large-scale” under
the Mining Act refers to the size of the contract area.
It is only Section 56 of DAO 96-40 that any reference to the US$50,000,000.00
minimum capital investment prescribed by E.O. 279 is made.
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410 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
5 18
6 23
and a minimum investment of Fifty Million US Dollars
($50,000,000.00) or its Philippine Peso equivalent in the case of
Filipino Contractor for infrastructure and development in the
contract area. If a Temporary/Special Exploration Permit has been
issued prior to the approval of an FTAA, the exploration
expenditures incurred shall form part of the expenditures during
the first year of the exploration period of the FTAA.
In the event that the Contractor exceeds the minimum
expenditure requirement in any one (1) year, the amount in excess
may be carried forward and deducted from the minimum
expenditure required in the subsequent year. In case the minimum
ground expenditure commitment for a given year is not met for
justifiable reasons as determined by the Bureau/concerned Regional
Office, the unexpended amount may be spent on the subsequent
year(s) of the exploration period. (Emphasis supplied)
By converting its FTAA to an MPSA just before undertaking
development, construction and utilization activities, a foreign
contractor further maximizes its profits by avoiding its
obligation to make a minimum investment of US$
50,0000,0000.00. Assuming an exploration term of 6 years, it
will have paid out only a little over US$ 2.4 million in 136
minimum ground expenditures.
Clearly, under the terms and provisions of the Mining Act,
even the promised influx of tens of millions of dollars in direct
_______________
136 Applying the formula in Section 56 (a) of DAO 96-40 and assuming: (1)
the foreign FTAA contractor began with the maximum contract area of 1,000
meridional blocks onshore, (2) an exploration period of 6 years and (3)
compliance with Section 60 of DAO 96-40 on relinquishment of areas covered
by FTAA.
The figure for an exploration period of 10 years is US$ 4.8 million. The
figure for a 20-year exploration period is US$ 7.7 million.
One meridional block is equivalent to 81 hectares. (Website of the
Philippine Mines and Geosciences Bureau www.mgb.gov.ph/epprimer.htm)
411
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
foreign investments is merely hypothetical and ultimately
illusory.
Grant of Exploration Permits to
Foreign Corporations is Uncon
stitutional
The majority is also convinced that Section 3(aq) of the Mining
Act, defining foreign corporations as a qualified entity for the
purposes of granting exploration permits, is “not
unconstitutional.”
The questioned provision reads:
SECTION 3. Definition of Terms.—As used in and for purposes of
this Act, the following terms, whether in singular or plural, shall
mean:
xxx
(aq) “Qualified person” means 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: 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. (Emphasis supplied)
In support of its contention that the above-quoted provision
does not offend against the Constitution, the majority opinion
states that: (1) “there is no prohibition at all against foreign or
local corporations or contractors holding exploration permits;”
and (2) an “exploration permit serves a practical and
legitimate purpose in that it protects the interests and
preserves the rights of the exploration permit grantee x x x
during the period of time that it is spending heavily on
exploration works, without yet being able to earn revenues x x
x.”
412
412 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
The majority opinion also characterizes an exploration permit
as “an authorization for the grantee to spend its funds on
exploration programs that are pre-approved by the
government.” And it comments that “[t]he State risks nothing
and loses nothing by granting these permits” to foreign firms.
These contentions fail for two obvious reasons.
First, setting aside for the moment all disagreements
pertaining to the construction of Section 2, Article XII of the
Constitution, the following, at the very least, may be said to
have been conclusively determined by this Court: (1) the only
constitutionally sanctioned method by which a foreign entity
may participate in the natural resources of the Philippines is
by virtue of paragraph 4 of Section 2, Article XII of the
Constitution; (2) said provision requires that an agreement be
entered into (3) between the President and the foreign
corporation (4) for the large-scale exploration, development,
and utilization of minerals, petroleum, and other mineral oils
(5) according to the general terms and conditions provided by
law, (6) based on real contributions to the economic growth and
general welfare of the country; (7) such agreements
will promote the development and use of local scientific and
technical resources; and (8) the President shall notify the
Congress of every contract entered into in accordance with this
provision, within thirty days from its execution.
However, by the majority opinion’s express admission, the
grant of an exploration permit does not even contemplate the
entry into an agreement between the State and the applicant
foreign corporation since “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.”
Consequently, the grant of an exploration permit—which is
not an agreement—cannot possibly be construed as being
favorably sanctioned by paragraph 4 of Section 2, Article XII
of the Constitution which refers to “agreements . . . involving
either financial or technical assistance.” Not falling within the
413
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
exception embodied in paragraph 4 of Section 2, Article XII of
the Constitution, the grant of such a permit to a foreign
corporation is prohibited and the proviso providing for such
grant in Section 3 (aq) of the Mining Act is void for being
unconstitutional.
Second, given the foregoing discussion on the
circumvention of the State’s share in an FTAA, it is clearly
evident that to allow the grant of exploration permits to
foreign corporations is to allow the whole-sale circumvention
of the entire system of FTAAs mandated by the Constitution.
For Chapter IV of the Mining Act on Exploration
Permits grants to the permit holder, including foreign
corporations, the principal rights conferred on an FTAA
contractor during the exploration phase, including (1)
the right to enter, occupy and explore the permit area under
Section 23, and (2) the exclu-
137
_______________
137 SECTION 23. Rights and Obligations of the Permittee.—An exploration
permit shall grant to the permittee, his heirs or successors-in-interest, the
right to enter, occupy and explore the area: Provided, That if private or other
parties are affected, the permittee shall first discuss with the said parties the
extent, necessity, and manner of his entry, occupation and exploration and in
case of disagreement, a panel of arbitrators shall resolve the conflict or
disagreement.
The permittee shall undertake an exploration work on the area as specified
by its permit based on an approved work program. Any expenditure in excess
of the yearly budget of the approved work program may be carried forward and
credited to the succeeding years covering the duration of the permit. The
Secretary, through the Director, shall promulgate rules and regulations
governing the terms and conditions of the permit.
The permittee may apply for a mineral production sharing agreement, joint
venture agreement, co-production agreement or financial or technical
assistance agreement over the permit area, which application shall be granted
if the permittee meets the necessary qualifications and the terms and conditions
of any such agreement: Provided, That the exploration period covered by the
exploration permit shall be included as part of the exploration period of the
414
414 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
sive right to an MPSA or other mineral agreements or FTAAs
upon the filing of a Declaration of Mining Project Feasibility
under Sections 23 and 24; but requires none of the obligations
138
of an FTAA—not even the obligation under Section 56 of DAO
40-96 to pay the minimum ground expenditures during the
exploration and feasibility period. 139
Thus, all that a foreign mining company need do to further
maximize its profits and further reduce the Government’s
revenue from mining operations is to apply for an exploration
permit and content itself with the “smaller” permit area of 400
meridional blocks onshore (which itself is not small
considering that it is equivalent to 32,400 hectares or
324,000,000 square meters). It is not obligated to pay any
140
minimum ground expenditures during the exploration period.
Should it discover minerals in commercial quantities, it can
circumvent the Fiscal Regime in DAO 99-56 by divesting 60%
of its equity in favor of a Philippine corporation and opting to
enter into an MPSA. By doing so it automatically reduces the
Government’s TOTAL SHARE to merely 2% of value of the
minerals mined by operation of Section 81.
_______________
mineral agreement or financial or technical assistance agreement.
(Emphasis supplied)
138 SECTION 24. Declaration of Mining Project Feasibility.—A holder of an
exploration permit who determines the commercial viability of a project
covering a mining area may, within the term of the permit, file with the Bureau
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 provided in this Act shall entitle the holder to an
exclusive right to a mineral production sharing agreement or other mineral
agreements or financial or technical assistance agreement. (Emphasis
supplied)
139 Sections 17-30 of DAO 96-40 on exploration permits contains absolutely
no minimum requirement for ground expenditures, much less the minimum
required investment of US$ 50,000,000.00 for development, infrastructure and
utilization.
140 Vide: note 20.
415
VOL. 445, DECEMBER 1, 2004 415
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
And if the Philippine corporation to which it divested its 60%
foreign equity is itself a 60-40 Philippine Corporation, then the
beneficial interest of foreigners in the minerals mined would
be a minimum of 64%.
In light of the foregoing, Section 3 (aq), in so far as it allows
the granting of exploration permits to foreign corporations, is
patently unconstitutional, hence, null and void.
II Invalidity of the WMCP FTAA
Sale of foreign interest in WMCP to a Filipino
corporation did not render the case moot and academic.
Respondent WMCP, now renamed Tampakan Mineral
Resources Corporation, submits that the case has been
rendered moot since “[e]xcept for the nominal shares of
directors, 100% of TMRC’s share are now owned by
Sagittarius Mines, which is a Filipino-owned corporation.
More than 60% of the equity of Sagittarius is owned by
Filipinos or Filipino-owned corporations.” This Court 141
initially reserved judgment on this issue. 142
Petitioner invokes by analogy the rule that where land is
invalidly transferred to an alien who subsequently becomes a
Filipino citizen or transfers it to one, the infirmity in the
original transaction is considered cured and the title of the
transferee is rendered valid, citing Halili v. Court of
Appeals. The rationale for this rule is that if the ban on aliens
143
_______________
141 Memorandum for WMCP, p. 2.
 La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at p. 176.
142
287 SCRA 465, 474 (1998). The Constitution prohibits non-Filipinos from
143
acquiring or holding title to private lands or to lands of the public domain,
except only by way of legal succession.
416
416 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
from acquiring lands is to preserve the nation’s lands for
future generations of Filipinos, that aim or purpose would not
be thwarted but achieved by making lawful the acquisition of
real estate by Filipino citizens. 144
Respondent WMCP’s analogy is fallacious. Whether the
legal title to the corporate vehicle holding the FTAA has been
transferred from a foreigner to a Filipino is irrelevant. What
is relevant is whether a foreigner has improperly and illegally
obtained an FTAA and has therefore benefited from the
exploration, development or utilization of Philippine natural
resources in a manner contrary to the provisions of the
Constitution.
As above-stated the doctrine enunciated in Halili is based
on the premise that the purpose of the Constitution in
prohibiting alien ownership of agricultural land is to retain
the ownership or legal titleof the land in the hands of Filipinos.
This purpose is not identical or even analogous to that in
Section 2, Article XII of the Constitution. As priorly discussed,
the primary purpose of the provisions on National Patrimony
is to preserve to the Filipino people the beneficial ownership of
their natural resources—i.e. the right to the gains, rewards
and advantages generated by their natural resources. Except
under the terms of Section 2, Article XII, foreigners are
prohibited from involving themselves in the exploration,
development or utilization of these resources, much less from
profiting from them.
Divestment by a foreigner of an illegally acquired right to
mine Philippine resources does not alter the illegal character
of the right being divested or sold. Indeed, such divestment or
sale is obviously a method by which the foreigner may derive
pecuniary benefit from his unlawful act since he receives
payment for his illegally acquired interest in the country’s
natural resources.
_______________
Id., at p. 475.
144
417
VOL. 445, DECEMBER 1, 2004 417
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
To rule otherwise would be to condone, even to invite, foreign
entities to obtain Philippine mining interests in violation of
the Constitution with the assurance that they can escape
liability and at the same time make a tidy sum by later selling
these interests to Filipinos. This is nothing less than allowing
foreign speculation in Philippine natural resources. Worse,
there is the very real possibility that these foreign entities may
intentionally inflate the value of their illegally– acquired
mineral rights to the detriment of their Filipino purchasers as
the past Bre-X scandal and recent Shell oil reserve
145
controversy vividly illustrate.
146
To allow a foreigner to profit from illegally obtained mining
rights or FTAAs subverts and circumvents the letter and
intent of Article XII of the Constitution. It facilitates rather
than prevents the rape and plunder of the nation’s natural
resources by unscrupulous neo-colonial entities. It thwarts,
rather than achieves, the purpose of the fundamental law.
As applied to the facts of this case, respondent WMCP, in
essence, claims that now that the operation and management
of the WMCP FTAA is in the hands of a Filipino company, no
serious question as to the FTAA’s validity need arise.
On the contrary, this very fact—that WMC has sold its
100% interest in WMCP to a Filipino company for
US$10,000,000.00—directly leads to some very serious ques-
_______________
145 In 1997 Bre-X, a large Canadian mining firm, was found to have inflated
the prospective amount of gold deposits in its Busang, Indonesia mining
operation by “salting” and tampering with gold samples taken from the site.
After news of the gold salting scam had broken out, Bre-X’s share price fell by
almost 90%. [W. Symonds & M. Shari, ‘After Bre-X, Gold’s Glow is Gone’
Available at http://www.businessweek.com/1997/15/b352267.htm]
146 In January, 2004, 20% of Royal Dutch/Shell’s reserves of oil and gas were
reclassified from “proven” to merely “probable” or other even less certain
categories. As a result, Shell’s share prices fell by 7% [‘Shell shock’ Available
at http://www.economist.co.uk/business/PrinterFriendly.cfm?Story_ID=23544
69]
418
418 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
tions concerning the WMCP FTAA and its validity. First, if a
Filipino corporation is capable of undertaking the terms of the
FTAA, why was an agreement with a foreign owned
corporation entered into in the first place? Second, does not
the fact that, as alleged by petitioners and admitted by
147
respondent WMCP, Sagittarius, WMCP’s putative new
148
owner, is capitalized at less than half the purchase price of 149
WMC’s shares in WMCP, a strong indication that Sagittarius
is merely acting as the dummy of WMC? Third, if indeed
WMCP has, to date, spent US$40,000,000.00 in the
implementation of the FTAA, as it claims, why did WMC sell
150
100% of its shares in WMCP for only US$10,000,000.00?
Finally, considering that, as emphasized by
WMCP, “payment of the purchase price by Sagittarius to
151
WMC will come only after the commencement of commercial
production,” hasn’t WMC effectively acquired a beneficial
interest in any minerals mined in the FTAA area to the extent
of US$10,000,000.00? If so, is the acquisition of such a
beneficial interest by a foreign corporation permitted under
our Constitution?
Succinctly put, the question remains: What is the validity
of the FTAA by which WMC, a fully foreign owned
corporation, has acquired a more than half billion
peso interest in Philippine mineral resources located in a
152
contract area of 99,387 (alleged to have later been reduced to
30,000) hectares of land spread acrossthe four provinces of
153
South Cotabato, Sultan Kudarat, Davao del Sur and North
Cotabato?
_______________
147Memorandum for Petitioners at p. 14.
148Memorandum for WMCP at p. 67.
149 US$ 4,000,000.00 or approximately P224,000,000.00.
150 Memorandum for WMCP at p. 16.
151 Id., at p. 67.
152 At the prevailing rate of exchange, the US$10,000,000.00 selling price of
WMC’s shares in WMCP is worth approximately P560,000,000.00.
153 TSN at pp. 155-156; Memorandum for WMCP at pp. 60-61.
419
VOL. 445, DECEMBER 1, 2004 419
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Clearly then, the issues of this case have not been rendered
moot by the sale of WMC’s 100% interest in WMCP to a
Filipino corporation, whether the latter be Sagittarius or
Lepanto. If the FTAA is held to be valid under the
Constitution, then the sale is valid and, more importantly,
WMC’s US$10,000,000.00 interest in Philippine mineral
deposit, arising as it did from the sale and its prior 100%
ownership of WMCP, is likewise valid. However, if the FTAA
is held to be invalid, then neither WMC’s interest nor the sale
which gave rise to said interest is valid for no foreigner may
profitfrom the natural resources of the Republic of the
Philippines in a manner contrary to the terms of the
Philippine Constitution. If held unconstitutional, the
WMCP FTAA is void ab initio for being contrary to the
fundamental law and no rights may arise from it, either in
favor of WMC or its Filipino transferee.
Evidently, the transfer of the shares in WMCP from WMC
Resources International Pty. Ltd. (WMC), a foreign-owned
corporation, to a Filipino-owned one, whether Sagittarius or
Lepanto, now presently engaged in a dispute over said
shares, did not “cure” the FTAA nor moot the petition at bar.
154
On the contrary, it is the Decision in this case that rendered
those pending cases moot for the invalidation of the FTAA
leaves Sagittarius and Lepanto with nothing to dispute.
Terms of the WMCP FTAA are contrary to the
Constitution and render said FTAA null and void.
The WMCP FTAA is clearly contrary to the agreements
provided for in Section 2, Article XII of the Constitution. In the
Decision under reconsideration, this Court observed:
_______________
La Bugal-B’Laan Tribal Association, Inc. v. Ramos, supra at p. 176.
154
420
420 SUPREME COURT REPORTS ANNOTATED
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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.” The FTAA also imbues WMCP with the following
rights:
1. (b)to extract and carry away any Mineral samples from the
Contract area for the purpose of conducting tests and
studies in respect thereof;
2. (c)to determine the mining and treatment processes to be
utilized during the Development/Operating Period and the
project facilities to be constructed during the Development
and Construction Period;
3. (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
lands by surface owners and/or occupants thereof when
prospecting, exploring and exploiting for minerals therein;
xxx
4. (f)to construct roadways, mining, drainage, power generation
and transmission facilities and all other types of works on
the Contract Area;
5. (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;
6. (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
7. (l)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.
All materials, equipment, plant and other installations erected
or placed on the Contract Area remain the property of WMCP, which
421
VOL. 445, DECEMBER 1, 2004 421
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
has the right to deal with and remove such items within twelve
months from the termination of the FTAA.
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,” and to “furnish
all materials, labour, equipment and other installations that may be
required for carrying on all Mining Operations.” 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.
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. (Citations omitted)
155
Indeed, save for the fact that the contract covers a larger area,
the subject FTAA is actually a mineral production sharing
agreement. Respondent WMCP admitted as much in its
Memorandum. The first paragraph of Section 2, Article XII
156
of the Constitution, however, allows this type of agreement
only with Filipino citizens or corporations.
That the subject FTAA is void for having an unlawful cause
bears reaffirmation. In onerous contracts the cause is
understood to be, for each contracting party, the prestation or
prom-ise of a thing or service by the other. On the part of
157
WMCP, a foreign-owned corporation, the cause was to extend
not only technical or financial assistance but management
assistance as well. The management prerogatives
contemplated by the FTAA are not merely incidental to the
two other forms of
_______________
155 Id., at pp. 243-245.
156 Memorandum for WMCP at p. 5.
157 CIVIL CODE, art. 1350.
422
422 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
assistance, but virtually grant WMCP full control over its
mining operations. Thus, in Section 8.3 of the FTAA, in case
158
of a dispute between the DENR and WMCP, it is WMCP’s
decision which will prevail.
The questioned FTAA also grants beneficial ownership over
Philippine natural resources to WMCP, which is prohibited
from entering into such contracts not only by the fourth
paragraph of Section 2, Article XII of the Constitution, but also
by the first paragraph, the FTAA practically being a
production-sharing agreement reserved to Filipinos.
Contracts whose cause is contrary to law or public policy are
inexistent and void from the beginning. They produce no
159
effect whatsoever. They cannot be ratified,161 and so cannot
160
the WMCP FTAA.
The terms of the WMCP FTAA effectively give away the
Beneficial Ownership of Philippine minerals
As previously observed, the majority opinion finds Section 7.9.
of the WMCP FTAA to be “grossly disadvantageous to the
government, detrimental to the interests of the Filipino
people, and violative of public policy” since it “effectively gives
_______________
158 Section 8.3 provides:
If the Secretary gives a Rejection Notice the Parties shall promptly meet and endeavour
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 this Agreement. (Emphasis supplied; Rollo, p. 92-93.)
159 CIVIL CODE, art. 1409 (1).
160 Id., art. 1352.
161 Id., art. 1409.
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
away the State’s share of net mining revenues (provided for in
Section 7.7) without anything in exchange.”
It likewise finds Section 7.8(e) of the WMCP FTAA to be
invalid. Said provision states:
7.8 The Government Share shall be deemed to include all of the
following sums:
xxx
(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. (Emphasis supplied)
And in its own estimation:
Section 7.8(e) is out of place in the FTAA. This provision does not
make any 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. To do so would constitute 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. 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.x x x
(Emphasis supplied; citations omitted; underscore in the original)
The foregoing estimation notwithstanding, the majority
opinion declines to invalidate the WMCP FTAA on the theory
that Section 7.9 and 7.8 are separable from the rest of the
agreement, which may supposedly be given effect without the
offending provisions.
As previously discussed, the same deleterious results are
easily achieved by the foreign contractor’s conversion of its
FTAA into an MPSA under the provisions of the Mining Act.
Hence, merely striking out Sections 7.9 and 7.8(e) of the
424
424 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
WMCP FTAA will not suffice; the provisions pertaining to
FTAAs in the Mining Act must be stricken out for being
unconstitutional as well.
Moreover, Section 7.8 (e) and 7.9 are not the only provisions
of the WMCP FTAA which convey beneficial ownership of
mineral resources to a foreign corporation.
Under Section 10.2 (l) of the WMCP FTAA, the foreign
FTAA contractor shall have the right to mortgage and
encumber, not only its rights and interests in the FTAA,
but the very minerals themselves:
10.2 Rights of Contractor
The Government agrees that the Contractor shall:
xxx
(l) 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; (Emphasis supplied)
Although respondents did not proffer their own explanation,
the majority opinion theorizes that the foregoing provision is
necessitated by the conditions that may be imposed by
creditor-banks on the FTAA contractor:
x x x I 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 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. (Citations omitted; underscore in the
original)
It, however, overlooks the provision of Art. 2085 of the Civil
Code which enumerates the essential requisites of a contract
of mortgage:
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VOL. 445, DECEMBER 1, 2004 425
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Art. 2085. The following requisites are essential to the
contracts of pledge and mortgage:
1. (1)That they be constituted to secure the fulfillment of a
principal obligation;
2. (2)That the pledgor or mortgagor be the absolute
owner of the thing pledged or mortgaged;
3. (3)That the persons constituting the pledge or mortgage have
the free disposal of their property, and in the absence
thereof, that they be legally authorized for the purpose.
Third persons who are not parties to the principal obligation may
secure the latter by pledging or mortgaging their own property.
(Emphasis and italics supplied)
From the foregoing provision of law, it is abundantly clear
that only the absolute owner of the minerals has
the right to mortgage the same, and under Section 2,
Article XII of the Constitution the absolute owner of the
minerals is none other than the State. While the foreign
FTAA contractor may have an interest in the proceeds of the
minerals, it does not acquire ownership over the minerals
themselves.
Put differently, the act of mortgaging the minerals is
an act of ownership, which, under the Constitution, is
reserved solely to the State. In purporting to grant such power
to a foreign FTAA contractor, Section 10.2 (l) of the WMCP
FTAA clearly runs afoul of the Constitution.
 Moreover, it bears noting that to encumber natural
resources of the State to secure a foreign FTAA contractor’s
obligations is anomalous since Section 1.2 of the WMCP FTAA
provides that “[a]ll financing, technology, management and
personnel necessary for the Mining Operations shall be
provided by the Contractor.”
Indeed, even the provisions of the Mining Act, irredeemably
flawed though they may be, require that the FTAA contractor
have the financial capability to undertake the large-scale
exploration, development and utilization of mineral
426
426 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
resources in the Philippines; and, specifically, that the
162
contractor warrant that it has or has access to all the financing
required to promptly and effectively carry out the objectives of
the FTAA. 163
Under Section 10.2 (e) of the WMCP FTAA, the foreign
FTAA Contractor has the power to require the Government to
acquire surface rights in its behalf at such price and terms
acceptable to it:
10.2 Rights of Contractor
The Government agrees that the Contractor shall:—
xxx
(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; (Emphasis supplied)
Petitioners, in their Memorandum, point out that pursuant to
the foregoing, the foreign FTAA contractor may compel the
Government to exercise its power of eminent domain to
acquire the title to the land under which the minerals are
located for and in its behalf.
The majority opinion, however, readily accepts the
explanation proffered by respondent WMCP, thus:
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
_______________
162 R.A. No. 7942, sec. 33.
163 Id., sec. 35 (e).
427
VOL. 445, DECEMBER 1, 2004 427
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
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 the 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.
And it concludes that “the provision does not call for the
exercise of the power of eminent domain” and the
determination of just compensation.
The foregoing arguments are specious.
First, the provision in question clearly contemplates a
situation where the surface area is not already owned by the
Government—i.e. when the land over which the minerals are
located is owned by some private person.
Second, the logical solution in that situation is not, as
asserted by respondent WMCP, to have the Government
purchase or acquire the land, but for the foreign FTAA
contractor to negotiate a lease over the property with the
private owner.
Third, it is plain that the foreign FTAA contractor would
only avail of Section 10.2 (e) if, for some reason or another, it
is unable to lease the land in question at the price it is willing
to pay. In that situation, it would have the power under Section
10.2 (e) to compel the State, as the only entity which can legally
compel the landowner to involuntarily part with his property,
to acquire the land at a price dictated by the foreign FTAA
contractor.
Clearly, the State’s power of eminent domain is very much
related to the practical workings of Section 10.2 (e) of the
WMCP FTAA. It is the very instrument by which the
contractor assures itself that it can obtain the “surface right”
to the property at a price of its own choosing. Moreover, under
Section 60 of DAO 40-96, the contractor may, after final
relinquishment, hold up to 5,000 hectares of land in this
manner.
More. While the foreign FTAA contractor advances the
purchase price for the property, in reality it acquires the “sur-
428
428 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
face right” for free since under the same provision of the
WMCP FTAA it is entitled to reimbursement of the costs of
acquisition and maintenance, adjusted for inflation. And as if
the foregoing were not enough, when read together with
Section 3.3, the foreign FTAA contractor would have the
164
right to hold the “surface area” for a maximum of 50 years, at
its option.
In sum, by virtue of Sections 10.2 (e) and 3.3. of the WMCP
FTAA, the foreign FTAA contractor is given the power to hold
inalienable mineral land of up to 5,000 hectares, with the
assistance of the State’s power of eminent domain, free of
charge, for a period of up to 50 years in contravention of Section
3, Article XII of the Constitution:
Section 3. Lands of the public domain are classified into
agricultural, forest or timber, mineral lands, and national parks.
Agricultural lands of the public domain may be further classified by
law according to the uses which they may be devoted. Alienable
lands of the public domain shall be limited to agricultural lands.
Private corporations or associations may not hold such alienable
lands of the public domain except by lease, for a period not exceeding
twenty-five years, renewable for not more than twenty-five years, and
not to exceed one thousand hectares in area. Citizens of the
Philippines may lease not more than five hundred hectares, or
acquire not more than twelve hectares thereof by purchase,
homestead, or grant.
Taking into account the requirements of conservation, ecology,
and development, and subject to the requirements of agrarian
reform, the Congress shall determine, by law, the size of lands of the
public domain which may be acquired, developed, held, or leased
and the conditions therefor. (Emphasis supplied)
_______________
1643.3. 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 terms of this Agreement
and provided that the Contractor is not in breach of any of the requirements of
this Agreement.
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Taken together, the foregoing provisions of the WMCP FTAA
amount to a conveyance to a foreign corporation of the
beneficial ownership of both the minerals and the surface
rights to the same in contravention of the clear provisions of
the Constitution.
The majority opinion posits that “[t]he 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 thus concludes that “5,000
hectares is way too much for the needs of a mining operator.”
Evidently, the majority opinion does not take into account
open pit mining. Open pit or opencut mining, as differentiated
from methods that require tunneling into the earth, is a
method of extracting minerals by their removal from an open
pit or borrow; it is a mine working in which excavation is
165
performed from the surface. It entails a surface mining
166
operation in which blocks of earth are dug from the surface to
extract the ore contained in them. During the mining process,
the surface of the land is excavated forming a deeper and
deeper pit until the end of mining operations. It is used 167
extensively in mining metal ores, copper, gold, iron,
aluminum —the very minerals which the Philippines is
168
believed to possess in vast quantities; and is considered the
most cost-effective mining method. 169
Furthermore, considering that FTAAs deal with large
scaleexploration, development and utilization of mineral
resources and that the original contract area of the WMCP
FTAA was
_______________
165 http://en.wikipedia.org/wiki/Open-pit_mininghtm.
166 Webster’s Third New International Dictionary 1579 (1976).
167 http://riot.ieor.berkeley.edu/riot/Applications/OPM/OPMDetails.html.
168 http://www.mine-
engineer.com/mining/open_pit.htm;http://en.wikipedia.org/wiki/Open-
pit_mininghtm.
169 http://www.mcq.org/roc/en/exploitation/exploitation_2_1_2.html.
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430 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
99,387 hectares, an open pit mining operation covering a total
of 5,000 hectares is not outside the realm of possibility.
In any event, regardless of what the majority opinion
considers “way too much” (or too little), it is undisputed
that under Section 60 of DAO 96-40, which is among the
enactments under review, the contractor may, after final
relinquishment, hold up to 5,000 hectares of land. And, under
Section 3.3. of the WMCP FTAA, it may do so for a term of 25
years automatically renewable for another 25 years, at the
option of the contractor.
The majority opinion also argues that, although entitled to
reimbursement of its acquisition cost at the end of the contract
term, the FTAA contractor does not acquire its surface rights
for free since “the contractor will have been cash-out for the
entire duration of the term of the contract—25 to 50 years,
depending,” thereby foregoing any interest income he might
have earned. This is the “opportunity cost” of the contractor’s
decision to use its money to acquire the surface rights instead
of leaving it in the bank.
The majority opinion does not consider the fact that
“opportunity cost” is more theoretical rather than actual and,
for that reason, is not an allowable deduction from gross
income in an income statement. In layman’s terms it is
equivalent to “the value of the chickens that might have been
hatched if only the cook had not scrambled the eggs.” Neither
does it consider the fact that the contractor’s foregone interest
income does not find its way to the pockets of either the
previous land owner (in this case, the Bugal B’Laans) or the
State.
But even if the contractor does incur some opportunity cost
in holding the surface rights for 35 to 50 years. The fact
remains that, under the terms of the WMCP FTAA, the
contractor is given the power to hold inalienable
mineral land of up to 5,000 hectares, with the assistance
of the State’s power of eminent domain for a period of
up to 50 years in contravention of Section 3, Article XII
of the Constitution.
431
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Clearly, Section 3 and 10.2 (e) of the WMCP FTAA in
conjunction with Section 60 of DAO 96-40, amount to a
conveyance to a foreign corporation of the beneficial ownership
of both the minerals and the surface rights over the same, in
contravention of the clear provisions of the Constitution.
The terms of the WMCP FTAA abdicate all control over
the mining operation in favor of the foreign FTAA
contractor
The majority opinion’s defense of the constitutionality of
Section 8.1, 8.2, 8.3 of the WMCP FTAA is similarly
unpersuasive. These Sections provide:
8.1 The Secretary shall be deemed to have approved any
Work Programme or Budget or variation thereof submitted
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 therefore (“the Rejection
Notice”).
8.2 If the Secretary gives a Rejection Notice the Parties shall
promptly meet and endeavour 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 this Agreement.
Even measured against the majority opinion’s standards of
control—i.e. either (1) the power to set aside, reverse, or
modify plans and actions of the contractor; or (2) regulatory
control—the foregoing provisions cannot pass muster. This is
because, by virtue of the foregoing provisions, the foreign
FTAA contractor has unfettered discretion to countermand
the orders of its putative regulator, the DENR.
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432 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
Contrary to the majority’s assertions, the foregoing provisions
do not provide merely temporary or stop-gap solutions. The
determination of the FTAA contractor permanently reverses the
“Rejection Notice” of the DENR since, by the majority opinion’s
own admission, there is no available remedy for the DENR
under the agreement except to seek the cancellation of the
same.
Indeed, the justification for the foregoing provisions is
revealing:
x x x First, avoidance of long delays in these situations will
undoubtedly redound to the benefit of the State as well as to 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.(Emphasis
and italics supplied)
Both reasons tacitly rely on the unstated assumption that the
interest of the foreign FTAA contractor and that of the
Government are identical. They are not.
Private businesses, including large foreign-owned
corporations brimming with capital and technical expertise,
are primarily concerned with maximizing the pecuniary
returns to their owners or shareholders. To this extent, they
can be relied upon to pursue the most efficient courses of
action which maximize their profits at the lowest possible cost.
The Government, on the other hand, is mandated to
concern itself with more than just narrow self-interest. With
respect to the nation’s natural wealth, as the majority opinion
points out, the Government is mandated to preserve, protect
and even maximize the beneficial interest of the Filipino
people in their natural resources. Moreover, it is directed to
ensure that the large-scale exploration, development and utili-
433
VOL. 445, DECEMBER 1, 2004 433
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
zation of these resources results in real contributions to the
economic growth and general welfare of the nation. To achieve
these broader goals, the Constitution mandates that the State
exercise full control and supervision over the exploration,
development and utilization of the country’s natural
resources.
However, taking the majority opinion’s reasoning to its
logical conclusion, the business “insider’s opinion” would
always be superior to the Government’s administrative or
regulatory determination with respect to mining operations.
Consequently, it is the foreign contractor’s opinion that should
always prevail. Ultimately, this means that, at least for the
majority, foreign private business interests outweigh those of
the State—at least with respect to the conduct of mining
operations.
 Indeed, in what other industry can the person regulated
permanently overrule the administrative determinations of
the regulatory agency?
To any reasonable mind, the absence of an effective means
to enforce even administrative determinations over an FTAA
contractor, except to terminate the contract itself, falls far too
short of the concept of “full control and supervision” as to cause
the offending FTAA to fall outside the ambit of Section 2,
Article XII of the Constitution.
Verily, viewed in its entirety, the WMCP FTAA cannot
withstand a rigid constitutional scrutiny since, by its
provisions, it conveys both the beneficial ownership of
Philippine minerals and control over their exploration,
development and utilization to a foreign corporation. Being
contrary to both the letter and intent of Section 2, Article XII of
the Constitution, the WMCP FTAA must be declared void and
of no effect whatsoever.
A Final Note
For over 350 years, the natural resources of this nation have
been under the control and domination of foreign powers—
whether political or corporate. Philippine mineral
434
434 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
wealth, viciously wrenched from the bosom of the motherland,
has enriched foreign shores while the Filipino people, to whom
such wealth justly belongs, have remained impoverished and
unrecompensed.
Time and time again the Filipino people have sought an end
to this intolerable situation. From 1935 they have struggled to
assert their legal control and ownership over their patrimony
only to have their efforts repeatedly subverted—first, by the
parity amendment to the 1935 Constitution and subsequently
by the service contract provision in the 1973 Constitution.
It is not surprising that an industry, overly dependent on
foreign support and now in decline, should implore this Court
to reverse itself if only to perpetuate its otherwise
economically unsustainable conduct. It is even
understandable, however regrettable, that a government,
strapped for cash and in the midst of a self-proclaimed fiscal
crisis, would be inclined to turn a blind eye to the
consequences of unconstitutional legislation in the hope,
however false or empty, of obtaining fabulous amounts of hard
currency.
But these considerations should not outweigh the
Constitution.
As always, the one overriding consideration of this Court
should be the will of the sovereign Filipino people as embodied
in their Constitution. The Constitution which gives life to and
empowers this Court. The same Constitution to which the
members of this Court have sworn their unshakable loyalty
and their unwavering fidelity.
Now, the unmistakable letter and intent of the 1987
Constitution notwithstanding, the majority of this Court has
chosen to reverse its earlier Decision which, to me, would once
again open the doors to foreign control and ownership of
Philippine natural resources. The task of reclaiming Filipino
control over Philippine natural resources now belongs sadly to
another generation.
ACCORDINGLY, I vote to deny respondents’ Motions for
Reconsideration.
435
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
SEPARATE OPINION
TINGA, J.:
The Constitution was crafted by men and women of divergent
backgrounds and varying ideologies. Understandably, the
resultant document is accommodative of these distinct, at
times competing philosophies. Untidy as any mélange would
seem, our fundamental law nevertheless hearkens to the core
democratic ethos over and above the obvious inconveniences it
spawns.
However, when the task of judicial construction of the
Constitution comes to fore, clarity is demanded from this
Court. In turn, there is a need to balance and reconcile the
diverse views that animate the provisions of the Constitution,
so as to effectuate its true worth as an instrument of national
unity and progress.
The variances and consequent challenges are vividly
reflected in Article XII of the Constitution on National
Patrimony, in a manner akin to Article II on Declaration of
Principles and State Policies. Some of the provisions impress
as protectionist, yet there is also an undisguised
accommodation of liberal economic policies. Section 2, Article
XII, the provi-
1 cooperative fish farming, with priority to subsistence fishermen and
_______________
1 SECTION 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
436
436 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
sion key to this case, is one such Janus-faced creature. It
seems to close the door on foreign handling of our natural
resources, but at the same time it leaves open a window for
alien participation in some aspects. The central question
before us is how wide is the entry of opportunity created by the
provision.
My vote on the motions for reconsideration is hinged on a
renewed exegesis of Section 2 of Article XII in conjunction
2
with the proper understanding of the nature of the power
vested on the President under Section 2. It has to be
appreciated in relation to the inherent functions of the
executive branch of government.
_______________
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
fishworkers 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.
(Emphasis supplied)
2 Each time Sec. 2 is hereafter mentioned, it is understood to be Sec. 2, Art.
XII of the Constitution.
437
VOL. 445, DECEMBER 1, 2004 437
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
The Contract-Making Power of the President
While all government authority emanates from the people, the
breadth and depth of such authority are not brought to bear
by direct popular action, but through representative
government in accord with the principles of republicanism. By 3
investiture of the Constitution, the function of executive power
is parceled solely to the duly elected President. The 4
Constitution contains several express manifestations of
executive power, such as the provision on control over all
executive departments, bureaus and offices, as well as the so-
5 executive. Thus, in the landmark decision of Springer v.
called “Commander-in-Chief” clause. 6 Government of the Philippine Islands, 277 U.S. 189(1928), on the
Yet it has likewise been recognized in this jurisdiction that
“executive power” is not limited to such powers as are
expressly granted by the Constitution. Marcos v.
Manglapus concedes that the President has powers other
7
than those expressly stated under the Constitution, and thus 8
implies
_______________
3 “The Philippines is a democratic and republican State. x x x” See Section
1, Article II, Constitution. “Republicanism, in so far as it implies the adoption
of a representative type of government, necessarily points to the enfranchised
citizen as a particle of popular sovereignty and as the ultimate source of the
established authority.” Moya v. Del Fierro, 69 Phil. 199, 204 (1939), See
also Badelles v. Cabili, 136 Phil. 383, 395-396; 27 SCRA 113, 121 (1969).
4 Section 1, Article VII of the Constitution states: “The executive power
shall be vested in the President of the Philippines.”
5 See Section 17, Article VII, Constitution, which reads: “The President
shall have control of all the executive departments, bureaus and offices. He
shall ensure that the laws be faithfully executed.”
6 See Section 18, Article VII, Constitution, which begins: “The President
shall be the Commander-in-Chief of all armed forces of the Philippines and
whenever it becomes necessary, he may call out such armed forces to prevent
or suppress lawless violence, invasion or rebellion. x x x”
7 G.R. No. 88211, 27 October 1989, 178 SCRA 760.
8 Id., at p. 764. Citing the eminent American legal scholar Laurence Tribe,
who notes that US jurisprudence makes clear “that
438
438 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
that these powers may be exercised without being derivative
from constitutional authority. The precedental value
9
of Marcos v. Manglapus may be controvertible, but the 10
cogency of its analysis of the scope of executive power is
indisputable. Neither is the concept of plenary executive
power novel, as discussed by Justice Irene Cortes in
her ponencia:
It has been advanced that whatever power inherent in the
government that is neither legislative nor judicial has to be
issue of who between the Governor-General of the Philippines and
the Legislature may vote the shares of stock held by the
Government to elect directors in the National Coal Company and
the Philippine National Bank, the U.S. Supreme Court, in
upholding the power of the Governor-General to do so, said:
_______________
the constitutional concept of inherent power is not a synonym for power
without limit; rather, the concept suggests only that not all powers granted in
the Constitution are themselves exhausted by internal enumeration, so that,
within a sphere properly regarded as one of “executive” power, authority is
implied unless there or elsewhere expressly limited.” Ibid.
9 Justice Irene Cortes, who penned the Court’s decision in Marcos v.
Manglapus, has opined elsewhere on the grant of plenary executive powers on
the President, “[who] personifies the executive branch. There is a unity in the
executive branch absent from the two other branches of government. The
president is not the chief of many executives. He is the executive. His direction
of the executive branch can be more immediate and direct than the United
States president because he is given by express provision of the constitution
control over all executive departments, bureaus and offices.” I. Cortes, The
Philippine Presidency: A Study of Executive Power, pp. 68-69; cited in Sanlakas
v. Executive Secretary et al., G.R. Nos. 159085, 159103, 159185, 159196, 3
February 2004, 421 SCRA 656.
10 “This case is unique. It should not create a precedent, for the case of a
dictator forced out of office and into exile after causing twenty years of political,
economic and social havoc in the country and who within the short space of
three years seeks to return, is in a class by itself.” Marcos v.
Manglapus, supra note 7, at p. 682.
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. . . Here the members of the legislature who constitute a majority of the
“board” and “committee” respectively, are not charged with the
performance of any legislative functions or with the doing of anything
which is in aid of performance of any such functions by the legislature.
Putting aside for the moment the question whether the duties devolved
upon these members are vested by the Organic Act in the Governor-
General, it is clear that they are not legislative in character, and still more
clear that they are not judicial. The fact that they do not fall within the
authority of either of these two constitutes logical ground for concluding
that they do fall within that of the remaining one among which the powers
of government are divided . . . [At 202-203; emphasis supplied.]
We are not unmindful of Justice Holmes’ strong dissent. But in his
enduring words of dissent we find reinforcement for the view that it
would indeed be a folly to construe the powers of a branch of
government to embrace only what are specifically mentioned in the
Constitution:
The great ordinances of the Constitution do not establish and divide fields
of black and white. Even the more specific of them are found to terminate
in a penumbra shading gradually from one extreme to the other. . . .
xxx xxx xxx
It does not seem to need argument to show that however we may
disguise it by veiling words we do not and cannot carry out the distinction
between legislative and executive action with mathematical precision and
divide the branches into watertight compartments, were it ever so
desirable to do so, which I am far from believing that it is, or that the
Constitution requires. [At 210-211.] 11
_______________
11 Id., at p. 692. See also supra note 8. In light of the U.S. Supreme Court
decision in the famed Steel Seizure case, Youngstown Sheet v.
Sawyer, supra note 2, and the competing analyses of Justice Black (whose
“formalist” approach led to rigid categorization of separate legislative,
executive and judicial functions), and Justices Frankfurter and Jackson (who
opted for a more flexible, functional approach), Gunther and Sullivan note that
“[m]uch scholarly commentary on separation of powers has endorsed the
functional ap
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Such general power has not been diminished notwithstanding
the avowed intent of some of the framers of the 1987
Constitution to limit the powers of the President as a reaction
to abuses under President Marcos, for as the Court noted, “the
result was a limitation of the specific powers of the President,
particularly those relating to the commander-in-chief clause,
but not a diminution of the general grant of executive
power.” The critical perspective of this case should spring
12
from a recognition of this elemental fact.
Undeniably, the particular power now in question is
expressly provided for by Section 2, Article XII of the
Constitution. Still, it originates from the concept of executive
power
_______________
proach, and cite this following argument for the “functional” view:
“When the Constitution confers power, it confers power on the three
generalist political heads of authority, not on branches as such. [Its] silence
about the shape of the inevitable, actual government was a product both of
drafting compromises and of the explicit purpose to leave Congress free to
make whatever arrangements it deemed ‘necessary and proper’ for the detailed
pursuit of government purposes.” G. Gunther and K. Sullivan, Constitutional
Law (14th ed., 2001), at 342; citing Strauss, “Formal and Functional
Approaches to Separation of Powers Questions—A Foolish Inconsistency,” 72
Corn. L. Rev. 488 (1987).
Another analysis is proferred by Chemerinsky, who acknowledges that the
debate on inherent presidential power has existed “from the earliest days of
the country.” E. Chemerinsky, Constitutional Law: Principles and
Policies (2nd ed., 2002), at 329. In analyzing the U.S. Supreme Court’s divided
opinions in the seminal case of Youngstown Sheet, supra note 2, he notes that
while the majority opinion of Justice Black seems to deny the existence of any
inherent presidential power, the concurring opinions of Justices Douglas,
Frankfurter and Jackson do seem to acknowledge the existence of such power,
albeit subject to proscription by the legislative branch. Chemerinsky also notes
that the view of inherent presidential authority had been affirmed in the
earlier case of U.S. v. Curtiss-Wright Export Corporation, 299 U.S. 304 (1936),
which pertained to the presidential power to conduct foreign policy. Id., at p.
334.
12 Ibid. See also Sanlakas v. Executive Secretary; supra note 9.
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that is not explicitly provided for by the Constitution. As a
necessary incident of the functions of the executive office, it
can be concluded that the President has the authority to enter
into contracts in behalf of the State in matters which are not
denied him or her or not otherwise assigned to the other great
branches of government, even if such general power is not
categorically recognized in the Constitution. Among these
traditional functions of the executive branch is the power to
determine economic policy.
 As once noted by Justice Feliciano, the Republic of the
Philippines is itself a body corporate and juridical person
vested with the full panoply of powers and attributes which
are compendiously described as “legal personality.” As “Chief 13
of State” the President is also regarded as the head of this body
corporate, and thus is capacitated to represent the State
14
when engaging with other entities. Such executive function, in
theory, does not require a constitutional provision, or even a
Constitution, in order to be operative. It is a power possessed
by every duly constituted presidency starting with
Aguinaldo’s. This faculty is complementary to the traditional
regard of a Head of State as emblematic of the State he/she
represents.
_______________
13 Iron and Steel Authority v. Court of Appeals, 319 Phil. 648, 658; 249
SCRA 538, 548 (1995).
14 Apropos to the nature of the Filipino presidency is the following comment
on the U.S. presidency by an American historian, “As our Chief of State, and
as such the embodiment of the people’s elective will, the President is clad with
the prerogative of the office, and possesses more actual sovereign power than
any British king since George III. In his role as Chief of Foreign Relations,
from the beginning he has been the sole organ of the nation in its external
relations, and its sole representative with foreign nations. While the Senate
must advise and consent to any treaty, the President has exclusive initiative
in their negotiation.” G.F. Milton, The Use of Presidential Power: 1789-
1943 (1980 ed.), at p. 3.
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The power to contract in behalf of the State is clearly an
executive function, as opposed to legislative or judicial. This is
easily discernible through the process of exclusion. The other
branches of government—the legislative and the judiciary—
are not similarly capacitated since their core functions pertain
to legislating and adjudicating respectively.
However, I am not making any pretense that such executive
power to contract is unimpeachable or limitless. The
Constitution frowns on unchecked executive power,
mandating in broad strokes, the power of judicial review and 15
legislative oversight. The Constitution itself may expressly
16
restrict the exercise of any sort of executive function. Section
2 unde-
_______________
15 Section 1, Article VIII, Constitution enables the courts to determine
whether or not there has been a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of the executive, a duty which is made easier
if there is a specifically prescribed constitutional standard which warrants
obeisance by the executive branch.
16 See Secs. 21 and 22, Art. VI, CONST., which read:
Sec. 21. The Senate or the House of Representatives or any of its respective committees
may conduct inquiries in aid of legislation in accordance with its duly published rules of
procedure. The rights of persons appearing in or affected by such inquiries shall be
respected.
Sec. 22. The heads of departments may upon their own initiative, with the consent
of the President, or upon the request of either House, as the rules of each House shall
provide, appear before and be heard by such House or any matter pertaining to their
departments. Written questions shall be submitted to the President of the Senate or the
Speaker of the House of Representatives at least three days before their scheduled
appearance. Interpellations shall not be limited to written questions, but may cover
matters related thereto. When the security of the State or the public interest so requires
and the President so states in writing, the appearance shall be conducted in executive
session.
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niably constrains the exercise of the executive power to
contract in several regards.
Constitutional Limitations under Section 2, Article XII
What are the express limitations under Section 2 on the power
of the executive to contract with foreign corporations
regarding the exploration, development and utilization of our
natural resources?
There are two fundamental restrictions, both of which are
asserted in the second paragraph of Section 2. These are that
the State retains legal ownership of all natural resources, and 17
that the State shall have full control and supervision over the
exploration, development and utilization of natural
resources. These key postulates are facially broad and
18
warrant clarification. They also predicate several specific
restrictions laid down in the fourth paragraph of Section 2 on
the power of the President to enter into agreements with
foreign corporations. These specific limitations are as follows:
First, the natural resources that may be subject of the
agreement are a limited class, particularly minerals,
petroleum, and other mineral oils. Among the natural
resources which are excluded from these agreements are lands
of the public domain, waters, coal, fisheries, forests or timbers,
wildlife, flora and fauna. Most notable of the exclusions are
forests and timbers which are in all respects expressly limited
to Filipinos.
_______________
17 See Section 2, Article XII, Constitution, which states in part, “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.” An offshoot of the
long-standing Regalian doctrine recognized in this jurisdiction.
18 “The exploration, development, and utilization of natural resources shall
be under the full control and supervision of the State.” Id.
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It is noteworthy that a previous version of the fourth
paragraph of Section 2 deliberated upon during the 1987
Constitutional Commission allowed agreements with foreign-
owned corporations with respect to all classes of natural
resources. However, on the initiative of Commissioner (now
19
Chief Justice) Davide, the provision was amended to limit the
scope of such agreements to minerals, petroleum and other
mineral oils, which Commissioner Davide recognized as “those
particular areas where Filipino capital may not be sufficient.”
The exclusion of timber resources from the scope of
financial/technical assistance agreements marks a
significant distinction from the service contracts of old.
This does not come as a surprise, considering well-
reported abuses under the old regime of issuing timber
licensing agreements, which numbered in the
thousands prior to the 1987 Constitution. On the other
hand, no similar extensive collateral damage has been
reported for the petroleum and mining industry,
capital-intensive industries whose potential for
government revenues in billions of pesos has long been
sought after by the State. Hence, the variance in
21
treatment from the timber industry and the rest of the
natural resources.
_______________
19 The so-called “Jamir amendment,” proposed by Commissioner Alberto
M.K. Jamir, which read “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 general terms and conditions provided by law based on real
contributions to the long-term growth of the economy.” 3 Record of the
Constitutional Commission: Proceedings and Debates (1987), at p. 351.
20 Id., at p. 356.
21 Indeed, since 1973 when the service contract system for petroleum was
implemented, the government has earned over 1.882 Billion Pesos and 10.160
Billion Pesos in revenues from oil and natural gas production, respectively.
Based on data provided by the Department of Energy.
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Second, these agreements with foreign-owned corporations
can only be entered into for only large-scale exploration,
development and utilization of minerals, petroleum, and other
mineral oils.
Third, it is only the President who may enter into these
agreements. This is another pronounced change from the 1973
Constitution, which allowed private persons to enter into
20 service contracts with foreign corporations.
Fourth, these agreements must be in accord with the
general terms and conditions provided by law. This proviso by
itself, and more so when taken together, as it should, with
another provision, entails legislative intervention and
22
affirmance in the exercise of this executive power. While it is
the President who enters into these contracts, he/she must act
within such terms and conditions as may be prescribed by
Congress through legislation. The value of legislative input as
a means of influencing policy should not be discounted. Policy
initiatives grounded on particular economic ideologies may
find enactment through legislation when approved by the
necessary majorities in Congress. Legislative work includes
consultative processes with persons of diverse interests,
assuring that economic decisions need not be made solely from
an ivory tower. There is also the possible sanction of
repudiation by the voters of legislators who prove insensate to
the economic concerns of their constituents.
Fifth, the President is mandated to base the decision of
entering into these agreements on “real contributions to the
economic growth and general welfare of the country.” In terms
of real limitations, this condition has admittedly little effect.
The discretion as to whether or not to enter into these
agreements is vested solely by the Constitution in the
President, and such exercise of discretion, pertaining as it does
to
_______________
22 Paragraph 5, Sec. 2, Art. XII. It provides: The President shall notify the
Congress of every contract entered into in accordance with this provision,
within thirty days from its execution.
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446 SUPREME COURT REPORTS ANNOTATED
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the political wisdom of a co-equal branch, generally deserves
respect from the courts.
The above conditionalities, particularly the first three,
effect the desire of the framers of the 1987 Constitution to
limit foreign participation in natural resource-oriented
enterprises. They provide a vivid contrast to the 1973
Constitution, which permitted private persons to enter into
service contracts for financial, technical, management, or
other forms of assistance with any person or entity, including
foreigners, and for the exploration or utilization of any of the
natural resources. These requisites imposed by the 1987
23
Constitution, which are significantly more onerous than those
laid down in the 1973 Constitution, warrant obeisance by the
executive branch and recognition by this Court.
Not Strictly Technical or Financial Assistance
The Court’s previous Decision, now for reconsideration,
insisted on another restriction purportedly imposed by the
fourth paragraph of Section 2. It is argued that foreign–owned
corporations are allowed to render only technical or financial
assistance in the large-scale exploration, development and
utilization of minerals, petroleum and mineral oils. This
conservative view is premised on the sentiment that the
Constitution limits foreign involvement only to areas where
they are needed, the overpowering intent being to allow
Filipinos to benefit from Filipino resources. Towards that
24
end, the perception arises that the power of the executive to
enter into agreements with foreign-owned corporations is an
executive privilege, hampered by the limitations that
generally attach to the grant of privileges.
On the fundamental nature of this power, I harbor an
entirely different view. The actual art of governing under our
Constitution does not and cannot conform to judicial defini-
_______________
See Section 9, Article XIV, 1973 Constitution.
23
Resolution, p. 26.
24
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tions of the power of any of its branches based on isolated
clauses or even single articles torn from context. The 25
previously adopted approach is rigidly formalist, and
impervious to the traditional prerogatives of executive power.
As I stated earlier, the executive authority to contract is a
right emanating from traditional executive functions, and is
connected with the power of the executive branch to determine
economic policy. Hence, the proper approach in
interpreting Section 2, Article XII is to tilt in favor of
asserting the right rather than view the provision as a
limitation on a privilege. To subscribe to the Court’s
previous view will necessitate adopting as a
fundamental premise that absent an express grant of
power, the executive branch has no capacity to
contract since such capacity arises from a privilege.
Had the provision been worded to state that the President
may enter into agreements for technical or financial
assistance only, then this unambiguous limitation should be
affirmed. Yet the Constitution does not express such an intent.
The controversial provision is crafted in such a way that
allows any type of agreement, so long as they involve either
technical or financial assistance. In fact, the provision does not
restrict the scope of the agreement so as to pertain exclusively
either to technical or financial assistance.
The Constitution, in allowing foreign participation
specifically in the large scale exploration, development and
utilization of natural resources, is cognizant of the sad truth
that such activities entail significant outlay of capital and
advanced technological know-how that domestic corporations
may not yet have. The provision expressly adverts to
26
_______________
25 Per Jackson, J., concurring, Youngstown Sheet & Tube Co. v. Sawyer, 343
U.S. 579 (1952).
26 The following exchanges during the debates of the 1987 Constitutional
Commission indicate that the absence of domestic capital
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448 SUPREME COURT REPORTS ANNOTATED
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_______________
for mineral and petroleum development was duly considered by the
framers.
MR. GASCON. As far as investment is concerned in developing certain
priority areas for our economic development, are there areas where there
is much need for foreign investments?
MR. VILLEGAS. During the public hearings, we heard people from the
mining and oil exploration industries, who presented a very strong case,
that foreign investment is actually indispensable because there is no risk
capital available in the Philippines. If the Gentleman will remember, the
figure cited over the last ten years is that P800 million literally went down
the drain in oil exploration and up to now, no oil has been found, and all
that money was foreign money. These people asked a rhetorical question:
Can you imagine if that money belonged to Filipinos? 3 Record of the
Constitutional Commission: Proceedings and Debates (1987), at p. 310.
x x x
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. 3 Record of the
Constitutional Commission: Proceedings and Debates (1987), at p. 361.
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“technical” and “financial” assistance in recognition of
the reality that these two facets are the indispensable
requisites to qualify foreign participants in the
exploration, development, and utilization of mineral
and petroleum resources.
Had the framers chosen to restrict all aspects of all mining
activities to domestic persons, the real fear would have
materialized that our mineral reserves could remain untapped
for a significant period of time, owing to the paucity of venture
capital. There was a real option to heed dogmatic guns who
insisted that the mineral resources remain unutilized until
the day when the domestic mining industry becomes
capacitated to undertake the extraction without need of
foreign aid. Obviously, the more pragmatic view won the day.
 If indeed the foreign entity is limited only to
technical or financial participation, the implication is
that it is up to the State to do all the rest. Considering
the lack of know-how and financial capital, matters
which were appreciated by the framers of the
Constitution, this intended effect is preposterous. Even
the State itself would hesitate to undertake such
extractive activities owing to the intensive capital and
extensive training such enterprise would entail. By
allowing this expansive set-up under Section 2, the
Constitution enables the minimization of risk on the
part of the State should it desire to undertake large-
scale mineral extractive activities. The pay-off though,
understandably, is an atypical cession of several State
prerogatives in the development of its mineral and
petroleum resources.
Perhaps there is need to be explicit and incisive about the
implications of Section 2. The word “assistance,” shorn of
context, implies a charitable grant offered without any quid
pro quo attached. Unconditional foreign aid may be more
prevalent this day and age with the acceptance of the notion
that there are base minimum standards of decent living
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450 SUPREME COURT REPORTS ANNOTATED
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which all persons are entitled to. However, such concept is
alien to the mining industry. There is no such entity as
an International Benevolent Association for Extraction of
Minerals. If “assistance” is to be restrictively interpreted
according to ordinary parlance, no entity would be interested
in undertaking this regulated industry.
Any decision by any enterprise to assist in the exploration,
development or utilization of mineral resources does not arise
from a philanthropic impulse. It is a pure and simple
investment, and one that is not engaged in unless there is the
expectation or hope of a reasonable return. I hasten to add that
the deliberate incorporation of the fourth paragraph of Section
2 has created a window of opportunity for foreign investments
in the extractive enterprises involving petroleum and other
mineral oils, subject of course to limitations under the law.
The term may prove discomfiting to the ideologically
committed, the sentimental nationalist or the visceral
oppositionist. Still, the notion is not inconsistent with the
general power of the executive to enter into agreements for the
purpose of enticing foreign investments.
Why then the term “assistance?” Apart from its apparent
political palatability in comparison with “investment,” as
intimated before, the term is useful in underscoring the
essential facets of the foreign investment which is
assistance in the financial or technical areas, as well as
the fundamental limitations and conditionalities of the
investment. What is allowed is participation, though limited,
by foreign corporations which in turn are entitled to expect a
return on their investments.
The Court had earlier premised the invalidity of several
provisions of the Mining Act on the argument that those
provisions authorized service contracts. But while the 1987
Constitution does not utilize the term “service contracts,” it
actually contemplates a broader expanse of agreements beyond
mere contracts for services rendered. Still, although the
provision sanctions a more numerous class of agreements,
these
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are subjected to more stringent restrictions than what had
been allowed under the 1973 Constitution. Thus, the test
should be whether the law and the contract take away the
State’s full control and supervision over the exploration,
development and utilization of the country’s mineral resources
and negate or defeat the State’ s ownership thereof.
In line with the test, Section 2 should be accorded a liberal
interpretation so as to recognize this fundamental prerogative
of the presidency. Such “liberal interpretation” does not
equate to a wholesale concession of mining resources to
foreigners, much less to an atmosphere of complaisance,
whether from their perception or the Filipinos. The fourth
paragraph sets specific limitations on the exercise by the
President of this contract-making power. On the other hand,
the second paragraph of Section 2 lays down the fundamental
limitations which likewise may not be countermanded.
On the basis of the foregoing discussion, and as a necessary
consequence of my view that the agreements under Section 2
are not strictly limited to financial or technical assistance, I
would consider the following questioned provisions of Republic
Act No. 7942 as valid—Sections 3 (g), 34 to 38, 40 to 41, 56 and
90. These provisions were struck down on the premise that
they allowed the constitution of “service contracts,” an
agreement which to my mind is still within the contemplation
of Section 2, Article XII.
State Ownership over Mineral and Petroleum Resources
There is need to clarify the specific meaning of these general
limitations arising from the State’s assertion of ownership, full
control and supervision.
In respect to the petition, the question of ownership has
become material to the proper share the State should receive
from the exploration, development and utilization of mineral
resources. I perceive that all the members of the Court agree
that such profit may not be limited to only such revenue
derived from the taxation of the mining activities. Since the
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right of the State to obtain a share in the net proceeds and not
merely through taxes arises as an attribute of ownership
unequivocally reserved by the Constitution for the State, such
right may not be proscribed either by legislative provision or
contractual stipulation.
Yet it should be conceded that the State has the right to
enter into an agreement concerning such profits. There are, as
probably should be, political consequences if the President
opts to surrender all of the State’s profits to a foreign
corporation, yet in bare theory, the right to bargain profits
pertains to the wisdom of a political act not ordinarily
justiciable before this Court. Still, the overriding adherence of
the Constitution to the Regalian doctrine should be given due
respect, and an interpretation allowing “beneficial ownership”
by the foreign corporation should not be favored.
For purposes of the present judicial review, I would
consider it prudent to limit myself to conceding that the Court
had previously erred in invalidating certain provisions of Rep.
Act No. 7942 and the WMC FTAA on the mistaken notion that
the law and the agreement cede beneficial ownership of
mineral resources to a foreign corporation.
Section 4 of Rep. Act No. 7942 expressly recognizes State
ownership over mineral resources, though it is silent on the
operational terms of such ownership. Of course, such general
submission would not be in itself curative of whatever
contraventions to State ownership are contained in the same
law; hence, the need for deeper inquiry.
The dissenters wish to strike down the second paragraph of
Section 81 of Rep. Act No. 7942 because it purportedly
precludes the Government from obtaining profits under the
agreement from sources other than its share in taxation.
However, as the ponenciapoints out, the phrase “among other
things” sufficiently allows the government from demanding a
share in the cash flow or earnings of the mining enterprise. A
contrary view is anchored on a rule of statutory construction
that concludes that “among other things” refers only to taxes.
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Yet, there is also a rule of construction that laws should be
interpreted with a view of upholding rather than destroying
it. Thus, the ponencia’s formulation, which achieves the result
of the minority without need of statutory invalidation, is
highly preferable.
 The provisions of Rep. Act No. 7942 which authorize the
conversion of a financial or technical assistance into a mineral
production sharing agreement (MPSA) turned out to be just as
controversial. In this regard, the minority wishes to strike
down Section 39, which in conjunction with Sections 80 and 84
of the law would purportedly allow such conversion, in that it
would effectively limit the government share in the profits to
only the excise tax on mineral products under internal
revenue law.
These concerns are valid and raise troubling questions. Yet
equally troubling is that the Court is being called upon to rule
on a premature question. There is no such creature yet as an
FTAA converted into an MPSA, and so there is no occasion
that calls for the application of Sections 39, 80 and 84. I do not
subscribe to judicial pre-emptive strikes, as they preclude the
application of still undisclosed considerations which may
prove illuminating and even crucial to the proper disposition
of the case. By seeking invalidation of these “MPSA
provisions,” the Court is also asked to strike down an
enactment of a co-equal branch which has not given rise to an
actual case or controversy. After all, such enactment deserves
due respect from this branch of government. Assuming that
the provisions are indeed invalid, the Court will not hesitate,
at the proper time, to strike them down or at least impose a
proper interpretation that does not run afoul of the
Constitution. How-27
_______________
27 Invalidity of provisions which do not adequately assert constitutional
rights or prerogatives need not always be the proper remedy, considering, as
Justice Vitug noted in his separate opinion in this case, that “[t]he
fundamental law is deemed written in every contract.” Vitug, J., Separate
Opinion, La Bugal-B’laan Tribal Asso
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ever, in the absence of any actual attempt to convert an FTAA
to an MPSA, the time is not now.
I likewise agree with the ponencia that Section 7.9 deprives
the State of its rightful share as an incident of ownership
without offsetting compensation. The provisions of the FTAA
are fair game for judicial review considering their present
applicability. In fact, the invalidation of Section 7.9 becomes
even more proper now under the circumstances since the
provision has become effectual considering the sale of the
foreign equity in WMCP to a domestic corporation. It is within
the competence of this Court to invalidate Section 7.9 here and
now. For that matter, Section 7.8(e) of the FTAA may be
similarly invalidated as it can already serve to unduly deprive
the Government of its proper share by allowing double
recovery by WMC.
“Full Control and Supervision” of the State
The matter of “full control and supervision” emerges just as
controversial. Does this grant of power mandate that the State
exercise management over the activity, or exclude the exercise
of managerial control by the foreign corporation?
I don’t think it proper to construe the word “full” as
implying that such control or supervision may not be at all
yielded or delegated, for reasons I shall elaborate upon.
Instead, “full” should be read as pertaining to the
encompassing scope of the concerns of the State relating to the
extractive enterprises on which it may interfere or impose its
will.
It must be conceded that whichever party obtains
managerial control must be allowed considerable elbow room
in the exercise of management prerogatives. Management is
in the most informed position to make resources productive in
the
_______________
ciation, Inc. v. Ramos, G.R. No. 127882, 27 January 2004, 421 SCRA 148.
455
VOL. 445, DECEMBER 1, 2004 455
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
pursuit of the enterprise’s objectives. In this age of
28
specialization, corporations have benefited with the
devolution of operational control to specialists, rather than
generalists. The era of the buccaneer entrepreneur chartering
his industry solely on gut feel is over. The vagaries of
international finance have dictated that prudent capitalists
cede to the opinion of their experts who are hired because they
trained within their particular fields to know better than the
persons who employ them. The Constitution does not prescribe
a particular manner of management; thus, we can conclude
that the State is not compelled to adopt outmoded methods
that could tend to minimize profits.
Still, the question as to who should exercise management is
best left to the parties of the agreement, namely the President
and the foreign corporations. They would be in the best
position to determine who is best qualified to exert managerial
control. This prerogative of management can be exercised by
the State if it so insists and the co-parties agree, and the
wisdom of such arrogation is ultimately a policy question this
Court has little control over. And even if the State cedes
management to a different entity such as the foreign
corporation, it has the duty to safeguard that the actual
exercise of managerial power does not contravene our
laws and public policy.
There is barely any support of the view that only the State
may exert managerial control. Even the minority concede that
these foreign corporations are not precluded from
participating in the management of the project. I think it
unwise to construe “full supervision and control” to the effect
that the State’s assent or opinion is necessary before any day-
to-day operational questions may be resolved. There is neither
an express rule to that effect, nor any law of construction that
_______________
28 N. Hamilton, The Iron Range Resources and Rehabilitation Board: An
Unconstitutional and Confused Delegation of Executive Power to Legislators,
25 William Mitchell Law Rev. 1204, 1235 (1999).
456
456 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
necessitates such interpretation. Ideally of course, the most
qualified party should be allowed to manage the enterprise,
and we should not allow an interpretation that compels a
possibly unsuited entity, such as the State, to operationalize
the business. Such a limited construction would be
29
inconvenient and absurd, not to mention potentially wasteful.
30
The Constitution itself concedes that the State may not
have the best sense as to how to undertake large-scale
exploration, development and utilization of mineral and
petroleum resources. This is evinced by the allowance of
foreign technical assistance and foreign participation in the
extractive enterprise. Had the Constitution recognized that
the State was supremely qualified to undertake the
operational aspects of the activity, then it could have phrased
the provision in such a way that would strictly limit the
foreign participation to monetary investment or a financial
grant of assistance.
The absence of an express provision on management
permits consideration of the following sensible critique on
yield-
_______________
29 The following traditional observation of John Thurston, as cited in a
periodical article, bears noting:
[Thurston] explained that the day-to-day administration of the corporation should be
independent of the executive and the legislature, but “[I]n matters of general and public
policy, the corporation must necessarily be subject to executive and legislative control.”
In addition to having control over “general and public policy,” the executive and
legislature also should monitor the efficiency of the public corporation. However,
Thurston perceived a dilemma in balancing the need “to ensure that the corporation
functions efficiently and without waste,” and the problem of “preventing unnecessary
interference with details of administration.” x x x Id., at p. 1231.
Interpretatio talis in ambiguis simper fienda est, ut evitur inconveniens et
30
absurdum. Where there is ambiguity, such interpretation as will avoid
inconvenience and absurdity is to be adopted. Cosico v. National Labor
Relations Commission, 338 Phil. 1080, 1089; 272 SCRA 583, 591-592 (1997);
citing Commissioner of Internal Revenue v. TMX Sales, Inc., 205 SCRA 184, activity, strong pressures will be brought to make it conform to standard
188 (1992). government regulations and procedures.” Ibid.
457 32 Id., at p. 1228.

