G.R. No. 163101             February 13, 2008 a.
a. The fact that your company has failed to perform the obligations set forth in the
BENGUET CORPORATION, petitioner, 
vs.
DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES -MINES ADJUDICATION
BOARD and J.G. REALTY AND MINING CORPORATION, respondents.
DECISION
VELASCO, JR., J.:
The instant petition under Rule 65 of the Rules of Court seeks the annulment of the December
2, 2002 Decision1and March 17, 2004 Resolution2 of the Department of Environment and Natural
Resources-Mining Adjudication Board (DENR-MAB) in MAB Case No. 0124-01 (Mines
Administrative Case No. R-M-2000-01) entitled Benguet Corporation (Benguet) v. J.G. Realty
and Mining Corporation (J.G. Realty). The December 2, 2002 Decision upheld the March 19,
2001 Decision3 of the MAB Panel of Arbitrators (POA) which canceled the Royalty Agreement
with Option to Purchase (RAWOP) dated June 1, 19874 between Benguet and J.G. Realty, and
excluded Benguet from the joint Mineral Production Sharing Agreement (MPSA) application over
four mining claims. The March 17, 2004 Resolution denied 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, Bonito-II,
Bonito-III, and Bonito-IV, with a total area of 288.8656 hectares, situated in Barangay Luklukam,
Sitio Bagong Bayan, Municipality of Jose Panganiban, Camarines Norte. The parties also
executed a Supplemental Agreement5 dated June 1, 1987. The mining claims were covered by
MPSA Application No. APSA-V-0009 jointly filed by J.G. Realty as claimowner and Benguet as
operator.
In the RAWOP, Benguet obligated itself to perfect the rights to the mining claims and/or
otherwise acquire the mining rights to the mineral claims. Within 24 months from the execution
of the RAWOP, Benguet should also cause the examination of the mining claims for the purpose
of determining whether or not they are worth developing with reasonable probability of profitable
production. Benguet undertook also to furnish J.G. Realty with a report on the examination,
within a reasonable time after the completion of the examination. Moreover, also within the
examination period, Benguet shall conduct all necessary exploration in accordance with a
prepared exploration program. If it chooses to do so and before the expiration of the examination
period, Benguet may undertake to develop the mining claims upon written notice to J.G. Realty.
Benguet must then place the mining claims into commercial productive stage within 24 months
from the written notice.6 It is also provided in the RAWOP that if the mining claims were placed in
commercial production by Benguet, J.G. Realty should be entitled to a royalty of five percent
(5%) of net realizable value, and to royalty for any production done by Benguet whether during
the examination or development periods.
Thus, on August 9, 1989, the Executive Vice-President of Benguet, Antonio N. Tachuling, issued
a letter informing J.G. Realty of its intention to develop the mining claims. However, on February
9, 1999, J.G. Realty, through its President, Johnny L. Tan, then sent a letter to the President of
Benguet informing the latter that it was terminating the RAWOP on the following grounds:
RAWOP, i.e., to undertake development works within 2 years from the execution of
the Agreement;
b. Violation of the Contract by allowing high graders to operate on our claim.
c. No stipulation was provided with respect to the term limit of the RAWOP.
d. Non-payment of the royalties thereon as provided in the RAWOP.7
In response, Benguet’s Manager for Legal Services, Reynaldo P. Mendoza, wrote J.G. Realty a
letter dated March 8, 1999,8 therein alleging that Benguet complied with its obligations under the
RAWOP by investing PhP 42.4 million to rehabilitate the mines, and that the commercial
operation was hampered by the non-issuance of a Mines Temporary Permit by the Mines and
Geosciences Bureau (MGB) which must be considered as force majeure, entitling Benguet to an
extension of time to prosecute such permit. Benguet further claimed that the high graders
mentioned by J.G. Realty were already operating prior to 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
RAWOP9 with the Legaspi City POA, Region V, docketed as DENR Case No. 2000-01 and
entitled J.G. Realty v. Benguet.
On March 19, 2001, the POA issued a Decision,10 dwelling upon the issues of (1) whether the
arbitrators had jurisdiction over the case; and (2) whether Benguet violated the RAWOP
justifying the unilateral cancellation of the RAWOP by J.G. Realty. The dispositive portion stated:
WHEREFORE, premises considered, the June 01, 1987 [RAWOP] and its
Supplemental Agreement is hereby declared cancelled and without effect. BENGUET
is hereby excluded from the joint MPSA Application over the mineral claims
denominated as "BONITO-I", "BONITO-II", "BONITO-III" and "BONITO-IV".
SO ORDERED.
Therefrom, Benguet filed a Notice of Appeal11 with the MAB on April 23, 2001, docketed as
Mines Administrative Case No. R-M-2000-01. Thereafter, the MAB issued the assailed
December 2, 2002 Decision. Benguet then filed a Motion for Reconsideration of the assailed
Decision which was denied in the March 17, 2004 Resolution of the MAB. Hence, Benguet filed
the instant petition.
The Issues
1. There was serious and palpable error when the Honorable Board failed to rule that
the contractual obligation of the parties to arbitrate under the Royalty Agreement is
mandatory.
 2. The Honorable Board exceeded its jurisdiction when it sustained the cancellation of
the Royalty Agreement for alleged breach of contract despite the absence of
evidence.
3. The Questioned Decision of the Honorable Board in cancelling the RAWOP
prejudice[d] the substantial rights of Benguet under the contract to the unjust
enrichment of JG Realty.12
Restated, the issues are: (1) Should the controversy have first been submitted to arbitration
before the POA took cognizance of the case?; (2) Was the cancellation of the RAWOP
supported by evidence?; and (3) Did the cancellation of the RAWOP amount to unjust
enrichment of J.G. Realty at the expense of Benguet?
The 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 the
aggrieved party with the Supreme Court within thirty (30) days from receipt of the order or
decision of the [MAB]."
However, this Court has already invalidated such provision in Carpio v. Sulu Resources
Development Corp.,13 ruling that a decision of the MAB must first be appealed to the Court of
Appeals (CA) under Rule 43 of the Rules of Court, before recourse to this Court may be had.
We held, thus:
To summarize, there are sufficient legal footings authorizing a review of the MAB
Decision under Rule 43 of the Rules of Court. First, Section 30 of Article VI of the
1987 Constitution, mandates that "[n]o law shall be passed increasing the appellate
jurisdiction of the Supreme Court as provided in this Constitution without its advice
and consent." On the other hand, Section 79 of RA No. 7942 provides that decisions
of the MAB may be reviewed by this Court on a "petition for review by certiorari." This
provision is obviously an expansion of the 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 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.
Third, the Revised Rules of Civil Procedure included Rule 43 to provide a uniform rule
on appeals from quasi-judicial agencies. Under the rule, appeals from their judgments
and final orders are now required to be brought to the CA on a verified petition for
review. A quasi-judicial agency or body has been defined as an organ of government,
other than a court or legislature, which affects the rights of private parties through
either adjudication or rule-making. MAB falls under this definition; hence, it is no
different from the other quasi-judicial bodies enumerated under Rule 43. Besides, the
introductory words in Section 1 of Circular No. 1-91––"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).15However, the Carpio ruling was not applied 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 Carpiodecision was already applicable, thus
Benguet should have filed the appeal with the CA.
Petitioner having failed to properly appeal to the CA under Rule 43, the decision of the MAB has
become final and executory. On this ground alone, the instant petition must be denied.
Even if we entertain the petition although Benguet skirted the appeal to the CA via Rule 43, still,
the December 2, 2002 Decision and March 17, 2004 Resolution of the DENR-MAB in MAB Case
No. 0124-01 should be maintained.
First Issue: The case should have first been brought to
voluntary arbitration before the POA
Secs. 11.01 and 11.02 of the RAWOP pertinently provide:
11.01 Arbitration
Any disputes, differences or disagreements between BENGUET and the OWNER with
reference to anything whatsoever pertaining to this Agreement that cannot be
amicably settled by them shall not be cause of any action of any kind whatsoever in
any court or administrative agency but shall, upon notice of one party to the other, be
referred to a Board of Arbitrators consisting of three (3) members, one to be selected
by BENGUET, another to be selected by the OWNER and the third to be selected by
the aforementioned two arbitrators so appointed.
xxxx
 11.02 Court Action
No action shall be instituted in court as to any matter in dispute as hereinabove stated,
except to enforce the decision of the majority of the Arbitrators.16
Thus, Benguet argues that the POA should have first referred the case to voluntary arbitration
before taking cognizance of the case, citing Sec. 2 of RA 876 on persons and matters subject to
arbitration.
On the other hand, in denying such argument, the POA ruled that:
While the parties may establish such stipulations clauses, terms and conditions as they may
deem convenient, the same must not be contrary to law and public policy. At a glance, there is
nothing wrong with the terms and conditions of the agreement. But to state that an aggrieved
party cannot initiate an action without going to arbitration would be tying 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,20 J.G. Realty reiterated the above rulings of the POA and MAB. It
argued that RA 7942 or the "Philippine Mining Act of 1995" is a special law which should prevail
over the stipulations of the parties and over a general law, such as RA 876. It also argued that
the POA cannot be considered as a "court" under the contemplation of RA 876 and that
jurisprudence saying that there must be prior resort to arbitration before filing a case with the
courts is inapplicable to the instant case as the POA is itself already engaged in arbitration.
On this issue, we rule for Benguet.
Sec. 2 of RA 876 elucidates the scope of arbitration:
Section 2. Persons and matters subject to arbitration.––Two or more persons or
parties may submit to the arbitration of one or more arbitrators any controversy
existing between them at the time of the submission and which may be the
subject of an action, or the parties to any contract may in such contract agree to
settle by arbitration a controversy thereafter arising between them. Such
submission or contract shall be valid, enforceable and irrevocable, save upon
such grounds as exist at law for the revocation of any contract.
Such submission or contract may include question[s] arising out of valuations,
appraisals or other controversies which may be collateral, incidental, precedent or
subsequent to any issue between the parties. (Emphasis supplied.)
In RA 9285 or the "Alternative Dispute Resolution Act of 2004," the Congress reiterated the
efficacy of arbitration as an alternative mode of dispute resolution by stating in Sec. 32 thereof
that domestic arbitration shall still be governed by RA 876. Clearly, a contractual stipulation that
requires prior resort to voluntary arbitration before the parties can go directly to court is not
illegal and is in fact promoted by the State. Thus, petitioner correctly cites several cases
whereby arbitration clauses have been upheld by this Court.21
Moreover, the contention that RA 7942 prevails over RA 876 presupposes a conflict between the
two laws. Such is not the case here. To reiterate, availment of voluntary arbitration before resort
is made to the courts or quasi-judicial agencies of the government is a valid contractual
stipulation that must be adhered to by the parties. As stated in Secs. 6 and 7 of RA 876:
Section 6. Hearing by court.––A party aggrieved by the failure, neglect or refusal
of another to perform under an agreement in writing providing for arbitration
may petition the court for an order directing that such arbitration proceed in the
manner provided for in such agreement. Five days notice in writing of the hearing
of such application shall be served either personally or by registered mail upon the
party in default. The court shall hear the parties, and upon being satisfied that the
making of the agreement or such failure to comply therewith is not in issue,
shall make an order directing the parties to proceed to arbitration in accordance
with the terms of the agreement. If the making of the agreement or default be in
issue the court shall proceed to summarily hear such issue. If the finding be
that no agreement in writing providing for arbitration was made, or that there is
no default in the proceeding thereunder, the proceeding shall be dismissed. If
the finding be that a written provision for arbitration was made and there is a
default in proceeding thereunder, an order shall be made summarily directing
the parties to proceed with the arbitration in accordance with the terms thereof.
xxxx
Section 7. Stay of civil action.––If any suit or proceeding be brought upon an issue
arising out of an agreement providing for the arbitration thereof, the court in which
such suit or proceeding is pending, upon being satisfied that the issue involved in
such suit or proceeding is referable to arbitration, shall stay the action or proceeding
until an arbitration has been had in accordance with the terms of the agreement:
Provided, That the applicant, for the stay is not in default in proceeding with such
arbitration. (Emphasis supplied.)
In other words, in the event a case that should properly be the subject of voluntary arbitration is
erroneously filed with the courts or quasi-judicial agencies, on motion of the defendant, the court
or quasi-judicial agency shall determine whether such contractual provision for arbitration is
sufficient and effective. If in affirmative, the court or quasi-judicial agency shall then order the
enforcement of said provision. Besides, in BF Corporation v. Court of Appeals, we already ruled:
In this connection, it bears stressing that the lower court has not lost its jurisdiction
over the case. Section 7 of Republic Act No. 876 provides that proceedings therein
have only been stayed. After the special proceeding of arbitration has been pursued
and completed, then the lower court may confirm the award made by the arbitrator.22
J.G. Realty’s contention, that prior resort to arbitration is unavailing in the instant case because Second Issue: The cancellation of the RAWOP
the POA’s mandate is to arbitrate disputes involving mineral agreements, is misplaced. A was supported by evidence
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
The cancellation of the RAWOP by the POA was based on two grounds: (1) Benguet’s failure to
arbitrations:
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.
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
As to the royalties, Benguet claims that the checks representing payments for the royalties of
government agency which has the authority to investigate and to make an
J.G. Realty were available for pick-up in its office and it is the latter which refused to claim them.
award which is binding on all the parties, and as a mode of arbitration where the
Benguet then thus concludes that it did not violate the RAWOP for nonpayment of royalties.
parties are compelled to accept the resolution of their dispute through arbitration by a
Further, Benguet reasons that J.G. Realty has the burden of proving that the former did not pay
third party." While a voluntary arbitrator is not part of the governmental unit or
such royalties following the principle that the complainants must prove their affirmative
labor department’s personnel, said arbitrator renders arbitration services provided
allegations.
for under labor laws.23 (Emphasis supplied.)

With regard to the failure to pursue the MPSA application, Benguet claims that the lengthy time
There is a clear distinction between compulsory and voluntary arbitration. The arbitration
of approval of the application is due to the failure of the MGB to approve it. In other words,
provided by the POA is compulsory, while the nature of the arbitration provision in the RAWOP
Benguet argues that the approval of the application is solely in the hands of the MGB.
is voluntary, not involving any government agency. Thus, J.G. Realty’s argument on this matter
must fail.
Benguet’s arguments are bereft of merit.
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 Sec. 14.05 of the RAWOP provides:
RAWOP states that:
14.05 Bank Account
[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
OWNER shall maintain a bank account at ___________ or any other bank from time
party to the other, be referred to a Board of Arbitrators consisting of three (3)
to time selected by OWNER with notice in writing to BENGUET where BENGUET
members, one to be selected by BENGUET, another to be selected by the OWNER
shall deposit to the OWNER’s credit any and all advances and payments which may
and the third to be selected by the aforementioned two arbiters so
become due the OWNER under this Agreement as well as the purchase price herein
appointed.24 (Emphasis supplied.)
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
There can be no quibbling that POA is a quasi-judicial body which forms part of the DENR, an be a full and complete acquittance and release to [sic] BENGUET from any
administrative agency. Hence, the provision on mandatory resort to arbitration, freely entered further liability to the OWNER of the amounts represented by such
into by the parties, must be held binding against them.25 deposits. (Emphasis supplied.)

In sum, on the issue of whether POA should have referred the case to voluntary arbitration, we Evidently, the RAWOP itself provides for the mode of royalty payment by Benguet. The fact that
find that, indeed, POA has no jurisdiction over the dispute which is governed by RA 876, the there was the previous practice whereby J.G. Realty picked-up the checks from Benguet is
arbitration law. unavailing. The mode of payment is embodied in a contract between the parties. As such, the
contract must be considered as the law between the parties and binding on both.26 Thus, after
J.G. Realty informed Benguet of the bank account where deposits of its royalties may be made,
However, we find that Benguet is already estopped from questioning the POA’s jurisdiction. As it
Benguet had the obligation to deposit the checks. J.G. Realty had no obligation to furnish
were, when J.G. Realty filed DENR Case No. 2000-01, Benguet filed its answer and participated
Benguet with a Board Resolution considering that the RAWOP itself provided for such payment
in the proceedings before the POA, Region V. Secondly, when the adverse March 19, 2001
scheme.
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 Notably, Benguet’s claim that J.G. Realty must prove nonpayment of its royalties is both illogical
the adverse March 17, 2004 MAB Resolution was issued, Benguet filed a petition with this Court and unsupported by law and jurisprudence.
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
The allegation of nonpayment is not a positive allegation as claimed by Benguet. Rather, such is
Benguet at this late hour. What Benguet should have done was to immediately challenge the
a negative allegation that does not require proof and in fact transfers the burden of proof to
POA’s jurisdiction by a special civil action for certiorari when POA ruled that it has jurisdiction
Benguet. Thus, this Court ruled in Jimenez v. National Labor Relations Commission:
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. As a general rule, one who pleads payment has the burden of proving it. Even where
the plaintiff must allege non-payment, the general rule is that the burden rests on the
 defendant to prove payment, rather than on the plaintiff to prove non-payment. The
debtor has the burden of showing with legal certainty that the obligation has
been discharged by payment.27 (Emphasis supplied.)

In the instant case, the obligation of Benguet to pay royalties to J.G. Realty has been admitted
and supported by the provisions of the RAWOP. Thus, the burden to prove such obligation rests
on Benguet.

It should also be borne in mind that MPSA Application No. APSA-V-0009 has been pending with
the MGB for a considerable length of time. Benguet, in the RAWOP, obligated itself to perfect
the rights to the mining claims and/or otherwise acquire the mining rights to the mineral claims
but failed to present any evidence showing that it exerted efforts to speed up and have the
application approved. In fact, Benguet never even alleged that it continuously followed-up the
application with the MGB and that it was in constant communication with the government agency
for the expeditious resolution of the application. Such allegations would show that, indeed,
Benguet was remiss in prosecuting the MPSA application and clearly failed to comply with its
obligation in the RAWOP.

Third Issue: There is no unjust enrichment in the instant case

Based on the foregoing discussion, the cancellation of the RAWOP was based on valid grounds
and is, therefore, justified. The necessary implication of the cancellation is the cessation of
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 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.28(Emphasis supplied.)

Clearly, there is no unjust enrichment in the instant case as the cancellation of the RAWOP,
which left Benguet without any legal right to participate in further developing the mining claims,
was brought about by its violation of the RAWOP. Hence, Benguet has no one to blame but itself
for its predicament.

WHEREFORE, we DISMISS the petition, and AFFIRM the December 2, 2002 Decision and

March 17, 2004 Resolution of the DENR-MAB in MAB Case No. 0124-01 upholding the
cancellation of the June 1, 1987 RAWOP. No costs.

SO ORDERED.

G.R. Nos. 152613 & 152628               November 20, 2009
APEX MINING CO., INC., petitioner,  Department of Environment and Natural Resources (DENR). Moreover, the Assailed Decision
vs.
SOUTHEAST MINDANAO GOLD MINING CORP., the mines adjudication board, provincial
mining regulatory board (PMRB-DAVAO), MONKAYO INTEGRATED SMALL SCALE
MINERS ASSOCIATION, INC., ROSENDO VILLAFLOR, BALITE COMMUNAL PORTAL
MINING COOPERATIVE, DAVAO UNITED MINERS COOPERATIVE, ANTONIO DACUDAO,
PUTING-BATO GOLD MINERS COOPERATIVE, ROMEO ALTAMERA, THELMA
CATAPANG, LUIS GALANG, RENATO BASMILLO, FRANCISCO YOBIDO, EDUARDO
GLORIA, EDWIN ASION, MACARIO HERNANDEZ, REYNALDO CARUBIO, ROBERTO
BUNIALES, RUDY ESPORTONO, ROMEO CASTILLO, JOSE REA, GIL GANADO,
PRIMITIVA LICAYAN, LETICIA ALQUEZA and JOEL BRILLANTES Management Mining
Corporation, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 152619-20
BALITE COMMUNAL PORTAL MINING COOPERATIVE, petitioner, 
vs.
SOUTHEAST MINDANAO GOLD MINING CORP., APEX MINING CO., INC., The Mines
Adjudication Board, Provincial Mining Regulatory Board (PMRB-DAVAO), MONKAYO
INTEGRATED SMALL SCALE MINERS ASSOCIATION, INC., ROSENDO VILLAFLOR,
DAVAO UNITED MINERS COOPERATIVE, ANTONIO DACUDAO, PUTING-BATO GOLD
MINERS COOPERATIVE, ROMEO ALTAMERA, THELMA CATAPANG, LUIS GALANG,
RENATO BASMILLO, FRANCISCO YOBIDO, EDUARDO GLORIA, EDWIN ASION,
MACARIO HERNANDEZ, REYNALDO CARUBIO, ROBERTO BUNIALES, RUDY
ESPORTONO, ROMEO CASTILLO, JOSE REA, GIL GANADO, PRIMITIVA LICAYAN,
LETICIA ALQUEZA and JOEL BRILLANTES Management Mining
Corporation, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 152870-71
THE MINES ADJUDICATION BOARD AND ITS MEMBERS, THE HON. VICTOR O. RAMOS
(Chairman), UNDERSECRETARY VIRGILIO MARCELO (Member) and DIRECTOR
HORACIO RAMOS (Member), petitioners,
vs.
SOUTHEAST MINDANAO GOLD MINING CORPORATION, Respondent.
RESOLUTION
CHICO-NAZARIO, J.:
This resolves the motion for reconsideration dated 12 July 2006, filed by Southeast Mindanao
Gold Mining Corporation (SEM), of this Court’s Decision dated 23 June 2006 (Assailed
Decision). The Assailed Decision held that the assignment of Exploration Permit (EP) 133 in
favor of SEM violated one of the conditions stipulated in the permit, i.e., that the same shall be
for the exclusive use and benefit of Marcopper Mining Corporation (MMC) or its duly authorized
agents. Since SEM did not claim or submit evidence that it was a designated agent of MMC, the
latter cannot be considered as an agent of the former that can use EP 133 and benefit from it. It
also ruled that the transfer of EP 133 violated Presidential Decree No. 463, which requires that
the assignment of a mining right be made with the prior approval of the Secretary of the
pointed out that EP 133 expired by non-renewal since it was not renewed before or after its
expiration.
The Assailed Decision likewise upheld the validity of Proclamation No. 297 absent any question
against its validity. In view of this, and considering that under Section 5 of Republic Act No.
7942, otherwise known as the "Mining Act of 1995," mining operations in mineral reservations
may be undertaken directly by the State or through a contractor, the Court deemed the issue of
ownership of priority right over the contested Diwalwal Gold Rush Area as having been
overtaken by the said proclamation. Thus, it was held in the Assailed Decision that it is now
within the prerogative of the Executive Department to undertake directly the mining operations of
the disputed area or to award the operations to private entities including petitioners Apex and
Balite, subject to applicable laws, rules and regulations, and provided that these private entities
are qualified.
SEM also filed a Motion for Referral of Case to the Court En Banc and for Oral Arguments dated
22 August 2006.
Apex, for its part, filed a Motion for Clarification of the Assailed Decision, praying that the Court
elucidate on the Decision’s pronouncement that "mining operations, are now, therefore within
the full control of the State through the executive branch." Moreover, Apex asks this Court to
order the Mines and Geosciences Board (MGB) to accept its application for an exploration
permit.
In its Manifestation and Motion dated 28 July 2006, Balite echoes the same concern as that of
Apex on the actual takeover by the State of the mining industry in the disputed area to the
exclusion of the private sector. In addition, Balite prays for this Court to direct MGB to accept its
application for an exploration permit.
Camilo Banad, et al., likewise filed a motion for reconsideration and prayed that the disputed
area be awarded to them.
In the Resolution dated 15 April 2008, the Court En Banc resolved to accept the instant cases.
The Court, in a resolution dated 29 April 2008, resolved to set the cases for Oral Argument on 1
July 2008.
During the Oral Argument, the Court identified the following principal issues to be discussed by
the parties:
1. Whether the transfer or assignment of Exploration Permit (EP) 133 by MMC to SEM was
validly made without violating any of the terms and conditions set forth in Presidential Decree
No. 463 and EP 133 itself.
2. Whether Southeast Mindanao Mining Corp. acquired a vested right over the disputed area,
which constitutes a property right protected by the Constitution.
3. Whether the assailed Decision dated 23 June 2006 of the Third Division in this case is
contrary to and overturns the earlier Decision of this Court in Apex v. Garcia (G.R. No. 92605,
16 July 1991, 199 SCRA 278).
4. Whether the issuance of Proclamation No. 297 declaring the disputed area as mineral
reservation outweighs the claims of SEM, Apex Mining Co. Inc. and Balite Communal Portal
Mining Cooperative over the Diwalwal Gold Rush Area.
5. Whether the issue of the legality/constitutionality of Proclamation No. 297 was belatedly
raised.
6. Assuming that the legality/constitutionality of Proclamation No. 297 was timely raised, whether
said proclamation violates any of the following:
a. Article XII, Section 4 of the Constitution;
b. Section 1 of Republic Act No. 3092;
c. Section 14 of the Administrative Code of 1987;
d. Section 5(a) of Republic Act No. 7586;
e. Section 4(a) of Republic Act No. 6657; and
f. Section 2, Subsection 2.1.2 of Executive Order No. 318 dated 9 June 2004.
After hearing the arguments of the parties, the Court required them to submit their respective
memoranda. Memoranda were accordingly filed by SEM, Apex, Balite and Mines Adjudication
Board (MAB).
We shall resolve the second issue before dwelling on the first, third and the rest of the issues.
MMC or SEM Did Not Have Vested Rights Over the Diwalwal Gold Rush Area
Petitioner SEM vigorously argues that Apex Mining Co., Inc. v. Garcia1 vested in MMC mining
rights over the disputed area. It claims that the mining rights that MMC acquired under the said
case were the ones assigned to SEM, and not the right to explore under MMC’s EP 133. It
insists that mining rights, once obtained, continue to subsist regardless of the validity of the
exploration permit; thus, mining rights are independent of the exploration permit and therefore
do not expire with the permit. SEM insists that a mining right is a vested property right that not
even the government can take away. To support this thesis, SEM cites this Court’s ruling in
McDaniel v. Apacible and Cuisia2 and in Gold Creek Mining Corporation v. Rodriguez,3 which
were decided in 1922 and 1938, respectively.
McDaniel and Gold Creek Mining Corporation are not in point.
In 1916, McDaniel, petitioner therein, located minerals, i.e., petroleum, on an unoccupied public
land and registered his mineral claims with the office of the mining recorder pursuant to the
Philippine Bill of 1902, where a mining claim locator, soon after locating the mine, enjoyed
possessory rights with respect to such mining claim with or without a patent therefor. In that
case, the Agriculture Secretary, by virtue of Act No. 2932, approved in 1920, which provides that
"all public lands may be leased by the then Secretary of Agriculture and Natural Resources,"
was about to grant the application for lease of therein respondent, overlapping the mining claims
of the subject petitioner. Petitioner argued that, being a valid locator, he had vested right over
the public land where his mining claims were located. There, the Court ruled that the mining
claim perfected under the Philippine Bill of 1902, is "property in the highest sense of that term,
which may be sold and conveyed, and will pass by descent, and is not therefore subject to the
disposal of the Government." The Court then declared that since petitioner had already
perfected his mining claim under the Philippine Bill of 1902, a subsequent statute, i.e., Act No.
2932, could not operate to deprive him of his already perfected mining claim, without violating
his property right.
Gold Creek Mining reiterated the ruling in McDaniel that a perfected mining claim under the
Philippine Bill of 1902 no longer formed part of the public domain; hence, such mining claim
does not come within the prohibition against the alienation of natural resources under Section 1,
Article XII of the 1935 Constitution.
Gleaned from the ruling on the foregoing cases is that for this law to apply, it must be
established that the mining claim must have been perfected when the Philippine Bill of 1902 was
still in force and effect. This is so because, unlike the subsequent laws that prohibit the
alienation of mining lands, the Philippine Bill of 1902 sanctioned the alienation of mining lands to
private individuals. The Philippine Bill of 1902 contained provisions for, among many other
things, the open and free exploration, occupation and purchase of mineral deposits and the land
where they may be found. It declared "all valuable mineral deposits in public lands in the
Philippine Islands, both surveyed and unsurveyed x x x to be free and open to exploration,
occupation, and purchase, and the land in which they are found to occupation and purchase, by
citizens of the United States, or of said Islands x x x."4 Pursuant to this law, the holder of the
mineral claim is entitled to all the minerals that may lie within his claim, provided he does three
acts: First, he enters the mining land and locates a plot of ground measuring, where possible,
but not exceeding, one thousand feet in length by one thousand feet in breadth, in as nearly a
rectangular form as possible.5 Second, the mining locator has to record the mineral claim in the
mining recorder within thirty (30) days after the location thereof.6 Lastly, he must comply with the
annual actual work requirement.7 Complete mining rights, namely, the rights to explore, develop
and utilize, are acquired by a mining locator by simply following the foregoing
requirements.1avvphi1
With the effectivity of the 1935 Constitution, where the regalian doctrine was adopted, it was
declared that all natural resources of the Philippines, including mineral lands and minerals, were
property belonging to the State.8 Excluded, however, from the property of public domain were
the mineral lands and minerals that were located and perfected by virtue of the Philippine Bill of
1902, since they were already considered private properties of the locators.9
Commonwealth Act No. 137 or the Mining Act of 1936, which expressly adopted the regalian
doctrine following the provision of the 1935 Constitution, also proscribed the alienation of mining
lands and granted only lease rights to mining claimants, who were prohibited from purchasing
the mining claim itself.
When Presidential Decree No. 463, which revised Commonwealth Act No. 137, was in force in
1974, it likewise recognized the regalian doctrine embodied in the 1973 Constitution. It declared
that all mineral deposits and public and private lands belonged to the state while, nonetheless,
recognizing mineral rights that had already been existing under the Philippine Bill of 1902 as
being beyond the purview of the regalian doctrine.10 The possessory rights of mining claim
holders under the Philippine Bill of 1902 remained intact and effective, and such rights were
recognized as property rights that the holders could convey or pass by descent.11
In the instant cases, SEM does not aver or prove that its mining rights had been perfected and
completed when the Philippine Bill of 1902 was still the operative law. Surely, it is impossible for
SEM to successfully assert that it acquired mining rights over the disputed area in accordance
with the same bill, since it was only in 1984 that MMC, SEM’s predecessor-in-interest, filed its
declaration of locations and its prospecting permit application in compliance with Presidential
Decree No. 463. It was on 1 July 1985 and 10 March 1986 that a Prospecting Permit and EP
133, respectively, were issued to MMC. Considering these facts, there is no possibility that MMC
or SEM could have acquired a perfected mining claim under the auspices of the Philippine Bill of
1902. Whatever mining rights MMC had that it invalidly transferred to SEM cannot, by any
stretch of imagination, be considered "mining rights" as contemplated under the Philippine Bill of
1902 and immortalized in McDaniel and Gold Creek Mining.
SEM likens EP 133 with a building permit. SEM likewise equates its supposed rights attached to
the exploration permit with the rights that a private property land owner has to said landholding.
This analogy has no basis in law. As earlier discussed, under the 1935, 1973 and 1987
Constitutions, national wealth, such as mineral resources, are owned by the State and not by
their discoverer. The discoverer or locator can only develop and utilize said minerals for his own
benefit if he has complied with all the requirements set forth by applicable laws and if the State
has conferred on him such right through permits, concessions or agreements. In other words,
without the imprimatur of the State, any mining aspirant does not have any definitive right over
the mineral land because, unlike a private landholding, mineral land is owned by the State, and
the same cannot be alienated to any private person as explicitly stated in Section 2, Article XIV
of the 1987 Constitution:
All lands of public domain, waters, minerals x x x and all other natural resources are owned by
the State. With the exception of agricultural lands, all other natural resources shall not be
alienated. (Emphases supplied.)
Further, a closer scrutiny of the deed of assignment in favor of SEM reveals that MMC assigned
to the former the rights and interests it had in EP 133, thus:
1. That for ONE PESO (₱1.00) and other valuable consideration received by the ASSIGNOR
from the ASSIGNEE, the ASSIGNOR hereby ASSIGNS, TRANSFERS and CONVEYS unto the
ASSIGNEE whatever rights or interest the ASSIGNOR may have in the area situated in
Monkayo, Davao del Norte and Cateel, Davao Oriental, identified as Exploration Permit No.
133 and Application for a Permit to Prospect in Bunawan, Agusan del Sur respectively.
(Emphasis supplied.)
It is evident that what MMC had over the disputed area during the assignment was an
exploration permit. Clearly, the right that SEM acquired was limited to exploration, only because
MMC was a mere holder of an exploration permit. As previously explained, SEM did not acquire
the rights inherent in the permit, as the assignment by MMC to SEM was done in violation of the
condition stipulated in the permit, and the assignment was effected without the approval of the
proper authority in contravention of the provision of the mining law governing at that time. In
addition, the permit expired on 6 July 1994. It is, therefore, quite clear that SEM has no right
over the area.
Even assuming arguendo that SEM obtained the rights attached in EP 133, said rights cannot
be considered as property rights protected under the fundamental law.
An exploration permit does not automatically ripen into a right to extract and utilize the minerals;
much less does it develop into a vested right. The holder of an exploration permit only has the
right to conduct exploration works on the area awarded. Presidential Decree No. 463 defined
exploration as "the examination and investigation of lands supposed to contain valuable
minerals, by drilling, trenching, shaft sinking, tunneling, test pitting and other means, for the
purpose of probing the presence of mineral deposits and the extent thereof." Exploration does
not include development and exploitation of the minerals found. Development is defined by the
same statute as the steps necessarily taken to reach an ore body or mineral deposit so that it
can be mined, whereas exploitation is defined as "the extraction and utilization of mineral
deposits." An exploration permit is nothing more than a mere right accorded to its holder to be
given priority in the government’s consideration in the granting of the right to develop and utilize
the minerals over the area. An exploration permit is merely inchoate, in that the holder still has to
comply with the terms and conditions embodied in the permit. This is manifest in the language of
Presidential Decree No. 463, thus:
Sec. 8. x x x The right to exploit therein shall be awarded by the President under such terms and
conditions as recommended by the Director and approved by the Secretary Provided, That the
persons or corporations who undertook prospecting and exploration of said area shall be given
priority.
In La Bugal-B’laan Tribal Association, Inc. v. Ramos,12 this Court emphasized:
Pursuant to Section 20 of RA 7942, an exploration permit merely grants to a qualified person the
right to conduct exploration for all minerals in specified areas. Such a permit does not amount to
an authorization to extract and carry off the mineral resources that may be discovered. x x x.
Pursuant to Section 24 of RA 7942, an exploration permit grantee who determines the
commercial viability of a mining area may, within the term of the permit, file with the MGB a
declaration of mining project feasibility accompanied by a work program for development. The
approval of the mining project feasibility and compliance with other requirements of RA 7942
vests in the grantee the exclusive right to an MPSA or any other mineral agreement, or to an
FTAA. (Underscoring ours.)
The non-acquisition by MMC or SEM of any vested right over the disputed area is supported by
this Court’s ruling in Southeast Mindanao Gold Mining Corporation v. Balite Portal Mining
Cooperative13 :
Clearly then, the Apex Mining case did not invest petitioner with any definite right to the Diwalwal
mines which it could now set up against respondent BCMC and other mining groups.
Incidentally, it must likewise be pointed out that under no circumstances may 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. x x x.
(Underscoring supplied.)
Unfortunately, SEM cannot be given priority to develop and exploit the area covered by EP 133
because, as discussed in the assailed Decision, EP 133 expired by non-renewal on 6 July 1994.
Also, as already mentioned, the transfer of the said permit to SEM was without legal effect
because it was done in contravention of Presidential Decree No. 463 which requires prior
approval from the proper authority. Simply told, SEM holds nothing for it to be entitled to conduct
mining activities in the disputed mineral land.
SEM wants to impress on this Court that its alleged mining rights, by virtue of its being a
transferee of EP 133, is similar to a Financial and Technical Assistance Agreement (FTAA) of a
foreign contractor, which merits protection by the due process clause of the Constitution. SEM
cites La Bugal-B’laan Tribal Association, Inc. v. Ramos,14 as follows:
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. x x x.
Again, this argument is not meritorious. SEM did not acquire the rights attached to EP 133, since
their transfer was without legal effect. Granting for the sake of argument that SEM was a valid
transferee of the permit, its right is not that of a mining contractor. An exploration permit grantee
is vested with the right to conduct exploration only, while an FTAA or MPSA contractor is
authorized to extract and carry off the mineral resources that may be discovered in the
area.15 An exploration permit holder still has to comply with the mining project feasibility and
other requirements under the mining law. It has to obtain approval of such accomplished
requirements from the appropriate government agencies. Upon obtaining this approval, the
exploration permit holder has to file an application for an FTAA or an MPSA and have it
approved also. Until the MPSA application of SEM is approved, it cannot lawfully claim that it
possesses the rights of an MPSA or FTAA holder, thus:
x x x prior to the issuance of such FTAA or mineral agreement, the exploration permit grantee
(or prospective contractor) cannot yet be deemed to have entered into any contract or
agreement with the State x x x.16
But again, SEM is not qualified to apply for an FTAA or any mineral agreement, considering that
it is not a holder of a valid exploration permit, since EP 133 expired by non-renewal and the
transfer to it of the same permit has no legal value.
More importantly, assuming arguendo that SEM has a valid exploration permit, it cannot assert
any mining right over the disputed area, since the State has taken over the mining operations
therein, pursuant to Proclamation No. 297 issued by the President on 25 November 2002. The
Court has consistently ruled that the nature of a natural resource exploration permit is analogous
to that of a license. In Republic v. Rosemoor Mining and Development Corporation, this Court
articulated:
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.17 (Emphasis
supplied.)
As a mere license or privilege, an exploration permit can be validly amended by the President of
the Republic when national interests suitably necessitate. The Court instructed thus:
Timber licenses, permits and license agreements are the principal instruments by which the
State regulates the utilization and disposition of forest resources to the end that the public
welfare is promoted. x x x They may be validly amended, modified, replaced or rescinded by the
Chief Executive when national interests so require.18
Recognizing the importance of the country’s natural resources, not only for national economic
development, but also for its security and national defense, Section 5 of Republic Act No. 7942
empowers the President, when the national interest so requires, to establish mineral
reservations where mining operations shall be undertaken directly by the State or through a
contractor, viz:
SEC 5. Mineral Reservations. – When the national interest so requires, such as when there is a
need to preserve strategic raw materials for industries critical to national development, or certain
minerals for scientific, cultural or ecological value, the President may establish mineral
reservations upon the recommendation of the Director through the Secretary. Mining operations
in existing mineral reservations and such other reservations as may thereafter be established,
shall be undertaken by the Department or through a contractor x x x. (Emphasis supplied.)
Due to the pressing concerns in the Diwalwal Gold Rush Area brought about by unregulated
small to medium-scale mining operations causing ecological, health and peace and order
problems, the President, on 25 November 2002, issued Proclamation No. 297, which declared
the area as a mineral reservation and as an environmentally critical area. This executive fiat was
aimed at preventing the further dissipation of the natural environment and rationalizing the
mining operations in the area in order to attain an orderly balance between socio-economic
growth and environmental protection. The area being a mineral reservation, the Executive
Department has full control over it pursuant to Section 5 of Republic Act No. 7942. It can either
directly undertake the exploration, development and utilization of the minerals found therein, or it
can enter into agreements with qualified entities. Since the Executive Department now has
control over the exploration, development and utilization of the resources in the disputed area,
SEM’s exploration permit, assuming that it is still valid, has been effectively withdrawn. The
exercise of such power through Proclamation No. 297 is in accord with jura regalia, where the
State exercises its sovereign power as owner of lands of the public domain and the mineral
deposits found within. Thus, Article XII, Section 2 of the 1987 Constitution emphasizes:
SEC. 2. All lands of the public domain, water, minerals, coal, petroleum, and other mineral oils,
all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other
natural resources are owned by the State. With the exception of agricultural lands, all other
natural resources shall not be alienated. The exploration, development, and utilization of natural
resources shall be under the full control and supervision of the State. The State may directly
undertake such activities, or it may enter into co-production, joint venture, or product-sharing
agreements with Filipino citizens, or corporations or associations at least sixty per centum of
whose capital is owned by such citizens. (Emphasis supplied.)
Furthermore, said proclamation cannot be denounced as offensive to the fundamental law
because the State is sanctioned to do so in the exercise of its police power.19 The issues on
health and peace and order, as well the decadence of the forest resources brought about by
unregulated mining in the area, are matters of national interest. The declaration of the Chief
Executive making the area a mineral reservation, therefore, is sanctioned by Section 5 of
Republic Act No. 7942.
The Assignment of EP No. 133 by MMC in Favor of SEM Violated Section 97 of Presidential
Decree No. 463 and the Terms and Conditions Set Forth in the Permit
SEM claims that the approval requirement under Section 97 of Presidential Decree No. 463 is
not applicable to this case, because MMC neither applied for nor was granted a mining lease
contract. The said provision states:
SEC. 97. Assignment of Mining Rights. – A mining lease contract or any interest therein shall not
be transferred, assigned, or subleased without the prior approval of the Secretary: Provided, that
such transfer, assignment or sublease may be made only to a qualified person possessing the
resources and capability to continue the mining operations of the lessee and that the assignor
has complied with all the obligations of the lease: Provided, further, That such transfer or
assignment shall be duly registered with the office of the mining recorder concerned. (Emphasis
supplied.)
Exploration Permit 133 was issued in favor of MMC on 10 March 1986, when Presidential
Decree No. 463 was still the governing law. Presidential Decree No. 463 pertains to the old
system of exploration, development and utilization of natural resources through "license,
concession or lease."20
Pursuant to this law, a mining lease contract confers on the lessee or his successors the right to
extract, to remove, process and utilize the mineral deposits found on or underneath the surface
of his mining claims covered by the lease. The lessee may also enter into a service contract for
the exploration, development and exploitation of the minerals from the lands covered by his
lease, to wit:
SEC. 44. A mining lease contract shall grant to the lessee, his heirs, successors, and assigns
the right to extract all mineral deposits found on or underneath the surface of his mining claims
covered by the lease, continued vertically downward; to remove, process, and otherwise utilize
the mineral deposits for his own benefit; and to use the lands covered by the lease for the
purpose or purposes specified therein x x x That a lessee may on his own or through the
Government, enter into a service contract… for the exploration, development and exploitation of
his claims and the processing and marketing of the product thereof, subject to the rules and
regulations that shall be promulgated by the Director, with the approval of the Secretary x x x.
(Emphases supplied.)
In other words, the lessee’s interests are not only limited to the extraction or utilization of the
minerals in the contract area, but also to include the right to explore and develop the same. This
right to explore the mining claim or the contract area is derived from the exploration permit duly
issued by the proper authority. An exploration permit is, thus, covered by the term "any other
interest therein." Section 97 is entitled, "Assignment of Mining Rights." This alone gives a hint
that before mining rights -- namely, the rights to explore, develop and utilize -- are transferred or
assigned, prior approval must be obtained from the DENR Secretary. An exploration permit,
thus, cannot be assigned without the imprimatur of the Secretary of the DENR.
It is instructive to note that under Section 13 of Presidential Decree No. 463, the prospecting and
exploration of minerals in government reservations, such as forest reservations, are prohibited,
except with the permission of the government agency concerned. It is the government agency
concerned that has the prerogative to conduct prospecting, exploration and exploitation of such
reserved lands.21 It is only in instances wherein said government agency, in this case the Bureau
of Mines, cannot undertake said mining operations that qualified persons may be allowed by the
government to undertake such operations. PNOC-EDC v. Veneracion, Jr.22 outlines the five
requirements for acquiring mining rights in reserved lands under Presidential Decree No. 463:
(1) a prospecting permit from the agency that has jurisdiction over the land; (2) an exploration
permit from the Bureau of Mines and Geo-Sciences (BMGS); (3) if the exploration reveals the
presence of commercial deposit, application to BMGS by the permit holder for the exclusion of
the area from the reservation; (4) a grant by the President of the application to exclude the area
from the reservation; and (5) a mining agreement (lease, license or concession) approved by the
DENR Secretary.
Here, MMC met the first and second requirements and obtained an exploration permit over the
disputed forest reserved land. Although MMC still has to prove to the government that it is
qualified to develop and utilize the subject mineral land, as it has yet to go through the remaining
process before it can secure a lease agreement, nonetheless, it is bound to follow Section 97 of
Presidential Decree No. 463. The logic is not hard to discern. If a lease holder, who has already
demonstrated to the government his capacity and qualifications to further develop and utilize the
minerals within the contract area, is prohibited from transferring his mining rights (rights to
explore, develop and utilize), with more reason will this proscription apply with extra force to a
mere exploration permit holder who is yet to exhibit his qualifications in conducting mining
operations. The rationale for the approval requirement under Section 97 of Presidential Decree
No. 463 is not hard to see. Exploration permits are strictly granted to entities or individuals
possessing the resources and capability to undertake mining operations. Mining industry is a
major support of the national economy and the continuous and intensified exploration,
development and wise utilization of mining resources is vital for national development. For this
reason, Presidential Decree No. 463 makes it imperative that in awarding mining operations,
only persons possessing the financial resources and technical skill for modern exploratory and
development techniques are encouraged to undertake the exploration, development and
utilization of the country’s natural resources. The preamble of Presidential Decree No. 463
provides thus:
WHEREAS, effective and continuous mining operations require considerable outlays of capital
and resources, and make it imperative that persons possessing the financial resources and
technical skills for modern exploratory and development techniques be encouraged to undertake
the exploration, development and exploitation of our mineral resources;
The Court has said that a "preamble" is the key to understanding the statute, written to open the
minds of the makers to the mischiefs that are to be remedied, and the purposes that are to be
accomplished, by the provisions of the statute.23 As such, when the statute itself is ambiguous
and difficult to interpret, the preamble may be resorted to as a key to understanding the statute.
Indubitably, without the scrutiny by the government agency as to the qualifications of the would-
be transferee of an exploration permit, the same may fall into the hands of non-qualified entities,
which would be counter-productive to the development of the mining industry. It cannot be
overemphasized that the exploration, development and utilization of the country’s natural
resources are matters vital to the public interest and the general welfare; hence, their regulation
must be of utmost concern to the government, since these natural resources are not only critical
to the nation’s security, but they also ensure the country’s survival as a viable and sovereign
republic.24
The approval requirement of the Secretary of the DENR for the assignment of exploration
permits is bolstered by Section 25 of Republic Act No. 7942 (otherwise known as the Philippine
Mining Act of 1995), which provides that:
Sec. 25. Transfer or Assignment. – An exploration permit may be transferred or assigned to a
qualified person subject to the approval of the Secretary upon the recommendation of the
Director.
SEM further posits that Section 97 of Presidential Decree No. 463, which requires the prior
approval of the DENR when there is a transfer of mining rights, cannot be applied to the
assignment of EP 133 executed by MMC in favor of SEM because during the execution of the
Deed of Assignment on 16 February 1994, Executive Order No. 27925became the governing
statute, inasmuch as the latter abrogated the old mining system -- i.e., license, concession or
lease -- which was espoused by the former.
This contention is not well taken. While Presidential Decree No. 463 has already been repealed
by Executive Order No. 279, the administrative aspect of the former law nonetheless remains
applicable. Hence, the transfer or assignment of exploration permits still needs the prior
approval of the Secretary of the DENR. As ruled in Miners Association of the Philippines, Inc. v.
Factoran, Jr.26 :
Presidential Decree No. 463, as amended, pertains to the old system of exploration,
development and utilization of natural resources through "license, concession or lease" which,
however, has been disallowed by Article XII, Section 2 of the 1987 Constitution. By virtue of the
said constitutional mandate and its implementing law, Executive Order No. 279, which
superseded Executive Order No. 211, the provisions dealing on "license, concession, or lease"
of mineral resources under Presidential Decree No. 463, as amended, and other existing mining
laws are deemed repealed and, therefore, ceased to operate as the governing law. In other
words, in all other areas of administration and management of mineral lands, the provisions of
Presidential Decree No. 463, as amended, and other existing mining laws, still govern.
(Emphasis supplied.)
Not only did the assignment of EP 133 to SEM violate Section 97 of Presidential Decree No.
463, it likewise transgressed one of the conditions stipulated in the grant of the said permit. The
following terms and conditions attached to EP 133 are as follows:27
1. That the permittee shall abide by the work program submitted with the application or
statements made later in support thereof, and which shall be considered as conditions and
essential parts of this permit;
2. That permittee shall maintain a complete record of all activities and accounting of all
expenditures incurred therein subject to periodic inspection and verification at reasonable
intervals by the Bureau of Mines at the expense of the applicant;
3. That the permittee shall submit to the Director of Mines within 15 days after the end of each
calendar quarter a report under oath of a full and complete statement of the work done in the
area covered by the permit;
4. That the term of this permit shall be for two (2) years to be effective from this date, renewable
for the same period at the discretion of the Director of Mines and upon request of the applicant;
5. That the Director of Mines may at any time cancel this permit for violation of its provision or in
case of trouble or breach of peace arising in the area subject hereof by reason of conflicting
interests without any responsibility on the part of the government as to expenditures for
exploration that might have been incurred, or as to other damages that might have been
suffered by the permittee;
6. That this permit shall be for the exclusive use and benefit of the permittee or his duly
authorized agents and shall be used for mineral exploration purposes only and for no other
purpose.
It must be noted that under Section 9028 of Presidential Decree No. 463, which was the
applicable statute during the issuance of EP 133, the DENR Secretary, through the Director of
the Bureau of Mines and Geosciences, was charged with carrying out the said law. Also, under
Commonwealth Act No. 136, also known as "An Act Creating the Bureau of Mines," which was
approved on 7 November 1936, the Director of Mines had the direct charge of the administration
of the mineral lands and minerals; and of the survey, classification, lease or any other form of
concession or disposition thereof under the Mining Act.29 This power of administration included
the power to prescribe terms and conditions in granting exploration permits to qualified entities.
Thus, in the grant of EP 133 in favor of the MMC, the Director of the BMG acted within his power
in laying down the terms and conditions attendant thereto. MMC and SEM did not dispute the
reasonableness of said conditions.
Quite conspicuous is the fact that neither MMC nor SEM denied that they were unaware of the
terms and conditions attached to EP 133. MMC and SEM did not present any evidence that they
objected to these conditions. Indubitably, MMC wholeheartedly accepted these terms and
conditions, which formed part of the grant of the permit. MMC agreed to abide by these
conditions. It must be accentuated that a party to a contract cannot deny its validity, without
outrage to one’s sense of justice and fairness, after enjoying its benefits.30 Where parties have
entered into a well-defined contractual relationship, it is imperative that they should honor and
adhere to their rights and obligations as stated in their contracts, because obligations arising
from these have the force of law between the contracting parties and should be complied with in
good faith.31 Condition Number 6 categorically states that the permit shall be for the exclusive
use and benefit of MMC or its duly authorized agents. While it may be true that SEM, the
assignee of EP 133, is a 100% subsidiary corporation of MMC, records are bereft of any
evidence showing that the former is the duly authorized agent of the latter. This Court cannot
condone such utter disregard on the part of MMC to honor its obligations under the permit.
Undoubtedly, having violated this condition, the assignment of EP 133 to SEM is void and has
no legal effect.
To boot, SEM squandered whatever rights it assumed it had under EP 133. On 6 July 1993, EP
133 was extended for twelve more months or until 6 July 1994. MMC or SEM, however, never
renewed EP 133 either prior to or after its expiration. Thus, EP 133 expired by non-renewal on 6
July 1994. With the expiration of EP 133 on 6 July 1994, MMC lost any right to the Diwalwal
Gold Rush Area.
The Assailed Decision Resolved Facts and Issues That Transpired after the Promulgation of
Apex Mining Co., Inc. v. Garcia
SEM asserts that the 23 June 2006 Decision reversed the 16 July 1991 Decision of the Court en
banc entitled, "Apex Mining Co., Inc. v. Garcia."32
The assailed Decision DID NOT overturn the 16 July 1991 Decision in Apex Mining Co., Inc. v.
Garcia.
It must be pointed out that what Apex Mining Co., Inc. v. Garcia resolved was the issue of which,
between Apex and MMC, availed itself of the proper procedure in acquiring the right to prospect
and to explore in the Agusan-Davao-Surigao Forest Reserve. Apex registered its Declarations of
Location (DOL) with the then BMGS, while MMC was granted a permit to prospect by the
Bureau of Forest Development (BFD) and was subsequently granted an exploration permit by
the BMGS. Taking into consideration Presidential Decree No. 463, which provides that "mining
rights within forest reservation can be acquired by initially applying for a permit to prospect with
the BFD and subsequently for a permit to explore with the BMGS," the Court therein ruled that
MMC availed itself of the proper procedure to validly operate within the forest reserve or
reservation.
While it is true that Apex Mining Co., Inc. v. Garcia settled the issue of which between Apex and
MMC was legally entitled to explore in the disputed area, such rights, though, were extinguished
by subsequent events that transpired after the decision was promulgated. These subsequent
events, which were not attendant in Apex Mining Co., Inc. v. Garcia33 dated 16 July 1991, are
the following:
(1) the expiration of EP 133 by non-renewal on 6 July 1994;
(2) the transfer/assignment of EP 133 to SEM on 16 February 1994 which was done in violation
to the condition of EP 133 proscribing its transfer;
(3) the transfer/assignment of EP 133 to SEM is without legal effect for violating PD 463 which
mandates that the assignment of mining rights must be with the prior approval of the Secretary
of the DENR.
Moreover, in Southeast Mindanao Gold Mining Corporation v. Balite Portal Mining
Cooperative,34 the Court, through Associate Justice Consuelo Ynares-Santiago (now retired),
declared that Apex Mining Co., Inc. v. Garcia did not deal with the issues of the expiration of EP
133 and the validity of the transfer of EP 133 to SEM, viz:
Neither can the Apex Mining case foreclose any question pertaining to the continuing validity of
EP No. 133 on grounds which arose after the judgment in said case was promulgated. While it is
true that the Apex Mining case settled the issue of who between Apex and Marcopper validly
acquired mining rights over the disputed area by availing of the proper procedural requisites
mandated by law, it certainly did not deal with the question raised by the oppositors in the
Consolidated Mines cases, i.e., whether EP No. 133 had already expired and remained valid
subsequent to its transfer by Marcopper to petitioner. (Emphasis supplied.)
What is more revealing is that in the Resolution dated 26 November 1992, resolving the motion
for reconsideration of Apex Mining Co., Inc. v. Garcia, the Court clarified that the ruling on the
said decision was binding only between Apex and MMC and with respect the particular issue
raised therein. Facts and issues not attendant to the said decision, as in these cases, are not
settled by the same. A portion of the disposition of the Apex Mining Co., Inc. v. Garcia
Resolution dated 26 November 1992 decrees:
x x x The decision rendered in this case is conclusive only between the parties with respect to
the particular issue herein raised and under the set of circumstances herein prevailing. In no
case should the decision be considered as a precedent to resolve or settle claims of
persons/entities not parties hereto. Neither is it intended to unsettle rights of persons/entities
which have been acquired or which may have accrued upon reliance on laws passed by the
appropriate agencies. (Emphasis supplied.)
The Issue of the Constitutionality of Proclamation Is Raised Belatedly
In its last-ditch effort to salvage its case, SEM contends that Proclamation No. 297, issued by
President Gloria Macapagal-Arroyo and declaring the Diwalwal Gold Rush Area as a mineral
reservation, is invalid on the ground that it lacks the concurrence of Congress as mandated by
Section 4, Article XII of the Constitution; Section 1 of Republic Act No. 3092; Section 14 of
Executive Order No. 292, otherwise known as the Administrative Code of 1987; Section 5(a) of
Republic Act No. 7586, and Section 4(a) of Republic Act No. 6657.
It is well-settled that when questions of constitutionality are raised, the court can exercise its
power of judicial review only if the following requisites are present: (1) an actual and appropriate
case exists; (2) there is a personal and substantial interest of the party raising the constitutional
question; (3) the exercise of judicial review is pleaded at the earliest opportunity; and (4) the
constitutional question is the lis mota of the case.
Taking into consideration the foregoing requisites of judicial review, it is readily clear that the
third requisite is absent. The general rule is that the question of constitutionality must be raised
at the earliest opportunity, so that if it is not raised in the pleadings, ordinarily it may not be
raised at the trial; and if not raised in the trial court, it will not be considered on appeal.35
In the instant case, it must be pointed out that in the Reply to Respondent SEM’s Consolidated
Comment filed on 20 May 2003, MAB mentioned Proclamation No. 297, which was issued on 25
November 2002. This proclamation, according to the MAB, has rendered SEM’s claim over the
contested area moot, as the President has already declared the same as a mineral reservation
and as an environmentally critical area. SEM did not put to issue the validity of said proclamation
in any of its pleadings despite numerous opportunities to question the same. It was only after the
assailed Decision was promulgated -- i.e., in SEM’s Motion for Reconsideration of the
questioned Decision filed on 13 July 2006 and its Motion for Referral of the Case to the Court En
Banc and for Oral Arguments filed on 22 August 2006 -- that it assailed the validity of said
proclamation.
Certainly, posing the question on the constitutionality of Proclamation No. 297 for the first time in
its Motion for Reconsideration is, indeed, too late.36
In fact, this Court, when it rendered the Decision it merely recognized that the questioned
proclamation came from a co-equal branch of government, which entitled it to a strong
presumption of constitutionality.37 The presumption of its constitutionality stands inasmuch as the
parties in the instant cases did not question its validity, much less present any evidence to prove
that the same is unconstitutional. This is in line with the precept that administrative issuances
have the force and effect of law and that they benefit from the same presumption of validity and
constitutionality enjoyed by statutes.38
Proclamation No. 297 Is in Harmony with Article XII, Section 4, of the Constitution
At any rate, even if this Court were to consider the arguments belatedly raised by SEM, said
arguments are not meritorious.
SEM asserts that Article XII, Section 4 of the Constitution, bars the President from excluding
forest reserves/reservations and proclaiming the same as mineral reservations, since the power
to de-classify them resides in Congress.
Section 4, Article XII of the Constitution reads:
The Congress shall as soon as possible, determine by law the specific limits of forest lands and
national parks, marking clearly their boundaries on the ground. Thereafter, such forest lands and
national parks shall be conserved and may not be increased nor diminished, except by law. The
Congress shall provide, for such periods as it may determine, measures to prohibit logging in
endangered forests and in watershed areas.
The above-quoted provision says that the area covered by forest lands and national parks may
not be expanded or reduced, unless pursuant to a law enacted by Congress. Clear in the
language of the constitutional provision is its prospective tenor, since it speaks in this manner:
"Congress shall as soon as possible." It is only after the specific limits of the forest lands shall
have been determined by the legislature will this constitutional restriction apply. SEM does not
allege nor present any evidence that Congress had already enacted a statute determining with
specific limits forest lands and national parks. Considering the absence of such law,
Proclamation No. 297 could not have violated Section 4, Article XII of the 1987 Constitution. In
PICOP Resources, Inc. v. Base Metals Mineral Resources Corporation,39 the Court had the
occasion to similarly rule in this fashion:
x x x Sec. 4, Art. XII of the 1987 Constitution, on the other hand, provides that Congress shall
determine the specific limits of forest lands and national parks, marking clearly their boundaries
on the ground. Once this is done, the area thus covered by said forest lands and national parks
may not be expanded or reduced except also by congressional legislation. Since Congress has
yet to enact a law determining the specific limits of the forest lands covered by Proclamation No.
369 and marking clearly its boundaries on the ground, there can be no occasion that could give
rise to a violation of the constitutional provision.
Section 4, Article XII of the Constitution, addresses the concern of the drafters of the 1987
Constitution about forests and the preservation of national parks. This was brought about by the
drafters’ awareness and fear of the continuing destruction of this country’s forests.40 In view of
this concern, Congress is tasked to fix by law the specific limits of forest lands and national
parks, after which the trees in these areas are to be taken care of.41 Hence, these forest lands
and national parks that Congress is to delimit through a law could be changed only by Congress.
In addition, there is nothing in the constitutional provision that prohibits the President from
declaring a forest land as an environmentally critical area and from regulating the mining
operations therein by declaring it as a mineral reservation in order to prevent the further
degradation of the forest environment and to resolve the health and peace and order problems
that beset the area.
A closer examination of Section 4, Article XII of the Constitution and Proclamation No. 297
reveals that there is nothing contradictory between the two. Proclamation No. 297, a measure to
attain and maintain a rational and orderly balance between socio-economic growth and
environmental protection, jibes with the constitutional policy of preserving and protecting the
forest lands from being further devastated by denudation. In other words, the proclamation in
question is in line with Section 4, Article XII of the Constitution, as the former fosters the
preservation of the forest environment of the Diwalwal area and is aimed at preventing the
further degradation of the same. These objectives are the very same reasons why the subject
constitutional provision is in place.
What is more, jurisprudence has recognized the policy of multiple land use in our laws towards
the end that the country’s precious natural resources may be rationally explored, developed,
utilized and conserved.42 It has been held that forest reserves or reservations can at the same
time be open to mining operations, provided a prior written clearance by the government agency
having jurisdiction over such reservation is obtained. In other words mineral lands can exist
within forest reservations. These two terms are not anti-thetical. This is made manifest if we read
Section 47 of Presidential Decree No. 705 or the Revised Forestry Code of the Philippines,
which provides:
Mining operations in forest lands shall be regulated and conducted with due regard to protection,
development and utilization of other surface resources. Location, prospecting, exploration,
utilization or exploitation of mineral resources in forest reservations shall be governed by mining
laws, rules and regulations. (Emphasis supplied.)
Also, Section 6 of Republic Act No. 7942 or the Mining Act of 1995, states that mining
operations in reserved lands other than mineral reservations, such as forest
reserves/reservations, are allowed, viz:
Mining operations in reserved lands other than mineral reservations may be undertaken by the
Department, subject to limitations as herein provided. In the event that the Department cannot
undertake such activities, they may be undertaken by a qualified person in accordance with the
rules and regulations promulgated by the Secretary. (Emphasis supplied.)
Since forest reservations can be made mineral lands where mining operations are conducted,
then there is no argument that the disputed land, which lies within a forest reservation, can be
declared as a mineral reservation as well.
Republic Act No. 7942 Otherwise Known as the "Philippine Mining Act of 1995," is the
Applicable Law
Determined to rivet its crumbling cause, SEM then argues that Proclamation No. 297 is invalid,
as it transgressed the statutes governing the exclusion of areas already declared as forest
reserves, such as Section 1 of Republic Act No. 3092,43 Section 14 of the Administrative Code of
1987, Section 5(a) of Republic Act No. 7586,44 and Section 4(a) of Republic Act No. 6657.45
Citing Section 1 of Republic Act No. 3092, which provides as follows:
Upon the recommendation of the Director of Forestry, with the approval of the Department
Head, the President of the Philippines shall set apart forest reserves which shall include
denuded forest lands from the public lands and he shall by proclamation declare the
establishment of such forest reserves and the boundaries thereof, and thereafter such forest
reserves shall not be entered, or otherwise disposed of, but shall remain indefinitely as such for
forest uses.
The President of the Philippines may, in like manner upon the recommendation of the Director of
Forestry, with the approval of the Department head, by proclamation, modify the boundaries of
any such forest reserve to conform with subsequent precise survey but not to exclude any
portion thereof except with the concurrence of Congress.(Underscoring supplied.)
SEM submits that the foregoing provision is the governing statute on the exclusion of areas
already declared as forest reserves. Thus, areas already set aside by law as forest reserves are
no longer within the proclamation powers of the President to modify or set aside for any other
purposes such as mineral reservation.
To bolster its contention that the President cannot disestablish forest reserves into mineral
reservations, SEM makes reference to Section 14, Chapter 4, Title I, Book III of the
Administrative Code of 1987, which partly recites:
The President shall have the power to reserve for settlement or public use, and for specific
public purposes, any of the lands of the public domain, the use of which is not otherwise directed
by law. The reserved land shall thereafter remain subject to the specific public purpose indicated
until otherwise provided by law or proclamation. (Emphases supplied.)
SEM further contends that Section 7 of Republic Act No. 7586,46 which declares that the
disestablishment of a protected area shall be done by Congress, and Section 4(a) of Republic
Act No. 6657,47 which in turn requires a law passed by Congress before any forest reserve can
be reclassified, militate against the validity of Proclamation No. 297.
Proclamation No. 297, declaring a certain portion of land located in Monkayo, Compostela
Valley, with an area of 8,100 hectares, more or less, as a mineral reservation, was issued by the
President pursuant to Section 5 of Republic Act No. 7942, also known as the "Philippine Mining
Act of 1995."
Proclamation No. 297 did not modify the boundaries of the Agusan-Davao-Surigao Forest
Reserve since, as earlier discussed, mineral reservations can exist within forest reserves
because of the multiple land use policy. The metes and bounds of a forest reservation remain
intact even if, within the said area, a mineral land is located and thereafter declared as a mineral
reservation.
More to the point, a perusal of Republic Act No. 3092, "An Act to Amend Certain Sections of the
Revised Administrative Code of 1917," which was approved on 17 August 1961, and the
Administrative Code of 1987, shows that only those public lands declared by the President as
reserved pursuant to these two statutes are to remain subject to the specific purpose. The tenor
of the cited provisions, namely: "the President of the Philippines shall set apart forest reserves"
and "the reserved land shall thereafter remain," speaks of future public reservations to be
declared, pursuant to these two statutes. These provisions do not apply to forest reservations Glaring in the foregoing enumeration of areas comprising the initial component of the NIPAS
earlier declared as such, as in this case, which was proclaimed way back on 27 February 1931, System under Republic Act No. 7586 is the absence of forest reserves. Only protected areas
by Governor General Dwight F. Davis under Proclamation No. 369. enumerated under said provision cannot be modified. Since the subject matter of Proclamation
No. 297 is a forest reservation proclaimed as a mineral reserve, Republic Act No. 7586 cannot
possibly be made applicable. Neither can Proclamation No. 297 possibly violate said law.
Over and above that, Section 5 of Republic Act No. 7942 authorizes the President to establish
mineral reservations, to wit:
Similarly, Section 4(a) of Republic Act No. 6657 cannot be made applicable to the instant case.
Sec. 5. Mineral Reservations. - When the national interest so requires, such as when there is a
need to preserve strategic raw materials for industries critical to national development, or certain Section 4(a) of Republic Act No. 6657 reads:
minerals for scientific, cultural or ecological value, the President may establish mineral
reservations upon the recommendation of the Director through the Secretary. Mining operations
All alienable and disposable lands of the public domain devoted to or suitable for agriculture. No
in existing mineral reservations and such other reservations as may thereafter be established,
reclassification of forest or mineral lands to agricultural lands shall be undertaken after the
shall be undertaken by the Department or through a contractor x x x. (Emphasis supplied.)
approval of this Act until Congress, taking into account ecological, developmental and equity
considerations, shall have determined by law, the specific limits of the public domain.
It is a rudimentary principle in legal hermeneutics that where there are two acts or provisions, (Underscoring supplied.)
one of which is special and particular and certainly involves the matter in question, the other
general, which, if standing alone, would include the matter and thus conflict with the special act
Section 4(a) of Republic Act No. 6657 prohibits the reclassification of forest or mineral lands into
or provision, the special act must as intended be taken as constituting an exception to the
agricultural lands until Congress shall have determined by law the specific limits of the public
general act or provision, especially when such general and special acts or provisions are
domain. A cursory reading of this provision will readily show that the same is not relevant to the
contemporaneous, as the Legislature is not to be presumed to have intended a conflict.
instant controversy, as there has been no reclassification of a forest or mineral land into an
agricultural land.
Hence, it has become an established rule of statutory construction that where one statute deals
with a subject in general terms, and another deals with a part of the same subject in a more
Furthermore, the settled rule of statutory construction is that if two or more laws of different
detailed way, the two should be harmonized if possible; but if there is any conflict, the latter shall
dates and of contrary tenors are of equal theoretical application to a particular case, the statute
prevail regardless of whether it was passed prior to the general statute. Or where two statutes
of later date must prevail being a later expression of legislative will.48
are of contrary tenor or of different dates but are of equal theoretical application to a particular
case, the one specially designed therefor should prevail over the other.
In the case at bar, there is no question that Republic Act No. 7942 was signed into law later than
Republic Act No. 3092, the Administrative Code of 1987,49 Republic Act No. 7586 and Republic
It must be observed that Republic Act No. 3092, "An Act to Amend Certain Sections of the
Act No. 6657. Applying the cited principle, the provisions of Republic Act No. 3092, the
Revised Administrative Code of 1917," and the Administrative Code of 1987, are general laws.
Administrative Code of 1987, Republic Act No. 7586 and Republic Act No. 6657 cited by SEM
Section 1 of Republic Act No. 3092 and Section 14 of the Administrative Code of 1987 require
must yield to Section 5 of Republic Act No. 7942.
the concurrence of Congress before any portion of a forest reserve can be validly excluded
therefrom. These provisions are broad since they deal with all kinds of exclusion or
reclassification relative to forest reserves, i.e., forest reserve areas can be transformed into all Camilo Banad, et al., Cannot Seek Relief from This Court
kinds of public purposes, not only the establishment of a mineral reservation. Section 5 of
Republic Act No. 7942 is a special provision, as it specifically treats of the establishment of
Camilo Banad and his group admit that they are members of the Balite Cooperative. They,
mineral reservations only. Said provision grants the President the power to proclaim a mineral
however, claim that they are distinct from Balite and move that this Court recognize them as
land as a mineral reservation, regardless of whether such land is also an existing forest
prior mining locators.
reservation.

Unfortunately for them, this Court cannot grant any relief they seek. Records reveal that
Sec. 5(a) of Republic Act No. 7586 provides:
although they were parties to the instant cases before the Court of Appeals, they did not file a
petition for review before this Court to contest the decision of the appellate court. The only
Sec. 5. Establishment and Extent of the System. — The establishment and operationalization of petitioners in the instant cases are the MAB, SEM, Balite and Apex. Consequently, having no
the System shall involve the following: personality in the instant cases, they cannot seek any relief from this Court.

(a) All areas or islands in the Philippines proclaimed, designated or set aside, pursuant to a law, Apex’s Motion for Clarification and Balite’s Manifestation and Motion
presidential decree, presidential proclamation or executive order as national park, game refuge,
bird and wildlife sanctuary, wilderness area, strict nature reserve, watershed, mangrove reserve,
In its Motion for Clarification, Apex desires that the Court elucidate the assailed Decision’s
fish sanctuary, natural and historical landmark, protected and managed landscape/seascape as
pronouncement that "mining operations, are now, therefore within the full control of the State
well as identified virgin forests before the effectivity of this Act are hereby designated as initial
through the executive branch" and place the said pronouncement in the proper perspective as
components of the System. The initial components of the System shall be governed by existing
the declaration in La Bugal-B’Laan, which states that –
laws, rules and regulations, not inconsistent with this Act.
The concept of control adopted in Section 2 of Article XII must be taken to mean less than
dictatorial, all-encompassing control; but nevertheless sufficient to give the State the power to
direct, restrain, regulate and govern the affairs of the extractive enterprise.50
Apex states that the subject portion of the assailed Decision could send a chilling effect to
potential investors in the mining industry, who may be of the impression that the State has taken
over the mining industry, not as regulator but as an operator. It is of the opinion that the State
cannot directly undertake mining operations.
Moreover, Apex is apprehensive of the following portion in the questioned Decision– "The State
can also opt to award mining operations in the mineral reservation to private entities including
petitioner Apex and Balite, if it wishes." It avers that the phrase "if it wishes" may whimsically be
interpreted to mean a blanket authority of the administrative authority to reject the former’s
application for an exploration permit even though it complies with the prescribed policies, rules
and regulations.1 a vv p h i 1
Apex likewise asks this Court to order the MGB to accept its application for an exploration
permit.
Balite echoes the same concern as that of Apex on the actual take-over by the State of the
mining industry in the disputed area to the exclusion of the private sector. In addition, Balite
prays that this Court direct MGB to accept Balite’s application for an exploration permit.
Contrary to the contention of Apex and Balite, the fourth paragraph of Section 2, Article XII of the
Constitution and Section 5 of Republic Act No. 7942 sanctions the State, through the executive
department, to undertake mining operations directly, as an operator and not as a mere regulator
of mineral undertakings. This is made clearer by the fourth paragraph of Section 2, Article XII of
the 1987 Constitution, which provides in part:
SEC. 2. x x x The State may directly undertake such activities, or it may enter into co-production,
joint venture, or production-sharing agreements with Filipino citizens, or corporations or
associations at least sixty per centum of whose capital is owned by such citizens. x x x.
(Emphasis supplied.)
Also, Section 5 of Republic Act No. 7942 states that the mining operations in mineral
reservations shall be undertaken by the Department of Environment and Natural Resources or a
contractor, to wit:
SEC. 5. Mineral Reservations. – When the national interest so requires, such as when there is a
need to preserve strategic raw materials for industries critical to national development, or certain
minerals for scientific, cultural or ecological value, the President may establish mineral
reservations upon the recommendation of the Director through the Secretary. Mining operations
in existing mineral reservations and such other reservations as may thereafter be established,
shall be undertaken by the Department or through a contractor x x x. (Emphasis supplied.)
Undoubtedly, the Constitution, as well as Republic Act No. 7942, allows the executive
department to undertake mining operations. Besides, La Bugal-B’Laan, cited by Apex, did not
refer to the fourth sentence of Section 2, Article XII of the Constitution, but to the third sentence
of the said provision, which states:
SEC. 2. x x x The exploration, development, and utilization of natural resources shall be under
the full control and supervision of the State. x x x.
Pursuant to Section 5 of Republic Act No. 7942, the executive department has the option to
undertake directly the mining operations in the Diwalwal Gold Rush Area or to award mining
operations therein to private entities. The phrase "if it wishes" must be understood within the
context of this provision. Hence, the Court cannot dictate this co-equal branch to choose which
of the two options to select. It is the sole prerogative of the executive department to undertake
directly or to award the mining operations of the contested area.
Even assuming that the proper authority may decide to award the mining operations of the
disputed area, this Court cannot arrogate unto itself the task of determining who, among the
applicants, is qualified. It is the duty of the appropriate administrative body to determine the
qualifications of the applicants. It is only when this administrative body whimsically denies the
applications of qualified applicants that the Court may interfere. But until then, the Court has no
power to direct said administrative body to accept the application of any qualified applicant.
In view of this, the Court cannot grant the prayer of Apex and Balite asking the Court to direct
the MGB to accept their applications pending before the MGB.
SEM’s Manifestation and Motion dated 25 January 2007
SEM wants to emphasize that its predecessor-in-interest, Marcopper or MMC, complied with the
mandatory exploration work program, required under EP 133, by attaching therewith quarterly
reports on exploration work from 20 June 1986 to March 1994.
It must be observed that this is the very first time at this very late stage that SEM has presented
the quarterly exploration reports. From the early phase of this controversy, SEM did not disprove
the arguments of the other parties that Marcopper violated the terms under EP 133, among
other violations, by not complying with the mandatory exploration work program. Neither did it
present evidence for the appreciation of the lower tribunals. Hence, the non-compliance with the
mandatory exploration work program was not made an issue in any stage of the proceedings.
The rule is that an issue that was not raised in the lower court or tribunal cannot be raised for the
first time on appeal, as this would violate the basic rules of fair play, justice and due
process.51 Thus, this Court cannot take cognizance of the issue of whether or not MMC complied
with the mandatory work program.
In sum, this Court finds:
1. The assailed Decision did not overturn the 16 July 1991 Decision in Apex Mining Co., Inc. v.
Garcia. The former was decided on facts and issues that were not attendant in the latter, such
as the expiration of EP 133, the violation of the condition embodied in EP 133 prohibiting its
assignment, and the unauthorized and invalid assignment of EP 133 by MMC to SEM, since this
assignment was effected without the approval of the Secretary of DENR;
2. SEM did not acquire vested right over the disputed area because its supposed right was
extinguished by the expiration of its exploration permit and by its violation of the condition
prohibiting the assignment of EP 133 by MMC to SEM. In addition, even assuming that SEM has
a valid exploration permit, such is a mere license that can be withdrawn by the State. In fact, the
same has been withdrawn by the issuance of Proclamation No. 297, which places the disputed
area under the full control of the State through the Executive Department;
3. The approval requirement under Section 97 of Presidential Decree No. 463 applies to the
assignment of EP 133 by MMC to SEM, since the exploration permit is an interest in a mining
lease contract;
4. The issue of the constitutionality and the legality of Proclamation No. 297 was raised
belatedly, as SEM questions the same for the first time in its Motion for Reconsideration. Even if
the issue were to be entertained, the said proclamation is found to be in harmony with the
Constitution and other existing statutes;

5. The motion for reconsideration of Camilo Banad, et al. cannot be passed upon because they
are not parties to the instant cases;

6. The prayers of Apex and Balite asking the Court to direct the MGB to accept their applications
for exploration permits cannot be granted, since it is the Executive Department that has the
prerogative to accept such applications, if ever it decides to award the mining operations in the
disputed area to a private entity;

7. The Court cannot pass upon the issue of whether or not MMC complied with the mandatory
exploration work program, as such was a non-issue and was not raised before the Court of
Appeals and the lower tribunals.

WHEREFORE, premises considered, the Court holds:

1. The Motions for Reconsideration filed by Camilo Banad, et al. and Southeast Mindanao Gold
Mining Corporation are DENIED for lack of merit;

2. The Motion for Clarification of Apex Mining Co., Inc. and the Manifestation and Motion of the
Balite Communal Portal Mining Cooperative, insofar as these motions/manifestation ask the
Court to direct the Mines and Geo-Sciences Bureau to accept their respective applications for
exploration permits, are DENIED;

3. The Manifestation and Urgent Motion dated 25 January 2007 of Southeast Mindanao Gold
Mining Corporation is DENIED.

4. The State, through the Executive Department, should it so desire, may now award mining
operations in the disputed area to any qualified entities it may determine. The Mines and
Geosciences Bureau may process exploration permits pending before it, taking into
consideration the applicable mining laws, rules and regulations relative thereto.

SO ORDERED.

G.R. No. 148267              August 8, 2002
ARMANDO C. CARPIO, petitioner,  petitioner’s opposition/adverse claim. The dispositive portion of the assailed Order provides:
vs.
SULU RESOURCES DEVELOPMENT CORPORATION, respondent.
DECISION
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 Decision1 and May 3, 2001 Resolution2 of the Court of Appeals (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.
"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
‘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
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 administrative in nature, as held
in Pearson v. Intermediate Appellate Court.5 Under RA 7942, the "settlement of disputes
involving 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 herein
petitioner."7
This Court’s Ruling
The Petition is meritorious.
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           x x x          x x x
"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 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 auxillary 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
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 appellate 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.9 In short, the
Court held that the appellate jurisdiction 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,10the Court clarified that appeals from judgments and 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 agencies.11
Section 27 of RA 677012 which is similarly worded as Section 79 of the Philippine Mining Act,
was struck down by Fabian as unconstitutional, 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.13 In 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.14 There is no
convincing 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. Chat ham Properties, Inc.15 held that Section 19 of Executive
Order No. 1008 -- which 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 because, unlike this Court, it is mandated to rule on questions of
fact.16 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.17 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 duty18 of the judiciary.
To summarize, there are sufficient legal footings authorizing a review of the MAB Decision under SO ORDERED.
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.20 The parties still have a remedy and a competent tribunal
to grant this remedy.1âwphi1

Third, the Revised Rules of Civil Procedure included Rule 43 to provide a uniform rule on
appeals from quasi-judicial agencies.21 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.22 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.23 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.24

Fourth, the Court realizes that under Batas Pambansa (BP) Blg. 12925 as amended by RA No.
7902,26 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 fact27 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.28

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.

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.
 Corporation (Celestial) seeks to set aside the April 15, 2005 Decision2 of the Court of Appeals
(CA) in CA-G.R. SP No. 87931. The CA affirmed the November 26, 2004 Resolution of the
Mines Adjudication Board (MAB) in MAB Case Nos. 056-97 and 057-97 (DENR Case Nos. 97-
G.R. No. 169080               December 19, 2007 01 and 97-02), upholding the authority of the Department of Environment and Natural Resources
(DENR) Secretary to grant and cancel mineral agreements. Also assailed is the August 3, 2005
CELESTIAL NICKEL MINING EXPLORATION CORPORATION, Petitioner,  Resolution3 of the CA denying the Motion for Reconsideration of the assailed Decision.
vs.
MACROASIA CORPORATION (formerly INFANTA MINERAL AND INDUSTRIAL The second is a Petition for Certiorari4 under Rule 65 docketed as G.R. No. 172936, wherein
CORPORATION), BLUE RIDGE MINERAL CORPORATION, and LEBACH MINING petitioner Blue Ridge Mineral Corporation (Blue Ridge) seeks to annul and set aside the action
CORPORATION, Respondents. of then Secretary Michael T. Defensor, in his capacity as DENR Secretary, approving and
signing two Mineral Production Sharing Agreements (MPSAs) in favor of Macroasia Corporation
x - - - - - - - - - - - - - - - - - - - - - - -x (Macroasia) denominated as MPSA Nos. 220-2005-IVB and 221-2005-IVB.

G.R. No. 172936
BLUE RIDGE MINERAL CORPORATION, Petitioner,  reversed and set aside the November 26, 2004 and July 12, 2005 Resolutions of the MAB, and
vs.
HON. ANGELO REYES in his capacity as SECRETARY of the DEPARTMENT OF
ENVIRONMENT AND NATURAL RESOURCES, HON. GUILLERMO ESTABILLO in his
capacity as REGIONAL DIRECTOR of the MINES AND GEOSCIENCES BUREAU, REGION
IV-B of the DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES, and
MACROASIA CORPORATION (formerly INFANTA MINERAL AND INDUSTRIAL
CORPORATION), Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
And the third and fourth are petitions for review on certiorari5 under Rule 45 docketed as G.R.
No. 176226 and G.R. No. 176319, wherein petitioners Celestial and Macroasia, respectively,
seek to set aside the May 18, 2006 Decision6 of the CA in CA-G.R. SP No. 90828. The CA
reinstated the October 24, 2000 Decision in MAB Case Nos. 056-97 and 057-97, granting Blue
Ridge the prior and preferential right to file its application over the mining claims of Macroasia.
These petitions likewise seek to set aside the January 19, 2007 Resolution7 of the CA denying
petitioners’ motions for reconsideration of the assailed Decision.
Through our July 5, 2006 Resolution,8 we consolidated the first two cases. While in our
subsequent April 23, 20079and July 11, 200710 Resolutions, we consolidated the four cases as
they arose from the same facts.

The undisputed facts as found by the CA in CA-G.R. SP No. 87931 are as follows:
G.R. No. 176226

CELESTIAL NICKEL MINING EXPLORATION CORPORATION, Petitioner,  On September 24, 1973, the then Secretary of Agriculture and Natural
vs. Resources and Infanta Mineral and Industrial Corporation (Infanta)
BLUE RIDGE MINERAL CORPORATION and MACROASIA CORPORATION (formerly
INFANTA MINERAL AND INDUSTRIAL CORPORATION), Respondents. entered into a Mining Lease Contract (V-1050) for a term of 25 years
up to September 23, 1998 for mining lode claims covering an area of
x - - - - - - - - - - - - - - - - - - - - - - -x 216 hectares at Sitio Linao, Ipilan, Brooke’s Point, Palawan. The
mining claims of Infanta covered by lode/lease contracts were as
G.R. No. 176319
follows:
MACROASIA CORPORATION (formerly INFANTA MINERAL AND INDUSTRIAL
CORPORATION), Petitioner, 
vs.
BLUE RIDGE MINERAL CORPORATION and CELESTIAL NICKEL MINING EXPLORATION Contract No. Area Date of Issuance
CORPORATION,Respondents.

DECISION LLC-V-941 18 hectares January 17, 1972

VELASCO, JR., J.: LC-V-1050 216 hectares September 24, 1973

The Case
LLC-V-1060 16 hectares October 30, 1973
Before us are four (4) petitions. The first is a Petition for Review on Certiorari1 under Rule 45
docketed as G.R. No. 169080, wherein petitioner Celestial Nickel Mining Exploration

LLC-V-1061 144 hectares October 30, 1973
LLC-V-1073 144 hectares April 18, 1973
MLC-MRD-52 306 hectares April 26, 1978
MLC-MRC-53 72 hectares April 26, 1978
Infanta’s corporate name was changed to Cobertson Holdings Corporation on January 26, 1994
and subsequently to its present name, Macroasia Corporation, on November 6, 1995.
Sometime in 1997, Celestial filed a Petition to Cancel the subject mining lease contracts and
other mining claims of Macroasia including those covered by Mining Lease Contract No. V-1050,
before the Panel of Arbitrators (POA) of the Mines and Geo-Sciences Bureau (MGB) of the
DENR. The petition was docketed as DENR Case No. 97-01.
Blue Ridge, in an earlier letter-petition, also wrote the Director of Mines to seek cancellation of
mining lease contracts and other mining rights of Macroasia and another entity, Lebach Mining
Corporation (Lebach), in mining areas in Brooke’s Point. The petition was eventually docketed
as DENR Case No. 97-02.
Celestial is the assignee of 144 mining claims covering such areas contiguous to Infanta’s (now
Macroasia) mining lode claims. Said area was involved in protracted administrative disputes with
Infanta (now Macroasia), Lecar & Sons, Inc., and Palawan Nickel Mining Corporation. Celestial
also holds an MPSA with the government which covers 2,835 hectares located at Ipilan/Maasin,
Brooke’s Point, Palawan and two pending applications covering another 4,040 hectares in
Barangay Mainit also in Brooke’s Point.
Celestial sought the cancellation of Macroasia’s lease contracts on the following grounds: (1) the
nonpayment of Macroasia of required occupational fees and municipal taxes; (2) the non-filing of
Macroasia of Affidavits of Annual Work Obligations; (3) the failure of Macroasia to provide
improvements on subject mining claims; (4) the concentration of Macroasia on logging; (5) the
encroachment, mining, and extraction by Macroasia of nickel ore from Celestial’s property; (6)
the ability of Celestial to subject the mining areas to commercial production; and (7) the
willingness of Celestial to pay fees and back taxes of Macroasia.
In the later part of the proceedings, Macroasia intervened in the case and submitted its position
paper refuting the grounds for cancellation invoked by Celestial.11
The Ruling of the Panel of Arbitrators in
DENR Case Nos. 97-01 and 97-02
Based on the records of the Bureau of Mines and findings of the field investigations, the POA
found that Macroasia and Lebach not only automatically abandoned their areas/mining claims
but likewise had lost all their rights to the mining claims. The POA granted the petition of
Celestial to cancel the following Mining Lease Contracts of Macroasia: LLC-V-941, LLC-V-1050,
LLC-V-1060, LLC-V-1061, LLC-V-1073, MLC-MRD-52, and MLC-MRC-53; and found the claims
of the others indubitably meritorious. It gave Celestial the preferential right to Macroasia’s mining
areas.12 It upheld Blue Ridge’s petition regarding DENR Case No. 97-02, but only as against the
Mining Lease Contract areas of Lebach (LLC-V-1153, LLC-V-1154, and LLC-V-1155), and the
said leased areas were declared automatically abandoned. It gave Blue Ridge priority right to
the aforesaid Lebach’s areas/mining claims.13
Blue Ridge and Macroasia appealed before the MAB, and the cases were docketed as MAB
Case Nos. 056-97 and 057-97, respectively.
Lebach did not file any notice of appeal with the required memorandum of appeal; thus, with
respect to Lebach, the above resolution became final and executory.
The Rulings of the Mines Adjudication Board in
MAB Case Nos. 056-97 and 057-97 (DENR Case Nos. 97-01 and 97-02)
The MAB resolved the issues of timeliness and perfection of Macroasia’s appeal; Macroasia’s
abandonment of its mining claims; and the preferential right over the abandoned mining claims
of Macroasia.
Conformably with Section 51 of Consolidated Mines Administrative Order
(CMAO)14 implementing Presidential Decree No. (PD) 46315 and our ruling in Medrana v. Office
of the President (OP),16 the MAB affirmed the POA findings that Macroasia abandoned its
mining claims. The MAB found that Macroasia did not comply with its work obligations from 1986
to 1991. It based its conclusion on the field verifications conducted by the MGB, Region IV and
validated by the Special Team tasked by the MAB.17 However, contrary to the findings of the
POA, the MAB found that it was Blue Ridge that had prior and preferential rights over the mining
claims of Macroasia, and not Celestial.
Thus, on October 24, 2000, the MAB promulgated its Decision upholding the Decision of the
POA to cancel the Mining Lode/Lease Contracts of Macroasia; declaring abandoned the subject
mining claims; and opening the mining area with prior and preferential rights to Blue Ridge for
mining applications, subject to strict compliance with the procedure and requirements provided
by law. In case Blue Ridge defaults, Celestial could exercise the secondary priority and
preferential rights, and subsequently, in case Celestial also defaults, other qualified applicants
could file.18
Both Celestial and Macroasia moved for reconsideration.19 Celestial asserted that it had better
rights than Blue Ridge over the mining claims of Macroasia as it had correctly filed its petition,
and filed its MPSA application after Macroasia’s lease contract expired on January 17, 1997 and
after the POA’s resolution was issued on September 1, 1997. Moreover, it argued that priority
was not an issue when the contested area had not yet been declared abandoned. Thus, Blue
Ridge’s MPSA application filed on June 17, 1996 had no effect and should not be considered
superior since Macroasia’s lease contracts were still valid and subsisting and could not have
been canceled by Macroasia’s mere failure to perform annual work obligations and pay
corresponding royalties/taxes to the government.
Macroasia, in its Motion for Reconsideration, reiterated that it did not abandon its mining claims,
and even if mining was not listed among its purposes in its amended Articles of Incorporation, its
mining activities were acts that were only ultra vires but were ratified as a secondary purpose by
its stockholders in subsequent amendments of its Articles of Incorporation.
Before the MAB could resolve the motions for reconsideration, on March 16, 2001, Macroasia
filed its Supplemental Motion for Reconsideration20 questioning the jurisdiction of the POA in
canceling mining lease contracts and mining claims. Macroasia averred that the power and
authority to grant, cancel, and revoke mineral agreements is exclusively lodged with the DENR
Secretary. Macroasia further pointed out that in arrogating upon itself such power, the POA Hence, Celestial filed its Petition for Review on Certiorari30 docketed as G.R. No. 169080, before
whimsically and capriciously discarded the procedure on conferment of mining rights laid down this Court.
in Republic Act No. (RA) 7942, The Philippine Mining Act of 1995, and DENR Administrative
Order No. (AO) 96-40,21 and perfunctorily and improperly awarded its mining rights to Blue Ridge
The Ruling of the Court of Appeals Special Tenth Division
and Celestial.

On May 18, 2006, the CA Special 10th Division in CA-G.R. SP No. 90828 granted Blue Ridge’s
Subsequently, on November 26, 2004, the MAB issued a Resolution22 vacating its October 24,
petition; reversed and set aside the November 26, 2004 and July 12, 2005 Resolutions of the
2000 Decision, holding that neither the POA nor the MAB had the power to revoke a mineral
MAB; and reinstated the October 24, 2000 Decision in MAB Case Nos. 056-97 and 057-97. The
agreement duly entered into by the DENR Secretary, ratiocinating that there was no provision
Special Tenth Division canceled Macroasia’s lease contracts; granted Blue Ridge prior and
giving the POA and MAB the concurrent power to manage or develop mineral resources. The
preferential rights; and treated the cancellation of a mining lease agreement as a mining dispute
MAB further held that the power to cancel or revoke a mineral agreement was exclusively
within the exclusive jurisdiction of the POA under Sec. 77 of RA 7942, explaining that the power
lodged with the DENR Secretary; that a petition for cancellation is not a mining dispute under the
to resolve mining disputes, which is the greater power, necessarily includes the lesser power to
exclusive jurisdiction of the POA pursuant to Sec. 77 of RA 7942; and that the POA could only
cancel mining agreements.
adjudicate claims or contests during the MPSA application and not when the claims and leases
were already granted and subsisting.
On February 20, 2006, Celestial filed a Most Urgent Motion for Issuance of a Temporary
Restraining Order/Preliminary Prohibitory Injunction/Mandatory Injunction31 to defer and preclude
Moreover, the MAB held that there was no abandonment by Macroasia because the DENR
the issuance of MPSA to Macroasia by the MGB and the DENR Secretary. We denied this
Secretary had not decided to release Macroasia from its obligations. The Secretary may choose
motion in our February 22, 2006 Resolution.32
not to release a contractor from its obligations on grounds of public interest. Thus, through its
said resolution, the MAB rendered its disposition, as follows:
Upon inquiry with the DENR, Blue Ridge discovered that sometime in December 2005 two
MPSAs, duly approved and signed by the DENR Secretary, had been issued in favor of
WHEREFORE, premises considered, the assailed Decision of October 24, 2000 is hereby
Macroasia. Thus, we have the instant Petition for Certiorari33 filed by Blue Ridge docketed
VACATED. The seven (7) mining lease contracts of Macroasia Corporation (formerly Infanta
as G.R. No. 172936 under Rule 65, seeking to invalidate the two MPSAs issued to Macroasia.
Mineral & Industrial Corporation) are DECLARED SUBSISTING prior to their expirations without
prejudice to any Decision or Order that the Secretary may render on the same. NO
PREFERENTIAL RIGHT over the same mining claims is accorded to Blue Ridge Mineral In the meantime, on June 7, 2006, Celestial filed its Motion for Partial Reconsideration34 of the
Corporation or Celestial Nickel Mining Exploration Corporation also without prejudice to the May 18, 2006 CA Decision in CA-G.R. SP No. 90828, while Macroasia filed its motion for
determination by the Secretary over the matter at the proper time.23 reconsideration of the same CA decision on July 7, 2006. The motions were denied in the
assailed January 19, 2007 CA Resolution. Hence, on March 8, 2007, Celestial filed the third
petition35 docketed as G.R. No. 176226, assailing the CA’s May 18, 2006 Decision and January
After the issuance of the MAB Resolution, Celestial and Blue Ridge went through divergent
19, 2007 Resolution, insofar as these granted Blue Ridge’s prior and preferential rights. While
paths in their quest to protect their individual interests.
on March 9, 2007, Macroasia filed the fourth petition36 docketed as G.R. No. 176319, also
assailing the CA’s May 18, 2006 Decision and January 19, 2007 Resolution.
On January 10, 2005, Celestial assailed the November 26, 2004 MAB Resolution before the CA
in a petition for review24 under Rule 43 of the Rules of Court. The petition entitled Celestial
The Issues
Nickel Mining Exploration Corporation v. Macroasia Corporation, et al. was docketed as CA-G.R.
SP No. 87931.
In G.R. No. 169080, petitioner Celestial raises the following issues for our consideration:
25 26
On the other hand, Blue Ridge first filed a Motion for Reconsideration  which was denied.  On
August 26, 2005, Blue Ridge questioned the MAB’s November 26, 2004 and July 12, 2005 (1) Whether or not Macroasia, for reasons of public policy is estopped from assailing the alleged
Resolutions before the CA in a petition for review27 entitled Blue Ridge Mineral Corporation v. lack of jurisdiction of the Panel of Arbitrators and the Mines Adjudication Board only after
Mines Adjudication Board, et al. docketed as CA-G.R. SP No. 90828. receiving an adverse judgment therefrom? [sic]

CA-G.R. SP No. 87931 filed by Celestial was heard by the 12th Division of the CA; while Blue
Ridge’s CA-G.R. SP No. 90828 was heard by the Special 10th Division. Ironically, the two
divisions rendered two (2) diametrically opposing decisions.
The Ruling of the Court of Appeals Twelfth Division
(2) Whether or not it is only the Secretary of the DENR who has the jurisdiction to cancel mining
contracts and privileges? [sic]
(3) Whether or not a petition for the cancellation of a mining lease contract or privilege is a
mining dispute within the meaning of the law? [sic]

On April 15, 2005, in CA-G.R. SP No. 87931, the CA 12th Division affirmed the November 26, (4) Whether or not Infanta’s (Macroasia) mining lease contract areas were deemed abandoned
2004 MAB Resolution which declared Macroasia’s seven mining lease contracts as subsisting; warranting the cancellation of the lease contracts and the opening of the areas to other qualified
rejected Blue Ridge’s claim for preferential right over said mining claims; and upheld the applicants? [sic]
exclusive authority of the DENR Secretary to approve, cancel, and revoke mineral agreements.
The CA also denied Celestial’s Motion for Reconsideration28 of the assailed August 3, 2005
Resolution.29
(5) Whether or not Macroasia/Infanta had lost its right to participate in this case after it failed to
seasonably file its appeal and after its lease contracts had been declared abandoned and
expired without having been renewed by the government? [sic]
(6) Whether or not Celestial has the preferential right to apply for the 23 DE LARA claims which
were included in Infanta’s (Macroasia) expired lease contract (LLC-V-941) and the other areas
declared as lapsed or abandoned by MGB-Region 4 and the Panel of Arbitrators?37 [sic]
In G.R. No. 172936, petitioner Blue Ridge raises the following grounds for the allowance of the
petition:
I
At the outset, the instant petition must be given due course and taken cognizance of by the
Honorable Court considering that exceptional and compelling circumstances justify the
availment of the instant petition and the call for the exercise of the Honorable Court’s primary
jurisdiction.
A. The exploration, development and utilization of minerals, petroleum and other mineral oils are
imbued with public interest. The action of then Secretary Defensor, maintained and continued by
public respondent Secretary Reyes, was tainted with grave abuse of discretion, has far-reaching
consequences because of the magnitude of the effect created thereby.
B. The issues in the instant petition have already been put to fore by Celestial with the First
Division of the Honorable Court, and hence, this circumstance justifies the cognizance by the
Honorable Court of the instant petition.1âwphi1
II
It was grave abuse of discretion amounting to lack and/or excess of jurisdiction for then
Secretary Defensor to have issued the subject MPSAs in favor of private respondent Macroasia,
considering that:
A. Non-compliance of the mandatory requirements by private respondent Macroasia prior to
approval of the subject MPSAs should have precluded then Secretary Defensor from approving
subject MPSAs.
B. Petitioner Blue Ridge has the prior and preferential right to file its mining application over the
mining claims covered by the subject MPSAs, pursuant to the Decision dated 24 October 2000
of the Board and as affirmed by the Decision dated 18 May 2006 of the Court of Appeals in CA-
G.R. SP No. 90828.38
In G.R. No. 176226, petitioner Celestial ascribes the following errors to the CA for our
consideration:
(1) That in reinstating and adopting as its own the Decision of the Mine Adjudication Board
affirming the abandonment and cancellation of the mining areas/claims of Macroasia (Infanta)
but awarding the prior or preferential rights to Blue Ridge, the Hon. Court of Appeals had
decided a question of substance in a way not in accord with the Law (RA 7942) or with the
applicable decisions of the Supreme Court; in other words, errors of law had been committed by
the Hon. Court of Appeals in granting preferential rights to Blue Ridge;
(2) That the Hon. Court of Appeals has so far departed from the accepted and usual course of
judicial proceedings or so far sanctioned such departure by the Mines Adjudication Board in its
Decision of May 18, 2006 and Resolution of January 19, 2007 because:
(A) The findings of fact of the Hon. Court of Appeals are contradictory or inconsistent with the
findings of the Panel of Arbitrators;
(B) There is grave abuse of discretion on the part of the Hon. Court of Appeals in its appreciation
of the facts, the evidence and the law thereby leading it to make the erroneous conclusion that
Blue Ridge, not Celestial, is entitled to the Award of prior/preferential rights over the mining
areas declared as abandoned by Macroasia;
(C) There is likewise, a grave abuse of discretion on the part of the Hon. Court of Appeals in that
the said Court did not even consider some of the issues raised by Celestial;
(D) That the findings of the Hon. Court of Appeals are mere conclusions not supported by
substantial evidence and without citation of the specific evidence upon which they are based;
they were arrived at arbitrarily or in disregard of contradiction of the evidence on record and
findings of the Panel of Arbitrators in the Resolution of September 1, 1997;
(E) That the findings of the Hon. Court of Appeals are premised on the absence of evidence but
such findings are contradicted by the evidence on record and are violative of the provisions of
RA 7942 and its Implementing Rules and Regulations.39
In G.R. No. 176319, petitioner Macroasia raises the following grounds for the allowance of the
petition:
I.
The Court of Appeals (Special Tenth Division) should have dismissed the Petition of Blue Ridge
outright since the issues, facts and matters involved in the said Petition are identical to those
which had already been painstakingly passed upon, reviewed and resolved by the Court of
Appeal’s Twelfth Division in CA-G.R. SP No. 87931
II.
The Court of Appeals (Special Tenth Division) gravely erred in denying Macroasia’s Motion to
Inhibit Associate Justice Rosmari Carandang from hearing and deciding the Petition
III.
There were no factual nor legal bases for the Court of Appeals to rule that Macroasia had
waived its right to question the jurisdiction of the Mines Adjudication Board
IV.
Republic Act No. 7942 contains provisions which unequivocally indicate that only the Secretary
of the Department of Environment and Natural Resources has the power and authority to cancel
mining lease agreements
V.
The Court of Appeals (Special Tenth Division) gravely erred in perfunctorily transferring
Macroasia’s mining lease agreements to Blue Ridge without observing the required procedure
nor providing any basis therefor40
The Court’s Ruling
The petitions under G.R. Nos. 169080, 172936, and 176226 are bereft of merit, while the
petition under G.R. No. 176319 is meritorious.
The pith of the controversy, upon which the other issues are hinged is, who has authority and
jurisdiction to cancel existing mineral agreements under RA 7942 in relation to PD 463 and
pertinent rules and regulations.
G.R. Nos. 169080, 176226 and 176319
We will jointly tackle G.R. Nos. 169080, 176266, and 176319 as the issues and arguments of
these three are inextricably intertwined.
Core Issue: Jurisdiction over Cancellation of Mineral Agreements
Petitioner Celestial maintains that while the jurisdiction to approve mining lease contracts or
mineral agreements is conferred on the DENR Secretary, Sec. 77(a) of RA 7942 by implication
granted to the POA and MAB the authority to cancel existing mining lease contracts or mineral
agreements.
On the other hand, respondent Macroasia strongly asserts that it is the DENR Secretary who
has the exclusive and primary jurisdiction to grant and cancel existing mining lease contracts;
thus, the POA and MAB have no jurisdiction to cancel much less to grant any preferential rights
to other mining firms.
Before we resolve this core issue of jurisdiction over cancellation of mining lease contracts, we
first need to look back at previous mining laws pertinent to this issue.
Under PD 463, The Mineral Resources Development Decree of 1974, which took effect on May
17, 1974, applications for lease of mining claims were required to be filed with the Director of the
Bureau of Mines, within two (2) days from the date of their recording.41 Sec. 40 of PD 463
provided that if no adverse claim was filed within (15) days after the first date of publication, it
was conclusively presumed that no adverse claim existed and thereafter no objection from third
parties to the grant of the lease could be heard, except protests pending at the time of
publication. The Secretary would then approve and issue the corresponding mining lease
contract. In case of any protest or adverse claim relating to any mining claim and lease
application, Secs. 48 and 50 of PD 463 prescribed the procedure. Under Sec. 48, the protest
should be filed with the Bureau of Mines. Under Sec. 50, any party not satisfied with the decision
or order of the Director could, within five (5) days from receipt of the decision or order, appeal to
the Secretary. The decisions of the Secretary were likewise appealable within five (5) days from
receipts by the affected party to the President of the Philippines whose decision shall be final
and executory. PD 463 was, however, silent as to who was authorized to cancel the mineral
agreements.
On July 10, 1987, President Corazon C. Aquino issued Executive Order No. (EO) 211. Under
Sec. 2 of EO 211, the processing, evaluation, and approval of all mining applications,
declarations of locations, operating agreements, and service contracts were governed by PD
463, as amended. EO 211 likewise did not contain any provision on the authority to cancel
operating agreements and service contracts.
On July 25, 1987, EO 279 was issued by President Aquino. It authorized the DENR Secretary to
negotiate and enter into, for and in behalf of the Government, joint venture, co-production, or
production-sharing agreements for the exploration, development, and utilization of mineral
resources with any Filipino citizen, corporation, or association, at least 60% of whose capital
was owned by Filipino citizens.42 The contract or agreement was subject to the approval of the
President.43 With respect to contracts of foreign-owned corporations or foreign investors
involving either technical or financial assistance for large-scale exploration, development, and
utilization of minerals, the DENR Secretary could recommend approval of said contracts to the
President.44 EO 279 provided that PD 463 and its implementing rules and regulations, which
were not inconsistent with EO 279, continued in force and effect.45Again, EO 279 was silent on
the authority to cancel mineral agreements.
RA 7942, The Philippine Mining Act of 1995 enacted on March 3, 1995, repealed the provisions
of PD 463 inconsistent with RA 7942. Unlike PD 463, where the application was filed with the
Bureau of Mines Director, the applications for mineral agreements are now required to be filed
with the Regional Director as provided by Sec. 29 of RA 7942. The proper filing gave the
proponent the prior right to be approved by the Secretary and thereafter to be submitted to the
President. The President shall provide a list to Congress of every approved mineral agreement
within 30 days from its approval by the Secretary. Again, RA 7942 is silent on who has authority
to cancel the agreement.
Compared to PD 463 where disputes were decided by the Bureau of Mines Director whose
decisions were appealable to the DENR Secretary and then to the President, RA 7942 now
provides for the creation of quasi-judicial bodies (POA and MAB) that would have jurisdiction
over conflicts arising from the applications and mineral agreements. Secs. 77, 78, and 79 lay
down the procedure, thus:
SEC. 77. Panel of Arbitrators.––There shall be a panel of arbitrators in the regional office of the
Department composed of three (3) members, two (2) of whom must be members of the
Philippine Bar in good standing and one [1] licensed mining engineer or a professional in a
related field, and duly designated by the Secretary as recommended by the Mines and
Geosciences Bureau Director. Those designated as members of the panel shall serve as such in
addition to their work in the Department without receiving any additional compensation. As much
as practicable, said members shall come from the different bureaus of the Department in the
region. The presiding officer thereof shall be selected by the drawing of lots. His tenure as
presiding officer shall be on a yearly basis. The members of the panel shall perform their duties
and obligations in hearing and deciding cases until their designation is withdrawn or revoked by
the Secretary. Within thirty (30) working days, after the submission of the case by the parties for
decision, the panel shall have exclusive and original jurisdiction to hear and decide on the
following:
(a) Disputes involving rights to mining areas;
(b) Disputes involving mineral agreements or permits;
(c) Disputes involving surface owners, occupants and claimholders/concessionaires; and
(d) Disputes pending before the Bureau and the Department at the date of the effectivity of this xxxx
Act.
(2) Formulate, implement and supervise the implementation of the government’s policies, plans,
SEC. 78. Appellate Jurisdiction.—The decision or order of the panel of arbitrators may be and programs pertaining to the management, conservation, development, use and
appealed by the party not satisfied thereto to the Mines Adjudication Board within fifteen (15) replenishment of the country’s natural resources;
days from receipt thereof which must decide the case within thirty (30) days from submission
thereof for decision.
xxxx