33 Ibid.
VOL. 445, DECEMBER 1, 2004 457
458
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
458 SUPREME COURT REPORTS ANNOTATED
ing too many management prerogatives to a remote overseer
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
such as the State. An early United Nations report once noted
exercise of managerial control, and the State’s full control and
that while it is theoretically possible to endow a government
supervision?
department with a high degree of operating flexibility, it is in
The President may insist on conditions into the agreement
practice difficult to do so. It has been proposed that the
31

pertaining to the State’s degree of control and supervision in

further away a decision-maker is to the market, the higher the
the mining activity. This was certainly done with the WMC
information cost, or the opportunity cost to the gaining of
FTAA, which is replete with stipulations delineating the
information. Remoteness can be achieved through the
32

State’s control which are judicially enforceable, imposed

layering of bureaucratic structure, and because of the
presumably at the President’s call. But the FTAA itself is not
information loss that accompanies the transmission of
the only vehicle by which State control and supervision is
information and judgments from lower levels of the hierarchy
exercised. These can similarly be enforced through statutes,
to higher levels, the ultimate basis of a decision may be
as well as executive or administrative issuances. The Mining
misleading at best and erroneous at worst. 33

Act itself is an expression of State control and supervision,

The same conclusion arises from the view that what the
implemented in coordination with the executive and
provision authorizes is foreign investment. The foreign player
legislative branches.
necessarily at least has a reasonable say in how the mining
As a general point, I believe that State control and
venture is run. The interest of the investor in seeing that the
supervision is unconstitutionally yielded if either of the
investment is not wasted should be recognized not only as a
Mining Act or the FTAA precludes the application of the laws
right available to the investor, but from the broader view that
and regulations of the Philippines, enunciatory as they are of
such say would lead to a more prudent management of the
State policy. Neither the Mining Act nor the WMC FTAA are
project. It must be noted that mineral and petroleum resources
flawed in that regard. The agreements under contemplation
are non-renewable, thus a paramount interest arises to ensure
are not beyond the ambit of our regular laws, or regulatory
against wasteful exploitation.
enactments pertaining to such areas as environmental
Next for consideration is the situation, as in this case, if
concerns. Violations of these laws uttered in the name of the
management is ceded to the foreign corporation, or even to a
FTAA are punishable in this jurisdiction.
private domestic corporation for that matter. What should be
Still, the fact that the Constitution requires “full control
the proper dichotomy, if any, between the private entity’s
and supervision” indicates an expectation of a more activist
_______________ role on the part of the State in the operations of the mining
enterprise, perhaps to the prejudice of the laissez-
31 United Nations Technical Assistance Administration, Some Problems in
faire capitalist. Most importantly, the State cannot abdicate
the Organization and Administration of Public Enterprise in the Industrial
Field 8 (1954), cited in Hamilton, supra note 35, at p. 1230. “As long as an its traditional functions by contractual limitations. It could
enterprise is not clearly differentiated from other types of governmental compel the mining operations to comply with existing
environmental regulations, as well as with future issuances.
It may compel the foreign corporation payment of all
assessable levies. It may evict officers of the foreign
corporation for violation of immigration laws. It may preclude
mining operations that affect prerogatives granted by law to
indigenous peoples. It
459
VOL. 445, DECEMBER 1, 2004 459
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
could restrict particular mining operations which are
established to be disasters or nuisances to the affected
communities. The power of the State to enforce its police
powers needs no statutory grant and are certainly not limited
either by the Mining Act or the WMC FTAA.
As to “business decisions,” I think that the State may
exercise control for the purpose of ensuring profit of the
enterprise as a whole. This may involve visitorial activity, the
conduct of periodic audits, and such powers normally
attributed to an overseer of a business. Just as the foreign
corporation is expected to guard against waste of financial
capital, the State is expected likewise to guard against the
waste of resource capital.
I might as well add that, in my view, the constitutional
objective of maintaining full control and supervision over the
exploration, development and utilization of the country’s
mineral resources in the State would be best served by the
creation of a public corporation for the development and
utilization of these resources, accountable to the State for all
actions in its behalf. The device of a corporation properly
utilized provides sufficient protection to the State’s interests
while affording flexibility and efficiency in the conduct of
mining operations. 34
_______________
34 The employment of the corporate entity was suggested by Neil W.
Hamilton, a Professor of Regulatory Policy in the William Mitchell College of
Law, in his article analyzing the effectiveness and economic efficiency of a
government board for the rehabilitation iron mines in Minnesota, U.S.A. which
were being depleted. Professor Hamilton proffered the view that the executive
and the legislative branches of government would have control over the general
and public policy concerning the operation of iron mines and should monitor
the efficiency of the public corporation created to take care of the operation of
iron mines, but the corporation, through its board of directors and officers,
would have control over day-to-day operations. (“The Iron Range Resources and
Rehabilitation Board: An Unconstitutional and Confused Delegation of
Executive Power to Legislators,” 25 William Mitchell Law Review 1203 [1999]).
460
460 SUPREME COURT REPORTS ANNOTATED
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The creation of a public corporation could remedy a number of
potential problems regarding full State control and
supervision of extractive activities concerning our mineral
resources by entities which have the funds and/or technical
know-how but which cannot have a great degree of control and
supervision over such activities. Persons knowledgeable and
competent in mining operations may sit in the corporation’s
board of directors and craft policies which implement and
further concretize the broad aims of R.A. No. 7942, taking into
consideration the nature of the mining industry. The Board
would also be in charge of studying existing contracts for
mining activities, and approving proposed contracts. The
Board may also employ corporate officers and employees to
take charge of the day-to-day operations of the mining
activities pursuant to the corporation’s contracts with other
entities.
Under such a scheme, the perceived abdication by the State
of control and supervision over mining activities in favor of the
foreign entities rendering financial and/or technical assistance
would be greatly diminished. It would be the public
corporation which would principally undertake mining
activities and contract with foreign entities for financial
and/or technical assistance if necessary. The foreign
contractor in such cases would not have the power to
determine the course of the project or the major policies
involved therein because these functions would belong to the
public corporation as the agent of the State.
 A public corporation would also have the additional benefit
of compelling the input of not only the executive branch, but
also that of the legislative. Such executive-legislative
coordination is necessary since public corporations may only
be created through statute.
Section 3.3 of WMC FTAA Constitutional
Finally, it is argued that Section 3.3 of the WMC FTAA
violates paragraph 1, Section 2, Article XII of the Constitution,
461
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La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
which imposes a limitation on the term of mineral agreements.
I agree with the ponencia that the constitutional provision
does not pertain to FTAAs. It is clear from reading Section 1
that the agreements limited in term therein are coproduction
agreements, joint venture agreements, and mineral
production-sharing agreements, which are all referred to in
Section 1, and not the FTAAs mentioned only in Section 4.
Accordingly, Section 3.3 of the WMC FTAA is not infirm.
Epilogue
Behind the legal issues presented by the petition are
fundamental policy questions from which highly opinionated
views can develop, even from the members of this Court. The
promise brought about by the large-scale exploitation of our
mineral and petroleum resources may bring in much needed
revenue, but Filipinos should properly inquire at what cost. As
a Filipino, I am distressed whenever the government crosses
the line from cooperation to subservience to foreign partners
in development. Popular Western wisdom aside, what is good
for General Motors is not necessarily good for the country. The
propagation of a foreign-influenced mining industry may lead
to a whole slew of social problems which 35
_______________
35 The following perspective from sectors not affiliated with the business
community deserve contemplation:
“Creating a favorable investment climate for foreign mining companies has led to new
social problems, namely human rights problems and dislocation of indigenous peoples.
The country has experienced incidents of armed violence from mining guards and
military personnel assigned to assist the mining companies. Indigenous tribes have been
displaced as military operations facilitate the entry of corporations into mining areas.
Mining operations are severely infringing on communities and their livelihoods. In 1996,
a mining tailings spill from the Marcopper tailing dam in Marinduque seriously polluted
the Boac River and Calancan Bay on which the local communi-
462
462 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
shall be exacerbated if the government is complicit, either
through active participation or benign neglect, to abuses
committed by the mining industry against the Filipino people.
Unlike the foreign corporation, the bottom line which the
State should consider is not found below a ledger, but in the
socio-economic dynamic that will confront the government as
a result of the large-scale mining venture. Political capital is
more fickle than financial capital.
Still, the right to vote I exercise today is that as of a member
of the Court, and not that of the general electorate. The limits
of judicial power would exasperate any well-meaning judge
who feels duty-bound to affirm a constitutionally valid law or
principle he or she may otherwise disagree with. My views on
how the government should act are segregate from my view on
whether the government has the power to act at all.
My conclusions are borne out of a close textual analysis of
Section 2 in light of my fundamental understanding of the
constitutional powers of the executive branch. This is in line
with my perception of the judicial duty as being limited to
charting the scope and boundaries of the law. The philosophy
_______________
ties depend.” See http://www.foe.org/camps/intl/imf/selling/asia4.html.
“At risk to the peoples of the Philippines is their remaining patrimony and economic
sovereignty. Mining legislation opens up the country to further foreign domination and
control. It perpetuates the semi-feudal, semi-capitalist neocolonial character of the
economy. It is creating mass displacement, especially of indigenous communities and
upland farmers. Foreign companies have an abominable history of creating
environmental disasters as well, and turning virgin forests and clean water sources and
farming lands into wastelands and deserts. They also have a terrible reputation for
excessive exploitation of workers and mass unemployment. Finally, foreign owned
mines will bring militarization as the owners will guard mining areas.” B.J. Warden,
at http://www.canadianliberty.bcca/relatedinfo/miningco.html.
463
VOL. 445, DECEMBER 1, 2004 463
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
of inclusiveness that drives my interpretation of Section 2 is
bolstered not because it might lead to benefits to the economy,
but because it gives due regard to the discretion of the
Executive to determine what is good for the economy. This
judicial attitude may not always ensure the economic good.
But before we carve that judicial path out of what we believe
are good intentions, restraint is imperative out of due
deference to our co-equal branches, since the duty of
formulating and implementing economic policies falls
exclusively within their purview.
In view of the foregoing, I concur with the opinion of Justice
Panganiban.
CONCURRING OPINION
CHICO-NAZARIO, J.:
I concur in the well-reasoned ponencia of my esteemed
colleague Mr. Justice Artemio V. Panganiban. I feel obligated,
however, to add the following observations:
I. RE “FULL CONTROL AND SUPERVISION”
With all due respect, I believe that the issue of
unconstitutionality of Republic Act No. 7942, its implementing
rules, and the Financial Assistance Agreement between the
Philippine Government and WMPC (Philippines) Inc. (WMPC
FTAA) executed pursuant to Rep. Act No. 7942 hinges, to a
large extent, on the interpretation of the phrase in Section 2,
Article XII of the 1987 Constitution, which states:
(T)he exploration, development, and utilization of natural resources
shall be under the full control and supervision of the State. x x x.
(Emphasis supplied)
464
464 SUPREME COURT REPORTS ANNOTATED
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Construing said phrase vis-à-vis the entire provision, it
appears from the deliberations in the Constitutional
Commission that the term “control” does not have the meaning
it ordinarily has in political law which is the power of a
superior to substitute his judgment for that of an
inferior. Thus—
1
MR. NOLLEDO: Suppose a judicial entity is given the power
to exploit natural resources and, of course, there are
decisions made by the governing board of that judicial
entity, can the state change the decisions of the governing
board of that entity based on the words “full con-trol”.
MR. VILLEGAS: If it is within the context of the contract, I
think the State cannot violate the laws of the land. 2
Moreover, “full control and supervision” does not mean that
foreign stockholders cannot be legally elected as members of
the board of a corporation doing business under, say, a
coproduction, joint venture or profit-sharing agreement, 40%
of whose capital is foreign owned. Otherwise, and as
Commissioner Romulo declared, it would be unfair to the
foreign stockholder and, per Commissioner Padilla, “refusing
3
them a voice in management would make a co-production,
joint venture and production sharing illusory.” 4
It is apparently for the foregoing reasons that there was a
disapproval of the amendment proposed by Commissioner,
now Mr. Chief Justice Davide, that the governing and
managing bodies of such corporations shall be vested
exclusively in citizens of the Philippines so that control of all
5
corporations
_______________
1 Mondano v. Silvosa, G.R. No. L-7708, 30 May 1955, 97 Phil. 143.
2 J. Bernas, S.J., The Intent of the 1987 Constitution Writers, 1995 Ed., p.
812.
3 Id., at p. 818.
4 Ibid.
5 Id., at pp. 817-818.
465
VOL. 445, DECEMBER 1, 2004 465
 La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
involved in the business of utilizing our natural resources
would always be in Filipino hands.
The disapproval must be juxtaposed with the fact that a
provision substantially similar to the proposed Davide
amendment was approved with regard to educational
institutions, viz.:
Section 4 (2). Educational institutions, other than those established
by religious groups and mission boards, shall be owned solely by
citizens of the Philippines or corporations or associations at least
sixty per centum of the capital of which is owned by such citizens.
The Congress may, however, require increased Filipino equity
participation in all educational institutions.
The control and administration of educational institutions shall
be vested in citizens of the Philippines. (Emphasis supplied)
From the foregoing, it can be clearly inferred that it was NOT
the intention of the framers of the Constitution to deprive
governing boards of domestic corporations with non-Filipino
members, the right to control and administer the corporation
that explores, develops and utilizes natural resources insofar
as agreements with the State for co-production, joint venture
and production-sharing are concerned, otherwise the Davide
amendment would have been approved and, like the
prohibition in above-quoted Section 4(2), Article XIV, control
and supervision of all business involved in the exploration and
development of mineral resources would have been left solely
in Filipino hands.
Accordingly, to the extent that the corporate board governs
and manages the operations for the exploration and use of
natural resources, to that extent the “full control and
supervision” thereof by the State is diminished.
In effect, therefore, when the State enters into such
agreements as provided in the Constitution, it allows itself to
surrender part of its sovereign right to full control and
supervision of said activities, the State having the right to
partly
466
466 SUPREME COURT REPORTS ANNOTATED
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surrender the exercise of sovereign powers under the doctrine
of auto-limitation. 6
If foreigners (under joint ventures etc.) have a say in the
management of the business of utilizing natural resources as
corporate directors of domestic corporations, there is no
justification for holding that foreign corporations who put in
considerably large amounts of money under agreements
involving either technical or financial assistance for large
scale exploration, development and utilization of minerals,
petroleum and other mineral oils are prohibited from
managing such business.
Indeed, to say that the Constitution requires the State to
have full and total control and supervision of the exploration,
development and utilization of minerals when undertaken in
a large scale under agreements with foreign corporations
involving huge amounts of money is to divorce oneself from
reality. As Mr. Justice Panganiban said, no firm would invest
funds in such enterprise unless it has a say in the
management of the business.
To paraphrase this Court in one of its landmark cases, the
fundamental law does not intend an impossible
undertaking. It must therefore be presumed that the
7
Constitution did not at all intend an interpretation of Section
2, Article XII which
_______________
6 In Reagan v. Commission on Internal Revenue (L-26379, 27 December
1969, 30 SCRA 968, 973) the Court discussed the concept of auto-limitation in
this wise: “It is to be admitted that any State may by its consent, express or
implied, submit to a restriction of its sovereignty rights. That is the concept of
sovereignty as auto-limitation which, in the succinct language of Jellinek, ‘is
the property of a state-force due to which it has the exclusive capacity of legal-
self determination and self-restriction.’ A State then, if it chooses to, may
refrain from the exercise of what otherwise is illimitable competence.” See
also Tañada v. Angara, G.R. No. 118295, 2 May 1997, 272 SCRA 18.
7 Cf. Akbayan-Youth v. Commission on Elections, 355 SCRA 318 (2001).
467
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 La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
deprives the foreign corporation engaged in large scale mining
activities a measure of control in the management and
operation of such activities, and in said manner, remove from
the realm of the possible the enterprise the Constitution
envisions thereunder.
This brings me to the final point raised by my esteemed
colleague, Mme. Justice Conchita Carpio-Morales, that it is of
no moment that the declaration of Rep. Act No. 7942 may
discourage foreign assistance and/or retard or delay the
exploration, development or utilization of the nation’s natural
resources as the Filipino people, as early as the 1935
Constitution, have determined such matters as secondary to
the protection and preservation of their ownership of these
natural resources. With due respect, I find such proposition
not legally justifiable as it looks backward to the justification
in the 1935 Constitution instead of forward under the 1987
Constitution which expressly allows foreign participation in
the exploration, development or utilization of the nation’s
marine wealth to allow the State to take advantage of foreign
funding or technical assistance. As long as the means
employed by such foreign assistance result in real
contributions to the economic growth of our country and
enhance the general welfare of our people, the development of
our mineral resources by and through foreign corporations,
such FTAAs are not unconstitutional.
II. RE: REQUIREMENT THAT FTAAs MUST BE
“BASED ON REAL CONTRIBUTIONS TO THE
ECONOMIC GROWTH AND GENERAL WELFARE OF
THE COUNTRY”
The policy behind Rep. Act No. 7942 is to promote the “rational
exploration, development, utilization and conservation” of the
State-owned mineral resources “through the combined efforts
of government and the private sector in order to en-
468
468 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
hance national growth in a way that effectively safe-guards
the environment and protect the rights of affected
communities.” This policy, with reference specifically to
8
FTAAs, is in keeping with the constitutional precept that
FTAAs must be based on real contributions to the economic
growth and general welfare of the country. As has been said,
“a statute derives its vitality from the purpose for which it is
enacted and to construe it in a manner that disregards or
defeats such purpose is to nullify or destroy the law.” In this
9
regard, much has been said about the alleged
unconstitutionality of Section 81 of Rep. Act No. 7942 as it
allegedly allows for the waiver of the State’s right to receive
income from the exploitation of its mineral resources as it
limits the State’s share in FTAAs with foreign contractors to
taxes, duties and fees. For clarity, the provision states—
SEC. 81. Government Share in Other Mineral Agreements.—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) 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.
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
foreign
_______________
8 Section 2, Rep. Act. No. 7942.
 9 Pilipinas Kao, Inc. vs. Court of Appeals, G.R. No. 105014, 18 December
2001, 372 SCRA 548.
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VOL. 445, DECEMBER 1, 2004 469
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
national and all such other taxes, duties and fees as provided for
under existing laws.
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. (Emphasis supplied)
The controversy revolves around the proper interpretation of
“among other things” stated in the second paragraph of
Section 81. Mr. Justice Carpio is of the opinion that “among
other things” could only mean “among other taxes,” referring
to the unnamed “other taxes, duties, and fees as provided for
under existing laws” contained in the last clause of Section 81,
paragraph 2. If such were the correct interpretation, then
truly, the provision is unconstitutional as a sharing based only
on taxes cannot be considered as contributing to the economic
growth and general welfare of the country. I am bothered,
however, by the interpretation that the phrase “among other
things” refers to “and all such other taxes, duties and fees as
provided for under existing laws” since it would render the
former phrase superfluous. In other words, there would have
been no need to include the phrase “among other things” if all
it means is “all other taxes” since the latter is already
expressly stated in the provision. As it is a truism that all
terms/phrases used in a statute has relevance to the object of
the law, then I find the view of Mr. Justice Panganiban—that
“all other things” means “additional government share” in the
form of “earnings or cash flow of the mining enterprise” as
interpreted by the DENR—more compelling. Besides, such an
interpretation would affirm the constitutionality of the
provision which would then be in keeping with the
rudimentary principle that a law shall not be declared invalid
unless the conflict with the Constitution is clear beyond
reasonable doubt. To justify nullification of a law, there
10
_______________
10 Aris (Phils.) Inc. v. National Labor Relations Commission, G.R. No.
90501, 05 August 1991, 200 SCRA 246.
470
470 SUPREME COURT REPORTS ANNOTATED
La Bugal-B’Laan Tribal Association, Inc. vs. Ramos
must be a clear and unequivocal breach of the Constitution,
not a doubtful and argumentative implication. 11
Finally, I wish to stress that it would appear that the
constitutional mandate that large-scale mining activities
under FTAAs must be based on real contributions to the
economic growth and general welfare of the country is both a
standard for the statute required to implement subject
provision as well as the vehicle for the exercise of the State’s
resultant residual control and supervision of the mining
activities.
In all FTAAs, the State is deemed to reserve its right to
control the end to be achieved so that real contributions to the
economy can be realized and, in the final analysis, the
business will redound to the general welfare of the country.
However, the question of whether or not the FTAA will, in
fact, redound to the general welfare of the public involves a
“judgment call” by our policy makers who are answerable to
our people during the appropriate electoral exercises and are
not subject to judicial pronouncements based on grave abuse
of discretion. 12
For the foregoing reasons, I vote to grant the motion for
reconsideration.
Petition dismissed; respondents’ and intervenors’ Motion for
Reconsideration granted, Supreme Court decision dated
January 27, 2004 reversed and set aside; R.A. No. 7942
declared constitutional.
Notes.—Upon the effectivity of the 1987 Constitution, the
State assumed a more dynamic role in the exploration,
development and utilization of the natural resources of the
country. (Miners Association of the Philippines, Inc. vs.
Factoran, Jr., 240 SCRA 100[1995])

_______________

Ibid.
11

See Tañada v. Angara, 272 SCRA 18 (1997).