SEC. 79. Mines Adjudication Board.—The Mines Adjudication Board shall be composed of three
(4) Exercise supervision and control over forest lands, alienable and disposable public lands,
(3) members. The Secretary shall be the chairman with the Director of the Mines and
mineral resources x x x
Geosciences Bureau and the Undersecretary for Operations of the Department as members
thereof.
xxxx
xxxx
(12) Regulate the development, disposition, extraction, exploration and use of the country’s
forest, land, water and mineral resources;
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.
(13) Assume responsibility for the assessment, development, protection, licensing and
regulation as provided for by law, where applicable, of all energy and natural resources; the
RA 7942 is also silent as to who is empowered to cancel existing lease contracts and mineral
regulation and monitoring of service contractors, licensees, lessees, and permit for the
agreements.
extraction, exploration, development and use of natural resources products; x x x

Meanwhile, in Southeast Mindanao Gold Mining Corp. v. MAB, we explained that the decision of
xxxx
the MAB can first be appealed, via a petition for review, to the CA before elevating the case to
this Court.46
(15) Exercise exclusive jurisdiction on the management and disposition of all lands of the public
domain x x x
After a scrutiny of the provisions of PD 463, EO 211, EO 279, RA 7942 and its implementing
rules and regulations, executive issuances, and case law, we rule that the DENR Secretary, not
the POA, has the jurisdiction to cancel existing mineral lease contracts or mineral agreements Chapter 2—The Department Proper
based on the following reasons:
xxxx
1. The power of the DENR Secretary to cancel mineral agreements emanates from his
administrative authority, supervision, management, and control over mineral resources under
Sec. 8. The Secretary.—The Secretary shall:
Chapter I, Title XIV of Book IV of the Revised Administrative Code of 1987, viz:

xxxx
Chapter 1—General Provisions

(3) Promulgate rules, regulations and other issuances necessary in carrying out the
Section 1. Declaration of Policy.—(1) The State shall ensure, for the benefit of the Filipino
Department’s mandate, objectives, policies, plans, programs and projects.
people, the full exploration and development as well as the judicious disposition, utilization,
management, renewal and conservation of the country’s forest, mineral, land, waters, fisheries,
wildlife, off-shore areas and other natural resources x x x (4) Exercise supervision and control over all functions and activities of the Department;

Sec. 2. Mandate.—(1) The Department of Environment and Natural Resources shall be primarily
responsible for the implementation of the foregoing policy. (2) It shall, subject to law and
higher authority, be in charge of carrying out the State’s constitutional mandate to
control and supervise the exploration, development, utilization, and conservation of the
country’s natural resources.
xxxx
Sec. 4. Powers and Functions.—The Department shall:
(5) Delegate authority for the performance of any administrative or substantive function to
subordinate officials of the Department x x x (Emphasis supplied.)
It is the DENR, through the Secretary, that manages, supervises, and regulates the use and
development of all mineral resources of the country. It has exclusive jurisdiction over the
management of all lands of public domain, which covers mineral resources and deposits from
said lands. It has the power to oversee, supervise, and police our natural resources which
include mineral resources. Derived from the broad and explicit powers of the DENR and its
Secretary under the Administrative Code of 1987 is the power to approve mineral agreements
and necessarily to cancel or cause to cancel said agreements.
2. RA 7942 confers to the DENR Secretary specific authority over mineral resources. the DENR Secretary has the express power to approve mineral agreements or contracts and the
implied power to cancel said agreements.
Secs. 8 and 29 of RA 7942 pertinently provide:
It is a well-established principle that in the interpretation of an ambiguous provision of law, the
history of the enactment of the law may be used as an extrinsic aid to determine the import of
SEC. 8. Authority of the Department.––The Department shall be the primary government agency
the legal provision or the law.47History of the enactment of the statute constitutes prior laws on
responsible for the conservation, management, development, and proper use of the States
the same subject matter. Legislative history necessitates review of "the origin, antecedents and
mineral resources including those in reservations, watershed areas, and lands of the public
derivation" of the law in question to discover the legislative purpose or intent.48 It can be
domain. The Secretary shall have the authority to enter into mineral agreements on behalf
assumed "that the new legislation has been enacted as continuation of the existing legislative
of the Government upon the recommendation of the Director, promulgate such rules and
policy or as a new effort to perpetuate it or further advance it."49
regulations as may be necessary to implement the intent and provisions of this Act.

SEC. 29. Filing and approval of Mineral Agreements.––x x x.
The filing of a proposal for a mineral agreement shall give the proponent the prior right to areas
covered by the same. The proposed mineral agreement will be approved by the
Secretary and copies thereof shall be submitted to the President. Thereafter, the President shall
provide a list to Congress of every approved mineral agreement within thirty (30) days from its
approval by the Secretary. (Emphasis supplied.)
Sec. 29 is a carry over of Sec. 40 of PD 463 which granted jurisdiction to the DENR Secretary to
approve mining lease contracts on behalf of the government, thus:
SEC. 40. Issuance of Mining Lease Contract.––If no adverse claim is filed within fifteen (15)
days after the first date of publication, it shall be conclusively presumed that no such adverse
claim exists and thereafter no objection from third parties to the grant of the lease shall be
heard, except protest pending at the time of publication, and the Secretary shall approve and
issue the corresponding mining lease x x x.
To enforce PD 463, the CMAO containing the rules and regulations implementing PD 463 was
issued. Sec. 44 of the CMAO provides:
SEC. 44. Procedure for Cancellation.––Before any mining lease contract is cancelled for any
cause enumerated in Section 43 above, the mining lessee shall first be notified in writing of such
cause or causes, and shall be given an opportunity to be heard, and to show cause why the
lease shall not be cancelled.
If, upon investigation, the Secretary shall find the lessee to be in default, the former may
warn the lessee, suspend his operations or cancel the lease contract (emphasis supplied).
We rule, therefore, that based on the grant of implied power to terminate mining or mineral
contracts under previous laws or executive issuances like PD 463, EO 211, and EO 279, RA
7942 should be construed as a continuation of the legislative intent to authorize the DENR
Secretary to cancel mineral agreements on account of violations of the terms and conditions
thereof.
3. Under RA 7942, the power of control and supervision of the DENR Secretary over the MGB to
cancel or recommend cancellation of mineral rights clearly demonstrates the authority of the
DENR Secretary to cancel or approve the cancellation of mineral agreements.
Under Sec. 9 of RA 7942, the MGB was given the power of direct supervision of mineral lands
and resources, thus:
Sec. 9. Authority of the Bureau.—The Bureau shall have direct charge in the administration and
disposition of mineral lands and mineral resources and shall undertake geological, mining,
metallurgical, chemical, and other researches as well as geological and mineral exploration
surveys. The Director shall recommend to the Secretary the granting of mineral agreements to
duly qualified persons and shall monitor the compliance by the contractor of the terms and
conditions of the mineral agreements. The Bureau may confiscate surety, performance and
guaranty bonds posted through an order to be promulgated by the Director. The Director may
deputize, when necessary, any member or unit of the Philippine National Police, barangay, duly
registered nongovernmental organization (NGO) or any qualified person to police all mining
activities. (Emphasis supplied.)
Corollary to the power of the MGB Director to recommend approval of mineral agreements is his
power to cancel or recommend cancellation of mining rights covered by said agreements under
Sec. 7 of DENR AO 96-40, containing the revised Implementing Rules and Regulations of RA
7942. Sec. 7 reads:

Sec. 7. Organization and Authority of the Bureau.

Sec. 4 of EO 279 provided that the provisions of PD 463 and its implementing rules and
regulations, not inconsistent with the executive order, continue in force and effect.
xxxx
When RA 7942 took effect on March 3, 1995, there was no provision on who could cancel
mineral agreements. However, since the aforequoted Sec. 44 of the CMAO implementing PD The Bureau shall have the following authority, among others:
463 was not repealed by RA 7942 and DENR AO 96-40, not being contrary to any of the
provisions in them, then it follows that Sec. 44 serves as basis for the DENR Secretary’s
a. To have direct charge in the administration and disposition of mineral land and mineral
authority to cancel mineral agreements.
resources;

Since the DENR Secretary had the power to approve and cancel mineral agreements under PD
xxxx
463, and the power to cancel them under the CMAO implementing PD 463, EO 211, and EO
279, then there was no recall of the power of the DENR Secretary under RA 7942. Historically,
d. To recommend to the Secretary the granting of mineral agreements or to endorse to the
Secretary for action by the President the grant of FTAAs [Financial and Technical Assistance
Agreements], in favor of qualified persons and to monitor compliance by the Contractor with the
terms and conditions of the mineral agreements and FTAAs.
e. To cancel or to recommend cancellation after due process, mining rights, mining applications
and mining claims for non-compliance with pertinent laws, rules and regulations.
It is explicit from the foregoing provision that the DENR Secretary has the authority to cancel
mineral agreements based on the recommendation of the MGB Director. As a matter of fact, the
power to cancel mining rights can even be delegated by the DENR Secretary to the MGB
Director. Clearly, it is the Secretary, not the POA, that has authority and jurisdiction over
cancellation of existing mining contracts or mineral agreements.
Thus, the government represented by the then Secretary of Agriculture and Natural Resources
(now the DENR Secretary) has the power to cancel the lease contracts for violations of existing
laws, rules and regulations and the terms and conditions of the contracts. Celestial and Blue
Ridge are now estopped from challenging the power and authority of the DENR Secretary to
cancel mineral agreements.
However, Celestial and Blue Ridge insist that the power to cancel mineral agreements is also
lodged with the POA under the explicit provisions of Sec. 77 of RA 7942.
This postulation is incorrect.
Sec. 77 of RA 7942 lays down the jurisdiction of POA, to wit:

Within thirty (30) days, after the submission of the case by the parties for the decision, the panel
4. The DENR Secretary’s power to cancel mining rights or agreements through the MGB can be
shall have exclusive and original jurisdiction to hear and decide the following:
inferred from Sec. 230, Chapter XXIV of DENR AO 96-40 on cancellation, revocation, and
termination of a permit/mineral agreement/FTAA. Sec. 230 provides:
(a) Disputes involving rights to mining areas
Section 230. Grounds
(b) Disputes involving mineral agreements or permits
The following grounds for cancellation revocation and termination of a Mining Permit Mineral
Agreement/FTAA. The phrase "disputes involving rights to mining areas" refers to any adverse claim, protest, or
opposition to an application for mineral agreement. The POA therefore has the jurisdiction to
resolve any adverse claim, protest, or opposition to a pending application for a mineral
a. Violation of any of the terms and conditions of the Permits or Agreements;
agreement filed with the concerned Regional Office of the MGB. This is clear from Secs. 38 and
41 of DENR AO 96-40, which provide:
b. Nonpayment of taxes and fees due the government for two (2) consecutive years; and
Sec. 38.
c. Falsehood or omission of facts in the application for exploration [or Mining] Permit Mineral
Agreement/FTAA or other permits which may later, change or affect substantially the facts set
xxxx
forth in said statements.

Within thirty (30) calendar days from the last date of publication/posting/radio announcements,
Though Sec. 230 is silent as to who can order the cancellation, revocation, and termination of a
the authorized officer(s) of the concerned office(s) shall issue a certification(s) that the
permit/mineral agreement/FTAA, it has to be correlated with the power of the MGB under Sec. 7
publication/posting/radio announcement have been complied with. Any adverse claim, protest or
of AO 96-40 "to cancel or to recommend cancellation, after due process, mining rights, mining
opposition shall be filed directly, within thirty (30) calendar days from the last date of
applications and mining claims for noncompliance with pertinent laws, rules and regulations." As
publication/posting/radio announcement, with the concerned Regional Office or through any
the MGB is under the supervision of the DENR Secretary, then the logical conclusion is that it is
concerned PENRO or CENRO for filing in the concerned Regional Office for purposes of its
the DENR Secretary who can cancel the mineral agreements and not the POA nor the MAB.
resolution by the Panel of Arbitrators pursuant to the provisions of this Act and these
implementing rules and regulations. Upon final resolution of any adverse claim, protest or
5. Celestial and Blue Ridge are not unaware of the stipulations in the Mining Lease Contract opposition, the Panel of Arbitrators shall likewise issue a certification to that effect within five (5)
Nos. V-1050 and MRD-52,50 the cancellation of which they sought from the POA. It is clear from working days from the date of finality of resolution thereof. Where there is no adverse claim,
said lease contracts that the parties are the Republic of the Philippines represented by the protest or opposition, the Panel of Arbitrators shall likewise issue a Certification to that effect
Secretary of Agriculture and Natural Resources (now DENR Secretary) as lessor, and Infanta within five working days therefrom.
(Macroasia) as lessee. Paragraph 18 of said lease contracts provides:
xxxx
Whenever the LESSEE fails to comply with any provision of [PD 463, and] Commonwealth Acts
Nos. 137, 466 and 470, [both as amended,] and/or the rules and regulations promulgated
No Mineral Agreement shall be approved unless the requirements under this Section are fully
thereunder, or any of the covenants therein, the LESSOR may declare this lease
complied with and any adverse claim/protest/opposition is finally resolved by the Panel of
cancelled and, after having given thirty (30) days’ notice in writing to the LESSEE, may enter
Arbitrators.
and take possession of the said premises, and said lessee shall be liable for all unpaid rentals,
royalties and taxes due the Government on the lease up to the time of the forfeiture or
cancellation, in which event, the LESSEE hereby covenants and agrees to give up the Sec. 41.
possession of the property leased. (Emphasis supplied.)
xxxx These provisions lead us to conclude that the power of the POA to resolve any adverse claim,
opposition, or protest relative to mining rights under Sec. 77(a) of RA 7942 is confined only to
adverse claims, conflicts and oppositions relating to applications for the grant of mineral rights.
Within fifteen (15) working days from the receipt of the Certification issued by the Panel
POA’s jurisdiction is confined only to resolutions of such adverse claims, conflicts and
of Arbitrators as provided in Section 38 hereof, the concerned Regional Director shall
oppositions and it has no authority to approve or reject said applications. Such power is vested
initially evaluate the Mineral Agreement applications in areas outside Mineral
in the DENR Secretary upon recommendation of the MGB Director. Clearly, POA’s jurisdiction
reservations. He/She shall thereafter endorse his/her findings to the Bureau for further
over "disputes involving rights to mining areas" has nothing to do with the cancellation of existing
evaluation by the Director within fifteen (15) working days from receipt of forwarded
mineral agreements.
documents. Thereafter, the Director shall endorse the same to the secretary for
consideration/approval within fifteen working days from receipt of such endorsement.
On the other hand, Celestial and Blue Ridge contend that POA has jurisdiction over their
petitions for the cancellation of Macroasia’s lease agreements banking on POA’s jurisdiction
In case of Mineral Agreement applications in areas with Mineral Reservations, within fifteen
over "disputes involving mineral agreements or permits" under Sec. 77 (b) of RA 7942.
(15) working days from receipt of the Certification issued by the Panel of Arbitrators as
provided for in Section 38 hereof, the same shall be evaluated and endorsed by the
Director to the Secretary for consideration/approval within fifteen days from receipt of Such position is bereft of merit.
such endorsement. (Emphasis supplied.)
As earlier discussed, the DENR Secretary, by virtue of his powers as administrative head of his
It has been made clear from the aforecited provisions that the "disputes involving rights to department in charge of the management and supervision of the natural resources of the
mining areas" under Sec. 77(a) specifically refer only to those disputes relative to country under the 1987 Administrative Code, RA 7942, and other laws, rules, and regulations,
the applications for a mineral agreement or conferment of mining rights. can cancel a mineral agreement for violation of its terms, even without a petition or request filed
for its cancellation, provided there is compliance with due process. Since the cancellation of the
mineral agreement is approved by the DENR Secretary, then the recourse of the contractor is to
The jurisdiction of the POA over adverse claims, protest, or oppositions to a mining right
elevate the matter to the OP pursuant to AO 18, Series of 1987 but not with the POA.
application is further elucidated by Secs. 219 and 43 of DENR AO 95-936, which read:

Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.—Notwithstanding the provisions of
Sections 28, 43 and 57 above, any adverse claim, protest or opposition specified in said
sections may also be filed directly with the Panel of Arbitrators within the concerned
periods for filing such claim, protest or opposition as specified in said Sections.
Sec. 43. Publication/Posting of Mineral Agreement Application.—
xxxx
The Regional Director or concerned Regional Director shall also cause the posting of the
application on the bulletin boards of the Bureau, concerned Regional office(s) and in the
concerned province(s) and municipality(ies), copy furnished the barangays where the proposed
contract area is located once a week for two (2) consecutive weeks in a language generally
understood in the locality. After forty-five (45) days from the last date of publication/posting has
been made and no adverse claim, protest or opposition was filed within the said forty-five (45)
days, the concerned offices shall issue a certification that publication/posting has been made
and that no adverse claim, protest or opposition of whatever nature has been filed. On the other
hand, if there be any adverse claim, protest or opposition, the same shall be filed within
forty-five (45) days from the last date of publication/posting, with the Regional Offices
concerned, or through the Department’s Community Environment and Natural Resources
Officers (CENRO) or Provincial Environment and Natural Resources Officers (PENRO), to
be filed at the Regional Office for resolution of the Panel of Arbitrators. However previously
published valid and subsisting mining claims are exempted from posted/posting required under
this Section.
No mineral agreement shall be approved unless the requirements under this section are
fully complied with and any opposition/adverse claim is dealt with in writing by the
Director and resolved by the Panel of Arbitrators. (Emphasis supplied.)
Matched with the legal provisions empowering the DENR Secretary to cancel a mineral
agreement is Sec. 77 (b) of RA 7942 which grants POA jurisdiction over disputes involving
mineral agreements.
A dispute is defined as "a conflict or controversy; a conflict of claims or rights; an assertion of a
right, claim or demand on one side; met by contrary claims or allegations on the other."51 It is
synonymous to a cause of action which is "an act or omission by which a party violates a right of
another."52
A petition or complaint originating from a dispute can be filed or initiated only by a real party-in-
interest. The rules of court define a real party-in-interest as "the party who stands to be benefited
or injured by the judgment in the suit or the party entitled to the avails of the suit."53 Every action,
therefore, can only be prosecuted in the name of the real party-in-interest.54 It has been
explained that "a real party-in-interest plaintiff is one who has a legal right, while a real party-in-
interest-defendant is one who has a correlative legal obligation whose act or omission violates
the legal right of the former."55
On the other hand, interest "means material interest, an interest in issue and to be affected by
the decree, as distinguished from mere interest in the question involved, or a mere incidental
interest." It is settled in this jurisdiction that "one having no right or interest to protect cannot
invoke the jurisdiction of the court as a party-plaintiff in an action."56 Real interest is defined as "a
present substantial interest, as distinguished from a mere expectancy, or a future, contingent,
subordinate or consequential interest."57
From the foregoing, a petition for the cancellation of an existing mineral agreement covering an
area applied for by an applicant based on the alleged violation of any of the terms thereof, is not
a "dispute" involving a mineral agreement under Sec. 77 (b) of RA 7942. It does not pertain to a
violation by a party of the right of another. The applicant is not a real party-in-interest as he does
not have a material or substantial interest in the mineral agreement but only a prospective or
expectant right or interest in the mining area. He has no legal right to such mining claim and
hence no dispute can arise between the applicant and the parties to the mineral agreement. The
court rules therefore that a petition for cancellation of a mineral agreement anchored on the
breach thereof even if filed by an applicant to a mining claim, like Celestial and Blue Ridge, falls
within the jurisdiction of the DENR Secretary and not POA. Such petition is excluded from the
coverage of the POA’s jurisdiction over disputes involving mineral agreements under Sec. 77 (b)
of RA 7942.
Macroasia not estopped from raising the issue of jurisdiction on appeal
On the related issue of estoppel, petitioner Celestial argues that Macroasia is estopped from
raising and questioning the issue of the jurisdiction of the POA and MAB over the petition for
cancellation of its mining lease contracts, when Macroasia raised it only in its Supplemental
Motion for Reconsideration.
We rule that the principle of estoppel does not apply.
Indeed, Macroasia was not the one that initiated the instant case before the POA, and thus was
not the one that invoked the jurisdiction of the POA. Hence, on appeal, Macroasia is not
precluded from raising the issue of jurisdiction as it may be invoked even on appeal.58 As a
matter of fact, a party can raise the issue of jurisdiction at any stage of the proceedings.
Petitioner Celestial’s reliance on Villela v. Gozun59 to support the contention that the POA has
jurisdiction to hear and decide a petition to cancel existing mining lease contracts, is misplaced.
In said case, we dismissed the petition on the ground of non-exhaustion of administrative
remedies and disregarded judicial hierarchy as no compelling reason was shown to warrant
otherwise. While we pointed out the authority of the POA, there was no categorical
pronouncement on the jurisdictional issue.
No valid pronouncement of abandonment due to lack of jurisdiction over petition to
cancel
As we are not a trier of facts, we need not make any finding on the various investigations done
by the MGB and MAB on the issue of Macroasia’s non-compliance with its work obligations and
nonpayment of taxes and fees. Verily, the law does not impose automatic cancellation of an
existing mining lease contract, as it is a question of fact which must be determined by the MGB
which can recommend the cancellation of the mineral or lease agreements to the DENR
Secretary. Be that as it may, since the POA and MAB have no jurisdiction over the petition for
cancellation of existing mining lease contracts of Macroasia, they could not have made any
binding pronouncement that Macroasia had indeed abandoned the subject mining claims.
Besides, it is the DENR Secretary who has the authority to cancel Macroasia’s existing mining
lease contracts whether on grounds of abandonment or any valid grounds for cancellation.
Decision in CA-G.R. SP No. 90828 not in accord with the law
With our resolution of the issue on the lack of jurisdiction of the POA and the MAB over petitions
to cancel existing mining lease contracts or mineral agreements, it is thus clear that the May 18,
2006 Decision in CA-G.R. SP No. 90828 must be nullified for being not in accord with the law
and the April 15, 2005 Decision in CA-G.R. SP No. 87931 must be upheld.
Notwithstanding the nullification of the May 18, 2006 Decision of the Special Tenth Division in
CA-G.R. SP No. 90828, the rendition of two conflicting decisions of the two CA Divisions over
the same challenged resolutions of the MAB should be avoided in the future as this is anathema
to stability of judicial decisions and orderly administration of justice.
The chronology of events reveals the following:
1. January 10, 2005 – petitioner Celestial filed its petition docketed as CA-G.R. SP No. 87931
with the CA.
2. April 15, 2005 – the CA through its Twelfth Division rendered its Decision in CA-G.R. SP No.
87931 affirming the November 26, 2004 MAB Resolution.
3. July 12, 2005 – respondent Blue Ridge filed its petition docketed as CA-G.R. SP No. 90828
with the CA. It is clear that the Blue Ridge petition was filed with the CA three months after the
decision in CA-G.R. SP No. 87931 was promulgated.
4. May 18, 2006 – the CA through its Special Tenth Division rendered its Decision setting aside
the November 26, 2004 and July 12, 2005 Resolutions of the MAB and reinstating the October
24, 2000 MAB Decision.
From these facts, the CA Special Tenth Division should have ordered the consolidation of the
petition in CA-G.R. SP No. 90828 by CA-G.R. SP No. 87931 pursuant to the Internal Rules of
the CA, the latter having the earlier docket number. Had it done so, then the occurrence of the
conflicting decisions could have been prevented. The CA Special Tenth Division should have
abided by our ruling in Nacuray v. NLRC, where we held, "Consequently, a division cannot and
should not review a case already passed upon by another Division of this Court. It is only proper,
to allow the case to take its rest after having attained finality."60
The CA should take the appropriate steps, including the adoption or amendment of the rules, to
see to it that cases or petitions arising from the same questioned decision, order, or resolution
are consolidated to steer clear of contrary or opposing decisions of the different CA Divisions
and ensure that incidents of similar nature will not be replicated.
G.R. No. 172936
No showing that the DENR Secretary gravely abused his discretion
Now, going to the substance of the petition in G.R. No. 172936. A scrutiny of the records shows
that the DENR Secretary did not gravely abuse his discretion in approving and signing MPSA
Nos. 220-2005-IVB and 221-2005-IVB in favor of Macroasia.
Petitioner Blue Ridge anchors its rights on the May 18, 2006 Decision in CA-G.R. SP No. 90828,
which we have unfortunately struck down. Blue Ridge’s argument in assailing the approval and
issuance of the subject MPSAs that it has been accorded preferential right by the CA has no leg
to stand on.
The October 24, 2000 MAB Decision, nullified by the subsequent November 26, 2004
Resolution, is unequivocal that Blue Ridge was granted only "prior and preferential rights to FILE
its mining application over the same mining claims."61 What was accorded Blue Ridge was only
the right to file the mining application but with no assurance that the application will be
recommended for approval by the MGB and finally approved by the DENR Secretary.
Moreover, a preferential right would at most be an inchoate right to be given priority in the grant
of a mining agreement. It has not yet been transformed into a legal and vested right unless
approved by the MGB or DENR Secretary. Even if Blue Ridge has a preferential right over the
subject mining claims, it is still within the competence and discretion of the DENR Secretary to
grant mineral agreements to whomever he deems best to pursue the mining claims over and While it is true that the subject mining claims are under litigation, this does not preclude the
above the preferential status given to Blue Ridge. Besides, being simply a preferential right, it is DENR and its Secretary from carrying out their functions and duties without a restraining order
ineffective to dissolve the pre-existing or subsisting mining lease contracts of Macroasia. or an injunctive writ. Otherwise, public interest and public service would unduly suffer by mere
litigation of particular issues where government interests would be unduly affected. In the instant
case, it must be borne in mind that the government has a stake in the subject mining claims.
The DENR Secretary has full discretion in the grant of mineral agreements
Also, Macroasia had various valid existing mining lease contracts over the subject mining lode
claims issued by the DENR. Thus, Macroasia has an advantage over Blue Ridge and Celestial
Blue Ridge also argues that the Secretary gravely abused his discretion in approving the subject insofar as the administrative aspect of pursuing the mineral agreements is concerned.
MPSAs without Macroasia complying with the mandatory requirements for mineral agreement
applications under Sec. 35 of DENR AO 96-40. Petitioner specifically cited Sec. 36 of DENR AO
WHEREFORE, the petitions under G.R. Nos. 169080, 172936, and 176229 are DISMISSED for
96-40 to the effect that "no Mineral Agreement shall be approved unless the requirements under
lack of merit, while the petition under G.R. No. 176319 is hereby GRANTED. The assailed April
this section are fully complied with and any adverse claim/protest/opposition thereto is finally
15, 2005 Decision and August 3, 2005 Resolution of the CA in CA-G.R. SP No. 87931 are
resolved by the Panel of Arbitrators." Moreover, Blue Ridge contends that the MPSAs were
hereby AFFIRMED IN TOTO. And the May 18, 2006 Decision and January 19, 2007 Resolution
approved even prior to the issuance of the Compliance Certificate62 by the National Commission
of the CA in CA-G.R. SP No. 90828 are hereby REVERSED and SET ASIDE. In view of the
on Indigenous Peoples under the OP, which is a requisite pre-condition for the issuance of an
foregoing considerations, we find no grave abuse of discretion on the part of the then DENR
MPSA.
Secretary in the approval and issuance of MPSA Nos. 220-2005-IVB and 221-2005-IVB. Costs
against Celestial Nickel Mining Exploration Corporation and Blue Ridge Mineral Corporation.
We are not persuaded.
SO ORDERED.
Blue Ridge cites Sec. 38 (not Sec. 36) of DENR AO 96-40 as basis for claiming that then DENR
Secretary Defensor committed grave abuse of discretion in granting MPSA Nos. 220-2005-IVB
and 221-2005-IVB to Macroasia. Petitioner’s postulation cannot be entertained for the reason
that the issuance of the mining agreements was not raised before the MGB Director and DENR
Secretary, nor was it amply presented before the CA. There is even a counter-charge that Blue
Ridge has not complied with the legal requirements for a mining application. The rule is
established that questions raised for the first time on appeal before this Court are not proper and
have to be rejected. Furthermore, the resolution of these factual issues would relegate the Court
to a trier of facts. The Blue Ridge plea is hindered by the factual issue bar rule where factual
questions are proscribed under Rule 65. Lastly, there was no exhaustion of administrative
remedies before the MGB and DENR. Thus, Blue Ridge’s petition must fail.

Primary jurisdiction of the DENR Secretary in determining whether to grant or not a mineral
agreement

Verily, RA 7942, similar to PD 463, confers exclusive and primary jurisdiction on the DENR
Secretary to approve mineral agreements, which is purely an administrative function within the
scope of his powers and authority. In exercising such exclusive primary jurisdiction, the DENR
Secretary, through the MGB, has the best competence to determine to whom mineral
agreements are granted. Settled is the rule that the courts will defer to the decisions of the
administrative offices and agencies by reason of their expertise and experience in the matters
assigned to them pursuant to the doctrine of primary jurisdiction. Administrative decisions on
matter within the jurisdiction of administrative bodies are to be respected and can only be set
aside on proof of grave abuse of discretion, fraud, or error of law.63 Unless it is shown that the
then DENR Secretary has acted in a wanton, whimsical, or oppressive manner, giving undue
advantage to a party or for an illegal consideration and similar reasons, this Court cannot look
into or review the wisdom of the exercise of such discretion. Blue Ridge failed in this regard.

Delineation of powers and functions is accorded the three branches of government for the
smooth functioning of the different governmental services. We will not disturb nor interfere in the
exercise of purely administrative functions of the executive branch absent a clear showing of
grave abuse of discretion.

Without a restraining order or injunction, litigation will not deter the DENR from exercising its
functions

G.R. No. 162331             November 20, 2006
LEPANTO CONSOLIDATED MINING CO., Petitioner, 
vs.
WMC RESOURCES INT’L. PTY. LTD., WMC PHILIPPINES, INC. and SAGITTARIUS MINES,
INC., Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition for Review on Certiorari under Rule 45 of the Rules of Civil Procedure,
assailing the Decision1 of the Court of Appeals in CA-G.R. SP No. 74161, dated 21 November
2003, which dismissed herein petitioner’s Petition for Review of the Decision2 of the Office of the
President dated 23 July 2002 affirming in toto the Order3 of the Secretary of the Department of
Environment and Natural Resources (DENR) dated 18 December 2001 approving the
application for and the consequent registration of FTAA No. 02-95-XI from WMC Philippines to
Sagittarius Mines, Inc.
On 22 March 1995, the Philippine Government and WMC Philippines, the local wholly-owned
subsidiary of WMC Resources International Pty. Ltd. (WMC Resources) executed a Financial
and Technical Assistance Agreement, denominated as the Columbio FTAA No. 02-95-XI
(Columbio FTAA) for the purpose of large scale exploration, development, and commercial
exploration of possible mineral resources in an initial contract area of 99,387 hectares located in
the provinces of South Cotabato, Sultan Kudarat, Davao del Sur, and North Cotabato in
accordance with Executive Order No. 279 and Department Administrative Order No. 63, Series
of 1991.
The Columbio FTAA is covered in part by 156 mining claims held under various Mineral
Production Sharing Agreements (MPSA) by Southcot Mining Corporation, Tampakan Mining
Corporation, and Sagittarius Mines, Inc. (collectively called the Tampakan Companies), in
accordance with the Tampakan Option Agreement entered into by WMC Philippines and the
Tampakan Companies on 25 April 1991, as amended by Amendatory Agreement dated 15 July
1994, for purposes of exploration of the mining claims in Tampakan, South Cotabato. The
Option Agreement, among other things, provides for the grant of the right of first refusal to the
Tampakan Companies in case WMC Philippines desires to dispose of its rights and interests in
the mining claims covering the area subject of the agreement.
WMC Resources subsequently divested itself of its rights and interests in the Columbio FTAA,
and on 12 July 2000 executed a Sale and Purchase Agreement with petitioner Lepanto over its
entire shareholdings in WMC Philippines, subject to the exercise of the Tampakan Companies’
exercise of their right of first refusal to purchase the subject shares. On 28 August 2000,
petitioner sought the approval of the 12 July 2000 Agreement from the DENR Secretary.
In an Agreement dated 6 October 2000, however, the Tampakan Companies sought to exercise
its right of first refusal. Thus, in a letter dated 13 October 2000, petitioner assailed the
Tampakan Companies’ exercise of its right of first refusal, alleging that the Tampakan
Companies failed to match the terms and conditions set forth in the 12 July 2000 Agreement.
Thereafter, petitioner filed a case4 for Injunction, Specific Performance, Annulment of Contracts
and Contractual Interference with the Regional Trial Court of Makati, Branch 135, against WMC
Resources, WMC Philippines, and the Tampakan Companies. WMC Philippines and the
Tampakan Companies moved for the dismissal of said case. Said Motion to Dismiss having
been denied, WMC Philippines challenged the order dismissing the Motion on appeal5 before the
Court of Appeals which subsequently ordered the dismissal of the case on the ground of forum
shopping in this wise:
Nevertheless, the Court finds that private respondent is guilty of forum-shopping. There is forum-
shopping whenever, as a result of an adverse opinion in one forum, a party seeks a favorable
opinion (other than by appeal or certiorari) in another. The principle applies not only with respect
to suits filed in courts but also in connection with litigation commenced in the courts while an
administrative processes and in anticipation of an unfavorable administrative ruling and a
favorable court ruling.
In this case, petitioners argue that private respondent is guilty of forum shopping for having
lodged the complain before respondent Court pending action by the Secretary of the DENR
through the Mines and Geo-Sciences Bureau (MGB) on its approval of the Sale and Purchase
Agreement dated July 12, 2000. Private respondent on the other hand, opposes the foregoing
contention arguing that the MGB will be merely exercising its administrative not quasi-judicial
power.
The action before respondent court was filed by private respondent to compel petitioner WMC
Resources to convey its equity in WMC Phils. and Hillcrest to the former. Meanwhile, in the case
before the MGB, private respondent sought the approval of Sale and that the 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 Companies, asserting that the latter
failed to validly exercise its right of first refusal. Also, in its letter to the Director of the MGB dated
December 8, 2000, private respondent spelled out in detail its reasons for objecting to the
agreement between WMC Resources and the Tampakan Companies, and in the same breath,
argued for the approval of its own contract. And because of the opposing claims posited by
private respondent and petitioners, the MGB was constrained to require the parties to submit
their respective comments. At the juncture, the 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 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 forum-shopping.6
With the denial of petitioner’s Motion for Reconsideration, the case7 was elevated to this Court.
In a Decision dated 24 September 2003, the Court affirmed the Decision of the appellate court
and dismissed the petition. In said Decision, the Court elucidated that:
True, the questioned agreements of sale between petitioner and WMC on one hand and
between WMC and the Tampakan Companies on the other pertain to transfer of shares of stock
from one entity to another. But said shares of stock represent ownership of mining rights or
interest in mining agreements. Hence, the power of the MGB to rule on the validity of the
questioned agreements of sale, which was raised by petitioner before the DENR, is inextricably
linked to the very nature of such agreements over which the MGB has jurisdiction under the law.
Unavoidably, there is identity of reliefs that petitioner seeks from both the MGB and the RTC.
Forum shopping exists when both actions involve the same transactions, same essential facts
and circumstances and raise identical causes of actions, subject matter, and issues. Such
elements are evidently present in both the proceedings before the MGB and before the trial
court. The case instituted with the RTC was thus correctly ordered dismissed by the appellate
court on the ground of forum shopping. Besides, not only did petitioner commit forum shopping
but it also failed to exhaust administrative remedies by opting to go ahead in seeking 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 ₱250 million.
Subsequently, WMC Resources and Sagittarius Mines, Inc. executed a Deed of Absolute Sale
of Shares of Stocks on 23 January 2001.
After due consideration and evaluation of the financial and technical qualifications of Sagittarius
Mines, Inc., the DENR Secretary approved the transfer of the Columbio FTAA from WMC
Philippines to Sagittarius Mines, Inc. in the assailed Order. According to said Order, pursuant to
Section 66 of Department Administrative Order No. 96-40, as amended, Sagittarius Mines, Inc.
meets the qualification requirements as Contractor-Transferee of FTAA No. 02-95-XI, and that
the application for transfer of said FTAA went thru the procedure and other requirements set
forth under the law.
Aggrieved by the transfer of the Columbio FTAA in favor of Sagittarius Mines, Inc., petitioner
filed a Petition for Review of the Order of the DENR Secretary with the Office of the President.
Petitioner assails the validity of the 18 December 2001 Order on the ground that: 1) it violates
the constitutional right of Lepanto to due process; 2) it preempts the resolution of very crucial
legal issues pending with the regular courts; and 3) it blatantly violates Section 40 of the Mining
Act.
In a Decision dated 23 July 2002, the Office of the President dismissed the petition in this wise:
At the outset, it bears emphasis that quite contrary to the argument of petitioner Lepanto, the
above Order of the DENR Secretary is not violative of the Mining Law. Since the subject
Columbio FTAA was granted in accordance with the pertinent provisions of Executive Order No.
279 and Department Administrative Order No. 63 on 22 March 1995, or prior to the effectivity of
the Philippine Mining Act of 1995, especially as it highlights the non-impairment of existing
mining and/or quarrying rights, under Section 14.1 (b) thereof, only the consent of DENR
Secretary is required. To hold otherwise would be to unduly impose a burden on transferor
WMC and thereby restrict its freedom to dispose of or alienate this property right without due
process. Thus, under the Revised Implementing Rules and Regulations of the Philippine Mining
Act of 1995, Chapter XXX thereof expressly echoes the guaranty:
"Section 272. Non-Impairment of Existing Mining/Quarrying Rights.- All valid and existing mining
lease contracts, permits/licenses, leases pending renewal, Mineral Production Sharing
Agreements, FTAA granted under Executive Order No. 279, at the date of the Act shall remain
valid, shall not be impaired and shall be recognized by the Government x x x.
x x x Provided, finally, That this provision is applicable only to all FTAA/MPSA applications filed
under Department Administrative Order No. 63 prior to the effectivity of the act and these
implementing rules and regulations."
As correctly stated by the MGB Director and affirmed by the DENR Secretary, Section 14.1 of
the Columbio FTAA provides that the FTAA may be transferred provided that the Secretary
consents to the same. Pursuant to Section 112 of the Mining Act and Section 272 of DAO No.
96-40, as amended, on non-impairment of existing mining rights, the subject application for
transfer of the Columbio FTAA to Sagittarius requires only the approval of the DENR Secretary.
Moreover, there is no merit in petitioner 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 well-entrenched doctrine of
primary jurisdiction of administrative agencies.
By virtue of the operation of the doctrine of primary jurisdiction, "courts cannot and will not
determine a controversy involving a question which is within the jurisdiction of an administrative
tribunal, especially where the question demands the exercise of sound administrative discretion
requiring the special knowledge, experience and services of the tribunal to determine technical
and intricate matters of fact and where a uniformity of ruling is essential to comply with the
purposes regulatory statute administered." (Province of Zamboanga del Norte v. Court of
Appeals, 342 SCRA 549 [2000]; Factoran v. Court of Appeals, 320 SCRA 530 [1999]; Brett v.
Intermediate Appellate Court,191 SCRA 687 [1990]; 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 regulations as may be necessary to implement the intent and
provisions of this Act." (Chapter II, Section 8). Since an FTAA is "a contract involving financial or
technical assistance for large-scale exploration, development and utilization of mineral
resources" (Ibid., Chapter 1, Section 3 [r]), any issue affecting the same is indubitably within the
primary jurisdiction of the DENR, as in fact, the government enters into 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. Briad Agro Development Corporation v. dela Serna, 174 SCRA 524 [1989]).9[Emphasis ours]
With the denial of its Motion for Reconsideration, petitioner lodged an appeal before the Court of
Appeals which was consequently dismissed by the appellate court in the herein assailed
Decision. According to the Court of Appeals:
Petitioner forcefully argues that the DENR Secretary had usurped the power of the President of
the Philippines to approve the transfer of FTAA, as under the provision of Section 40 of the
Philippine Mining Act of 1995, any transfer or assignment of an FTAA has to be approved not by
the DENR Secretary but by the President.
The argument does not wash.
The issue hinges on the applicability of Section 40 of RA 7942 or the Philippine Mining Act of
1995, which took force on 14 April 1995, on the transfer of FTAA from WMC to the Tampakan
Companies, particularly the Sagittarius Mines, Inc.
The said law provides:
"Sec. 40. Assignment/Transfer – A financial or technical assistance agreement may be assigned
or transferred, in whole or in part, to a qualified person subject to the prior approval of the
President: Provided, that the President shall notify Congress of every financial or technical
assistance agreement assigned or converted in accordance with this provision within thirty (30)
days from the date of approval."
However, the above provision does not apply to the Columbio FTAA which was entered into by
and between the Philippine Government and WMCP on 22 March 1995, or prior to the effectivity
of RA No. 7942. Section 14.1 of the Columbio FTAA, under which the Tampakan Companies
claim their rights to first refusal, reads:
"14.1 Assignment
"The Contractor may assign, transfer, convey or otherwise dispose of all or any part of its
interest in the Agreement provided that such assignment, transfer, conveyance or disposition
does not infringe any Philippine law applicable to foreign ownership:
(a) to an Affiliate provided that it gives notice of such assignment to the Secretary within 30 days
after such assignment; or
(b) to any third party provided that the Secretary consents to the same, which consent shall not
be unreasonably withheld."
Section 10, Article III of the Philippine Constitution enjoins Congress from passing a law
impairing the obligation of contracts. It is axiomatic that a law that impairs an obligation of
contract also violates the due process clause. The obligation of an existing contract is impaired
when its terms and conditions are changed by law, ordinance, or any issuance having the force
of law, thereby weakening the position or diminishing the rights of a party to the contract. The
extent of the change is not material. It is not a question of degree or manner or cause, but of
encroaching in any respect on its obligations or dispensing with any part of its force. Impairment
has also been predicated on laws which, without destroying contracts, derogate from substantial
contractual rights.
The condition of RA No. 7942 requiring the further approval of the President, if made to apply
retroactively to the Columbio FTAA, would impair the obligation of contracts simply because it
constitutes a restriction on the right of the contractor to assign or transfer its interest in an FTAA.
In other words, it diminished the vested rights of the contractor to assign or transfer its interests
on mere approval of the DENR Secretary. The restriction is therefore substantive, and not
merely procedural, contrary to the contention of petitioner.
xxxx
Likewise militating against the 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 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 approval of the DENR Secretary, and not that of the President, of its 12 July 2000 Sale and
would seem that what petitioner would want this Court to espouse is the retroactive application Purchase Agreement with WMC Resources. Hence, it may be glimpsed from the very act of
of the Philippine Mining Act of 1995 to the Columbio FTAA, a valid agreement concluded prior to petitioner that it recognized that the provision of the Columbio FTAA regarding the consent of
the naissance of said piece of legislation. the DENR Secretary with respect to the transfer of said FTAA must be upheld.

This posture of petitioner would clearly contradict the established legal doctrine that statutes are
to be construed as having only a prospective operation unless the contrary is expressly stated or
necessarily implied from the language used in the law. As reiterated in the case of Segovia v.
Noel,11 a sound cannon of statutory construction is that a statute operates prospectively only and
never retroactively, unless the legislative intent to the contrary is made manifest either by the
express terms of the statute or by necessary implication.
Article 4 of the Civil Code provides that: "Laws shall not have a retroactive effect unless therein
otherwise provided." According to this provision of law, in order that a law may have retroactive
effect it is necessary that an express provision to this effect be made in the law, otherwise
nothing should be understood which is not embodied in the law.12 Furthermore, it must be borne
in mind that a law is a rule established to guide our actions without no binding effect until it is
enacted, wherefore, it has no application to past times but only to future time, and that is why it
is said that the law looks to the future only and has no retroactive effect unless the legislator
may have formally given that effect to some legal provisions.13
In the case at bar, there is an absence of either an express declaration or an implication in the
Philippine Mining Act of 1995 that the provisions of said law shall be made to apply retroactively,
therefore, any section of said law must be made to apply only prospectively, in view of the rule
that a statute ought not to receive a construction making it act retroactively, unless the words
used are so clear, strong, and imperative that no other meaning can be annexed to them, or
unless the intention of the legislature cannot be otherwise satisfied.14
Be that as it may, assuming for the sake of argument that We are to apply the Philippine Mining
Act of 1995 retrospectively to the Columbio FTAA, the lack of presidential approval will not be
fatal as to render the transfer illegal, especially since, as in the instant case, the alleged lack of
presidential approval has been remedied when petitioner appealed the matter to the Office of
the President which approved the Order of the DENR Secretary granting the application for
transfer of the Columbio FTAA to Sagittarius Mines, Inc. As expounded by the Court in the
Resolution of the Motion for Reconsideration in the La Bugal-B’Laan Tribal Association, Inc. v.
Ramos[15] case, involving the same FTAA subject of the instant case:
It is engrained in jurisprudence that the constitutional prohibition on the impairment of the
obligation of contract does not prohibit every change in existing laws,17 and to fall within the
prohibition, the change must not only impair the obligation of the existing contract, but the
impairment must be substantial.18 Substantial impairment as conceived in relation to impairment
of contracts has been explained in the case of Clemons v. Nolting,19 which stated that: a law
which changes the terms of a legal contract between parties, either in the time or mode of
performance, or imposes new conditions, or dispenses with those expressed, or authorizes for
its satisfaction something different from that provided in its terms, is law which impairs the
obligation of a contract and is therefore null and void. Section 40 of the Philippine Mining Act of
1995 requiring the approval of the President with respect to assignment or transfer of FTAAs, if
made applicable retroactively to the Columbio FTAA, would be tantamount to an impairment of
the obligations under said contract as it would effectively restrict the right of the parties thereto to
assign or transfer their interests in the said FTAA.
By imposing a new condition apart from those already contained in the agreement, before the
parties to the Columbio FTAA may assign or transfer its rights and interest in the said
agreement, Section 40 of the Philippine Mining Act of 1995, if made to apply to the Columbio
FTAA,
will effectively modify the terms of the original contract and thus impair the obligations of the
parties thereto and restrict the exercise of their vested rights under the original agreement. Such
modification to the Columbio FTAA, particularly in the conditions imposed for its valid transfer is
equivalent to an impairment of said contract violative of the Constitution.
WHEREFORE, premises considered, the instant petition is hereby DENIED. The Decision of the
Court of Appeals in CA G.R. SP No. 74161 dated 21 November 2003 is hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.