12

471
VOL. 445, DECEMBER 1, 2004 471
Manila International Airport Authority vs. Airspan
Corporation
In contradistinction with the Philippine Bill of 1902 which was
patterned after the United States Federal Mining Acts which
rejected the Regalian doctrine, the Mining Act (CA 137)
expressly adopted the Regalian doctrine following the
provisions of the 1935 Constitution. (Atok Big-Wedge Mining
Company vs. Intermediate Appellate Court, 261 SCRA
528 [1996])
The provisions of RA 7942 (Philippine Mining Act of 1995)
do not necessarily repeal RA 3931 (Pollution Control Law), as
amended by P.D. 984 and E.O. 192—repeal of laws by
implication are not favored and that courts must generally
assume their congruent application. (Republic vs. Marcopper
Mining Corporation, 335 SCRA 386 [2000])
Section 79 of R.A. 7942 (Philippine Mining Act of 1995) is
to be understood as having been modified by Circular No. 1-
91, B.P. Blg. 129 as amended by R.A. 7902, Revised
Administrative Circular 1-95, and Rule 43 of the Rules of
Court. (Carpio vs. Sulu Resources Development
Corporation, 387 SCRA 128 [2002])

——o0o——

© Copyright 2019 Central Book Supply, Inc. All rights reserved.

 VOL. 507, NOVEMBER 20, 2006 315
Lepanto Consolidated Mining Co. vs. WMC Resources Int’l.
Pty. Ltd.
G.R. No. 162331. November 20, 2006. * 316
LEPANTO CONSOLIDATED MINING CO.,
petitioner, vs. WMC RESOURCES INT’L. PTY. LTD., WMC
PHILIPPINES, INC. and SAGITTARIUS MINES, INC.,
respondents.
Statutes; Statutory Construction; 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; 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.—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, 47 Phil. 543 (1925), 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. 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.
Same; Same; Philippine Mining Act of 1995 (R.A. No. 7942);
There is an absence of either an express declaration or an implication
in the Philippine Mining Act of 1995 that its provisions must be
made to apply retroactively.—In the case at bar, there is an absence
of either an express declaration or an implication in the Philippine
_______________
*FIRST DIVISION.
316
SUPREME COURT REPORTS
ANNOTATED
Lepanto Consolidated Mining Co. vs. WMC Resources
Int’l. Pty. Ltd.
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.
Same; Contract Clauses; A law which changes the terms of a
legal contract between the 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.—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, and to fall within the prohibition, the change must
not only impair the obligation of the existing contract, but the
impairment must be substantial. Substantial impairment as
conceived in relation to impairment of contracts has been explained
in the case of Clemons v. Nolting, 42 Phil. 702 (1922), 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.
PETITION for review on certiorari of a decision of the Court
of Appeals.
The facts are stated in the opinion of the Court.
Zaldy V. Trespeses for petitioner.
Carag, Caballes, Jamora & Somera Law Offices for
respondents WMC and WMCP.
317
VOL. 507, NOVEMBER 20, 2006 317
Lepanto Consolidated Mining Co. vs. WMC Resources Int’l.
Pty. Ltd.
Mario C.V. Jalandoni for respondent Sagittarius Mines,
Inc.
CHICO-NAZARIO, J.:
Before Us is a Petition for Review on Certiorari under Rule 45
of the Rules of Civil Procedure, assailing the Decision of the
1 Pty. Ltd.
Court of Appeals in CA-G.R. SP No. 74161, dated 21
November 2003, which dismissed herein petitioner’s Petition
for Review of the Decision of the Office of the President dated
2 Philippines and the Tampakan Companies on 25 April 1991,
23 July 2002 affirming in toto the Order of the Secretary of
3 as amended by Amendatory Agreement dated 15 July 1994,
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.
(col-
_______________
1 Penned by Associate Justice Romeo A. Brawner, with Associate Justices
Jose L. Sabio, Jr. and Jose C. Reyes, Jr., concurring. Rollo, pp. 55-68.
2 O.P. Case No. 02-A-023; id., at pp. 379-391.
3 Re: Transfer of the Financial and Technical Assistance Agreement
Denominated as FTAA No. 02- 95-XI; id., at pp. 312-314.
318
318 SUPREME COURT REPORTS ANNOTATED
Lepanto Consolidated Mining Co. vs. WMC Resources Int’l.
lectively called the Tampakan Companies), in accordance with
the Tampakan Option Agreement entered into by WMC
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 for Injunction, Specific
4
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 before the Court of
5 Companies, asserting that the latter failed to validly exercise its
_______________
4Docketed as Civil Case No. 01-87.
CA-G.R. SP No. 65496.
5
319
VOL. 507, NOVEMBER 20, 2006 319
Lepanto Consolidated Mining Co. vs. WMC Resources Int’l.
Pty. Ltd.
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 MGB’s 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 Tampakan
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 MGB’s authority 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
320
320 SUPREME COURT REPORTS ANNOTATED
Lepanto Consolidated Mining Co. vs. WMC Resources Int’l.
Pty. Ltd.
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 respondent’s 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 forumshopping.” 6
With the denial of petitioner’s Motion for Reconsideration, the
case was elevated to this Court. In a Decision dated 24
7
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,
_______________
6Rollo, pp. 320-322.
7Lepanto Consolidated Mining Co. v. WMC Resources Int’l. Pty Ltd., G.R.
Nos. 153885 & 156214, 24 September 2003, 412 SCRA 101.
321
VOL. 507, NOVEMBER 20, 2006 321
Lepanto Consolidated Mining Co. vs. WMC Resources Int’l.
Pty. Ltd.
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 reliefs from 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
_______________
8Id., at pp. 108-109.
322
322 SUPREME COURT REPORTS ANNOTATED
Lepanto Consolidated Mining Co. vs. WMC Resources Int’l.
Pty. Ltd.
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.”
323
VOL. 507, NOVEMBER 20, 2006 323
Lepanto Consolidated Mining Co. vs. WMC Resources Int’l.
Pty. Ltd.
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 Lepanto’s 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 latter’s exercise of the
wellentrenched 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]; Qualitrans Limousine 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 State’s 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
regula
324
324 SUPREME COURT REPORTS ANNOTATED
Lepanto Consolidated Mining Co. vs. WMC Resources Int’l.
Pty. Ltd.
tions 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 FTAA’s 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 Lepanto’s 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 DENR’s 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.
325
VOL. 507, NOVEMBER 20, 2006 325
Lepanto Consolidated Mining Co. vs. WMC Resources Int’l.
Pty. Ltd.
Briad Agro Development Corporation v. dela Serna, 174 SCRA
524[1989]).” [Emphasis ours]
9
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 dispo
_______________
9OP Decision pp. 4-6, 11-12; Rollo, pp. 382-384, 389-390.
326
326 SUPREME COURT REPORTS ANNOTATED
Lepanto Consolidated Mining Co. vs. WMC Resources Int’l.
Pty. Ltd.
sition 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 petitioner’s 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
327
VOL. 507, NOVEMBER 20, 2006 327
Lepanto Consolidated Mining Co. vs. WMC Resources Int’l.
Pty. Ltd.
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
_______________
CA Decision, pp. 6-9; Rollo, pp. 60-63.
10
328
328 SUPREME COURT REPORTS ANNOTATED
Lepanto Consolidated Mining Co. vs. WMC Resources Int’l.
Pty. Ltd.
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, a 11
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. Furthermore, it
12
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,
_______________
11 47 Phil. 543 (1925).
12 Balatbat v. Court of Appeals, G.R. No. 36378, 27 January 1992, 205 SCRA
419, 426.
13 Id.
329
VOL. 507, NOVEMBER 20, 2006 329
Lepanto Consolidated Mining Co. vs. WMC Resources Int’l.
Pty. Ltd.
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-B’Laan Tribal
Association, Inc. v. Ramos case, involving the same FTAA
15
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 Presi
_______________
Supra note 9.
14
G.R. No. 127882, 1 December 2004, 445 SCRA 1.
15
330
330 SUPREME COURT REPORTS ANNOTATED
Lepanto Consolidated Mining Co. vs. WMC Resources Int’l.
Pty. Ltd.
dent dated July 23, 2002, both approving the assignment of the
WMCP FTAA to Sagittarius.” (Emphasis ours.)
16
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, and to fall
17
within the prohibition, the change must not only impair the
obligation of the existing contract, but the impairment must
be substantial. Substantial impairment as conceived in
18
relation to impairment of contracts has been explained in the
case of Clemons v. Nolting, which stated that: a law which
19
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
_______________
16 Id., at p. 89.
17 Phil. Rural Electric Coop. Assoc. Inc. v. Department of Interior and Local
Government Secretary, 451 Phil. 683, 699; 403 SCRA 558, 573 (2003).
18 Id.
19 42 Phil. 702, 717 (1922).
331
VOL. 507, NOVEMBER 20, 2006 331
Lepanto Consolidated Mining Co. vs. WMC Resources Int’l.
Pty. Ltd.
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
CAG.R. SP No. 74161 dated 21 November 2003 is hereby
AFFIRMED. Costs against petitioner.
SO ORDERED.
Ynares-Santiago, Austria-Martinez and Callejo, Sr.,
JJ., concur.
Panganiban, (C.J., Chairperson), In the result.
Petition denied.
Notes.—The sole purpose of the impairment clause of the
Constitution is to safeguard the integrity of valid contractual
agreements against unwarranted interference by the State in
the form of laws—private individuals’ intrusions on interest
rates is governed by statutory enactments like the Civil Code.
(New Sampaguita Builders Construction, Inc. vs. Philippine
National Bank, 435 SCRA 565 [2004])
332
332 SUPREME COURT REPORTS ANNOTATED
Rebucan vs. People
All contracts are “subject to the overriding demands, needs
and interests of the greater number as the State may
determine in the legitimate exercise of its police power.”
(Philippine Ports Authority vs. Cipres Stevedoring & Arrastre,
Inc., 463 SCRA 358 [2005])

——o0o——

© Copyright 2019 Central Book Supply, Inc. All rights reserved.

196 SUPREME COURT REPORTS ANNOTATED
Benguet Corporation vs. Department of Environment and
Natural Resources-Mines Adjudication Board
G.R. No. 163101. February 13, 2008. *
BENGUET CORPORATION, petitioner, vs. DEPARTMENT
OF ENVIRONMENT AND NATURAL RESOURCES-MINES
ADJUDICATION BOARD and J.G. REALTY AND MINING
CORPORATION, respondents.
Arbitration; Mines Adjudication Board; Appeals; A decision of
the Mines Adjudication Board (MAB) must first be appealed to the
Court of Appeals (CA) under Rule 43 of the Rules of Court before
recourse to the Court may be had.—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
_______________
*SECOND DIVISION.
197
VOL. 545, FEBRUARY 13, 2008 197
Benguet Corporation vs. Department of Environment and
Natural Resources-Mines Adjudication Board
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., 387 SCRA 128
(2002) 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.
Same; Same; 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.—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.
Same; Same; Distinction between Voluntary and Compulsory
Arbitration.—J.G. Realty’s contention, that prior resort to
arbitration is unavailing in the instant case because the POA’s
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, 395 SCRA 451 (2003), the Court had the occasion to
distinguish between the two types of arbitrations: Comparatively,
in Reformist Union of R.B. Liner, Inc. vs. NLRC, 266 SCRA 713
(1997), 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 department’s
personnel, said arbitrator renders arbitration services provided for
under labor laws. (Emphasis supplied.)
Civil Law; Unjust Enrichment; Definition of Unjust
Enrichment; There is no unjust enrichment when the person who will
benefit has a valid claim to such benefit.—In Car Cool Philippines,
Inc. v.
198
198 SUPREME COURT REPORTS
ANNOTATED
Benguet Corporation vs. Department of Environment and
Natural Resources-Mines Adjudication Board
Ushio Realty and Development Corporation, 479 SCRA 404
(2006), 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
another’s expense or damage. There is no unjust enrichment
when the person who will benefit has a valid claim to such
benefit. (Emphasis supplied.)
SPECIAL CIVIL ACTION in the Supreme Court. Certiorari.
The facts are stated in the opinion of the Court.
Reynaldo P. Mendoza for petitioner.
Cortina, Buted & Coloma Law Offices for J.G. Realty &
Mining Corporation.
VELASCO, JR., J.:
The instant petition under Rule 65 of the Rules of Court seeks
the annulment of the December 2, 2002 Decision and March
1 mining rights to the mineral claims. Within 24 months from
17, 2004 Resolution of the Department of Environment and
2 the execution of the RAWOP, Benguet should also cause the
Natural Resources-Mines 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 of the
3 examination, within a reasonable time after the completion of
MAB Panel of Arbitrators (POA) which
_______________
1 Rollo, pp. 25-38.
2 Id., at pp. 39-41.
3 Id., at pp. 42-47.
199
VOL. 545, FEBRUARY 13, 2008 199
Benguet Corporation vs. Department of Environment and
Natural Resources-Mines Adjudication Board
canceled the Royalty Agreement with Option to Purchase
(RAWOP) dated June 1, 1987 between Benguet and J.G.
4 200
Realty, and excluded Benguet from the joint Mineral
Production Sharing Agreement (MPSA) application over four
mining claims. The March 17, 2004 Resolution denied
Benguet’s 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, BonitoII,
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 dated5
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
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
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
_______________
4Id., at pp. 73-111.
5Id., at pp. 112-115.
200 SUPREME COURT REPORTS ANNOTATED
Benguet Corporation vs. Department of Environment and
Natural Resources-Mines Adjudication Board
commercial productive stage within 24 months from the
written notice. It is also provided in the RAWOP that if the
6
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:
1. “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;
2. b.Violation of the Contract by allowing high graders to
operate on our claim.
3. c.No stipulation was provided with respect to the term
limit of the RAWOP.
4. d.Non-payment of the royalties thereon as provided in
the RAWOP.” 7
In response, Benguet’s Manager for Legal Services, Reynaldo
P. Mendoza, wrote J.G. Realty a letter dated March 8,
1999, therein alleging that Benguet complied with its
8
obligations under the RAWOP by investing PhP42.4 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
_______________
6 Id., at pp. 75-78.
7 Id., at p. 202.
8 Id., at pp. 118-119.
201
VOL. 545, FEBRUARY 13, 2008 201
Benguet Corporation vs. Department of Environment and
Natural Resources-Mines Adjudication Board
extension of time to prosecute such permit. Benguet further
claimed that the high graders mentioned by J.G. Realty were
already operating prior to Benguet’s 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 with the Legaspi City
9
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, dwelling
10
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.”
_______________
9 Id., at pp. 215-219.
 Id., at pp. 42-47.
10
202
202 SUPREME COURT REPORTS ANNOTATED
Benguet Corporation vs. Department of Environment and
Natural Resources-Mines Adjudication Board
Therefrom, Benguet filed a Notice of Appeal with the MAB on
11
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. 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. 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. 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 Court’s 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
_______________
Id., at p. 48.
11
Id., at pp. 8, 14 & 18, respectively.
12
203
VOL. 545, FEBRUARY 13, 2008 203
Benguet Corporation vs. Department of Environment and
Natural Resources-Mines Adjudication Board
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., ruling that a
13
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 Court’s 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
rulemaking power, transfers to the CA pending cases involving a
review of a quasi-judicial body’s decisions, such transfer relates only
to procedure; hence, it does not impair the substantive and vested
rights of the parties. The aggrieved party’s 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
_______________
G.R. No. 148267, August 8, 2002, 387 SCRA 128.
13
204
204 SUPREME COURT REPORTS ANNOTATED
Benguet Corporation vs. Department of Environment and
Natural Resources-Mines Adjudication Board
introductory words in Section 1 of Circular No. 1-91——“among
these agencies are”——indicate 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). However, the Carpio ruling was not applied
15
to Asaphil as 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.
_______________
Id., at pp. 138-141.
14
G.R. No. 134030, April 25, 2006, 488 SCRA 126, 133.
15
205
VOL. 545, FEBRUARY 13, 2008 205
Benguet Corporation vs. Department of Environment and
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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:
_______________
Rollo, p. 90.
16
206
206 SUPREME COURT REPORTS ANNOTATED
Benguet Corporation vs. Department of Environment and
Natural Resources-Mines Adjudication Board
“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 one’s hand even if there is a law which
allows him to do so.” 17
The MAB, meanwhile, denied Benguet’s 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. Realty’s 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, J.G. Realty reiterated the
20
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
_______________
17 Id., at p. 44.
18 Id., at p. 31.
19 Id., at p. 32.
20 Id., at pp. 150-273.
207
VOL. 545, FEBRUARY 13, 2008 207
Benguet Corporation vs. Department of Environment and
Natural Resources-Mines Adjudication Board
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
_______________
21 BF Corporation v. Court of Appeals, G.R. No. 120105, March 27, 1998, 288
SCRA 267; Puromines v. Court of Appeals, G.R. No. 91228, March 22,
1993, 220 SCRA 281; General Insurance and Surety Corporation v. Union
Insurance Society of Canton, et al., G.R. Nos. 30475-76, November 22,
1989, 179 SCRA 530; Gascon v. Arroyo, G.R. No. 78389, October 16, 1989, 178
SCRA 582; Bengson v. Chan, No. L-27283, July 29, 1977, 78 SCRA
113; Mindanao Portland Ce
208
208 SUPREME COURT REPORTS ANNOTATED
Benguet Corporation vs. Department of Environment and
Natural Resources-Mines Adjudication Board
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
_______________
ment Corporation v. McDonough Construction Company of Florida, No. L-
23390, April 24, 1967, 19 SCRA 808.
209
VOL. 545, FEBRUARY 13, 2008 209
Benguet Corporation vs. Department of Environment and
Natural Resources-Mines Adjudication Board
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 quasijudicial 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. Realty’s contention, that prior resort to arbitration is
unavailing in the instant case because the POA’s 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 department’s
per
_______________
Supra at p. 285.
22
210
210 SUPREME COURT REPORTS ANNOTATED
Benguet Corporation vs. Department of Environment and
Natural Resources-Mines Adjudication Board
sonnel, said arbitrator renders arbitration services provided for
under labor laws.” (Emphasis supplied.)
23
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. Realty’s argument on this matter must fail.
As to J.G. Realty’s 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.” (Emphasis supplied.)
24
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 POA’s jurisdiction. As it were, when J.G.
Realty filed DENR Case No. 2000-01, Benguet filed its an-
_______________
23 G.R. No. 140960, January 20, 2003, 395 SCRA 451, 457-458.
24 Rollo, p. 90.
25 Chan v. Court of Appeals, G.R. No. 147999, February 27, 2004, 424 SCRA
127, 134.
211
VOL. 545, FEBRUARY 13, 2008 211
Benguet Corporation vs. Department of Environment and
Natural Resources-Mines Adjudication Board
swer 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 MAB’s 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 POA’s 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) Benguet’s failure to pay J.G. Realty’s royalties for
the mining claims; and (2) Benguet’s 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.
212
212 SUPREME COURT REPORTS ANNOTATED
Benguet Corporation vs. Department of Environment and
Natural Resources-Mines Adjudication Board
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.
Benguet’s 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 OWNER’s
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. Thus, after J.G. Realty informed Benguet of the bank
26
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.
_______________
CIVIL CODE, Arts. 1159 & 1308.
26
213
VOL. 545, FEBRUARY 13, 2008 213
Benguet Corporation vs. Department of Environment and
Natural Resources-Mines Adjudication Board
Notably, Benguet’s 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.” (Emphasis
27
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.
_______________
G.R. No. 116960, April 2, 1996, 256 SCRA 84, 89.
27
214
214 SUPREME COURT REPORTS ANNOTATED
Benguet Corporation vs. Department of Environment and
Natural Resources-Mines Adjudication Board
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 Benguet’s 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 unjustlyretains 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 another’s
expense or damage.
There is no unjust enrichment when the person who will
benefit has a valid claim to such benefit.” (Emphasis 28
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.
_______________

G.R. No. 138088, January 23, 2006, 479 SCRA 404, 412-413.
28

215
VOL. 545, FEBRUARY 13, 2008 215
TSPIC Corporation vs. TSPIC Employees Union (FFW)
SO ORDERED.
Quisumbing (Chairperson), Carpio and Carpio-
Morales, JJ., concur.
Tinga, J., In the result.
Petition dismissed, judgment and resolution affirmed.
Note.—Findings of the Arbitration Board affirmed by the
trial court and the Court of Appeals and supported by
substantial evidence should be accorded not only respect but
finality. (National Power Corporation vs. Alonzo-Legasto, 443
SCRA 342 [2004])

——o0o——

© Copyright 2019 Central Book Supply, Inc. All rights reserved.

 G.R. No. 183576. May 30, 2011.* Pablo T. Ayson, Jr. for petitioner.
DIAMOND DRILLING CORPORATION OF THE Quisumbing, Torres for respondent.
PHILIPPINES, petitioner, vs. NEWMONT PHILIPPINES CARPIO, J.:
INCORPORATED, respondent.
Department of Environment and Natural Resources (DENR); It The Case
is clear from Section 8 of Department of Environment and Natural
Resources Administrative Order No. 63 (DAO 63) that the Mines and Before the Court is a petition1 for review
Geosciences Bureau Central Office processes all Financial or on certiorari assailing the Decision2 dated 16 January 2008
Technical Assistance applications after payment of the requisite and Resolution3 dated 8 July 2008 of the Court of Appeals (CA)
fees.—It is clear from Section 8 of DAO 63 that the MGB Central in CA-G.R. SP No. 96093.
Office processes all FTAA applications after payment of the
requisite fees. Section 8 requires the FTAA applicant to furnish the The Facts
MGB Regional Office a copy of the FTAA application within 72
hours from filing of the FTAA application. The Regional Office On 20 December 1994, respondent Newmont Philippines
verifies the area that an applicant intends to utilize, and declares Incorporated (Newmont) (now known as the Cordillera
the availability of the area for FTAA application. The Regional Exploration Company Incorporated) filed eight
Office will then submit its recommendation to the MGB Central
applications for Financial or Technical Assistance (FTAA)
4
Office within thirty days from receipt by the Regional Office of a
with the Central Office Technical Secretariat of the Mines and
copy of the FTAA application from the applicant. However, when
there are two or more applicants in the same area, priority shall be Geosciences Bureau (MGB) in Quezon City pursuant to
given to the applicant that first filed its application. Executive Order No. 2795 (EO 279) and Department of
Same; Section 8 of DAO 63 states that in the event there are two Environment and Natu-
or more applicants over the same area, priority shall be given to the
_______________
applicant that first filed its application.—Since Newmont’s FTAA
applications preceded that of Diamond Drilling’s MPSA application, 1 Under Rule 45 of the 1997 Revised Rules of Civil Procedure.
priority should be given to Newmont. Section 8 of DAO 63 is clear. 2 Rollo, pp. 10-17. Penned by Justice Marlene Gonzales-Sison with Justices
It states that in the event there are two or more applicants over the Juan Q. Enriquez, Jr. and Vicente S.E. Veloso, concurring.
same area, priority shall be given to the applicant that first filed its 3 Id., at pp. 19-22.
application. 4 Id., at pp. 514-524.
5 Authorizing the Secretary of Environment and Natural Resources to
PETITION for review on certiorari of the decision and
Negotiate and Conclude Joint Venture, Co-Production, or Production-Sharing
resolution of the Court of Appeals. Agreements for the Exploration, Development and Utilization of Mineral
The facts are stated in the opinion of the Court. Resources, and Prescribing the Guidelines for Such Agreements and Those
Agreements Involving Technical or Financial Assistance by Foreign-Owned
_______________ Corporations for Large-Scale Exploration, Development and Utilization of
Minerals; issued on 25 July 1987.
* SECOND DIVISION. 442
441 442 SUPREME COURT REPORTS ANNOTATED
VOL. 649, MAY 30, 2011 441 Diamond Drilling Corporation of the Philippines vs.
Diamond Drilling Corporation of the Philippines vs. Newmont Philippines Incorporated
Newmont Philippines Incorporated
ral Resources (DENR) Administrative Order No. 636 (DAO 63),
series of 1991. Newmont wanted to explore and develop large
gold deposits in the Central Cordillera, particularly the areas
situated in Abra, Benguet, Cagayan, Ilocos Sur, Ilocos Norte,
Ifugao, Kalinga-Apayao, Mountain Province, Nueva Vizcaya
and Pangasinan, comprising a maximum contract area7 of
100,000 hectares8 of land for each application.
On the same date, Newmont paid the corresponding filing
and processing fees.9 MGB registered Newmont’s FTAA
applications on the same day of filing. Thereafter, Newmont
furnished through fax transmission the MGB Regional Office
in
_______________
6 Guidelines for the Acceptance, Consideration and Evaluation of Financial
or Technical Assistance Agreement Proposals; signed on 12 December 1991.
7 Section 1.a of DENR Department Administrative Order No. 63, series of
1991:
Section 1. Definition of Terms.—As used in and for the purposes of this
Order, the following words and terms, whether in singular or plural, shall have
the following respective meanings:
1.a Contract Area means the area originally awarded under FTAA
without reference to region or province. x x x (Emphasis supplied)
8 Section 6.a of DENR Department Administrative Order No. 63, series of
1991:
Section 6. Maximum Contract and Project Areas Allowed.—
xxx
The maximum contract area shall be:
6.a 1,235 meridional blocks or 100,000 hectares onshore.
6.b 16,000 meridional blocks or 1,296,000 hectares offshore reckoned
from the 100 meters from the shore waterlines at mean low tide extending
seaward.
6.c Combination of a & b provided that it shall not exceed the maximum
limits for onshore and offshore areas. (Emphasis supplied)
9 As evidenced by Official Receipt No. 9299562 V dated 20 December
1994; Rollo, p. 525.
443
VOL. 649, MAY 30, 2011 443
Diamond Drilling Corporation of the Philippines vs.
Newmont Philippines Incorporated
the Cordillera Administrative Region (MGB-CAR) with its
letter-application, sketch map and coordinates defining the
area of its FTAA applications.10 The MGB-CAR received the
fax machine copies of the letter and other pertinent documents
on 21 December 1994.
Petitioner Diamond Drilling Corporation of the Philippines
(Diamond Drilling) likewise filed on 20 December 1994 an
application for Mineral Production Sharing Agreement
(MPSA), covering 4,860 hectares of land in the areas situated
in Benguet and Mountain Province, with the MGB-CAR
pursuant to EO 279, as implemented by DENR Administrative
Order No. 57.11
Pending verification by the Survey Section of the MGB-
CAR on the availability of the area applied for, the Mining
Recorder of the MGB-CAR advised Diamond Drilling to first
register its Articles of Incorporation, By-Laws and Secretary’s
Certificate with the Securities and Exchange Commission.12
_______________
10 Id., at p. 526.
11 Guidelines on Mineral Production Sharing Agreement under Executive
Order No. 279; signed on 23 June 1989.
12 Section 3.5, Article 3 of DENR Administrative Order No. 57, series of
1989:
Section 3.5. Award of Production Sharing Agreement
xxx
Minimum Requirements
Regardless of whether the Agreement shall be awarded by bidding or
negotiation, the following minimum requirements shall be submitted by
prospective bidders and proponents:
xxx
b. For Corporations, Partnerships, Associations
i. Certified photocopy of Certificate of Registration issued by the
Securities and Exchange Commission (SEC) or the concerned
authorized government agency;
ii. Certified photocopy of the Articles of Incorporation,
Partnership/Association and By-Laws;
444
444 SUPREME COURT REPORTS ANNOTATED
 Diamond Drilling Corporation of the Philippines vs.
Newmont Philippines Incorporated
On 22 December 1994, Diamond Drilling complied with the
requirements. Since the area as checked by the MGB-CAR in
its records was open for mining location, Diamond Drilling
paid for the filing and processing fees on the same date.13 The
MGB-CAR then registered Diamond Drilling’s MPSA
application.14
Upon verification, however, the MGB-CAR found that
Diamond Drilling’s MPSA application was in conflict with a
portion of one of Newmont’s FTAA applications.15
Meanwhile, on 14 April 1995, Republic Act No. 794216 (RA
7942) or the Philippine Mining Act of 1995 took effect.
In a letter dated 4 October 1995, Newmont wrote the MGB
requesting for an opinion on the applicability of Section 8 of
DAO 63, particularly the provision which requires an FTAA
applicant to furnish the MGB Regional Office with a copy of
the FTAA application within 72 hours from filing.
In a letter-opinion17 dated 25 October 1995, the Director of
MGB-CAR replied:
_______________
iii. Personal data sheets of the current directors and officers, including their
nationalities, bio-data, and relevant experiences or annual report;
iv. Audited Financial Statements for the three (3) immediately preceding
years, if applicable;
v. Proof of sufficiency of capital and credit lines;
vi. Authorizations to the Secretary or his representative to verify submitted
information.
13 As evidenced by Official Receipt No. 8263500 A dated 22 December
1994.
14 Designated as MPSA No. 048; Rollo, pp. 91-92.
15 Id., at p. 548; copy of a map showing the conflict area between
Newmont’s FTAA applications and Diamond Drilling’s MPSA application.
16 An Act Instituting a New System of Mineral Resources Exploration,
Development, Utilization, and Conservation.
17 Rollo, p. 545.
445
VOL. 649, MAY 30, 2011 445
Diamond Drilling Corporation of the Philippines vs.
Newmont Philippines Incorporated
“In reply therewith, please be advised as follows:
1. FTAA proposals/applications filed and accepted by MGB are
closed to subsequent mineral rights applications notwithstanding
the the fact that the MGB has not furnished a copy thereof to
concerned DENR Regional Office within 72 hours. We feel that the
inclusion of said period is not a mandatory provision but merely
intended to facilitate the processing of FTAA applications; and
2. While it appears that there is no obligation on the part of the
FTAA applicant to furnish said copy to concerned DENR Regional
Office, yet, we likewise feel that said applicant is not precluded from
doing so for the same reason abovementioned, that is, to facilitate
the processing of the FTAA application. x x x”
However, in a letter-opinion18 dated 23 February 1996, the
same Director of MGB-CAR reversed his earlier opinion
stating:
“x x x Upon thorough study, we believe that when the regulations
at that time (DENR Administrative Order No. 63) requires that a
copy of the FTAA proposal be furnished to the DENR Regional Office
concerned within 72 hours from filing thereof, it is mandatory,
notwithstanding our previous opinion on the matter, the purpose
being is to notify the said regional office of the existence of said
application and therefore they should no longer accept other
applications that are in conflict therewith. We cannot blame the
Regional Office concerned in accepting applications for MPSA and
other applications because the FTAA proponent failed to furnish
them a copy of its FTAA proposal within the prescribed hours. x x
x”
On 2 August 1996, Diamond Drilling filed a protest19 with
the MGB-CAR. Diamond Drilling sought to annul the eight
FTAA applications of Newmont and asked that it be granted
preferential right over the areas covered by its MPSA
application.
_______________
18 CA Rollo, pp. 348-349.
19 Docketed as MAC No. MGB-010.
446
446 SUPREME COURT REPORTS ANNOTATED VOL. 649, MAY 30, 2011 447
Diamond Drilling Corporation of the Philippines vs. Diamond Drilling Corporation of the Philippines vs.
Newmont Philippines Incorporated Newmont Philippines Incorporated
Meanwhile, due to the requirements of the new mining In a Decision23 dated 22 October 1997, the Panel of
law,20Newmont, in a letter21 dated 10 September 1996, gave Arbitrators of the MGB-CAR decided the case in favor of
notice to the MGB-CAR that it was relinquishing portions of Diamond Drilling. The Panel stated that the filing of the
the areas covered under its FTAA applications, reducing the MPSA application on 20 December 1994 up to the payment
total area applied for to 81,000 hectares pursuant to Section made on 22 December 1994 was an uninterrupted and
257 (now Section 27222) of DENR Administrative Order No. 96- continuing act. Since the filing is the preparatory act and the
40 or the Revised Implementing Rules and Regulations of RA registration is the conclusive act, then an MPSA application is
7942. considered accepted and registered upon verification that the
area is free and open for location. The dispositive portion of
_______________
the decision states:
20 Section 34 of Republic Act No. 7942:
“IN LIGHT OF THE FOREGOING PREMISES, the panel
Section 34. Maximum Contract Area.—The maximum contract area weighed both allegations and arguments and considered the
that may be granted per qualified person, subject to relinquishment shall evidence and found the same strongly in favor of the protestant,
be: DDCP (Diamond Drilling). NPI (Newmont) is hereby ordered to
a. 1,000 meridional blocks onshore (approximately 81,000 limit its area to 81,000 has. per province and amend its technical
hectares); description and plan to exclude the area of DDCP. MPSA No. 48 is
b. 4,000 meridional blocks offshore; or
hereby declared valid, granting to DDCP the preferential right over
c. Combinations of a and b provided that it shall not
exceed the maximum limits for onshore and offshore the area covered by its MPSA.
areas. (Emphasis and underscoring supplied) SO ORDERED.”24
21 Rollo, pp. 536-542. Newmont appealed the decision of the MGB-CAR to the
22 Section 272. Non-Impairment of Existing Mining/Quarrying Rights.— Mines Adjudication Board (MAB).25 In a Decision26 dated 24
All valid and existing mining lease contracts, permits/
licenses, leases pending renewal, Mineral Production Sharing Agreements,
April 2000, the MAB reversed the decision of the MGB-CAR
FTAA granted under Executive Order No. 279, at the date of the Act shall and ruled in Newmont’s favor. The MAB found that fax
remain valid, shall not be impaired and shall be recognized by the Government machine copies sent to the MGB-CAR of Newmont’s FTAA
x x x All pending applications for MPSA/FTAA covering forest land and applications showing the essential information, specifically
Government Reservations shall not be required to re-apply for Exploration
Permit: Provided, That where the grant of such FTAA the dates of filing and registration as well as technical
applications/proposals would exceed the maximum contract area descriptions, are valid documents since the law is silent as to
restrictions contained in Section 34 of the Act, the the mode of service. The MAB added that since Newmont’s
applicant/proponent shall be given an extension of one (1) year,
FTAA applications were properly filed and formally accepted
reckoned from September 13, 1996, to divest or relinquish pursuant to
Department Administrative Order No. 96-25 in favor of the two days earlier than the date of acceptance of Diamond
Government, areas in excess of the maximum area allowance provided Drilling’s MPSA application, the area covered by Newmont’s
under the Act. x x x Provided, finally, That this provision is applicable only FTAA
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. (Emphasis supplied)
447
 23 Rollo, pp. 71-80.
24 Id., at p. 80.
25 Docketed as MAB Case No. 022-97.
26 Rollo, pp. 81-86.
448
448 SUPREME COURT REPORTS ANNOTATED
Diamond Drilling Corporation of the Philippines vs.
Newmont Philippines Incorporated
applications should be considered closed to other mining
applications. The dispositive portion states:
“WHEREFORE, the foregoing premises considered, the appealed
decision dated October 22, 1997 of the Panel of Arbitrators, DENR-
CAR is hereby REVERSED and SET ASIDE and NPI’s FTAA
application is hereby SUSTAINED.
SO ORDERED.”27
Diamond Drilling filed a motion for reconsideration which
the MAB denied in a Resolution28 dated 11 August 2006.
Diamond Drilling then filed a petition29 for review with the
CA.In a Decision30 dated 16 January 2008, the CA affirmed the
decision of the MAB. Diamond Drilling filed a motion for
reconsideration which the CA denied in a Resolution31 dated 8
July 2008.
Hence, this petition.
The Issue
The main issue is whether the CA committed a reversible
error in affirming the decision of the MAB giving preferential
right to Newmont’s FTAA applications over Diamond
Drilling’s MPSA application.
The Court’s Ruling
The petition lacks merit.
Petitioner Diamond Drilling insists that the requirement of
furnishing the MGB Regional Office a copy of the FTAA
application within 72 hours is mandatory in character.
Diamond
_______________
27 Id., at p. 86.
28 Id., at pp. 87-90.
29 Docketed as CA-G.R. SP No. 96093.
30 Supra note 2.
31 Supra note 3.
449
VOL. 649, MAY 30, 2011 449
Diamond Drilling Corporation of the Philippines vs.
Newmont Philippines Incorporated
Drilling adds that the transmission by Newmont of fax
machine copies of its FTAA applications to the MGB Regional
Office is not sufficient compliance with Section 8 of DAO 63.
Thus, Diamond Drilling asserts that it has preferential rights
over the area included in its MPSA application as against
respondent Newmont.
Section 8 of DENR Administrative Order No. 63 states:
“SEC. 8. Acceptance and Evaluation of FTAA.—All FTAA
proposals shall be filed with and accepted by the Central
Office Technical Secretariat (MGB) after payment of the
requisite fees to the Mines and Geosciences Bureau, copy
furnished the Regional Office concerned within 72 hours.
The Regional Office shall verify the area and declare the
availability of the area for FTAA and shall submit its
recommendations within thirty (30) days from receipt. In the
event that there are two or more applicants over the same
area, priority shall be given to the applicant who first filed
his application. In any case, the Undersecretaries for Planning,
Policy and Natural Resources Management; Legal Services,
Legislative, Liaison and Management of FASPO; Field Operations
and Environment and Research, or its equivalent, shall be given ten
(10) days from receipt of FTAA proposal within which to submit
their comments/recommendations and the Regional Office, in the
preparation of its recommendation shall consider the financial and
technical capabilities of the applicant, in addition to the proposed
Government share. Within five (5) working days from receipt of said
recommendations, the Technical Secretariat shall consolidate all
comments and recommendations thus received and shall forward
the same to the members of the FTAA Negotiating Panel for
evaluation at least within thirty (30) working days.” (Emphasis
supplied)
It is clear from Section 8 of DAO 63 that the MGB Central
Office processes all FTAA applications after payment of the
requisite fees. Section 8 requires the FTAA applicant to
furnish the MGB Regional Office a copy of the FTAA
application within 72 hours from filing of the FTAA
application. The Regional Office verifies the area that an
applicant intends to utilize, and declares the availability of the
area for FTAA
450
450 SUPREME COURT REPORTS ANNOTATED
Diamond Drilling Corporation of the Philippines vs.
Newmont Philippines Incorporated
application. The Regional Office will then submit its
recommendation to the MGB Central Office within thirty days
from receipt by the Regional Office of a copy of the FTAA
application from the applicant. However, when there are two
or more applicants in the same area, priority shall be given to
the applicant that first filed its application.
In the present case, the records show that Newmont filed
its FTAA applications with the MGB Central Office in Quezon
City on 20 December 1994. After Newmont paid the filing and
processing fees, the MGB Central Office registered Newmont’s
FTAA applications on the same date. On the other hand,
Diamond Drilling filed its MPSA application with the MGB-
CAR Regional Office in Baguio City on 20 December 1994.
However, since the pertinent documents needed by the MGB-
CAR Regional Office were lacking, it took two more days for
Diamond Drilling to complete the requirements. Diamond
Drilling paid its filing and processing fees only on 22
December 1994 or two days after Newmont’s FTAA
applications were registered with the MGB Central Office.
Thus, Diamond Drilling’s MPSA application was registered by
the MGB-CAR Regional Office only on 22 December 1994.
Since Newmont’s FTAA applications preceded that of
Diamond Drilling’s MPSA application, priority should be
given to Newmont. Section 8 of DAO 63 is clear. It states that
in the event there are two or more applicants over the same
area, priority shall be given to the applicant that first filed its
application.
On the requirement that the applicant should furnish the
proper MGB Regional Office a copy of the FTAA application
within 72 hours from filing, the CA, in its Decision dated 16
January 2008, stated:
“x x x We rule that the requirement of DAO No. 63 that the MGB
Regional Office concerned be furnished a copy of the FTAA
application is merely directory in character. The word “shall,” which
seems to give the provision a mandatory character, precedes the
filing of an FTAA application and not the furnishing of a copy of the
451
VOL. 649, MAY 30, 2011 451
Diamond Drilling Corporation of the Philippines vs.
Newmont Philippines Incorporated
same to the Regional office; hence to interpret the word “shall” as
giving the latter a mandatory character is far-fetched. A fortiori, the
purpose of said requirement is to notify the Regional Office
concerned that an application for FTAA was filed with the Central
Office Technical Secretariat (COTS) of the MGB so that the
Regional Office may verify the area covered by the application and
submit its recommendation concerning its availability. It must be
stressed that the Regional Office concerned only has the authority
to recommend; hence, its findings are not conclusive with COTS-
MGB. It only performs an allied function to aid the COTS-MGB in
arriving at the decision to grant or deny the application for FTAA.
The power to grant or deny FTAA applications remain in the hands
of the COTS-MGB. Accordingly, the “72-hour requirement” must be
construed as directory and not mandatory in nature.
In any case, Newmont satisfied the “72-hour requirement.” The
MGB Regional Office of CAR found—as confirmed by the Board—
that on 21 December 1994, its Regional Technical Director Office
received a facsimile copy of the letter of Newmont with the latter’s
FTAA application attached thereto. Based on this finding, the Board
ruled that Newmont satisfied the “72-hour requirement.” The Board
explains:
 “A fax machine copy of an application showing therein the
essential information, specially the dates of filing and
registration, and technical description is a valid document.
Thus, NPI has shown to have complied with the required copy
of furnishing MGDS/DENR-CAR within 72 hours.”
Indeed, the facsimile copy of Newmont’s covering letter and
FTAA application satisfy the requirement of DAO No. 63, for said
order did not specify the mode of service and the kind of copy that
must be furnished to the MGB Regional Office. The order simply
stated that the MGB Regional Office be furnished a copy of an an
applicant’s FTAA proposal. The order did not require personal
service or service via mail; neither did the order require that an
original or a certified true copy be furnished the Regional Office.
Consistent with our ruling above, this is so, because the Regional
Office only performs an allied function, the result of which is only
recommendatory and conclusive with the COTS-MGB. In view of
this, Newmont’s manner of furnishing the MGB-CAR Regional
Office of a copy of its FTAA application—through facsimile—cannot
be validly questioned as improper. And, in as much as MGB-CAR
Regional Office received
452
452 SUPREME COURT REPORTS ANNOTATED
Diamond Drilling Corporation of the Philippines vs.
Newmont Philippines Incorporated
the copy of Newmont’s FTAA application on 21 December 1994, or
approximately 24 hours from the day the same was filed in COTS-
MGB, Section 8 of DAO No. 63 was satisfied. x x x32
WHEREFORE, the petition is DISMISSED. The assailed
Decision and Resolution of the Mines Adjudication Board giving
preferential right to Newmont Philippines, Inc. over the area
covered by its application for Financial or Technical Assistance
Agreement, and excluding the Mineral Production Sharing
Agreement of Diamond Drilling Corporation of the Philippines over
the same area, is AFFIRMED.”33
Thus, Newmont in fact furnished the MGB-CAR Regional
Office with copies of its FTAA applications, through fax
transmission, within 72 hours from filing of the FTAA
applications. Considering the distance between Quezon City
and Baguio City where the MGB-CAR Regional Office is
located, and the requirement to furnish the proper Regional
Office (some of which are located in Visayas and Mindanao) a
copy of the FTAA application within a short period of 72 hours,
a fax machine copy is a reasonable and sufficient mode of
serving a copy of the FTAA application to the proper Regional
Office. We note that Section 8 of DAO 63 does not specify how
a copy of the FTAA application should be furnished to the
proper Regional Office.
Newmont clearly satisfied the requirements for the
acceptance and evaluation of its FTAA applications with the
MGB. Being the first to file its FTAA applications ahead of
Diamond Drilling’s MPSA application, and having furnished
copies of its FTAA applications to the MGB-CAR Regional
Office within 72 hours from filing, Newmont must be given
preferential right to utilize the area included in its FTAA
applications.
_______________
32 Rollo, pp. 13-16.
33 Id., at p. 16.
453
VOL. 649, MAY 30, 2011 453
Diamond Drilling Corporation of the Philippines vs.
Newmont Philippines Incorporated
WHEREFORE, we DENY the petition. We AFFIRM the
Decision dated 16 January 2008 and Resolution dated 8 July
2008 of the Court of Appeals in CA-G.R. SP No. 96093.
SO ORDERED.
Nachura, Peralta, Abad and Mendoza, JJ., concur.
Petition denied, judgment and resolution affirmed.
Note.—The Department of Environment and Natural
Resources shall be the primary government agency
responsible for the conservation, management, development
and proper use of the country’s environment and natural
resources, specifically forest and grazing lands, mineral
resources, including those in reservation and watershed areas,
and lands of the public domain, as well as the licensing and
regulation of all natural resources as may be provided for by
law in order to ensure equitable sharing of the benefits derived
therefrom for the welfare of the present and future
generations of Filipinos. (Alvarez vs. PICOP Resources, Inc.,
508 SCRA 498 [2006])

——o0o——

© Copyright 2019 Central Book Supply, Inc. All rights reserved.

128 SUPREME COURT REPORTS ANNOTATED
Carpio vs. Sulu Resources Development Corporation
G.R. No. 148267. August 8, 2002. *
ARMANDO C. CARPIO, petitioner, vs. SULU RESOURCES
DEVELOPMENT CORPORATION, respondent.
Administrative Law; Mines Adjudication Board
(MAB); Appeals;Pleadings and Practice; Judicial Review; At the
very least when factual findings of the MAB are challenged or alleged
to have been made in grave abuse of discretion, the Court of Appeals
may review them, consistent with the constitutional duty of the
judiciary.—We clarify. Factual controversies are usually involved in
administrative actions; and the CA is prepared to handle such
issues because, unlike this Court, it is mandated to rule on questions
of fact. In Metro Construction, we observed that not only did the CA
have appellate jurisdiction over CIAC decisions and orders, but the
review of such decisions included questions of fact and law. At the
very least when factual findings of the MAB are challenged or
alleged to have been made in grave abuse of discretion as in the
present case, the CA may review them, consistent with the
constitutional duty of the judiciary.
Same; Same; Same; Same; Same; There are sufficient legal
footings authorizing a review of the MAB decisions under Rule 43 of
the Rules of Court.—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
_______________
*THIRD DIVISION.
129
VOL. 387, AUGUST 8, 2002 129
Carpio vs. Sulu Resources Development Corporation
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 Court’s 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.
Same; Same; Same; Same; Same; When the Supreme Court, in
the exercise of its rule-making power, transfers to the Court of
Appeals pending cases involving a review of a quasi-judicial body’s
decisions, such transfer relates only to procedure; hence, it does not
impair the substantive and vested rights of the parties.—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 body’s
decisions, such transfer relates only to procedure; hence, it does not
impair the substantive and vested rights of the parties. The
aggrieved party’s 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.
Same; Same; Same; Same; Same; Words and Phrases; The
Revised Rules of Civil Procedure included Rule 43 to provide a
uniform rule on appeals from quasi-judicial agencies—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.—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. 1-91—“among these agencies are”—indicate 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.
Same; Same; Same; Same; Same; 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
130
 130 SUPREME COURT REPORTS ANNOTATED
Carpio vs. Sulu Resources Development Corporation
and Section 3 of Rule 43 explicitly expanded the list of such
issues.—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.
Same; Same; Same; Same; Same; Appeals from quasi-judicial
agencies even only on questions of law may be brought to the CA.—
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.
Same; Same; Same; Same; Same; Hierarchy of Courts; The
judicial policy of observing the hierarchy of courts dictates that direct
resort from administrative agencies to the Supreme Court will not be
entertained; Exceptions.—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.
Same; Same; Same; Same; Same; Section 79 of R.A. 7942
(Philippine Mining Act of 1995) is to be understood as having been
modified by Circular No. 1-91, BP Blg. 129 as amended by R.A. 7902,
Revised Administrative Circular 1-95, and Rule 43 of the Rules of
Court.—Consistent with these rulings and legal bases, we therefore
hold that Section 79 of RA 7942 is likewise to be understood as
having been modified by Circular No. 1-91, BP Blg. 129 as amended
by RA 7902, Revised Administrative Circular 1-95, and Rule 43 of
the Rules of Court. In brief, appeals from decisions of the MAB shall
be taken to the CA through petitions for review in accordance with
the provisions of Rule 43 of the 1997 Rules of Court.
PETITION for review on certiorari of the decision and
resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
131
VOL. 387, AUGUST 8, 2002 131
Carpio vs. Sulu Resources Development Corporation
Castro, Castro & Associates for petitioner.
Amando D. Ignacio for private respondent.
PANGANIBAN, J.:
Decisions and final orders of the Mines Adjudication Board
(MAB) are appealable to the Court of Appeals under Rule 43
of the 1997 Rules of Court. Although not expressly included in
the Rule, the MAB is unquestionably a quasi-judicial agency
and stands in the same category as those enumerated in its
provisions.
The Case
Before us is a Petition for Review on Certiorari under Rule 45
of the Rules of Court, challenging the August 31, 2000
Decision and May 3, 2001 Resolution of the Court of Appeals
1 2
(CA) in CA-GR SP No. 46830. The Assailed Decision disposed
as follows:
“WHEREFORE, premises considered, the petition for review is
hereby DENIED.” 3
Reconsideration was denied in the assailed Resolution.
The Facts
In the challenged Decision, the CA summarized the facts of
this case as follows:
“This case originated from a petition filed by respondent [Sulu
Resources Development Corporation] for Mines Production Sharing
Agreement (MPSA) No. MPSA-IV-131, covering certain areas in
Antipolo, Rizal. Petitioner [Armando C. Carpio] filed an
opposition/adverse claim thereto, alleging, inter alia, that his
landholdings in Cupang and Antipolo, Rizal will be covered by
respondent’s claim, thus he enjoys a preferential right to explore
and extract the quarry resources on his properties.
_______________
1 Penned by Justice Ramon A. Barcelona (Division chairman) with the
concurrence of Justices Marina L. Buzon and Edgardo P. Cruz (members).
2 Rollo, p. 31.
3 Ibid., p. 23.
132
132 SUPREME COURT REPORTS ANNOTATED
Carpio vs. Sulu Resources Development Corporation
“After due proceedings were held, the Panel of Arbitrators of the
Mines and Geo-Sciences Bureau of the DENR rendered a Resolution
dated September 26, 1996, upholding petitioner’s
opposition/adverse claim. This dispositive portion of said Resolution
reads:
‘x x x. WHEREFORE, the opposition/adverse claims of ARMANDO C.
CARPIO is hereby UPHELD. Accordingly, the properties of CARPIO are
ordered excluded from the area of PMPSA-IV-131 of SULU RESOURCES
DEVELOPMENT CORPORATION, and the area not covered by the
adverse claim as subject to mining locations in accordance with existing
laws, rules and regulations.
‘SO ORDERED.’
“Respondent appealed the foregoing Resolution to the Mines
Adjudication Board. Meanwhile, petitioner filed a motion to dismiss
appeal on the ground of respondent’s failure to comply with the
requirements of the New Mining Act’s Implementing Rules and
Regulations.
“On June 20, 1997, the Mines Adjudication Board rendered the
assailed Order dismissing petitioner’s opposition/adverse claim. The
dispositive portion of the assailed Order provides:
‘WHEREFORE, in view of the foregoing premises, this Resolution of the
Panel of Arbitrators of Region IV dated September 26, 1996, is hereby SET
ASIDE and the adverse claim/opposition of CARPIO DISMISSED.
Accordingly, the PMSPA of SULU should be given due process and
evaluated subject to the pertinent provisions of RA 7942 and DAO 96-40.
‘SO ORDERED.’
“Petitioner filed a motion for reconsideration of said Order which
was denied by the Board per Order dated November 24, 1997, the
decretal portion of which provides:
‘WHEREFORE, the Motion for Reconsideration is hereby DENIED for lack
of merit.’ ”
4 herein petitioner.” 7
Ruling of the Court of Appeals
Citing Section 79 of Chapter XIII of the Philippine Mining Act
of 1995 (RA 7942), the CA ruled that it did not have
jurisdiction to review the Decision of the Mines Adjudication
Board (MAB). The adjudication of conflicting mining claims is
completely administra-
_______________
4CA Decision, pp. 1-3; id., pp. 19-21.
133
VOL. 387, AUGUST 8, 2002 133
Carpio vs. Sulu Resources Development Corporation
tive in nature, as held in Pearson v. Intermediate Appellate
Court. Under RA 7942, the “settlement of disputes involving
5
rights to mining areas, mineral agreements, and surface
owners, occupants and claimholders/concessionaires shall
pertain exclusively to a Panel of Arbitrators in the regional
office of the Department of Environment and Natural
Resources, whose decisions are appealable to the Mines
Adjudication Board.” Under Section 79 of RA 7942, “the
findings of fact by the MAB as well as its decision or order
shall be final and executory.”
Inasmuch as the issue raised by petitioner relates to
whether an overlap or a conflict between his properties and
the area covered by the application of respondent has been
proven, MAB’s finding thereon was binding and conclusive,
and the Board’s Decision was already final and executory.
Hence, this Petition. 6
Issue
In his Memorandum, petitioner raises this sole issue for our
consideration:
“Whether or not appeals from the Decision or Final Orders of the
Mines Adjudication Board should be made directly to the Supreme
Court as contended by the respondent and the Court of Appeals, or
such appeals be first made to the Court of Appeals as contended by
This Court’s Ruling
The Petition is meritorious.
_______________
5 295 SCRA 27, 44, September 3, 1998.
6 The case was deemed submitted for decision on April 1, 2002, upon this
Court’s receipt of petitioner’s Memorandum signed by Atty. Manuel R. Castro.
Respondent’s Memorandum, signed by Atty. Amando D. Ignacio, was filed on
March 11, 2002.
7 Rollo, p. 61.
134
134 SUPREME COURT REPORTS ANNOTATED
Carpio vs. Sulu Resources Development Corporation
Sole Issue:
Appellate Jurisdiction over MAB Decisions
Petitioner submits that appeals from the decisions of the MAB
should be filed with the CA. First, the Supreme Court has
authority, under Section 5(5) of Article VIII of the Philippine
Constitution, to promulgate rules of procedure in all courts,
including all quasi-judicial agencies such as the
MAB. Second, Section 3 of Rule 43 of the 1997 Rules of Civil
Procedure authorizes appeals to the CA from judgments or
final orders of quasi-judicial tribunals by means of petitions
for review. Third, the MAB gravely abused its discretion in
“deliberately, willfully and unlawfully” disregarding
petitioner’s rights to the land unduly included in the
questioned application for a Mines Productive Sharing
Agreement (MPSA).
En contrario, the CA ruled and respondent agrees that the
settlement of disputes involving rights to mining areas and
overlapping or conflicting claim is a purely administrative
matter, over which the MAB has appellate jurisdiction. The
latter’s factual findings, decisions and final orders on such
matters are final and executory as provided in Section 79 of
Chapter XIII of the Philippine Mining Act of 1995 and as held
in Pearson v. IAC. Since the appeal of petitioner pertains to
the factual matter of whether he was able to prove the
existence of the overlap or conflict between his claimed area
and that covered by respondent’s application, then the
findings of the MAB should be deemed final and executory.
The CA refused to take jurisdiction over the case because,
under Section 79 of the Philippine Mining Act of 1995,
petitions for review of MAB decisions are to be brought
directly to the Supreme Court. The provision reads in part:
“x x x xxx xxx
“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 Board.”
We hold that respondent’s reliance on Pearson is misplaced.
The claimant therein sued in the then Court of First Instance
(CFI) to prevent the execution of a Decision rendered by the
panel of investigators of the Bureau of Mines and the Office of
the President. Despite a Motion to Dismiss filed by the mining
companies, the
135
VOL. 387, AUGUST 8, 2002 135
Carpio vs. Sulu Resources Development Corporation
CFI ordered the creation of a committee to determine the
correct tie-point of their claims. So, the mining companies
went to the then Intermediate Appellate Court (IAC) via a
Petition for Certiorari under Rule 65. The claimants averred
that the appellate court had no jurisdiction.
In the case at bar, petitioner went to the CA through a
Petition for Review on Certiorari under Rule 43, seeking a
reversal of the MAB Decision. Given the difference in the
reason for and the mode of appeal, it is obvious that Pearson is
not applicable here.
Still, we can draw one lesson. Far from dismissing the case
on the ground of lack of jurisdiction, Pearson expressly held
that the CA had jurisdiction over the petition for certiorari,
because “Section 9 of BP Blg. 129 (The Judiciary
Reorganization Act of 1980), now incorporated in Section 4,
Rule 65 of the 1997 Rules of Civil Procedure, vested the then
IAC with original jurisdiction to issue writs of certiorari and
prohibition, among other auxiliary writs x x x.” However, even
though the Supreme Court has concurrent jurisdiction with
the CA and the Regional Trial Courts to issue a writ of
mandamus, prohibition or certiorari, litigants are well advised
against taking a direct recourse to this Court without initially
seeking proper relief from the lower courts, in accordance with
the hierarchy of courts. 8 agencies.
In Pearson, what was under review was the ruling of the
CFI to take cognizance of the case which had been earlier
decided by the MAB, not the MAB Decision itself which was
promulgated by the CA under Rule 43. The present petitioner
seeks a review of the latter.
Pearson held that the nature of the primary powers granted
by law to the then secretary of agriculture and natural
resources as well as to the director of mines were executive or
administrative, such as “granting of license, permits, lease
and contracts[;] or approving, rejecting, reinstating or
canceling applications[;] or deciding conflicting applications.”
These powers should be distinguished from litigants’
disagreements or controversies that are civil or contractual in
nature, which may be adjudicated only by the courts of justice.
The findings of fact of the MAB, which exercises appel-
_______________
8Pearson v. IAC, supra, pp. 41-42, per Quisumbing, J.
136
136 SUPREME COURT REPORTS ANNOTATED
Carpio vs. Sulu Resources Development Corporation
late jurisdiction over decisions or orders of the panel of
arbitrators, are conclusive and binding on the parties; its
decisions or orders on these are final and executory. But
petitions for certiorari may be filed with the appropriate
courts. In short, the Court held that the appellate jurisdiction
9
of the IAC (now the CA) in Pearson fell under Rule 65—not
43—because what was being impugned was grave abuse of
discretion on the part of the CFI.
Pearson, however, should be understood in the light of
other equally relevant jurisprudence. In Fabian v.
Desierto, the Court clarified that appeals from judgments and
10
final orders of quasi-judicial agencies are now required to be
brought to the CA, under the requirements and conditions set
forth in Rule 43. This Rule was adopted precisely to provide a
uniform rule of appellate procedure from quasi-judicial
11
Section 27 of RA 6770 which is similarly worded as Section
12
79 of the Philippine Mining Act, was struck down by Fabian as
un-
_______________
9 Ibid., p. 45.
10 295 SCRA 470, September 16, 1998.
11 Ibid., pp. 486-487.
12 Sec. 27. Effectivity and Finality of Decisions.—(1) All provisionary orders
of the Office of the Ombudsman are immediately effective and executory.
A Motion for reconsideration of any order, directive or decision of the Office
of the Ombudsman must be filed within five (5) days after receipt of written
notice and shall be entertained only on any of the following grounds:
1. (1)New evidence has been discovered which materially affects the
order, directive or decision;
2. (2)Errors of law or irregularities have been committed prejudicial to
the interest of the movant. The motion for reconsideration shall be
resolved within three (3) days from filing: Provided, That only one
motion for reconsideration shall be entertained.
Findings of fact by the Office of the Ombudsman when supported by
substantial evidence are conclusive. Any order, directive or decision imposing
the penalty of public censure or reprimand, suspension of not more than one
month’s salary shall be final and unappealable.
In all administrative disciplinary cases, orders, directives or decisions of
the Office of the Ombudsman may be appealed to the Supreme Court by filing
a petition for certiorari within ten (10) days from receipt of
137
VOL. 387, AUGUST 8, 2002 137
Carpio vs. Sulu Resources Development Corporation
constitutional, because it had broadened the appellate
jurisdiction of the Supreme Court without its consent, in
violation of Section 30 of Article VI of the Constitution. In 13
short, Section 27 of RA 6770 which provides that
all administrative decisions of the Office of the Ombudsman
may be appealed to the Supreme Court, was unconstitutional.
 In another case, held invalid in the light of Rule 43 of the
1997 Rules of Court was Section 3(2) of Executive Order No.
561, which had declared that decisions of the Commission on
Settlement of Land Problems (COSLAP) were appealable
exclusively to the Supreme Court. There is no convincing
14
reason why appeals from the COSLAP should be treated
differently from those arising from other quasi-judicial bodies,
the decisions of which are directly appealable to the CA under
Rule 43 of the 1997 Rules.
Finally, Metro Construction, Inc. v. Chatham Properties,
Inc. held that Section 19 of Executive Order No. 1008—which
15
had deemed arbitral awards of the Construction Industry
Arbitration Commission (CIAC) to be appealable to the
Supreme Court on questions of law—was modified by Circular
No. 1-91, Batas Pambansa Blg. 129 as amended by RA 7902,
Revised Administrative Circular 1-95, and Rule 43 of the
Rules of Court. Reiterating Fabian, the Court ruled that
appeals were procedural and remedial in nature; hence,
constitutionally subject to this Court’s rule-making power.
In the present case, it is claimed that a petition for review
is improper because petitioner’s challenge is purely factual,
bearing only on the MAB ruling that there was no overlap or
conflict between the litigants’ claims.
We clarify. Factual controversies are usually involved in
administrative actions; and the CA is prepared to handle such
issues
_______________
the written notice of the order, directive or decision or denial of the motion
for reconsideration in accordance with Rule 45 of the Rules of Court. The above
rules may be amended or modified by the Office of the Ombudsman as the
interest of justice may require.
13 Fabian v. Desierto, supra, p. 489.
14 Sy v. Commission on Settlement of Land Problems, G.R. No. 140903,
September 12, 2001, p. 12, 365 SCRA 49.
15 G.R. No. 141897, September 24, 2001, p. 22, 365 SCRA 697.
138
138 SUPREME COURT REPORTS ANNOTATED
Carpio vs. Sulu Resources Development Corporation
because, unlike this Court, it is mandated to rule on questions
of fact. In Metro Construction, we observed that not only did
16
the CA have appellate jurisdiction over CIAC decisions and
orders, but the review of such decisions included questions of
fact and law. At the very least when factual findings of the
17
MAB are challenged or alleged to have been made in grave
abuse of discretion as in the present case, the CA may review
them, consistent with the constitutional duty of the judiciary.
18
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 Court’s 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. 19
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 body’s decisions, such transfer
relates only to procedure; hence, it does not impair the
substantive and vested rights of the parties. The aggrieved
party’s 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
20
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. 21
_______________
 16Ibid., p. 20; Fabian v. Desierto, supra, p. 487.
17Id.
18 See §1, Art. VIII, Constitution.
19 Fabian v. Desierto, supra, p. 489.
20 Ibid., p. 492; Metro Construction v. Chatham Properties, supra, pp. 22-23.
21 Its precursors are Circular No. 1-91, which prescribed the rules governing
appeals to the CA from the final orders or decisions of the Court
139
VOL. 387, AUGUST 8, 2002 139
Carpio vs. Sulu Resources Development Corporation
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
22
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;
23
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. 1-91—“among these agencies are”—
indicate 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. 24
Fourth, the Court realizes that under Batas Pambansa
(BP) Blg. 129 as amended by RA No. 7902, factual
25 26
controversies are usu-
_______________
of Tax Appeals and quasi-judicial agencies; and Administrative Circular
No. 1-95, which revised the earlier circular.
22 Section 1, Rule 43 of the Rules of Court.
23 Metro Construction v. Chatham Properties, supra, p. 20.
24 Ibid.
25 Prior to BP Blg. 129, the jurisdiction of the CA, under the Judiciary Act
of 1948, was as follows:
“SEC. 29. Jurisdiction of the Court of Appeals.—The Court of Appeals shall have
exclusive appellate jurisdiction over all cases, actions, and proceedings, not enumerated
in section seventeen of this Act, properly brought to it, except final judgments or
decisions of Court of First Instance rendered after trial on the merits in the exercise of
appellate jurisdiction, which affirm in full the judgment or decision of a municipal or
city court, in which cases the aggrieved party may elevate the matter to the Court of
Appeals only on petition for review, to which the Court of Appeals shall give due course
only when the petition shows prima facie that the court has committed errors of fact or
of fact and law that would warrant reversal or modification of the judgment or decisions
sought to be reviewed. The decision of the Court of Appeals shall be final: Provided,
however, That the Supreme Court in its discretion may, in any case involving a question
of law, upon petition of the party aggrieved by the decision and under rules and
conditions that it may prescribe, require by certiorari that the said case be certified to
it for review and determination, as if the case had been brought before it on appeal. (RA
No. 5433)”
“SEC. 30. Original jurisdiction of the Court of Appeals.—The Court of Appeals shall
have original jurisdiction to issue writs of mandamus, prohibition, injunction, certiorari,
habeas corpus, and all other auxiliary writs and process in aid of its appellate
jurisdiction.”
26 The jurisdiction of the CA was expanded by BP Blg. 129 and RA No. 7902
to read:
140
140 SUPREME COURT REPORTS ANNOTATED
Carpio vs. Sulu Resources Development Corporation
ally 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
27
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.
_______________
“SEC. 9. Jurisdiction.—The Court of Appeals shall exercise:
1. “(1)Original jurisdiction to issue writs of mandamus, prohibition, certiorari,
habeas corpus, and quo warranto, and auxiliary writs or processes, whether
or not in aid of its appellate jurisdiction;
2. “(2)Exclusive original jurisdiction over actions for annulment of judgments of
Regional Trial Courts; and
3. “(3)Exclusive appellate jurisdiction over all final judgments, decisions,
resolutions, orders or awards of Regional Trial Courts and quasi-judicial
agencies, instrumentalities, boards or commissions, including the Securities
and Exchange Commission, the Social Security Commission, the Employees
 Compensation Commission and the Civil Service Commission, except those Petition granted, judgment and resolution reversed and set
falling within the appellate jurisdiction of the Supreme Court in accordance
with the Constitution, the Labor Code of the Philippines under Presidential aside.
Decree No. 442, as amended, the provisions of this Act, and of subparagraph Notes.—Only judicial review of decisions of administrative
(1) of the third paragraph and subparagraph (4) of the fourth paragraph of
Section 17 of the Judiciary Act of 1948.
agencies made in the exercise of their quasi-judicial function
is subject to the exhaustion doctrine. (Association of Philippine
“The Court of Appeals shall have the power to try cases and conduct hearings, Coconut Desiccators vs. Philippine Coconut Authority, 286
receive evidence and perform any and all acts necessary to resolve factual issues raised
in cases falling within its original and appellate jurisdiction, including the power to
SCRA 109 [1998])
grant and conduct new trials or further proceedings. Trials or hearings in the Court of The courts can not award possession to the very same party
Appeals must be continuous and must be completed within three (3) months, unless whose license has been cancelled by the executive or
extended by the Chief Justice.”
Metro Construction v. Chatham Properties, supra, p. 22.
27
administra-
141
_______________
VOL. 387, AUGUST 8, 2002 141
Carpio vs. Sulu Resources Development Corporation St. Martin Funeral Home v. National Labor Relations Commission, 295
28

Fifth, the judicial policy of observing the hierarchy of courts SCRA 494, 510, September 16, 1998.
142
dictates that direct resort from administrative agencies to this
Court will not be entertained, unless the redress desired 142 SUPREME COURT REPORTS ANNOTATED
cannot be obtained from the appropriate lower tribunals, or Conejos vs. Court of Appeals
unless exceptional and compelling circumstances justify tive officer tasked to exercise licensing power as regards the
availment of a remedy falling within and calling for the development of fishpond areas, and which cancellation has
exercise of our primary jurisdiction. 28 been sustained by the Office of the President. (Sañado vs.
Consistent with these rulings and legal bases, we therefore Court of Appeals, 356 SCRA 546 [2001])
hold that Section 79 of RA 7942 is likewise to be understood
as having been modified by Circular No. 1-91, BP Blg. 129 as ——o0o——
amended by RA 7902, Revised Administrative Circular 1-95, © Copyright 2019 Central Book Supply, Inc. All rights reserved.
and Rule 43 of the Rules of Court. In brief, appeals from
decisions of the MAB shall be taken to the CA through
petitions for review in accordance with the provisions of Rule
43 of the 1997 Rules of Court.
WHEREFORE, the Petition is GRANTED, and the assailed
Decision and Resolution REVERSED and SET ASIDE. The
Petition in CA-GR SP No. 46830 is REINSTATED, and the CA
is ordered to RESOLVE it on the merits with deliberate
dispatch. No costs.
SO ORDERED.
Puno (Chairman), Sandoval-Gutierrez and Carpio,
JJ.,concur.
 VOL. 452, FEBRUARY 28, 2005 607
Gonzales vs. Climax Mining Ltd.
G.R. No. 161957. February 28, 2005. *
JORGE GONZALES and PANEL OF ARBITRATORS,
petitioners, vs. CLIMAX MINING LTD., CLIMAX-ARIMCO
MIN-ING CORP., and AUSTRALASIAN PHILIPPINES
MINING INC., respondents.
Actions; Alternative Dispute Resolution; Arbitration; Forum
Shopping; Pleadings and Practice; There is no forum shopping
where one is a petition for certiorari which raises the issue of whether
or not there was grave abuse of discretion while the other is a Petition
to Compel for Arbitration seeking the implementation of the
arbitration clause in the agreement between the parties.—Petitioner
claims that respondents are guilty of forum-shopping for failing to
disclose before this Court that they had filed a Petition to Compel
for Arbitration before the RTC of Makati City. However, it cannot
be determined from petitioner’s mere allegations in the Petition that
the Petition to Compel for Arbitration instituted by respondent
Climax-Arimco, involves related causes of action and the grant of
the same or substantially the same reliefs as those involved in the
instant case. Petitioner did not attach copies of the Petition to
Compel for Arbitration or any order or resolution of the RTC of
Makati City related to that case. Furthermore, it can be gleaned
from the nature of the two actions that the issues in the case before
the RTC of Makati City and in the petition for certiorari before the
Court of Appeals are different. A petition for certiorari raises the
issue of
_______________
*SECOND DIVISION.
608
608 SUPREME COURT REPORTS ANNOTATED
Gonzales vs. Climax Mining Ltd.
whether or not there was grave abuse of discretion, while
the Petition to Compel for Arbitration seeks the implementation of
the arbitration clause in the agreement between the parties.
Same; Same; Same; Same; Same; If the petitioner is a
corporation, a board resolution authorizing a corporate officer to
execute the certification against forum shopping is necessary—a
certification not signed by a duly authorized person renders the
petition subject to dismissal.—Under Section 3, Rule 46 of the Rules
of Court, a petitioner is required to submit, together with the
petition, a sworn certification of non-forum shopping, and failure to
comply with this requirement is sufficient ground for dismissal of
the petition. The requirement that petitioner should sign the
certificate of non-forum shopping applies even to corporations, the
Rules of Court making no distinction between natural and juridical
persons. The signatory in the case of the corporation should be “a
duly authorized director or officer of the corporation” who has
knowledge of the matter being certified. If, as in this case, the
petitioner is a corporation, a board resolution authorizing a
corporate officer to execute the certification against forum shopping
is necessary. A certification not signed by a duly authorized person
renders the petition subject to dismissal. On this point, we have to
agree with petitioner. There appears to be no subsequent
compliance with the requirement to attach a board resolution
authorizing the signor Marianne M. Manzanas to file the petition in
behalf of respondent Climax. Respondent also failed to refute this in
its Comment. However, this latter issue becomes irrelevant in the
light of our decision to deny this petition for review for lack of
jurisdiction by the Panel of Arbitrators over the complaint filed by
petitioner, as will be discussed below.
Same; Same; Same; Mining Claims; Words and Phrases; A
judicial question is a question that is proper for determination by the
courts, as opposed to a moot question or one properly decided by the
executive or legislative branch while a mining dispute is a dispute
involving (a) rights to mining areas, (b) mineral agreements, FTAAs,
or permits, and (c) surface owners, occupants and
claimholders/concessionaires.—A judicial question is a question
that is proper for determination by the courts, as opposed to a moot
question or one properly decided by the executive or legislative
branch. A judicial question is raised when the determination of the
question involves the exercise of a judicial function; that is, the
question involves the
609
VOL. 452, FEBRUARY 28, 2005 609
Gonzales vs. Climax Mining Ltd.
determination of what the law is and what the legal rights of
the parties are with respect to the matter in controversy. On the
other hand, a mining dispute is a dispute involving (a) rights to
mining areas, (b) mineral agreements, FTAAs, or permits, and (c)
surface owners, occupants and claimholders/concessionaires. Under
Republic Act No. 7942 (otherwise known as the Philippine Mining
Act of 1995), the Panel of Arbitrators has exclusive and original
jurisdiction to hear and decide these mining disputes. The Court of
Appeals, in its questioned decision, correctly stated that the Panel’s
jurisdiction is limited only to those mining disputes which raise
questions of fact or matters requiring the application of
technological knowledge and experience.
Same; Same; Same; Same; The trend has been to make the
adjudication of mining cases a purely administrative matter.—
In Pearson v. Intermediate Appellate Court, this Court observed that
the trend has been to make the adjudication of mining cases a purely
administrative matter. Decisions of the Supreme Court on mining
disputes have 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. This distinction is
carried on even in Rep. Act No. 7942.
Same; Same; Same; Same; Contracts; The resolution of the
validity or voidness of the contracts remains a legal or judicial
question as it requires the exercise of judicial function.—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 com-
610
610 SUPREME COURT REPORTS ANNOTATED
Gonzales vs. Climax Mining Ltd.
plaint was not merely for the determination of rights under the
mining contracts since the very validity of those contracts is put in
issue.
Same; Same; Same; Same; Same; The question of
constitutionality is exclusively within the jurisdiction of the courts to
resolve as this would clearly involve the exercise of judicial power
and a Panel of Arbitrators does not have jurisdiction over such an
issue since it does not involve the application of technical knowledge
and expertise relating to mining.—The Complaint is also not what
is contemplated by Rep. Act No. 7942 when it says the dispute
should involve FTAAs. The Complaint is not exclusively within the
jurisdiction of the Panel of Arbitrators just because, or for as long
as, the dispute involves an FTAA. The Complaint raised the issue of
the constitutionality of the FTAA, which is definitely a judicial
question. The question of constitutionality is exclusively within the
jurisdiction of the courts to resolve as this would clearly involve the
exercise of judicial power. The Panel of Arbitrators does not have
jurisdiction over such an issue since it does not involve the
application of technical knowledge and expertise relating to mining.
This the Panel of Arbitrators has even conceded in its Orders dated
18 October 2001 and 25 June 2002. At this juncture, it is worthy of
note that in a case, which was resolved only on 1 December 2004,
this Court upheld the validity of the FTAA entered into by the
Republic of the Philippines and WMC (Philippines), Inc. and
constitutionality of Rep. Act No. 7942 and DENR Administrative
Order 96-40. In fact, the Court took the case on an original petition,
recognizing “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 case
upon the constitutionality and validity of the Mining Act, the subject
FTAA and future FTAAs, and the need to avert a multiplicity of
suits.”
Same; Same; Same; Same; Same; Arbitration before the Panel
of Arbitrators is proper only when there is a disagreement between
the parties as to some provisions of the contract between them, which
needs the interpretation and the application of that particular
knowledge and expertise possessed by members of that Panel—it is
not proper when one of the parties repudiates the existence or validity
of such contract or agreement on the ground of fraud or oppression.—
611
VOL. 452, FEBRUARY 28, 2005 611
Gonzales vs. Climax Mining Ltd.
Arbitration before the Panel of Arbitrators is proper only when
there is a disagreement between the parties as to some provisions
of the contract between them, which needs the interpretation and
the application of that particular knowledge and expertise
possessed by members of that Panel. It is not proper when one of the
parties repudiates the existence or validity of such contract or
agreement on the ground of fraud or oppression as in this case. The
validity of the contract cannot be subject of arbitration proceedings.
Allegations of fraud and duress in the execution of a contract are
matters within the jurisdiction of the ordinary courts of law. These
questions are legal in nature and require the application and
interpretation of laws and jurisprudence which is necessarily a
judicial function.
Same; Same; Same; Same; The question of validity of the
contract containing the agreement to submit to arbitration will affect
the applicability of the arbitration clause itself—a party cannot rely
on the contract and claim rights or obligations under it and at the
same time impugn its existence or validity.—We agree that the case
should not be brought under the ambit of the Arbitration Law, but
for a different reason. The question of validity of the contract
containing the agreement to submit to arbitration will affect the
applicability of the arbitration clause itself. A party cannot rely on
the contract and claim rights or obligations under it and at the same
time impugn its existence or validity. Indeed, litigants are enjoined
from taking inconsistent positions. As previously discussed, the
complaint should have been filed before the regular courts as it
involved issues which are judicial in nature.
PETITION for review on certiorari of the decision and
resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Puno and Puno Law Offices for petitioner.
Sycip, Salazar, Hernandez & Gatmaitan for
respondents.
TINGA, J.:
Petitioner Jorge Gonzales, as claimowner of mineral deposits
located within the Addendum Area of Influence in Didipio,
612
612 SUPREME COURT REPORTS ANNOTATED
Gonzales vs. Climax Mining Ltd.
in the provinces of Quirino and Nueva Vizcaya, entered into a
co-production, joint venture and/or production-sharing letter-
agreement designated as the May 14, 1987 Letter of
Intent with Geophilippines, Inc, and Inmex Ltd. Under the
agreement, petitioner, as claimowner, granted to
Geophilippines, Inc. and Inmex Ltd. collectively, the exclusive
right to explore and survey the mining claims for a period of
thirty-six (36) months within which the latter could decide to
take an operating agreement on the mining claims and/or
develop, operate, mine and otherwise exploit the mining
claims and market any and all minerals that may be derived
therefrom.
On 28 February 1989, the parties to the May 14, 1987 Letter
of Intent renegotiated the same into the February 28, 1989
Agreementwhereby the exploration of the mining claims was
extended for another period of three years.
On 9 March 1991, petitioner Gonzales, Arimco Mining
Corporation, Geophilippines Inc., Inmex Ltd., and Aumex
Philippines, Inc. signed a document designated as
the Addendum to the May 14, 1987 Letter of Intent and
February 28, 1989 Agreement with Express Adhesion
Thereto (hereafter, the Addendum Contract). Under
1
the Addendum Contract, Arimco Mining Corporation would
apply to the Government of the Philippines for permission to
mine the claims as the Government’s contractor under
a Financial and Technical Assistance Agreement (FTAA). On
20 June 1994, Arimco Mining Corporation obtained the
FTAA and carried out work under the FTAA.
2
Respondents executed the Operating and Financial
Accommodation Contract (between Climax-Arimco Mining
3
Corporation and Climax Mining Ltd., as first parties, and
Australasian Philippines Mining Inc., as second party) dated
23
_______________
1 Rollo, pp. 389-421.
2 Id., at pp. 422-474.
3 Id., at pp. 475-479.
613
VOL. 452, FEBRUARY 28, 2005 613
Gonzales vs. Climax Mining Ltd.
December 1996 and Assignment, Accession
Agreement (between Climax-Arimco Mining Corporation and
4 614
Australasian Philippines Mining Inc.) dated 3 December 1996.
Respondent Climax Mining Corporation (Climax) and
respondent Australasian Philippines Mining, Inc. (APMI)
entered into a Memorandum of Agreement dated 1 June 1991
5
whereby the former transferred its FTAA to the latter.
On 8 November 1999, petitioner Gonzales filed before the
Panel of Arbitrators, Region II, Mines and Geosciences Bureau
of the Department of Environment and Natural Resources,
against respondents Climax-Arimco Mining Corporation
(Climax-Arimco), Climax, and APMI, a Complaint seeking
6 7
the declaration of nullity or termination of the Addendum
Contract, the FTAA, the Operating and Financial
Accommodation Contract, the Assignment, Accession
Agreement, and the Memorandum of Agreement. Petitioner
Gonzales prayed for an unspecified amount of actual and
exemplary damages plus attorney’s fees and for the issuance
of a temporary restraining order and/or writ of preliminary
injunction to restrain or enjoin respondents from further
implementing the questioned agreements. He sought said
reliefs on the grounds of “FRAUD, OPPRESSION and/or
VIOLATION of Section 2, Article XII of the CONSTITUTION
perpetrated by these foreign RESPONDENTS, conspiring and
confederating with one another and with each other….” 8
On 21 February 2001, the Panel of Arbitrators dismissed
the Complaint for lack of jurisdiction. Petitioner moved for
reconsideration and this was granted on 18 October 2001, the
_______________
4 Id., at pp. 480-483.
5 Id., at pp. 484-490.
6 Herein respondent Climax-Arimco is the predecessor-in-interest of Arimco
Mining Corporation. Respondents Climax-Arimco and APMI are wholly owned
and controlled subsidiaries of respondent Climax. Id., at pp. 330-331.
7 Id., at pp. 521-596.
8 Id., at p. 521.
614
SUPREME COURT REPORTS ANNOTATED
Gonzales vs. Climax Mining Ltd.
Panel believing that the case involved a dispute involving
rights to mining areas and a dispute involving surface owners,
occupants and claim owners/concessionaires. According to the
Panel, although the issue raised in the Complaint appeared to
be purely civil in nature and should be within the jurisdiction
of the regular courts, a ruling on the validity of the assailed
contracts would result to the grant or denial of mining rights
over the properties; therefore, the question on the validity of
the contract amounts to a mining conflict or dispute. Hence,
the Panel granted the Motion for Reconsiderationwith regard
to the issues of nullity, termination, withdrawal or damages,
but with regard to the constitutionality of the Addendum
Agreement and FTAA, it held that it had no jurisdiction. 9
Respondents filed their motion for reconsideration but this
was denied on 25 June 2002. The Panel of Arbitrators
maintained that there was a mining dispute between the
parties since the subject matter of the Complaint arose from
contracts between the parties which involve the exploration
and exploitation of minerals over the disputed area. 10
Respondents assailed the orders of the Panel of Arbitrators
via a petition for certiorari before the Court of Appeals.
On 30 July 2003, the Court of Appeals granted the petition,
declaring that the Panel of Arbitrators did not have
jurisdiction over the complaint filed by petitioner. The 11 Petitioner filed on 22 March 2004 this Petition for Review
jurisdiction of the Panel of Arbitrators, said the Court of on Certiorari Under Rule 45 assailing the decision and
Appeals, is limited only to the resolution of mining disputes, resolution of the Court of Appeals. Petitioner raises the
defined as those which raise a question of fact or matter following issues:
requiring the technical knowledge and experience of mining
authorities. It was found that the complaint alleged fraud, A.
oppression and viola-
PROCEDURAL GROUND
_______________
THE HONORABLE COURT OF APPEALS SHOULD HAVE
9 Id., at pp. 605-610. SUMMARILY DISMISSED RESPONDENTS’ PETITION A
10 Id., at pp. 611-619. QUO FOR FAILURE TO COMPLY WITH PROCEDURAL
11 Penned by Justice Eliezer R. de los Santos, concurred in by Justices
REQUIREMENTS.
Romeo A. Brawner and Jose C. Mendoza of the Twelfth division. Id., at pp. 492-
499. _______________
615
VOL. 452, FEBRUARY 28, 2005 615 12 See Article 1391, Civil Code.
Gonzales vs. Climax Mining Ltd. 13 See Article 1390 (2), Civil Code.
14 Rollo, p. 501.