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.1âwphi1

On the other hand, when the transferee of the FTAA happens to be a Filipino corporation,
the need for such safeguard is not critical; hence, the lack of prior approval and
notification may not be deemed fatal as to render the transfer invalid. Besides, it is not as
if approval by the President is entirely absent in this instance. x x x That case involved the
review of the Decision of the Court of Appeals dated November 21, 2003 in CA G.R. SP No.
74161, which affirmed the DENR Order dated December 31, 2001 and the Decision of the Office
of the President dated July 23, 2002, both approving the assignment of the WMCP FTAA to
Sagittarius.16(Emphasis ours.)

Furthermore, if petitioner was indeed of the mind that Section 40 of the Philippine Mining Act of
1995 is applicable to the Columbio FTAA, thus necessitating the approval of the President for
the validity of its transfer or assignment, it would seem contradictory that petitioner sought the

G.R. No. 152644             February 10, 2006
JOHN ERIC LONEY, STEVEN PAUL REID and PEDRO B. HERNANDEZ, Petitioners, 
vs.
PEOPLE OF THE PHILIPPINES, Respondent.
DECISION
CARPIO, J.:
The Case
This is a petition for review1 of the Decision2 dated 5 November 2001 and the Resolution dated
14 March 2002 of the Court of Appeals. The 5 November 2001 Decision affirmed the ruling of
the Regional Trial Court, Boac, Marinduque, Branch 94, in a suit to quash Informations filed
against petitioners John Eric Loney, Steven Paul Reid, and Pedro B. Hernandez ("petitioners").
The 14 March 2002 Resolution denied petitioners’ motion for reconsideration.
The Facts
Petitioners John Eric Loney, Steven Paul Reid, and Pedro B. Hernandez are the President and
Chief Executive Officer, Senior Manager, and Resident Manager for Mining Operations,
respectively, of Marcopper Mining Corporation ("Marcopper"), a corporation engaged in mining
in the province of Marinduque.
Marcopper had been storing tailings3 from its operations in a pit in Mt. Tapian, Marinduque. At
the base of the pit ran a drainage tunnel leading to the Boac and Makalupnit rivers. It appears
that Marcopper had placed a concrete plug at the tunnel’s end. On 24 March 1994, tailings
gushed out of or near the tunnel’s end. In a few days, the Mt. Tapian pit had discharged millions
of tons of tailings into the Boac and Makalupnit rivers.
In August 1996, the Department of Justice separately charged petitioners in the Municipal Trial
Court of Boac, Marinduque ("MTC") with violation of Article 91(B),4 sub-paragraphs 5 and 6 of
Presidential Decree No. 1067 or the Water Code of the Philippines ("PD 1067"),5 Section 86 of
Presidential Decree No. 984 or the National Pollution Control Decree of 1976 ("PD
984"),7 Section 1088 of Republic Act No. 7942 or the Philippine Mining Act of 1995 ("RA
7942"),9 and Article 36510 of the Revised Penal Code ("RPC") for Reckless Imprudence
Resulting in Damage to Property.11
Petitioners moved to quash the Informations on the following grounds: (1) the Informations were
"duplicitous" as the Department of Justice charged more than one offense for a single act; (2)
petitioners John Eric Loney and Steven Paul Reid were not yet officers of Marcopper when the
incident subject of the Informations took place; and (3) the Informations contain allegations
which constitute legal excuse or justification.
The Ruling of the MTC
In its Joint Order of 16 January 1997 ("Joint Order"), the MTC12 initially deferred ruling on
petitioners’ motion for lack of "indubitable ground for the quashing of the [I]nformations x x x."
The MTC scheduled petitioners’ arraignment in February 1997. However, on petitioners’ motion,
the MTC issued a Consolidated Order on 28 April 1997 ("Consolidated Order"), granting partial
reconsideration to its Joint Order and quashing the Informations for violation of PD 1067 and PD
984. The MTC maintained the Informations for violation of RA 7942 and Article 365 of the RPC.
The MTC held:
[T]he 12 Informations have common allegations of pollutants pointing to "mine tailings" which
were precipitately discharged into the Makulapnit and Boac Rivers due to breach caused on the
Tapian drainage/tunnel due to negligence or failure to institute adequate measures to prevent
pollution and siltation of the Makulapnit and Boac River systems, the very term and condition
required to be undertaken under the Environmental Compliance Certificate issued on April 1,
1990.
The allegations in the informations point to same set [sic] of evidence required to prove the
single fact of pollution constituting violation of the Water Code and the Pollution Law which are
the same set of evidence necessary to prove the same single fact of pollution, in proving the
elements constituting violation of the conditions of ECC, issued pursuant to the Philippine Mining
Act. In both instances, the terms and conditions of the Environmental Compliance Certificate
were allegedly violated. In other words, the same set of evidence is required in proving violations
of the three (3) special laws.
After carefully analyzing and weighing the contending arguments of the parties and after taking
into consideration the applicable laws and jurisprudence, the Court is convinced that as far as
the three (3) aforesaid laws are concerned, only the Information for [v]iolation of Philippine
Mining Act should be maintained. In other words, the Informations for [v]iolation of Anti-Pollution
Law (PD 984) and the Water Code (PD 1067) should be dismissed/quashed because the
elements constituting the aforesaid violations are absorbed by the same elements which
constitute violation of the Philippine Mining Act (RA 7942).
Therefore, x x x Criminal Case[] Nos. 96-44, 96-45 and 96-46 for [v]iolation of the Water Code;
and Criminal Case[] Nos. 96-47, 96-48 and 96-49 for [v]iolation of the Anti-Pollution Law x x x
are hereby DISMISSED or QUASHED and Criminal Case[] Nos. 96-50, 96-51 and 96-52 for
[v]iolation of the Philippine Mining Act are hereby retained to be tried on the merits.
The Information for [v]iolation of Article 365 of the Revised Penal Code should also be
maintained and heard in a full blown trial because the common accusation therein is reckless
imprudence resulting to [sic] damage to property. It is the damage to property which the law
punishes not the negligent act of polluting the water system. The prosecution for the [v]iolation of
Philippine Mining Act is not a bar to the prosecution for reckless imprudence resulting to [sic]
damage to property.13
The MTC re-scheduled petitioners’ arraignment on the remaining charges on 28 and 29 May
1997. In the hearing of 28 May 1997, petitioners manifested that they were willing to be
arraigned on the charge for violation of Article 365 of the RPC but not on the charge for violation
of RA 7942 as they intended to appeal the Consolidated Order in so far as it maintained the
Informations for that offense. After making of record petitioners’ manifestation, the MTC
proceeded with the arraignment and ordered the entry of "not guilty" pleas on the charges for
violation of RA 7942 and Article 365 of the RPC.
Petitioners subsequently filed a petition for certiorari with the Regional Trial Court, Boac,
Marinduque, assailing that portion of the Consolidated Order maintaining the Informations for
violation of RA 7942. Petitioners’ petition was raffled to Branch 94. For its part, public
respondent filed an ordinary appeal with the same court assailing that portion of the
Consolidated Order quashing the Informations for violation of PD 1067 and PD 984. Public
respondent’s appeal was raffled to Branch 38. On public respondent’s motion, Branch 38
ordered public respondent’s appeal consolidated with petitioners’ petition in Branch 94.
The Ruling of Branch 94
In its Resolution14 of 20 March 1998, Branch 94 granted public respondent’s appeal but denied
petitioners’ petition. Branch 94 set aside the Consolidated Order in so far as it quashed the
Informations for violation of PD 1067 and PD 984 and ordered those charges reinstated. Branch
94 affirmed the Consolidated Order in all other respects. Branch 94 held:
After a careful perusal of the laws concerned, this court is of the opinion that there can be no
absorption by one offense of the three other offenses, as [the] acts penalized by these laws are
separate and distinct from each other. The elements of proving each violation are not the same
with each other. Concededly, the single act of dumping mine tailings which resulted in the
pollution of the Makulapnit and Boac rivers was the basis for the information[s] filed against the
accused each charging a distinct offense. But it is also a well-established rule in this jurisdiction
that –
xxxx
We now go to petitioners’ claim that the resolution of the public respondent contravened the
doctrine laid down in People vs. Relova for being violative of their right against multiple
prosecutions.
In the said case, the Supreme Court found the People’s argument with respect to the variances
in the mens rea of the two offenses being charged to be correct. The Court, however, decided
the case in the context of the second sentence of Article IV (22) of the 1973 Constitution (now
under Section 21 of Article III of the 1987 Constitution), rather than the first sentence of the
same section. x x x
xxxx
[T]he doctrine laid down in the Relova case does not squarely apply to the case at Bench since
the Informations filed against the petitioners are for violation of four separate and distinct laws
which are national in character.

"A single act may offend against two or more entirely distinct and unrelated provisions of law,
xxxx
and if one provision requires proof of an additional fact or element which the other does not, an
acquittal or conviction or a dismissal of the information under one does not bar prosecution
under the other. x x x." This Court firmly agrees in the public respondent’s understanding that the laws by which the
petitioners have been [charged] could not possibly absorb one another as the elements of each
crime are different. Each of these laws require [sic] proof of an additional fact or element which
xxxx
the other does not, although they stemmed from a single act. x x x

[T]he different laws involve cannot absorb one another as the elements of each crime are
xxxx
different from one another. Each of these laws require [sic] proof of an additional fact or element
which the other does not although they stemmed from a single act.15
[T]his Court finds that there is not even the slightest indicia of evidence that would give rise to
any suspicion that public respondent acted with grave abuse of discretion amounting to excess
Petitioners filed a petition for certiorari with the Court of Appeals alleging that Branch 94 acted
or lack of jurisdiction in reversing the Municipal Trial Court’s quashal of the Informations against
with grave abuse of discretion because (1) the Informations for violation of PD 1067, PD 984,
the petitioners for violation of P.D. 1067 and P.D. 984. This Court equally finds no error in the
RA 7942 and the Article 365 of the RPC "proceed from and are based on a single act or incident
trial court’s denial of the petitioner’s motion to quash R.A. 7942 and Article 365 of the Revised
of polluting the Boac and Makalupnit rivers thru dumping of mine tailings" and (2) the duplicitous
Penal Code.18
nature of the Informations contravenes the ruling in People v. Relova.16Petitioners further
contended that since the acts complained of in the charges for violation of PD 1067, PD 984,
and RA 7942 are "the very same acts complained of" in the charge for violation of Article 365 of Petitioners sought reconsideration but the Court of Appeals denied their motion in its Resolution
the RPC, the latter absorbs the former. Hence, petitioners should only be prosecuted for of 14 March 2002.
violation of Article 365 of the RPC.17
Petitioners raise the following alleged errors of the Court of Appeals:
The Ruling of the Court of Appeals
I. THE COURT OF APPEALS COMMITTED A R[E]VERSIBLE ERROR IN MAINTAINING THE
In its Decision of 5 November 2001, the Court of Appeals affirmed Branch 94’s ruling. The CHARGES FOR VIOLATION OF THE PHILIPPINE MINING ACT (R.A. 7942) AND
appellate court held: REINSTATING THE CHARGES FOR VIOLATION OF THE WATER CODE (P.D. 1067) AND
POLLUTION CONTROL LAW (P.D. 984), CONSIDERING THAT:
The records of the case disclose that petitioners filed a motion to quash the aforementioned
Informations for being duplicitous in nature. Section 3 of Rule 117 of the Revised Rules of Court A. THE INFORMATIONS FOR VIOLATION OF THE WATER CODE (P.D. 1067), THE
specifically provides the grounds upon which an information may be quashed. x x x POLLUTION CONTROL LAW (P.D. 984), THE PHILIPPINE MINING ACT (R.A. 7942) AND
ARTICLE 365 OF THE REVISED PENAL CODE PROCEED FROM AND ARE BASED ON A
SINGLE ACT OR INCIDENT OF POLLUTING THE BOAC AND MAKULAPNIT RIVERS THRU
xxxx
DUMPING OF MINE TAILINGS.

[D]uplicity of Informations is not among those included in x x x [Section 3, Rule 117].

B. THE PROSECUTION OF PETITIONERS FOR DUPLICITOUS AND MULTIPLE CHARGES
CONTRAVENES THE DOCTRINE LAID DOWN IN PEOPLE VS. RELOVA, 148 SCRA 292
[1986 THAT "AN ACCUSED SHOULD NOT BE HARASSED BY MULTIPLE PROSECUTIONS
FOR OFFENSES WHICH THOUGH DIFFERENT FROM ONE ANOTHER ARE
NONETHELESS EACH CONSTITUTED BY A COMMON SET OR OVERLAPPING SETS OF
TECHNICAL ELEMENTS."
II. THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THE
ELEMENT OF LACK OF NECESSARY OR ADEQUATE PRECAUTION, NEGLIGENCE,
RECKLESSNESS AND IMPRUDENCE UNDER ARTICLE 356 [sic] OF THE REVISED PENAL
CODE DOES NOT FALL WITHIN THE AMBIT OF ANY OF THE ELEMENTS OF THE
PERTINENT PROVISIONS OF THE WATER CODE, POLLUTION CONTROL LAW AND
PHILIPPINE MINING ACT CHARGED AGAINST PETITIONERS[.]19
The Issues
The petition raises these issues:
(1) Whether all the charges filed against petitioners except one should be quashed for duplicity
of charges and only the charge for Reckless Imprudence Resulting in Damage to Property
should stand; and
(2) Whether Branch 94’s ruling, as affirmed by the Court of Appeals, contravenes People v.
Relova.
The Ruling of the Court
The petition has no merit.
No Duplicity of Charges in the Present Case
Duplicity of charges simply means a single complaint or information charges more than one
offense, as Section 13 of Rule 11020 of the 1985 Rules of Criminal Procedure clearly states:
Duplicity of offense. – A complaint or information must charge but one offense, except only in
those cases in which existing laws prescribe a single punishment for various offenses.
In short, there is duplicity (or multiplicity) of charges when a single Information charges more
than one offense.21
22
Under Section 3(e), Rule 117  of the 1985 Rules of Criminal Procedure, duplicity of offenses in
a single information is a ground to quash the Information. The Rules prohibit the filing of such
Information to avoid confusing the accused in preparing his defense.23 Here, however, the
prosecution charged each petitioner with four offenses, with each Information charging only one
offense. Thus, petitioners erroneously invoke duplicity of charges as a ground to quash the
Informations. On this score alone, the petition deserves outright denial.
The Filing of Several Charges is Proper
Petitioners contend that they should be charged with one offense only — Reckless Imprudence
Resulting in Damage to Property — because (1) all the charges filed against them "proceed from
and are based on a single act or incident of polluting the Boac and Makalupnit rivers thru
dumping of mine tailings" and (2) the charge for violation of Article 365 of the RPC "absorbs" the
other charges since the element of "lack of necessary or adequate protection, negligence,
recklessness and imprudence" is common among them.
The contention has no merit.
As early as the start of the last century, this Court had ruled that a single act or incident might
offend against two or more entirely distinct and unrelated provisions of law thus justifying the
prosecution of the accused for more than one offense.24 The only limit to this rule is the
Constitutional prohibition that no person shall be twice put in jeopardy of punishment for "the
same offense."25 In People v. Doriquez,26 we held that two (or more) offenses arising from the
same act are not "the same" —
x x x if one provision [of law] requires proof of an additional fact or element which the other does
not, x x x. Phrased elsewise, where two different laws (or articles of the same code) define two
crimes, prior jeopardy as to one of them is no obstacle to a prosecution of the other, although
both offenses arise from the same facts, if each crime involves some important act which is not
an essential element of the other.27 (Emphasis supplied)
Here, double jeopardy is not at issue because not all of its elements are present.28 However, for
the limited purpose of controverting petitioners’ claim that they should be charged with one
offense only, we quote with approval Branch 94’s comparative analysis of PD 1067, PD 984, RA
7942, and Article 365 of the RPC showing that in each of these laws on which petitioners were
charged, there is one essential element not required of the others, thus:
In P.D. 1067 (Philippines Water Code), the additional element to be established is the dumping
of mine tailings into the Makulapnit River and the entire Boac River System without prior permit
from the authorities concerned. The gravamen of the offense here is the absence of the proper
permit to dump said mine tailings. This element is not indispensable in the prosecution for
violation of PD 984 (Anti-Pollution Law), [RA] 7942 (Philippine Mining Act) and Art. 365 of the
Revised Penal Code. One can be validly prosecuted for violating the Water Code even in the
absence of actual pollution, or even [if] it has complied with the terms of its Environmental
Compliance Certificate, or further, even [if] it did take the necessary precautions to prevent
damage to property.
In P.D. 984 (Anti-Pollution Law), the additional fact that must be proved is the existence of actual
pollution. The gravamen is the pollution itself. In the absence of any pollution, the accused must
be exonerated under this law although there was unauthorized dumping of mine tailings or lack
of precaution on its part to prevent damage to property.
In R.A. 7942 (Philippine Mining Act), the additional fact that must be established is the willful
violation and gross neglect on the part of the accused to abide by the terms and conditions of
the Environmental Compliance Certificate, particularly that the Marcopper should ensure the
containment of run-off and silt materials from reaching the Mogpog and Boac Rivers. If there
was no violation or neglect, and that the accused satisfactorily proved [sic] that Marcopper had
done everything to ensure containment of the run-off and silt materials, they will not be liable. It
does not follow, however, that they cannot be prosecuted under the Water Code, Anti-Pollution
Law and the Revised Penal Code because violation of the Environmental Compliance Certificate
is not an essential element of these laws.
On the other hand, the additional element that must be established in Art. 365 of the Revised
Penal Code is the lack of necessary or adequate precaution, negligence, recklessness and
imprudence on the part of the accused to prevent damage to property. This element is not
required under the previous laws. Unquestionably, it is different from dumping of mine tailings
without permit, or causing pollution to the Boac river system, much more from violation or
neglect to abide by the terms of the Environmental Compliance Certificate. Moreover, the
offenses punished by special law are mal[a] prohibita in contrast with those punished by the
Revised Penal Code which are mala in se.29
Consequently, the filing of the multiple charges against petitioners, although based on the same
incident, is consistent with settled doctrine.
Article IV (22) sets forth the general rule: the constitutional protection against double jeopardy is
not available where the second prosecution is for an offense that is different from the offense
charged in the first or prior prosecution, although both the first and second offenses may be
based upon the same act or set of acts. The second sentence of Article IV (22) embodies an
exception to the general proposition: the constitutional protection, against double jeopardy is
available although the prior offense charged under an ordinance be different from the offense
charged subsequently under a national statute such as the Revised Penal Code, provided that
both offenses spring from the same act or set of acts. x x x30 (Italicization in the original;
boldfacing supplied)

On petitioners’ claim that the charge for violation of Article 365 of the RPC "absorbs" the charges
Thus, Relova is no authority for petitioners’ claim against multiple prosecutions based on a
for violation of PD 1067, PD 984, and RA 7942, suffice it to say that a mala in se felony (such as
single act not only because the question of double jeopardy is not at issue here, but also
Reckless Imprudence Resulting in Damage to Property) cannot absorb mala prohibita crimes
because, as the Court of Appeals held, petitioners are being prosecuted for an act or incident
(such as those violating PD 1067, PD 984, and RA 7942). What makes the former a felony is
punished by four national statutes and not by an ordinance and a national statute. In short,
criminal intent (dolo) or negligence (culpa); what makes the latter crimes are the special laws
petitioners, if ever, fall under the first sentence of Section 21, Article III which prohibits multiple
enacting them.
prosecution for the same offense, and not, as in Relova, for offenses arising from the same
incident.
People v. Relova not in Point
WHEREFORE, we DENY the petition. We AFFIRM the Decision dated 5 November 2001 and
Petitioners reiterate their contention in the Court of Appeals that their prosecution contravenes the Resolution dated 14 March 2002 of the Court of Appeals.
this Court’s ruling in People v. Relova. In particular, petitioners cite the Court’s statement in
Relova that the law seeks to prevent harassment of the accused by "multiple prosecutions for
SO ORDERED.
offenses which though different from one another are nonetheless each constituted by a
common set or overlapping sets of technical elements."

This contention is also without merit.1avvphil.net

The issue in Relova is whether the act of the Batangas Acting City Fiscal in charging one
Manuel Opulencia ("Opulencia") with theft of electric power under the RPC, after the latter had
been acquitted of violating a City Ordinance penalizing the unauthorized installation of electrical
wiring, violated Opulencia’s right against double jeopardy. We held that it did, not because the
offenses punished by those two laws were the same but because the act giving rise to the
charges was punished by an ordinance and a national statute, thus falling within the proscription
against multiple prosecutions for the same act under the second sentence in Section 22, Article
IV of the 1973 Constitution, now Section 21, Article III of the 1987 Constitution. We held:

The petitioner concludes that:

"The unauthorized installation punished by the ordinance [of Batangas City] is not the same as
theft of electricity [under the Revised Penal Code]; that the second offense is not an attempt to
commit the first or a frustration thereofand that the second offense is not necessarily included in
the offense charged in the first information."

The above argument[ ] made by the petitioner [is] of course correct. This is clear both from the
express terms of the constitutional provision involved – which reads as follows:

"No person shall be twice put in jeopardy of punishment for the same offense. If an act is
punished by a law and an ordinance, conviction or acquittal under either shall constitute a bar to
another prosecution for the same act." x x x

and from our case law on this point. The basic difficulty with the petitioner’s position is that it
must be examined, not under the terms of the first sentence of Article IV (22) of the 1973
Constitution, but rather under the second sentence of the same section. The first sentence of

G.R. No. 139548               December 22, 2000
MARCOPPER MINING CORPORATION, petitioner, 
vs.
ALBERTO G. BUMOLO in his own behalf and as Attorney-in-Fact of Benito Cachili,
Conchita Bumolo, Patricio Dumlao, Jacinto Aliguyon, Alfonso Maddawat, Toledo Gillao,
Jose Tigo and Peter Cabiggat Bumolo, DALTON PACIFIC RESOURCES, INC.,
OROPHILIPPINES VENTURES INC., and the MINES ADJUDICATION BOARD
(MAB), respondents.
DECISION
BELLOSILLO, J.:
MARCOPPER MINING CORPORATION registered its mining claims in Pao, Kasibu, Nueva
Vizcaya with the Department of Environment and Natural Resources (DENR) from 2 February
1982 to 12 October 1982. Private respondents Alberto G. Bumolo, Benito Cachili, Conchita
Bumolo, Patricio Dumlao, Jacinto Aliguyon, Alfonso Maddawat, Toledo Gillao, Jose Tigo and
Peter Cabiggat Bumolo and others, namely, Rosario Camma, Mariano Maddela, Victor Guiaoan
and Catalino Randa, registered their mining claims in the same area from 28 July 1981 to 22
September 1988, which claims were subsequently converted into Mineral Production Sharing
Agreements (MPSA).
On 12 March 1982 petitioner entered into Option Agreements over the mining claims with
respondent Alberto G. Bumolo, for himself and as attorney-in-fact of the other respondents on
one hand; and with Rosario Camma on the other, for herself and as attorney-in-fact of the rest.
Under the Agreements, petitioner was granted the exclusive and irrevocable right to explore the
mining claims for three (3) years with provision for extension.
On 23 December 1982 and 26 March 1987 petitioner filed Prospecting Permit Applications
(PPA) with the Bureau of Forest Development, DENR, on the alleged ground that a portion of
the area covered by the mining claims was within the Magat River Forest Reservation under
Proc. 573 of 26 June 19691 and with the Department of Agrarian Reform (DAR) on account of
alleged coverage of the other portion within the Nueva Vizcaya-Quirino Civil Reservation under
Proc. 1498 of 11 September 1975.2
On 11 February 1991 and 12 March 1991 petitioner informed respondent Alberto G. Bumolo and
Rosario Camma that it was terminating the Agreements since its conduct of a systematic
exploration program disclosed that the area was relatively weak and of limited tonnage which did
not justify further drilling for big tonnage of low grade gold exploration target.
On 15 July 1991 DENR Regional Executive Director Leonardo A. Paat rejected petitioner’s
Prospecting Permit Application (PPA) on the ground that the Memorandum of 8 July 1991
endorsed by the Regional Technical Director for Mines revealed that the area covered was
outside government reservation; that the prospect claim was in conflict with existing claims; and,
that the area had been extensively explored in the early 1980's.3
On 15 August 1991 petitioner moved for reconsideration. On 9 June 1995 Regional Executive
Director Samuel Paragas recommended to the DENR Secretary that petitioner's request for
reconsideration be denied; that the existing rights of mining claim holders be respected; and,
that the prior legal rights of MPSA/Financial and Technical Assistance Agreement applicants
over subject area be recognized.4
As regards petitioner's PPA filed with the DAR, it appeared that it was issued a clearance to
prospect for six (6) months from 11 December 1995.5
On 15 August 1997 petitioner appealed to public respondent Mines Adjudication Board (MAB),
DENR, naming respondents Alberto G. Bumolo, Benito Cachili, Conchita Bumolo, Patricio
Dumlao, Jacinto Aliguyon, Alfonso Maddawat, Toledo Gillao, Jose Tigo and Peter Cabiggat
Bumolo as appellees. Petitioner maintained that subject area was within the Magat River Forest
Reservation. On 11 June 1998 the rejection of the PPA was affirmed whereas the mining claims
of respondents Alberto G. Bumolo et al. that had been converted into a MPSA, subject to
compliance with R.A. 79426 and DAO No. 96-40,7 were given due course.8
On 16 July 1998 petitioner moved for reconsideration. On 29 March 1999 private respondents
Dalton Pacific Resources (Dalton) and Orophilippines Ventures, Inc. (OVI) filed an Omnibus
Motion for their joinder as parties on the ground that on 17 July 1992 they had entered into a
Memorandum of Agreement with respondent Alberto G. Bumolo on his own behalf and as
attorney-in-fact of Camma, et al. granting the companies exclusive and irrevocable right to
explore and operate the area subject of the mining claims. On 13 May 1999 respondent MAB
denied petitioner’s motion and formally joined respondents Dalton and OVI with the original
appellees as parties in the case.9
The only relevant issue raised by petitioner10 pertains to whether respondent MAB erred in
finding that the area subject of the PPA was outside the Magat River Forest Reservation.
Petitioner notes that the Magat River Forest Reservation has a tie point at coordinates 17
degrees 40'29" and 121 degrees 30'40" in Nueva Vizcaya which puts the river basin too far to
the north. Petitioner submits that an error must have been committed in the Engineering Section
of the DENR by typing the latitude as "17" instead of "16" degrees; if corrected, the river basin
would cover exactly the basin on the ground making the area subject of the PPA within the
Magat River Forest Reservation.
The petition lacks merit. Readily apparent is that the issue deals with a factual matter. In this
regard, factual findings of quasi-judicial agencies which have acquired expertise in matters
entrusted to their jurisdictions are accorded by this Court not only respect but finality if supported
by substantial evidence.11 In this instance, there is no reason to disagree with respondent MAB.
We recall that petitioner previously conducted a systematic exploration program of subject area
which yielded the result that it was relatively weak and of limited tonnage and thus did not justify
further drilling for big tonnage of low grade gold exploration target. Consequently, it terminated
the Option Agreements with respondents and the group of Camma. This, notwithstanding, it still
showed interest when it filed a PPA over the area.1awp++i1 We agree with the observation of
Regional Executive Director Paragas and respondent MAB that petitioner’s action of filing a PPA
over the area it previously found relatively weak and of limited tonnage was absurd.
Respondent MAB correctly upheld the ratiocination of Regional Executive Director Paragas in
denying petitioner's PPA, pertinent portions of which read -
x x x x the said rejection by the region was anchored on the July 8, 1991 Memorandum Report
of then RTD for Mines Nestor Punsal, Jr. to then RED Leonardo A. Paat x x x wherein it was
clearly cited that Marcopper’s proposed prospecting area covering
about 4,941 hectares lies outside Magat Forest Reserve. Such being the case, a PPA is not the Dumlao, Jacinto Aliguyon, Alfonso Maddawat, Toledo Gillao, Jose Tigo and Peter Cabiggat
proper instrument for said company to avail of in order to have the right to prospect over the Bumolo subject to compliance with RA 7942 and DAO No. 96-40, and its Resolution of 13 May
area. Instead, the filing of Declarations of Location (DOL) would have been proper. 1999 which denied reconsideration, are AFFIRMED. Costs against petitioner.

The records, however, show that Marcopper already holds right over some parts of the applied SO ORDERED.
area through its PAO 1-30 mining claims (2,430 hectares) filed under PD 463 in late 1982. The
same report noted that it was rather unusual for Marcopper to have applied for Prospecting
Permit over the same area covered by existing PD 463 claims including that of its own x x x x

The disapproval of Marcopper’s PPA moreover, did not emanate from a single recommendation
of the RTD for Mines. Records would show that as early as May 31, 1989 x x x the Bumolo
group of PD 463 claims which Marcopper has eventually surrounded by filing its own PAO 1-30
group of claims x x x x was confirmed by the Forest Engineering Section of the region to be
outside proclaimed watershed areas, wilderness, national parks and existing government
reforestation projects x x x x

Then again for Marcopper to include the Bumolo group of claims in its PPA and thereby subject
the same to another round of prospecting is but ridiculous considering that the same company
have in the past conducted detailed investigation activities over the same areas and have
accordingly declared said claims to be relatively weak and indicate a quite limited tonnage
potential to justify further drilling for possible big tonnage low grade gold exploration target x x x
x

x x x x we wish to expound on the October 17, 1991 explanation previously made by the region
in that indeed, the PPA of Marcopper lies outside of Magat Forest Reserve as per plotting
recently provided by NAMRIA per its June 2, 1995 indorsement of the maps to this Office x x x
x12

In other words, the circumstance that the area covered by petitioner's PPA is outside the Magat
River Forest Reservation has been adequately established by the following evidence: (a)
confirmation as early as 31 May 1989 by the Forest Engineering Section of Tuguegarao,
Cagayan; (b) the 8 July 1991 Memorandum Report of Regional Technical Director Punsal Jr.;
and, (c) plotting provided by the National Mapping and Resources Information Authority per its 2
June 1995 indorsement of the maps to the office of the Regional Executive Director. Petitioner
contests the exclusion of the area subject of its PPA within the Magat River Forest Reservation
based merely on the alleged "typographical error committed by somebody in the Engineering
Section of the DENR." Aside from the fact that the allegation does not have anything to support
it, the aforementioned documents which the Regional Executive Directors relied upon in denying
the PPA had already settled the issue.

Furthermore, respondent MAB even fortified the bases for the rejection of petitioner's PPA. As
plotted by the Lands Management Sector of DENR Region 2 contained in the sketch plan of 11
November 1996 and as shown in the Land Use map of the Community Environment and Natural
Resources Office of Dupax, Nueva Vizcaya, the area covered under the PPA is indeed outside
any government reservation.

At any rate, we have gone over the pleadings of the parties, i.e., Petition, Comment, Reply, as
well as their respective Memoranda, and we find no justifiable basis to merit a reversal and grant
the Petition.

WHEREFORE, the petition is DENIED. The Decision of 11 June 1998 of respondent Mines
Adjudication Board which affirmed the rejection of petitioner Marcopper Mining Corporation’s
Prospecting Permit Application and gave due course to the Mineral Production Sharing
Agreement of respondents Alberto G. Bumolo, Benito Cachili, Conchita Bumolo, Patricio

G.R. No. 98332 January 16, 1995
MINERS ASSOCIATION OF THE PHILIPPINES, INC., petitioner,  and technical resources.
vs.
HON. FULGENCIO S. FACTORAN, JR., Secretary of Environment and Natural Resources,
and JOEL D. MUYCO, Director of Mines and Geosciences Bureau, respondents.
ROMERO, J.:
The instant petition seeks a ruling from this Court on the validity of two Administrative Orders
issued by the Secretary of the Department of Environment and Natural Resources to carry out
the provisions of certain Executive Orders promulgated by the President in the lawful exercise of
legislative powers.
Herein controversy was precipitated by the change introduced by Article XII, Section 2 of the
1987 Constitution on the system of exploration, development and utilization of the country's
natural resources. No longer is the utilization of inalienable lands of public domain through
"license, concession or lease" under the 1935 and 1973 Constitutions1allowed under the 1987
Constitution.
The adoption of the concept of jura regalia2 that all natural resources are owned by the State
embodied in the 1935, 1973 and 1987 Constitutions, 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  including existing operating agreements and mining service contracts, shall continue and remain
defense,3 ushered in the adoption of the constitutional policy of "full control and supervision by
the State" in the exploration, development and utilization of the country's natural resources. The
options open to the State are through direct undertaking or by entering into co-production, joint
venture; or production-sharing agreements, or by entering into agreement with foreign-owned
corporations for large-scale exploration, development and utilization.
Article XII, Section 2 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 product-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.
xxx xxx xxx
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
The President shall notify the Congress of every contract entered into in accordance with this
provision, within thirty days from its execution. (Emphasis supplied)
Pursuant to the mandate of the above-quoted provision, legislative acts4 were successively
issued by the President in the exercise of her legislative 
power.5
To implement said legislative acts, the Secretary of the Department of Environment and Natural
Resources (DENR) in turn promulgated Administrative Order Nos. 57 and 82, the validity and
constitutionality of which are being challenged in this petition.
On July 10, 1987, President Corazon C. Aquino, in the exercise of her then legislative powers
under Article II, Section 1 of the Provisional Constitution and Article XIII, Section 6 of the 1987
Constitution, promulgated Executive Order No. 211 prescribing the interim procedures in the
processing and approval of applications for the exploration, development and utilization of
minerals pursuant to the 1987 Constitution in order to ensure the continuity of mining operations
and activities and to hasten the development of mineral resources. The pertinent provisions read
as follows:
Sec. 1. Existing mining permits, licenses, leases and other mining grants issued by the
Department of Environment and Natural Resources and Bureau of Mines and Geo-Sciences,
in full force and effect, subject to the same terms and conditions as originally granted and/or
approved.
Sec. 2. Applications for the exploration, development and utilization of mineral resources,
including renewal applications for approval of operating agreements and mining service
contracts, shall be accepted and processed and may be approved; concomitantly thereto,
declarations of locations and all other kinds of mining applications shall be accepted and
registered by the Bureau of Mines and Geo-Sciences.
Sec. 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.
On July 25, 1987, President Aquino likewise promulgated Executive Order No. 279 authorizing
the DENR Secretary to negotiate and conclude joint venture, co-production, or production-
sharing agreements for the exploration, development and utilization of mineral 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. The pertinent provisions relevant to this petition are as follows:
Sec. 1. The Secretary of the Department of Environment and Natural Resources (hereinafter
referred to as "the Secretary") is hereby authorized to negotiate and enter into, for and in behalf
of the Government, joint venture, co-production, or production-sharing agreements for the
exploration, development, and utilization of mineral resources with any Filipino citizens, or
corporation or association at least sixty percent (60%) of whose capital is owned by Filipino
citizens. Such joint venture, co-production, or production-sharing agreements may be for a
period not exceeding twenty-five years, renewable for not more than twenty-five years, and shall
include the minimum terms and conditions prescribed in Section 2 hereof. In the execution of a
joint venture, co-production or production agreements, the contracting parties, including the
Government, may consolidate two or more contiguous or geologically — related mining claims
or leases and consider them as one contract area for purposes of determining the subject of the
joint venture, co-production, or production-sharing agreement.
xxx xxx xxx
Sec. 6. The Secretary shall promulgate such supplementary rules and regulations as may be
necessary to effectively implement the provisions of this Executive Order.
Sec. 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.
Pursuant to Section 6 of Executive Order No. 279, the DENR Secretary issued on June 23, 1989
DENR Administrative Order No. 57, series of 1989, captioned "Guidelines of Mineral Production
Sharing Agreement under Executive Order No. 279."6 Under the transitory provision of said
DENR Administrative Order No. 57, embodied in its Article 9, all existing mining leases or
agreements which were granted after the effectivity of the 1987 Constitution pursuant to
Executive Order No. 211, except small scale mining leases and those pertaining to sand and
gravel and quarry resources covering an area of twenty (20) hectares or less, shall be converted
into production-sharing agreements within one (1) year from the effectivity of these guidelines.
On November 20, 1980, the Secretary of the DENR Administrative Order No. 82, series of 1990,
laying down the "Procedural Guidelines on the Award of Mineral Production Sharing Agreement
(MPSA) through Negotiation."7
Section 3 of the aforementioned DENR Administrative Order No. 82 enumerates the persons or
entities required to submit Letter of Intent (LOIs) and Mineral Production Sharing Agreement
(MPSAs) within two (2) years from the effectivity of DENR Administrative Order No. 57 or until
July 17, 1991. Failure to do so within the prescribed period shall cause the abandonment of
mining, quarry and sand and gravel claims. Section 3 of DENR Administrative Order No. 82
provides:
Sec. 3. Submission of Letter of Intent (LOIs) and MPSAs). The following shall submit their LOIs
and MPSAs within two (2) years from the effectivity of DENR A.O. 57 or until July 17, 1991.
i. Declaration of Location (DOL) holders, mining lease applicants, exploration permitees, quarry
applicants and other mining applicants whose mining/quarry applications have not been
perfected prior to the effectivity of DENR Administrative Order No. 57.
ii. All holders of DOL acquired after the effectivity of DENR A.O. No. 57.
iii. Holders of mining leases or similar agreements which were granted after (the) effectivity of
1987 Constitution.
Failure to submit letters of intent and MPSA applications/proposals within the prescribed period
shall cause the abandonment of mining, quarry and sand and gravel claims.
The issuance and the impeding implementation by the DENR of Administrative Order Nos. 57
and 82 after their respective effectivity dates compelled the Miners Association of the
Philippines, Inc.8 to file the instant petition assailing their validity and constitutionality before this
Court.
In this petition for certiorari, petitioner Miners Association of the Philippines, Inc. mainly contends
that respondent Secretary of DENR issued both Administrative Order Nos. 57 and 82 in excess
of his rule-making power under Section 6 of Executive Order No. 279. On the assumption that
the questioned administrative orders do not conform with Executive Order Nos. 211 and 279,
petitioner contends that both orders violate the 
non-impairment of contract provision under Article III, Section 10 of the 1987 Constitution on the
ground that Administrative Order No. 57 unduly pre-terminates existing mining agreements and
automatically converts them into production-sharing agreements within one (1) year from its
effectivity date. On the other hand, Administrative Order No. 82 declares that failure to submit
Letters of Intent and Mineral Production-Sharing Agreements within two (2) years from the date
of effectivity of said guideline or on July 17, 1991 shall cause the abandonment of their mining,
quarry and sand gravel permits.
On July 2, 1991, the Court, acting on petitioner's urgent ex-parte petition for issuance of a
restraining order/preliminary injunction, issued a Temporary Restraining Order, upon posting of
a P500,000.00 bond, enjoining the enforcement and implementation of DENR Administrative
Order Nos. 57 and 82, as amended, Series of 1989 and 1990, respectively.9
On November 13, 1991, Continental Marble Corporation, 10 thru its President, Felipe A. David,
sought to intervene 11in this case alleging that because of the temporary order issued by the
Court , the DENR, Regional Office No. 3 in San Fernando, Pampanga refused to renew its
Mines Temporary Permit after it expired on July 31, 1991. Claiming that its rights and interests
are prejudicially affected by the implementation of DENR Administrative Order Nos. 57 and 82, it
joined petitioner herein in seeking to annul Administrative Order Nos. 57 and 82 and prayed that
the DENR, Regional Office No. 3 be ordered to issue a Mines Temporary Permit in its favor to
enable it to operate during the pendency of the suit.
Public respondents were acquired to comment on the Continental Marble Corporation's petition
for intervention in the resolution of November 28, 1991.12
Now to the main petition. If its argued that Administrative Order Nos. 57 and 82 have the effect
of repealing or abrogating existing mining laws 13 which are not inconsistent with the provisions
of Executive Order No. 279. Invoking Section 7 of said Executive Order No. 279, 14 petitioner
maintains that respondent DENR Secretary cannot provide guidelines such as Administrative
Order Nos. 57 and 82 which are inconsistent with the provisions of Executive Order No. 279
because both Executive Order Nos. 211 and 279 merely reiterated the acceptance and
registration of declarations of location and all other kinds of mining applications by the Bureau of
Mines and Geo-Sciences under the provisions of Presidential Decree No. 463, as amended,
until Congress opts to modify or alter the same.
In other words, petitioner would have us rule that DENR Administrative Order Nos. 57 and 82
issued by the DENR Secretary in the exercise of his rule-making power are tainted with invalidity
inasmuch as both contravene or subvert the provisions of Executive Order Nos. 211 and 279 or
embrace matters not covered, nor intended to be covered, by the aforesaid laws.
We disagree.
We reiterate the principle that the power of administrative officials to promulgate rules and
regulations in the implementation of a statute is necessarily limited only to carrying into effect
what is provided in the legislative enactment. The principle was enunciated as early as 1908 in
the case of United States v. Barrias. 15 The scope of the exercise of such rule-making power was
clearly expressed in the case of United States v. Tupasi Molina, 16decided in 1914, thus: "Of
course, the regulations adopted under legislative authority by a particular department must be in
harmony with the provisions of the law, and for the sole purpose of carrying into effect its
general provisions. By such regulations, of course, the law itself can not be extended. So long,
however, as the regulations relate solely to carrying into effect its general provisions. By such
regulations, of course, the law itself can not be extended. So long, however, as the regulations
relate solely to carrying into effect the provision of the law, they are valid."
Recently, the case of People v. Maceren 17 gave a brief delienation of the scope of said power of
administrative officials:
Administrative regulations adopted under legislative authority by a particular department must be
in harmony with the provisions of the law, and should be for the sole purpose of carrying into
effect its general provision. By such regulations, of course, the law itself cannot be extended
(U.S. v. Tupasi Molina, supra). An administrative agency cannot amend an act of Congress
(Santos vs. Estenzo, 109 Phil. 419, 422; Teoxon vs. Members of the Board of Administrators, L-
25619, June 30, 1970, 33 SCRA 585; Manuel vs. General Auditing Office, L-28952, December
29, 1971, 42 SCRA 660; Deluao v. Casteel, L-21906, August 29, 1969, 29 SCRA 350).
The rule-making power must be confined to details for regulating the mode or proceeding to
carry into effect the law as it has been enacted. The power cannot be extended to amending or
expanding the statutory requirements or to embrace matters not covered by the statute. Rules
that subvert the statute cannot be sanctioned (University of Santo Tomas v. Board of Tax
Appeals, 93 Phil. 376, 382, citing 12 C.J. 845-46. As to invalid regulations, see Collector of
Internal Revenue v. Villaflor, 69 Phil. 319; Wise & Co. v. Meer, 78 Phil. 655, 676; Del Mar v. Phil.
Veterans Administration, L-27299, June 27, 1973, 51 SCRA 340, 349).
xxx xxx xxx
. . . The rule or regulation should be within the scope of the statutory authority granted by the
legislature to the administrative agency (Davis, Administrative Law, p. 194, 197, cited in
Victorias Milling Co., Inc. v. Social Security Commission, 114 Phil. 555, 558).
In case of discrepancy between the basic law and a rule or regulation issued to implement said
law, the basic prevails because said rule or regulations cannot go beyond the terms and
provisions of the basic law (People v. Lim, 108 Phil. 1091).
Considering that administrative rules draw life from the statute which they seek to implement, it
is obvious that the spring cannot rise higher than its source. We now examine petitioner's
argument that DENR Administrative Order Nos. 57 and 82 contravene Executive Order Nos. 211
and 279 as both operate to repeal or abrogate Presidential Decree No. 463, as amended, and
other mining laws allegedly acknowledged as the principal law under Executive Order Nos. 211
and 279.
Petitioner's insistence on the application of Presidential Decree No. 463, as amended, as the
governing law on the acceptance and approval of declarations of location and all other kinds of
applications for the exploration, development, and utilization of mineral resources pursuant to
Executive Order No. 211, is erroneous. Presidential Decree No. 463, as amended, pertains to
the old system of exploration, development and utilization of natural resources through "license,
concession or lease" which, however, has been disallowed by Article XII, Section 2 of the 1987
Constitution. By virtue of the said constitutional mandate and its implementing law, Executive
Order No. 279 which superseded Executive Order No. 211, the provisions dealing on "license,
concession or lease" of mineral resources under Presidential Decree No. 463, as amended, and
other existing mining laws are deemed repealed and, therefore, ceased to operate as the
governing law. In other words, in all other areas of administration and management of mineral
lands, the provisions of Presidential Decree No. 463, as amended, and other existing mining
laws, still govern. Section 7 of Executive Order No. 279 provides, thus:
Sec. 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.
Specifically, the provisions of Presidential Decree No. 463, as amended, on lease of mining
claims under Chapter VIII, quarry permits on privately-owned lands of quarry license on public
lands under Chapter XIII and other related provisions on lease, license and permits are not only
inconsistent with the raison d'etre for which Executive Order No. 279 was passed, but
contravene the express mandate of Article XII, Section 2 of the 1987 Constitution. It force and
effectivity is thus foreclosed.
Upon the effectivity of the 1987 Constitution on February 2, 1987, 18 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.
Given these considerations, there is no clear showing that respondent DENR Secretary has
transcended the bounds demarcated by Executive Order No. 279 for the exercise of his rule-
making power tantamount to a grave abuse of discretion. Section 6 of Executive Order No. 279
specifically authorizes said official to promulgate such supplementary rules and regulations as
may be necessary to effectively implement the provisions thereof. Moreover, the subject sought
to be governed and regulated by the questioned orders is germane to the objects and purposes
of Executive Order No. 279 specifically issued to carry out the mandate of Article XII, Section 2
of the 1987 Constitution.
Petitioner likewise maintains that Administrative Order No. 57, in relation to Administrative Order
No. 82, impairs vested rights as to violate the non-impairment of contract doctrine guaranteed
under Article III, Section 10 of the 1987 Constitution because Article 9 of Administrative Order
No. 57 unduly pre-terminates and automatically converts mining leases and other mining
agreements into production-sharing agreements within one (1) year from effectivity of said
guideline, while Section 3 of Administrative Order No. 82, declares that failure to submit Letters
of Intent (LOIs) and MPSAs within two (2) years from the effectivity of Administrative Order No.
57 or until July 17, 1991 shall cause the abandonment of mining, quarry, and sand gravel
permits.
In Support of the above contention, it is argued by petitioner that Executive Order No. 279 does
not contemplate automatic conversion of mining lease agreements into mining production-
sharing agreement as provided under Article 9, Administrative Order No. 57 and/or the
consequent abandonment of mining claims for failure to submit LOIs and MPSAs under Section
3, Administrative Order No. 82 because Section 1 of said Executive Order No. 279 empowers
the DENR Secretary to negotiate and enter into voluntary agreements which must set forth the
minimum terms and conditions provided under Section 2 thereof. Moreover, petitioner contends
that the power to regulate and enter into mining agreements does not include the power to
preterminate existing mining lease agreements.
To begin with, we dispel the impression created by petitioner's argument that the questioned
administrative orders unduly preterminate existing mining leases in general. A distinction which
spells a real difference must be drawn. Article XII, Section 2 of the 1987 Constitution does not
apply retroactively to "license, concession or lease" granted by the government under the 1973
Constitution or before the effectivity of the 1987 Constitution on February 2, 1987. The intent to
apply prospectively said constitutional provision was stressed during the deliberations in the
Constitutional Commission, 19 thus:
MR. DAVIDE: Under the proposal, I notice that except for the [inalienable] lands of the public
domain, all other natural resources cannot be alienated and in respect to [alienable] lands of the
public domain, private corporations with the required ownership by Filipino citizens can only
lease the same. Necessarily, 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 production-sharing. Is that not correct?
MR. VILLEGAS: Yes.
MR. DAVIDE: Consequently, henceforth upon, the approval of this Constitution, no timber or
forest concession, 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 license 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 supplied)
During the transition period or after the effectivity of the 1987 Constitution on February 2, 1987
until the first Congress under said Constitution was convened on July 27, 1987, two (2)
successive laws, Executive Order Nos. 211 and 279, were promulgated to govern the
processing and approval of applications for the exploration, development and utilization of
minerals. To carry out the purposes of said laws, the questioned Administrative Order Nos. 57
and 82, now being assailed, were issued by the DENR Secretary.
Article 9 of Administrative Order No. 57 provides:
ARTICLE 9
TRANSITORY PROVISION
9.1. All existing mining leases or agreements which were granted after the effectivity of the 1987
Constitution pursuant to Executive Order No. 211, except small scale mining leases and those
pertaining to sand and gravel and quarry resources covering an area of twenty (20) hectares or
less shall be subject to these guidelines. All such leases or agreements shall be converted into
production sharing agreement within one (1) year from the effectivity of these guidelines.
However, any minimum firm which has established mining rights under Presidential Decree 463
or other laws may avail of the provisions of EO 279 by following the procedures set down in this
document.
It is clear from the aforestated provision that Administrative Order No. 57 applies only to all
existing mining leases or agreements which were granted after the effectivity of the 1987
Constitution pursuant to Executive Order No. 211. It bears mention that under the text of
Executive Order No. 211, there is a reservation clause which provides that the privileges as well
as the terms and conditions of all existing mining leases or agreements granted after the
effectivity of the 1987 Constitution pursuant to Executive Order No. 211, shall be subject to any
and all modifications or alterations which Congress may adopt pursuant to Article XII, Section 2
of the 1987 Constitution. Hence, the strictures of the 
non-impairment of contract clause under Article III, Section 10 of the 1987 Constitution 20 do not
apply to the aforesaid leases or agreements granted after the effectivity of the 1987 Constitution,
pursuant to Executive Order No. 211. They can be amended, modified or altered by a statute
passed by Congress to achieve the purposes of Article XII, Section 2 of the 1987 Constitution.
Clearly, Executive Order No. 279 issued on July 25, 1987 by President Corazon C. Aquino in the
exercise of her legislative power has the force and effect of a statute or law passed by
Congress. As such, it validly modified or altered the privileges granted, as well as the terms and
conditions of mining leases and agreements under Executive Order No. 211 after the effectivity
of the 1987 Constitution by authorizing the DENR Secretary to negotiate and conclude joint
venture, co-production, or production-sharing agreements for the exploration, development and
utilization of mineral 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.
Well -settled is the rule, however, that regardless of the reservation clause, mining leases or
agreements granted by the State, such as those granted pursuant to Executive Order No. 211
referred to this petition, are subject to alterations through a reasonable exercise of the police
power of the State. In the 1950 case of Ongsiako v. Gamboa, 21 where the constitutionality of
Republic Act No. 34 changing the 50-50 sharecropping system in existing agricultural tenancy
contracts to 55-45 in favor of tenants was challenged, the Court, upholding the constitutionality
of the law, emphasized the superiority of the police power of the State over the sanctity of this
contract:
The prohibition contained in constitutional provisions against: impairing the obligation of
contracts is not an absolute one and it is not to be read with literal exactness like a mathematical
formula. Such provisions are restricted to contracts which respect property, or some object or
value, and confer rights which may be asserted in a court of justice, and have no application to
statute relating to public subjects within the domain of the general legislative powers of the
State, and involving the public rights and public welfare of the entire community affected by it.
They do not prevent a proper exercise by the State of its police powers. By enacting regulations
reasonably necessary to secure the health, safety, morals, comfort, or general welfare of the
community, even the contracts may thereby be affected; for such matter can not be placed by
contract beyond the power of the State shall regulates and control them. 22
In Ramas v. CAR and Ramos 23 where the constitutionality of Section 14 of Republic Act No.
1199 authorizing the tenants to charge from share to leasehold tenancy was challenged on the
ground that it impairs the obligation of contracts, the Court ruled that obligations of contracts
must yield to a proper exercise of the police power when such power is exercised to preserve
the security of the State and the means adopted are reasonably adapted to the accomplishment
of that end and are, therefore, not arbitrary or oppressive.
The economic policy on the exploration, development and utilization of the country's natural
resources under Article XII, Section 2 of the 1987 Constitution could not be any clearer. As
enunciated in Article XII, Section 1 of the 1987 Constitution, the exploration, development and
utilization of natural resources under the new system mandated in Section 2, is geared towards
a more equitable distribution of opportunities, income, and wealth; a sustained increase in the
amount of goods and services produced by the nation for the benefit of the people; and an
expanding productivity as the key to raising the quality of life for all, especially the
underprivileged.
sufficiently shown that it falls under any of the categories mentioned above. The refusal of the
DENR, Regional Office No. 3, San Fernando, Pampanga to renew its Mines Temporary Permit
does not justify such an intervention by Continental Marble Corporation for the purpose of
obtaining a directive from this Court for the issuance of said permit. Whether or not Continental
Marble matter best addressed to the appropriate government body but certainly, not through this
Court. Intervention is hereby DENIED.
WHEREFORE, the petition is DISMISSED for lack of merit. The Temporary Restraining Order
issued on July 2, 1991 is hereby LIFTED.
SO ORDERED.