tion of the Constitution, which called for the interpretation 616

and application of laws, and did not involve any mining 616 SUPREME COURT REPORTS ANNOTATED
dispute. The Court of Appeals also observed that there were Gonzales vs. Climax Mining Ltd.
no averments relating to particular acts constituting fraud
and oppression. It added that since the Addendum i.
Contract was executed in 1991, the action to annul it should
have been brought not later than 1995, as the prescriptive WHETHER THE HONORABLE COURT OF APPEALS
period for an action for annulment is four years from the time DEPARTED FROM THE RULES AND ESTABLISHED
of the discovery of the fraud. When petitioner filed his
12 JURISPRUDENCE WHEN IT DID NOT DISMISS THE
complaint before the Panel in 1999, his action had already PETITION A QUO DESPITE RESPONDENTS’ FAILURE TO
COMPLY WITH THE RULES ON DISCLOSURE IN THE
prescribed. Also, the Court of Appeals noted that fraud and
“VERIFICATION AND CERTIFICATION” PORTION OF THEIR
duress only make a contract voidable, not inexistent, hence
13
PETITION A QUO.
the contract remains valid until annulled. The Court of
Appeals was of the opinion that the petition should have been ii.
settled through arbitration under Republic Act No. 876 (The
Arbitration Law) as stated in Clause 19.1 of the Addendum WHETHER THE HONORABLE COURT OF APPEALS
Contract. The Court of Appeals therefore declared as invalid DEPARTED FROM THE RULES AND ESTABLISHED
the orders dated 18 October 2001 and 25 June 2002 issued by JURISPRUDENCE WHEN IT DID NOT DISMISS THE
the Panel of Arbitrators. On 28 January 2004, the Court of PETITION A QUO FILED BY RESPONDENT CLIMAX DESPITE
THE LACK OF THE REQUISITE AUTHORITY TO FILE THE
Appeals denied petitioner’s motion for reconsideration for lack
PETITION A QUO.
of merit. 14
 B.
SUBSTANTIVE GROUND
THE HONORABLE COURT OF APPEALS ERRED IN
GRANTING THE PETITION A QUO FILED BY RESPONDENTS
AND IN DENYING MOTION FOR RECONSIDERATION FILED
BY PETITIONER FOR UTTER LACK OF BASIS IN FACT AND IN
LAW.
i.
WHETHER THE HONORABLE COURT OF APPEALS
DEPARTED FROM THE RULES AND ESTABLISHED
JURISPRUDENCE WHEN IT HELD THAT PETITIONER CEDED
HIS CLAIMS OVER THE MINERAL DEPOSITS LOCATED
WITHIN THE ADDENDUM AREA OF INFLUENCE.
ii.
WHETHER THE HONORABLE COURT OF APPEALS
DEPARTED FROM THE RULES AND ESTABLISHED
JURISPRUDENCE WHEN IT HELD THAT THE PANEL OF
ARBITRATORS IS BEREFT OF JURISDICTION OVER THE
SUBJECT MATTER OF CASE NO. 058.
617
VOL. 452, FEBRUARY 28, 2005 617
Gonzales vs. Climax Mining Ltd.
iii.
WHETHER THE HONORABLE COURT OF APPEALS
DEPARTED FROM THE RULES AND ESTABLISHED
JURISPRUDENCE WHEN IT HELD THAT THE COMPLAINT
FILED BY THE PETITIONER FAILED TO ALLEGE ULTIMATE
FACTS OR PARTICULARS OF FRAUD.
iv.
WHETHER THE HONORABLE COURT OF APPEALS
DEPARTED FROM THE RULES AND ESTABLISHED
JURISPRUDENCE WHEN IT HELD THAT PETITIONER AND
RESPONDENTS SHOULD SUBMIT TO ARBITRATION UNDER
R.A. 876.
v.
WHETHER THE HONORABLE COURT OF APPEALS
DEPARTED FROM THE RULES AND ESTABLISHED
JURISPRUDENCE WHEN IT HELD THAT THE ACTION TO
DECLARE THE NULLITY OF THE ADDENDUM CONTRACT,
FTAA, OFAC AND AAAA ON THE GROUND OF FRAUD HAS
PRESCRIBED.
The issues for resolution in this petition for review are:
1. (a)Whether there was forum-shopping on the part of
respondents for their failure to disclose to this Court
their filing of a Petition to Compel for
Arbitration before the Regional Trial Court of Makati
City, Branch 148, which is currently pending.
2. (b)Whether counsel for respondent Climax had
authority to file the petition for certiorari before the
Court of Appeals considering that the signor of the
petition for certiorari’s Verification and Certification of
Non-forum Shopping was not authorized to sign the
same in behalf of respondent Climax.
3. (c)Whether the complaint filed by petitioner raises a
mining dispute over which the Panel of Arbitrators has
jurisdiction, or a judicial question which should
properly be brought before the regular courts.
618
618 SUPREME COURT REPORTS ANNOTATED
Gonzales vs. Climax Mining Ltd.
1. (d)Whether the dispute between the parties should be
brought for arbitration under Rep. Act No. 876.
Let us deal first with procedural matters.
 Petitioner claims that respondents are guilty of forum
shopping for failing to disclose before this Court that they had
filed a Petition to Compel for Arbitration before the RTC of
Makati City. However, it cannot be determined from
petitioner’s mere allegations in the Petition that the Petition
to Compel for Arbitration instituted by respondent Climax-
Arimco, involves related causes of action and the grant of the
same or substantially the same reliefs as those involved in the
instant case. Petitioner did not attach copies of the Petition to
Compel for Arbitration or any order or resolution of the RTC
of Makati City related to that case.
Furthermore, it can be gleaned from the nature of the two
actions that the issues in the case before the RTC of Makati
City and in the petition for certiorari before the Court of
Appeals are different. A petition for certiorari raises the issue
of whether or not there was grave abuse of discretion, while
the Petition to Compel for Arbitration seeks the
implementation of the arbitration clause in the agreement
between the parties.
Petitioner next alleges that there was no authority granted
by respondent Climax to the law firm of Sycip Salazar
Hernandez & Gatmaitan to file the petition before the Court
of Appeals. There is allegedly no Secretary’s Certificate from
respondent Climax attached to the petition. The Verification
and Certification only contains a statement made by one
Marianne M. Manzanas that she is “also the authorized
representative of [respondent Climax]” without presenting
further proof of such authority. Hence, it is argued that as to
respondent Climax, the petition filed before the Court of
Appeals is an unauthorized act and the assailed orders of the
Panel of Arbitrators have become final.
Under Section 3, Rule 46 of the Rules of Court, a petitioner
is required to submit, together with the petition, a sworn
619
VOL. 452, FEBRUARY 28, 2005 619
Gonzales vs. Climax Mining Ltd.
certification of non-forum shopping, and failure to comply with
this requirement is sufficient ground for dismissal of the
petition. The requirement that petitioner should sign the
certificate of non-forum shopping applies even to corporations,
the Rules of Court making no distinction between natural and
juridical persons. The signatory in the case of the corporation
should be “a duly authorized director or officer of the
corporation” who has knowledge of the matter being
certified. If, as in this case, the petitioner is a corporation, a
15
board resolution authorizing a corporate officer to execute the
certification against forum-shopping is necessary. A
certification not signed by a duly authorized person renders
the petition subject to dismissal. 16
On this point, we have to agree with petitioner. There
appears to be no subsequent compliance with the requirement
to attach a board resolution authorizing the signor Marianne
M. Manzanas to file the petition in behalf of respondent
Climax. Respondent also failed to refute this in
its Comment. However, this latter issue becomes irrelevant
17
in the light of our decision to deny this petition for review for
lack of jurisdiction by the Panel of Arbitrators over the
complaint filed by petitioner, as will be discussed below.
We now come to the meat of the case which revolves mainly
around the question of jurisdiction by the Panel of Arbitrators:
Does the Panel of Arbitrators have jurisdiction over the
complaint for declaration of nullity and/or termination of the
subject contracts on the ground of fraud, oppression and
violation of the Constitution? This issue may be distilled into
the more basic question of whether the Complaint raises a
mining dispute or a judicial question.
_______________
15 Zulueta v. Asia Brewery, Inc., G.R. No. 138137, 8 March 2001, 354 SCRA
100.
16 MC Engineering, Inc. v. National Labor Relations Commission, 412 Phil.
614; 360 SCRA 183 (2001).
17 Rollo, pp. 669-670.
620
620 SUPREME COURT REPORTS ANNOTATED
Gonzales vs. Climax Mining Ltd.
A judicial question is a question that is proper for
determination by the courts, as opposed to a moot question or
one properly decided by the executive or legislative branch. 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
On the other hand, a mining dispute is a dispute involving
(a) rights to mining areas, (b) mineral agreements, FTAAs, or
permits, and (c) surface owners, occupants and
claimholders/concessionaires. Under Republic Act No. 7942
20
(otherwise known as the Philippine Mining Act of 1995), the
Panel of Arbitrators has exclusive and original jurisdiction to
hear and decide these mining disputes. The Court of Appeals,
21
in its questioned decision, correctly stated that the Panel’s
jurisdiction is limited only to those mining disputes which
raise questions of fact or matters requiring the application of
technological knowledge and experience. 22
In Pearson v. Intermediate Appellate Court, this Court 23
observed that the trend has been to make the adjudication of
mining cases a purely administrative matter. Decisions of 24
the Supreme Court on mining disputes have recognized a
distinction between (1) the primary powers granted by perti-
_______________
18 Black’s Law Dictionary, 8th Ed. (2004), p. 864.
19 Jose Agaton R. Sibal, Philippine Legal Encyclopedia (1986), p. 472.
20 Section 77, Rep. Act No. 7942, as amended.
21 Ibid.
22 Citing Philex Mining Corporation v. Zaldivia, 150 Phil. 547; 43 SCRA
479(1972).
23 356 Phil. 341; 295 SCRA 27.
24 Citing Twin Peaks Mining Association v. Philex Mining Corporation, No.
L-49835, 18 December 1979, 94 SCRA 768.
25Pio v. Marcos, 155 Phil. 668; 56 SCRA 726 (1974); Philex Mining
Corporation v. Zaldivia, supra at note 22; Espinosa v. Makalintal, 79 Phil.
134.
621
VOL. 452, FEBRUARY 28, 2005 621
18
Gonzales vs. Climax Mining Ltd.
nent 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.
This distinction is carried on even in Rep. Act No. 7942.
The Complaint charged respondents with disregarding and
ignoring the provisions of the Addendum Contract, violating
the purpose and spirit of the May 14, 1987 Letter of
Intent and February 28, 1989 Agreement, and acting in a
fraudulent and oppressive manner against petitioner and
practicing fraud and deception against the
Government. Petitioner alleged in his Complaint that under
26
the original agreements (the May 14, 1987 Letter of
Intent and February 28, 1989 Agreement) respondent Climax-
25
Arimco had committed to complete the Bankable Feasibility
Study by 28 February 1992, but the same was not
accomplished. Instead, respondent Climax-Arimco, through
false and insidious representations and machinations by
alleging technical and financial capacity, induced petitioner to
enter into the Addendum Contract and the FTAA in order to
repeatedly extend the option period within which to conduct
the feasibility study. In essence, petitioner alleges that
respondents, conspiring and confederating with one another,
misrepresented under the Addendum Contract and FTAA
that respondent Climax-Arimco possessed financial and
technical capacity to put the project into commercial
production, when in truth it had no such qualification
whatsoever to do so. By so doing, respondents have allegedly
caused damage not only to petitioner but also to the Republic
of the Philippines. 27
_______________
Rollo, p. 651.
26
Id., at pp. 367, 590-591.
27
622
622 SUPREME COURT REPORTS ANNOTATED
Gonzales vs. Climax Mining Ltd.
It is apparent that the Panel of Arbitrators is bereft of
jurisdiction over the Complaint filed by petitioner. The basic
issue in petitioner’s Complaint is the presence of fraud or
misrepresentation allegedly attendant to the execution of
the Addendum Contract and the other contracts emanating
from it, such that the contracts are rendered invalid and not
binding upon the parties. It avers that petitioner was misled
by respondents into agreeing to the Addendum Contract. This
constitutes fraud which vitiated petitioner’s consent, and
under Article 1390 of the Civil Code, is one of the grounds for
the annulment of a voidable contract. Voidable or annullable
contracts, before they are set aside, are existent, valid, and
binding, and are effective and obligatory between the
parties. They can be ratified.
28 29
Petitioner insists that the Complaint is actually one for the
declaration of nullity of void contracts. He argues that
respondents, by their lack of financial and technical
competence to carry out the mining project, do not qualify to
enter into a co-production, joint venture or production sharing
agreement with the Government, in circumvention of and in
patent violation of the spirit and purpose of the Constitution,
particularly Section 2, Article XII thereof. Petitioner relies on
the Civil Code for support: 30
Art. 1409. The following contracts are inexistent and void from the
beginning:
(1) Those whose cause, object or purpose is contrary to law,
morals, good customs, public order or public policy;
....
(7) Those expressly prohibited or declared void by law.
....
_______________
28 IV Tolentino, 1991 ed., p. 596.
29 Ibid.
30 Rollo, p. 380.
623
VOL. 452, FEBRUARY 28, 2005 623
Gonzales vs. Climax Mining Ltd.
Petitioner asserts that for circumventing and being in
patentviolation of the Constitution, the Addendum Contract,
theFTAA and the other contracts are void contracts. As
such,they do not produce any effect and cannot be ratified.
However, 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.
The Complaint is not about a dispute involving rights to
mining areas, nor is it a dispute involving claimholders or
concessionaires. The main question raised was the validity of
the Addendum Contract, the FTAA and the subsequent
contracts. The question as to the rights of petitioner or
respondents to the mining area pursuant to these contracts,
as well as the question of whether or not petitioner had ceded
his mining claims in favor of respondents by way of execution
of the questioned contracts, is merely corollary to the main
issue, and may not be resolved without first determining the
main issue. The Complaint is also not what is contemplated
by Rep. Act No. 7942 when it says the dispute should involve
FTAAs.
The Complaint is not exclusively within the jurisdiction of
the Panel of Arbitrators just because, or for as long as, the
dispute involves an FTAA. The Complaint raised the issue of
the constitutionality of the FTAA, which is definitely a judicial
question. The question of constitutionality is exclusively
within the jurisdiction of the courts to resolve as this would
clearly involve the exercise of judicial power. The Panel of
624
624 SUPREME COURT REPORTS ANNOTATED
Gonzales vs. Climax Mining Ltd.
Arbitrators does not have jurisdiction over such an issue since
it does not involve the application of technical knowledge and
expertise relating to mining. This the Panel of Arbitrators has
even conceded in its Orders dated 18 October 2001 and 25
June 2002. At this juncture, it is worthy of note that in a
case, which was resolved only on 1 December 2004, this Court
31
upheld the validity of the FTAA entered into by the Republic
of the Philippines and WMC (Philippines), Inc. and
constitutionality of Rep. Act No. 7942 and DENR
Administrative Order 96-40. In fact, the Court took the case
32
on an original petition, recognizing “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 case upon the
constitutionality and validity of the Mining Act, the subject
FTAA and future FTAAs, and the need to avert a multiplicity
of suits.” 33
Arbitration before the Panel of Arbitrators is proper only
when there is a disagreement between the parties as to some
provisions of the contract between them, which needs the
interpretation and the application of that particular
knowledge and expertise possessed by members of that Panel.
It is not proper when one of the parties repudiates the
existence or validity of such contract or agreement on the
ground of fraud or oppression as in this case. The validity of
the contract cannot be subject of arbitration proceedings.
Allegations of fraud and duress in the execution of a contract
are matters within the jurisdiction of the ordinary courts of
law. These questions are legal in nature and require the
application and interpretation of laws and jurisprudence
which is necessarily a judicial function.
_______________
31 La Bugal-B’laan Tribal Association, Inc., et al. v. Victor O. Ramos, et
al., G.R. No. 127882, 1 December 2004, 445 SCRA 1.
32 The Implementing Rules and Regulations of Rep. Act No. 7942.
33 Supra at note 31.
625
VOL. 452, FEBRUARY 28, 2005 625
Gonzales vs. Climax Mining Ltd.
Petitioner also disagrees with the Court of Appeals’ ruling that
the case should be brought for arbitration under Rep. Act 876,
pursuant to the arbitration clause in the Addendum
Contract which states that “[a]ll disputes arising out of or in
connection with the Contract, which cannot be settled
amicably among the Parties, shall finally be settled under R.A.
876.” He points out that respondents Climax and APMI are
not parties to the Addendum Contract and are thus not bound
by the arbitration clause in said contract.
We agree that the case should not be brought under the
ambit of the Arbitration Law, but for a different reason. The
question of validity of the contract containing the agreement
to submit to arbitration will affect the applicability of the
arbitration clause itself. A party cannot rely on the contract
and claim rights or obligations under it and at the same time
impugn its existence or validity. Indeed, litigants are enjoined
from taking inconsistent positions. As previously discussed,
the complaint should have been filed before the regular courts
as it involved issues which are judicial in nature.
 WHEREFORE, in view of the foregoing, the Petition for
Review on Certiorari Under Rule 45 is DENIED. The Orders
dated 18 October 2001 and 25 June 2002 of the Panel of
Arbitrators are SET ASIDE. Costs against petitioner Jorge
Gonzales.
SO ORDERED.
Puno (Chairman), Austria-Martinez, Callejo,
Sr. and Chico-Nazario, JJ., concur.
Petition denied.
Note.—The potentials of arbitration as one of the
alternative dispute resolution methods that are now rightfully
vaunted as “the wave of the future” in international relations,
is recognized worldwide. (BF Corporation vs. Court of
Appeals, 288 SCRA 267[1998])

——o0o——

626
© Copyright 2019 Central Book Supply, Inc. All rights reserved.
 Petition dismissed, judgment and resolution affirmed.
Notes.—The better and more logical remedy from a
dismissal of a criminal complaint by a City Prosecutor would
be an appeal to the Secretary of Justice. (Garcia-Rueda vs.
Pascasio, 278 SCRA 769 [1997])
It is the nature of the act to be performed, rather than of
the office, board or body which performs it, that determines
whether or not it is exercising a judicial or quasi-judicial
function—judicial or quasi-judicial function 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. (Doran vs. Luczon,
Jr., 503 SCRA 106 [2006])
——o0o——
G.R. No. 174918. August 13, 2008.*
BONAVENTURE MINING CORPORATION,
petitioner, vs. V.I.L. MINES, INCORPORATED, Represented
by its Corporate Secretary, ROXANNA S. GO, respondent.
Remedial Law; Pleadings and Practice; Service of Notices; Well-
settled is the rule that when a party is represented by counsel of
record, service of orders and notices must be made upon said
attorney; It is the date of service on counsel of record of the notice of
judgment which is considered the starting point from which the
period of appeal prescribed by law shall begin to run.—Well-settled
is the rule that when a party is represented by counsel of record,
service of orders and notices must be made upon said attorney.
Accordingly, it is the date of service on counsel of record of the notice
of judgment which is considered the starting point from which the
period of ap-
_______________
* FIRST DIVISION.
212
212 SUPREME COURT REPORTS
ANNOTATED
Bonaventure Mining Corporation vs. V.I.L. Mines,
Incorporated
peal prescribed by law shall begin to run. The records of this
case clearly show that Atty. Peñarroyo’s address of record
used in the proceedings below is L/2 and not Unit 201 at the
Orient Mansions.
Same; Same; Same; Clients are bound by the actions of their
counsel in the conduct of their case; Court cannot be expected to take
judicial notice of the new address of a lawyer who has moved.—The
rule is that clients are bound by the actions of their counsel in the
conduct of their case. If counsel moves to another address without
informing the court of that change, such omission or neglect is
inexcusable and will not stay the finality of the decision. The court
cannot be expected to take judicial notice of the new address of a
lawyer who has moved.
PETITION for review on certiorari of a decision of the Court
of Appeals.
The facts are stated in the opinion of the Court.
Fernando S. Peñarroyo for petitioner.
De Los Angeles, Aguirre, Olaguer, Salomon & Fabro for
respondent.
PUNO, C.J.:
Before us is a Petition for Review under Rule 45 of the Rules
of Court filed by the petitioner Bonaventure Mining
Corporation (BMC), to set aside the Decision1 of the Court of
Appeals dated August 29, 2006 (CA Decision) which reversed
the Decision2 of the Mines Adjudication Board (MAB) and
reinstated the Decision3 of the Panel of Arbitrators upholding
the EPA-IVA-63 of respondent V.I.L. Mines, Incorporated
(VMI), and canceling the EPA-IVA-72 of petitioner BMC.
_______________
1 Rollo, pp. 52-70; penned by Justice Jose Catral Mendoza, concurred in by
Justices Elvi John S. Asuncion and Sesinando E. Villon.
2 Id., at pp. 91-105; dated August 24, 2004.
3 Id., at pp. 76-89; dated March 22, 2002.
 213
VOL. 562, AUGUST 13, 2008 213
Bonaventure Mining Corporation vs. V.I.L. Mines,
Incorporated
This case involves a conflict over mining claims between
BMC and VMI over a mountainous section that transcends the
common boundaries of the provinces of Quezon and Camarines
Norte, specifically within the municipal jurisdictions of
Tagkawayan and Guinigayangan in Quezon, and Labo and
Sta. Elena in Camarines Norte.4
The facts are of record.
On February 20, 1995, Tapian Mining Corporation (now
Greenwater Mining Corporation [Greenwater]) filed an
application for a Financial and Technical Assistance
Agreement (FTAA) with the Central Office of the Mines and
Geosciences Bureau (MGB) covering approximately 100,000
hectares in Tagkawayan, Quezon as well as in the provinces
of Camarines Norte and Camarines Sur. Before that time,
Greenwater had already filed other FTAA applications,
specifically in Marinduque, covering 73,000 hectares, and in
the Bulacan, Quezon and Rizal provinces totaling another
100,000 hectares.5
On March 3, 1995, Republic Act No. 7942 (R.A. No. 7942),
otherwise known as “The Philippine Mining Act of 1995,” was
passed by Congress. It provided for the maximum allowable
area that may be granted a qualified person under a
FTAA, viz.:
“SECTION 34. Maximum Contract Area.—The maximum
contract area that may be granted per qualified person, subject to
relinquishment shall be:
(a) 1,000 meridional blocks onshore;
(b) 4,000 meridional blocks offshore; or
(c) Combinations of (a) and (b) provided that it shall not exceed
the maximum limits for onshore and offshore areas.”
_______________
4 Id., at p. 6.
5 Id., at p. 436.
214
214 SUPREME COURT REPORTS ANNOTATED
Bonaventure Mining Corporation vs. V.I.L. Mines,
Incorporated
On March 12, 1996, the Department of Environment and
Natural Resources (DENR) issued the implementing rules and
regulations (IRR) of R.A. No. 7942 in the form of Department
Administrative Order No. (DAO) 95-23. It gave FTAA
applicants a deadline of one (1) year from its date of effectivity
within which to divest or relinquish from their applications
areas exceeding the maximum provided by R.A. No. 7942.
Section 257 of DAO 95-23 provides:
“Section 257. Non-impairment of Existing Mining/Quarrying
Rights.—
xxx
All pending applications for MPSA/FTAA and exploration
permits issued prior to the promulgation of these implementing
rules and regulations shall be governed by the provisions of the Act
and these implementing rules and regulations; Provided, however,
that where the grant of such FTAA application/proposals would
exceed the maximum contract area restrictions contained in Section
34 of the Act, the applicant/proponent shall have one year,
from the effectivity of these implementing rules and
regulations, to divest or relinquish applications or portions
thereof which, if granted, would exceed the maximum
contract area allowance provided under the Act; Provided,
finally, that this provision is applicable only to all FTAA
applications filed under DAO 63 prior to the approval of the Act.
(Emphasis supplied)
xxx
On August 27, 1996, Section 257 of DAO 95-23 was
amended by DAO 96-25 giving FTAA applicants an extension
of one (1) year within which to divest or relinquish excess
areas from their applications, viz.:
“Section 257. Non-Impairment of Existing Mining/Quarrying
Rights.—
xxx
 All pending applications for MPSA/FTAA covering forest land
and other government reservations shall not be required to re-apply
for exploration permit provided, that where the grant of such
FTAA applications/proposals would exceed the maximum
215
VOL. 562, AUGUST 13, 2008 215
Bonaventure Mining Corporation vs. V.I.L. Mines,
Incorporated
contract area restrictions contained in Section 34 of the
Act, the applicant/proponent shall be given an extension of
one year, reckoned from September 13, 1996, to divest or
relinquish in favor of government, areas in excess of the
maximum area allowance provided under the Act.”
(Emphasis supplied)
On December 19, 1996, DAO 96-40, the revised IRR of R.A.
No. 7942, was issued. Among other provisions, DAO 96-40
reiterated the deadline of one (1) year from September 13,
1996, or until September 13, 1997, within which FTAA
applicants may divest or relinquish certain areas in their
applications which exceed the maximum allowable area under
R.A. No. 7942. Section 272 of DAO 96-40 provides as follows:
“Section 272. Non-Impairment of Existing Mining/Quarrying
Rights.—
xxx
All pending applications for MPSA/FTAA covering forest land
and Government Reservations shall not be required to re-apply for
Exploration Permit: Provided, That where the grant of such FTAA
applications/proposals would exceed the maximum contract area
restrictions contained in Section 34 of the Act, the
applicant/proponent shall be given an extension of one (1)
year, reckoned from September 13, 1996, to divest or
relinquish pursuant to Department Administrative Order
No. 96-25 in favor of the Government, areas in excess of the
maximum area allowance provided under the Act. For this
purpose, a Special Exploration Permit of limited applications and
activities shall be issued by the Secretary upon the recommendation
of the Director, subject to the terms and conditions specified in the
Permit and pertinent provisions of Chapter V hereof: Provided,
That an area permission shall be granted likewise by the Secretary
to undertake limited exploration activities in non-critical forest
reserves and forest reservations and such other areas within the
jurisdiction of the Department. In other areas, however, the
applicant/proponent shall secure the necessary area clearances or
written consent by the concerned agencies or parties, as provided for
by law: Provided, further, That the time period shall be deducted
from the life of the MPSA/FTAA and exploration costs can be
included as part of pre-
216
216 SUPREME COURT REPORTS ANNOTATED
Bonaventure Mining Corporation vs. V.I.L. Mines,
Incorporated
operating expenses for purposes of cost recovery should the FTAA
be approved: 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. (Emphasis supplied)
x x x”
On August 27, 1997, the DENR issued Department
Memorandum Order No. 97-07 (DMO 97-07), entitled
“Guidelines in the Implementation of the Mandatory
September 15, 1997 Deadline for the Filing of Mineral
Agreement Applications by Holders of Valid and Existing
Mining Claims and Lease/Quarry Applications and for Other
Purposes.” DMO 97-07 provides, among others, for the
following: (1) the deadline for the relinquishment of excess
areas shall be on September 15, 1997 (September 13, 1997
falling on a Saturday);6 (2) all applicants of FTAA applications
filed under DAO 57 and DAO 63 with insufficient compliance
of the mandatory requirements shall submit, on September
15, 1997, a Status Report indicating the requirements that
have not been complied with and a Letter with the
undertaking that the said requirements will be completely
complied with on or before October 30, 1997;7 and (3) the
deadlines prescribed shall not be subject to extension.8
On September 17, 1996, St. Joe Mining Corporation filed an
Exploration Permit Application, denominated as EPA-IVA-24,
with an area of 11,340 hectares situated in Tagkawayan,
Quezon which overlaps the FTAA application of Greenwater.
On September 26, 1997, pursuant to DMO 97-07,
Greenwater filed a Letter of Intent9 dated September 10, 1997
with the MGB stating its intention to retain its first FTAA
applica-
_______________
6 Section 12 of DENR Department Memorandum Order No. (DMO) 97-07,
August 27, 1997.
7 Id., at Section 13.
8 Id., at Section 14.
9 CA Rollo, p. 43.
217
VOL. 562, AUGUST 13, 2008 217
Bonaventure Mining Corporation vs. V.I.L. Mines,
Incorporated
tion in Marinduque and to relinquish the areas in excess of the
maximum allowable 81,000 hectares covered by its other
FTAA applications including those which cover areas of
Quezon Province and Camarines Norte.
On October 22, 1997, OIC-Regional Director Reynulfo Juan
sent a letter10 to Greenwater stating that the latter has fifteen
(15) days from receipt of the letter to submit the technical
descriptions of the areas Greenwater intends to relinquish
with a warning that failure to do so would cause the denial of
the FTAA application in those areas.
On November 10, 1997, VMI filed an Exploration Permit
Application,11 denominated as EPA-IVA-63, with an area of
11,826 hectares. VMI’s application covers areas included in
Greenwater’s FTAA application in Quezon Province and
Camarines Norte.
On December 8, 1997, MGB Region IV rejected EPA-IVA-
24 of St. Joe Mining Corporation on the ground that it was
filed at the time that Greenwater’s FTAA application was still
valid and existing.
On February 23, 1998, OIC-Regional Director Reynulfo
Juan sent another letter12 to Greenwater stating that due to
failure to comply with the directives in the letter dated
October 22, 1997, Greenwater’s FTAA applications “are
deemed to have been relinquished as provided for under
DENR Memorandum Order No. 97-07.”
On May 4, 1999, BMC filed an Exploration Permit
Application,13denominated as EPA-IVA-72, with an area of
9,794 hectares which almost completely overlaps the area
covered by VMI’s application.
On October 4, 1999, VMI filed a petition for the cancellation
of BMC’s exploration permit application claiming that it
_______________
10 Id., at p. 44.
11 Id., at p. 45.
12 Id., at p. 47.
13 Id., at pp. 48-49.
218
218 SUPREME COURT REPORTS ANNOTATED
Bonaventure Mining Corporation vs. V.I.L. Mines,
Incorporated
overlaps with its prior and existing application. The petition
was later amended on February 28, 2000, to include the
cancellation and confirmation of the nullity of St. Joe Mining
Corporation’s EPA-IVA-24.
On March 22, 2002, the Panel of Arbitrators rendered its
Decision14 upholding the validity of VMI’s exploration permit
application and declaring BMC’s and St. Joe Mining
Corporation’s applications as null and void.
On July 5, 2002, BMC filed a Notice of Appeal and
Memorandum of Appeal with the MAB. On August 24, 2004,
the MAB rendered its Decision,15 modifying the decision of the
Panel of Arbitrators. The MAB gave due course to BMC’s
application for an exploration permit but allowed VMI’s
application to proceed, sans the areas covered by BMC’s
application.
From this decision, VMI filed its Petition for Review with
the Court of Appeals. The Court of Appeals reversed and set
aside the decision of the MAB and reinstated the decision of
the Panel of Arbitrators.
Hence, BMC now comes to this Court raising the following
issues:
A.
WHETHER THE COURT OF APPEALS COMMITTED A GRAVE
AND REVERSIBLE ERROR WHEN IT RULED THAT FAILURE
TO COMPLY WITH DENR MEMORANDUM ORDER NO. 97-
07 ON RETENTION REQUIREMENTS WOULD CAUSE THE
CANCELLATION OF THE FTAA APPLICATION BY OPERATION
OF LAW.
B.
WHETHER THE COURT OF APPEALS COMMITTED A GRAVE
AND REVERSIBLE ERROR WHEN IT RULED THAT THE
DISPUTED AREA IS OPEN FOR MINING APPLICATIONS
AFTER 30
_______________
14 Rollo, pp. 76-89.
15 Id., at pp. 91-105.
219
VOL. 562, AUGUST 13, 2008 219
Bonaventure Mining Corporation vs. V.I.L. Mines,
Incorporated
OCTOBER 1997 AND CONSEQUENTLY UPHOLDING THE
MINING APPLICATION OF RESPONDENT AND CANCELING
PETITIONER’S.16
VMI, however, questions the timeliness of the filing of the
petition. Hence, before we can consider the merits of the case,
it is imperative that the Court address this issue in view of the
procedural stricture that the timely perfection of an appeal is
both a mandatory and jurisdictional requirement.
In its Comment, VMI contends that BMC received a copy of
the CA Decision on September 5, 2006 and not on October 9,
2006 as alleged by BMC.17 To support its claim, VMI presented
a Certification18 from the Makati Central Post Office dated
October 5, 2005 stating that a copy of the CA Decision was
served by Letter Carrier Larry Lopez to BMC’s counsel on
September 5, 2006 but the same was returned by the Letter
Carrier to the sender, the Court of Appeals, for the reason that
counsel for BMC had allegedly “MOVED OUT” of his address
of record. Thus, the filing of the Petition only on October 23,
2006 is out of time.
In its Reply, BMC alleges that the office address of its
counsel, Atty. Fernando Peñarroyo (Atty. Peñarroyo), is and
has always been at Unit 201 Orient Mansions, Tordecillas St.,
Salcedo Village, Makati City and at no time has Atty.
Peñarroyo ever transferred or moved out of the said
address.19 BMC and Atty. Peñarroyo further contend that they
are perplexed on how the alleged Letter Carrier from the
Makati Central Post Office could have delivered a copy of the
CA Decision on September 5, 2006 and be informed that Atty.
Peñarroyo had moved out.20 To prove the said allegations,
_______________
16 Id., at p. 16. (Boldfaced in the original)
17 Id., at p. 110.
18 Id., at p. 222.
19 Id., at pp. 244-245.
20 Id., at p. 245.
220
220 SUPREME COURT REPORTS ANNOTATED
Bonaventure Mining Corporation vs. V.I.L. Mines,
Incorporated
BMC presented the following: 1) affidavit21 of Ms. Eloisa M.
Josef, Building Administrator of Orient Mansions; 2)
pertinent portion of the security logbook22 of Orient Mansions;
and 3) affidavit23 of Mr. Jeffrey A. Dalisay, the guard on duty
on September 5, 2006.
According to VMI, the CA Decision which was received on
October 9, 2006 was the copy sent to BMC, whose address is
at Unit 201 Orient Mansions, Tordecillas St., Salcedo Village,
Makati City. Atty. Peñarroyo’s office address is, however,
at L/2 Orient Mansions, Tordecillas St., Salcedo Village,
Makati City, which is the same address used by the Court of
Appeals when it mailed the CA Decision to him and the same
address stated in the Makati Central Post Office
Certification.24
BMC counters, however, that the fact that the copy of the
CA Decision received on October 9, 2006 was addressed to
BMC and not to Atty. Peñarroyo is of no significance since they
actually share the same office address.25
We hold that the petition was filed out of time.
Well-settled is the rule that when a party is represented by
counsel of record, service of orders and notices must be made
upon said attorney.26 Accordingly, it is the date of service on
counsel of record of the notice of judgment which is considered
the starting point from which the period of appeal prescribed
by law shall begin to run.27
_______________
21 Id., at pp. 253-254.
22 Id., at pp. 255-266.
23 Id., at pp. 267-268.
24 Id., at p. 450.
25 Id., at pp. 246-247.
26 Karen and Kristy Fishing Industry v. Court of Appeals, G.R. Nos.
172760-61, October 15, 2007, 536 SCRA 243, 250.
27 Cubar, et al. v. Hon. Mendoza, etc., et al., 205 Phil. 672, 676; 120 SCRA
768, 772-773 (1983).
221
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Bonaventure Mining Corporation vs. V.I.L. Mines,
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The records of this case clearly show that Atty.
Peñarroyo’s address of record used in the proceedings
below is L/2 and not Unit 201 at the Orient Mansions.
In the proceedings before the Panel of Arbitrators, the
Resolution28 denying BMC’s Motion for Reconsideration, from
which BMC filed a Notice of Appeal, was furnished to Atty.
Peñarroyo at L/2 Orient Mansions.
In the proceedings before the MAB, the Notice of Issuance
of An Order29 informing the parties that a decision has been
rendered was likewise furnished to Atty. Peñarroyo at L/2
Orient Mansions.
In the proceedings before the Court of Appeals, the Notice
of Resolution30 informing the parties of the resolution ordering
BMC to comment on the petition for review filed by VMI
indicates that Atty. Peñarroyo’s address is at L/2 Orient
Mansions. This was received by him since in compliance he
filed a Comment in which he used the same
address.31 Likewise, CA Form No. 132 informing the parties of
the resolution directing them to file their respective
memoranda was sent to him at L/2 Orient Mansions. This was
received by him for in compliance he filed a Memorandum in
which he used the same address.33 It was only in the Petition
filed before this Court did Atty. Peñarroyo use Unit 201 as his
address after VMI had already filed a
Manifestation questioning the alleged date of receipt of the
34
CA Decision. In fact, in the Reply, where he
_______________
28 CA Rollo, pp. 232-240; dated June 11, 2002.
29 Id., at p. 319; dated August 30, 2004.
30 Id., at p. 446; dated August 18, 2005.
31Id., at p. 479.
32 Id., at p. 515; signed by Zamita T. Mationg, Acting Division Clerk of
Court of the Special Sixteenth Division of the Court of Appeals.
33 Id., at p. 609.
221
34 Id., at pp. 663 to 670; dated October 23, 2006.
222
222 SUPREME COURT REPORTS ANNOTATED
Bonaventure Mining Corporation vs. V.I.L. Mines,
Incorporated
alleged that his address of record has always been at Unit 201,
he still indicated L/2 as his address below his signature.35
Hence, we cannot give credence to Atty. Peñarroyo’s claim
that his address is and has always been at Unit 201. The fact
that both addresses refer to the same building does not
obliterate the fact that they are two different addresses. BMC
and Atty. Peñarroyo cannot expect the public to assume that
both addresses are one and the same and neither can they be
used interchangeably. It was incumbent upon him to inform
the Court of Appeals of the change of his address of record from
L/2 to Unit 201 at the Orient Mansions. His failure to do so
bears consequences which bind BMC.
The rule is that clients are bound by the actions of their
counsel in the conduct of their case. If counsel moves to
another address without informing the court of that change,
such omission or neglect is inexcusable and will not stay the
finality of the decision. The court cannot be expected to take
judicial notice of the new address of a lawyer who has moved.36
In brief, the service of the CA Decision on September 5,
2006 at his address of record per the Makati Central Post
Office Certification should be the reckoning point from which
BMC’s period to file the petition begins to run. Thus, the
assailed CA Decision became final and executory.
Nevertheless, we have reviewed the records and find that
even on its merits the instant petition is destined to fail for
reasons we shall discuss briefly.
Section 12 of DMO 97-07 reads:
“SECTION 12. Divestment/Relinquishment of Areas in Excess
of Maximum FTAA Contract Area
All FTAA applications filed prior to the effectivity of the Act
which exceed the maximum contract area as set forth in Section 34
_______________
35 Rollo, p. 250.
36 Supra note 26 at p. 249.
223
VOL. 562, AUGUST 13, 2008 223
Bonaventure Mining Corporation vs. V.I.L. Mines,
Incorporated
of the Act and Section 51 of the IRR must conform to said
maximum on or before September 15, 1997. For this purpose,
all applicants who have not otherwise relinquished or divested any
areas held in excess of the allowable maximum by September 15,
1997 must relinquish/divest said areas on such date in favor
of the Government by filing a Declaration of Areas Relinquished/
Divested, containing the technical description of such area/s, with
the Bureau/concerned Regional Office. The concerned applications
shall be accordingly amended and areas relinquished/divested shall
be open for Mining Applications.
xxx
Failure to relinquish/divest areas in excess of the maximum
contract area as provided for in this section will result in the
denial or cancellation of the FTAA application after which,
the areas covered thereby shall be open for Mining
Applications.” (Emphasis supplied)
BMC contends that based on the foregoing provision, the
inability of the FTAA applicant to submit the required
documents is only a ground for the MGB or the DENR to
cancel or revoke its FTAA application and an executive action
is needed before the area becomes open for mining
applications.37 Accordingly, Greenwater’s FTAA applications
were cancelled and the areas covered thereby became open to
mining applications only fifteen days after its receipt of the
February 23, 1998 letter of OIC-Regional Director Reynulfo
Juan informing it that its FTAA applications have been
cancelled.
We find no merit to BMC’s contention.
It is undisputed that Greenwater filed its Letter of Intent
only on September 26, 1997 or 11 days after the September 15,
1997 mandatory deadline set by Section 12 of DMO 97-07.
Section 12 of DMO 97-07 provides for the effect of failing to
relinquish excess areas within the deadline, that it “will result
in the denial or cancellation of the FTAA application.…” No
further executive action is necessary since DMO 97-07
_______________
37 Rollo, pp. 326-329.
224
224 SUPREME COURT REPORTS ANNOTATED
Bonaventure Mining Corporation vs. V.I.L. Mines,
Incorporated
itself already provided for the sanction of failing to meet the
deadline. Any executive action beyond the deadline would be
a mere superfluity.
Section 12 of DMO 97-07 must be read in conjunction with
Section 14 which states that the deadlines therein are not
subject to extension, viz.:
“SECTION 14. No Extension of Periods
The deadline set at September 15, 1997 pursuant to Section 4
hereof and all other periods prescribed herein shall not be subject
to extension.” (Emphasis supplied)
DMO 97-07 was promulgated precisely to set a specific date
for all FTAA applicants within which to relinquish all areas in
excess of the maximum prescribed by law. Accordingly, the
deadline cannot be extended or changed except by amending
DMO 97-07. OIC-Regional Director Reynulfo Juan had no
authority to extend the deadline set by DMO 97-07. We agree
with the ruling of the Court of Appeals:
“The language of the memorandum order is plain, precise and
unequivocal—the period cannot be extended. Beyond that, the
pending FTAA applications could no longer be officially acted upon
as they were deemed to have expired. DMO 97-07 could only be
extended by another memorandum order or law specifically
amending the deadline set forth therein. No government
officer or employee can do so.
xxx
It is Our considered view that the FTAA application of
Greenwater ipso facto expired when it did not take any step to
comply with the order. There was no need for any
pronouncement or official action. If ever there would be any
executive action, it would only be to certify that the
application was already cancelled as OIC-Regional Director
Reynulfo Juan did when, on January 23, 1998 (sic),38 it wrote
Greenwater that its application over the excess areas was
cancelled. No executive action
_______________
38 Should be February 23, 1998.
225
VOL. 562, AUGUST 13, 2008 225
Bonaventure Mining Corporation vs. V.I.L. Mines,
Incorporated
can stretch the deadline beyond what was stated in the
memorandum order, DMO 97-07.
OIC-Regional Director Reynulfo Juan violated DMO 97-
07, when in his October 22, 1997 Letter, he gave Greenwater
a period beyond the date of the deadline within which to submit
the technical descriptions of the areas it wanted to
relinquish. By giving Greenwater a period extending beyond
October 30, 1997, he was in effect extending the deadline set forth
in Section 13 of DMO 97-07. That he could not lawfully do.
He had no authority extending the deadline because the
memorandum order which he was supposed to implement
stated that the “period prescribed herein shall not be subject
to extension.” Beyond October 30, 1997 all FTAA applications which
failed to comply with the memorandum order expired and were
deemed cancelled by operation of law.”39 (Emphasis supplied)
Finally, even equitable considerations do not favor the
petitioner. It is clear from the outset that Greenwater had
already lost interest in pursuing its FTAA application. After
being given two (2) years to comply with the requirements,
Greenwater only filed its Letter of Intent belatedly and did not
take any further action nor contested the letter dated
February 23, 1998 of OIC-Regional Director Reynulfo Juan
informing it that its FTAA applications have been deemed
relinquished. It must be emphasized that Greenwater and the
public were aware of the deadline and the consequences of
failing to meet the same. Accordingly, VMI cannot be faulted
for relying on the fact that Greenwater did not comply with
the requirements within the deadline set by DMO 97-07 and
had already lost interest, for all intents and purposes, in the
area it wished to apply for. VMI filed its application on
November 10, 1997, or almost 2 years ahead than BMC’s
application which was filed on May 4, 1999. To rule now that
it is BMC’s application which should be given due course on
an alleged technicality which has no clear basis in law or in
the rules will be highly inequitable.
_______________

39 Rollo, p. 66.
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IN VIEW WHEREOF, the petition is DENIED. The decision of the Court of

Appeals is affirmed. Costs against petitioner.

SO ORDERED.
400 SUPREME COURT REPORTS ANNOTATED
PICOP Resources, Inc. vs. Base Metals Mineral Resources
Corporation
G.R. No. 163509. December 6, 2006. *
PICOP RESOURCES, INC., petitioner, vs. BASE METALS
MINERAL RESOURCES CORPORATION, and THE MINES
ADJUDICATION BOARD, respondents.
Natural Resources; Forestry; Mines and Mining; The policy of
multiple land use is enshrined in our laws towards the end that the
country’s natural resources may be rationally explored.—We should
state at this juncture that the policy of multiple land use is
enshrined in our laws towards the end that the country’s natural
resources may be rationally explored, developed, utilized and
conserved. The Whereas clauses and declaration of policies of PD
705 state: WHEREAS, proper classification, management and
utilization of the lands of the public domain to maximize their
productivity to meet the demands of our increasing population is
urgently needed; WHEREAS, to achieve the above purpose, it is
necessary to reassess the multiple uses of forest lands and resources
before allowing any utilization thereof to optimize the benefits that
can be derived therefrom; . . . Sec. 2. Policies.—The State hereby
adopts the following policies: a) The multiple uses of forest lands
shall be oriented to the development and progress requirements of
the country, the advancement of science and technology, and the
public welfare; In like
_______________
*THIRD DIVISION.
401
VOL. 510, DECEMBER 6, 2006 401
PICOP Resources, Inc. vs. Base Metals Mineral
Resources Corporation
manner, RA No. 7942, recognizing the equiponderance between
mining and timber rights, gives a mining contractor the right to
enter a timber concession and cut timber therein provided that the
surface owner or concessionaire shall be properly compensated for
any damage done to the property as a consequence of mining
operations.
Same; Same; Same; Government reservations may be opened
for mining applications upon prior written clearance by the
government agency having jurisdiction over such reservation.—
Assuming that the area covered by Base Metals’ MPSA is a
government reservation, defined as proclaimed reserved lands for
specific purposes other than mineral reservations, such does not
necessarily preclude mining activities in the area. Sec. 15(b) of
DENR Administrative Order (DAO) 96-40 provides that
government reservations may be opened for mining applications
upon prior written clearance by the government agency having
jurisdiction over such reservation. Sec. 6 of RA No. 7942 also
provides that mining operations in reserved lands other than
mineral reservations may be undertaken by the DENR, subject to
certain limitations.
Same; Same; Same; R.A. No. 7942 does not disallow mining
applications in all forest reserves but only those proclaimed as
watershed forest reserves.—RA No. 7942 does not disallow mining
applications in all forest reserves but only those proclaimed as
watershed forest reserves. There is no evidence in this case that the
area covered by Base Metals’ MPSA has been proclaimed as
watershed forest reserves.
Same; Same; Same; Section 18 of R.A. 7942 allows mining even
in timberland or forestry subject to existing rights and reservations,
and, similarly, Section 47 of P.D. 705 permits mining operations in
forest lands which include the public forest, the permanent forest or
forest reserves, and forest reservations; Section 47 of P.D. 705 does
not require that the consent of existing licensees be obtained but that
they be notified before mining activities may be commenced inside
forest concessions.—Sec. 18 RA No. 7942 allows mining even in
timberland or forestry subject to existing rights and reservations. It
provides: Sec. 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
402
402 SUPREME COURT REPORTS
ANNOTATED
PICOP Resources, Inc. vs. Base Metals Mineral
Resources Corporation
 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. Similarly, Sec. 47
of PD 705 permits mining operations in forest lands which include
the public forest, the permanent forest or forest reserves, and forest
reservations. It states: Sec. 47. Mining Operations.—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. No location,
prospecting, exploration, utilization, or exploitation of mineral
resources inside forest concessions shall be allowed unless proper
notice has been served upon the licensees thereof and the prior
approval of the Director, secured. . . . Significantly, the above-quoted
provision does not require that the consent of existing licensees be
obtained but that they be notified before mining activities may be
commenced inside forest concessions.
Same; Same; Same; Due Process; Timber Licenses; A timber
license is not a contract within the purview of the due process
clause—it is only a license or a privilege, which can be validly
withdrawn whenever dictated by public interest or public welfare.—
The Presidential Warranty cannot be considered a contract distinct
from PTLA No. 47 and IFMA No. 35. We agree with the OSG’s
position that it is merely a collateral undertaking which cannot
amplify PICOP’s rights under its timber license. Our definitive
ruling in Oposa v. Factoran, 224 SCRA 792 (1993), that a timber
license is not a contract within the purview of the non-impairment
clause is edifying. We declared: Needless to say, all licenses may
thus be revoked or rescinded by executive action. It is not a contract,
property or a property right protected by the due process clause of
the Constitution. In Tan vs. Director of Forestry, 125 SCRA 302
(1983), this Court held: “x x x A timber license is an instrument by
which the State regulates the utilization and disposition of forest
resources to the end that public welfare is promoted. A timber
license is not a contract within the purview of the due
process clause; it is only a license or a privilege, which can
be validly withdrawn whenever dictated by public interest
or public welfare as in this case. ‘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
403
VOL. 510, DECEMBER 6, 2006 403
PICOP Resources, Inc. vs. Base Metals Mineral
Resources Corporation
it is granted; neither is it a property or a property right, nor
does it create a vested right; nor is it taxation’ (C.J. 168). Thus, this
Court held that the granting of license does not create irrevocable
rights, neither is it property or property rights (People vs. Ong Tin,
54 O.G. 7576). x x x”
PETITION for review on certiorari of the decision and
resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Quasha, Ancheta, Peña & Nolasco for petitioner PICOP.
Pablo Ayson, Jr. for Base Metals Minerals Resources
Corporation.
Jose Raulito E. Paras for respondents.
TINGA, J.:
PICOP Resources, Inc. (PICOP) assails the Decision of the 1
Court of Appeals dated November 28, 2003 and its
Resolution dated May 5, 2004, which respectively denied its
2
petition for review and motion for reconsideration.
The undisputed facts quoted from the appellate court’s
Decision are as follows:
“In 1987, the Central Mindanao Mining and Development
Corporation (CMMCI for brevity) entered into a Mines Operating
Agreement (Agreement for brevity) with Banahaw Mining and
Development Corporation (Banahaw Mining for brevity) whereby
the latter agreed to act as Mine Operator for the exploration,
development, and eventual commercial operation of CMMCI’s
eighteen (18) mining claims located in Agusan del Sur.
Pursuant to the terms of the Agreement, Banahaw Mining filed
applications for Mining Lease Contracts over the mining claims
_______________
1 Rollo, pp. 86-101; Penned by Associate Justice Remedios A. Salazar-
Fernando and concurred in by Associate Justices Eubulo G. Verzola and
Eugenio S. Labitoria.
2 Id., at pp. 103-106.
404
404 SUPREME COURT REPORTS ANNOTATED
PICOP Resources, Inc. vs. Base Metals Mineral Resources
Corporation
with the Bureau of Mines. On April 29, 1988, Banahaw Mining was
issued a Mines Temporary Permit authorizing it to extract and
dispose of precious minerals found within its mining claims. Upon
its expiration, the temporary permit was subsequently renewed
thrice by the Bureau of Mines, the last being on June 28, 1991.
Since a portion of Banahaw Mining’s mining claims was located
in petitioner PICOP’s logging concession in Agusan del Sur,
Banahaw Mining and petitioner PICOP entered into a
Memorandum of Agreement, whereby, in mutual recognition of each
other’s right to the area concerned, petitioner PICOP allowed
Banahaw Mining an access/right of way to its mining claims.
In 1991, Banahaw Mining converted its mining claims to
applications for Mineral Production Sharing Agreements (MPSA for
brevity).
While the MPSA were pending, Banahaw Mining, on December
18, 1996, decided to sell/assign its rights and interests over thirty-
seven (37) mining claims in favor of private respondent Base Metals
Mineral Resources Corporation (Base Metals for brevity). The
transfer included mining claims held by Banahaw Mining in its own
right as claim owner, as well as those covered by its mining
operating agreement with CMMCI. Upon being informed of the
development, CMMCI, as claim owner, immediately approved the
assignment made by Banahaw Mining in favor of private
respondent Base Metals, thereby recognizing private respondent
Base Metals as the new operator of its claims.
On March 10, 1997, private respondent Base Metals amended
Banahaw Mining’s pending MPSA applications with the Bureau of
Mines to substitute itself as applicant and to submit additional
documents in support of the application. Area clearances from the
DENR Regional Director and Superintendent of the Agusan Marsh
and Wildlife Sanctuary were submitted, as required.
On October 7, 1997, private respondent Base Metals’ amended
MPSA applications were published in accordance with the
requirements of the Mining Act of 1995.
On November 18, 1997, petitioner PICOP filed with the Mines
Geo-Sciences Bureau (MGB), Caraga Regional Office No. XIII an
Adverse Claim and/or Opposition to private respondent Base
Metals’ application on the following grounds:
405
VOL. 510, DECEMBER 6, 2006 405
PICOP Resources, Inc. vs. Base Metals Mineral Resources
Corporation
1. I.THE APPROVAL OF THE APPLICATION AND
ISSUANCE OF THE MPSA OF BASE METALS WILL
VIOLATE THE CONSTITUTIONAL MANDATE
AGAINST IMPAIRMENT OF OBLIGATION IN A
CONTRACT.
2. II.THE APPROVAL OF THE APPLICATION WILL
DEFEAT THE RIGHTS OF THE HEREIN ADVERSE
CLAIMANT AND/OR OPPOSITOR.
In its Answer to the Adverse Claim and/or Opposition, private
respondent Base Metals alleged that:
1. a)the Adverse Claim was filed out of time;
2. b)petitioner PICOP has no rights over the mineral resources
on their concession area. PICOP is asserting a privilege
which is not protected by the non-impairment clause of the
Constitution;
3. c)the grant of the MPSA will not impair the rights of PICOP
nor create confusion, chaos or conflict.
Petitioner PICOP’s Reply to the Answer alleged that:
1. a)the Adverse Claim was filed within the reglementary
period;
2. b)the grant of MPSA will impair the existing rights of
petitioner PICOP;
3. c)the MOA between PICOP and Banahaw Mining provides
for recognition by Banahaw Mining of the Presidential
 Warranty awarded in favor of PICOP for the exclusive
possession and enjoyment of said areas.
As a Rejoinder, private respondent Base Metals stated that:
1. 1.it is seeking the right to extract the mineral resources in
the applied areas. It is not applying for any right to the
forest resources within the concession areas of PICOP;
2. 2.timber or forest lands are open to Mining Applications;
3. 3.the grant of the MPSA will not violate the so called
“presidential fiat;”
4. 4.the MPSA application of Base Metals does not require the
consent of PICOP; and
406
406 SUPREME COURT REPORTS ANNOTATED
PICOP Resources, Inc. vs. Base Metals Mineral Resources
Corporation
1. 5.it signified its willingness to enter into a voluntary
agreement with PICOP on the matter of compensation for
damages. In the absence of such agreement, the matter will
be brought to the Panel of Arbitration in accordance with
law.
In refutation thereto, petitioner PICOP alleged in its Rejoinder that:
1. a)the Adverse Claim filed thru registered mail was sent on
time and as prescribed by existing mining laws and rules
and regulations;
2. b)the right sought by private respondent Base Metals is not
absolute but is subject to existing rights, such as those
which the adverse claimant had, that have to be recognized
and respected in a manner provided and prescribed by
existing laws as will be expounded fully later;
3. c)as a general rule, mining applications within timber or
forest lands are subject to existing rights as provided in
Section 18 of RA No. 7942 or the Philippine Mining Act of
1995 and it is an admitted fact by the private respondent
that petitioner PICOP had forest rights as per Presidential
Warranty;
4. d)while the Presidential Warranty did not expressly state
exclusivity, P.D. 705 strengthened the right of occupation,
possession and control over the concession area;
5. e)the provisions of Section 19 of the Act and Section 15 of IRR
expressly require the written consent of the forest right
holder, PICOP.
After the submission of their respective position paper, the Panel
Arbitrator issued an Order dated December 21, 1998, the dispositive
portion of which reads as:
WHEREFORE, premises considered, Mineral Production Sharing
Agreement Application Nos. (XIII) 010, 011, 012 of Base Metal Resources
Corporation should be set aside. The disapproval of private respondent
Base Metals’ MPSA was due to the following reasons:
Anent the first issue the Panel find (sic) and so hold (sic) that the
adverse claim was filed on time, it being mailed on November 19, 1997, at
Metro Manila as evidenced by Registry Receipt No. 26714. Under the law
(sic) the date of mailing is considered the date of filing.
407
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As to whether or not an MPSA application can be granted on area subject
of an IFMA or PTLA which is covered by a Presidential Warranty, the
3 4
panel believes it can not, unless the grantee consents thereto. Without the
grantee’s consent, the area is considered closed to mining location (sec. 19)
(b) (No. 2), DAO No. 96-40). The Panel believe (sic) that mining location in
forest or timberland is allowed only if such forest or timberland is not
leased by the government to a qualified person or entity. If it is leased the
consent of the lessor is necessary, in addition to the area clearance to be
issued by the agency concerned before it is subjected to mining operation.
Plantation is considered closed to mining locations because it is off
tangent to mining. Both are extremes. They can not exist at the same time.
The other must necessarily stop before the other operate.
On the other hand, Base Metals Mineral Resources Corporation can not
insist the MPSA application as assignee of Banahaw. PICOP did not
consent to the assignment as embodied in the agreement. Neither did it
ratify the Deed of Assignment. Accordingly, it has no force and effect. Thus,
for lack of consent, the MPSA must fall.
On January 11, 1999, private respondent Base Metals filed a Notice
of Appeal with public respondent MAB and alleged in its Appeal
Memorandum the following arguments:
1. 1.THE CONSENT OF PICOP IS NOT NECESSARY FOR
THE APPROVAL OF BASE METALS’ MPSA
APPLICATION.
2. 2.EVEN ASSUMING SUCH CONSENT IS NECESSARY,
PICOP HAD CONSENTED TO BASE METALS’ MPSA
APPLICATION.
In Answer thereto, petitioner PICOP alleged that:
1. 1.Consent is necessary for the approval of private
respondent’s MPSA application;
2. 2.Provisions of Memorandum Order No. 98-03 and IFMA 35
are not applicable to the instant case;
_______________
3Integrated Forest Management Agreement.
4Plantation Timber License Agreement.
408
408 SUPREME COURT REPORTS ANNOTATED
PICOP Resources, Inc. vs. Base Metals Mineral Resources
Corporation
1. 3.Provisions of PD 705 connotes exclusivity for timber
5
license holders; and
2. 4.MOA between private respondent’s assignor and adverse
claimant provided for the recognition of the latter’s rightful
claim over the disputed areas.
Private respondent Base Metals claimed in its Reply that:
1. 1.The withholding of consent by PICOP derogates the State’s
power to supervise and control the exploration, utilization
and development of all natural resources;
2. 2.Memorandum Order No, 98-03, not being a statute but a
mere guideline imposed by the Secretary of the Department
of Environment and Natural Resources (DENR), can be
applied retroactively to MPSA applications which have not
yet been finally resolved;
3. 3.Even assuming that the consent of adverse claimant is
necessary for the approval of Base Metals’ application
(which is denied), such consent had already been given; and
4. 4.The Memorandum of Agreement between adverse claimant
and Banahaw Mining proves that the AgusanSurigao area
had been used in the past both for logging and mining
operations.
After the filing of petitioner PICOP’s Reply Memorandum, public
respondent rendered the assailed decision setting aside the Panel
Arbitrator’s order. Accordingly, private respondent Base Metals’
MPSA’s were reinstated and given due course subject to compliance
with the pertinent requirements of the existing rules and
regulations.” 6
The Court of Appeals upheld the decision of the MAB, ruling
that the Presidential Warranty of September 25, 1968 issued
by then President Ferdinand E. Marcos merely confirmed the
timber license granted to PICOP and warranted the latter’s
peaceful and adequate possession and enjoyment
_______________
5 Revising Presidential Decree No. 389, Otherwise Known as the Forestry
Reform Code of the Philippines.
6 Rollo, pp. 87-92.
409
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of its concession areas. It was only given upon the request of
the Board of Investments to establish the boundaries of
PICOP’s timber license agreement. The Presidential
Warranty did not convert PICOP’s timber license into a
contract because it did not create any obligation on the part of
the government in favor of PICOP. Thus, the non-impairment
clause finds no application.
 Neither did the Presidential Warranty grant PICOP the
exclusive possession, occupation and exploration of the
concession areas covered. If that were so, the government
would have effectively surrendered its police power to control
and supervise the exploration, development and utilization of
the country’s natural resources.
On PICOP’s contention that its consent is necessary for the
grant of Base Metals’ MPSA, the appellate court ruled that the
amendment to PTLA No. 47 refers to the grant of gratuitous
permits, which the MPSA subject of this case is not. Further,
the amendment pertains to the cutting and extraction of
timber for mining purposes and not to the act of mining itself,
the intention of the amendment being to protect the timber
found in PICOP’s concession areas.
The Court of Appeals noted that the reinstatement of the
MPSA does not ipso facto revoke, amend, rescind or impair
PICOP’s timber license. Base Metals still has to comply with
the requirements for the grant of a mining permit. The fact,
however, that Base Metals had already secured the necessary
Area Status and Clearance from the DENR means that the
areas applied for are not closed to mining operations.
In its Resolution dated May 5, 2004, the appellate court
7 No. 3092.
denied PICOP’s Motion for Reconsideration. It ruled that
PICOP failed to substantiate its allegation that the area
applied for is a forest reserve and is therefore closed to mining
operations because it did not identify the particular law which
_______________
7Supra note 2.
410
410 SUPREME COURT REPORTS ANNOTATED
PICOP Resources, Inc. vs. Base Metals Mineral Resources
Corporation
set aside the contested area as one where mining is prohibited
pursuant to applicable laws.
The case is now before us for review.
In its Memorandum dated April 6, 2005, PICOP presents
8
the following issues: (1) the 2,756 hectares subject of Base
Metals’ MPSA are closed to mining operations except upon
PICOP’s written consent pursuant to existing laws, rules and
regulations and by virtue of the Presidential Warranty; (2) its
Presidential Warranty is protected by the non-impairment
clause of the Constitution; and (3) it does not raise new issues
in its petition.
PICOP asserts that its concession areas are closed to
mining operations as these are within the Agusan-Surigao-
Davao forest reserve established under Proclamation No. 369
of then Gov. Gen. Dwight Davis. The area is allegedly also part
of permanent forest established under Republic Act No. 3092
(RA No. 3092), and overlaps the wilderness area where
9
mining applications are expressly prohibited under RA No.
7586. Hence, the area is closed to mining operations under
10
Sec. 19(f) of RA No. 7942. 11
PICOP further asserts that to allow mining over a forest or
forest reserve would allegedly be tantamount to changing the
classification of the land from forest to mineral land in
violation of Sec. 4, Art. XII of the Constitution and Sec. 1 of RA
According to PICOP, in 1962 and 1963, blocks A, B and C
within the Agusan-Surigao-Davao forest reserve under
Proclamation No. 369 were surveyed as permanent forest
blocks in accordance with RA No. 3092. These areas cover
PICOP’s
_______________
8 Id., at pp. 533-611.
9 An Act to Amend Certain Sections of the Revised Administrative Code and
for Other Purposes.
10 The National Integrated Protected Areas System Act of 1992 (NIPAS
Law).
11 The Philippine Mining Act of 1995.
411
VOL. 510, DECEMBER 6, 2006 411
 PICOP Resources, Inc. vs. Base Metals Mineral Resources
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PTLA No. 47, part of which later became IFMA No. 35. In turn,
the areas set aside as wilderness as in PTLA No. 47 became
the initial components of the NIPAS under Sec. 5(a) of RA No.
7586. When RA No. 7942 was signed into law, the areas
covered by the NIPAS were expressly determined as areas
where mineral agreements or financial or technical assistance
agreement applications shall not be allowed. PICOP concludes
that since there is no evidence that the permanent forest areas
within PTLA No. 47 and IFMA No. 35 have been set aside for
mining purposes, the MAB and the Court of Appeals gravely
erred in reinstating Base Metals’ MPSA and, in effect,
allowing mining exploration and miningrelated activities in
the protected areas.
PICOP further argues that under DENR Administrative
Order (DAO) No. 96-40 implementing RA No. 7942, an
exploration permit must be secured before mining operations
in government reservations may be undertaken. There being
no exploration permit issued to Banahaw Mining nor
appended to its MPSA, the MAB and the Court of Appeals
should not have reinstated its application.
PICOP brings to the Court’s attention the case of PICOP
Resources, Inc. v. Hon. Heherson T. Alvarez, wherein the
12
Court of Appeals ruled that the Presidential Warranty issued
to PICOP for its TLA No. 43 dated July 29, 1969, a TLA
distinct from PTLA No. 47 involved in this case, is a valid
contract involving mutual prestations on the part of the
Government and PICOP.
The Presidential Warranty in this case is allegedly not a
mere confirmation of PICOP’s timber license but a
commitment on the part of the Government that in
consideration of PICOP’s investment in the wood-processing
business, the Government will assure the availability of the
supply of raw materials at levels adequate to meet projected
utilization requirements. The guarantee that PICOP will have
peaceful
_______________
C.A.-G.R. Sp. No. 76605.
12
412
412 SUPREME COURT REPORTS ANNOTATED
PICOP Resources, Inc. vs. Base Metals Mineral Resources
Corporation
and adequate possession and enjoyment of its concession areas
is impaired by the reinstatement of Base Metals’ MPSA in that
the latter’s mining activities underneath the area in dispute
will surely undermine PICOP’s supply of raw materials on the
surface.
Base Metals’ obtention of area status and clearance from
the DENR is allegedly immaterial, even misleading. The
findings of the DENR Regional Disrector and the
superintendent of the Agusan Marsh and Wildlife Sanctuary
are allegedly misplaced because the area applied for is not
inside the Agusan Marsh but in a permanent forest. Moreover,
the remarks in the area status itself should have been
considered by the MAB and the appellate court as they point
out that the application encroaches on surveyed timberland
projects declared as permanent forests/forest reserves.
Finally, PICOP insists that it has always maintained that
the forest areas of PTLA No. 47 and IFMA No. 35 are closed to
mining operations. The grounds relied upon in this petition
are thus not new issues but merely amplifications,
clarifications and detailed expositions of the relevant
constitutional provisions and statutes regulating the use and
preservation of forest reserves, permanent forest, and
protected wilderness areas given that the areas subject of the
MPSA are within and overlap PICOP’s PTLA No. 47 and
IFMA No. 35 which have been classified and blocked not only
as permanent forest but also as protected wilderness area
forming an integral part of the Agusan-Davao-Surigao Forest
Reserve.
In its undated Memorandum, Base Metals contends that
13
PICOP never made any reference to land classification or the
exclusion of the contested area from exploration and mining
activities except in the motion for reconsideration it filed with
the Court of Appeals. PICOP’s objection to the MPSA was
allegedly based exclusively on the ground that the application,
if allowed to proceed, would constitute a violation of the
_______________
Rollo, pp. 613-645.
13
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PICOP Resources, Inc. vs. Base Metals Mineral Resources
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constitutional proscription against impairment of the
obligation of contracts. It was upon this issue that the
appellate court hinged its Decision in favor of Base Metals,
ruling that the Presidential Warranty merely confirmed
PICOP’s timber license. The instant petition, which raises new
issues and invokes RA No. 3092 and RA No. 7586, is an
unwarranted departure from the settled rule that only issues
raised in the proceedings a quo may be elevated on appeal.
Base Metals notes that RA No. 7586 expressly requires that
there be a prior presidential decree, presidential
proclamation, or executive order issued by the President of the
Philippines, expressly proclaiming, designating, and setting
aside the wilderness area before the same may be considered
part of the NIPAS as a protected area. Allegedly, PICOP has
not shown that such an express presidential proclamation
exists setting aside the subject area as a forest reserve, and
excluding the same from the commerce of man.
PICOP also allegedly misquoted Sec. 19 of RA No. 7942 by
placing a comma between the words “watershed” and “forest”
thereby giving an altogether different and misleading
interpretation of the cited provision. The cited provision, in
fact, states that for an area to be closed to mining applications,
the same must be a watershed forest reserve duly identified
and proclaimed by the President of the Philippines. In this
case, no presidential proclamation exists setting aside the
contested area as such.
Moreover, the Memorandum of Agreement between
Banahaw Mining and PICOP is allegedly a clear and tacit
recognition by the latter that the area is open and available
for mining activities and that Banahaw Mining has a right to
enter and explore the areas covered by its mining claims.
Base Metals reiterates that the non-impairment clause is a
limit on the exercise of legislative power and not of judicial or
quasi-judicial power. The Constitution prohibits the passage
of a law which enlarges, abridges or in any manner changes
the intention of the contracting parties. The decision of the
414
414 SUPREME COURT REPORTS ANNOTATED
PICOP Resources, Inc. vs. Base Metals Mineral Resources
Corporation
MAB and the Court of Appeals are not legislative acts within
the purview of the constitutional proscription. Besides, the
Presidential Warranty is not a contract that may be impaired
by the reinstatement of the MPSA. It is a mere confirmation
of PICOP’s timber license and draws its life from PTLA No.
47. Furthermore, PICOP fails to show how the reinstatement
of the MPSA will impair its timber license.
Following the regalian doctrine, Base Metals avers that the
State may opt to enter into contractual arrangements for the
exploration, development, and extraction of minerals even it
the same should mean amending, revising, or even revoking
PICOP’s timber license. To require the State to secure
PICOP’s prior consent before it can enter into such contracts
allegedly constitutes an undue delegation of sovereign power.
Base Metals further notes that Presidential Decree No. 705
(PD 705), under which PTLA No. 47, IFMA No. 35 and the
Presidential Warranty were issued, requires notice to PICOP
rather than consent before any mining activity can be
commenced in the latter’s concession areas.
The Office of the Solicitor General (OSG) filed a
Memorandum dated April 21, 2005 on behalf of the MAB,
14
contending that PICOP’s attempt to raise new issues, such as
its argument that the contested area is classified as a
permanent forest and hence, closed to mining activities, is
offensive to due process and should not be allowed.
The OSG argues that a timber license is not a contract
within the purview of the due process and non-impairment
clauses. The Presidential Warranty merely guarantees
PICOP’s tenure over its concession area and covers only the
right to cut, collect and remove timber therein. It is a mere
collateral undertaking and cannot amplify PICOP’s rights
under its PTLA No. 47 and IFMA No. 35. To hold that the
Presidential Warranty is a contract separate from PICOP’s
timber license effectively gives the latter PICOP an exclusive,
_______________
Id., at pp. 651-693.
14
415
VOL. 510, DECEMBER 6, 2006 415
PICOP Resources, Inc. vs. Base Metals Mineral Resources
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perpetual and irrevocable right over its concession area and
impairs the State’s sovereign exercise of its power over the
exploration, development, and utilization of natural resources.
The case of PICOP Resources, Inc. v. Hon. Heherson T.
Alvarez, supra, cited by PICOP cannot be relied upon to
buttress the latter’s claim that a presidential warranty is a
valid and subsisting contract between PICOP and the
Government because the decision of the appellate court in that
case is still pending review before the Court’s Second Division.
The OSG further asserts that mining operations are legally
permissible over PICOP’s concession areas. Allegedly, what is
closed to mining applications under RA No. 7942 are areas
proclaimed as watershed forest reserves. The law does not
totally prohibit mining operations over forest reserves. On the
contrary, Sec. 18 of RA No. 7942 permits mining over forest
lands subject to existing rights and reservations, and PD No.
705 allows mining over forest lands and forest reservations
subject to State regulation and mining laws. Sec. 19(a) of RA
No. 7942 also provides that mineral activities may be allowed
even over military and other government reservations as long
as there is a prior written clearance by the government agency
concerned.
The area status clearances obtained by Base Metals also
allegedly show that the area covered by the MPSA is within
timberland, unclassified public forest, and alienable and
disposable land. Moreover, PICOP allegedly chose to cite
portions of Apex Mining Co., Inc. v. Garcia, to make it appear
15
that the Court in that case ruled that mining is absolutely
prohibited in the Agusan-Surigao-Davao Forest Reserve. In
fact, the Court held that the area is not open to mining location
because the proper procedure is to file an application for a
permit to prospect with the Bureau of Forest and
Development.
In addition, PICOP’s claimed wilderness area has not been
designated as a protected area that would operate to bar min-
_______________
G.R. No. 92605, July 16, 1991, 199 SCRA 278.
15
416
416 SUPREME COURT REPORTS ANNOTATED
PICOP Resources, Inc. vs. Base Metals Mineral Resources
Corporation
ing operations therein. PICOP failed to prove that the alleged
wilderness area has been designated as an initial component
of the NIPAS pursuant to a law, presidential decree,
presidential proclamation or executive order. Hence, it cannot
correctly claim that the same falls within the coverage of the
restrictive provisions of RA No. 7586.
The OSG points out that the Administrative Code of 1917
which RA No. 3092 amended has been completely repealed by
16
the Administrative Code of 1978. 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
17
on the ground, there can be no occasion that could give rise to
a violation of the constitutional provision.
Moreover, Clauses 10 and 14 of PICOP’s IFMA No. 35
specifically provides that the area covered by the agreement is
open for mining if public interest so requires. Likewise, PTLA
No. 47 provides that the area covered by the license agreement
may be opened for mining purposes.
Finally, the OSG maintains that pursuant to the State’s
policy of multiple land use, R.A. No. 7942 provides for 18
appropriate measures for a harmonized utilization of the
forest
_______________
16 An Act to Amend Certain Sections of the Revised Administrative Code
and for other Purposes.
17 Entitled
“An Act Instituting a New System of Mineral Resources
Exploration Development, Utilization, and Conservation, otherwise known as
the ‘Philippine Mining Act of 1995.’ ”
18 Entitled “Amending Proclamation No. 299, dated December 21, 1951,
which Reserves a Parcel of the Public Domain Situated in Davao City for Forest
Station Site Purposes.”
417
VOL. 510, DECEMBER 6, 2006 417
PICOP Resources, Inc. vs. Base Metals Mineral Resources
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resources and compensation for whatever damage done to the
property of the surface owner or concessionaire as a
consequence of mining operations. Multiple land use is best
demonstrated by the Memorandum of Agreement between
PICOP and Banahaw Mining.
First, the procedural question of whether PICOP is raising
new issues in the instant petition. It is the contention of the
OSG and Base Metals that PICOP’s argument that the area
covered by the MPSA is classified as permanent forest and
therefore closed to mining activities was raised for the first
time in PICOP’s motion for reconsideration with the Court of
Appeals.
Our own perusal of the records of this case reveals that this
is not entirely true.
In its Adverse Claim and/or Opposition dated November
19
19, 1997 filed with the MGB Panel of Arbitrators, PICOP
already raised the argument that the area applied for by Base
Metals is classified as a permanent forest determined to be
needed for forest purposes pursuant to par. 6, Sec. 3 of PD No.
705, as amended. PICOP then proceeded to claim that the area
should remain forest land if the purpose of the presidential fiat
were to be followed. It stated:
“Technically, the areas applied for by Base Metals are classified as
a permanent forest being land of the public domain determined to
be needed for forest purposes (Paragraph 6, Section 3 of Presidential
Decree No. 705, as amended) If these areas then are classified and
determined to be needed for forest purpose then they should be
developed and should remain as forest lands. Identifying,
delineating and declaring them for other use or uses defeats the
purpose of the aforecited presidential fiats. Again, if these areas
would be delineated from Oppositor’s forest concession, the forest
therein would be destroyed and be lost beyond recovery.” 20
_______________
19MGB Records I, pp. 1-11.
Id., at p. 4.
20
418
418 SUPREME COURT REPORTS ANNOTATED
PICOP Resources, Inc. vs. Base Metals Mineral Resources
Corporation
Base Metals met this argument head on in its Answer dated 21
December 1, 1997, in which it contended that PD No. 705 does
not exclude mining operations in forest lands but merely
requires that there be proper notice to the licensees of the
area.
Again in its Petition dated January 25, 2003 assailing the
22
reinstatement of Base Metals’ MPSA, PICOP argued that RA
No. 7942 expressly prohibits mining operations in plantation
areas such as PICOP’s concession area. Hence, it posited that
the MGB Panel of Arbitrators did not commit grave abuse of
discretion when it ruled that without PICOP’s consent, the
area is closed to mining location.
It is true though that PICOP expounded on the applicability
of RA No. 3092, RA No. 7586, and RA No. 7942 for the first
time in its motion for reconsideration of the appellate court’s
Decision. It was only in its motion for reconsideration that
PICOP argued that the area covered by PTLA No. 47 and
IFMA No. 35 are permanent forest lands covered by RA No.
7586 which cannot be entered for mining purposes, and shall
remain indefinitely as such for forest uses and cannot be
excluded or diverted for other uses except after reclassification
through a law enacted by Congress.
Even so, we hold that that the so-called new issues raised
by PICOP are well within the issues framed by the parties in
the proceedings a quo. Thus, they are not, strictly speaking,
being raised for the first time on appeal. Besides, Base Metals
23
and the OSG have been given ample opportunity, by way of
the pleadings filed with this Court, to respond to PICOP’s
arguments. It is in the best interest of justice that we settle
the crucial question of whether the concession area in dispute
is open to mining activities.
_______________
21 Id., at pp. 60-67.
22 CA Records, pp. 10-52.
23 Lim v. Queensland Tokyo Commodities, Inc., G.R. No. 136031, January 4,
2002, 424 Phil. 35; 373 SCRA 31.
419
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We should state at this juncture that the policy of multiple
land use is enshrined in our laws towards the end that the
country’s natural resources may be rationally explored,
developed, utilized and conserved. The Whereas clauses and
declaration of policies of PD No. 705 state:
“WHEREAS, proper classification, management and utilization of
the lands of the public domain to maximize their productivity to
meet the demands of our increasing population is urgently needed;
WHEREAS, to achieve the above purpose, it is necessary to
reassess the multiple uses of forest lands and resources before
allowing any utilization thereof to optimize the benefits that can be
derived therefrom;
…
Sec. 2. Policies.—The State hereby adopts the following policies:
a) The multiple uses of forest lands shall be oriented to the development
and progress requirements of the country, the advancement of science and
technology, and the public welfare;”
In like manner, RA No. 7942, recognizing the equiponderance
between mining and timber rights, gives a mining contractor
the right to enter a timber concession and cut timber therein
provided that the surface owner or concessionaire shall be
properly compensated for any damage done to the property as
a consequence of mining operations. The pertinent provisions
on auxiliary mining rights state:
“Sec. 72. Timber Rights.—Any provision of law to the contrary
notwithstanding, a contractor may be granted a right to cut trees or
timber within his mining areas as may be necessary for his mining
operations subject to forestry laws, rules and regulations: Provided,
That if the land covered by the mining area is already covered by
existing timber concessions, the volume of timber needed and the
manner of cutting and removal thereof shall be determined by the
mines regional director, upon consultation with the contractor, the
timber concessionair/permittee and the Forest Management Bureau
of the Department: Provided, further, That in case of dis
420
420 SUPREME COURT REPORTS ANNOTATED
PICOP Resources, Inc. vs. Base Metals Mineral Resources
Corporation
agreement between the contractor and the timber concessionaire,
the matter shall be submitted to the Secretary whose decision shall
be final. The contractor shall perform reforestation work within his
mining area in accordance with forestry laws, rules and regulations.
 xxxx
Sec. 76. 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: Provided, That any damage done 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: Provided, further, That to guarantee such
compensation, the person authorized to conduct mining operation
shall, prior thereto, post a bond with the regional director based on
the type of properties, the prevailing prices in and around the area
where the mining operations are to be conducted, with surety or
sureties satisfactory to the regional director.”
With the foregoing predicates, we shall now proceed to analyze
PICOP’s averments.
PICOP contends that its concession area is within the
Agusan-Surigao-Davao Forest Reserve established under
Proclamation No. 369 and is closed to mining application
citing several paragraphs of Sec. 19 of RA No. 7942.
The cited provision states:
“Sec. 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;
xxxx
(d) In areas expressly prohibited by law;
xxxx
(f) Old growth or virgin forests, proclaimed watershed forest
reserves, wilderness areas, mangrove forests, mossy for
421
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ests, national parks, provincial/municipal forests, parks, greenbelts,
game refuge and bird sanctuaries as defined by law in areas
expressly prohibited under the National Ingrated Protected Areas
System (NIPAS) under Republic Act No. 7586, Department
Administrative Order No. 25, series of 1992 and other laws.”
[Emphasis supplied]
We analyzed each of the categories under which PICOP claims
that its concession area is closed to mining activities and
conclude that PICOP’s contention must fail.
Firstly, assuming that the area covered by Base Metals’
MPSA is a government reservation, defined as proclaimed
reserved lands for specific purposes other than mineral
reservations, such does not necessarily preclude mining
24
activities in the area. Sec. 15(b) of DENR Administrative
Order (DAO) 96-40 provides that government reservations
may be opened for mining applications upon prior written
clearance by the government agency having jurisdiction over
such reservation.
Sec. 6 of RA No. 7942 also provides that mining operations
in reserved lands other than mineral reservations may be
undertaken by the DENR, subject to certain limitations. It
provides:
“Sec. 6. Other Reservations.—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. The right to develop and
utilize the minerals found 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 party who
undertook the exploration of said reservations shall be given
priority. The mineral land so awarded shall be automatically
excluded from the reservation during the term of the
agreement: Provided, further, That the right of the lessee of a valid
mining contract existing within
_______________
24 Department of Environment and Natural Resources Administrative
Order No. 96-40 (1997), Chapter I, Sec. 5.
422
422 SUPREME COURT REPORTS ANNOTATED
PICOP Resources, Inc. vs. Base Metals Mineral Resources
Corporation
the reservation at the time of its establishment shall not be
prejudiced or impaired.”
Secondly, RA No. 7942 does not disallow mining applications
in all forest reserves but only those proclaimed as watershed
forest reserves. There is no evidence in this case that the area
covered by Base Metals’ MPSA has been proclaimed as
watershed forest reserves.
Even granting that the area covered by the MPSA is part of
the Agusan-Davao-Surigao Forest Reserve, such does not
necessarily signify that the area is absolutely closed to mining
activities. Contrary to PICOP’s obvious misreading of our
decision in Apex Mining Co., Inc. v. Garcia, supra, to the effect
that mineral agreements are not allowed in the forest reserve
established under Proclamation 369, the Court in that case
actually ruled that pursuant to PD No. 463 as amended by PD
No. 1385, one can acquire mining rights within forest reserves,
such as the Agusan-Davao-Surigao Forest Reserve, by initially
applying for a permit to prospect with the Bureau of Forest
and Development and subsequently for a permit to explore
with the Bureau of Mines and Geosciences.
Moreover, Sec. 18 RA No. 7942 allows mining even in
timberland or forestry subject to existing rights and
reservations. It provides:
“Sec. 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.”
423
VOL. 510, DECEMBER 6, 2006 423
PICOP Resources, Inc. vs. Base Metals Mineral Resources
Corporation
Similarly, Sec. 47 of PD No. 705 permits mining operations in
forest lands which include the public forest, the permanent
forest or forest reserves, and forest reservations. It states:
25
“Sec. 47. Mining Operations.—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. No location, prospecting, exploration,
utilization, or exploitation of mineral resources inside forest
concessions shall be allowed unless proper notice has been served
upon the licensees thereof and the prior approval of the Director,
secured.
…”
Significantly, the above-quoted provision does not require that
the consent of existing licensees be obtained but that they be
notified before mining activities may be commenced inside
forest concessions.
DENR Memorandum Order No. 03-98, which provides the
guidelines in the issuance of area status and clearance or
consent for mining applications pursuant to RA No. 7942,
provides that timber or forest lands, military and other
government reservations, forest reservations, forest reserves
other than critical watershed forest reserves, and existing
DENR Project Areas within timber or forest lands, reserva-
_______________
25 Presidential Decree No. 705 (1975) SECTION 3(a). Public forest is the
mass of lands of the public domain which has not been the subject of the
present system of classification for the determination of which lands are
needed for forest purposes and which are not
(b) Permanent forest or forest reserves refer to those lands of the public
domain which has been the subject of the present system of classification and
determined to be needed for forest purposes
xxx
(g) Forest reservations refer to forest lands which have been reserved by
the President of the Philippines for any purpose or purposes.
424
424 SUPREME COURT REPORTS ANNOTATED
 PICOP Resources, Inc. vs. Base Metals Mineral Resources
Corporation
tions and reserves, among others, are open to mining
applications subject to area status and clearance.
To this end, area status clearances or land status
certifications have been issued to Base Metals relative to its
mining right application, to wit:
1. I.MPSA No. 010
1. 1.Portion colored green is the area covered by the
aforestated Timberland Project No. 31-E, Block A and
Project No. 59-C, Block A, L.C. Map No. 2466 certified
as such on June 30, 1961; and
2. 2.Shaded brown represent CADC claim. 26
1. II.MPSA No. 011
1. 1.The area applied covers the Timberland, portion of
Project No. 31-E, Block-E, L.C. Map No. 2468 and
Project No. 36-A Block II, Alienable and Disposable
Land, L.C. Map No. 1822, certified as such on June 30,
1961 and January 1, 1955, respectively;
2. 2.The green shade is the remaining portion of Timber
Land Project;
3. 3.The portion colored brown is an applied and CADC
areas;
4. 4.Red shade denotes alienable and disposable land. 27
1. III.MPSA No. 012
Respectfully returned herewith is the folder of Base Metals Mineral
Resources Corporation, applied under Mineral Production Sharing
Agreement (MPSA (XIII) 012), referred to this office per
memorandum dated August 5, 1997 for Land status certification
and the findings based on available references file this office, the
site is within the unclassified Public Forest of the LGU, Rosario,
Agusan del Sur. The shaded portion is the wilderness area of PICOP
Resources Incorporated (PRI), Timber License Agreement. 28
_______________
26 MGB Records I, p. 22.
27 Id., at p. 21.
28Id., at p. 20.
425
VOL. 510, DECEMBER 6, 2006 425
PICOP Resources, Inc. vs. Base Metals Mineral Resources
Corporation
1. IV.MPSA No. 013
1. 1.The area status shaded green falls within Timber
Land, portion of Project No. 31-E, Block-A, Project No.
59-C, Block-A, L.C. Map No. 2468 certified as such on
June 30, 1961;
2. 2.Colored brown denotes a portion claimed as CADC
areas;
3. 3.Violet shade represent a part of reforestation project
of PRI concession; and
4. 4.The yellow color is identical to unclassified Public
Forest of said LGU and the area inclosed in Red is the
wilderness area of PICOP Resources, Inc. (PRI),
Timber License Agreement. 29
Thirdly, PICOP failed to present any evidence that the area
covered by the MPSA is a protected wilderness area
designated as an initial component of the NIPAS pursuant to
a law, presidential decree, presidential proclamation or
executive order as required by RA 7586.
Sec. 5(a) of RA 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.” [Emphasis supplied.]
_______________
Id., at p. 19.
29
426
426 SUPREME COURT REPORTS ANNOTATED
PICOP Resources, Inc. vs. Base Metals Mineral Resources
Corporation
Although the above-cited area status and clearances,
particularly those pertaining to MPSA Nos. 012 and 013, state
that portions thereof are within the wilderness area of PICOP,
there is no showing that this supposed wilderness area has
been proclaimed, designated or set aside as such, pursuant to
a law, presidential decree, presidential proclamation or
executive order. It should be emphasized that it is only when
this area has been so designated that Sec. 20 of RA No. 7586,
which prohibits mineral locating within protected areas,
becomes operational.
From the foregoing, there is clearly no merit to PICOP’s
contention that the area covered by Base Metals’ MPSA is, by
law, closed to mining activities.
Finally, we do not subscribe to PICOP’s argument that the
Presidential Warranty dated September 25, 1968 is a contract
protected by the non-impairment clause of the 1987
Constitution.
An examination of the Presidential Warranty at once
reveals that it simply reassures PICOP of the government’s
commitment to uphold the terms and conditions of its timber
license and guarantees PICOP’s peaceful and adequate
possession and enjoyment of the areas which are the basic
sources of raw materials for its wood processing complex. The
warranty covers only the right to cut, collect, and remove
timber in its concession area, and does not extend to the
utilization of other resources, such as mineral resources,
occurring within the concession.
The Presidential Warranty cannot be considered a contract
distinct from PTLA No. 47 and IFMA No. 35. We agree with
the OSG’s position that it is merely a collateral undertaking
which cannot amplify PICOP’s rights under its timber license.
Our definitive ruling in Oposa v. Factoran that a timber
30
license is not a contract within the purview of the
nonimpairment clause is edifying. We declared:
_______________
G.R. No. 101083, July 30, 1993, 224 SCRA 792.
30
427
VOL. 510, DECEMBER 6, 2006 427
PICOP Resources, Inc. vs. Base Metals Mineral Resources
Corporation
“Needless to say, all licenses may thus be revoked or rescinded by
executive action. It is not a contract, property or a property right
protected by the due process clause of the Constitution. In Tan vs.
Director of Forestry, this Court held:
“x x x A timber license is an instrument by which the State
regulates the utilization and disposition of forest resources to the
end that public welfare is promoted. A timber license is not a
contract within the purview of the due process clause; it is
only a license or a privilege, which can be validly withdrawn
whenever dictated by public interest or public welfare as in
this case.
‘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 a property or a property right, nor does it
create a vested right; nor is it taxation’ (C.J. 168). Thus, this Court
held that the granting of license does not create irrevocable rights,
neither is it property or property rights (People vs. Ong Tin, 54 O.G. IN VIEW OF THE FOREGOING, the instant petition is
7576). x x x” DENIED. The Decision of the Court of Appeals November 28,
We reiterated this pronouncement in Felipe Ysmael, Jr. & Co., 2003 is AFFIRMED. No pronouncement as to costs.
Inc. vs. Deputy Executive Secretary: SO ORDERED.
“x x x Timber licenses, permits and license agreements are the Quisumbing (Chairperson), Carpio, Carpio-
principal instruments by which the State regulates the utilization Morales and Velasco, Jr., JJ., concur.
and disposition of forest resources to the end that public welfare is
Petition denied, judgment affirmed.
promoted. And it can hardly be gainsaid that they merely
Notes.—Before the Treaty of Paris on April 11, 1989, our
evidence a privilege granted by the State to qualified
entities, and do not vest in the latter a permanent or lands, whether agricultural, mineral or forest were under the
irrevocable right to the particular concession area and the exclusive patrimony and dominion of the Spanish Crown,
forest products therein. They may be validly amended, hence, private ownership of land could only be acquired
modified, replaced or rescinded by the Chief Executive through royal concessions. (Palomo vs. Court of Appeals, 266
when national interests so require.Thus, they are not deemed SCRA 392 [1997])
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,
Id., at pp. 811-812.
31
1983, 125 SCRA 302].”
429
Since timber licenses are not contracts, the VOL. 510, DECEMBER 6, 2006 429
nonimpairment clause, which reads:
428
Wa-acon vs. People
428 SUPREME COURT REPORTS ANNOTATED The trend has been to make the adjudication of mining cases
PICOP Resources, Inc. vs. Base Metals Mineral Resources a purely administrative matter. (Gonzales vs. Climax Mining
Corporation Ltd., 452 SCRA 607 [2005])
“Sec. 10. No law impairing the obligation of contracts shall be passed.”
cannot be invoked.” [emphasis supplied]
31
——o0o——
The Presidential Warranty cannot, in any manner, be © Copyright 2019 Central Book Supply, Inc. All rights reserved.
construed as a contractual undertaking assuring PICOP of
exclusive possession and enjoyment of its concession areas.
Such an interpretation would result in the complete
abdication by the State in favor of PICOP of the sovereign
power to control and supervise the exploration, development
and utilization of the natural resources in the area.
In closing, we should lay emphasis on the fact that the
reinstatement of Base Metals’ MPSA does not automatically
result in its approval. Base Metals still has to comply with the
requirements outlined in DAO 96-40, including the
publication/posting/radio announcement of its mineral
agreement application.
 VOL. 380, APRIL 3, 2002 145
Southeast Mindanao Gold Mining Corporation vs. Balite
Portal Mining Cooperative
G.R. No. 135190. April 3, 2002. *
SOUTHEAST MINDANAO GOLD MINING
CORPORATION, petitioner, vs. BALITE PORTAL MINING
COOPERATIVE and others similarly situated; and THE
HONORABLE ANTONIO CERILLES, in his capacity as
Secretary of the Department of Environment and Natural
Resources (DENR), PROVINCIAL MINING REGULATORY
BOARD OF DAVAO (PMRB-Davao), respondents.
Natural Resources; Mineral
Resources; Mines; Actions; Certiorari;Where the petitioner can show
no more than a mere apprehension that the State, through the
DENR, would directly take over the mines in dispute after the studies
point to its viability, a special civil action for certiorari, prohibition
and mandamus is premature, for until the DENR actually does so
and petitioner’s fears turn into reality, no valid objection can be
entertained against a Memorandum Order directing the conduct of
studies on various options available to the government for solving
conflicting mining claims.—We agree with the Court of Appeals’
ruling that the challenged MO 97-03 did not conclusively adopt
“direct state utilization” as a policy in resolving the Diwalwal
dispute. The terms of the memorandum clearly indicate that what
was directed thereunder was merely a study of this option and
nothing else. Contrary to petitioner’s contention, it did not grant any
management/operating or profit-sharing agreement to small-scale
miners or to any party, for that matter, but simply instructed the
DENR officials concerned to undertake studies to determine its
feasibility. x x x Consequently, the petition was premature. The said
memorandum order did not impose any obligation on the claimants
or fix any legal relation whatsoever between and among the parties
to the dispute. At this stage, petitioner can show no more than a
mere apprehension that the State, through the DENR, would
directly take over the mines after studies point to its viability. But
until the DENR actually does so and petitioner’s fears turn into
reality, no valid objection can be entertained against MO 97-03 on
grounds which are purely speculative and anticipatory.
Same; Same; Same; Contract Clause; The exploration,
development and utilization of the country’s 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
______________
FIRST DIVISION.
*
146
146 SUPREME COURT REPORTS
ANNOTATED
Southeast Mindanao Gold Mining Corporation vs. Balite
Portal Mining Cooperative
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.—Incidentally,
it must likewise be pointed out that under no circumstances may
petitioner’s 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. This is necessarily so since the
exploration, development and utilization of the country’s 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.
Same; Same; Same; Obviously, the State may not be precluded
from considering a direct takeover of the mines, if it is the only
plausible remedy in sight of the gnawing complexities generated by
the gold rush.—Thus, the State may pursue the constitutional policy
of full control and supervision of the exploration, development and
utilization of the country’s natural mineral resources, by either
directly undertaking the same or by entering into agreements with
qualified entities. The DENR Secretary acted within his authority
when he ordered a study of the first option, which may be
undertaken consistently in accordance with the constitutional policy
enunciated above. Obviously, the State may not be precluded from
considering a direct takeover of the mines, if it is the only plausible
remedy in sight to the gnawing complexities generated by the gold
rush. As implied earlier, the State need be guided only by the
demands of public interest in settling for this option, as well as its
material and logistic feasibility.
Same; Same; Same; Presumption of Regularity; In the absence
of any concrete evidence that the DENR Secretary violated the law or
abused his discretion, he is presumed to have regularly issued a
department memorandum with a lawful intent and pursuant to his
official functions.—In this regard, petitioner’s imputation of bad
faith on the part of the DENR Secretary when the latter issued MO
97-03 is not well-taken. The avowed rationale of the memorandum
order is clearly and plainly stated in its “whereas” clauses. In the
absence of any concrete evidence that the DENR Secretary violated
the law or abused his discretion, as in this case, he is presumed to
have regularly issued the memorandum with a lawful intent and
pursuant to his official functions.
147
VOL. 380, APRIL 3, 2002 147
Southeast Mindanao Gold Mining Corporation vs. Balite
Portal Mining Cooperative
PETITION for review on certiorari of a decision of the Court
of Appeals.
The facts are stated in the opinion of the Court.
Quasha, Ancheta, Peña and Nolasco for petitioner.
Rapista and Lu Law Offices for respondent BCPMC.
Jesus T. Albacite for respondent PMRB.
YNARES-SANTIAGO, J.:
This is a petition for review of the March 19, 1998 decision of
the Court of Appeals in CA-G.R. SP No. 44693, dismissing the
special civil action for certiorari,
prohibition and mandamus, and the resolution dated August
19, 1998 denying petitioner’s motion for reconsideration.
The instant case involves a rich tract of mineral land
situated in the Agusan-Davao-Surigao Forest Reserve known
as the “Diwalwal Gold Rush Area.” Located at Mt. Diwata in
the municipalities of Monkayo and Cateel in Davao Del Norte,
the land has been embroiled in controversy since the mid-80’s
due to the scramble over gold deposits found within its bowels.
From 1985 to 1991, thousands of people flocked to Diwalwal
to stake their respective claims. Peace and order deteriorated
rapidly, with hundreds of people perishing in mine accidents,
man-made or otherwise, brought about by unregulated mining
activities. The multifarious problems spawned by the gold
rush assumed gargantuan proportions, such that finding a
“win-win” solution became a veritable needle in a haystack.
On March 10, 1988, Marcopper Mining Corporation
(Marcopper) was granted Exploration Permit No. 133 (EP No.
133) over 4,491 hectares of land, which included the hotly-
contested Diwalwal area. Marcopper’s acquisition of mining
1
rights over Diwalwal under its EP No. 133 was subsequently
challenged before this Court in “Apex Mining Co., Inc., et al. v.
Hon. Cancio C. Garcia, et al.,” 2
______________
1Rollo, pp. 131-132.
2G.R. No. 92605, 199 SCRA 278 (1991).
148
148 SUPREME COURT REPORTS ANNOTATED
Southeast Mindanao Gold Mining Corporation vs. Balite
Portal Mining Cooperative
where Marcopper’s claim was sustained over that of another
mining firm, Apex Mining Corporation (Apex). The Court
found that Apex did not comply with the procedural requisites
for acquiring mining rights within forest reserves.
Not long thereafter, Congress enacted on June 27, 1991
Republic Act No. 7076, or the People’s Small-Scale Mining Act.
The law established a People’s Small-Scale Mining Program to
be implemented by the Secretary of the DENR and created
3 In due time, the Mines and Geosciences Bureau Regional
the Provincial Mining Regulatory Board (PMRB) under the Office No. XI in Davao City (MGB-XI) accepted and registered
DENR Secretary’s direct supervision and control. The statute
4 the integrated MPSA application of petitioner. After
also authorized the PMRB to declare and set aside small-scale publication of the application, the following filed their
mining areas subject to review by the DENR Secretary and 5 oppositions:
award mining contracts to small-scale miners under certain
conditions. 6 1. a)MAC Case No. 004(XI)—JB Management Mining
On December 21, 1991, DENR Secretary Fulgencio S. Corporation;
Factoran issued Department Administrative Order (DAO) No. 2. b)MAC Case No. 005(XI)—Davao United Miners
66, declaring 729 hectares of the Diwalwal area as non-forest Cooperative;
land open to small-scale mining. The issuance was made
7 3. c)MAC Case No. 006(XI)—Balite Integrated Small
pursuant to the powers vested in the DENR Secretary by Scale Miner’s Cooperative;
Proclamation No. 369, which established the Agusan-Davao- 4. d)MAC Case No. 007(XI)—Monkayo Integrated Small
Surigao Forest Reserve. Scale Miner’s Association, Inc.;
Subsequently, a petition for the cancellation of EP No. 133 5. e)MAC Case No. 008(XI)—Paper Industries
and the admission of a Mineral Production Sharing Corporation of the Philippines;
Arrangement (MPSA) proposal over Diwalwal was filed before 6. f)MAC Case No. 009(XI)—Rosendo Villaflor, et al.;
the DENR Regional Executive Director, docketed as RED 7. g)MAC Case No. 010(XI)—Antonio Dacudao;
Mines Case No. 8-8-94 entitled, “Rosendo Villaflor, et al. v. 8. h)MAC Case No. 011(XI)—Atty. Jose T. Amacio;
Marcopper Mining Corporation.” 9. i)MAC Case No. 012(XI)—Puting-Bato Gold Miners
On February 16, 1994, while the RED Mines case was Cooperative;
pending, Marcopper assigned its EP No. 133 to petitioner 10. j)MAC Case No. 016(X1)—Balite Communal Portal
Southeast Mindanao Gold Mining Corporation (SEM), which 8 Mining Cooperative; and
in turn applied for an integrated MPSA over the land covered 11. k)MAC Case No. 97-01 (XI)—Romeo Altamera, et al.
by the permit.
In the meantime, on March 3, 1995, Republic Act No. 7942,
______________ the Philippine Mining Act, was enacted. Pursuant to this
3 R.A. No. 7076, Section 4.
statute, the above-enumerated MAC cases were referred to a
4 Ibid., at Section 24. Regional Panel of Arbitrators (RPA) tasked to resolve disputes
5 Id., at Section 5.
involving conflicting mining rights. The RPA subsequently
6 Id., at Section 9.