The exploration, development and utilization of the country's natural resources are matters vital
to the public interest and the general welfare of the people. The recognition of the importance of
the country's natural resources was expressed as early as the 1984 Constitutional Convention.
In connection therewith, the 1986 U.P. Constitution Project observed: "The 1984 Constitutional
Convention recognized the importance of our natural resources not only for its security and
national defense. Our natural resources which constitute the exclusive heritage of the Filipino
nation, should be preserved for those under the sovereign authority of that nation and for their
prosperity. This will ensure the country's survival as a viable and sovereign republic."

Accordingly, the State, in the exercise of its police power in this regard, may not be precluded by
the constitutional restriction on non-impairment of contract from altering, modifying and
amending the mining leases or agreements granted under Presidential Decree No. 463, as
amended, pursuant to Executive Order No. 211. Police Power, being co-extensive with the
necessities of the case and the demands of public interest; extends to all the vital public needs.
The passage of Executive Order No. 279 which superseded Executive Order No. 211 provided
legal basis for the DENR Secretary to carry into effect the mandate of Article XII, Section 2 of
the 1987 Constitution.

Nowhere in Administrative Order No. 57 is there any provision which would lead us to conclude
that the questioned order authorizes the automatic conversion of mining leases and agreements
granted after the effectivity of the 1987 Constitution, pursuant to Executive Order No. 211, to
production-sharing agreements. The provision in Article 9 of Administrative Order No. 57 that "all
such leases or agreements shall be converted into production sharing agreements within one (1)
year from the effectivity of these guidelines" could not possibility contemplate a unilateral
declaration on the part of the Government that all existing mining leases and agreements are
automatically converted into 
production-sharing agreements. On the contrary, the use of the term "production-sharing
agreement" if they are so minded. Negotiation negates compulsion or automatic conversion as
suggested by petitioner in the instant petition. A mineral production-sharing agreement (MPSA)
requires a meeting of the minds of the parties after negotiations arrived at in good faith and in
accordance with the procedure laid down in the subsequent Administrative Order No. 82.

We, therefore, rule that the questioned administrative orders are reasonably directed to the
accomplishment of the purposes of the law under which they were issued and were intended to
secure the paramount interest of the public, their economic growth and welfare. The validity and
constitutionality of Administrative Order Nos. 57 and 82 must be sustained, and their force and
effect upheld.

We now, proceed to the petition-in-intervention. Under Section 2, Rule 12 of the Revised Rules
of Court, an intervention in a case is proper when the intervenor has a "legal interest in the
matter in litigation, or in the success of either of the parties, or an interest against both, or when
he is so situated as to be adversely affected by a distribution or other disposition of property in
the custody of the court or of an officer thereof. "Continental Marble Corporation has not
 SP No. 99422, which dismissed the petition for certiorari filed by Citinickel against the injunctive
writ3 issued by the RTC of Puerto Princesa, Branch 95 in Civil Case No. 4199;
G.R. No. 178188               May 8, 2009
3. G.R. No. 183527 is a petition for certiorari filed by Platinum Group Metals Corporation
(Platinum), assailing the resolution dated March 3, 2008 of the CA in CA-G.R. SP No. 101544,
OLYMPIC MINES AND DEVELOPMENT CORP., Petitioner,  which ordered the issuance of a writ of preliminary injunction enjoining the RTC of Puerto
vs. Princesa, Branch 95, from conducting further proceedings in Civil Case No. 4199; and
PLATINUM GROUP METALS CORPORATION, Respondent.

4. G.R. No. 181141 is a petition for review on certiorari filed by Platinum against the resolution
x - - - - - - - - - - - - - - - - - - - - - - -x dated January 18, 2007 of the CA in CA-G.R. SP No. 97288, which dismissed the petition
for certiorari filed by Platinum against the Panel of Arbitrators (POA) Resolution cancelling the
G.R. No. 180674               May 8, 2009 Operating Agreement and its Small Scale Mining Permits (SSMPs).

CITINICKEL MINES AND DEVELOPMENT CORPORATION, Petitioner,  These four (4) petitions stem from the Operating Agreement entered into by Olympic and
vs. Platinum, and the subsequent attempts made by Olympic, and thereafter its successor-in-
HON. JUDGE BIENVENIDO C. BLANCAFLOR, in his capacity as the Presiding Judge of interest Citinickel, to unilaterally terminate the same.
the Regional Trial Court of Palawan, Branch 95, Puerto Princesa City, Palawan, and
PLATINUM GROUP METAL CORPORATION, Respondents. FACTUAL BACKGROUND

x - - - - - - - - - - - - - - - - - - - - - - -x Operating Agreement between Olympic and Platinum

G.R. No. 181141               May 8, 2009 In 1971 and 1980, Olympic was granted "Mining Lease Contracts"4 by the Secretary of the
Department of Environment and Natural Resources (DENR) covering mining areas located in
PLATINUM GROUP METALS CORPORATION, Petitioner,  the municipalities of Narra and Espanola, Palawan.
vs.
CITINICKEL MINES AND DEVELOPMENT CORPORATION, acting for its own interest and On July 18, 2003, Olympic entered into an Operating Agreement5 with Platinum, by virtue of
on behalf of OLYMPIC MINES AND DEVELOPMENT CORPORATION, Respondent. which Platinum was given the exclusive right to control, possess, manage/operate, and conduct
mining operations, and to market or dispose mining products on the Toronto Nickel Mine in the
x - - - - - - - - - - - - - - - - - - - - - - -x Municipality of Narra, with an area of 768 hectares, and the Pulot Nickel Mine in the Municipality
of Espanola, covering an area of 1,408 hectares (referred to as subject mining areas), for a
period of twenty five years. In return, Platinum would pay Olympic a royalty fee of 2½% of the
G.R. No. 183527               May 8, 2009 gross revenues.

PLATINUM GROUP METALS CORPORATION, Petitioner,  Olympic and Platinum applied for, and were subsequently granted the necessary government
vs. permits and environmental compliance certificates.
COURT OF APPEALS and POLLY C. DY, Respondents.

On April 24, 2006, Olympic sent a letter to Platinum, informing the latter of the immediate
DECISION termination of the Operating Agreement on account of Platinum’s gross violations of its terms,
and directing Platinum to immediately surrender possession of the subject mining areas under
BRION, J.: the Operating Agreement.

Before the Court are the following inter-related and subsequently consolidated cases:
1. G.R. No. 178188 is a petition for review on certiorari filed by Olympic Mines and Development
Corporation (Olympic) assailing the decision dated February 28, 2007,1 and resolution dated
May 30, 20072 of the Court of Appeals (CA) in CA-G.R. SP No. 97259, which effectively upheld
the jurisdiction of the Regional Trial Court (RTC) of Puerto Princesa City, Branch 95, in Civil
Case No. 4199, and affirmed the injunctive writs issued therein;
2. G.R. No. 180674 is a petition for review on certiorari filed by Citinickel Mines and Develoment
Corporation (Citinickel) assailing the decision dated November 20, 2007 of the CA in CA-G.R.
Civil Case No. 4181 and
the Branch 52 Order
On April 25, 2006, Olympic instituted an action for the issuance of an injunctive writ before the
RTC of Puerto Princesa, Branch 52 (docketed as Civil Case No. 4181) against Platinum. In its
prayer, Olympic sought to enjoin Platinum from conducting mining operations on the subject
mining areas, and also to recover possession thereof. Civil Case No. 4181 essentially involved
the issue of whether Olympic can unilaterally terminate the Operating Agreement on account of
the alleged gross violations committed by Platinum, and accordingly, prevent the latter from
continuing its mining operations. The RTC, through an Order dated May 16, 2006 (Branch 52
Order), ruled that it did not; the trial court found that Platinum substantially complied with the
terms of the Operating Agreement and declared that Olympic’s unilateral termination thereof
was legally impermissible.6 The RTC thus dismissed Olympic’s complaint.
Administrative Complaints
Instituted by Olympic
Instead of seeking relief against the Branch 52 Order (which thus became final and executory),
Olympic then filed two cases with different agencies of the DENR:
a. Provincial Mining Regulatory Board (PMRB) Case No. 001-06 (filed on May 18, 2006) for the
revocation of the SSMPs of Platinum, on the ground of Olympic’s termination of the Operating
Agreement because of the alleged gross violations thereof by Platinum. This was dismissed
through a Resolution dated August 16, 2006, on the basis of the Branch 52 Order which found
Olympic’s unilateral rescission of the Operating Agreement to be illegal 7 ; and
b. POA Case No. 2006-01-B (filed on June 8, 2006) for the cancellation of the Operating
Agreement and the revocation of the SSMPs of Platinum. This case was subsequently
withdrawn by Olympic on June 20, 2006
Assignment of Rights under the Operating Agreement
While these two administrative cases were pending, Olympic transferred its applications for
mineral agreements, including its rights under the Operating Agreement, to Citinickel via a Deed
of Assignment dated June 9, 2006, without the knowledge or consent of Platinum. This
assignment was thereafter approved by the Regional Director of the Mines and Geosciences
Bureau (MGB) on September 6, 2006.
Civil Case No. 06-0185
After the assignment, Citinickel filed Civil Case No. 06-0185 before the RTC of Parañaque,
Branch 258, on June 21, 2006, seeking to invalidate the Operating Agreement based on
Platinum’s alleged violation of its terms. This action was also dismissed by the trial court, citing
forum shopping and improper venue as among the grounds for dismissal.8 Citinickel did not
bother to appeal this dismissal, opting instead to find other remedies.
Administrative Cases
Instituted by Citinickel
Citinickel thereafter filed three administrative cases: PMRB Case No. 002-06, DENR
Environmental Management Bureau (EMB) Case No. 8253, and POA Case No. 2006-02-B.
PMRB Case No. 002-06, where Citinickel sought the cancellation of Platinum’s SSMPs, was
dismissed through a Resolution dated September 12, 2006, on the basis of the injunctive writ
issued in Civil Case No. 4199, as well as the finding of the PMRB that Citinickel committed
forum shopping.9
DENR EMB Case No. 8253 was instituted by Citinickel requesting for the cancellation of the
Environmental Compliance Certificates (ECCs) of Platinum; although granted by the EMB, and
later affirmed by the DENR Secretary, the cancellation of Platinum’s ECCs was reversed by the
Office of the President.
While Civil Case No. 06-0185 (for the rescission of the Operating Agreement) was pending
before the RTC of Paranaque, Citinickel filed a complaint, docketed as POA Case No. 002-06-B,
with the POA of DENR, asking for a writ of injunction against Platinum and for the cancellation of
the Operating Agreement. This time, Citinickel’s relentless efforts to have the Operating
Agreement cancelled bore fruit – the POA issued a Resolution dated October 30, 2006 (POA
Resolution)10 that cancelled the Operating Agreement as well as Platinum’s SSMPs, and
ordered Platinum to cease and desist from operating the subject mining areas.
Through a petition for certiorari, Platinum questioned the POA Resolution before the CA; the
case was docketed as CA-G.R. SP No. 97288. The appellate court, however, dismissed
Platinum’s certiorari petition,11 upon finding that Platinum failed to file a motion for
reconsideration of the POA Resolution with the Mines Adjudication Board (MAB) – the body
which has appellate jurisdiction over decisions or orders of the POA pursuant to Section 78 of
the Republic Act No. 7942 or the Philippine Mining Act of 1995 (Mining Act) – before elevating
the case to the CA.
Protesting the dismissal of its certiorari petition, Platinum filed before the Court one of the four
petitions involved in these consolidated cases – G.R. No. 181141. Platinum contends that the
non-filing of an appeal (through a motion for reconsideration) with the MAB would be useless, as
the POA declared that its decision to cancel the Operating Agreement was not just its own, but
also that of the DENR, which includes the MAB. Additionally, Platinum claimed that the POA
Resolution12 was patently illegal, as it contravened the injunctive writs issued in Civil Case No.
4199 (discussed next), thus the immediate need to invoke the appellate
court’s certiorari jurisdiction.
Civil Case No. 4199 
and the Injunctive Writs
Civil Case No. 4199 involved a complaint for quieting of title, damages, breach of contract, and
specific performance filed by Platinum against Olympic before the RTC of Puerto Princesa,
Palawan, Branch 95 on June 14, 2006. The proceedings and the orders issued in this case
became the subject of three of the four consolidated petitions now pending with the Court – G.R.
Nos. 178188, 180674, and 183527. The RTC’s narration provides us with a background of Civil
Case No. 4199:
Alleging that Olympic’s claims and misrepresentation in the letters dated April 24, 2006 [referring
to the termination letter sent by Olympic to Platinum], May 18, 2006 [referring to the letter-
complaint of Olympic filed in PMRB Case No. 001-06 which sought the revocation of Platinum’s
SSMPs], and June 6, 2008 [referring to the letter of Olympic notifying Platinum of its intention to
file legal action against Platinum for gross violations of the Operating Agreement], xxx Platinum
filed with Branch 95 of the RTC of Puerto Princessa City on June 14, 2006, a complaint to quiet
Platinum’s title/interest over the subject mining areas, to recover damages and to compel
Olympic to perform its obligations under the Operating Agreement.
xxx xxx xxx
On July 21, 2006, upon xxx Platinum’s motion, xxx Blancaflor, in his capacity as the presiding
judge of the RTC of Puerto Princesa, Branch 95, issued [an] xxx order in Civil Case No. 4199,
granting xxx Platinum’s application for the issuance of a writ of preliminary injunction xxx
directing Olympic, and its successor-in-interest, xxx Citinickel, to cease and desist from
performing any act that would tend to impede, hamper, limit, or adversely affect xx Platinum’s
full enjoyment of its rights under the Operating Agreement xxx.
Case Number Parties Cause of Action Status
xxx xxx xxx  May 16, 2006 Order dismissing
the complaint for injunction after
Civil Case No. Olympic Complaint
Meanwhile, on August 28, 2006, xxx Platinum filed a Motion for Leave to Amend Complaint, finding that unilateral termination of
4181 v. for injunction to enjoin
attaching thereto the Amended Complaint, which impleaded Olympic’s Board of Directors and the Operating Agreement was illegal
(RTC Palawan, Platinum Platinum from continuing
Rockworks Resources Corporation (Rockworks) and the latter’s Board of Directors as additional (Branch 52 Order).
Branch 52) mining activities filed on
defendants.13 [Emphasis supplied.] April 25, 2006
 Olympic did not appeal the Order.
Olympic sought the dismissal of Platinum’s Civil Case No. 4199 through a motion to dismiss
where Olympic alleged that the trial court was without jurisdiction to rule on the issues raised in
the case. Olympic contended that the case involved a mining dispute requiring the technical PMRB Case No. Olympic Complaint for revocation  August 16, 2006 Resolution
expertise of the POA; accordingly, jurisdiction should be with the POA. The RTC denied the 001-06 v. of Platinum’s SSMPs dismissing complaint on the basis of
motion to dismiss in a Resolution dated August 15, 2006. When Olympic failed to secure a Platinum dated May 18, 2006 the Branch 52 Order, which had
reversal of the RTC’s August 15 Resolution, it filed an appeal with the CA, docketed as CA-G.R. become final and executory.
SP No. 97259. The CA declared that the trial court properly exercised jurisdiction over Civil Case
No. 4199 because the main issue therein was whether Platinum had a claim and/or right over  July 21, 2005 Order granting the
the subject mining areas pursuant to the Operating Agreement. The dismissal of its petition writ of preliminary injunction against
Civil Case No. Platinum Complaint for quieting of
before the CA prompted Olympic to elevate the matter with this Court, through a petition for Olympic and Citinickel
4199 v. title, damages, and
review on certiorari, docketed as G.R. No. 178188. (RTC Palawan, Olympic specific performance
Branch 95)  August 15, 2006 Order denying
Citinickel, for its part, filed its own certiorari petition before the CA (CA-G.R. SP No. 99422), and Olympic’s motion to
questioned the injunctive writs issued in Civil Case No. 4199. It claimed that the writ of dismiss/suspend proceedings
preliminary injunction cannot be enforced against it since it was not impleaded in the case even
if it was an indispensable party; Olympic’s rights under the Operating Agreement had already
been transferred to it by virtue of the June 9, 2006 Deed of Assignment. The appellate court DENR POA Olympic Petition to cancel  June 20, 2006 Notice of
nonetheless dismissed Citinickel’s petition, prompting the latter to file an appeal by certiorari with Case No. 2006- v. Operating Agreement Withdrawal filed by Olympic
this Court, docketed as G.R. No. 180674. 01-B Platinum and revoke Platinum’s
SSMPs dated June 8,
Polly Dy, as a member of Rockworks’ Board of Directors who was impleaded as co-defendant of 2006
Olympic in Civil Case No. 4199, filed her own certiorari petition (docketed as CA-G.R. SP No.
 December 22, 2006 Order
101544) against the injunctive writs issued by the trial court in the same case. Acting favorably
dismissing complaint on the ground
for Polly Dy, the CA directed the issuance of a writ of preliminary injunction against the RTC of Civil Case No. Citinickel Complaint to rescind
of forum shopping and improper
Puerto Princesa, Branch 95, enjoining it from conducting further proceedings in Civil Case No. 06-0185 v. Operating Agreement
venue. 
4199. Through a petition for certiorari, docketed as G.R. No. 183527, Platinum asks the Court to (RTC Platinum dated June 21, 2006
annul the writ of preliminary injunction issued by the CA in CA-G.R. SP No. 101544. Paranaque)
 Citinickel did not appeal the
Order.
Civil Case No. Q-07-59855

Notwithstanding the injunctive writ issued in Civil Case No. 4199 ordering Olympic/Citinickel to PMRB Case No. Citinickel Petition to cancel  September 12, 2006 Resolution
respect the rights of Platinum under the Operating Agreement (including its right to control, 002-06 v. Platinum’s SSMPs dated dismissing the petition on the basis
possess, and operate the subject mining areas), Citinickel instituted a mandamus petition with Platinum July 12, 2006 of the injunctive writ issued in Civil
the RTC of Quezon City, Branch 100 (docketed as Civil Case No. Q-07-59855), for the DENR Case No. 4199 and the forum
Secretary to confiscate and maintain custody and possession of the mineral ores stockpiled at shopping committed by Citinickel.
the Palawan Pier until the determination of the rights of Citinickel and Platinum under the
Operating Agreement. While the trial court initially issued a status quo order, it
eventually dismissed the Citinickel’s petition for mandamus in its Decision dated May 4,
2007, for Citinickel’s failure to prove a clear legal right on its part to justify the issuance of DENR POA Citinickel Complaint to cancel  October 30, 2006
a mandamus writ in its favor, and also for forum shopping.14 Case No. 2006- v Operating Agreement Resolution cancelling OA and
02-B Platinum and to issue injunction SSMP of Platinum (POA
against Platinum dated Resolution)
For a more graphic presentation, these cases are presented hereunder July 19, 2006

in tabular form:
  Elevated to DENR Secretary by Olympic had committed forum shopping because aside from Civil Case No. 4181, it filed several
Citinickel on account of alleged other administrative cases, all grounded on Platinum’s alleged violation of the Operating
EMB letter- Citinickel Complaint to cancel Agreement.
inaction of EMB 
complaints v. ECCs issued to Platinum
filed as DENR Platinum dated July 31, 2006
EMB Case No.  Sept 25, 2006 Order of DENR With regard to the issue of venue, Platinum claims that its principal objective in instituting Civil
8253 Secretary cancelling the ECCs Case No. 4199 was to retain possession of the subject mining areas – it was therefore a real
issued to Platinum action properly filed in the Puerto Princesa court that had jurisdiction over the areas.

 Nov 22 Order denying MR of G.R. No. 183527 on the

Platinum
Injunction against the Proceedings in Civil Case No. 4199
 Feb 26, 2007 Decision of the
Office of the President reversing While the jurisdiction of the RTC of Puerto Princesa, Branch 95 was upheld by the CA’s Special
DENR Secretary’s Order that Fifth Division in CA-G.R. SP No. 97259, the 15th Division of the appellate court, on the other
cancelled the ECCs hand, enjoined (through a Resolution19dated March 2, 2008, in CA-G.R. SP No. 101544) the
same trial court from conducting further proceedings in Civil Case No. 4199 and from
implementing its Orders dated July 21, 2006,20 October 26, 2006,21 and April 13, 2007.22
Civil Case No. Citinickel Petition for mandamus to  May 4, 2007 Order dismissing the
Q-07-59855 v. DENR compel DENR Secretary petition for lack of merit and forum In assailing the CA’s 15th Division’s Resolution dated March 2, 2008 (through the present
(RTC Quezon to confiscate and hold shopping. petition for review on certiorari)23 , Platinum principally argues that Polly Dy – the petitioner in
City, Branch mineral ores stockpiled in CA-G.R. SP No. 97259 – had no standing to question the injunctive writs issued in Civil Case
76) Palawan pier No. 4199 because none of the writs were directed against Polly Dy. Additionally, Polly Dy did not
file a motion for reconsideration of the assailed Orders of the trial court, rendering her CA
certiorari petition fatally defective for being premature.
THE PETITIONS

G.R. 180674 on Citinickel’s inclusion in the injunctive writs issued in Civil Case No. 4199
G.R. No. 178188 on Jurisdiction and Venue in Civil Case No. 4199

In its petition before the Court,15 Olympic assails the CA Decision16 dated February 28, 2007 in
CA-G.R. SP No. 97259, in which the appellate court affirmed the October 4,17 and 518 2006
Orders of the RTC of Puerto Princesa, Palawan in Civil Case No. 4199. The CA declared that
the trial court properly exercised jurisdiction over Platinum’s complaint in Civil Case No. 4199
because the main issue raised therein was whether Platinum had a claim and/or right over the
subject mining areas, pursuant to the Operating Agreement, and the resolution of this issue did
not require the technical expertise of the POA. Moreover, the CA declared that venue was
properly laid in the RTC of Puerto Princesa (where the disputed mining areas are located)
because it was an action affecting an interest in real property that was commenced and tried in a
court that has jurisdiction over the area of the real property. Lastly, the CA found that the lower
court had not abused its discretion when it issued the writ of preliminary injunction prayed for by
Platinum. Olympic’s motion for reconsideration of the CA’s decision was denied in the May 30,
2007 Resolution of the CA for lack of merit.
Olympic however asserts that it is the POA which has exclusive jurisdiction over the complaint
filed by Platinum in Civil Case No. 4199 because the case involves a mining dispute that
requires the technical expertise of the POA. Olympic additionally contends that the complaint is
a personal action because Platinum sought a declaration that it did not violate the Operating
Agreement, and was asking its enforcement; as a personal action, the case should have been
filed in the place where either the plaintiff or the defendant resides, at the election of the plaintiff,
and not the court where the property is located.
Citinickel questions the CA Decision24 in CA-G.R. SP No. 99422, which dismissed for lack of
merit its petition for certiorari, assailing the July 21, 200625 and April 13, 200726 Orders of the
RTC in Civil Case No. 4199.
Citinickel assails the CA Decision through this petition,27 asserting that by virtue of the Deed of
Assignment dated June 9, 2006, it became an assignee of Olympic – before Platinum filed its
complaint (Civil Case No. 4199) on June 14, 2006, and thus claims to be an indispensable party
to the case. Since it was not impleaded as a party to Civil Case No. 4199, it cannot be bound by
the writ of preliminary injunction issued by the trial court; for the same reason, the POA
Resolution issued in the case filed by Citinickel cannot be deemed to have contravened the writ
of preliminary injunction issued in Civil Case No. 4199.
Platinum counters that the injunction orders are binding on Citinickel because the assignment of
Olympic’s rights to Citinickel only took effect upon the approval thereof by the Regional Director,
which approval was issued only in September 6, 2006 or after Civil Case No. 4199 was filed on
June 14, 2006. Thus, Citinickel is a successor-in-interest by title, and is therefore bound by the
injunction orders issued in the case. Platinum also alleges that Citinickel merely stepped into the
shoes of Olympic and acted as the latter’s agent.
G.R. No. 181141 on the validity of the POA Resolution

Platinum, on the other hand, opposes Olympic’s contentions, claiming that Olympic itself had
already recognized the authority of the trial court to resolve the dispute by instituting Civil Case
No. 4181 before the RTC of Puerto Princesa, Branch 52 (the injunction case filed by Olympic
against Platinum that was dismissed for lack of merit). Incidentally, Platinum points out that
In its Petition for Review,28 Platinum assails the CA Resolution29 in CA-G.R. SP No. 97288,
which dismissed its petition for certiorari questioning the POA Resolution for having failed to
previously file a motion for reconsideration with the POA. The CA also denied Platinum’s motion
for reconsideration in its Resolution30 dated December 21, 2007.
Platinum claims that it chose not to file a motion for reconsideration of the POA Resolution in
DENR Case No. 2006-02-B because that motion would have been denied by the POA as it had
already affirmed the cancellation of Platinum’s ECCs in DENR Case No. 8253. Further, an
appeal to the MAB would also be useless because the POA had declared that the decision to
cancel the Operating Agreement and the SSMPs was not entirely its (POA’s) own, but also that
of the DENR, which includes the MAB. Platinum contends that it had to file the petition for
certiorari because the POA Resolution was patently illegal as it effectively nullified the injunctive
writ previously issued by the lower court in Civil Case No. 4199.
THE COURT’S RULING
The key matter in resolving all four petitions involves the issue of jurisdiction – that is, which
body has the authority to hear and decide the dispute between Olympic/Citinickel and Platinum,
as parties to the operating agreement.
Jurisdiction of the Panel of Arbitrators
Settled is the rule that jurisdiction of the court over the subject matter is determined by the
allegations of the complaint.31
In Civil Case No. 4199, Platinum alleges in its complaint32 the following:
3. Plaintiff is engaged in mining operations. Defendant holds mining rights/claims over the
Toronto Nickel Mine in the Municipality of Narra and the Pulot Nickel Mine in the Municipality of
Espanola (hereinafter, the "subject mining areas") in Palawan.
4. On 18 July 2003, plaintiff, as the SECOND PARTY, and defendant, as the FIRST PARTY,
entered into an Operating Agreement. The said Agreement vested plaintiff with, among others,
the following rights and interests:
2.1 To enter, occupy, possess, explore, develop, utilize and control the mineral properties
subject to Section 2, hereof;
2.2 To conduct mining and all subsidiaries, associated and other related operations in the
mineral properties at a rate it deems appropriate;
2.3 To mill, beneficiate and process the ores by appropriate methods or process within or
outside the area of the mineral properties;
xxx
5. Section 23 of the Operating Agreement states that it shall be effective for twenty-five (25)
years or for the life of the subject mining areas. Under Section 19 thereof, it may only be
[pre]terminated for gross violations of its terms and provisions.
xxx
9. On 24 April 2006, plaintiff was shocked when it received a letter of even date from
defendant’s counsel alleging that plaintiff has committed gross violations of the Operating
Agreement, informing plaintiff of its immediate termination and the suspension of the mining
operations, and demanding that plaintiff surrender the possession of the subject mining areas.
xxx
17. Defendant claims and declares in the letter dated 24 April 2006, the complaint dated 25 April
2006, the letter dated 18 May 2006 and the letter dated 8 June 2006 that it has already
terminated the Operating Agreement. As ground for termination as well as purported basis for its
complaint and its application for TRO, defendant insidiously alleged that plaintiff committed
gross violations of the Operating Agreement.
18. Defendant’s claims and misrepresentations in said letters and complaint have cast a cloud
on plaintiff’s rights and interests over the subject mining areas. The said letters and complaint
unequivocally give the impression that, since the Operating Agreement has already been
terminated, plaintiff no longer possesses any right or interest over the subject mining areas.
xxx
21. Defendant’s actions are clearly in breach of the Operating Agreement. To repeat, the
Operating Agreement provides that it may only be [pre]terminated for gross violations of its
terms and provisions. As stated above, however, defendant’s allegations with respect to
plaintiff’s violations of the terms and conditions of the Operating Agreement are merely
imagined.
22. In any case, even assuming in gratia argumenti that there is factual basis for defendant to
terminate the Operating Agreement, defendant’s termination thereof is clearly bereft of legal
basis and in breach of the Operating Agreement. Section 20 unambiguously provides:
The FIRST PARTY may terminate this agreement by giving thirty (30) days notice to the
SECOND PARTY based on gross violation of the terms and conditions of this agreement.
23. Clearly, the Operating Agreement may only be considered terminated after the lapse of 30
days. In the instant case, defendant served plaintiff the letter dated 24 April 2006 on even date
and filed a complaint the following day. The complaint if filed and the TRO it caused to be issued
were thus premature and violative of the Operating Agreement.
From these allegations, we learn that Platinum had rights and interest in real property,
specifically, the right to possess and to mine the subject mining areas for a certain period of
time, as stated in the Operating Agreement. Olympic, however, had cast a cloud on its interest
when: (a) Olympic sent Platinum a letter claiming that it had already terminated the Operating
Agreement; (b) Olympic filed a complaint with the RTC Puerto Princesa, Palawan, Branch 52
(docketed as Civil Case No. 4181), asking the court to enjoin Platinum from conducting mining
operations under the Operating Agreement, since this Agreement had already been unilaterally
terminated by Olympic; and (c) Olympic wrote to the Governor of Palawan to inform him that its
Operating Agreement with Platinum was already terminated and to request that the Governor
revoke Platinum’s SSMPs. Olympic’s act clearly indicated its intent to deprive Platinum of its
rights, prompting the latter to file the complaint to quiet its title or interest in the subject mining
areas and remove all doubts as to the Agreement’s continuous effectivity. Platinum’s primary
objective was to protect its interest in the subject mining areas covered by the Operating
Agreement, specifically, under Section 2.12 and 3.4, both are obliged "to maintain the validity
and subsistence of the mining rights subject of the agreement."33It is thus obvious that the
complaint falls within the ambit of the RTC’s original jurisdiction, to the exclusion of all other
judicial or quasi-judicial bodies.34
Olympic, through its petition in G.R. No. 178188, contends that jurisdiction should instead be
with the POA. It posits that to fall under the jurisdiction of the POA, the dispute must necessarily
involve questions of facts or matters requiring the application of technological knowledge and
expertise or which needs the interpretation and the application of particular knowledge and
expertise possessed by the members of the Panel. It reads Platinum’s complaint in Civil Case
No. 4199, to be a matter involving a mining dispute that raises questions of facts or matters
requiring the application of technical knowledge and expertise of the POA – an interpretation
that we cannot sustain in light of the clear wording of the law.35
The POA’s jurisdiction is set forth in Section 77 of the Mining Act:
Sec. 77. Panel of Arbitrators. – xxx. Within thirty (30) working days, after the submission of the
case by the parties for decision, the panel shall have exclusive and original jurisdiction to
hear and decide on the following:
a. Disputes involving rights to mining areas;
b. Disputes involving mineral agreements or permits;
c. Disputes involving surface owners, occupants and claimholders/concessionaires; and
d. Disputes pending before the Bureau and the Department at the date of the effectivity of this
Act. [Emphasis supplied.]
Section 77, paragraphs (a) and (b) are the provisions principally invoked in this case to confer
jurisdiction over the dispute between Olympic/Citinickel and Platinum – provisions which, upon
closer inspection of the law and jurisprudence, belie Olympic’s and Citinickel’s contentions.
In Celestial Nickel Mining Exploration Corporation v. Macroasia Corporation, et al., 36 this Court,
speaking through Justice Velasco, specified the kind of disputes that fall under Section 77(a) of
the Mining Act:
The phrase "disputes involving rights to mining areas" refers to any adverse claim, protest, or
opposition to an application for a mineral agreement.
xxx xxx xxx
[T]he power of the POA to resolve any adverse claim, opposition, or protest relative to mining
rights under Section 77 (a) of RA 7942 is confined only to adverse claims, conflicts, and
oppositions relating to applications for the grant of mineral rights. xxx. Clearly, POA’s
jurisdiction over "disputes involving rights to mining areas" has nothing to do with the
cancellation of existing mineral agreements. [Emphasis supplied.]
In so ruling, the Court read Section 77 (a) in relation with Sections 38 and 41 of DENR
Administrative Order No. 96-40 (Revised Implementing Rules and Regulations of the Mining Act
or RIRR), which provide:
Sec. 38. x x x. Within thirty (30) calendar days from the last date of publication/posting/radio
announcements, the authorized officer(s) of the concerned office(s) shall issue a certification(s)
that the publication/posting/radio announcement have been complied with. Any adverse claim,
protest or opposition shall be filed directly, within thirty (30) calendar days from the last date of
publication/posting/radio announcement, with the concerned Regional Office or through any
concerned PENRO or CENRO for filing in the concerned Regional Office for purposes of its
resolution by the Panel of Arbitrators pursuant to the provisions of this Act and these
implementing rules and regulations. Upon final resolution of any adverse claim, protest or
opposition, the Panel of Arbitrators shall likewise issue a certification to that effect within five (5)
working days from the date of finality of resolution thereof. Where there is no adverse claim,
protest or opposition, the Panel of Arbitrators shall likewise issue a Certification to that effect
within five working days therefrom.
xxxxxxxxx
No Mineral Agreement shall be approved unless the requirements under this Section are fully
complied with and any adverse claim/protest/opposition is finally resolved by the Panel of
Arbitrators.
Sec. 41. x x x Within fifteen (15) working days from the receipt of the Certification issued by the
Panel of Arbitrators as provided in Section 38 hereof, the concerned Regional Director shall
initially evaluate the Mineral Agreement applications in areas outside Mineral reservations.
He/She shall thereafter endorse his/her findings to the Bureau for further evaluation by the
Director within fifteen (15) working days from receipt of forwarded documents. Thereafter, the
Director shall endorse the same to the secretary for consideration/approval within fifteen working
days from receipt of such endorsement.
In case of Mineral Agreement applications in areas with Mineral Reservations, within fifteen
(15) working days from receipt of the Certification issued by the Panel of Arbitrators as
provided for in Section 38 hereof, the same shall be evaluated and endorsed by the
Director to the Secretary for consideration/approval within fifteen days from receipt of
such endorsement. [Emphasis supplied.]
Sections 38 and 41 of the RIRR pertain to the procedure involved in approving mineral
agreements. These provisions are largely lifted from Sections 48 and 53 of PD 463 (or the
Mining Resources Development Decree), except that instead of the POA, it was the Director of
Bureau of Mines (now Mines and Geosciences Bureau or MGB) who previously had the
authority to rule on pre-approval protests or adverse claims.
To properly fall within the POA’s jurisdiction under Section 77 (a) of the Mining Law, the dispute
must:
1. refer to an adverse claim, protest, or opposition to an application for a mineral agreement;
and
2. be filed prior to the approval by the DENR Secretary of the mineral agreement.
Under these terms, Section 77 (a) established a cut-off period (i.e., before the approval of the
mineral agreement) when the POA’s jurisdiction may be properly invoked, and this period had
long lapsed insofar as the dispute between Citinickel and Platinum is concerned, as Olympic’s
mining lease contract and its Operating Agreement with Platinum had already been approved by
the Government. Accordingly, invocation of the POA’s jurisdiction under Section 77(a) finds no
application in this case.
Neither will POA be vested with jurisdiction through Section 77(b), as the nature of the
agreement between Olympic and Platinum is not the "mineral agreement" contemplated under
the law. The term "mineral agreement" has a specific definition under the Mining Act, Section 3
(ab) thereof states:
Section 3. Definition of Terms. – xxx
(ab) "Mineral Agreement" – refers to a contract between the government and a contractor,
involving mineral production-sharing agreement, co-production agreement, or joint-venture
agreement.
Quite obviously, the Operating Agreement is not "a contract between the government and a
contractor";37 instead, it is a purely civil contract between two private entities – one of whom
happens to be a party to a mineral agreement with the government. While the enforcement of
the terms of an operating agreement would necessarily relate to an existing and approved
mineral agreement (as may be inferred from Section 4 of DENR Memorandum Order No. 2003-
08),38 this however does not make the two concepts the same, nor does it make an operating
agreement a specie of the mineral agreements contemplated under the Mining Act. Section 26
of the Mining Act39 states that a mineral agreement may be in the form of a mineral production
sharing agreement, a co-production agreement or a joint-venture agreement, and does not
include an operating agreement in the enumeration. Apart from this, the Mining Act and the
various administrative issuances treat these two separately by providing for different
requirements, rules, and procedures governing their application, approval, and cancellation.
Thus, to contend that a dispute involving operating agreements can be classified as a "dispute
involving mineral agreements or permits" stretches the definition of "mineral agreement" beyond
the clear terms of the law.
Indeed, the adoption of a definite meaning for "mineral agreement" reveals the intent to remove
from the DENR, through the MGB, the jurisdiction over disputes involving civil contracts on
mining rights. Presidential Decree No. 128140 enumerates cases that fall under the Bureau of
Mines’ jurisdiction:
Section 7. In addition to its regulatory and adjudicative functions over companies, partnerships
or persons engaged in mining exploration, development and exploitation, the Bureau of Mines
shall have original and exclusive jurisdiction to hear and decide cases involving:
(a) a mining property subject of different agreements entered into by the claim holder thereof
with several mining operators;
(b) xxx
(c) cancellation and/or enforcement of mining contracts due to the refusal of the
claimowner/operator to abide by the terms and conditions thereof. [Emphasis supplied.]
Although Section 77 (d) of the Mining Act41 has transferred to the POA jurisdiction over disputes
pending before the Bureau of Mines and the DENR, Section 77 (b) did not adopt the wording of
Section 7, paragraphs (a) and (c) of PD No. 1281 so as to include all other forms of contracts –
public or private – involving mining rights; Section 77 (b) in relation to Section 3 (ab) of the
Mining Act did not include a general catch-all phrase to cover other agreements involving mining
rights similar to those in Section 7, paragraphs (a) and (c) of PD No. 1281. Instead, the Mining
Act, through the above-quoted Sections 3 (ab) and 26, has limited the jurisdiction of the POA, as
successor of the adjudicatory functions of the Bureau of Mines, to mineral agreements between
the government and the private contractor. Otherwise stated, while disputes between parties to
any mining contract (including operating agreements) may previously fall within the Bureau of
Mines’ jurisdiction under Section 7 (a) or (c) of PD No. 1281, it can no longer be so placed now
within the authority of the POA to settle under Section 77 (b) of the Mining Law because its
jurisdiction has been limited to the resolution of disputes involving public mineral agreements.
Parenthetically, the "permit" referred to in Section 77(b) of the Mining Act pertains to exploration
permit, quarry permit, and other mining permits recognized in Chapters IV, VIII, and IX of the
Mining Act. An operating agreement, not being among those listed, cannot be considered as a
"mineral permit" under Section 77 (b).
Since the Operating Agreement is not the mineral agreement contemplated by law, the
contention that jurisdiction should be with the POA under Section 77(b) of the Mining Act cannot
be legally correct. In plainer terms, no jurisdiction vests in the POA under the cited provision
because the Operating Agreement is not the "mineral agreement" that Section 77(b) refers to.
Even an invocation of Section 77(c) of Mining Act (referring to "disputes involving surface
owners, occupants and claim-holders/concessionaires") would not suffice to confer jurisdiction
over the dispute to the POA. Surface-owners, occupants, and concessionaires refer to owners
or occupants of the real property affected by the mining activities conducted by the claim-
holders/concessionaires (entities which are holding mining rights granted by the
government).42 Neither Citinickel nor Platinum falls under this classification.
Additionally, the Court notes that both Olympic and Citinickel have previously recognized the
RTC’s jurisdiction to decide the dispute when they filed civil cases before the trial courts of
Palawan43 and Parañaque,44 respectively, for the cancellation of the Operating Agreement on
account of Platinum’s alleged gross violations. By doing so, both Olympic and Citinickel
acknowledged the authority and jurisdiction of the trial court to resolve their dispute with
Platinum. Not only did they acknowledge this jurisdiction, they as well failed to appeal the
decisions rendered by the trial courts in these cases. Thereby, they accepted the binding effect
of the trial court decision, and – more importantly – recognized the trial court’s authority to rule
on their dispute with Platinum regarding the Operating Agreement. In other words, they are now
estopped from claiming that the POA, rather than the trial court, has the sole and exlcusive
authority to resolve the issue of whether the Operating Agreement may be rescinded for
Platinum’s alleged violations.
Olympic also raises the issue of venue: since one of Platinum’s causes of action in Civil Case
No. 4199 was specific performance in Civil Case No. 4199, Olympic claims that Platinum’s
action was actually a personal one that should have been filed either in Olympic’s or in
Platinum’s place of residence, i.e., in Manila or in Makati City, respectively, and not in Puerto
Princessa, Palawan.
This contention however is negated by the allegations made by Platinum in its complaint to quiet
title, filed before the RTC of Puerto Princesa, Palawan. To reiterate, according to Platinum, it
had been peacefully exercising its rights under the Operating Agreement since 2003. However,
Olympic cast a cloud on its interest under the Operating Agreement through its various actions,
which gave the public the impression that the Operating Agreement had already been
terminated, and jeopardized Platinum’s right to possess and conduct mining operations in the
subject mining areas. Thus, Platinum asked the court to remove this cloud on its rights over the
subject mining areas.
The controlling factor in determining venue for cases is the primary objective for which said
cases are filed.45 As we had earlier stated, Platinum’s primary objective in filing the complaint is
to protect its interest in the subject mining areas, although it joined its claims of breach of
contract, damages, and specific performance in the case. In any event, the Rules of Court allow
joinder of causes of action in the RTC, provided one of the causes of action (in this case, the
cause of action for quieting of title or interest in real property located in Palawan) falls within the
jurisdiction of said court and venue lies therein.46 In fine, there is absolutely no reason to disturb
the CA’s findings that venue was properly laid in the Palawan court.
In light of these, the Court affirms the jurisdiction of the RTC of Puerto Princesa, Palawan, Regional Director has to consider the national interest, public welfare, as well as study the
Branch 95, and accordingly dismiss Olympic’s petition for review on certiorari in G.R. 178188. eligibility of the party to whom said application is being transferred to. Any assignment of a
mineral agreement is thus considered provisional, pending final approval by the Director or
Regional Director. Thus, although the Deed of Assignment between Olympic and Citinickel was
Our conclusion on the trial court’s authority to rule on Civil Case No. 4199 necessarily
executed on June 9, 2006, the actual transfer of rights occurred only after the Regional Director
invalidates the injunctive writ issued by the CA in CA-G.R. SP No. 101544 against the
of the MGB Regional Office No. IV-B had given its approval to the assignment on September 6,
continuance of the proceedings in Civil Case No. 4199. We thus grant Platinum’s petition in G.R.
2006, or after Civil Case No. 4199 was filed on June 14, 2006. Accordingly, Citinickel, being a
No. 183527. Moreover, the Court agrees with Platinum’s contention that Polly Dy had no
mere successor-in-interest of Olympic, is bound by the questioned injunction order. Even if we
standing to assail the injunctive writs issued as these were not directed against her; her petition
disregard the inclusion of Citinickel in the July 16, 2006 Order granting the application for a writ
for certiorari before the CA (CA-G.R. SP No. 101544) should have been dismissed.
of preliminary injunction, the result would be the same – the injunction imposed on Olympic will
similarly bind Citinickel.
Injunctive Writ against Citinickel, as Successor-in-Interest of Olympic
Thus, we resolve to dismiss Citinickel’s petition for lack of merit.
In G.R. No. 180674, Citinickel mainly argues it cannot be bound by the injunctive writs issued in
Civil Case No. 4199 as it was not impleaded in the case, despite the fact that the Deed of
Validity of the POA Resolution
Assignment was executed before Civil Case No. 4199 was instituted by Platinum, thus making it
an indispensable party. Citinickel further claims that the POA Resolution had already attained
finality when the CA dismissed Platinum’s petition for certiorari questioning the POA Resolution Platinum’s Rule 65 petition praying for the annulment of the POA Resolution was dismissed by
in its January 18, 2007 Resolution. the CA in its Resolution dated January 18, 2007 in CA-G.R. SP No. 97288, on the ground that
Platinum failed to exhaust administrative remedies by appealing the POA Resolution to the
MAB, as provided under the Mining Act.
We disagree.

We disagree with the reasoning of the CA and resolve to overturn its January 18, 2007
In this case, one fact resonates and remains unrebutted – the transfer of Olympic’s rights to
Resolution.
Citinickel was done surreptitiously, via the Deed of Assignment dated June 9, 2006, without the
knowledge or consent of Platinum. Thus, when Platinum instituted Civil Case No. 4199 on June
14, 2006 – five days after the execution of the Deed of Assignment – Platinum was not notified The rule of exhaustion of administrative remedies admits of numerous exceptions, such as:
of the assignment or even of the earlier Memorandum of Agreement between Olympic and
Rockworks, contrary to the terms of Section 13 of the Operating Agreement which expressly
1) when there is a violation of due process;
requires any party transferring or assigning its rights under the Operating Agreement to a third
party to inform the original party of the transfer or assignment. Section 13 of the Operating
Agreement states: 2) when the issue involved is purely a legal question;

The rights and interests of either [Olympic] or [Platinum] in and under this Agreement are 3) when the administrative action is patently illegal amounting to lack or excess of jurisdiction;
assignable and/or transferrable, in whole or in part, to persons or entities qualified xxx provided
that the rights of both of the parties under this Agreement are preserved and maintained,
4) when there is estoppel on the part of the administrative agency concerned;
unaffacted or unimpaired, and provided further that the assignee undertake to be bound by all
the provisions of this Agreement, provided furthermore that the assigning party shall duly notify
in writing the other party of such proposed assignment and/or transfer before the actual 5) when there is irreparable injury;
assignment and/or transfer is done. [Emphasis supplied.]
6) when the respondent is a department secretary whose acts as an alter ego of the President
Even if Platinum knew of the assignment/transfer, it was not bound to include Citinickel in the bears the implied and assumed approval of the latter;
complaint because the assignment/transfer of a mineral agreement application would, by law,
take effect only after the approval of the DENR Secretary or his representative. Section 40 of
DENR Administrative Order No. 96-40 (Implementing Rules and Regulations of the Mining Act), 7) when to require exhaustion of administrative remedies would be unreasonable;
which states:
8) when it would amount to a nullification of a claim;
Section 40. Transfer or Assignment of Mineral Agreement Application. - Transfer or assignment
of Mineral Agreement applications shall be allowed subject to the approval of the 9) when the subject matter is a private land in land case proceedings;
Director/concerned Regional Director taking into account the national interest and public
welfare: Provided, That such transfer or assignment shall be subject to eligibility requirements
and shall not be allowed in cases involving speculation. [Emphasis supplied.] 10) when the rule does not provide a plain, speedy and adequate remedy; and

The provision is clear – any transfer or assignment of a mineral agreement application is still 11) when there are circumstances indicating the urgency of judicial intervention.47
subject to the approval of the Director of the Mines and Geosciences Bureau or the Regional
Director concerned. In determining whether to approve the assignment or not, the Director or
Platinum’s serious allegations amount to circumstances calling for urgent judicial intervention. b) in G.R. No. 183527 (Platinum Group Metals Corporation v. Court of Appeals): The assailed
More importantly, Platinum’s allegations essentially attack POA’s jurisdiction over Citinickel’s CA Resolution in CA-G.R. SP No. 101544 is REVERSED and SET ASIDE;
complaint for lack or excess of jurisdiction. The CA thus committed a reversible error when it
failed to recognize the POA’s jurisdictional errors and instead, mistakenly placed its reliance on
c) in G.R. No. 180674 (Citinickel Mines and Development Corporation v. Judge Bienvenido
a procedural technicality.
Blancaflor and Platinum Group Metals Corporation): The questioned CA Decision in CA-G.R. SP
No. 99422 is AFFIRMED; and
Going into the merits of G.R. No. 181141, the Court finds that the POA Resolution was issued in
disregard of the injunctive writs in Civil Case No. 4199. We have earlier ruled in G.R. No.
d) in G.R. No. 181141 (Platinum Group Metals Corporation v. Citinickel Mines and Development
180674 that Citinickel, as successor-in-interest of Olympic, became bound by the writ of
Corporation): The CA decision in CA-G.R. SP No. 97288 is REVERSED and SET ASIDE. The
injunction issued by the trial court, even though it was not formally impleaded as a party when
POEA Resolution, having been issued in violation of a previously issued writ of preliminary
Civil Case No. 4199 was instituted. The injunction prohibited the parties – Citinickel included –
injunction, is ANNULLED and SET ASIDE.
from performing "any act that will tend to impede, hamper, limit or adversely affect the full
enjoyment by [Platinum] of its rights under the Operating Agreement xxx [and] from performing
any act which will disturb the status quo." When the POA issued the assailed Resolution SO ORDERED.
rescinding the Operating Agreement and cancelling Platinum’s SSMPs at the instance of
Citinickel, it clearly went against the prohibition.