7 CA Rollo, p. 187.
took cognizance of the RED Mines case, which was
8 Rollo, p. 128.
consolidated with the MAC cases.
149 On April 1, 1997, Provincial Mining Regulatory Board of
VOL. 380, APRIL 3, 2002 149 Davao passed Resolution No. 26, Series of 1997, authorizing
Southeast Mindanao Gold Mining Corporation vs. Balite the issuance of ore transport permits (OTPs) to small-scale
Portal Mining Cooperative miners operating in the Diwalwal mines.
 Thus, on May 30, 1997, petitioner filed a complaint for
damages before the Regional Trial Court of Makati City,
Branch 61, against the DENR Secretary and PMRB-Davao.
SEM alleged that the illegal issuance of the OTPs allowed the
extraction and hauling of P60,000.00 worth of gold ore per
truckload from SEM’s mining claim.
150
150 SUPREME COURT REPORTS ANNOTATED
Southeast Mindanao Gold Mining Corporation vs. Balite
Portal Mining Cooperative
Meanwhile, on June 13, 1997, the RPA resolved the
Consolidated Mines cases and decreed in an Omnibus
Resolution as follows:
VIEWED IN THE LIGHT OF THE FOREGOING, the validity of
Exploration Permit No. 133 is hereby reiterated and all the adverse
claims against MPSAA No. 128 are DISMISSED. 9 Southeast Mindanao Gold Mining Corporation vs. Balite
On June 24, 1997, the DENR Secretary issued Memorandum
Order No. 97-03 which provided, among others, that:
10
1. The DENR shall study thoroughly and exhaustively the option of
direct state utilization of the mineral resources in the Diwalwal
Gold-Rush Area. Such study shall include, but shall not be limited
to, studying and weighing the feasibility of entering into
management agreements or operating agreements, or both, with the
appropriate government instrumentalities or private entities, or
both, in carrying out the declared policy of rationalizing the mining
operations in the Diwalwal Gold Rush Area; such agreements shall
include provisions for profit-sharing between the state and the said
parties, including profit-sharing arrangements with small-scale
miners, as well as the payment of royalties to indigenous cultural
communities, among others. The Undersecretary for Field
Operations, as well as the Undersecretary for Legal and Legislative
Affairs and Attached Agencies, and the Director of the Mines and
Geo-sciences Bureau are hereby ordered to undertake such studies.
x x x.
11
On July 16, 1997, petitioner filed a special civil action
for certiorari, prohibition and mandamus before the Court of
Appeals against PMRB-Davao, the DENR Secretary and
Balite Communal Portal Mining Cooperative (BCPMC), which
represented all the OTP grantees. It prayed for the
nullification of the above-quoted Memorandum Order No. 97-
03 on the ground that the “direct state utilization” espoused
therein would effectively impair its vested rights under EP No.
133; that the DENR Secretary unduly usurped and interfered
with the jurisdiction of the RPA which had dismissed all
adverse claims against SEM in the Consolidated Mines cases;
and that the memorandum order arbitrarily imposed the
______________
9 Ibid., p. 174.
10 Id., pp. 177-179.
11 Id., p. 178.
151
VOL. 380, APRIL 3, 2002 151
Portal Mining Cooperative
unwarranted condition that certain studies be conducted
before mining and environmental laws are enforced by the
DENR.
Meanwhile, on January 6, 1998, the MAB rendered a
decision in the Consolidated Mines cases, setting aside the
judgment of the RPA. This MAB decision was then elevated
12
to this Court by way of a consolidated petition, docketed
as G.R. Nos. 132475 and 132528.
On March 19, 1998, the Court of Appeals, through a
division of five members voting 3-2, dismissed the petition in
13
CA-G.R. SP No. 44693. It ruled that the DENR Secretary did
not abuse his discretion in issuing Memorandum Order No.
97-03 since the same was merely a directive to conduct studies
on the various options available to the government for solving
the Diwalwal conflict. The assailed memorandum did not
conclusively adopt “direct state utilization” as official
government policy on the matter, but was simply a
manifestation of the DENR’s intent to consider it as one of its
options, after determining its feasibility through studies. MO
97-03 was only the initial step in the ladder of administrative
process and did not, as yet, fix any obligation, legal
relationship or right. It was thus premature for petitioner to
claim that its “constitutionally-protected rights” under EP No.
133 have been encroached upon, much less, violated by its
issuance.
Additionally, the appellate court pointed out that
petitioner’s rights under EP No. 133 are not inviolable,
sacrosanct or immutable. Being in the nature of a privilege
granted by the State, the permit can be revoked, amended or
modified by the Chief Executive when the national interest so
requires. The Court of Appeals, however, declined to rule on
the validity of the OTPs, reasoning that said issue was within
the exclusive jurisdiction of the RPA.
Petitioner filed a motion for reconsideration of the above
decision, which was denied for lack of merit on August 19,
1998. 14
______________
12 Id., pp. 232-257.
13 Mr. Justice Romeo J. Callejo, Sr., ponente; Messrs. Justices Quirino D.
Abad-Santos, Jr. and Eduardo G. Montenegro, concurring; Mr. Justice Omar
U. Amin and Mme. Justice Angelina Sandoval-Gutierrez, dissenting.
14 Rollo, p. 122.
152
152 SUPREME COURT REPORTS ANNOTATED
Southeast Mindanao Gold Mining Corporation vs. Balite
Portal Mining Cooperative
Hence this petition, raising the following errors:
1. I.THE COURT OF APPEALS COMMITTED GRAVE
AND REVERSIBLE ERROR, AND HAS DECIDED A
QUESTION OF SUBSTANCE NOT THERETOFORE
DETERMINED BY THIS HONORABLE SUPREME
COURT, OR HAS DECIDED IT IN A WAY
PROBABLY NOT IN ACCORD WITH LAW OR WITH
APPLICABLE DECISIONS OF THIS HONORABLE
COURT IN UPHOLDING THE QUESTIONED ACTS
OF RESPONDENT DENR SECRETARY WHICH
ARE IN VIOLATION OF MINING LAWS AND IN
DEROGATION OF PETITIONER’S VESTED
RIGHTS OVER THE AREA COVERED BY ITS EP
NO. 133;
2. II.THE COURT OF APPEALS COMMITTED GRAVE
AND REVERSIBLE ERROR IN HOLDING THAT AN
ACTION ON THE VALIDITY OF ORE TRANSPORT
PERMIT (OTP) IS VESTED IN THE REGIONAL
PANEL OF ARBITRATORS. 15
In a resolution dated September 11, 2000, the appealed
Consolidated Mines cases, docketed as G.R. Nos. 132475 and
132528, were referred to the Court of Appeals for proper
disposition pursuant to Rule 43 of the 1997 Rules of Civil
Procedure. These cases, which were docketed as CA-G.R. SP
16
Nos. 61215 and 61216, are still pending before the Court of
Appeals.
In the first assigned error, petitioner insists that the Court
of Appeals erred when it concluded that the assailed
memorandum order did not adopt the “direct state utilization
scheme” in resolving the Diwalwal dispute. On the contrary,
petitioner submits, said memorandum order dictated the said
recourse and, in effect, granted management or operating
agreements as well as provided for profit sharing
arrangements to illegal small-scale miners.
According to petitioner, MO 97-03 was issued to preempt
the resolution of the Consolidated Mines cases. The “direct
state utilization scheme” espoused in the challenged
memorandum is nothing but a legal shortcut, designed to
divest petitioner of its vested right to the gold rush area under
its EP No. 133.
We are not persuaded.
______________
15Id., pp. 27-28.
Per Resolution of the Second Division of the Supreme Court dated
16
September 11, 2000.
 153
VOL. 380, APRIL 3, 2002 153
Southeast Mindanao Gold Mining Corporation vs. Balite
Portal Mining Cooperative
We agree with the Court of Appeals’ ruling that the challenged
MO 97-03 did not conclusively adopt “direct state utilization”
as a policy in resolving the Diwalwal dispute. The terms of the
memorandum clearly indicate that what was directed
thereunder was merely a study of this option and nothing else.
Contrary to petitioner’s contention, it did not grant any
management/operating or profit-sharing agreement to small-
scale miners or to any party, for that matter, but simply
instructed the DENR officials concerned to undertake studies
to determine its feasibility. As the Court of Appeals
extensively discussed in its decision:
x x x under the Memorandum Order, the State still had to study
prudently and exhaustively the various options available to it in
rationalizing the explosive and ever perilous situation in the area,
the debilitating adverse effects of mining in the community and at
the same time, preserve and enhance the safety of the mining
operations and ensure revenues due to the government from the
development of the mineral resources and the exploitation thereof.
The government was still in earnest search of better options that
would be fair and just to all parties concerned, including, notably,
the Petitioner. The direct state utilization of the mineral resources
in the area was only one of the options of the State. Indeed, it is too
plain to see, x x x that before the State will settle on an option, x x
x an extensive and intensive study of all the facets of a direct state
exploitation was directed by the Public Respondent DENR
Secretary. And even if direct state exploitation was opted by the
government, the DENR still had to promulgate rules and
regulations to implement the same x x x, in coordination with the
other concerned agencies of the government. 17
Consequently, the petition was premature. The said
memorandum order did not impose any obligation on the
claimants or fix any legal relation whatsoever between and
among the parties to the dispute. At this stage, petitioner can
show no more than a mere apprehension that the State,
through the DENR, would directly take over the mines after
studies point to its viability. But until the DENR actually does
so and petitioner’s fears turn into reality, no
______________
Rollo, pp. 85-86.
17
154
154 SUPREME COURT REPORTS ANNOTATED
Southeast Mindanao Gold Mining Corporation vs. Balite
Portal Mining Cooperative
valid objection can be entertained against MO 97-03 on
grounds which are purely speculative and anticipatory. 18
With respect to the alleged “vested rights” claimed by
petitioner, it is well to note that the same is invariably based
on EP No. 133, whose validity is still being disputed in the
Consolidated Mines cases. A reading of the appealed MAB
decision reveals that the continued efficacy of EP No. 133 is
one of the issues raised in said cases, with respondents therein
asserting that Marcopper cannot legally assign the permit
which purportedly had expired. In other words, whether or not
petitioner actually has a vested right over Diwalwal under EP
No. 133 is still an indefinite and unsettled matter. And until a
positive pronouncement is made by the appellate court in the
Consolidated Mines cases, EP No. 133 cannot be deemed as a
source of any conclusive rights that can be impaired by the
issuance of MO 97-03.
Similarly, there is no merit in petitioner’s assertion that
MO 97-03 sanctions violation of mining laws by
allowing illegal miners to enter into mining agreements with
the State. Again, whether or not respondent BCMC and the
other mining entities it represents are conducting illegal
mining activities is a factual matter that has yet to be finally
determined in the Consolidated Mines cases. We cannot
rightfully conclude at this point that respondent BCMC and
the other mining firms are illegitimate mining operators.
Otherwise, we would be preempting the resolution of the cases
which are still pending before the Court of Appeals. 19
 Petitioner’s reliance on the Apex Mining case to justify its
rights under E.P. No. 133 is misplaced. For one, the said case
was litigated solely between Marcopper and Apex Mining
Corporation and
______________
18 See Mariano v. Commission on Elections, 242 SCRA 211, 221 (1995)
and Board of Optometry v. Colet, 260 SCRA 88, 104 (1996), citing Garcia v.
Executive Secretary, 204 SCRA 516 (1991).
19 See Sta. Rosa Mining Co., Inc. v. Leido, Jr., 156 SCRA 1 (1987). In this
analogous case, the Court refused to recognize the continuing validity of
petitioner’s mining claim, due to the pendency of an appeal to the Office of the
President from a decision of the Secretary of Natural Resources, upholding the
Director of Mines ruling that said mining claim was cancelled and abandoned
for failure to comply with legal requirements under applicable laws.
155
VOL. 380, APRIL 3, 2002 155
Southeast Mindanao Gold Mining Corporation vs. Balite
Portal Mining Cooperative
cannot thus be deemed binding and conclusive on respondent
BCMC and the other mining entities presently involved. While
petitioner may be regarded as Marcopper’s successor to EP No.
133 and therefore bound by the judgment rendered in the Apex
Miningcase, the same cannot be said of respondent BCMC and
the other oppositor mining firms, who were not impleaded as
parties therein.
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. Besides, as clarified in our decision
in the Apex Mining case:
x x x 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 appropriate agencies. 20
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 the other mining
groups.
Incidentally, it must likewise be pointed out that under no
circumstances may petitioner’s 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. This is necessarily so since the exploration,
development and utilization of the country’s natural mineral
resources are matters impressed with great
______________
Minutes of the Court En Banc, November 26, 1992.
20
156
156 SUPREME COURT REPORTS ANNOTATED
Southeast Mindanao Gold Mining Corporation vs. Balite
Portal Mining Cooperative
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 21
the State, under its all-encompassing police power, may alter,
modify or amend the same, in accordance with the demands of
the general welfare. 22
Additionally, there can be no valid opposition raised
against a mere study of an alternative which the State,
through the DENR, is authorized to undertake in the first
place. Worth noting is Article XII, Section 2, of the 1987
Constitution, which specifically provides:
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. (Italics ours)
Likewise, Section 4, Chapter II of the Philippine Mining Act of
1995 states:
______________
21 See Sta. Ines Melale Forest Products Corporation v. Macaraig, Jr., 299
SCRA 491, 514-515 (1998), citing Tan v. Director of Forestry, 125 SCRA 302,
325-326 (1983); Oposa v. Factoran, 224 SCRA 792, 811-812 (1993).
22 See Ysmael, Jr. & Co., Inc. v. Deputy Executive Secretary, 190 SCRA 673,
684 (1990), citing Tan v. Director of Forestry, supra; Miners Association of the
Philippines, Inc. v. Factoran, 240 SCRA 100, 118-120 (1995) and cases cited
therein.
157
VOL. 380, APRIL 3, 2002 157
Southeast Mindanao Gold Mining Corporation vs. Balite
Portal Mining Cooperative
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. (Italics ours)
Thus, the State may pursue the constitutional policy of full
control and supervision of the exploration, development and
utilization of the country’s natural mineral resources, by
either directly undertaking the same or by entering into
agreements with qualified entities. The DENR Secretary acted
within his authority when he ordered a study of the first
option, which may be undertaken consistently in accordance
with the constitutional policy enunciated above. Obviously,
the State may not be precluded from considering a direct
takeover of the mines, if it is the only plausible remedy in sight
to the gnawing complexities generated by the gold rush. As
implied earlier, the State need be guided only by the demands
of public interest in settling for this option, as well as its
material and logistic feasibility.
In this regard, petitioner’s imputation of bad faith on the
part of the DENR Secretary when the latter issued MO 97-03
is not well-taken. The avowed rationale of the memorandum
order is clearly and plainly stated in its “whereas” clauses. In 23
the absence of any
______________
23 WHEREAS, tens of thousands of miners, local entrepreneurs, and service
providers are earning their livelihood from the mining operations in the
Diwalwal Gold Rush Area in Mt. Diwata, Monkayo, Davao Del Norte;
WHEREAS, the advent of gold mining in the area contributed substantially
in arresting the insurgency problem in the province, and in improving the local
and regional economy;
WHEREAS, the adverse environmental, safety, health, and sanitation
conditions in the area resulting from the mining operations are major concerns
that need to be addressed immediately;
WHEREAS, tenurial and mining rights in the area have been characterized
by conflicting claims which have to be addressed in an atmosphere of peaceful
coexistence among the various stakeholders, and within the framework of the
law, so that a comprehensive development of the area can be carried out;
158
158 SUPREME COURT REPORTS ANNOTATED
Southeast Mindanao Gold Mining Corporation vs. Balite
Portal Mining Cooperative
concrete evidence that the DENR Secretary violated the law
or abused his discretion, as in this case, he is presumed to have
regularly issued the memorandum with a lawful intent and
pursuant to his official functions.
Given these considerations, petitioner’s first assigned error
is baseless and premised on tentative assumptions. Petitioner
cannot claim any absolute right to the Diwalwal mines
pending resolution of the Consolidated Mines cases, much less
ask us to assume, at this point, that respondent BCMC and
the other mining firms are illegal miners. These factual issues
are to be properly threshed out in CA G.R. SP Nos. 61215 and
61216, which have yet to be decided by the Court of Appeals.
Any objection raised against MO 97-03 is likewise premature
at this point, inasmuch as it merely ordered a study of an
option which the State is authorized by law to undertake.
We see no need to rule on the matter of the OTPs,
considering that the grounds invoked by petitioner for
invalidating the same are inextricably linked to the issues
raised in the Consolidated Mines cases.
______________
VOL. 380, APRIL 3, 2002 159
People vs. Conde
WHEREFORE, in view of the foregoing, the instant petition is
DENIED. The decision of the Court of Appeals in CA-G.R. SP
No. 44693 is AFFIRMED.
SO ORDERED.
Davide, Jr. (C.J., Chairman) and Kapunan, J., concur.
Puno, J., On official leave.
Petition denied, judgment affirmed.
Notes.—Not only are existing laws read into contracts in
order to fix obligations as between parties, but the reservation
of essential attributes of sovereign power is also read into
contracts as a basic postulate of the legal order. (Tolentino vs.
Secretary of Finance, 235 SCRA 630 [1994])
A later law which enlarges, abridges, or in any manner
changes the intent of the parties to the contract necessarily
impairs the contract itself and cannot be given retroactive
effect without violating the constitutional prohibition against
impairment of contracts. (Ortigas & Co., Ltd. vs. Court of
Appeals, 346 SCRA 748[2000])

WHEREAS, a rationalized gold-mining operation in the area offers the ——o0o——

opportunity of putting in place viable measures that would ensure the
sustained livelihood of the stakeholders therein, and would optimize the © Copyright 2019 Central Book Supply, Inc. All rights reserved.
benefits which may be derived from the irreplaceable mineral resources, in
accordance with the sustainable development strategy of the government;
WHEREAS, appropriate measures have to be set in place so that the
necessary sanctions and penalties can be imposed, and the appropriate
compensation schemes may be applied in cases involving environmental
degradation and also for the purpose of preventing its further occurrence;
WHEREAS, the government must take adequate measures within the
framework of the law to protect the livelihood of the people; minimize, if not
eliminate, the adverse effects of mining in the community; enhance safety in
mining operations, and ensure that revenues due the government from the
development of mineral resources are properly paid and collected;
WHEREAS, the government still has to study prudently and exhaustively
the various options available to it in rationalizing the Diwalwal Gold Rush
Area situation, as well as seek better options, if any, in coming out with a
rationalization plan that would be just and fair to all concerned parties in the
Diwalwal Gold Rush Area; x x x.
159
 409
G.R. No. 146622. April 24, 2009.* VOL. 586, APRIL 24, 2009 409
LEONORA P. CALANZA, EVA M. AMOREN, GENE P. Calanza vs. Paper Industries Corporation of the
ROÑO, SANNY C. CALANZA, GREGORIO C. YNCIERTO II Philippines
and ANGEL M. PUYO, petitioners, vs. PAPER INDUSTRIES reveal that the instant case was initiated by petitioners against
CORPORATION OF THE PHILIPPINES (PICOP), GOOD respondents predicated on the latter’s refusal to allow the former
EARTH MINERAL CORP. (GEMCOR), EVARISTO entry into the disputed mining areas. This is not a case where
NARVAEZ, JR., RICARDO G. SANTIAGO, ROBERTO A. the Sangguniang Panlalawigans of Davao Oriental and Surigao del
Sur jointly rendered a decision resolving the boundary dispute of the
DORMENDO and REYDANDE D. AZUCENA, respondents.
two provinces and the same decision was elevated to the RTC.
Local Government Units; Boundary Disputes; Jurisdiction;
Clearly, the RTC cannot exercise appellate jurisdiction over the case
Courts; The settlement of a boundary dispute involving
since there was no petition that was filed and decided by
municipalities or component cities of different provinces shall be
the Sangguniang Panlalawigans of Davao Oriental and Surigao del
jointly referred for settlement to the respective sanggunians or the
Sur. Neither can the RTC assume original jurisdiction over the
provincial boards of the different provinces involved, with the
boundary dispute since the Local Government Code allocates such
dissatisfied party being given an avenue to question the decision of
power to the Sangguniang Panlalawigans of Davao Oriental and
the sanggunian to the Regional Trial Court (RTC) having
Surigao del Sur. Since the RTC has no original jurisdiction on the
jurisdiction over the area.—Under paragraph (c) of Section 118, the
boundary dispute between Davao Oriental and Surigao del Sur, its
settlement of a boundary dispute involving municipalities or
decision is a total nullity. We have repeatedly ruled that a judgment
component cities of different provinces shall be jointly referred for
rendered by a court without jurisdiction is null and void and may be
settlement to the respective sanggunians or the provincial boards of
attacked anytime. It creates no rights and produces no effect. In fact
the different provinces involved. Section 119 of the Local
it remains a basic fact in law that the choice of the proper forum is
Government Code gives a dissatisfied party an avenue to question
crucial as the decision of a court or tribunal without jurisdiction is
the decision of the sanggunian to the RTC having jurisdiction over
a total nullity. A void judgment for want of jurisdiction is no
the area, viz.: Section 119. Appeal.—Within the time and manner
judgment at all. It cannot be the source of any right nor the creator
prescribed by the Rules of Court, any party may elevate the decision
of any obligation. All acts performed pursuant to it and all claims
of the sanggunian concerned to the proper Regional Trial Court
emanating from it have no legal effect.
having jurisdiction over the area in dispute x x x. Article 17, Rule III
Same; Mining Permits; Pursuant to Republic Act No. 7076,
of the Rules and Regulations Implementing The Local Government
which took effect on 18 July 1991, approval of the applications for
Code of 1991 outlines the procedures governing boundary disputes,
mining permits and for mining contracts are vested in the
which succinctly includes the filing of the proper petition, and in
Provincial/City Mining Regulatory Board; Since a governor is
case of failure to amicably settle, a formal trial will be conducted
without legal authority to issue mining permits, such permits are
and a decision will be rendered thereafter. An aggrieved party can
null and void.—Petitioners’ small-scale mining permits are legally
appeal the decision of the sanggunian to the appropriate RTC.
questionable. Under Presidential Decree No. 1899, applications of
Same; Same; Same; Same; Since the Regional Trial Court
small-scale miners are processed with the Director of the Mines and
(RTC) has no original jurisdiction on the boundary dispute between
Geo-Sciences Bureau. Pursuant to Republic Act No. 7076, which
two provinces, its decision is a total nullity.—The records of the case
took effect on 18 July 1991, approval of the applications for mining
_______________ permits and for mining contracts are vested in the Provincial/City
Mining Regulatory Board. Composed of the DENR representative, a
* THIRD DIVISION. representative from the small-scale mining sector, a representative
from the big-scale mining industry and a representative from an
environmental group, this body is tasked to approve small-scale
mining permits and contracts. In the case under consideration,
petitioners filed their small-scale mining permits on 23 August
1991,
410
410 SUPREME COURT REPORTS
ANNOTATED
Calanza vs. Paper Industries Corporation of the
Philippines
making them bound by the procedures provided for under the
applicable and prevailing statute, Republic Act No. 7076. Instead of
processing and obtaining their permits from the Provincial Mining
Regulatory Board, petitioners were able to get the same from the
governor of Davao del Norte. Considering that the governor is
without legal authority to issue said mining permits, the same
permits are null and void.
PETITION for review on certiorari of the decision and
resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Torreon, De Vera-Torreon Law Firm for petitioners.
Factoran, Tria & De Leon for respondents.
CHICO-NAZARIO, J.:
This Petition for Review under Rule 45 of the Rules of Court
seeks to reverse and set aside the 19 June 2000 Decision1 of
the Court of Appeals in CA-G.R. CV No. 45234 which annulled
the Decision of the Regional Trial Court (RTC) of Banganga,
Davao Oriental, Branch 7, granting the Complaint for
Injunction filed by petitioners.
On 23 August 1991, petitioners Leonora P. Calanza, Eva M.
Amoren, Gene P. Roño, Sanny C. Calanza, Gregorio C.
Yncierto II, and Angel M. Puyo filed with the Mines and Geo-
Sciences Development Service, Department of Environment
and Natural Resources (DENR), Region XI, of Davao City,
applications for small-scale mining permits for the purpose of
extracting gold. In their applications, petitioners stated that
the area where they would conduct mining operations was in
the Municipality of Boston, Davao Oriental.2
_______________
1 Penned by Associate Justice Martin S. Villarama, Jr. with Associate
Justices Salome A. Montoya and Romeo J. Callejo, Sr. (now a retired Supreme
Court Justice), concurring. Rollo, pp. 41-49.
2 CA Rollo, p. 72.
411
VOL. 586, APRIL 24, 2009 411
Calanza vs. Paper Industries Corporation of the Philippines
On 22 December 1992, the governor of Davao Oriental,
Rosalind Y. Lopez, approved the applications and issued six
small-scale mining permits in favor of the petitioners.3 Since
the mining areas applied for by petitioners were within the
respondent Paper Industries Corporation of the Philippines’
(PICOP) logging concession area under Timber License
Agreements (TLAs) that covered large tracts of forest lands of
the Provinces of Surigao del Sur, Agusan del Sur, Davao
Oriental and Davao del Norte, petitioners negotiated with
PICOP for their entry into the mining site at Barangay
Catihan, Municipality of Boston, Davao Oriental. PICOP,
through its officer Roberto A. Dormendo, refused petitioners’
entry into the mining area on the grounds that it has the
exclusive right of occupation, possession and control over the
area being a logging concessionaire thereof; that petitioners’
mining permits are defective since they were issued by the
governor of Davao Oriental when in fact the mining area is
situated in Barangay Pagtilaan, Municipality of Lingig,
Surigao del Sur; and that mining permits cannot be issued
over areas covered by forest rights such as TLAs or forest
reservations unless their status as such is withdrawn by
competent authority.
On 7 May 1993, petitioners filed a Complaint for Injunction
with Prayer for the Issuance of a Restraining Order, Damages
and Attorney’s Fees against PICOP and its officers before the
RTC of Banganga, Davao Oriental, praying that PICOP or its
agent be enjoined from preventing and prohibiting them from
entering into the mining site.
 PICOP countered that the RTC of Davao Oriental has no
jurisdiction over the complaint of petitioners since the
disputed area is situated in the Province of Surigao del Sur.
PICOP also claimed that the issuance of petitioners’ permits
were void ab initio since the same violated Section 5 of
Republic Act No. 7076, otherwise known as the People’s Small-
Scale Mining Act of 1991, which allegedly prohibits the issu-
_______________
3 Records, pp. 11-22.
412
412 SUPREME COURT REPORTS ANNOTATED
Calanza vs. Paper Industries Corporation of the Philippines
ance of mining permits over areas covered by forest rights such
as TLAs or forest reservations unless their status as such is
withdrawn by the competent authority.
In the Pre-Trial Order dated 4 October 1993, the following
are identified as the issues:
“1. Whether the mining areas claimed by petitioners are found
within the territories of Davao Oriental or Surigao del Sur.
2. Whether the small-scale mining permits of petitioners are
valid.
3. Whether PICOP has the right and authority to deny
petitioners access to, possession of and the authority to conduct
mining activities within the disputed areas.”4
In a decision dated 26 November 1993, the RTC ruled in
favor of the petitioners. The RTC opined that Barangay
Pagtilaan (as claimed by PICOP) or Catihan (as claimed by
petitioners) is within the territory of the Province of Davao
Oriental. Citing Section 465, paragraph (b), Sub-paragraph
(3)iv of Republic Act No. 7160 or the Local Government Code
of 1991 which states to the effect that the governor has the
power to issue licenses and permits, the RTC ruled that the
governor was vested with the power to issue the small-scale
mining permits to the petitioners. The decretal portion of the
RTC decision provides:
“IN VIEW OF ALL THE FOREGOING, judgment is hereby
rendered:
1. Declaring that all the [petitioners] have the rights under the
laws to extract and remove gold ore from their permit area as
particularly described by its technical descriptions found in their
respective permits subject to the terms and conditions stipulated
therein;
2. Finding that [respondents] have no rights to deny
[petitioners] entry into the mining permit areas and hereby
enjoining [respondents], their agents, representatives, their
attorneys, the
_______________
4 Id., at pp. 158-161.
413
VOL. 586, APRIL 24, 2009 413
Calanza vs. Paper Industries Corporation of the Philippines
SCAA or any persons acting in their behalf to allow
petitioners/permittees, their agents, representatives and vehicles to
enter, travel into the mining site areas of plaintiffs without any
restrictions, preventions and/or harassment of the purpose of
conducting mining activities thereat;
3. Further restraining and enjoining the respondents, their
attorneys, agents and/or representatives, the SCAA or its officers
and such other persons acting for and in their behalf from
preventing, prohibiting or harassing the [petitioners], their agents
or authorized representatives, their vehicles, tools and other mining
paraphernalia’s from entering, traveling into the mining site using
and passing through the most accessible concession roads of
[respondents], such as but not limited to Road 5M and spurs within
PICOP’s TLA 43 areas.
There being no evidentiary proof of actual and compensatory
damages, and in the absence of fraud or evident bad faith on the
part of defendants, especially PICOP, which apparently is
exercising its right to litigate, this Court makes no finding as to
actual, compensatory and moral damages nor attorney’s fees.”5
Respondent PICOP appealed the RTC decision.
 In a Decision dated 19 June 2000, the Court of Appeals
reversed the RTC Decision and dismissed the complaint of
respondents.
In setting aside the RTC Decision, the Court of Appeals
stated that the RTC erred in passing upon the issue of the
boundary dispute between the provinces of Davao Oriental
and Surigao del Sur since the resolution of the boundary
dispute primarily resides with the Sangguniang
Panlalawigans of the two provinces and the RTC has only
appellate jurisdiction over the case, pursuant to the Local
Government Code of 1991. The Court of Appeals also said that
the governor has no power to issue small-scale mining permits
since such authority under Section 9 of Republic Act No. 7076
is vested with the Provincial Mining Regulatory Board.
_______________
5 CA Rollo, pp. 44-46.
414
414 SUPREME COURT REPORTS ANNOTATED
Calanza vs. Paper Industries Corporation of the Philippines
The disposition of the Court of Appeals reads:
“WHEREFORE, premises considered, the appealed decision in
Civil Case No. 489 is hereby REVERSED and SET ASIDE and a
new one is hereby rendered dismissing the complaint filed by
[petitioners].”6
Petitioners filed a motion for reconsideration, which was
denied by the Court of Appeals in its Order dated 10 November
2000.
Hence, the instant petition.
The petition is not meritorious.
There is boundary dispute when a portion or the whole of
the territorial area of a Local Government Unit (LGU) is
claimed by two or more LGUs.7 In settling boundary disputes,
Section 118 of the 1991 Local Government Code provides:
“Sec. 118. Jurisdictional Responsibility for Settlement of
Boundary Dispute.—Boundary disputes between and among local
government units shall, as much as possible, be settled amicably. To
this end:
(a) Boundary disputes involving two (2) or more barangays in
the same city or municipality shall be referred for settlement to
the sangguniang panlungsod or sangguniang bayan concerned.
(b) Boundary disputes involving two (2) or more municipalities
within the same province shall be referred for settlement to
the sangguniang panlalawigan concerned.
(c) Boundary disputes involving municipalities or
component cities of different provinces shall be jointly
referred for settlement to the sanggunians of the provinces
concerned.
(d) Boundary disputes involving a component city or
municipality on the one hand and a highly urbanized city on the
other, or
_______________
6 Rollo, p. 49.
7 Article 15, Rule III, Rules and Regulations Implementing The Local
Government Code of 1991.
415
VOL. 586, APRIL 24, 2009 415
Calanza vs. Paper Industries Corporation of the Philippines
two (2) or more highly urbanized cities, shall be jointly referred for
settlement to the respective sanggunians of the parties.
(e) In the event the sanggunian fails to effect an amicable
settlement within sixty (60) days from the date the dispute was
referred thereto, it shall issue a certification to that effect.
Thereafter, the dispute shall be formally tried by
the sanggunian concerned which shall decide the issue within sixty
(60) days from the date of the certification referred to above.”
Under paragraph (c) of Section 118, the settlement of a
boundary dispute involving municipalities or component cities
of different provinces shall be jointly referred for settlement to
the respective Sanggunians or the provincial boards of the
different provinces involved. Section 119 of the Local
Government Code gives a dissatisfied party an avenue to
question the decision of the Sanggunian to the RTC having
jurisdiction over the area, viz.:
 “Section 119. Appeal.—Within the time and manner
prescribed by the Rules of Court, any party may elevate the decision
of the sanggunianconcerned to the proper Regional Trial Court
having jurisdiction over the area in dispute x x x.”
Article 17, Rule III of the Rules and Regulations
Implementing The Local Government Code of 1991 outlines
the procedures governing boundary disputes, which succinctly
includes the filing of the proper petition, and in case of failure
to amicably settle, a formal trial will be conducted and a
decision will be rendered thereafter. An aggrieved party can
appeal the decision of the sanggunian to the appropriate RTC.
Said rules and regulations state:
“Article 17. Procedures for Settling Boundary Disputes.—The
following procedures shall govern the settlement of boundary
disputes:
(a) Filing of petition—The sanggunian concerned may initiate
action by filing a petition, in the form of a resolution, with
the sanggunian having jurisdiction over the dispute.416
416 SUPREME COURT REPORTS ANNOTATED
Calanza vs. Paper Industries Corporation of the Philippines
(b) Contents of petition—The petition shall state the grounds,
reasons or justifications therefore.
(c) Documents attached to petition—The petition shall be
accompanied by:
1. Duly authenticated copy of the law or statute creating
the LGU or any other document showing proof of creation of
the LGU;
2. Provincial, city, municipal, or barangay map, as the
case may be, duly certified by the LMB.
3. Technical description of the boundaries of the LGUs
concerned;
4. Written certification of the provincial, city, or
municipal assessor, as the case may be, as to territorial
jurisdiction over the disputed area according to records in
custody;
5. Written declarations or sworn statements of the people
residing in the disputed area; and
6. Such other documents or information as may be
required by the sanggunian hearing the dispute.
(d) Answer of adverse party—Upon receipt by
the sanggunianconcerned of the petition together with the required
documents, the LGU or LGUs complained against shall be furnished
copies thereof and shall be given fifteen (15) working days within
which to file their answers.
(e) Hearing—Within five (5) working days after receipt of the
answer of the adverse party, the sanggunian shall hear the case and
allow the parties concerned to present their respective evidences.
(f) Joint hearing—When two or more sanggunians jointly hear
a case, they may sit en banc or designate their respective
representatives. Where representatives are designated, there shall
be an equal number of representatives from each sanggunian. They
shall elect from among themselves a presiding officer and a
secretary. In case of disagreement, selection shall be by drawing lot.
(g) Failure to settle—In the event the sanggunian fails to
amicably settle the dispute within sixty (60) days from the date such
dispute was referred thereto, it shall issue a certification to the
effect and copies thereof shall be furnished the parties
concerned.417
VOL. 586, APRIL 24, 2009 417
Calanza vs. Paper Industries Corporation of the Philippines
(h) Decision—Within sixty (60) days from the date the
certification was issued, the dispute shall be formally tried and
decided by the sanggunian concerned. Copies of the decision shall,
within fifteen (15) days from the promulgation thereof, be furnished
the parties concerned, DILG, local assessor, COMELEC, NSO, and
other NGAs concerned.
(i) Appeal—Within the time and manner prescribed by the
Rules of Court, any party may elevate the decision of
the sanggunian concerned to the proper Regional Trial Court
having jurisdiction over the dispute by filing therewith the
appropriate pleading, stating among others, the nature of the
dispute, the decision of the sanggunian concerned and the reasons
for appealing therefrom. The Regional Trial Court shall decide the
case within one (1) year from the filing thereof. Decisions on
boundary disputes promulgated jointly by two (2) or
more sangguniang panlalawigans shall be heard by the Regional
Trial Court of the province which first took cognizance of the
dispute.”
 The records of the case reveal that the instant case was
initiated by petitioners against respondents predicated on the
latter’s refusal to allow the former entry into the disputed
mining areas. This is not a case where the Sangguniang
Panlalawigans of Davao Oriental and Surigao del Sur jointly
rendered a decision resolving the boundary dispute of the two
provinces and the same decision was elevated to the RTC.
Clearly, the RTC cannot exercise appellate jurisdiction over
the case since there was no petition that was filed and decided
by the Sangguniang Panlalawigans of Davao Oriental and
Surigao del Sur. Neither can the RTC assume original
jurisdiction over the boundary dispute since the Local
Government Code allocates such power to the Sangguniang
Panlalawigans of Davao Oriental and Surigao del Sur. Since
the RTC has no original jurisdiction on the boundary dispute
between Davao Oriental and Surigao del Sur, its decision is a
total nullity. We have repeatedly ruled that a judgment
rendered by a court without jurisdiction is null and void and
may be at-
418
418 SUPREME COURT REPORTS ANNOTATED
Calanza vs. Paper Industries Corporation of the Philippines
tacked anytime.8 It creates no rights and produces no effect. It
remains a basic fact in law that the choice of the proper forum
is crucial, as the decision of a court or tribunal without
jurisdiction is a total nullity. A void judgment for want of
jurisdiction is no judgment at all. It cannot be the source of
any right nor the creator of any obligation. All acts performed
pursuant to it and all claims emanating from it have no legal
effect.9
Moreover, petitioners’ small-scale mining permits are
legally questionable. Under Presidential Decree No. 1899,
applications of small-scale miners are processed with the
Director of the Mines and Geo-Sciences Bureau. Pursuant to
Republic Act No. 7076, which took effect10 on 18 July 1991,
approval of the applications for mining permits and for mining
contracts are vested in the Provincial/City Mining Regulatory
Board. Composed of the DENR representative, a
representative from the small-scale mining sector, a
representative from the big-scale mining industry and a
representative from an environmental group, this body is
tasked to approve small-scale mining permits and contracts.
In the case under consideration, petitioners filed their
application for small-scale mining permits on 23 August 1991,
making them bound by the procedures provided for under the
applicable and prevailing statute, Republic Act No. 7076.
Instead of processing and obtaining their permits from the
Provincial Mining Regulatory Board, petitioners were able to
get the same from the governor of Davao del Norte.
Considering that the governor is without legal authority to
issue said mining permits, the same permits are null and void.
_______________
8 Leonor v. Court of Appeals, 326 Phil. 74, 88; 256 SCRA 69, 82 (1996).
9 Arevalo v. Benedicto, 157 Phil. 175, 181; 58 SCRA 186, 192 (1974) cited
inHilado v. Chavez, G.R. No. 134742, 22 September 2004, 438 SCRA 623, 649.
10 Republic Act No. 7076 was published in Malaya on 3 July 1991.
419
VOL. 586, APRIL 24, 2009 419
Calanza vs. Paper Industries Corporation of the Philippines
Based on the discussions above, the Court of Appeals was
correct in finding that petitioners have no right to enter into
and to conduct mining operations within the disputed lands
under the infirm small-scale mining permits.
In fine, this Court defers to the findings of the Court of
Appeals, there being no cogent reason to veer away from such
findings.
WHEREFORE, the petition is DENIED. The Decision of
the Court of Appeals dated 19 June 2000 and its Resolution
dated 10 November 2000 reversing the 26 November 1993
Decision of the Regional Trial Court of Banganga, Davao
Oriental, Branch 7, are hereby AFFIRMED. No costs.
SO ORDERED.
 Ynares-Santiago (Chairperson), Austria-Martinez,
Nachura and Peralta, JJ., concur.
Petition denied, judgment and resolution affirmed.
Notes.—Since there is no legal provision specifically
governing jurisdiction over boundary disputes between a
municipality and an independent component city of the same
province, it follows that regional trial courts have the power
and the authority to hear and determine such controversy.
(Municipality of Kananga vs. Madrona, 402 SCRA 330 [2003])
It is not only the Regional Trial Court that has appellate
jurisdiction over judgment of the Sangguniang
Panlalawigan in a boundary dispute—B.P. Blg. 129, as
amended, which is supplemented by Rule 42 of the Rules of
Civil Procedure, gives the CA the authority to entertain
appeals of such judgments and final orders rendered by the
RTC in the exercise of its appellate jurisdiction. (Municipality
of Nueva Era, Ilocos Norte vs. Municipality of Marcos, Ilocos
Norte, 547 SCRA 71 [2008])
——o0o——
© Copyright 2019 Central Book Supply, Inc. All rights reserved.
426 SUPREME COURT REPORTS ANNOTATED
Calo vs. Tan
G.R. No. 151266. November 29, 2005. *
SPS. RAYMUNDO & MARILYN CALO,
petitioners, vs. SPOUSES REYNALDO & LYDIA TAN and
THE DEVELOPMENT BANK OF THE PHILIPPINES,
(Butuan Branch), respondents.
Actions; Due Process; If the absence of a party during the
hearing was due to his own fault, he cannot later on complain that
he was deprived of his day in court.—That the absence of a party
during trial constitutes waiver of his right to present evidence and
cross-examine the opponent’s witnesses is firmly supported by
jurisprudence. Although a defendant who answered the complaint
but fails to appear at the scheduled trial cannot be declared in
default, the trial, however, may proceed without his presence. And
if the absence of a party during the hearing was due to his own fault,
he cannot later on complain that he was deprived of his day in court.
Same; Same; Motions; The Rules of Court requires only that the
motion be heard—it does not direct the court to order the filing of
comments or oppositions to the motion before the motion is
resolved.—The absence of petitioners and their counsel at the
aforesaid hearings cannot be justified by their belief that the trial
court would first require respondent spouses to comment to or
oppose the motions before resolving them. The Rules of Court
requires only that the motion be heard; it does not direct the court
to order the filing of comments or oppositions to the motion before
the motion is resolved. During the hearing on the motion, the
opposition to the motion and the arguments of the parties may be
ventilated; thereafter, the court may rule on the motion. Petitioners
and their counsel should have known the significance of the hearing
dates since petitioners themselves chose one of the hearing dates
and the hearing dates were accordingly fixed with due notice to all
the parties.
Same; Statutes and rules regulating the procedure of courts are
considered as applicable to actions pending and unresolved at the
time of their passage—procedural laws and rules are retroactive in
that sense and to that extent.—Statutes and rules regulating the
_______________
*SECOND DIVISION.
427
VOL. 476, NOVEMBER 29, 2005 427
Calo vs. Tan
procedure of courts are considered as applicable to actions
pending and unresolved at the time of their passage. Procedural
laws and rules are retroactive in that sense and to that extent. The
effect of procedural statutes and rules on the rights of the litigants
may not preclude their retroactive application to pending actions.
Such retroactive application does not violate any right of a person
adversely affected. Neither is it constitutionally objectionable. The
reason is that as a general rule, no vested right may attach to, nor
arise from procedural laws and rules. It has been held that “a person
has no vested right in any particular remedy, and a litigant cannot
insist on the application to the trial of his case, whether civil or
criminal, of any other than the existing rules of procedure.”
Same; Prescription; Actions to recover movables prescribe in
eight years from the time the possession thereof is lost.—Under Art.
1140 of the Civil Code, actions to recover movables prescribe in eight
years from the time the possession thereof is lost. Hence, respondent
spouses’ right to recover would prescribe only in 1994. As the
additional docket fees were paid in 1992, well within the
prescriptive period, the trial court’s jurisdiction over the action was
solidified following Sun Life.
Same; Forum Shopping; Litis Pendentia; Res Judicata; The
principles of litis pendentia, res judicata and forum shopping are all
based on the policy against multiplicity of suits.—The principles
of litis pendentia, res judicata and forum shopping are all based on
the policy against multiplicity of suits. A party is guilty of forum-
shopping where he repetitively availed of several judicial remedies
in different courts, simultaneously or successively, all substantially
founded on the same transactions and the same essential facts and
circumstances, and all raising substantially the same issues either
pending in, or already resolved adversely by, some other court. The
test to determine whether a party violated the rule against forum-
shopping is where the elements of litis pendentia are present or
where a final judgment in one case will amount to res judicata in
another.
Same; Same; Same; Although in general, the rule is that it
should be the later case which should be dismissed, this rule is not
absolute such as when the latter action filed would be the more
appropriate forum for the ventilation of the issues between the
parties; The rule on forum shopping should not be interpreted with
such absolute
428
428 SUPREME COURT REPORTS ANNOTATED
Calo vs. Tan
literalness as to defeat its ultimate objective which is to achieve
substantial justice as expeditiously as possible.—The case for
replevin and damages was clearly dismissible on the ground of
forum shopping. However, that the case for replevin should have
been dismissed because it was filed subsequent to the case for
injunction does not always hold true. To determine which action
should be dismissed given the pendency of two actions, relevant
considerations such as the following are taken into account: (1) the
date of filing, with preference generally given to the first action filed
to be retained; (2) whether the action sought to be dismissed was
filed merely to preempt the latter action or to anticipate its filing
and lay the basis for its dismissal; and (3) whether the action is the
appropriate vehicle for litigating the issues between the parties.
Although in general, the rule is that it should be the later case which
should be dismissed, this rule is not absolute such as when the latter
action filed would be the more appropriate forum for the ventilation
of the issues between the parties. This is particularly true in the
case at bar where the case for injunction had already been dismissed
without prejudice by the RTC, and such dismissal had been affirmed
by the Court of Appeals as well as by this Court. We cannot simply
dismiss the case for replevin and damages on the ground of forum
shopping and leave it at that, for such modality would not be in
keeping with the demands of judicial policy as well as equity.
Dismissal of the case for replevin and damages would leave
respondent spouses without a remedy in view of the earlier
dismissal of the case for injunction. The rule prohibiting forum
shopping was designed to promote and facilitate the orderly
administration of justice. It should not be interpreted with such
absolute literalness as to defeat its ultimate objective which is to
achieve substantial justice as expeditiously as possible.
PETITION for review on certiorari of a decision of the Court
of Appeals.
The facts are stated in the opinion of the Court.
Lope A. Buñol and Reserva, Filoteo Law Office for
petitioners.
429
VOL. 476, NOVEMBER 29, 2005 429
Calo vs. Tan
TINGA, J.:
On 9 September 1986, respondent Lydia Tan entered into a
Joint Venture Agreement with petitioner Raymundo Calo,
1
and four other persons regarding a small scale mining
business. It was agreed that respondent Lydia Tan would act
as the financier and procure all the equipment needed for the
business while Raymundo Calo would be an industrial
partner, managing and overseeing the activities of the
venture.
Sometime in December 1986, petitioner Raymundo Calo
applied for a loan of around P500,000.00 with the
Development Bank of the Philippines (DBP), Butuan Branch,
using as collateral several pieces of equipment allegedly
purchased by respondent Lydia Tan for the mining business,
which properties Raymundo Calo represented as his own. This
was supposedly without the knowledge of Lydia Tan. The loan
application was granted and a chattel mortgage constituted
over the mining equipment. Raymundo Calo later failed to pay
the obligation and the chattel mortgage was subsequently
foreclosed. The mining equipment was sold at public auction
with DBP as the highest bidder.
On 9 November 1987, respondent spouses Reynaldo and
Lydia Tan filed before the Regional Trial Court (RTC) of
Cagayan de Oro City a complaint for replevin and damages
with writ of preliminary injunction/restraining order against
2
petitioners Raymundo and Marilyn Calo, DBP and the
Provincial Sheriff of Agusan del Norte, as defendants. The
case was docketed as Civil Case No. 11185.
 Petitioners and DBP filed on 26 May 1988 a Joint Motion
to Dismiss on the basis of Section 1(c), Rule 16 of the Revised
3
Rules of Court, claiming that “there is another action pending
between the same parties for the same cause in the [RTC] of
_______________
1 Records, pp. 10-12.
2 Rollo, pp. 106-113.
3 Id., at pp. 114-117.
430
430 SUPREME COURT REPORTS ANNOTATED
Calo vs. Tan
Agusan del Norte and Butuan City in Branch 1
thereof.” Petitioners were referring to a separate civil case for
4
injunction filed by respondent spouses against petitioners,
DBP, and the Provincial Sheriff of Agusan del Norte, docketed
as Special Civil Case No. 521. The case for injunction was filed
5
to enjoin the Sheriff and DBP from proceeding with the
foreclosure sale of the mortgaged properties scheduled on 12
October 1987. The case for injunction and that for replevin and
damages involved the same transaction and properties. The
RTC of Agusan del Norte, however, dismissed the injunction
case without prejudice, per its Order dated 2 December 1987
6
on the ground that under Presidential Decree No. 385, no
injunction can be issued against any government financial
institution such as the DBP. 7
_______________
4 Id., at p. 114.
5 The certified true copy of the Complaint in Special Civil Case No. 521
shows that it was filed on 12 October 1987. Id., at pp. 118-124.
6 Id., at p. 125.
7 A timely motion for reconsideration of the Order of 2 December 1987 filed
by respondent spouses was denied by the RTC on 10 June 1988 on the ground
that the acts sought to be enjoined were already consummated. Respondent
spouses appealed to the Court of Appeals. On 16 August 1989, the appellate
court affirmed the Orders of the RTC. The Decision of the Court of Appeals
states:
“The court a quo likewise observed that the plaintiffs have already filed Civil Case No.
11185 for Replevin, Breach of Contract and Damages in the Regional Trial Court of the
Tenth Judicial Region, Branch 24 in Cagayan de Oro City. Considering that the acts
sought to be enjoined were already consummated when the writ of preliminary
injunction was served on the defendants-appellees and taking into account Section 2 of
P.D. 385 and considering further that there is a pending case between the same parties
in the Regional Trial Court of the Tenth Judicial Region, Branch 24 in Cagayan de Oro
among others for the delivery to the plaintiffs of the properties in question, we find the
Order of the court a quo dated 2 December 1987 and the Order dated 10 June 1988
(Motion for
431
VOL. 476, NOVEMBER 29, 2005 431
Calo vs. Tan
Petitioners and DBP, as defendants, filed a Supplemental
Joint Motion to Dismiss on 15 July 1988, alleging that the 8
complaint violates the rule on splitting of cause of action; that
respondent spouses, as plaintiffs, have not established
ownership of the properties subject of the case; and, that being
real in classification the properties cannot be subject of a case
for replevin.
On 21 July 1988, the RTC of Cagayan de Oro City deferred
resolution of the Joint Motion to Dismiss and Supplemental
Joint Motion to Dismiss on the ground that the supplemental
motion alleged factual matters which need proof that may be
presented only during trial. Petitioners, as defendants, were
required to file their answers in the same Order. 9
Petitioners and DBP filed their separate answers. DBP
alleged in its Answer with Affirmative Defenses and Counter-
claim that the properties foreclosed were owned by
10
Raymundo Calo and that when it bought the properties at the
auction sale, it became a mortgagee in good faith and for value.
DBP prayed that the complaint be dismissed but in the event
that a decision adverse to it is rendered, respondent
_______________
Reconsideration) to be supported by the facts and in consonance with the law and are
hereby AFFIRMED.
IT IS SO ORDERED.” Id., at pp. 189-191.
It appears that respondent spouses elevated the case to the Supreme Court
via a petition for certiorari with prayer for a writ of preliminary
injunction/restraining order but the same was denied on 5 April 1990, there
being no reversible error committed on the part of the Court of Appeals and for could present their amended complaint, they learned that
having become moot and academic in view of the action for replevin and
DBP had leased the properties to a third party. Respondent
damages before the RTC of Cagayan de Oro City, Branch 24 filed by respondent
spouses. Id.,at p. 193.
8 Supra note 1 at pp. 173-179.
_______________
9 Supra note 2 at p. 126.

10 Supra note 1 at pp. 196-200.

11 Ibid.
432
12 Id., at pp. 206-211.
13 Id., at pp. 206-211.

432 SUPREME COURT REPORTS ANNOTATED 14 TSN, 30 May 1989, pp. 5-7, 11-19, 22-36.

Calo vs. Tan 15 Id., at pp. 9-11.

spouses, as plaintiffs, be made to reimburse the amounts it 433

paid for the properties. 11
VOL. 476, NOVEMBER 29, 2005 433
Petitioners, a defendants, in their Answer with Counter- Calo vs. Tan
claim and Affirmative Defenses, did not deny respondent
12 spouses moved that DBP be required to report on the status of
spouses’ ownership of the properties but claimed that they too the properties. This was granted in the Order of 10 July
16

advanced some money to purchase the properties. They add 1989. 17

that the money promised by respondent spouses came in small On 6 November 1989, DBP filed its Manifestation of
and inadequate installments, making it impossible for Compliance stating that the properties were leased to one
18

petitioners to make the plant operational and forcing them to Alfredo C. Roxas as evidenced by the attached copy of the
advance their own money and incur personal obligations to contract of lease.
third parties in order to make the business productive. They Respondent spouses then filed their Motion to Admit
further allege that the loan with DBP was actually with the Amended Complaint and 19 attached Amended
knowledge and consent of respondent spouses. 13 Complaint, both of which were admitted on 5 December 1989.
20

After pre-trial, respondent spouses, as plaintiffs, presented The Amended Complaint included Alfredo C. Roxas as one of
Lydia Tan as their witness. On 30 May 1989, respondent Lydia the defendants. However, summons could not be served on
Tan testified that after she and her husband had agreed to the Roxas as he could no longer be located at his home address or
joint venture, they gave money in installments totaling his office address. 21

P700,000.00 to Raymundo Calo, as evidenced by cash vouchers
and checks. Some of the money given was used to pay for the
equipment bought by Raymundo Calo. In the course of the
14
Trial was constantly set and reset on motion of the parties.
Finally, on 12 August 1991, the cross-examination of Lydia
Tan was accomplished. Subsequent dates for presentation of
22

direct examination, counsel for petitioners objected to Lydia
Tan’s testimony that they sent money to respondent spouses
after the equipment had been bought, the same not having
been alleged in the complaint. 15
the evidence for petitioners as defendants were scheduled and
later reset.
On 29 June 1992, petitioners and DBP filed a Joint Motion
to Dismiss grounded on respondent spouses’ failure to pay the
23

After presentation of their witness, counsel for respondent additional filing and docket fees for the amended complaint,
spouses moved to reset the continuation of trial as they in line with the ruling in Manchester Development
intended to amend the complaint to make it conform to the Corporation v. Court of Appeals. Petitioners alleged that in
24

testimony of Lydia Tan. However, before respondent spouses the course of the presentation of respondent Lydia Tan’s tes-
_______________ entitled to the recovery thereof. The RTC relied only on the
testimony of respondent Lydia Tan that she and her husband
16 Supra note 1 at pp. 292-293.
17 Id., at p. 294. are owners of the mining equipment, petitioners having failed
18 Id., at pp. 342-343. to appear during the hearings set for the presentation of their
19 Id., at pp. 354-355.
evidence. The RTC further found that petitioner Raymundo
20 Id., at pp. 367-375.

21 Per Sheriff’s Return of Service dated 4 April 1991, id.,at p. 519, and 26
Calo obtained the loan from DBP without
October 1991, id., at p. 594.
22 Per Order of 12 August 1991, id., at p. 559. However, the TSN of said
_______________
cross-examination is not included in the Records.
23 Supra note 2 at pp. 127-130.
25 Supra note 2 at p. 128.
24 No. L-75919, 7 May 1987, 149 SCRA 562.
26 Id., at p. 131.
27 Id., at pp. 132-135.
434
28 Id., at p. 136.

434 SUPREME COURT REPORTS ANNOTATED 29 Id., at pp. 137-143.

Calo vs. Tan 435

timony, the counsel for respondent spouses asked questions
regarding damages and amounts of money not alleged in the
complaint and for which the appropriate filing and docket fees
should be paid. Petitioners requested that hearing on the
motion be set on 1 July 1992. In the Order dated 1 July 1992,
25 26
the trial court denied the motion for lack of the required notice
and reset the presentation of evidence for petitioners Calo and
DBP, as defendants, on 3 and 4 August 1992, respectively.
Petitioners filed a Joint Motion for
Reconsideration averring that it had furnished respondents,
27
VOL. 476, NOVEMBER 29, 2005 435
Calo vs. Tan
the knowledge of respondent spouses. With DBP deemed a
mortgagee in good faith and for value, it was ordered to deliver
possession and ownership of the properties to respondent
spouses while petitioners were ordered to reimburse DBP the
amount of P237,564.43. Thus, petitioners appealed
the Decision to the Court of Appeals.
On 7 November 2001, the appellate court rendered
its Decision affirming the trial court’s judgment. The Court of
30

through their counsel, a copy of the joint motion to dismiss, as Appeals found Sun Insurance Office, Ltd. v. Asuncion to be
31

evidenced by the registry receipt dated 26 June 1992 of the applicable to the case so that while the additional docket fees
Post Office of Butuan City, Agusan del Norte attached to the were paid late, petitioners however failed to show that such
32

motion. Petitioners set the hearing of the motion on 3 August
1992. However, reconsideration was denied in
the Order dated 3 August 1992, the RTC ruling that the
28
motion did not contain a notice of hearing and that the
docketing fee had already been paid. Petitioners and their
counsel also failed to appear at the hearing scheduled on even
date and were deemed to have waived their right to present
evidence; thus, the case was deemed submitted for decision.
On 28 August 1992, the RTC promulgated its Decision in
favor of respondent spouses, declaring them the lawful owners
of the properties subject of the chattel mortgage and therefore
payment was made beyond the prescriptive period. Hence, the
trial court was deemed to have acquired jurisdiction over the
case. The Court of Appeals did not give much weight to
petitioners’ contention that the trial court erred in ascribing
waiver of their right to present evidence at the hearing on 3
August 1992 since, according to them, their motion for
reconsideration was then allegedly pending resolution. The
appellate court noted that petitioners were notified of the
29
hearing on said date, as in fact they themselves even chose the
date of hearing. Thus, it ruled that petitioners should not have
assumed that their motion would be granted.
 The appellate court also ruled that the RTC was correct in
finding that respondent spouses are the owners of the subject
properties, ordering DBP to retrieve them from the lessee and
to return them to petitioner spouses, and directing petitioners
to reimburse DBP the amount paid at the auction sale. The
Court of Appeals found that the agreement between
petitioners and respondent spouses was actually a joint
venture and not a partnership as petitioners claimed since
there was no agreement to contribute money or property to a
common fund.
_______________
30 Id., at pp. 144-151.
31 G.R. Nos. 79937-38, 13 February 1989, 170 SCRA 274.
32 According to petitioners, the additional filing and docket fees were paid
only on 29 July 1990. Joint Appellants’ Brief, CA Rollo, p. 49.
436
436 SUPREME COURT REPORTS ANNOTATED
Calo vs. Tan
Also, petitioners should reimburse DBP the amount it paid at
the auction sale since under Article 559 of the Civil Code, the
owner who is deprived of his property may obtain the return
thereof after reimbursing the price in case the possessor
acquired it in a public sale.
Petitioners now assail the Decision of the Court of Appeals
in this petition for review on certiorari.
We deny the petition.
Petitioners allege that the Court of Appeals erred in
upholding the trial court’s denial of their right to due process.
According to them, the trial court acted unreasonably and with
undue haste when it ruled that they waived their right to
present evidence in view of their failure to attend the hearing
on 3 August 1992. They assert that they did show up in court
for the hearing, although they were late. Petitioners live in
Butuan City, some 300 kilometers from the RTC of Cagayan.
They explain that they failed to appear because they believed
that their motion to dismiss and motion for reconsideration
would be heard first, i.e., respondent spouses would be
required to comment first on the motions before they would be
resolved. They contend that there was no clear evidence of
intent to abandon their right.
Petitioners’ arguments do not impress. The reasons that
petitioners have given for their failure to attend the hearing
are contradictory. In one breath, they allege that they came
late to the hearing, but in another they confirm that they
intentionally did not attend the hearing due to their mistaken
belief that respondent spouses would first be required to
comment thereon before the trial court would resolve said
motions. A check of the RTC records shows that although
petitioners had chosen 1 July 1999 as the next hearing date in
their Joint Motion to Dismiss, the trial court had already
previously scheduled the continuation of trial on said date as
437
VOL. 476, NOVEMBER 29, 2005 437
Calo vs. Tan
well as on 2 July 1992. However, on 1 July 1992, only counsel
33
for respondent spouses was present. Petitioners, DBP, and
their counsel did not attend the hearing. The trial court
34
denied the motion to dismiss for lack of notice and set the
continuation of trial on 3 and 4 August 1992. When petitioners
moved for reconsideration of the 1 July 1992 Order, they
scheduled the hearing of said motion on 3 August 1992. Again,
on the date set, petitioners and their counsel were absent and
only counsel for respondent spouses was in attendance. 35
That the absence of a party during trial constitutes waiver
of his right to present evidence and cross-examine the
opponent’s witnesses is firmly supported by
jurisprudence. Although a defendant who answered the
36
complaint but fails to appear at the scheduled trial cannot be
declared in default, the trial, however, may proceed without
his presence. And if the absence of a party during the hearing
was due to his own fault, he cannot later on complain that he
was deprived of his day in court.
37
 The absence of petitioners and their counsel at the
aforesaid hearings cannot be justified by their belief that the
trial court would first require respondent spouses to comment
to or oppose the motions before resolving them. The Rules of
Court requires only that the motion be heard; it does not direct
the court to order the filing of comments or oppositions to the
_______________
33 RTC Records, p. 630. A Notice of Hearing scheduling continuation of trial
on said dates was sent to the respective counsel of the parties on 29 May 1992.
34 Minutes of the Court Session of the RTC of Cagayan de Oro City on 1 July
1992. Id., at p. 641.
35 Minutes of the Court Session on 3 August 1992. Id., at p. 650.
36 Adorable v. Court of Appeals, 377 Phil. 210; 319 SCRA 200 (1999),
citing Jalover v. Ytoriaga, 80 SCRA 101 (1977) and De Rapisura v. Nicolas, 16
SCRA 798(1966).
37 Republic v. General Sales Supply Co., Inc., 134 Phil. 864, 872; 25 SCRA
905(1968).
438
438 SUPREME COURT REPORTS ANNOTATED
Calo vs. Tan
motion before the motion is resolved. During the hearing on
the motion, the opposition to the motion and the arguments of
the parties may be ventilated; thereafter, the court may rule
on the motion. Petitioners and their counsel should have
known the significance of the hearing dates since petitioners
themselves chose one of the hearing dates and the hearing
dates were accordingly fixed with due notice to all the parties.
Petitioners contend that the Court of Appeals erred in
applying Sun Insurance instead of Manchester to the case at
bar. The proceeding in this case was initiated by the filing of
the complaint on 9 November 1987, which was around six
months after Manchesterwas promulgated on 7 May 1987, and
about fifteen months before Sun Insurance came out on 13
February 1989. According to petitioners, what must govern
the court’s jurisdiction is the law prevailing at the time of the
institution of the case. Hence, since the original complaint was
filed on 9 November 1987 the Manchesterdoctrine would be
controlling and applicable, not Sun Insurance.
This argument is untenable. Statutes and rules regulating
the procedure of courts are considered as applicable to actions
pending and unresolved at the time of their passage.
Procedural laws and rules are retroactive in that sense and to
that extent. The effect of procedural statutes and rules on the
rights of the litigants may not preclude their retroactive
application to pending actions. Such retroactive application
does not violate any right of a person adversely affected.
Neither is it constitutionally objectionable. The reason is that
as a general rule, no vested right may attach to, nor arise from
procedural laws and rules. It has been held that “a person has
no vested right in any particular remedy, and a litigant cannot
insist on the application to the trial of his case, whether civil
or criminal, of any other than the existing rules of procedure.” 38
_______________
38 Tan, Jr. v. Court of Appeals, 424 Phil. 556, 569; 373 SCRA 524, 536
(2002); Sps. Valenzuela v. Court of Appeals, 416 Phil. 289, 298; 363 SCRA 779,
787 (2001).
439
VOL. 476, NOVEMBER 29, 2005 439
Calo vs. Tan
The Court of Appeals erred, according to petitioners, in not
finding that respondent spouses’ cause of action had already
prescribed when the additional docket fees were paid in 1992.
The alleged dispossession of the properties occurred in 1986
when petitioner Raymundo Calo contracted a loan with DBP;
hence, respondent spouses’ right to recover had already
prescribed in 1990, petitioners stress.
Under Art. 1140 of the Civil Code, actions to recover
movables prescribe in eight years from the time the possession
thereof is lost. Hence, respondent spouses’ right to recover
39
would prescribe only in 1994. As the additional docket fees
were paid in 1992, well within the prescriptive period, the trial
court’s jurisdiction over the action was solidified following Sun
Life.
 Petitioners finally argue that the RTC of Cagayan de Oro
City erred in disregarding the grounds of forum shopping, litis
pendentia, and splitting of cause of action which they raised.
They explain that when the complaint for replevin and
damages was filed, petitioners moved for its dismissal on the
grounds of litis pendentia and splitting of cause of action since
the civil case for injunction of the foreclosure sale was then
still pending before the RTC of Agusan del Norte. However,
the Cagayan de Oro RTC deferred ruling on the motion to
dismiss. Said RTC, petitioners contend, should have noted
that the claim for damages constitutes splitting of a cause of
action. The second complaint for replevin and damages should
have been dismissed then as both suits have the same cause
of action, that is, the alleged surreptitious loan entered into by
petitioners with DBP. The complaints before the two trial
courts supposedly show that the elements of res judicata are
present. When respondent spouses moved for reconsideration
_______________
39The full text of Art. 1140 reads: “Actions to recover movables shall
prescribe eight years from the time the possession thereof is lost, unless the
possessor has acquired the ownership by prescription for a less period,
according to Article 1132, and without prejudice to the provisions of Articles
559, 1505, and 1133.”
440
440 SUPREME COURT REPORTS ANNOTATED
Calo vs. Tan
of the dismissal of the injunction case by the Agusan del Norte
RTC, the same was denied “finally,” or as interpreted by
respondent spouses, with prejudice. In view of the foregoing,
petitioners claim that the trial court erred in not holding
respondent spouses guilty of forum shopping and forthwith
dismissing the case.
It should be noted that this final argument was never
raised before the Court of Appeals. That respondent spouses
violated the rule on splitting of cause of action was brought
before the RTC only in the Joint Motion to
Dismiss and Supplemental Joint Motion to Dismiss which
were not resolved; instead, resolution of the motions was
deferred until respondent spouses’ presentation of evidence.
However, there is still no definite ruling on the motions, even
in the Decision of the trial court. The Decision also did not
discuss the splitting of cause of action allegedly committed by
petitioners in filing the two complaints.
The principles of litis pendentia, res judicata and forum
shopping are all based on the policy against multiplicity of
suits. A party is guilty of forum-shopping where he repetitively
availed of several judicial remedies in different courts,
simultaneously or successively, all substantially founded on
the same transactions and the same essential facts and
circumstances, and all raising substantially the same issues
either pending in, or already resolved adversely by, some other
court. The test to determine whether a party violated the rule
40
against forum shopping is where the elements of litis
pendentia are present or where a final judgment in one case
will amount to res judicata in another. 41
_______________
40 Gatmaytan v. Court of Appeals, 335 Phil. 155, 167; 267 SCRA 487, 500
(1997).
41 Solid Homes, Inc. v. Court of Appeals, 337 Phil. 605, 615; 271 SCRA 157,
166 (1997) citing First International Bank v. Court of Appeals, 252 SCRA
259 (1996).
441
VOL. 476, NOVEMBER 29, 2005 441
Calo vs. Tan
If we look closely at the two complaints, we will find that there
could be forum shopping. In the case for injunction before the
Agusan RTC, respondent spouses prayed “that a restraining
order and/or preliminary injunction be issued forthwith to
restrain defendants from . . . proceeding with the public
auction on 12 October 1987; and that after trial, said
injunction be made permanent, with litigation expenses and
attorney’s fees awarded to plaintiffs, plus cost of this
suit.” Respondent spouses claim that they were “the true,
42
lawful and absolute owner[s] of the properties.” In the case for
replevin and damages, respondent spouses seek the return of
the possession of the property auctioned off to DBP as the
highest bidder, claiming that they were rightful owners of the
property.
The propriety of the issuance of the writ of injunction would
depend on the finding that respondent spouses have a clear
legal right to the property. This would require the trial court,
in this case the Agusan RTC, to make a finding of fact with
respect to the existence of such legal right to be protected. This
issue of fact—who between the parties has the better right to
the property—is the same issue presented in the case for
replevin and damages before the Cagayan RTC.
The case for replevin and damages was clearly dismissible
on the ground of forum shopping. However, that the case for
replevin should have been dismissed because it was filed
subsequent to the case for injunction does not always hold
true. To determine which action should be dismissed given the
pendency of two actions, relevant considerations such as the
following are taken into account: (1) the date of filing, with
preference generally given to the first action filed to be
retained; (2) whether the action sought to be dismissed was
filed merely to preempt the latter action or to anticipate its
filing and lay the basis for its dismissal; and (3) whether the
_______________
Supra note 1 at p. 150.
42
442
442 SUPREME COURT REPORTS ANNOTATED
Calo vs. Tan
action is the appropriate vehicle for litigating the issues
between the parties. 43
Although in general, the rule is that it should be the later
case which should be dismissed, this rule is not absolute such
as when the latter action filed would be the more appropriate
forum for the ventilation of the issues between the
parties. This is particularly true in the case at bar where the
44
case for injunction had already been dismissed without
prejudice by the RTC, and such dismissal had been affirmed
by the Court of Appeals as well as by this Court. We cannot 45
simply dismiss the case for replevin and damages on the
ground of forum-shopping and leave it at that, for such
modality would not be in keeping with the demands of judicial
policy as well as equity. Dismissal of the case for replevin and
damages would leave respondent spouses without a remedy in
view of the earlier dismissal of the case for injunction. The rule
prohibiting forum-shopping was designed to promote and
facilitate the orderly administration of justice. It should not be
interpreted with such absolute literalness as to defeat its
ultimate objective which is to achieve substantial justice as
expeditiously as possible. 46
WHEREFORE, the petition is DENIED. Costs against
petitioners.
SO ORDERED.
Puno (Chairman), Austria-Martinez and Callejo, Sr.,
JJ., concur.
Chico-Nazario, J., On Leave.
_______________
43 Cruz v. Court of Appeals, 369 Phil. 161, 170-171; 309 SCRA 714, 722
(1999), citing Allied Banking Corporation vs. Court of Appeals, 259 SCRA
371 (1996).
44 Ibid.
45 See note 7.
46 Gabionza v. Court of Appeals, G.R. No. 112547, 18 July 1994, 234 SCRA
192, 198.
443
VOL. 476, NOVEMBER 29, 2005 443
Yu vs. Court of Appeals
Petition denied.
Notes.—A motion without notice of hearing is a mere scrap
of paper, and a pro forma motion for reconsideration does not
suspend the running of the period to appeal. (Philippine
Commercial and Industrial Bank (PCIBank) vs. Court of
Appeals, 336 SCRA 258[2000])
 Where a party did not invoke the issue of forum shopping
at the first opportunity in his Motion to Dismiss filed in the
trial court, he is barred from raising it in the Court of Appeals
and in the Supreme Court. (Young vs. Keng Seng, 398 SCRA
629 [2003])

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