Not only was the POA Resolution issued in contravention of the injunctive writ, POA Case No.
2006-02-B (where the Resolution was issued) was instituted in blatant violation of the rules of
forum shopping. POA Case No. 2006-02-B was instituted while Citinickel’s complaint for
cancellation of the Operating Agreement was pending before the RTC of Paranaque (docketed
as Civil Case NO. 06-0185). And while there was yet no decisive ruling on the status and validity
of the Operating Agreement in these cases, Citnickel had prematurely instituted petitions to
cancel Platinum’s SSMPs and ECCs before the PMRB (docketed as PMRB Case No. 002-06)
and EMB, respectively. Along the same line, Citinickel filed a mandamus petition before the RTC
of Quezon City (docketed as Civil Case No. Q-07-59855) to compel the DENR Secretary to
confiscate and hold possession of the mineral ores of Platinumstockpiled at the Palawan pier.
Over and above these cases, Olympic had, prior to the assignment, already instituted similar
actions before the same courts and agencies – actions Citinickel is similarly bound as the
assignee/transferee of Olympic.

Both Olympic and Citinickel evidently trifled with the courts and abused its processes by
improperly instituting several cases before various judicial and quasi-judicial bodies, one case
after another (some even simultaneously filed during the pendency of other cases) once it
became evident that a favorable decision will not be obtained in the previously filed case – all of
which are focused on the termination of the Operating Agreement and the cancellation of
Platinum’s mining permits. While a party may avail himself of the remedies prescribed by law or
by the Rules of Court, such party is not free to resort to them simultaneously or at his pleasure
or caprice.48 The actions of Olympic and Citinickel, taken separately or collectively, betray
a pattern of calculated and intentional forum shopping that warrants denial of the reliefs
they pray for.1avvphi1

In accordance with our finding in G.R. No. 180674 that Citinickel is bound by the injunctive writ
issued by the trial court in Civil Case No. 4199, as well as our observation in G.R. No. 178188
that the trial court, not POA, has jurisdiction over Platinum’s complaint in Civil Case No. 4199,
we can come to no other conclusion than to declare that the POA gravely abused its discretion
when it issued the POA Resolution dated October 30, 2006. Thus, we grant Platinum’s petition
in G.R. No. 181141, and annul the POA Resolution.

WHEREFORE, premises considered, we rule as follows:

a) in G.R. No. 178188 (Olympic Mines v. Platinum Group Metals Corporation): Olympic’s petition
is denied for lack of merit and the assailed CA Decision in CA-G.R. SP No. 97259 is AFFIRMED;

G.R. No. 163509             December 6, 2006
PICOP RESOURCES, INC., petitioner,  MPSA applications with the Bureau of Mines to substitute itself as applicant and to submit
vs.
BASE METALS MINERAL RESOURCES CORPORATION, and THE MINES ADJUDICATION
BOARD,respondents.
DECISION
TINGA, J.:
PICOP Resources, Inc. (PICOP) assails the Decision1 of the Court of Appeals dated November
28, 2003 and its Resolution2 dated May 5, 2004, which respectively denied its 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 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
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:
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.
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:
a) the Adverse Claim was filed out of time;
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;
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:
a) the Adverse Claim was filed within the reglementary period;
b) the grant of MPSA will impair the existing rights of petitioner PICOP;
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. 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. timber or forest lands are open to Mining Applications;
3. the grant of the MPSA will not violate the so called "presidential fiat";
4. the MPSA application of Base Metals does not require the consent of PICOP; and
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:
a) the Adverse Claim filed thru registered mail was sent on time and as prescribed by existing
mining laws and rules and regulations;
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;
c) as a general rule, mining applications within timber or forest lands are subject to existing
rights as provided in Section 18 of RA 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;
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;
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.
As to whether or not an MPSA application can be granted on area subject of an IFMA3 or
PTLA4 which is covered by a Presidential Warranty, the 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. THE CONSENT OF PICOP IS NOT NECESSARY FOR THE APPROVAL OF BASE
METALS' MPSA APPLICATION.
2. EVEN ASSUMING SUCH CONSENT IS NECESSARY, PICOP HAD CONSENTED TO BASE
METALS' MPSA APPLICATION.
In Answer thereto, petitioner PICOP alleged that:
1. Consent is necessary for the approval of private respondent's MPSA application;
2. Provisions of Memorandum Order No. 98-03 and IFMA 35 are not applicable to the instant
case;
3. Provisions of PD 7055 connotes exclusivity for timber license holders; and
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. 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. 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. 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. The Memorandum of Agreement between adverse claimant and Banahaw Mining proves that
the Agusan-Surigao 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 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 Resolution7 dated May 5, 2004, the appellate court 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 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 Memorandum8 dated April 6, 2005, PICOP presents 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 3092),9 and overlaps the wilderness area where mining applications
are expressly prohibited under RA 7586.10 Hence, the area is closed to mining operations under
Sec. 19(f) of RA 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 3092.
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 3092. These areas cover PICOP's 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 7586. When RA 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 mining-
related activities in the protected areas.
PICOP further argues that under DENR Administrative Order (DAO) No. 96-40 implementing RA
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
or 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,12 wherein the 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 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,13 Base Metals contends that 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 object to the
MPSA was allegedly based exclusively on the ground that the application, if allowed to proceed,
would constitute a violation of the 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 3092 and RA 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 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 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.
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 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 7942 permits mining over forest lands
subject to existing rights and reservations, and PD 705 allows mining over forest lands and
forest reservations subject to State regulation and mining laws. Sec. 19(a) of RA 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 Corporation v. Garcia,15 to
make it appear 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
Base Metals reiterates that the non-impairment clause is a limit on the exercise of legislative
would operate to bar mining operations therein. PICOP failed to prove that the alleged
power and not of judicial or quasi-judicial power. The Constitution prohibits the passage of a law
wilderness area has been designated as an initial component of the NIPAS pursuant to a law,
which enlarges, abridges or in any manner changes the intention of the contracting parties. The
presidential decree, presidential proclamation or executive order. Hence, it cannot correctly
decision of the MAB and the Court of Appeals are not legislative acts within the purview of the
claim that the same falls within the coverage of the restrictive provisions of RA 7586.
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 OSG points out that the Administrative Code of 1917 which RA 3092 amended has been
the MPSA will impair its timber license. completely repealed by 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
Following the regalian doctrine, Base Metals avers that the State may opt to enter into
done, the area thus covered by said forest lands and national parks may not be expanded or
contractual arrangements for the exploration, development, and extraction of minerals even it
reduced except also by congressional legislation. Since Congress has yet to enact a law
the same should mean amending, revising, or even revoking PICOP's timber license. To require
determining the specific limits of the forest lands covered by Proclamation No. 369 and marking
the State to secure PICOP's prior consent before it can enter into such contracts allegedly
clearly its boundaries on the ground, there can be no occasion that could give rise to a violation
constitutes an undue delegation of sovereign power.
of the constitutional provision.

Base Metals further notes that Presidential Decree No. 705 (PD 705), under which PTLA No. 47,
Moreover, Clauses 10 and 14 of PICOP's IFMA No. 35 specifically provides that the area
IFMA No. 35 and the Presidential Warranty were issued, requires notice to PICOP rather than
covered by the agreement is open for mining if public interest so requires. Likewise, PTLA No.
consent before any mining activity can be commenced in the latter's concession areas.
47 provides that the area covered by the license agreement may be opened for mining
purposes.
The Office of the Solicitor General (OSG) filed a Memorandum 14 dated April 21, 2005 on behalf
of the MAB, contending that PICOP's attempt to raise new issues, such as its argument that the
Finally, the OSG maintains that pursuant to the State's policy of multiple land use, R.A. No. 7942
contested area is classified as a permanent forest and hence, closed to mining activities, is
provides for appropriate measures for a harmonized utilization of the forest resources and
offensive to due process and should not be allowed.
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
The OSG argues that a timber license is not a contract within the purview of the due process Memorandum of Agreement between PICOP and Banahaw Mining.
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
First, the procedural question of whether PICOP is raising new issues in the instant petition. It is
mere collateral undertaking and cannot amplify PICOP's rights under its PTLA No. 47 and IFMA
the contention of the OSG and Base Metals that PICOP's argument that the area covered by the
No. 35. To hold that the Presidential Warranty is a contract separate from PICOP's timber
MPSA is classified as permanent forest and therefore closed to mining activities was raised for
license effectively gives the latter PICOP an exclusive, perpetual and irrevocable right over its
the first time in PICOP's motion for reconsideration with the Court of Appeals.
concession area and impairs the State's sovereign exercise of its power over the exploration,
development, and utilization of natural resources.
Our own perusal of the records of this case reveals that this is not entirely true.
In its Adverse Claim and/or Opposition16 dated November 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 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.17
Base Metals met this argument head on in its Answer18 dated December 1, 1997, in which it
contended that PD 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 Petition19 dated January 25, 2003 assailing the reinstatement of Base Metals' MPSA,
PICOP argued that RA 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 3092, RA 7586, and RA
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 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.20 Besides, Base Metals 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.
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 manner, RA 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
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.
…
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 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;
…
(d) In areas expressly prohibited by law; 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.
…

Similarly, Sec. 47 of PD 705 permits mining operations in forest lands which include the public
(f) Old growth or virgin forests, proclaimed watershed forest reserves, wilderness
forest, the permanent forest or forest reserves, and forest reservations.22 It states:
areas, mangrove forests, mossy forests, 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, Sec. 47. Mining Operations.—Mining operations in forest lands shall be regulated and
Department Administrative Order No. 25, series of 1992 and other laws. [emphasis supplied] 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,
We analyzed each of the categories under which PICOP claims that its concession area is
exploration, utilization, or exploitation of mineral resources inside forest concessions shall be
closed to mining activities and conclude that PICOP's contention must fail.
allowed unless proper notice has been served upon the licensees thereof and the prior approval
of the Director, secured.
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,21 such does not necessarily preclude mining activities in the area. Sec. 15(b) of
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. 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.
Sec. 6 of RA 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:
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 7942, provides that
Sec. 6. Other Reservations.—Mining operations in reserved lands other than mineral
timber or forest lands, military and other government reservations, forest reservations, forest
reservations may be undertaken by the Department, subject to limitations as herein provided. In
reserves other than critical watershed forest reserves, and existing DENR Project Areas within
the event that the Department cannot undertake such activities, they may be undertaken by a
timber or forest lands, reservations and reserves, among others, are open to mining applications
qualified person in accordance with the rules and regulations promulgated by the Secretary. The
subject to area status and clearance.
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 To this end, area status clearances or land status certifications have been issued to Base Metals
given priority. The mineral land so awarded shall be automatically excluded from the reservation relative to its mining right application, to wit:
during the term of the agreement: Provided, further, That the right of the lessee of a valid mining
contract existing within the reservation at the time of its establishment shall not be prejudiced or
II. MPSA No. 010
impaired.

1. Portion colored green is the area covered by the aforestated Timberland Project No. 31-E,
Secondly, RA 7942 does not disallow mining applications in all forest reserves but only
Block A and Project No. 59-C, Block A, L.C. Map No. 2466 certified as such on June 30, 1961;
those proclaimed aswatershed forest reserves. There is no evidence in this case that the area
and
covered by Base Metals' MPSA has been proclaimed as watershed forest reserves.

2. Shaded brown represent CADC claim.23

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, III. MPSA No. 011
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 463 as
1. The area applied covers the Timberland, portion of Project No. 31-E, Block-E, L.C. Map No.
amended by PD 1385, one can acquire mining rights within forest reserves, such as the Agusan-
2468 and Project No. 36-A Block II, Alienable and Disposable Land, L.C. Map No. 1822, certified
Davao-Surigao Forest Reserve, by initially applying for a permit to prospect with the Bureau of
as such on June 30, 1961 and January 1, 1955, respectively;
Forest and Development and subsequently for a permit to explore with the Bureau of Mines and
Geosciences.
2. The green shade is the remaining portion of Timber Land Project;
Moreover, Sec. 18 RA 7942 allows mining even in timberland or forestty subject to existing
rights and reservations. It provides: 3. The portion colored brown is an applied and CADC areas;

Sec. 18. Areas Open to Mining Operations.—Subject to any existing rights or reservations and 4. Red shade denotes alienable and disposable land.24
prior agreements of all parties, all mineral resources in public or private lands, including timber
IV. 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.25
V. MPSA No. 013
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. Colored brown denotes a portion claimed as CADC areas;
3. Violet shade represent a part of reforestation project of PRI concession; and
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.26
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 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.
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
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. Factoran27 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, 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. 7576). x x x"
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 of law clause [See Sections 3(ee) and 20 of Pres. Decree No. 705, as
amended. Also, Tan v. Director of Forestry, G.R. No. L-24548, October 27, 1983, 125 SCRA
302]."
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.28 [emphasis supplied]
The Presidential Warranty cannot, in any manner, be 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.

IN VIEW OF THE FOREGOING, the instant petition is DENIED. The Decision of the Court of
Appeals November 28, 2003 is AFFIRMED. No pronouncement as to costs.

SO ORDERED.

G.R. No. 179674               July 28, 2009
PYRO COPPER MINING CORPORATION, petitioner,  Memorandum Order (DMO) No. 2005-0310 issued by the DENR Secretary Michael Defensor on
vs.
MINES ADJUDICATION BOARD-DEPARTMENT OF ENVIRONMENT AND NATURAL
RESOURCES, MINES AND GEO-SCIENCES BUREAU DIRECTOR HORACIO C. RAMOS,
REGIONAL DIRECTOR SAMUEL T. PARAGAS, REGIONAL PANEL OF ARBITRATORS
ATTY. CLARO E. RAMOLETE, JR., ATTY. JOSEPH ESTRELLA and ENGR. RENATO
RIMANDO, and MONTAGUE RESOURCES PHILIPPINES CORPORATION,Respondents.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari, under Rule 45 of the 1997 Revised Rules
of Civil Procedure, seeking to reverse the Resolutions dated 23 February 20071 and 6
September 20072 of the Court of Appeals in CA-G.R. SP No. 97663. The appellate court, in its
assailed Resolution dated 23 February 2007, dismissed the Petition for Review, under Rule 43
of the 1997 Revised Rules of Civil Procedure, of herein petitioner Pyro Copper Mining
Corporation, for failure of petitioner to attach pertinent and relevant documents thereto.3 The
appellate court, in its other assailed Resolution dated 6 September 2007, denied the Motion for
Reconsideration of petitioner for lack of merit and for failure to show the authority of Atty.
Vicente R. Acsay (Atty. Acsay), one of the members of the Board of Directors of petitioner, to
sign the Verification and Certification against Forum Shopping accompanying the Petition.
Petitioner additionally prays for the setting aside or reversal of the Decision4 dated 28 December
2006 of the Department of Environment and Natural Resources (DENR)-Mines Adjudication
Board (MAB) in MAB Case No. 0147-06, which affirmed the Orders dated 14 September
20055 and 27 December 20056 of the DENR-Panel of Arbitrators, Region 1, San Fernando City,
La Union (Panel of Arbitrators), in Case No. 2005-00012-I, dismissing the Verified
Protest/Opposition of petitioner to the Application for Exploration Permit of private respondent
Montague Resources Philippines Corporation. Ultimately, petitioner seeks the denial of the
mining claim and the revocation/cancellation of the Exploration Permit, EXPA No. 21 dated 12
September 2003, of private respondent.
The factual antecedents of this case are as follows:
Petitioner is a corporation duly organized and existing under Philippine laws engaged in the
business of mining. On 31 March 2000, petitioner’s Application for Mineral Production Sharing
Agreement (MPSA), identified as APSA-SF-000089, with the Mines and Geo-Sciences Bureau
(MGB) of the DENR, Regional Office No. 1, San Fernando City in La Union, for the exploration,
development and commercial utilization of certain pyrite ore and other mineral deposits in a
4,360.71-hectare land in Dasol, Pangasinan, was approved and MPSA No. 153-2000-1 was
issued in its favor.
Private respondent is also a corporation organized and existing under the laws of the Philippines
and engaged in the business of mining. On 12 September 2003, private respondent filed an
Application for Exploration Permit7 with MGB covering the same properties covered by and
during the subsistence of APSA-SF-000089 and MPSA No. 153-2000-18 of petitioner. In turn,
petitioner filed a Verified Protest/Opposition to the Application for Exploration Permit of the
private respondent. It was allegedly filed with the Panel of Arbitrators9 on 30 August 2005 and
was received by the latter on 5 September 2005. The case was docketed as Case No. 2005-
00012-I.
Prior, however, to petitioner’s filing of its Verified Protest/Opposition to the private respondent’s
Application for Exploration Permit, petitioner’s MPSA No. 153-2000-1 was cancelled per DENR
1 February 2005. Petitioner moved for the reconsideration of DMO No. 2005-03, which the
DENR Secretary denied in its Decision11 dated 14 June 2005.12
On 1 September 2005,13 the MGB issued EP No. 05-001 to private respondent.
In an Order dated 14 September 2005, the Panel of Arbitrators dismissed motu proprio the
Verified Protest/Opposition of petitioner for the following reasons: (1) the instant pleading was
filed out of time; (2) in view of the issuance of EP No. 05-001 to private respondent, the Verified
Protest/Opposition of petitioner to the Application for Exploration Permit of private respondent
was rendered moot and academic; (3) the Panel of Arbitrators had no authority/jurisdiction to
cancel, deny and/or revoke EP No. 05-001 of private respondent, the same being lodged with
the MGB, the issuing authority; and (4) petitioner failed to include a certification against forum
shopping.14Petitioner moved for its reconsideration, but the Panel of Arbitrators denied the same
in its Order dated 27 December 2005.15
Petitioner elevated by appeal to the MAB the Orders dated 14 September 2005 and 27
December 2005 of the Panel of Arbitrators, docketed as MAB Case No. 0147-06.
Subsequently, in a Decision16 dated 28 December 2006 in MAB Case No. 0147-06, the MAB
dismissed the appeal of petitioner, on the following grounds: (a) the Verified Protest/Opposition
of petitioner to the Application for Exploration Permit of private respondent was filed beyond the
reglementary period; and (b) the Verified Protest/Opposition of petitioner did not include a
certification against forum shopping.17
Petitioner filed with the Court of Appeals a Petition for Review under Rule 43 of the 1997
Revised Rules of Civil Procedure, which was docketed as CA-G.R. SP No. 97663.
In a Resolution dated 23 February 2007, the Court of Appeals dismissed the said Petition,
pursuant to Section 7, Rule 43, of the 1997 Revised Rules of Civil Procedure,18 for failure of
petitioner to attach thereto some pertinent and relevant documents required under Section 6 of
the same Rule.19
Petitioner filed a Motion for Reconsideration of the 23 February 2007 Resolution, together with
the required documents. Private respondent, however, in its Comment,20 still prayed for the
dismissal of the Petition in CA-G.R. SP No. 97663 for failure of petitioner to submit Atty. Acsay’s
authority to sign the Verification and Certification against Forum Shopping.
Petitioner was given an opportunity to submit Atty. Acsay’s written authority, but failed to do so.
Consequently, the Court of Appeals issued a Resolution dated 6 September 2007, denying for
lack of merit the Petition in CA-G.R. SP No. 97663.
Hence, this Petition.
The petitioner raises the following issues for this Court’s Resolution:
I. WHETHER OR NOT THE [COURT OF APPEALS] DEPARTED FROM THE RULES AND
ESTABLISHED JURISPRUDENCE WHEN IT DISMISSED THE PETITION [A QUO] DESPITE
FAITHFUL COMPLIANCE WITH THE RULES ON DISCLOSURE AS INCORPORATED IN THE
VERIFICATION AND CERTIFICATION PORTION OF THE MOTION FOR EXTENSION [OF]
TIME AND PETITION A QUO.
II. WHETHER OR NOT THE [COURT OF APPEALS] DEPARTED FROM THE RULES AND
ESTABLISHED JURISPRUDENCE WHEN IT DISMISSED THE PETITION A QUO DESPITE
THE ATTACHMENT AND SUBMISSION OF THE REQUISITE AUTHORITY TO MAKE AND
SIGN VERIFICATIONS AND SUBSEQUENTLY REQUIRED PLEADINGS.
III. WHETHER OR NOT THE [COURT OF APPEALS] REFUSED TO ADJUDICATE THE
PETITION A QUO DESPITE THE ATTENDANCE OF A CLEARLY EXCEPTIONAL
CHARACTER AND PARAMOUNT PUBLIC INTEREST INVOLVED AS WELL AS THE
NECESSITY FOR A RULING TO PUT AN END TO UNSCRUPULOUS ISSUANCE OF MINING
CLAIMS.
IV. WHETHER OR NOT PUBLIC RESPONDENTS IN THE DENR COMMITTED SERIOUS
ERROR AND GRAVE ABUSE OF DISCRETION IN DECLARING THAT: (A) THE VERIFIED
PROTEST/OPPOSITION WAS FILED OUT OF TIME; (B) THE ISSUANCE OF THE
EXPLORATION PERMIT IN FAVOR OF [PRIVATE RESPONDENT] ON [1 SEPTEMBER 2005]
AND THE UNILATERAL CANCELLATION OF THE MPSA BY THE DENR-SECRETARY
RENDERED THE VERIFIED PROTEST/OPPOSITION MOOT AND ACADEMIC; (C) THE
[PANEL OF ARBITRATORS] HAVE NO JURISDICTION TO CANCEL, DENY AND/OR
REVOKE THE EXPLORATION PERMIT OF [PRIVATE RESPONDENT]; AND (D) THE
VERIFIED PROTEST/OPPOSITION DOES NOT CONTAIN A CERTIFICATION AGAINST
FORUM SHOPPING.21
To resolve the foregoing issues, the Court must address the more specific issues below:
I. Whether the subsequently attached Minutes of the Special Meeting dated 22 January 2007 of
the Board of Directors of petitioner sufficiently granted Atty. Acsay authority to sign the
Verification and Certification against Forum Shopping which accompanied the Petition in CA-
G.R. SP No. 97663.
II. Whether the Verified Protest/Opposition of petitioner to the Application for Exploration Permit
of private respondent was filed out of time.
III. Whether the Verified Protest/Opposition of petitioner filed before the MAB needs to be
accompanied by a Certification against Forum Shopping.
IV. Whether the issuance by the DENR Secretary of DMO No. 2005-03 on 1 February 2005
which cancelled MPSA No. 153-2000-1 of petitioner and the issuance by MGB of EP No. 05-001
in favor of private respondent on 1 September 2005 rendered the Verified Protest/Opposition of
petitioner moot and academic.
V. Whether the Panel of Arbitrators has jurisdiction to cancel, deny and/or revoke EP No. 05-001
issued by MGB to private respondent.
The Court finds no merit in the present Petition.
I
Petitioner maintains that there are special circumstances and basic considerations in support of
Atty. Acsay’s authority to execute and sign the Verification and Certification against Forum
Shopping which accompanied its Petition in CA-G.R. SP No. 97663. Firstly, Atty. Acsay is an
incorporator, stockholder, member of the board of directors, corporate secretary, and legal
counsel of petitioner. Secondly, he was the authorized representative of petitioner in the signing
of MPSA No. 153-2000-1. Therefore, Atty. Acsay is the best legally suitable person to make the
required sworn disclosures in the Verification and Certification against Forum Shopping in the
Petition of petitioner in CA-G.R. SP No. 97663.
Petitioner also contends that the Minutes of the Meeting held on 22 January 2007 by the board
of directors of petitioner, bestowing upon Atty. Acsay the authority to make and sign the
Verification for the Motion for Extension of Time to File Petition for Review under Rule 43 of the
1997 Revised Rules of Civil Procedure, must be construed in its entirety. According to the
Minutes, Atty. Acsay was granted authority by the board to sign even verifications, which may be
required in subsequent pleadings filed by petitioner. The reference in the Minutes to the Motion
for Extension of Time to File Petition for Review is not meant to be restrictive or qualifying, as to
exclude other pleadings.
With the foregoing, petitioner firmly argues that it has substantially complied with the
requirements for the execution of the Verification and Certification against Forum Shopping,
which accompanied its Petition in CA-G.R. SP No. 97663.
Section 6(d), Rule 4322 in relation to Section 2, Rule 4223 of the 1997 Revised Rules of Civil
Procedure mandates that a petition for review shall contain a sworn certification against forum
shopping, in which the petitioner shall attest that he has not commenced any other action
involving the same issues in this Court, the Court of Appeals or different divisions thereof, or any
other tribunal or agency; if there is such other action or proceeding, he must state the status of
the same; and if he should thereafter learn that a similar action or proceeding has been filed or
is pending before this Court, the Court of Appeals, or different divisions thereof, or any other
tribunal or agency, he undertakes to promptly inform the aforesaid courts and other tribunal or
agency thereof within five days therefrom.24
For failure to comply with this mandate, Section 7, Rule 43 of the 1997 Revised Rules of Civil
Procedure provides:
SEC. 7. Effect of failure to comply with requirements. – The failure of the petitioner to comply
with any of the foregoing requirements regarding the payment of the docket and other lawful
fees, the deposit for costs, proof of service of the petition, and the contents of and the
documents which should accompany the petition shall be sufficient ground for the dismissal
thereof.
The requirement that petitioner should sign the Certification against Forum Shopping applies
even to corporations, the Rules of Court making no distinction between natural and juridical
persons.25 A corporation, however, exercises its powers through its board of directors and/or its
duly authorized officers and agents. Physical acts, like the signing of documents, can be
performed only by natural persons duly authorized for the purpose by corporate by-laws or by a
specific act of the board of directors.26 The signatory, therefore, 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.27
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.28
To recall, the Court of Appeals initially dismissed, in its Resolution dated 23 February 2007, the
Petition for Review in CA-G.R. SP No. 97663, for failure of petitioner to submit pertinent and
relevant documents required under Section 6, Rule 43 of the 1997 Revised Rules of Civil
Procedure. The petitioner filed a Motion for Reconsideration, attaching thereto the required
documents, except the proof of Atty. Acsay’s authority to sign the Verification and Certification
against Forum Shopping for the Petition. Instead of immediately dismissing the Motion for
Reconsideration of petitioner, however, the Court of Appeals, in its Resolution dated 8 June
2007, gave petitioner five days from receipt thereof to submit such proof. The petitioner then
submitted the Minutes of the Special Meeting held on 22 January 2007 by its board of directors,
adopting a Resolution to the following effect:
RESOLVED, that [Atty. Acsay], Director and Corporate Secretary of [herein petitioner] be, as he
hereby is, authorized to make and sign the verification of the pleading filed by [petitioner] entitled
"Motion for Extension of Time to File Petition for Review under Rule 43 of the Rules of Court.29
It can be gleaned from the afore-quoted Resolution of the board of directors of petitioner that the
authority granted to Atty. Acsay was to make and sign the pleading entitled "Motion for
Extension of Time to File Petition for Review under Rule 43 of the Rules of Court," but not the
Petition for Review itself. The wordings of the board Resolution are so explicit that they cannot
be interpreted otherwise. There is nothing to justify the argument of petitioner that the authority
to sign granted to Atty. Acsay by the said board Resolution extended to all other pleadings
subsequent to the Motion for Extension.
Other than the Minutes of the Special Meeting held on 22 January 2007 by the board of directors
of petitioner, which the Court deemed unsatisfactory, no other proof of Atty. Acsay’s purported
authority to sign the Verification and Certification against Forum Shopping for the Petition for
Review in CA-G.R. SP No. 97663 was presented. Absent proof of such authority, then the
reasonable conclusion is that there is actually none. Given that a certification not signed by a
duly authorized person renders the petition subject to dismissal,30 the Court of Appeals did not
err in finally dismissing in its Resolution dated 6 September 2007 the Petition of petitioner in CA-
G.R. SP No. 97663.
Although the Court has previously relaxed the rules on verification and certification against
forum shopping in some instances,31 it cannot do so here.
From the very beginning, petitioner failed to attach to its Petition for Review before the Court of
Appeals the relevant documents required by Section 6, Rule 43 of the 1997 Revised Rules of
Procedure. Petitioner had two opportunities to comply with the requisites, i.e., when it filed its
Motion for Reconsideration of the 23 February 2007 Resolution of the Court of Appeals and
when it submitted its compliance with the 8 June 2007 Resolution of the appellate court; yet,
petitioner still failed to do so. Petitioner never offered any satisfactory explanation for its
stubborn non-compliance with or disregard for the rules of procedure.
It is true that a litigation is not a game of technicalities, and that the rules of procedure should
not be strictly enforced at the cost of substantial justice. However, it does not mean that the
Rules of Court may be ignored at will and at random, to the prejudice of the orderly presentation
and assessment of the issues and their just resolution. It must be emphasized that procedural
rules should not be belittled or dismissed simply because their non-observance may have
resulted in prejudice to a party’s substantial rights. Like all rules, they are required to be followed
except only for the most persuasive of reasons.32
II
Even assuming arguendo that Atty. Acsay did have the authority to sign the Verification and
Certification against Forum Shopping for the Petition for Review of petitioner in CA-G.R. SP No.
97663, and the Court of Appeals erred in dismissing said Petition, the Court still cannot grant the
prayer of petitioner herein to reverse the actions undertaken by the DENR as regards the
cancellation of its MPSA No. 153-2000-1 and the issuance of EP No. 05-001 to private
respondent.
Petitioner insists that it filed its Verified Protest/Opposition to the Application for Exploration
Permit of private respondent within the reglementary period. Based on the records of MGB, the
Notice of Application for Exploration Permit of private respondent was actually posted from 14
July 2005 to 28 July 2005. Applying the 30-day reglementary period, the last date on which to
file any adverse claim, protest or opposition to the said application was 27 August 2005, a
Saturday. Since 29 August 2005, Monday, was declared a national holiday, the next business
day was 30 August 2005, Tuesday. This very well explains why the Verified Protest/Opposition
of petitioner was filed on 30 August 2005. Petitioner further avows that it paid the required legal
fees through postal money order. The issuance of the official receipt only after the filing, through
registered mail, of its Verified Protest/Opposition, does not erase the fact that the docket fees
were paid to and received by the government.
Section 21 of DAO No. 96-40 mandates:
Section 21. Publication/Posting/Radio Announcement of an Exploration Permit Application. - x x
x Any adverse claim, protest or opposition shall be filed directly, within thirty (30) calendar days
from the last date of publication/posting/radio announcement, with the concerned Regional
Office or through any concerned PENRO or CENRO for filing in the concerned Regional Office
for purposes of its resolution by the Panel of Arbitrators pursuant to the provisions of the Act and
these implementing rules and regulations. x x x.
Considering that the Rules on Pleadings, Practice and Procedure before the Panel of Arbitrators
and MAB are bereft of any provision regarding the computation of time and the manner of filing,
the Court may refer to Section 1, Rule 22 and Section 3, Rule 13 of the 1997 Revised Rules of
Civil Procedure,33 which state:
Section 1. How to compute time. – In computing any period of time prescribed or allowed by
these Rules, or by order of the court, or by any applicable statute, the day of the act or event
from which the designated period of time begins to run is to be excluded and the date of
performance included. If the last day of the period, as thus computed, falls on a Saturday, a
Sunday, or a legal holiday in the place where the court sits, the time shall not run until the next
working day. (Emphasis supplied.)
Section 3. Manner of filing. - The filing of pleadings, appearances, motions, notices, orders,
judgments and all other papers shall be made by presenting the original copies thereof, plainly
indicated as such, personally to the clerk of court or by sending them by registered mail. In the
first case, the clerk of court shall endorse on the pleading the date and hour of filing. In the
second case, the date of the mailing of motions, pleadings, or any other papers or payments or
deposits, as shown by the post office stamp on the envelope or the registry receipt, shall be
considered as the date of their filing, payment or deposit in court. The envelope shall be
attached to the record of the case. (Emphasis supplied.)
In the present case, notices of the Application for Exploration Permit of private respondent were
published in newspapers,34 announced on the radio,35 and posted in public places. The posting
was done the latest, so we reckon the last possible date petitioner could have validly filed its
Verified Petition/Opposition with the Panel of Arbitrators therefrom.
The notices of the Application for Exploration Permit of private respondent were posted on the otherwise, the Court presumes that the docket fee was paid on the date the receipt for the same
bulletin boards of the Office of the Municipal Mayor of Dasol, Pangasinan on 16 to 31 March was issued, i.e., 6 September 2005.
2005; Office of the Municipal Mayor of Mabini, Pangasinan on 16 to 31 March 2005; Office of the
Pangasinan Provincial Environment and Natural Resources on 17 March 2005 to 2 April 2005;
Based on the foregoing, the Verified Protest/Opposition of petitioner to the Application for
Office of the DENR Provincial Environment and Natural Resources-Pangasinan on 15 March
Exploration Permit of respondent is deemed filed with the Panel of Arbitrators only upon
2005 to 6 April 2005; Office of the DENR Community Environment and Natural Resources-
payment of the prescribed docket fee on 6 September 2005, clearly beyond the reglementary
Alaminos City on 17 March 2005 to 5 April 2005; Offices of the Punong Barangays of Malimpin,
period, which ended on 30 August 2005.
San Pedro, Barlo, San Vicente, and Alilao on 16 to 31 March 2005; and MGB on 14 to 28 July
2005.36
III
Since the notice of the Application for Exploration Permit of private respondent was last posted
on 28 July 2005, the 30-day reglementary period for filing any adverse claim/protest/opposition The Panel of Arbitrators denied the Verified Protest/Opposition of petitioner in Case No. 2005-
thereto ended on 27 August 2005. As petitioner explained, however, 27 August 2005 was a 00012-I for another procedural lapse, the lack of a certification against forum shopping.
Saturday; and 29 August 2005, Monday, was declared a national holiday,37 so the next working
day was 30 August 2005, Tuesday. Petitioner did send its Verified Protest/Opposition, through
Petitioner argues that a Verified Protest/Opposition does not require a certification against forum
registered mail, on 30 August 2005, as evidenced by the Affidavit of Service38 of even date and
shopping. According to it, Section 204 of DAO No. 96-40 identifies the substantial requirements
Registry Receipts No. 10181; No. 10182; No. 10183; and No. 10184.39 Nevertheless, the Court
of a mining adverse claim/ protest/opposition, and a certification against forum shopping is not
still could not consider the Verified Protest/Opposition of petitioner as having been filed within
among them; the Panel of Arbitrators has no power and authority to impose additional
the reglementary period.lavvphil
requirements for the filing and service of pleadings; the Panel of Arbitrators also does not have
the authority to promulgate rules and regulations involving the practice, pleadings, litigation and
Section 21 of DAO No. 96-40, fixing the 30-day reglementary period for filing any adverse disposition of cases before it, for the same only belongs to the MAB, pursuant to Section 207 of
claim/protest/opposition to an application for exploration permit, must be read in relation to DAO No. 96-40.
Section 204 of DAO No. 96-40, which reads:
The arguments of petitioner have no merit.
Section 204. Substantial Requirements for Adverse Claims, Protest and Oppositions. No
adverse claim, protest or opposition involving mining rights shall be accepted for filing unless
Petitioner filed a Verified Protest/Opposition before the Panel of Arbitrators to oppose the
verified and accompanied by the prescribed docket fee and proof of services to the
Application for Exploration Permit filed by private respondent with the MGB. The Verified
respondent(s), either personally or by registered mail: Provided, That the requirement for the
Protest/Opposition of petitioner constitutes an initiatory pleading before the Panel of Arbitrators,
payment of docket fees shall not be imposed on pauper litigants[;] (Emphasis supplied.)
for which a certification against forum shopping may be required. Truly, DAO No. 96-40 is bereft
of any provision requiring that a certification against forum shopping be attached to the adverse
and Section 7, Rule III of the Rules on Pleadings, Practice and Procedure before the Panel of claim/protest/opposition. However, Section 4, Rule 1 of the Rules on Pleading, Practice and
Arbitrators and MAB, which states that: Procedure before the Panel of Arbitrators and the MAB allows the application of the pertinent
provisions of the Rules of Court by analogy or in a suppletory manner, in the interest of
expeditious justice and whenever practical and convenient; and, according to Section 5, Rule 7
Section 7. Form and Contents of Adverse Claims, Protest or Opposition. No adverse claim,
of the Revised Rules of Court:
petition, protest or opposition involving mining rights shall be accepted for filing unless verified
and accompanied by the prescribed docket fee and proof of services to the respondent(s), either
personally or by registered mail: Provided, That the requirement for the payment of docket fees SEC. 5. Certification against forum shopping. – The plaintiff or principal party shall certify under
shall not be imposed on pauper litigants. (Emphasis supplied.) oath in the complaint or other initiatory pleading asserting a claim for relief, or in a sworn
certification annexed thereto and simultaneously filed therewith: (a) that he has not theretofore
commenced any action or filed any claim involving the same issues in any court, tribunal or
Section 204 of DAO No. 96-40 and Section 7, Rule III of the Rules on Pleadings, Practice and
quasi-judicial agency and, to the best of his knowledge, no such other action or claim is pending
Procedure before the Panel of Arbitrators and MAB explicitly require that the adverse
therein; (b) if there is such other pending action or claim, a complete statement of the present
claim/protest/opposition be accompanied by the payment of the prescribed docket fee for the
status thereof; and (c) if he should thereafter learn that the same or similar action or claim has
same to be accepted for filing.
been filed or is pending, he shall report that fact within five (5) days therefrom to the court
wherein his aforesaid complaint or initiatory pleading has been filed.
Upon a careful examination of the records of this case, it appears that the docket fee was paid
only on 6 September 2005, as evidenced by Official Receipt (O.R.) No. 7478283 B.40 Although
Failure to comply with the foregoing requirements shall not be curable by mere amendment of
petitioner avers that it paid the docket fee through postal money order – in which case, the date
the complaint or other initiatory pleading but shall be cause for the dismissal of the case without
of mailing would be deemed the date of payment – such averment is unsubstantiated. The Court
prejudice, unless otherwise provided, upon motion and after hearing. The submission of a false
finds no evidence to prove that petitioner actually sent the purported postal money order for the
certification or non-compliance with any of the undertakings therein shall constitute indirect
payment of the docket fee. Petitioner submits the following evidence to prove payment of the
contempt of court, without prejudice to the corresponding administrative and criminal actions. If
docket fee: (a) a Prudential Bank Check in the amount of ₱5,020.00 dated 1 September
the acts of the party or his counsel clearly constitute willful and deliberate forum shopping, the
2005;41 (b) O.R. No. 7478283 B dated 6 September 2005 issued by MGB Region I, San
same shall be ground for summary dismissal with prejudice and shall constitute direct contempt,
Fernando City; and (c) several registry return receipts.42 But these pieces of evidence do not
as well as a cause for administrative sanctions.
establish at all that the docket fee was paid by postal money order; or indicate the postal money
order number and the date said postal money order was sent. Without any evidence to prove
Hence, the requirement by the Panel of Arbitrators and the MAB that a certification against
forum shopping be attached to initiatory pleadings filed before them, to ascertain that no similar
actions have been filed before other courts, tribunals, or quasi-judicial bodies, is not arbitrary or
baseless. The lack of such a certification is a ground for the dismissal of the Verified
Protest/Opposition of petitioner.
IV
The Panel of Arbitrators dismissed the Verified Protest/Opposition of petitioner for a third
reason: that the same has become moot and academic, given that the DENR Secretary already
issued DMO No. 2005-03 on 1 February 2005 canceling MPSA No. 153-2000-1 and MGB
issued EP No. 05-001 to private respondent on 1 September 2005.
However, petitioner asserts that MPSA No. 153-2000-1 has not been finally cancelled or
revoked, considering the pendency of the legal remedies it availed itself of for DMO No. 2005-
03. The issuance of DMO No. 2005-03 by the DENR Secretary, and of EP No. 05-001 by MGB
pursuant thereto, should not render the Verified Protest/Opposition of petitioner moot and
academic.
The position of petitioner is untenable.
It must be stressed that the cancellation of MPSA No. 153-2000-1 of petitioner by the DENR
Secretary in DMO No. 2005-03 is already the subject of separate proceedings. The Court cannot
touch upon it in the Petition at bar.
Also worth stressing is that petitioner filed a Verified Protest/Opposition to the Application for
Exploration Permit of private respondent. When the application was approved and the
exploration permit issued to private respondent, petitioner had nothing more to protest/oppose.
More importantly, with the issuance by MGB of EP No. 05-001 to private respondent, the
remedy of petitioner is to seek the cancellation thereof, over which, as subsequently discussed
herein, the Panel of Arbitrators would have no jurisdiction. The Panel of Arbitrators cannot
simply consider or convert the Verified Protest/Opposition of petitioner to the Application for
Exploration Permit of private respondent as a petition for the cancellation of EP No. 05-001.
Since the Panel of Arbitrators can no longer grant petitioner any actual substantial relief by
reason of the foregoing circumstances, then the Verified Protest/Opposition of petitioner was
appropriately dismissed for being moot and academic.
V
Finally, petitioner posits that Section 77 of Republic Act No. 7942 and Sections 202 to 203 of its
Implementing Rules vest the Panel of Arbitrators with the jurisdiction to entertain and accept any
claim, protest or opposition filed directly with its office. In the discharge thereof, the office and
function bestowed upon the Panel of Arbitrators include the power and authority to deny
clearances, exclude exploration permits, and not to accept or entertain the same.
The Court disagrees.
Section 77 of Republic Act No. 7942 establishes the jurisdiction of the Panel of Arbitrators, thus:
Sec. 77. Panel of Arbitrators. – x x x. Within thirty (30) working days, after the submission of the
case by the parties for decision, the panel shall have exclusive and original jurisdiction to
hear and decide on the following:
a. Disputes involving rights to mining areas;
b. Disputes involving mineral agreements or permits;
c. Disputes involving surface owners, occupants and claimholders/concessionaires; and
d. Disputes pending before the Bureau and the Department at the date of the effectivity of this
Act. (Emphasis supplied.)
In Olympic Mines and Development Corporation v. Platinum Group Metals
Corporation43 citing Celestial Nickel Mining Exploration Corporation v. Macroasia
Corporation,44 this Court made the following pronouncements as regards paragraphs (a) and (b)
of Section 77 of Republic Act No. 7942:
In Celestial Nickel Mining Exploration Corporation v. Macroasia Corporation, et al., this Court
speaking through Justice Velasco, specified the kind of disputes that fall under Section 77(a) of
the Mining Act:
The phrase "disputes involving rights to mining areas" refers to any adverse claim, protest, or
opposition to an application for a mineral agreement.
xxxx
[T]he power of the POA to resolve any adverse claim, opposition, or protest relative to mining
rights under Section 77 (a) of RA 7942 is confined only to adverse claims, conflicts, and
oppositions relating to applications for the grant of mineral rights. x x x. Clearly, POA’s
jurisdiction over "disputes involving rights to mining areas" has nothing to do with the
cancellation of existing mineral agreements. (Emphases supplied.)
xxxx
Parenthetically, the "permit" referred to in Section 77(b) of the Mining Act pertains to exploration
permit, quarry permit, and other mining permits recognized in Chapters IV, VIII, and IX of the
Mining Act. An operating agreement, not being among those listed, cannot be considered as a
"mineral permit" under Section 77 (b). (Emphases supplied.)
It is clear from the ruling of the Court in Olympic Mines and Celestial Nickel Mining that the
Panel of Arbitrators only has jurisdiction over adverse claims, conflicts, and oppositions relating
to applications for the grant of mineral rights, but not over cancellation of mineral rights already
granted and existing.
As to who has jurisdiction to cancel an existing exploration permit, Section 28 of DAO NO. 96-40
explicitly provides:
Section 28. Cancellation of an Exploration Permit. – The Director/concerned Regional Director
may cancel the Exploration Permit for failure of the Permittee to comply with any of the
requirements and for violation(s) of the terms and conditions under which the Permit is issued.
For renewed Exploration Permits, the Secretary upon the recommendation of the Director shall
cause the cancellation of the same.
According to Section 5 of DAO No. 96-40, "Director" means the Director of the MGB Central
Office, while "Regional Director" means the Regional Director of any MGB Regional Office. As
the authority to issue an Exploration Permit is vested in the MGB, then the same necessarily
includes the corollary power to revoke, withdraw or cancel the same.45 Indisputably, the authority
to deny, revoke, or cancel EP No. 05-001 of private respondent is already lodged with the MGB,
and not with the Panel of Arbitrators.

WHEREFORE, premises considered, the instant Petition for Review on Certiorari of petitioner
Pyro Copper Mining Corporation is hereby DENIED. The Resolutions dated 23 February 2007
and 6 September 2007 of the Court of Appeals in CA-G.R. SP No. 97663 are hereby
AFFIRMED. Costs against the petitioner.

SO ORDERED.

G.R. No. L-49109 December 1, 1987
SANTA ROSA MINING COMPANY, INC., petitioner,  on the matter of whether petitioner had abandoned its mining claims. Until petitioner's appeal
vs.
HON. MINISTER OF NATURAL RESOURCES JOSE J. LEIDO, JR. AND DIRECTOR OF
MINES JUANITO C. FERNANDEZ, respondents.
PADILLA, J.:
This is a special civil action for certiorari and prohibition with prayer for a writ of preliminary
injunction, to declare Presidential Decree No. 1214 unconstitutional and to enjoin respondent
public officials from enforcing it. On 19 October 1978, the Court required the respondents to
comment on the petition and issued a temporary restraining order continuing until otherwise
ordered by the Court.
Petitioner Santa Rosa Mining Company, Inc. (petitioner, for short) is a mining corporation duly
organized and existing under the laws of the Philippines. It alleges that it is the holder of fifty (50)
valid mining claims situated in Jose Panganiban, Camarines Norte, acquired under the
provisions of the Act of the U.S. Congress dated 1 July 1902 (Philippine Bill of 1902, for short).
On 14 October 1977, Presidential Decree No. 1214 was issued, requiring holders of subsisting
and valid patentable mining claims located under the provisions of the Philippine Bill of 1902 to
file a mining lease application within one (1) year from the approval of the Decree. Petitioner
accordingly filed a mining lease application, but "under protest," on 13 October 1978, with a
reservation annotated on the back of its application that it is not waiving its rights over its mining
claims until the validity of Presidential Decree No. 1214 shall have been passed upon by this
Court. 1
On 10 October 1978, or three (3) days before filing the disputed mining lease application,
petitioner filed this special civil action for certiorari and prohibition, alleging that it has no other
plain, speedy and adequate remedy in the ordinary course of law to protect its rights (except by
said petition). Petitioner assails Presidential Decree No. 1214 as unconstitutional in that it
amounts to a deprivation of property without due process of law.
Petitioner avers that its fifty (50) mining claims had already been declared as its own private and
exclusive property in final judgments rendered by the Court of First Instance of Camarines Norte
(CFI, for short) in land registration proceedings initiated by third persons, such as, a September
1951 land title application by a certain Gervacio Liwanag, where the Director of Mines opposed
the grant of said application because herein petitioner, according to him (Director of Mines), had
already located and perfected its mining claims over the area applied for. Petitioner also cites
LRC Case No. 240, filed 11 July 1960, by one Antonio Astudillo and decided in 1974 against
said applicant, in which, petitioner's mining claims were described as vested property outside the
jurisdiction of the Director of Mines. 2
In answer, the respondents allege that petitioner has no standing to file the instant petition as it
failed to fully exhaust administrative remedies. They cite the pendency of petitioner's appeal,
with the Office of the President, of the ruling of the respondent Secretary of Natural Resources
issued on 2 April 1977 in DNR Case No. 4140, which upheld the decision of the Director of
Mines finding that forty four (44) out of petitioner's fifty (50) mining claims were void for lack of
valid "tie points" as required under the Philippine Bill of 1902, and that all the mining claims had
already been abandoned and cancelled, for petitioner's non-compliance with the legal
requirements of the same Phil. Bill of 1902 and Executive Order No. 141. 3
We agree with respondents' contention that it is premature for the Court to now make a finding
shall have been decided by the Office of the President, where it is pending, petitioner's attempt
to seek judicial recognition of the continuing validity of its mining claims, cannot be entertained
by the Court. As stated by the Court, through Mr. Justice Sabino Padilla in Ham v. Bachrach
Motor Co., Inc. 4 applying the principle of exhaustion of administrative remedies: "By its own act
of appealing from the decision of the Director of Lands and the Secretary of Agriculture and
Natural Resources to the President of the Philippines, and without waiting for the latter's
decision, the defendant cannot complain if the courts do not take action be fore the President
has decided its appeal." 5
The decisions of the Court of First Instance of Camarines Norte in applications for land
registration filed by third persons covering the area over which petitioner had located and
registered its mining claims, as cited by petitioner, are inapplicable. Said decisions merely
denied the applications of such third persons for land registration over areas already covered by
petitioner's mining claims, for failure to show titles that were registrable under the Torrens
system; that was all. While the CFI made a statement in one case declaring that the petitioner's
mining claims are its vested property and even patentable at that time, there is nothing in said
CFI decision that squarely passed upon the question of whether petitioner had valid, patentable
(but still unpatented) mining claims which it had continued to maintain, in compliance with the
requirements of applicable laws. This question, which involves a finding of facts, is precisely the
issue before the Office of the President in the petitioner's appeal from the decision of the
Secretary of Natural Resources in DNR Case No. 4140 holding that petitioner's mining claims
are considered abandoned cancelled for failure of petitioner to comply with the requirements of
the Philippine Bill of 1902 and Executive Order No. 141. In short, the decisions of the Court of
First Instance of Camarines Norte, relied upon by petitioner, do not foreclose a proceeding, such
as DNR Case No. 4140, to determine whether petitioner's unpatented mining claims have
remained valid and subsisting.
Respondents further contend that, even assuming arguendo that petitioner's mining claims were
valid at the outset, if they are deemed abandoned and cancelled due to non-compliance with the
legal requirements for maintaining a perfected mining claim, under the provisions of the
Philippine Bill of 1902, 6 petitioner has no valid and subsisting claim which could be lost through
the implementation of Presidential Decree No. 1214, thus giving it no standing to question the
Decree.
Petitioner, on the other hand, would rebut respondents' argument by declaring that it already had
a vested right over its mining claims even before Presidential Decree No. 1214, following the
rulings in McDaniel v. Apacible 7 and Gold Creek Mining Corp. v. Rodriguez. 8
The Court is not impressed that this is so.
The cases cited by petitioner, true enough, recognize the right of a locator of a mining claim as a
property right. This right, however, is not absolute. It is merely a possessory right, more so, in
this case, where petitioner's claims are still unpatented. They can be lost through abandonment
or forfeiture or they may be revoked for valid legal grounds. The statement in McDaniel v.
Apacible that "There is no pretense in the present case that the petitioner has not complied with
all the requirements of the law in making the location of the mineral claims in question, or that
the claims in question were ever abandoned or forfeited by him," 9 confirms that a valid mining
claim may still be lost through abandonment or forfeiture.
The petitioner can not successfully plead the ruling in Gold Creek Mining Corp. v. SO ORDERED.
Rodriguez, supra. In that case, what was in issue was Gold Creek's right to a patent over its
mining claim, after compliance with all legal requirements for a patent. In the present case, no
application for patent is in issue, although as a holder of patentable mining claims petitioner
could have applied for one during all these years but inexplicably did not do so. In Gold Creek,
no finding of abandonment was ever made against the mining claimant as to deprive it of the
initial privilege given by virtue of its location; on the other hand, such a finding has been made in
petitioner's case (although the finding among others is on appeal with the President).

We now come to the question of whether or not Presidential Decree No. 1214 is constitutional.
Even assuming arguendo that petitioner was not bound to exhaust administrative remedies on
the question of whether or not its mining claims are still subsisting (not abandoned or cancelled
before challenging the constitutionality of said Decree, we hold that Presidential Decree No.
1214 is not unconstitutional. 10 It is a valid exercise of the sovereign power of the State, as
owner, over lands of the public domain, of which petitioner's mining claims still form a part, and
over the patrimony of the nation, of which mineral deposits are a valuable asset. It may be
underscored, in this connection, that the Decree does not cover all mining claims located under
the Phil. Bill of 1902, but only those claims over which their locators had failed to obtain a
patent. And even then, such locators may still avail of the renewable twenty-five year (25) lease
prescribed by Pres. Decree No. 463, the Mineral Development Resources Decree of 1974.

Mere location does not mean absolute ownership over the affected land or the mining claim. It
merely segregates the located land or area from the public domain by barring other would-be
locators from locating the same and appropriating for themselves the minerals found therein. To
rule otherwise would imply that location is all that is needed to acquire and maintain rights over a
located mining claim. This, we cannot approve or sanction because it is contrary to the intention
of the lawmaker that the locator should faithfully and consistently comply with the requirements
for annual work and improvements in the located mining claim.

Presidential Decree No. 1214 is in accord with Sec. 8, Art. XIV of the 1973 Constitution which
states:

All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, fisheries, wildlife, and other natural resources of the Philippines
belong to the State. With the exception of agricultural, industrial or commercial, residential and
resettlement lands of the public domain, natural resources shall not be alienated, and no license,
concession, or lease for the exploration, development, exploitation, or utilization of any of the
natural resources shall be granted for a period exceeding twenty-five years, renewable for not
more than twenty-five years, except as to water rights for irrigation, water supply, fisheries, or
industrial uses other than the development of water power, in which cases, beneficial use may
be the measure and the limit of the grant.

The same constitutional mandate is found in Sec. 2, Art. XII of the 1987 Constitution, which
declares:

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. ...

WHEREFORE, premises considered, the petition is hereby DISMISSED. The temporary

restraining order issued by the Court on 19 October 1978 is LIFTED and SET ASIDE. Costs
against the petitioner.
 On February 16, 1994, while the RED Mines case was pending, Marcopper assigned its EP No.
133 to petitioner Southeast Mindanao Gold Mining Corporation (SEM),8 which in turn applied for
an integrated MPSA over the land covered by the permit.
G.R. No. 135190      April 3, 2002

In due time, the Mines and Geosciences Bureau Regional Office No. XI in Davao City (MGB-XI)
SOUTHEAST MINDANAO GOLD MINING CORPORATION, petitioner,  accepted and registered the integrated MPSA application of petitioner. After publication of the
vs. application, the following filed their oppositions:
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 a) MAC Case No. 004(XI) - JB Management Mining Corporation;
OF DAVAO (PMRB-Davao), respondents.
b) MAC Case No. 005(XI) - Davao United Miners Cooperative;
YNARES-SANTIAGO, J.:
c) MAC Case No. 006(XI) - Balite Integrated Small Scale Miner's Cooperative;
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
d) MAC Case No. 007(XI) - Monkayo Integrated Small Scale Miner's Association, Inc.;
the resolution dated August 19, 1998 denying petitioner's motion for reconsideration.

e) MAC Case No. 008(XI) - Paper Industries Corporation of the Philippines;

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 f) MAC Case No. 009(XI) - Rosendo Villaflor, et al.;
controversy since the mid-80's due to the scramble over gold deposits found within its bowels.
g) MAC Case No. 010(XI) - Antonio Dacudao;
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-
h) MAC Case No. 011(XI) - Atty. Jose T. Amacio;
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. i) MAC Case No. 012(XI) - Puting-Bato Gold Miners Cooperative;

On March 10, 1988, Marcopper Mining Corporation (Marcopper) was granted Exploration Permit j) MAC Case No. 016(XI) - Balite Communal Portal Mining Cooperative; and
No. 133 (EP No. 133) over 4,491 hectares of land, which included the hotly-contested Diwalwal
area.1 Marcopper's acquisition of mining rights over Diwalwal under its EP No. 133 was
k) MAC Case No. 97-01(XI) - Romeo Altamera, et al.
subsequently challenged before this Court in "Apex Mining Co., Inc., et al. v. Hon. Cancio C.
Garcia, et al.,"2 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 In the meantime, on March 3, 1995, Republic Act No. 7942, the Philippine Mining Act, was
requisites for acquiring mining rights within forest reserves. enacted. Pursuant to this statute, the above-enumerated MAC cases were referred to a
Regional Panel of Arbitrators (RPA) tasked to resolve disputes involving conflicting mining rights.
The RPA subsequently took cognizance of the RED Mines case, which was consolidated with
Not long thereafter, Congress enacted on June 27, 1991 Republic Act No. 7076, or the People's
the MAC cases.
Small-Scale Mining Act. The law established a People's Small-Scale Mining Program to be
implemented by the Secretary of the DENR3and created the Provincial Mining Regulatory Board
(PMRB) under the DENR Secretary's direct supervision and control.4 The statute also authorized On April 1, 1997, Provincial Mining Regulatory Board of Davao passed Resolution No. 26,
the PMRB to declare and set aside small-scale mining areas subject to review by the DENR Series of 1997, authorizing the issuance of ore transport permits (OTPs) to small-scale miners
Secretary5 and award mining contracts to small-scale miners under certain conditions.6 operating in the Diwalwal mines.

On December 21, 1991, DENR Secretary Fulgencio S. Factoran issued Department
Administrative Order (DAO) No. 66, declaring 729 hectares of the Diwalwal area as non-forest
land open to small-scale mining.7 The issuance was made pursuant to the powers vested in the
DENR Secretary by Proclamation No. 369, which established the Agusan-Davao-Surigao Forest
Reserve.
Subsequently, a petition for the cancellation of EP No. 133 and the admission of a Mineral
Production Sharing Arrangement (MPSA) proposal over Diwalwal was filed before the DENR
Regional Executive Director, docketed as RED Mines Case No. 8-8-94 entitled, "Rosendo
Villaflor, et al. v. Marcopper Mining Corporation."
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.
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
On June 24, 1997, the DENR Secretary issued Memorandum Order No. 97-0310 which provided,
among others, that:
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 x11
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 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.12 This MAB decision was then elevated to this Court by
way of a consolidated petition, docketed as G.R. Nos. 132475 and 132528.1âwphi1.nêt
On March 19, 1998, the Court of Appeals, through a division of five members voting 3-
2,13 dismissed the petition in 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
Hence this petition, raising the following errors:
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;
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.16 These cases, which were docketed
as CA-G.R. SP 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.
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 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 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
Mining case, 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 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,21 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.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. (Underscoring ours)
Likewise, Section 4, Chapter II of the Philippine Mining Act of 1995 states:
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. (Underscoring 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.23 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.1âwphi1.nêt
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.

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.

G.R. No. L-69997 September 30, 1987
UNGAY MALOBAGO MINES, INC., petitioner,  12195 to appellee Felix Detecio;
vs.
HON. INTERMEDIATE APPELLATE COURT, DIRECTOR OF LANDS, GREGORIA
BOLANOS, AUREA ARAOJO, GERVACIO ARAOJO, MARIA BERNAL, FELIX DETECIO,
JESUS ASUNCION, MELENCIO ASUNCION and BIENVENIDO ASUNCION, respondents.
GUTIERREZ, JR., J.:
Before us is a petition which seeks to set aside the decision of the then Intermediate Appellate
Court affirming the dismissal of the petitioner's action for annulment and cancellation of free
patents granted to the private respondents on the ground that the petitioner has no personality
to file an action for reversion, the lands involved being public In character.
On July 20, 1962, the President of the Philippines granted the following mining patents on
mineral claims located at Ungay Malobago, Rapu-Rapu Albay.
1. lode patent No. V-52 to John Canson, Jr., on mineral claim known as "Catanduandes;"
2. lode patent No. V-48 to petitioner, on mineral claims known as "Junior;"
3. lode patent No. V-53 to John Canson, Jr., on mineral claims known as "Oas;"
4. lode patent No. V - 46 to petitioner on mineral claim known as "Ester;"
5. lode patent No. V - 51 to Carlos Stilianopulos on mineral claim known as "Jovellar;"
6. lode patent No. V - 49 to petitioner, in mineral claim known as "Manila;"
7. lode patent No. V - 50 to Carlos Stilianopulos on mineral claim known as "Polangui;" and
8. lode patent No. V - 47 to petitioner on mineral claim known as "Ligao;"(pp. 5-7, Decision
Annex 1, Petition)
Way back on October 30, 1959, John Canson, Jr. and Carlos Stilianopulos assigned their rights
to their mining claims in favor of the petitioner. The assignment of rights was recorded in the
Office of the Mining Recorder of Albay on December 2, 1959.
The aforestated mining patents, after their issuance on July 20, 1962, were all recorded in the
Office of the Mining Recorder of Albay on August 28, 1962 and transcribed on September 4,
1962 in the Registration Book of the Registry of Deeds of Albay. Consequently, the Register of
Deeds of Albay issued the respective original certificates of titles pursuant to Section 122 of Act
No. 496 in the names of John Canson, Jr., Carlos Stilianopulos, and the petitioner.
Subsequently, or from 1968 to 1974, the following free patents were granted by the respondent
Director of Lands and the corresponding original certificates of titles were issued by the Register
of Deeds of Albay:
1. Free Patent No. 458143 dated October 3, 1968 and corresponding Certificate of Title No. VH-
2. Free Patent No. 427824 dated November 21, 1968 and corresponding Certificate of Title No.
VH-12256 to appellee Melencio Asuncion;
3. Free Patent No. 433318 dated January 10, 1969 and corresponding Certificate of Title No.
VH-12198 to appellee Jesus Asuncion;
4. Free Patents No. 422847 dated November 11, 1968 and No. 421947 dated October 28, 1969
and corresponding Certificates of Title Nos. VH-12185 and 12186, respectively, to appellee
Maria Bernal;
5. Free Patent No. 408568 dated July 8, 1968 and corresponding Certificate of Title No. VH-
11591 to appellee Gregorio Bolanos; and
6. Free Patent No. 0663 dated March 25, 1974 and the corresponding Certificate of Title No.
VH-19333 to appellee Bienvenido Asuncion. (Rollo, pp. 200-201)
All of the above patents covered portions of the lots covered by the patents belonging to the
petitioner.
The petitioner filed a complaint for annulment and cancellation of patents against the private
respondents and prayed that all the free patent titles issued in their favor for properties over
which original certificates of title had already been issued in its favor be declared null and void.
The Director of Lands, who was impleaded as a formal defendant, filed his answer alledging,
among others, that the petitioner has no personality to institute the cancellation proceedings
inasmuch as the government is the grantor and not the petitioner, and it should be the grantor
who should institute the cancellation proceedings.
On January 25, 1980, the trial court rendered a decision dismissing the complaint. It ruled that
since the disputed properties form part of disposable land of the public domain, the action for
reversion should be instituted by the Solicitor General in the name of the Republic of the
Philippines and that, therefore, the petitioner lacks personality to institute the annulment
proceedings.
The petitioner appealed to the then Intermediate Appellate Court.
On April 5, 1984, the appellate court affirmed the decision of the trial court. It ruled that the titles
issued to the petitioner cover mineral lands which belong to the public domain and that these
cannot be the subject of private ownership. According to the Court, under Section 101 of the
Public Land Law, only the Solicitor General or the officer acting in his stead has the authority to
institute an action on behalf of the Republic for the cancellation of the respondents' titles and for
reversion of their homesteads to the Government.
In this instant petition, the petitioner raises two issues: a) Whether or not the appellate court
committed an error of law when it ruled that the lands in question belong to the public domain;
and b) whether or not the appellate court erred in discussing the complaint on the ground that
the petitioner had no personality to institute the same.
With regard to the first issue, the petitioner maintains that since its mining claims were perfected
prior to November 15, 1935, the date when the 1935 Constitution took effect, the applicable law
is the Philippine Bill of 1902 and that under this Act, a valid location of a mining claim segregates
the area from the public domain. (Gold Creek Mining Corporation v. Rodriguez, 66 Phil. 259).
The Solicitor-General, on the other hand, argues that the petitioner's mining patents covered by
Torrens Titles were granted only in 1962 by the President of the Philippines, by authority of the
Constitution of the Philippines. Under the then Constitution, except for public agricultural lands,
natural resources which includes all mineral lands, shall not be alienated. (Art. XIII, Section 1,
1935 Constitution) Therefore, what the mining patents issued in 1962 conveyed to petitioner was
only the ownership of, and the right to extract and utilize, the minerals within the area covered by
the petitioner's Torrens Titles but not the ownership of the land where the minerals are found.
We rule for the private respondents.
The petitioner has been beguiling, less than candid, and inexplicably silent as to material dates
in the presentation of its case. Nowhere in the records of this petition is there any mention of a
date before November 15, 1935 as to when essential acts regarding its mining claims were
executed. It is silent as to when the land was entered, measured, and plotted; when the legal
posts and notices were put up; when the claim was registered with the mining recorder; whether
or not the annual amount of labor or development, and other requirements under the Philippine
Bill of 1902 were followed. These may have been complied with but not necessarily before 1935.
A mere mention in the Torrens title that the provisions of the Philippine Bill of 1902 were
followed is not sufficient. The Philippine Bill provides the procedures for the perfection of mining
claims but not the dates when such procedures were undertaken by any prospector or claimant.
The same procedures would have to be followed even after the Jones Law of 1916 and the
Constitution of 1935 were promulgated, but subject to the restrictions of the fundamental law.
The petitioner has failed to state if and when new procedures, different from the 1902
procedures, were provided by law to give a little substance to its case. The petitioner is
completely and strangely silent about these vital aspects of its petition.
Petitioner has not established by clear and convincing evidence that the locations of its mining
claims were perfected prior to November 15,1935 when the Government of Commonwealth was
inaugurated. In fact neither the original complaint nor the amended one alleged the perfection of
petitioner's mining rights prior to November 15, 1935. All that petitioner offers as evidence of its
claims were the original certificates of titles covering mining patents which embodied a uniform
"WHEREAS" clause stating that the petitioner "has fully complied with all the conditions,
requirements, and provisions of the Act of the United States of Congress of July 1, 1902, as
amended, ..." In the absence of proof that the petitioner's claims were perfected prior to the 1935
Constitution, the provision of the latter with regard to inalienable lands of the public domain will
apply.
Article XIII, Section I of the 1935 Constitution provides:
All agricultural timber, and mineral lands of the public domain, waters, minerals, coal, petroleum,
and other mineral oils, all forces of potential energy, and other natural resources of the
Philippines belong to the State, and their disposition, exploitation, development, or utilization
shall be limited to citizens of the Philippines, or to corporations or associations at least sixty per
centum of the capital of which is owned by such citizens, subject to any existing right, grant,
lease, or concession at the time of the inauguration of the Government established under this
Constitution. Natural resources, with the exception of public agricultural land, shall not be
alienated and no license, concession, or lease for the exploitation, development, or utilization of
any of the natural resources shall be granted for a period exceeding twenty-five years,
renewable for another twenty-five years, except as to water rights for irrigation, water supply,
fisheries, or industrial uses other than the development of water power, in which cases beneficial
use may be the measure and the at of the grant. (Emphasis supplied)
Therefore, applying the aforequoted provision to the case at bar, we conclude that the issuance
of the lode patents on mineral claims by the President of the Philippines in 1962 in favor of the
petitioner granted to it only the right to extract or utilize the minerals which may be found on or
under the surface of the land. On the other hand, the issuance of the free patents by the
respondent Director of Lands in 1979 in favor of the private respondents granted to them the
ownership and the right to use the land for agricultural purposes but excluding the ownership of,
and the right to extract or utilize, the minerals which may be found on or under the surface.
There is no basis in the records for the petitioner's stand that it acquired the right to the mineral
lands prior to the effectivity of the 1935 Constitution, thus, making such acquisition outside its
purview and scope.
Every application for a concession of public land has to be viewed in the light of its peculiar
circumstances. (Director of Lands v. Funtilar 142 SCRA 57, 69).
In the case at bar, although the original certificates of titles of the petitioner were issued prior to
the titles of the private respondents, the former cannot prevail over the latter for the provisions of
the Constitution which governed at the time of their issuance prohibited the alienation of mineral
lands of the public domain.
In the case of Republic v. Animas (56 SCRA 499), this Court ruled that a grantee does not
become the owner of a land illegally included in the grant just because title has been issued in
his favor:.
A patent is void at law if the officer who issued the patent had no authority to do so (Knight v.
Land Ass. 142 U.S. 161, 12 Sup. Ct., 258, 35L ED. 974; emphasis supplied). If a person obtains
a title under the Public Land Act which includes, by mistake or oversight, lands which cannot be
registered under the Torrens System, or when the Director of Lands did not have jurisdiction
over the same because it is a public forest, the grantee does not, by virtue of said certificate of
title alone, become the owner of the land illegally included. (See Ledesma vs. Municipality of
Iloilo, 49 Phil. 769)
Moreover, patents and land grants are construed favorably in favor of the Government, and
most strongly against the grantee. Any doubt as to the intention or extent of the grant, or the
intention of the Government, is to be resolved in its favor. (See Republic v. Court of Appeals, 73
SCRA 146, 156). Hence, as earlier stated, in the absence of proof that the petitioner acquired
the right of ownership over the mineral lands prior to the 1935 Constitution, the titles issued in its
favor must be construed as conveying only the right to extract and utilize the minerals thereon.
The appellate court did not likewise err in concluding that the petitioner has no personality to
institute the action below for annulment and cancellation of patents. The mineral lands over
which it has a right to extract minerals remained part of the inalienable lands of the public
domain and thus, only the Solicitor General or the person acting in his stead can bring an action
for reversion. (See Sumail v. Judge of the Court of First Instance of Cotabato, et al., 96 Phil.
946; and Heirs of Tanak Pangawaran Patiwayan v. Martinez, 142 SCRA 252).
WHEREFORE, the petition is hereby DISMISSED for lack of merit. The decision of the
Intermediate Appellate Court is AFFIRMED. Costs against the petitioner.
SO ORDERED.
G.R. NO. 134030             April 25, 2006
ASAPHIL CONSTRUCTION AND DEVELOPMENT CORPORATION, Petitioner,  WHEREFORE, in view of the foregoing, the instant complaint should be, as it is hereby
vs.
VICENTE TUASON, JR., INDUPLEX, INC. and MINESADJUDICATION
BOARD, Respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
The present petition for review under Rule 45 of the Rules of Court assails the Decision of the
Mines Adjudication Board (MAB) dated August 18, 1997, modifying the Decision dated
December 11, 1991 of the Regional Executive Director, DENR-Region V, Legaspi City. The
dispositive portion of the MAB Decision reads:
WHEREFORE, the Decision dated December 11, 1991 of the Regional Executive Director is
hereby MODIFIED. The Agreement to Operate Mining Claim, dated May 29, 1976 is hereby
CANCELLED and/or REVOKED and the appeal in so far as the Contract to Sell and Purchase
Perlite Ore, dated March 24, 1975 is hereby DISMISSED for lack of merit.
SO ORDERED.1
On March 24, 1975, respondent Vicente Tuason, Jr. 2 (Tuason) entered into a Contract for Sale
and Purchase of Perlite Ore with Induplex, Inc. (Induplex), wherein 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
Asaphil filed its Answer, praying for the dismissal of the complaint on the ground that the DENR
has no jurisdiction over the case.6
Induplex filed a Motion to Dismiss the complaint, also on ground of lack of jurisdiction. Induplex
contended that to fall within the jurisdiction of the DENR, the controversy should involve a
mining property and the contending parties must be claimholders and/or mining operators; and
that the dispute in this case involves "mineral product" and not a mining property, and the
protagonists are claimholders (Tuason) and a buyer (Induplex).7
The DENR, through the Regional Executive Director, found merit in Induplex’s arguments and
dismissed the complaint. The dispositive portion of the Regional Executive Director’s Decision
reads:
dismissed.1avvphil.net
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
Asaphil and Induplex filed a motion for reconsideration which was denied by the MAB per Order
dated March 23, 1998.10
Hence, the herein petition by Asaphil on the following grounds:
A. THE BOARD A QUO HAS DECIDED A QUESTION OF SUBSTANCE UNDER THE
RECENTLY ENACTED MINING ACT OF 1995 (R.A. NO. 7942), NOT THERETOFORE
DETERMINED BY THIS HONORABLE TRIBUNAL –
o 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.
o 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.
o 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.
o BY INVALIDATING THE OPERATING AGREEMENT WITHOUT RECEIVING
EVIDENCE ON THE PURPORTED GROUND FOR INVALIDATION.
o BY NOT ADJUDICATING UPON THE RIGHTS AND OBLIGATION OF TUASON AND
ASAPHIL UNDER THE OPERATING AGREEMENT WHICH IS ACTUALLY IN THE
NATURE OF A JOINT VENTURE AGREEMENT, BY REASON OF THE FINANCIAL
RAMIFICATIONS THEREOF.
B. THE BOARD A QUO HAS DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF
JUDICIAL PROCEEDINGS –
1. BY INVALIDATING THE OPERATING AGREEMENT WITHOUT RECEIVING EVIDENCE ON
THE PURPORTED GROUND FOR INVALIDATION.
2. THE ACTUATION OF THE MINES ADJUDICATION BOARD IS UNCONSTITUTIONAL, AS
IT DEPRIVES THE PETITIONER OF ITS RIGHT TO PRESENT EVIDENCE ON THE ISSUE OF
WHETHER OR NOT THE OPERATING AGREEMENT HAS BEEN VIOLATED, VIRTUALLLY
DEPRIVING THE PETITIONER OF ITS PROPRIETARY RIGHTS WITHOUT DUE PROCESS
OF LAW.
3. THE MINES ADJUDICATION BOARD ERRED IN ENTERTAINING TUASON’S APPEAL
FROM THE ORDER OF DISMISSAL, AS THE LATTER WAS CONCERNED SOLELY WITH
THE ISSUE OF JURISDICTION WHICH, BEING A MATTER OF LAW, IS COGNIZABLE BY
THIS HONORABLE TRIBUNAL AND/OR BY THE COURT OF APPEALS.
4. GRANTING THAT THE MINES ADJUDICATION BOARD COULD VALIDLY ASSUME THE
FACTS (WITHOUT RECEIVING EVIDENCE),
a) THE MINES ADJUDICATION BOARD NONETHELESS ERRED IN ANNULLING THE
OPERATING AGREEMENT BETWEEN TUASON AND ASAPHIL, ON THE MERE
CIRCUMSTANCE THAT A STOCKHOLDER OF INDUPLEX HAD BECOME A STOCKHOLDER
OF ASAPHIL IN 1990.
b) THE MINES ADJUDICATION BOARD LIKEWISE ERRED IN ANNULING THE OPERATING
AGREEMENT BETWEEN TUASON AND ASAPHIL ON THE BASIS OF THE ASAPAHIL’S
PURPORTED VIOLATION OF THE TERMS OF THE OPERATING AGREEMENT.
5. THE MINES ADJUDICATION BOARD FURTHER ERRED IN ANNULING THE OPERATING
AGREEMENT BETWEEN TUASON AND ASAPHIL AND AT THE SAME TIME THE BOARD
UPHELD THE VALIDITY OF THE SUPPLY CONTRACT BETWEEN TUASON AND INDUPLEX
BASED ON THE SAME INVALIDATING CAUSE.11 (Emphasis supplied)
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.,12 the Court clarified that while Section 79 of the Philippine Mining Act of 1995 provides
that petitions for review of MAB decisions are to be brought directly to the Supreme Court, the
MAB is a quasi-judicial agency whose decisions should be brought to the CA. However,
considering that the Carpio case was rendered in 2002, and the petition before the Court was
filed in 1999; and considering further that the issues raised, specially the issue of the 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.
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."14 Particularly, P.D. No. 1281 vests the
Bureau of Mines (now the Mines and Geo-Sciences Bureau) of the DENR with jurisdictional
supervision and control over all holders of mining claims or applicants for and/or grantees of
mining licenses, permits, leases and/or operators thereof, including mining service contracts and
service contractors insofar as their mining activities are concerned.15 Under Section 7 of P.D.
No. 1281, the Bureau of Mines also has quasi-judicial powers over cases involving the following:
(a) a mining property subject of different agreements entered into by the claim holder thereof
with several mining operators;
(b) complaints from claimowners that the mining property subject of an operating agreement has
not been placed into actual operations within the period stipulated therein; and
(c) cancellation and/or enforcement of mining contracts due to the refusal of the
claimowner/operator to abide by the terms and conditions thereof.
In Pearson v. Intermediate Appellate Court,16 this Court observed that the trend has been to
make the adjudication of mining cases a purely administrative matter, although it does not mean
that administrative bodies have complete rein over mining disputes. In several cases on mining
disputes, the Court recognized a distinction between (1) the primary powers granted by pertinent
provisions of law to the then Secretary of Agriculture and Natural Resources (and the bureau
directors) of an executive or administrative nature, such as granting of license, permits, lease
and contracts, or approving, rejecting, reinstating or canceling applications, or deciding
conflicting applications, and (2) controversies or disagreements of civil or contractual nature
between litigants which are questions of a judicial nature that may be adjudicated only by the
courts of justice.17
The allegations in 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.18 A judicial question is raised when the determination of the
question involves the exercise of a judicial function; that is, the question involves the
determination of what the law is and what the legal rights of the parties are with respect to the
matter in controversy.19
The DENR is not called upon to exercise its technical knowledge or expertise over any mining
operations or dispute; rather, it is being asked to determine the validity of the agreements based
on circumstances beyond the respective rights of the parties under the two contracts. In
Gonzales v. Climax Mining Ltd.,20 the Court ruled that:
x x x whether the case involves void or voidable contracts is still a judicial question. It may, in
some instances, involve questions of fact especially with regard to the determination of the
circumstances of the execution of the contracts. But the resolution of the validity or voidness
of the contracts remains a legal or judicial question as it requires the exercise of judicial
function. It requires the ascertainment of what laws are applicable to the dispute, the
interpretation and application of those laws, and the rendering of a judgment based thereon.
Clearly, the dispute is not a mining conflict. It is essentially judicial. The complaint was not
merely for the determination of rights under the mining contracts since the very validity
of those contracts is put in issue. (Emphasis supplied)
Thus, the DENR Regional Executive Director was correct in dismissing the complaint for lack of
jurisdiction over 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 begin with.

WHEREFORE, the petition is GRANTED. The Decision of the Mines Adjudication Board dated
August 18, 1997 is SET ASIDE, and the Decision dated December 11, 1991 of the Regional
Executive Director, DENR-Region V, Legaspi City, dismissing the complaint for lack of
jurisdiction, is REINSTATED.

Costs against respondent.

SO ORDERED.

G.R. No. 157882             March 30, 2006
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,
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 ANANAYO, MAURA DUYAPAT, ARTEMEO
ANANAYO, 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 PUN-
ADWAN, 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
PUMALO, DELFIN AGALOOS, PABLO CAYANGA, PERFECTO SISON, ELIAS NATAMA,
LITO PUMALO, SEVERINA DUGAY, GABRIEL PAKAYAO, JEOFFREY SINDAP, FELIX
TICUAN, MARIANO S. 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.
DECISION
CHICO-NAZARIO, J.:
This petition for prohibition and mandamus under Rule 65 of the Rules of Court assails the
constitutionality of Republic Act No. 7942 otherwise known as the Philippine Mining Act of 1995,
together with the Implementing Rules and Regulations issued pursuant thereto, Department of
Environment and Natural Resources (DENR) Administrative Order No. 96-40, s. 1996 (DAO 96-
40) and of the Financial and Technical Assistance Agreement (FTAA) entered into on 20 June
1994 by the Republic of the Philippines and Arimco Mining Corporation (AMC), a corporation
established under the laws of Australia and owned by its nationals.
On 25 July 1987, then President Corazon C. Aquino promulgated Executive Order No. 279
which authorized the DENR Secretary to accept, consider and evaluate proposals from foreign-
owned corporations or foreign investors for contracts of agreements involving either technical or
financial assistance for large-scale exploration, development, and utilization of minerals, which,
upon appropriate recommendation of the Secretary, the President may execute with the foreign
proponent.
On 3 March 1995, then President Fidel V. Ramos signed into law Rep. Act No. 7942 entitled,
"An Act Instituting A New System of Mineral Resources Exploration, Development, Utilization
and Conservation," otherwise known as the Philippine Mining Act of 1995.
On 15 August 1995, then DENR Secretary Victor O. Ramos issued DENR Administrative Order
(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.
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.1avvphil.net
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. enjoining public respondents from acting on any application for FTAA;
2. declaring unconstitutional the Philippine Mining Act of 1995 and its Implementing Rules and
Regulations;
3. canceling the FTAA issued to CAMC.
In their memorandum petitioners pose the following issues:
I The third requisite is legal standing or locus standi. It is defined as a personal or substantial
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 of determining just
compensation.
III
Whether or not the State, through Republic Act No. 7942 and the CAMC FTAA, abdicated its
primary responsibility to the full control and supervision over natural resources.
IV
Whether or not the respondents’ interpretation of the role of wholly foreign and foreign-owned
corporations in their involvement in mining enterprises, violates paragraph 4, section 2, Article
XII of the Constitution.
V
WHETHER OR NOT THE 1987 CONSTITUTION PROHIBITS SERVICE CONTRACTS.1
Before going to the substantive issues, the procedural question raised by public respondents
shall first be dealt with. Public respondents are of the view that petitioners’ eminent domain
claim is not ripe for adjudication as they fail to allege that CAMC has actually taken their
properties nor do they allege that their property rights have been endangered or are in danger
on account of CAMC’s FTAA. In effect, public respondents insist that the issue of eminent
domain is not a justiciable controversy which this Court can take cognizance of.
A justiciable controversy is defined as a definite and concrete dispute touching on the legal
relations of parties having adverse legal interests which may be resolved by a court of law
through the application of a law.2 Thus, courts have no judicial power to review cases involving
political questions and as a rule, will desist from taking cognizance of speculative or hypothetical
cases, advisory opinions and cases that have become moot.3 The Constitution is quite explicit
on this matter.4 It provides that judicial power includes the duty of the courts of justice to settle
actual controversies involving rights which are legally demandable and enforceable. Pursuant to
this constitutional mandate, courts, through the power of judicial review, are to entertain only real
disputes between conflicting parties through the application of law. For the courts to exercise the
power of judicial review, the following must be extant (1) there must be an actual case calling for
the exercise of judicial power; (2) the question must be ripe for adjudication; and (3) the person
challenging must have the "standing."5
An actual case or controversy involves a conflict of legal rights, an assertion of opposite legal
claims, susceptible of judicial resolution as distinguished from a hypothetical or abstract
difference or dispute.6 There must be a contrariety of legal rights that can be interpreted and
enforced on the basis of existing law and jurisprudence.
Closely related to the second requisite is that the question must be ripe for adjudication. A
question is considered ripe for adjudication when the act being challenged has had a direct
adverse effect on the individual challenging it.7
interest in the case such that the party has sustained or will sustain direct injury as a result of the
governmental act that is being challenged, alleging more than a generalized grievance.8 The gist
of the question of standing is whether a party alleges "such personal stake in the outcome of the
controversy as to assure that concrete adverseness which sharpens the presentation of issues
upon which the court depends for illumination of difficult constitutional questions."9 Unless a
person is injuriously affected in any of his constitutional rights by the operation of statute or
ordinance, he has no standing.10
In the instant case, there exists a live controversy involving a clash of legal rights as Rep. Act
No. 7942 has been enacted, DAO 96-40 has been approved and an FTAAs have been entered
into. The FTAA holders have already been operating in various provinces of the country. Among
them is CAMC which operates in the provinces of 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 controversy actual and ripe for judicial intervention.11 Actual eviction of
the land owners and occupants need not happen for this Court to intervene. As held in Pimentel,
Jr. v. Hon. Aguirre12:
By the mere enactment of the questioned law or the approval of the challenged act, the dispute
is said to have ripened into a judicial controversy even without any other overt act. Indeed, even
a singular violation of the Constitution and/or the law is enough to awaken judicial duty.13
Petitioners embrace various segments of the society. These include Didipio Earth-Savers’ Multi-
Purpose Association, Inc., an organization of farmers and indigenous peoples organized under
Philippine laws, representing a community actually affected by the mining activities of CAMC, as
well as other residents of areas affected by the mining activities of CAMC. These petitioners
have the standing to raise the constitutionality of the questioned FTAA as they allege a personal
and substantial injury.14 They assert that they are affected by the mining activities of CAMC.
Likewise, they are under imminent threat of being displaced from their landholdings as a result
of the implementation of the questioned FTAA. They thus meet the appropriate case
requirement as they assert an interest adverse to that of respondents who, on the other hand,
claim the validity of the assailed statute and the FTAA of CAMC.
Besides, the transcendental importance of the issues raised and the magnitude of the public
interest involved will have a bearing on the country’s economy which is to a greater extent
dependent upon the mining industry. Also affected by the resolution of this case are the
proprietary rights of numerous residents in the mining contract areas as well as the social
existence of indigenous peoples which are threatened. Based on these considerations, this
Court deems it proper to take cognizance of the instant petition.
Having resolved the procedural question, the constitutionality of the law under attack must be
addressed squarely.
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,15 petitioners assert that there is indeed a "taking" upon entry into private lands and
concession areas.
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.
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. Gutierrez16 holding that the 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.
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.17 On the other hand, police power is the power of the state to promote public
welfare by restraining and regulating the use of liberty and property.18 Although both police
power and the power of eminent domain have the general welfare for their object, and recent
trends show a mingling19 of the two with the latter being used as an implement of the former,
there are still traditional distinctions between the two.
Property condemned under police power is usually noxious or intended for a noxious purpose;
hence, no compensation shall be paid.20 Likewise, in the exercise of police power, property
rights of private individuals are subjected to restraints and burdens in order to secure the
general comfort, health, and prosperity of the state. Thus, an ordinance prohibiting theaters from
selling tickets in excess of their seating capacity (which would result in the diminution of profits
of the theater-owners) was upheld valid as this would promote the comfort, convenience and
safety of the customers.21 In U.S. v. Toribio,22 the court upheld the provisions of Act No. 1147, a
statute regulating the slaughter of carabao for the purpose of conserving an adequate supply of
draft animals, as a valid exercise of police power, notwithstanding the property rights impairment
that the ordinance imposed on cattle owners. A zoning ordinance prohibiting the operation of a
lumber yard within certain areas was assailed as unconstitutional in that it was an invasion of the
property rights of the lumber yard owners in People v. de Guzman.23 The Court nonetheless
ruled that the regulation was a valid exercise of police power. A similar ruling was arrived at in
Seng Kee S Co. v. Earnshaw and Piatt24 where an ordinance divided the City of Manila into
industrial and residential areas.
A thorough scrutiny of the extant jurisprudence leads to a cogent deduction that where a
property interest is merely restricted because the continued use thereof would be injurious to
public welfare, or where property is destroyed because its continued existence would be
injurious to public interest, there is no compensable taking.25 However, when a property interest
is appropriated and applied to some public purpose, there is compensable taking.26
According to noted constitutionalist, Fr. Joaquin Bernas, SJ, in the exercise of its police power
regulation, the state restricts the use of private property, but none of the property interests in the
bundle of rights which constitute ownership is appropriated for use by or for the benefit of the
public.27 Use of the property by the owner was limited, but no aspect of the property is used by
or for the public.28 The deprivation of use can in fact be total and it will not constitute
compensable taking if nobody else acquires use of the property or any interest therein.29
If, however, in the regulation of the use of the property, somebody else acquires the use or
interest thereof, such restriction constitutes compensable taking. Thus, in City Government of
Quezon City v. Ericta,30 it was argued by the local government that an ordinance requiring
private cemeteries to reserve 6% of their total areas for the burial of paupers was a valid
exercise of the police power under the general welfare clause. This court did not agree in the
contention, ruling that property taken under the police power is sought to be destroyed and not,
as in this case, to be devoted to a public use. It further declared that the ordinance in question
was actually a taking of private property without just compensation of a certain area from a
private cemetery to benefit paupers who are charges of the local government. Being an exercise
of eminent domain without provision for the payment of just compensation, the same was
rendered invalid as it violated the principles governing eminent domain.
In People v. Fajardo,31 the municipal mayor refused Fajardo permission to build a house on his
own land on the ground that the proposed structure would destroy the view or beauty of the
public plaza. The ordinance relied upon by the mayor prohibited the construction of any building
that would destroy the view of the plaza from the highway. The court ruled that the municipal
ordinance under the guise of police power permanently divest owners of the beneficial use of
their property for the benefit of the public; hence, considered as a taking under the power of
eminent domain that could not be countenanced without payment of just compensation to the
affected owners. In this case, what the municipality wanted was to impose an easement on the
property in order to preserve the view or beauty of the public plaza, which was a form of
utilization of Fajardo’s property for public benefit.32
While the power of eminent domain often results in the appropriation of title to or possession of
property, it need not always be the case. Taking may include trespass without actual eviction of
the owner, material impairment of the value of the property or prevention of the ordinary uses for
which the property was intended such as the establishment of an easement.33 In Ayala de Roxas
v. City of Manila,34 it was held that the imposition of burden over a private property through
easement was considered taking; hence, payment of just compensation is required. The Court
declared:
And, considering that the easement intended to be established, whatever may be the object
thereof, is not merely a real right that will encumber the property, but is one tending to prevent
the exclusive use of one portion of the same, by expropriating it for public use which, be it what it
may, can not be accomplished unless the owner of the property condemned or seized be
previously and duly indemnified, it is proper to protect the appellant by means of the remedy
employed in such cases, as it is only adequate remedy when no other legal action can be
resorted to, against an intent which is nothing short of an arbitrary restriction imposed by the city
by virtue of the coercive power with which the same is invested.
And in the case of National Power Corporation v. Gutierrez,35 despite the NPC’s protestation that
the owners were not totally deprived of the use of the land and could still plant the same crops
as long as they did not come into contact with the wires, the Court nevertheless held that the
easement of right-of-way was a taking under the power of eminent domain. The Court said:
In the case at bar, the easement of right-of-way is definitely a taking under the power of eminent
domain. Considering the nature and effect of the installation of 230 KV Mexico-Limay
transmission lines, the limitation imposed by NPC against the use of the land for an indefinite
period deprives private respondents of its ordinary use.
A case exemplifying an instance of compensable taking which does not entail transfer of title is
Republic v. Philippine Long Distance Telephone Co.36 Here, the Bureau of Telecommunications,
a government instrumentality, had contracted with the PLDT for the interconnection between the
Government Telephone System and that of the PLDT, so that the former could make use of the
lines and facilities of the PLDT. In its desire to expand services to government offices, the
Bureau of Telecommunications demanded to expand its use of the PLDT lines. Disagreement
ensued on the terms of the contract for the use of the PLDT facilities. The Court ruminated:
Normally, of course, the power of eminent domain results in the taking or appropriation of title to,
and possession of, the expropriated property; but no cogent reason appears why said power
may not be availed of to impose only a burden upon the owner of the condemned property,
without loss of title and possession. It is unquestionable that real property may, through
expropriation, be subjected to an easement right of way.37
In Republic v. Castellvi,38 this Court had the occasion to spell out the requisites of taking in
eminent domain, to wit:
(1) the expropriator must enter a private property;
(2) the entry must be for more than a momentary period.
(3) the entry must be under warrant or color of legal authority;
(4) the property must be devoted to public use or otherwise informally appropriated or injuriously
affected;
(5) the utilization of the property for public use must be in such a way as to oust the owner and
deprive him of beneficial enjoyment of the property.
As shown by the foregoing jurisprudence, a regulation which substantially deprives the owner of
his proprietary rights and restricts the beneficial use and enjoyment for public use amounts to
compensable taking. In the case under consideration, the entry referred to in Section 76 and the
easement rights under Section 75 of Rep. Act No. 7942 as well as the various rights to CAMC
under its FTAA are no different from the deprivation of proprietary rights in the cases discussed
which this Court considered as taking. Section 75 of the law in question reads:
Easement Rights. - When mining areas are so situated that for purposes of more convenient
mining operations it is necessary to build, construct or install on the mining areas or lands
owned, occupied or leased by other persons, such infrastructure as roads, railroads, mills, waste
dump sites, tailing ponds, warehouses, staging or storage areas and port facilities, tramways,
runways, airports, electric transmission, telephone or telegraph lines, dams and their normal
flood and catchment areas, sites for water wells, ditches, canals, new river beds, pipelines,
flumes, cuts, shafts, tunnels, or mills, the contractor, upon payment of just compensation, shall
be entitled to enter and occupy said mining areas or lands.
Section 76 provides:
Entry into private lands and concession areas – Subject to prior notification, holders of mining
rights shall not be prevented from entry into private lands and concession areas by surface
owners, occupants, or concessionaires when conducting mining operations therein.
The CAMC FTAA grants in favor of CAMC the right of possession of the Exploration Contract
Area, the full right of ingress and egress and the right to occupy the same. It also bestows
CAMC the right not to be prevented from entry into private lands by surface owners or
occupants thereof when prospecting, exploring and exploiting minerals therein.
The entry referred to in Section 76 is not just a simple right-of-way which is ordinarily allowed
under the provisions of the Civil Code. Here, the holders of mining rights enter private lands for
purposes of conducting mining activities such as exploration, extraction and processing of
minerals. Mining right holders build mine infrastructure, dig mine shafts and connecting tunnels,
prepare tailing ponds, storage areas and vehicle depots, install their machinery, equipment and
sewer systems. On top of this, under Section 75, easement rights are accorded to them where
they may build warehouses, port facilities, electric transmission, railroads and other
infrastructures necessary for mining operations. All these will definitely oust the owners or
occupants of the affected areas the beneficial ownership of their lands. Without a doubt, taking
occurs once mining operations commence.
Section 76 of Rep. Act No. 7942 is a Taking Provision
Moreover, it would not be amiss to revisit the history of mining laws of this country which would
help us understand Section 76 of Rep. Act No. 7942.
This provision is first found in Section 27 of Commonwealth Act No. 137 which took effect on 7
November 1936, viz:
Before entering private lands the prospector shall first apply in writing for written permission of
the private owner, claimant, or holder thereof, and in case of refusal by such private owner,
claimant, or holder to grant such permission, or in case of disagreement as to the amount of
compensation to be paid for such privilege of prospecting therein, the amount of such
compensation shall be fixed by agreement among the prospector, the Director of the Bureau of
Mines and the surface owner, and in case of their failure to unanimously agree as to the amount
of compensation, all questions at issue shall be determined by the Court of First Instance.
Similarly, the pertinent provision of Presidential Decree No. 463, otherwise known as "The
Mineral Resources Development Decree of 1974," provides:
SECTION 12. Entry to Public and Private Lands. — A person who desires to conduct
prospecting or other mining operations within public lands covered by concessions or rights
other than mining shall first obtain the written permission of the government official concerned
before entering such lands. In the case of private lands, the written permission of the owner or
possessor of the land must be obtained before entering such lands. In either case, if said
permission is denied, the Director, at the request of the interested person may intercede with the
owner or possessor of the land. If the intercession fails, the interested person may bring suit in
the Court of First Instance of the province where the land is situated. If the court finds the
request justified, it shall issue an order granting the permission after fixing the amount of
compensation and/or rental due the owner or possessor: Provided, That pending final
adjudication of such amount, the court shall upon recommendation of the Director permit the
interested person to enter, prospect and/or undertake other mining operations on the disputed
land upon posting by such interested person of a bond with the court which the latter shall
consider adequate to answer for any damage to the owner or possessor of the land resulting
from such entry, prospecting or any other mining operations.
Hampered by the difficulties and delays in securing surface rights for the entry into private lands
for purposes of mining operations, Presidential Decree No. 512 dated 19 July 1974 was passed
into law in order to achieve full and accelerated mineral resources development. Thus,
Presidential Decree No. 512 provides for a new system of surface rights acquisition by mining
prospectors and claimants. Whereas in Commonwealth Act No. 137 and Presidential Decree
No. 463 eminent domain may only be exercised in order that the mining claimants can build,
construct or install roads, railroads, mills, warehouses and other facilities, this time, the power of
eminent domain may now be invoked by mining operators for the entry, acquisition and use of
private lands, viz:
SECTION 1. Mineral prospecting, location, exploration, development and exploitation is hereby
declared of public use and benefit, and for which the power of eminent domain may be invoked
and exercised for the entry, acquisition and use of private lands. x x x.
The evolution of mining laws gives positive indication that mining operators who are qualified to
own lands were granted the authority to exercise eminent domain for the entry, acquisition, and
use of private lands in areas open for mining operations. This grant of authority extant in Section
1 of Presidential Decree No. 512 is not expressly repealed by Section 76 of Rep. Act No. 7942;
and neither are the former statutes impliedly repealed by the former. These two provisions can
stand together even if Section 76 of Rep. Act No. 7942 does not spell out the grant of the
privilege to exercise eminent domain which was present in the old law.
It is an established rule in statutory construction that in order that one law may operate to repeal
another law, the two laws must be inconsistent.39 The former must be so repugnant as to be
irreconciliable with the latter act. Simply because a latter enactment may relate to the same
subject matter as that of an earlier statute is not of itself sufficient to cause an implied repeal of
the latter, since the new law may be cumulative or a continuation of the old one. As has been
the ruled, repeals by implication are not favored, and will not be decreed unless it is manifest
that the legislature so intended.40 As laws are presumed to be passed with deliberation and with
full knowledge of all existing ones on the subject, it is but reasonable to conclude that in passing
a statute it was not intended to interfere with or abrogate any former law relating to the same
matter, unless the repugnancy between the two is not only irreconcilable, but also clear and
convincing, and flowing necessarily from the language used, unless the later act fully embraces
the subject matter of the earlier, or unless the reason for the earlier act is beyond peradventure
removed.41 Hence, every effort must be used to make all acts stand and if, by any reasonable
construction, they can be reconciled, the latter act will not operate as a repeal of the earlier.
Considering that Section 1 of Presidential Decree No. 512 granted the qualified mining operators
the authority to exercise eminent domain and since this grant of authority is deemed
incorporated in Section 76 of Rep. Act No. 7942, the inescapable conclusion is that the latter
provision is a taking provision.
While this Court declares that the assailed provision is a taking provision, this does not mean
that it is unconstitutional on the ground that it allows taking of private property without the
determination of public use and the payment of just compensation.
The taking to be valid must be for public use.42 Public use as a requirement for the valid exercise
of the power of eminent domain is now synonymous with public interest, public benefit, public
welfare and public convenience.43 It includes the broader notion of indirect public benefit or
advantage. Public use as traditionally understood as "actual use by the public" has already been
abandoned.44
Mining industry plays a pivotal role in the economic development of the country and is a vital tool
in the government’s thrust of accelerated recovery.45 The importance of the mining industry for
national development is expressed in Presidential Decree No. 463:
WHEREAS, mineral production is a major support of the national economy, and therefore the
intensified discovery, exploration, development and wise utilization of the 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,46 petitioners therein contended that the promotion of tourism is not for public use
because private concessionaires would be allowed to maintain various facilities such as
restaurants, hotels, stores, etc., inside the tourist area. The Court thus contemplated:
The rule in Berman v. Parker [348 U.S. 25; 99 L. ed. 27] of deference to legislative policy even if
such policy might mean taking from one private person and conferring on another private person
applies as well in the Philippines.
". . . Once the object is within the authority of Congress, the means by which it will be attained is
also for Congress to determine. Here one of the means chosen is the use of private enterprise
for redevelopment of the area. Appellants argue that this makes the project a taking from one
businessman for the benefit of another businessman. But the means of executing the project are
for Congress and Congress alone to determine, once the public purpose has been established.
x x x"47
Petitioners further maintain that the 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 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.48 The government
then acquires ownership of the surface land areas on behalf of the contractor, through a
voluntary transaction in order to enable the latter to proceed to fully implement the FTAA.
Eminent domain is not yet called for at this stage since there are still various avenues by which
surface rights can be acquired other than expropriation. The FTAA provision under attack merely
facilitates the implementation of the FTAA given to CAMC and shields it from violating the Anti-
Dummy Law. Hence, when confronted with the same question in La Bugal-B’Laan Tribal
Association, Inc. v. Ramos,49 the Court answered:
Clearly, petitioners have needlessly jumped to unwarranted conclusions, without being aware of
the rationale for the said provision. That provision does not call for the exercise of the power of
eminent domain -- and determination of just compensation is not an issue -- as much as it calls
for a qualified party to acquire the surface rights on behalf of a foreign-owned contractor.
Rather than having the foreign contractor act through a dummy corporation, having the State do
the purchasing is a better alternative. This will at least cause the government to be aware of
such transaction/s and foster transparency in the 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. xxx Provided, that any damage to the property of the surface owner, occupant, or
concessionaire as a consequence of such operations shall be properly compensated as may be
provided for in the implementing rules and regulations.
Section 107. Compensation of the Surface Owner and Occupant- Any damage done to the
property of the surface owners, occupant, or concessionaire thereof as a consequence of the
mining operations or as a result of the construction or installation of the infrastructure mentioned
in 104 above shall be properly and justly compensated.
Such compensation shall be based on the agreement entered into between the holder of mining
rights and the surface owner, occupant or concessionaire thereof, where appropriate, in
accordance with P.D. No. 512. (Emphasis supplied.)
Second Substantive Issue: Power of Courts to Determine Just Compensation
Closely-knit to the issue of taking is the determination of just compensation. It is contended that
Rep. Act No. 7942 and Section 107 of DAO 96-40 encroach on the power of the trial courts to
determine just compensation in eminent domain cases inasmuch as the same determination of
proper compensation are cognizable only by the Panel of Arbitrators.
The question on the judicial determination of just compensation has been settled in the case of
Export Processing Zone Authority v. Dulay50 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.
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 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 Panel of Arbitrators or the
Mines Adjudication Board to determine in a preliminary matter the reasonable compensation due
the affected landowners or occupants.52 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. As held in Philippine Veterans Bank v. Court of Appeals53:
The jurisdiction of the Regional Trial Courts is not 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,54where the Court answered in the following manner:
RA 7942 provides for the state’s control and supervision over mining operations. The following
provisions thereof establish the mechanism of inspection and visitorial rights over mining
operations and institute reportorial requirements in this manner:
1. Sec. 8 which provides for the DENR’s power of over-all supervision and periodic review for
"the conservation, management, development and proper use of the State’s mineral resources";
2. Sec. 9 which authorizes the Mines and Geosciences Bureau (MGB) under the DENR to
exercise "direct charge in the administration and disposition of mineral resources", and
empowers the MGB to "monitor the compliance by the contractor of the terms and conditions of
the mineral agreements", "confiscate surety and performance bonds", and deputize whenever
necessary any member or unit of the Phil. National Police, barangay, duly registered non-
governmental organization (NGO) or any qualified person to police mining activities;
3. Sec. 66 which vests in the Regional Director "exclusive jurisdiction over safety inspections of
all installations, whether surface or underground", utilized in mining operations.
4. Sec. 35, which incorporates into all FTAAs the following terms, conditions and warranties:
"(g) Mining operations shall be conducted in accordance with the provisions of the Act and its
IRR.
"(h) Work programs and minimum expenditures commitments.
xxxx
"(k) Requiring proponent to effectively use appropriate anti-pollution technology and facilities to
protect the environment and restore or rehabilitate mined-out areas.
"(l) The contractors shall furnish the Government records of geologic, accounting and other
relevant data for its mining operation, and that books of accounts and records shall be open for
inspection by the government. x x x.
"(m) Requiring the proponent to dispose of the minerals at the highest price and more
advantageous terms and conditions.
xxxx
"(o) Such other terms and conditions consistent with the Constitution and with this Act as the
Secretary may deem to be for the best interest of the State and the welfare of the Filipino
people."
The foregoing provisions of Section 35 of RA 7942 are also reflected and implemented in
Section 56 (g), (h), (l), (m) and (n) of the Implementing Rules, DAO 96-40.
Moreover, RA 7942 and DAO 96-40 also provide various stipulations confirming the
government’s control over mining enterprises:
o 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).
o 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).
o For violation of any of its terms and conditions, government may cancel an FTAA.
(Chapter XVII, RA 7942; Chapter XXIV, DAO 96-40).
o An FTAA contractor is obliged to open its books of accounts and records for
0inspection by the government (Section 56-m, DAO 96-40).
o 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).
o 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).
o An FTAA cannot be transferred or assigned without prior approval by the President
(Section 40, RA 7942; Section 66, DAO 96-40).
o 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).
o The Declaration of Mining Project Feasibility filed by the contractor cannot be
approved without submission of the following documents:
1. Approved mining project feasibility study (Section 53-d, DAO 96-40)
2. Approved three-year work program (Section 53-a-4, DAO 96-40)
3. Environmental compliance certificate (Section 70, RA 7942)
4. Approved environmental protection and enhancement program (Section 69, RA 7942)
5. Approval by the Sangguniang Panlalawigan/Bayan/Barangay (Section 70, RA 7942; Section
27, RA 7160)
6. Free and prior informed consent by the indigenous peoples concerned, including payment of
royalties through a Memorandum of Agreement (Section 16, RA 7942; Section 59, RA 8371)
o 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).
o The FTAA contractor is obliged to submit reports (on quarterly, semi-annual or annual
basis as the case may be; per Section 270, DAO 96-40), pertaining to the following:
1. Exploration
2. Drilling
3. Mineral resources and reserves
4. Energy consumption
5. Production
6. Sales and marketing
7. Employment
8. Payment of taxes, royalties, fees and other Government Shares
9. Mine safety, health and environment
10. Land use
11. Social development
12. Explosives consumption
o 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).
o 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).
o 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).
o Other programs required to be submitted by the contractor, pursuant to DAO 96-40,
are the following: a safety and health program (Section 144); an environmental work
program (Section 168); an annual environmental protection and enhancement
program (Section 171).
The foregoing gamut of requirements, regulations, restrictions and limitations imposed upon the
FTAA contractor by the statute and regulations easily overturns petitioners’ contention. The
setup under RA 7942 and DAO 96-40 hardly relegates the State to the role of a "passive
regulator" dependent on submitted plans and reports. On the contrary, the government agencies
concerned are empowered to approve or disapprove -- hence, to influence, direct and change --
the various work programs and the corresponding minimum expenditure commitments for each
of the exploration, development and utilization phases of the mining enterprise.
Once these plans and reports are approved, the contractor is bound to comply with its
commitments therein. Figures for mineral production and sales are regularly monitored and
subjected to government review, in order to ensure that the products and by-products are
disposed of at the best prices possible; even copies of sales agreements have to be submitted
to and registered with MGB. And the contractor is mandated to open its books of accounts and
records for scrutiny, so as to enable the State to determine if the government share has been
fully paid.
The State may likewise compel the contractor’s compliance with mandatory requirements on
mine safety, health and environmental protection, and the use of anti-pollution technology and
facilities. Moreover, the contractor is also obligated to assist in the development of the mining
community and to pay royalties to the indigenous peoples concerned.
Cancellation of the FTAA may be the penalty for violation of any of its terms and conditions
and/or noncompliance with statutes or regulations. This general, all-around, multipurpose
sanction is no trifling matter, especially to a contractor who may have yet to recover the tens or
hundreds of millions of dollars sunk into a mining project.
Overall, considering the provisions of the statute and the regulations just discussed, we believe
that the State definitely possesses the means by which it can have the ultimate word in the
operation of the enterprise, set directions and objectives, and detect deviations and
noncompliance by the contractor; likewise, it has the capability to enforce compliance and to
impose sanctions, should the occasion therefor arise.
In other words, the FTAA contractor is not free to do whatever it pleases and get away with it; on
the contrary, it will have to follow the government line if it wants to stay in the enterprise.
Ineluctably then, RA 7942 and DAO 96-40 vest in the government more than a sufficient degree
of control and supervision over the conduct of mining operations.
Fourth Substantive Issue: The Proper Interpretation of the Constitutional Phrase "Agreements
Involving Either Technical or Financial Assistance
In interpreting the first and fourth paragraphs of Section 2, Article XII of the Constitution,
petitioners set forth the argument that foreign corporations are barred from making decisions on
the conduct of operations and the management of the mining project. The first paragraph of
Section 2, Article XII reads:
x x x The exploration, development, and utilization of natural resources shall be under the full
control and supervision of the State. The State may directly undertake such activities, or it may
enter into co-production, joint venture, or production sharing agreements with Filipino citizens, or
corporations or associations at least sixty percentum of whose capital is owned by such citizens.
Such agreements may be for a period not exceeding twenty five years, renewable for not more
than twenty five years, and under such terms and conditions as may be provided by law x x x.
The fourth paragraph of Section 2, Article XII provides:
The President may enter into agreements with foreign-owned corporations involving either
technical or financial assistance for large scale exploration, development, and utilization of
minerals, petroleum, and other mineral oils according to the general terms and conditions
provided by law, based on real contributions to the economic growth and general welfare of the
country x x x.
Petitioners maintain that the first paragraph bars aliens and foreign-owned corporations from
entering into any direct arrangement with the government including those which involve co-
production, joint venture or production sharing agreements. They likewise insist that the fourth
paragraph allows foreign-owned corporations to participate in the large-scale exploration,
development and utilization of natural resources, but such participation, however, is merely
limited to an agreement for either financial or technical assistance only.
Again, this issue has already been succinctly passed upon by this Court in La Bugal-B’Laan
Tribal Association, Inc. v. Ramos.55 In discrediting such argument, the Court ratiocinated:
Petitioners claim that the phrase "agreements x x x involving either technical or financial
assistance" simply means technical assistance or financial assistance agreements, nothing
more and nothing else. They insist that there is no ambiguity in the phrase, and that a plain
reading of paragraph 4 quoted above leads to the inescapable conclusion that what a foreign-
owned corporation may enter into with the government is merely an agreement
for eitherfinancial or technical assistance only, for the large-scale exploration, development and
utilization of minerals, petroleum and other mineral oils; such a limitation, they argue, excludes
foreign management and operation of a mining enterprise.
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
-- their use of the phrase agreements x x x involving either technical or financial assistance --
does not indicate the intent to exclude other modes of assistance. The drafters opted to
use involving when they could have simply said agreements for financial or technical
assistance, if that was their intention to begin with. In this case, the limitation would be very clear
and no further debate would ensue.
In contrast, the use of the word "involving" signifies the possibility of the inclusion of other
forms of assistance or activities having to do with, otherwise related to or compatible with
financial or technical assistance. The word "involving" as used in this context has three
connotations that can be differentiated thus: one, the sense of "concerning," "having to do with,"
or "affecting"; two, "entailing," "requiring," "implying" or "necessitating"; and three, "including,"
"containing" or "comprising."
Plainly, none of the three connotations convey a sense of exclusivity. Moreover, the word
"involving," when understood in the sense of "including," as in including technical or financial
assistance, necessarily implies that there are activities other than those that are being included.
In other words, if an agreement includes technical or financial assistance, there is apart from
such assistance -- something else already in, and covered or may be covered by, the said
agreement.
In short, it allows for the possibility that matters, other than those explicitly mentioned, could be
made part of the agreement. Thus, we are now led to the conclusion that the use of the word
"involving" implies that these agreements with foreign corporations are not limited to mere
financial or technical assistance. The difference in sense becomes very apparent when we
juxtapose "agreements for technical or financial assistance" against
"agreements including technical or financial assistance." This much is unalterably clear in
a verba legis approach.
Second, if the real intention of the drafters was to confine foreign corporations to financial or
technical assistance and nothing more, their language would have certainly been so
unmistakably restrictive and stringent as to leave no doubt in 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.
Fifth Substantive Issue: Service Contracts Not Deconstitutionalized
Lastly, petitioners stress that the service contract regime under the 1973 Constitution is
expressly prohibited under the 1987 Constitution as the term service contracts found in the
former was deleted in the latter to avoid the circumvention of constitutional prohibitions that were
prevalent in the 1987 Constitution. According to them, the framers of the 1987 Constitution only
intended for foreign-owned corporations to provide either technical assistance or financial
assistance. Upon perusal of the CAMC FTAA, petitioners are of the opinion that the same is a
replica of the service contract agreements that the present constitution allegedly prohibit.
Again, this contention is not well-taken. The mere fact that the term service contracts found in
the 1973 Constitution was not carried over to the present constitution, sans any categorical
statement banning service contracts in mining activities, does not mean that service contracts as
understood in the 1973 Constitution was eradicated in the 1987 Constitution.56 The 1987
Constitution allows the continued use of service contracts with foreign corporations as
contractors who would invest in and operate and manage extractive enterprises, subject to the
full control and supervision of the State; this time, however, safety measures were put in place to
prevent abuses of the past regime.57 We ruled, thus:
To our mind, however, such intent cannot be definitively and conclusively established from the
mere failure to carry the same expression or term over to the new Constitution, absent a more
specific, explicit and unequivocal statement to that effect. What petitioners seek (a complete ban
on foreign participation in the management of mining operations, as previously allowed by the
earlier Constitutions) is nothing short of bringing about a momentous sea change in the
economic and developmental policies; and the fundamentally capitalist, free-enterprise
philosophy of our government. We cannot imagine such a radical shift being undertaken by our
government, to the great prejudice of the mining sector in particular and our economy in general,
merely on the basis of the omission of the terms service contract from or the failure to carry
them over to the new Constitution. There has to be a much more definite and even unarguable
basis for such a drastic reversal of policies.
xxxx
The foregoing are mere fragments of the framers’ lengthy discussions of the provision dealing
with agreements x x x involving either technical or financial assistance, which ultimately became
paragraph 4 of Section 2 of Article XII of the Constitution. Beyond any doubt, the members of
the ConCom were actually debating about the martial-law-era service contracts for which they
were crafting appropriate safeguards.
In the voting that led to the approval of Article XII by the ConCom, the explanations given by
Commissioners Gascon, Garcia and Tadeo indicated that they had voted to reject this provision
on account of their objections to the "constitutionalization" of the "service contract" concept.
Mr. Gascon said, "I felt that if we would constitutionalize any provision on service contracts,
this should always be with the concurrence of Congress and not guided only by a general law to
be promulgated by Congress." Mr. Garcia explained, "Service contracts are given
constitutional legitimization in Sec. 3, even when they have been proven to be inimical to the
interests of the nation, providing, as they do, the legal loophole for the exploitation of our natural
resources for the benefit of foreign interests." Likewise, Mr. Tadeo cited inter alia the fact that
service contracts continued to subsist, enabling foreign interests to benefit from our natural
resources. It was hardly likely that these gentlemen would have objected so strenuously,
had the provision called for mere technical or financial assistance and nothing more.

The deliberations of the ConCom and some commissioners’ explanation of their votes leave no
room for doubt that the service contract concept precisely underpinned the commissioners’
understanding of the "agreements involving either technical or financial assistance."

xxxx

From the foregoing, we are impelled to conclude that the phrase agreements involving either
technical or financial assistance, referred to in paragraph 4, are in fact service contracts. But
unlike those of the 1973 variety, the new ones are between foreign corporations acting as
contractors on the one hand; and on the other, the government as principal or "owner" of the
works. In the new service contracts, the foreign contractors provide capital, technology and
technical know-how, and managerial expertise in the creation and operation of large-scale
mining/extractive enterprises; and the government, through its agencies (DENR, MGB), actively
exercises control and supervision over the entire operation.

xxxx

It is therefore reasonable and unavoidable to make the following conclusion, based on the above
arguments. As written by the framers and ratified and adopted by the people, the Constitution
allows the continued use of service contracts with foreign corporations -- as contractors who
would invest in and operate and manage extractive enterprises, subject to the full control and
supervision of the State -- sans the abuses of the past regime. The purpose is clear: to develop
and utilize our mineral, petroleum and other resources on a large scale for the immediate and
tangible benefit of the Filipino people.58

WHEREFORE, the instant petition for prohibition and mandamus is hereby DISMISSED. Section
76 of Republic Act No. 7942 and Section 107 of DAO 96-40; Republic Act No. 7942 and its
Implementing Rules and Regulations contained in DAO 96-40 – insofar as they relate to
financial and technical assistance agreements referred to in paragraph 4 of Section 2 of Article
XII of the Constitution are NOT UNCONSTITUTIONAL.

SO ORDERED.

G.R. No. 149927             March 30, 2004
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,  The CA narrated the facts as follows:
vs.
ROSEMOOR MINING AND DEVELOPMENT CORPORATION, PEDRO DEL CONCHA, and
ALEJANDRO and RUFO DE GUZMAN, respondents.
DECISION
PANGANIBAN, J.:
A mining license that contravenes a mandatory provision of the law under which it is granted is
void. Being a mere privilege, a license does not vest absolute rights in the holder. Thus, without
offending the due process and the non-impairment clauses of the Constitution, it can be revoked
by the State in the public interest.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to nullify the
May 29, 2001 Decision2 and the September 6, 2001 Resolution3 of the Court of Appeals (CA) in
CA-GR SP No. 46878. The CA disposed as follows:
"WHEREFORE, premises considered, the appealed Decision is hereby AFFIRMED in toto."4
The questioned Resolution denied petitioners’ Motion for Reconsideration.
On the other hand, trial court’s Decision, which was affirmed by the CA, had disposed as
follows:
"WHEREFORE, judgment is hereby rendered as follows:
‘1. Declaring that the cancellation of License No. 33 was done without jurisdiction and in gross
violation of the Constitutional right of the petitioners against deprivation of their property rights
without due process of law and is hereby set aside.
‘2. Declaring that the petitioners’ right to continue the exploitation of the marble deposits in the
area covered by License No. 33 is maintained for the duration of the period of its life of twenty-
five (25) years, less three (3) years of continuous operation before License No. 33 was
cancelled, unless sooner terminated for violation of any of the conditions specified therein, with
due process.
‘3. Making the Writ of preliminary injunction and the Writ of Preliminary Mandatory Injunction
issued as permanent.
‘4. Ordering the cancellation of the bond filed by the Petitioners in the sum of 1 Million.
‘5. Allowing the petitioners to present evidence in support of the damages they claim to have
suffered from, as a consequence of the summary cancellation of License No. 33 pursuant to the
agreement of the parties on such dates as maybe set by the Court; and
‘6. Denying for lack of merit the motions for contempt, it appearing that actuations of the
respondents were not contumacious and intended to delay the proceedings or undermine the
integrity of the Court.
‘No pronouncement yet as to costs.’"5
The Facts
"The four (4) petitioners, namely, Dr. Lourdes S. Pascual, Dr. Pedro De la Concha, Alejandro De
La Concha, and Rufo De Guzman, after having been granted permission to prospect for marble
deposits in the mountains of Biak-na-Bato, San Miguel, Bulacan, succeeded in discovering
marble deposits of high quality and in commercial quantities in Mount Mabio which forms part of
the Biak-na-Bato mountain range.
"Having succeeded in discovering said marble deposits, and as a result of their tedious efforts
and substantial expenses, the petitioners applied with the Bureau of Mines, now Mines and
Geosciences Bureau, for the issuance of the corresponding license to exploit said marble
deposits.
xxxxxxxxx
"After compliance with numerous required conditions, License No. 33 was issued by the Bureau
of Mines in favor of the herein petitioners.
xxxxxxxxx
"Shortly after Respondent Ernesto R. Maceda was appointed Minister of the Department of
Energy and Natural Resources (DENR), petitioners’ License No. 33 was cancelled by him
through his letter to ROSEMOOR MINING AND DEVELOPMENT CORPORATION dated
September 6, 1986 for the reasons stated therein. Because of the aforesaid cancellation, the
original petition was filed and later substituted by the petitioners’ AMENDED PETITION dated
August 21, 1991 to assail the same.
"Also after due hearing, the prayer for injunctive relief was granted in the Order of this Court
dated February 28, 1992. Accordingly, the corresponding preliminary writs were issued after the
petitioners filed their injunction bond in the amount of ONE MILLION PESOS (₱1,000,000.00).
xxxxxxxxx
"On September 27, 1996, the trial court rendered the herein questioned decision."6
The trial court ruled that the privilege granted under respondents’ license had already ripened
into a property right, which was protected under the due process clause of the Constitution.
Such right was supposedly violated when the license was cancelled without notice and hearing.
The cancellation was said to be unjustified, because the area that could be covered by the four
separate applications of respondents was 400 hectares. Finally, according to the RTC,
Proclamation No. 84, which confirmed the cancellation of the license, was an ex post facto law;
as such, it violated Section 3 of Article XVIII of the 1987 Constitution.
On appeal to the Court of Appeals, herein petitioners asked whether PD 463 or the Mineral
Resources Development Decree of 1974 had been violated by the award of the 330.3062
hectares to respondents in accordance with Proclamation No. 2204. They also questioned the
validity of the cancellation of respondents’ Quarry License/Permit (QLP) No. 33.
Ruling of the Court of Appeals
Sustaining the trial court in toto, the CA held that the grant of the quarry license covering
330.3062 hectares to respondents was authorized by law, because the license was embraced
by four (4) separate applications -- each for an area of 81 hectares. Moreover, it held that the
limitation under Presidential Decree No. 463 -- that a quarry license should cover not more than
100 hectares in any given province -- was supplanted by Republic Act No. 7942,7 which
increased the mining areas allowed under PD 463.
It also ruled that the cancellation of respondents’ license without notice and hearing was
tantamount to a deprivation of property without due process of law. It added that under the
clause in the Constitution dealing with the non-impairment of obligations and contracts,
respondents’ license must be respected by the State.
Hence, this Petition.8
Issues
Petitioners submit the following issues for the 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
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.10 In effect, they ask for the dismissal of the Petition on the ground of mootness.
PD 463, as amended, pertained to the old system of exploration, development and utilization of
natural resources through licenses, concessions or leases.11 While these arrangements were
provided under the 193512 and the 197313 Constitutions, they have been omitted by Section 2 of
Article XII of the 1987 Constitution.14
With the shift of constitutional policy toward "full control and supervision of the State" over
natural resources, the Court in Miners Association of the Philippines v. Factoran Jr. 15 declared
the provisions of PD 463 as contrary to or violative of the express mandate of the 1987
Constitution. The said provisions dealt with the lease of mining claims; quarry permits or licenses
covering privately owned or public lands; and other related provisions on lease, licenses and
permits.
RA 7942 or the Philippine Mining Act of 1995 embodies the new constitutional mandate. It has
repealed or amended all laws, executive orders, presidential decrees, rules and regulations -- or
parts thereof -- that are inconsistent with any of its provisions.16
It is relevant to state, however, that Section 2 of Article XII of the 1987 Constitution does not
apply retroactively to a "license, concession or lease" granted by the government under the 1973
Constitution or before the effectivity of the 1987 Constitution on February 2, 1987.17 As noted in
Miners Association of the Philippines v. Factoran Jr., the deliberations of the Constitutional
Commission18 emphasized the intent to apply the said constitutional provision prospectively.
While RA 7942 has expressly repealed provisions of mining laws that are inconsistent with its
own, it nonetheless respects previously issued valid and existing licenses, as follows:
"SECTION 5. Mineral Reservations. — When the national interest so requires, such as when
there is a need to preserve strategic raw materials for industries critical to national development,
or certain minerals for scientific, cultural or ecological value, the President may establish mineral
reservations upon the recommendation of the Director through the Secretary. Mining operations
in existing mineral reservations and such other reservations as may thereafter be established,
shall be undertaken by the Department or through a contractor: Provided, That a small scale-
mining cooperative covered by Republic Act No. 7076 shall be given preferential right to apply
for a small-scale mining agreement for a maximum aggregate area of twenty-five percent (25%)
of such mineral reservation, subject to valid existing mining/quarrying rights as provided under
Section 112 Chapter XX hereof. All submerged lands within the contiguous zone and in the
exclusive economic zone of the Philippines are hereby declared to be mineral reservations.
"x x x x x x x x x
"SECTION 7. Periodic Review of Existing Mineral Reservations. — The Secretary shall
periodically review existing mineral reservations for the purpose of determining whether their
continued existence is consistent with the national interest, and upon his recommendation, the
President may, by proclamation, alter or modify the boundaries thereof or revert the same to the
public domain without prejudice to prior existing rights."
"SECTION 18. Areas Open to Mining Operations. — Subject to any existing rights or
reservations and prior agreements of all parties, all mineral resources in public or private lands,
including timber or forestlands as defined in existing laws, shall be open to mineral agreements
or financial or technical assistance agreement applications. Any conflict that may arise under
this provision shall be heard and resolved by the panel of arbitrators."
"SECTION 19. Areas Closed to Mining Applications. -- Mineral agreement or financial or
technical assistance agreement applications shall not be allowed:
(a) In military and other government reservations, except upon prior written clearance by the
government agency concerned;
(b) Near or under public or private buildings, cemeteries, archeological and historic sites,
bridges, highways, waterways, railroads, reservoirs, dams or other infrastructure projects, public
or private works including plantations or valuable crops, except upon written consent of the
government agency or private entity concerned;
(c) In areas covered by valid and existing mining rights;
(d) In areas expressly prohibited by law;
(e) In areas covered by small-scale miners as defined by law unless with prior consent of the
small-scale miners, in which case a royalty payment upon the utilization of minerals shall be
agreed upon by the parties, said royalty forming a trust fund for the socioeconomic development
of the community concerned; and
(f) Old growth or virgin forests, proclaimed watershed forest reserves, wilderness areas,
mangrove forests, mossy forests, national parks, provincial/municipal forests, parks, greenbelts,
game refuge and bird sanctuaries as defined by law and in areas expressly prohibited under the
National Integrated Protected Areas System (NIPAS) under Republic Act No. 7586, Department
Administrative Order No. 25, series of 1992 and other laws."
"SECTION 112. Non-impairment of Existing Mining/ Quarrying Rights. — All valid and existing
mining lease contracts, permits/licenses, leases pending renewal, mineral production-sharing
agreements granted under Executive Order No. 279, at the date of effectivity of this Act, shall
remain valid, shall not be impaired, and shall be recognized by the Government: Provided, That
the provisions of Chapter XIV on government share in mineral production-sharing agreement
and of Chapter XVI on incentives of this Act shall immediately govern and apply to a mining
lessee or contractor unless the mining lessee or contractor indicates his intention to the
secretary, in writing, not to avail of said provisions: Provided, further, That no renewal of mining
lease contracts shall be made after the expiration of its term: Provided, finally, That such leases,
production-sharing agreements, financial or technical assistance agreements shall comply with
the applicable provisions of this Act and its implementing rules and regulations.
"SECTION 113. Recognition of Valid and Existing Mining Claims and Lease/Quarry Application.
— Holders of valid and existing mining claims, lease/quarry applications shall be given
preferential rights to enter into any mode of mineral agreement with the government within two
(2) years from the promulgation of the rules and regulations implementing this Act."
(Underscoring supplied)
Section 3(p) of RA 7942 defines an existing mining/quarrying right as "a valid and subsisting
mining claim or permit or quarry permit or any mining lease contract or agreement covering a
mineralized area granted/issued under pertinent mining laws." Consequently, determining
whether the license of respondents falls under this definition would be relevant to fixing their
entitlement to the rights and/or preferences under RA 7942. Hence, the present Petition has not
been mooted.
Petitioners submit that the license clearly contravenes Section 69 of PD 463, because it exceeds
the maximum area that may be granted. This incipient violation, according to them, renders the
license void ab initio.
Respondents, on the other hand, argue that the license was validly granted, because it was
covered by four separate applications for areas of 81 hectares each.
The license in question, QLP No. 33,19 is dated August 3, 1982, and it was issued in the name of
Rosemoor Mining Development Corporation. The terms of the license allowed the corporation to
extract and dispose of marbleized limestone from a 330.3062-hectare land in San Miguel,
Bulacan. The license is, however, subject to the terms and conditions of PD 463, the governing
law at the time it was granted; as well as to the rules and regulations promulgated
thereunder.20 By the same token, Proclamation No. 2204 -- which awarded to Rosemoor the
right of development, exploitation, and utilization of the mineral site -- expressly cautioned that
the grant was subject to "existing policies, laws, rules and regulations."21
The license was thus subject to Section 69 of PD 463, which reads:
"Section 69. Maximum Area of Quarry License – Notwithstanding the provisions of Section 14
hereof, a quarry license shall cover an area of not more than one hundred (100) hectares in any
one 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-per-province limit, no regard
is given to the size or the number of mining claims under Section 14, which we quote:
"SECTION 14. Size of Mining Claim. -- For purposes of registration of a mining claim under this
Decree, the Philippine territory and its shelf are hereby divided into meridional blocks or
quadrangles of one-half minute (1/2) of latitude and longitude, each block or quadrangle
containing area of eighty-one (81) hectares, more or less.
"A mining claim shall cover one such block although a lesser area may be allowed if warranted
by attendant circumstances, such as geographical and other justifiable considerations as may
be determined by the Director: Provided, That in no case shall the locator be allowed to register
twice the area allowed for lease under Section 43 hereof." (Italics supplied)
Clearly, the intent of the law would be brazenly circumvented by ruling that a license may cover
an area exceeding the maximum by the mere expediency of filing several applications. Such
ruling would indirectly permit an act that is directly prohibited by the law.
Second Issue:
Validity of Proclamation No. 84
Petitioners also argue that the license was validly declared a nullity and consequently withdrawn
or terminated. In a letter dated September 15, 1986, respondents were informed by then
Minister Ernesto M. Maceda that their license had illegally been issued, because it violated
Section 69 of PD 463; and that there was no more public interest served by the continued
existence or renewal of the license. The latter reason, they added, was confirmed by the
language of Proclamation No. 84. According to this law, public interest would be served by
reverting the parcel of land that was excluded by Proclamation No. 2204 to the former status of
that land as part of the Biak-na-Bato national park.
They also contend that Section 74 of PD 463 would not apply, because Minister 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) it was issued by the President after the effectivity of the 1987 Constitution.
This Court ruled on the nature of a natural resource exploration permit, which was akin to the
present respondents’ license, in Southeast Mindanao Gold Mining Corporation v. Balite Portal
Mining Cooperative,24 which held:
"x x x. As correctly held by the Court of Appeals in its challenged decision, EP No. 133 merely
evidences a privilege granted by the State, which may be amended, modified or rescinded when
the national interest so requires. This is necessarily so since the exploration, development and
utilization of the 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 Forestry26 with regard to a timber
license, a pronouncement that was reiterated in Ysmael v. Deputy Executive Secretary,27 the
pertinent portion of which reads:
"x x x. Timber licenses, permits and license agreements are the principal instruments by which
the State regulates the utilization and disposition of forest resources to the end that public
welfare is promoted. And it can hardly be gainsaid that they merely evidence a privilege granted
by the State to qualified entities, and do not vest in the latter a permanent or irrevocable right to
the particular concession area and the forest products therein. They may be validly amended,
modified, replaced or rescinded by the Chief Executive when national interests so require. Thus,
they are not deemed contracts within the purview of the due process of law clause [See
Sections 3(ee) and 20 of Pres. Decree No. 705, as amended. Also, Tan v. Director of Forestry,
G.R. No. L-24548, October 27, 1983, 125 SCRA 302]."28 (Italics supplied)
In line with the foregoing jurisprudence, respondents’ license may be revoked or rescinded by
executive action when the national interest so requires, because it is not a contract, property or
a property right protected by the due process clause of the Constitution.29 Respondents
themselves acknowledge this condition of the grant under paragraph 7 of QLP No. 33, which we
quote:
action that was done before the passing of the law and that was innocent when it was done; 2) it
aggravates a crime or makes it greater than it was when it was committed; 3) it changes the
punishment and inflicts one that is greater than that imposed by the law annexed to the crime
when it was committed; 4) it alters the legal rules of evidence and authorizes conviction upon a
less or different testimony than that required by the law at the time of the commission of the
offense; 5) it assumes the regulation of civil rights and remedies only, but in effect imposes a
penalty or a deprivation of a right as a consequence of something that was considered lawful
when it was done; and 6) it deprives a person accused of a crime of some lawful protection to
which he or she become entitled, such as the protection of a former conviction or an acquittal or
the proclamation of an amnesty.40 Proclamation No. 84 does not fall under any of the
enumerated categories; hence, it is not an ex post facto law.
It is settled that an ex post facto law is limited in its scope only to matters criminal in
nature.41 Proclamation 84, which merely restored the area excluded from the Biak-na-Bato
national park by canceling respondents’ license, is clearly not penal in character.

"7. This permit/license may be revoked or cancelled at any time by the Director of Mines and Finally, it is stressed that at the time President Aquino issued Proclamation No. 84 on March 9,
Geo-Sciences when, in his opinion public interests so require or, upon failure of the 1987, she was still validly exercising legislative powers under the Provisional Constitution of
permittee/licensee to comply with the provisions of Presidential Decree No. 463, as amended, 1986.42 Section 1 of Article II of Proclamation No. 3, which promulgated the Provisional
and the rules and regulations promulgated thereunder, as well as with the terms and conditions Constitution, granted her legislative power "until a legislature is elected and convened under a
specified herein; Provided, That if a permit/license is cancelled, or otherwise terminated, the new Constitution." The grant of such power is also explicitly recognized and provided for in
permittee/licensee shall be liable for all unpaid rentals and royalties due up to the time of the Section 6 of Article XVII of the 1987 Constitution.43
termination or cancellation of the permit/license[.]"30 (Italics supplied)
WHEREFORE, this Petition is hereby GRANTED and the appealed Decision of the Court of
The determination of what is in the public interest is necessarily vested in the State as owner of Appeals SET ASIDE. No costs.
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, SO ORDERED.
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 The exercise of such power through Proclamation No. 84 is
clearly in accord with jura regalia, which reserves to the State ownership of all natural
resources.33 This Regalian doctrine is an exercise of its sovereign power as owner of lands of
the public domain and of the patrimony of the nation, the mineral deposits of which are a
valuable asset.34

Proclamation No. 84 cannot be stigmatized as a violation of the non-impairment clause. As

pointed out earlier, respondents’ license is not a contract to which the protection accorded by the
non-impairment clause may extend.35Even if the license were, it is settled that provisions of
existing laws and a reservation of police power are deemed read into it, because it concerns a
subject impressed with public welfare.36 As it is, the non-impairment clause must yield to the
police power of the state.37

We cannot sustain the argument that Proclamation No. 84 is a bill of attainder; that is, a
"legislative act which inflicts punishment without judicial trial."38 Its declaration that QLP No. 33 is
a patent nullity39 is certainly not a declaration of guilt. Neither is the cancellation of the license a
punishment within the purview of the constitutional proscription against bills of attainder.

Too, there is no merit in the argument that the proclamation is an ex post facto law. There are
six recognized instances when a law is considered as such: 1) it criminalizes and punishes an

G.R. No. 127882             December 1, 2004
LA BUGAL-B'LAAN TRIBAL ASSOCIATION, INC., Represented by its Chairman F'LONG
MIGUEL M. LUMAYONG; WIGBERTO E. TAÑADA; PONCIANO BENNAGEN; JAIME
TADEO; RENATO R. CONSTANTINO JR.; F'LONG AGUSTIN M. DABIE; ROBERTO P.
AMLOY; RAQIM L. DABIE; SIMEON H. DOLOJO; IMELDA M. GANDON; LENY B.
GUSANAN; MARCELO L. GUSANAN; QUINTOL A. LABUAYAN; LOMINGGES D. LAWAY;
BENITA P. TACUAYAN; Minors JOLY L. BUGOY, Represented by His Father UNDERO D.
BUGOY and ROGER M. DADING; Represented by His Father ANTONIO L. DADING; ROMY
M. LAGARO, Represented by His Father TOTING A. LAGARO; MIKENY JONG B.
LUMAYONG, Represented by His Father MIGUEL M. LUMAYONG; RENE T. MIGUEL,
Represented by His Mother EDITHA T. MIGUEL; ALDEMAR L. SAL, Represented by His
Father DANNY M. SAL; DAISY RECARSE, Represented by Her Mother LYDIA S. SANTOS;
EDWARD M. EMUY; ALAN P. MAMPARAIR; MARIO L. MANGCAL; ALDEN S. TUSAN;
AMPARO S. YAP; VIRGILIO CULAR; MARVIC M.V.F. LEONEN; JULIA REGINA CULAR,
GIAN CARLO CULAR, VIRGILIO CULAR JR., Represented by Their Father VIRGILIO
CULAR; PAUL ANTONIO P. VILLAMOR, Represented by His Parents JOSE VILLAMOR
and ELIZABETH PUA-VILLAMOR; ANA GININA R. TALJA, Represented by Her Father
MARIO JOSE B. TALJA; SHARMAINE R. CUNANAN, Represented by Her Father
ALFREDO M. CUNANAN; ANTONIO JOSE A. VITUG III, Represented by His Mother
ANNALIZA A. VITUG, LEAN D. NARVADEZ, Represented by His Father MANUEL E.
NARVADEZ JR.; ROSERIO MARALAG LINGATING, Represented by Her Father RIO
OLIMPIO A. LINGATING; MARIO JOSE B. TALJA; DAVID E. DE VERA; MARIA MILAGROS
L. SAN JOSE; Sr. SUSAN O. BOLANIO, OND; LOLITA G. DEMONTEVERDE; BENJIE L.
NEQUINTO;1 ROSE LILIA S. ROMANO; ROBERTO S. VERZOLA; EDUARDO AURELIO C.
REYES; LEAN LOUEL A. PERIA, Represented by His Father ELPIDIO V. PERIA; 2 GREEN
FORUM PHILIPPINES; GREEN FORUM WESTERN VISAYAS (GF-WV); ENVIRONMENTAL
LEGAL ASSISTANCE CENTER (ELAC); KAISAHAN TUNGO SA KAUNLARAN NG
KANAYUNAN AT REPORMANG PANSAKAHAN (KAISAHAN); 3 PARTNERSHIP FOR
AGRARIAN REFORM and RURAL DEVELOPMENT SERVICES, INC. (PARRDS);
PHILIPPINE PARTNERSHIP FOR THE DEVELOPMENT OF HUMAN RESOURCES IN THE
RURAL AREAS, INC. (PHILDHRRA); WOMEN'S LEGAL BUREAU (WLB); CENTER FOR
ALTERNATIVE DEVELOPMENT INITIATIVES, INC. (CADI); UPLAND DEVELOPMENT
INSTITUTE (UDI); KINAIYAHAN FOUNDATION, INC.; SENTRO NG ALTERNATIBONG
LINGAP PANLIGAL (SALIGAN); and LEGAL RIGHTS AND NATURAL RESOURCES
CENTER, INC. (LRC), petitioners,  The Petition for Prohibition and Mandamus before the Court challenges the constitutionality of
vs.
VICTOR O. RAMOS, Secretary, Department of Environment and Natural Resources
(DENR); HORACIO RAMOS, Director, Mines and Geosciences Bureau (MGB-DENR);
RUBEN TORRES, Executive Secretary; and WMC (PHILIPPINES), INC., 4 respondents.
RESOLUTION
PANGANIBAN, J.:
All mineral resources are owned by the State. Their exploration, development and utilization
(EDU) must always be subject to the full control and supervision of the State. More specifically,
given the inadequacy of Filipino capital and technology in large-scale EDU activities, the State
may secure the help of foreign companies in all relevant matters -- especially financial and
technical assistance -- provided that, at all times, the State maintains its right of full control. The
foreign assistor or contractor assumes all financial, technical and entrepreneurial risks in the
EDU activities; hence, it may be given reasonable management, operational, marketing, audit
and other prerogatives to protect its investments and to enable the business to succeed.
Full control is not anathematic to day-to-day management by the contractor, provided that the
State retains the power to direct overall strategy; and to set aside, reverse or modify plans and
actions of the contractor. The idea of full control is similar to that which is exercised by the board
of directors of a private corporation: the performance of managerial, operational, financial,
marketing and other functions may be delegated to subordinate officers or given to contractual
entities, but the board retains full residual control of the business.
Who or what organ of government actually exercises this power of control on behalf of the
State? The Constitution is crystal clear: the President. Indeed, the Chief Executive is the official
constitutionally mandated to "enter into agreements with foreign owned corporations." On the
other hand, Congress may review the action of the President once it is notified of "every contract
entered into in accordance with this [constitutional] provision within thirty days from its
execution." In contrast to this express mandate of the President and Congress in the EDU of
natural resources, Article XII of the Constitution is silent on the role of the judiciary. However,
should the President and/or Congress gravely abuse their discretion in this regard, the courts
may -- in a proper case -- exercise their residual duty under Article VIII. Clearly then, the
judiciary should not inordinately interfere in the exercise of this presidential power of control over
the EDU of our natural resources.
The Constitution should be read in broad, life-giving strokes. It should not be used to strangulate
economic growth or to serve narrow, parochial interests. Rather, it should be construed to grant
the President and Congress sufficient discretion and reasonable leeway to enable them to
attract foreign investments and expertise, as well as to secure for our people and our posterity
the blessings of prosperity and peace.
On the basis of this control standard, this Court upholds the constitutionality of the Philippine
Mining Law, its Implementing Rules and Regulations -- insofar as they relate to financial and
technical agreements -- as well as the subject Financial and Technical Assistance Agreement
(FTAA).5
Background
(1) Republic Act No. [RA] 7942 (The Philippine Mining Act of 1995); (2) its Implementing Rules
and Regulations (DENR Administrative Order No. [DAO] 96-40); and (3) the FTAA dated March
30, 1995,6 executed by the government with Western Mining Corporation (Philippines), Inc.
(WMCP).7
On January 27, 2004, the Court en banc promulgated its Decision8 granting the Petition and
declaring the unconstitutionality of certain provisions of RA 7942, DAO 96-40, as well as of the
entire FTAA executed between the government and WMCP, mainly on the finding that FTAAs
are service contracts prohibited by the 1987 Constitution.
The Decision struck down the subject FTAA for being similar to service contracts,9 which, though
permitted under the 1973 Constitution,10 were subsequently denounced for being antithetical to
the principle of sovereignty over our natural resources, because they allowed foreign control
over the exploitation of our natural resources, to the prejudice of the Filipino nation.
The Decision quoted several legal scholars and authors who had criticized service contracts
for, inter alia, vesting in the foreign contractor exclusive management and control of the
enterprise, including operation of the field in the event petroleum was discovered; control of
production, expansion and development; nearly unfettered control over the disposition and sale
of the products discovered/extracted; effective ownership of the natural resource at the point of
extraction; and beneficial ownership of our economic resources. According to the Decision, the
1987 Constitution (Section 2 of Article XII) effectively banned such service contracts.
Subsequently, respondents filed separate Motions for Reconsideration. In a Resolution dated
March 9, 2004, the Court required petitioners to comment thereon. In the Resolution of June 8,
2004, it set the case for Oral Argument on June 29, 2004.
After hearing the opposing sides, the Court required the parties to submit their respective
Memoranda in amplification of their arguments. In a Resolution issued later the same day, June
29, 2004, the Court noted, inter alia, the Manifestation and Motion (in lieu of comment) filed by
the Office of the Solicitor General (OSG) on behalf of public respondents. The OSG said that it
was not interposing any objection to the Motion for Intervention filed by the Chamber of Mines of
the Philippines, Inc. (CMP) and was in fact joining and adopting the latter's Motion for
Reconsideration.
Memoranda were accordingly filed by the intervenor as well as by petitioners, public
respondents, and private respondent, dwelling at length on the three issues discussed below.
Later, WMCP submitted its Reply Memorandum, while the OSG -- in obedience to an Order of
this Court -- filed a Compliance submitting copies of more FTAAs entered into by the
government.
Three Issues Identified by the Court
During the Oral Argument, the Court identified the three issues to be resolved in the present
controversy, as follows:
1. Has the case been rendered moot by the sale of WMC shares in WMCP to Sagittarius (60
percent of Sagittarius' equity is owned by Filipinos and/or Filipino-owned corporations while 40
percent is owned by Indophil Resources NL, an Australian company) and by the subsequent
transfer and registration of the FTAA from WMCP to Sagittarius?
2. Assuming that the case has been rendered moot, would it still be proper to resolve the
constitutionality of the assailed provisions of the Mining Law, DAO 96-40 and the WMCP FTAA?
3. What is the proper interpretation of the phrase Agreements Involving Either Technical or
Financial Assistancecontained in paragraph 4 of Section 2 of Article XII of the Constitution?
Should the Motion for Reconsideration Be Granted?
Respondents' and intervenor's Motions for Reconsideration should be granted, for the reasons
discussed below. The foregoing three issues identified by the Court shall now be taken
up seriatim.
First Issue:
Mootness
In declaring unconstitutional certain provisions of RA 7942, DAO 96-40, and the WMCP FTAA,
the majority Decision agreed with petitioners' contention that the subject FTAA had been
executed in violation of Section 2 of Article XII of the 1987 Constitution. According to petitioners,
the FTAAs entered into by the government with foreign-owned corporations are limited by the
fourth paragraph of the said provision to agreements involving only technical or financial
assistance for large-scale exploration, development and utilization of minerals, petroleum and
other mineral oils. Furthermore, the foreign contractor is allegedly permitted by the FTAA in
question to fully manage and control the mining operations and, therefore, to acquire "beneficial
ownership" of our mineral resources.
The Decision merely shrugged off the Manifestation by WMPC informing the Court (1) that on
January 23, 2001, WMC had sold all its shares in WMCP to Sagittarius Mines, Inc., 60 percent
of whose equity was held by Filipinos; and (2) that the assailed FTAA had likewise been
transferred from WMCP to Sagittarius.11 The ponencia declared that the instant case
had not been rendered moot by the transfer and registration of the FTAA to a Filipino-owned
corporation, and that the validity of the said transfer remained in dispute and awaited final
judicial determination.12Patently therefore, the Decision is anchored on the assumption that
WMCP had remained a foreign corporation.
The crux of this issue of mootness is the fact that WMCP, at the time it entered into the
FTAA, happened to be wholly owned by WMC Resources International Pty., Ltd. (WMC), which
in turn was a wholly owned subsidiary of Western Mining Corporation Holdings Ltd., a publicly
listed major Australian mining and exploration company.
The nullity of the FTAA was obviously premised upon the contractor being
a foreign corporation. Had the FTAA been originally issued to a Filipino-owned corporation,
there would have been no constitutionality issue to speak of. Upon the other hand, the
conveyance of the WMCP FTAA to a Filipino corporation can be likened to the sale of land to a
foreigner who subsequently acquires Filipino citizenship, or who later resells the same land to a
Filipino citizen. The conveyance would be validated, as the property in question would no longer
be owned by a disqualified vendee.
And, inasmuch as the FTAA is to be implemented now by a Filipino corporation, it is no longer
possible for the Court to declare it unconstitutional. The case pending in the Court of Appeals is
a dispute between two Filipino companies (Sagittarius and Lepanto), both claiming the right to
purchase the foreign shares in WMCP. So, regardless of which side eventually wins, the FTAA
would still be in the hands of a qualified Filipino company. Considering that there is no longer
any justiciable controversy, the plea to nullify the Mining Law has become a virtual petition for
declaratory relief, over which this Court has no original jurisdiction.
In their Final Memorandum, however, petitioners argue that the case has not become moot,
considering the invalidity of the alleged sale of the shares in WMCP from WMC to Sagittarius,
and of the transfer of the FTAA from WMCP to Sagittarius, resulting in the change of contractor
in the FTAA in question. And even assuming that the said transfers were valid, there still exists
an actual case predicated on the invalidity of RA 7942 and its Implementing Rules and
Regulations (DAO 96-40). Presently, we shall discuss petitioners' objections to the transfer of
both the shares and the FTAA. We shall take up the alleged invalidity of RA 7942 and DAO 96-
40 later on in the discussion of the third issue.
No Transgression of the Constitution
by the Transfer of the WMCP Shares
Petitioners claim, first, that the alleged invalidity of the transfer of the WMCP shares to
Sagittarius violates the fourth paragraph of Section 2 of Article XII of the
Constitution; second, that it is contrary to the provisions of the WMCP FTAA itself; and third, that
the sale of the shares is suspect and should therefore be the subject of a case in which its
validity may properly be litigated.
On the first ground, petitioners assert that paragraph 4 of Section 2 of Article XII permits the
government to enter into FTAAs only with foreign-owned corporations. Petitioners insist that the
first paragraph of this constitutional provision limits the participation of Filipino corporations in
the exploration, development and utilization of natural resources to only three species of
contracts -- production sharing, co-production and joint venture -- to the exclusion of all other
arrangements or variations thereof, and the WMCP FTAA may therefore not be validly assumed
and implemented by Sagittarius. In short, petitioners claim that a Filipino corporation is not
allowed by the Constitution to enter into an FTAA with the government.
However, a textual analysis of the first paragraph of Section 2 of Article XII does not support
petitioners' argument. The pertinent part of the said provision states: "Sec. 2. x x x The
exploration, development and utilization of natural resources shall be under the full control and
supervision of the State. The State may directly undertake such activities, or it may enter into
co-production, joint venture, or production-sharing agreements with Filipino citizens, or
corporations or associations at least sixty per centum of whose capital is owned by such
citizens. x x x." Nowhere in the provision is there any express limitation or restriction insofar as
arrangements other than the three aforementioned contractual schemes are concerned.
Neither can one reasonably discern any implied stricture to that effect. Besides, there is no basis
to believe that the framers of the Constitution, a majority of whom were obviously concerned
with furthering the development and utilization of the country's natural resources, could have
wanted to restrict Filipino participation in that area. This point is clear, especially in the light of
the overarching constitutional principle of giving preference and priority to Filipinos and Filipino
corporations in the development of our natural resources.
Besides, even assuming (purely for argument's sake) that a constitutional limitation barring
Filipino corporations from holding and implementing an FTAA actually exists, nevertheless, such
provision would apply only to the transfer of the FTAA to Sagittarius, but definitely not to the sale
of WMC's equity stake in WMCP to Sagittarius. Otherwise, an unreasonable curtailment of
property rights without due process of law would ensue. Petitioners' argument must therefore
fail.
FTAA Not Intended
Solely for Foreign Corporation
Equally barren of merit is the second ground cited by petitioners -- that the FTAA was intended
to apply solely to a foreign corporation, as can allegedly be seen from the provisions therein.
They manage to cite only one WMCP FTAA provision that can be regarded as clearly intended
to apply only to a foreign contractor: Section 12, which provides for international commercial
arbitration under the auspices of the International Chamber of Commerce, after local remedies
are exhausted. This provision, however, does not necessarily imply that the WMCP FTAA
cannot be transferred to and assumed by a Filipino corporation like Sagittarius, in which event
the said provision should simply be disregarded as a superfluity.
No Need for a Separate
Litigation of the Sale of Shares
Petitioners claim as third ground the "suspicious" sale of shares from WMC to Sagittarius;
hence, the need to litigate it in a separate case. Section 40 of RA 7942 (the Mining Law)
allegedly requires the President's prior approval of a transfer.
A re-reading of the said provision, however, leads to a different conclusion. "Sec.
40. Assignment/Transfer -- A financial or technical assistance agreement may be assigned or
transferred, in whole or in part, to a qualified person subject to the prior approval of the
President: Provided, That the President shall notify Congress of every financial or technical
assistance agreement assigned or converted in accordance with this provision within thirty (30)
days from the date of the approval thereof."
Section 40 expressly applies to the assignment or transfer of the FTAA, not to the sale and
transfer of shares of stock in WMCP. Moreover, when the transferee of an FTAA is
another foreign corporation, there is a logical application of the requirement of prior approval by
the President of the Republic and notification to Congress in the event of assignment or transfer
of an FTAA. In this situation, such approval and notification are appropriate safeguards,
considering that the new contractor is the subject of a foreign government.
On the other hand, when the transferee of the FTAA happens to be a Filipino corporation, the
need for such safeguard is not critical; hence, the lack of prior approval and notification may not
be deemed fatal as to render the transfer invalid. Besides, it is not as if approval by the
President is entirely absent in this instance. As pointed out by private respondent in its
Memorandum,13 the issue of approval is the subject of one of the cases brought by Lepanto
against Sagittarius in GR No. 162331. That case involved the review of the Decision of the Court
of Appeals dated November 21, 2003 in CA-GR SP No. 74161, which affirmed the DENR Order
dated December 31, 2001 and the Decision of the Office of the President dated July 23, 2002,
both approving the assignment of the WMCP FTAA to Sagittarius.
Petitioners also question the sale price and the financial capacity of the transferee. According to
the Deed of Absolute Sale dated January 23, 2001, executed between WMC and Sagittarius,
the price of the WMCP shares was fixed at US$9,875,000, equivalent to P553 million at an
exchange rate of 56:1. Sagittarius had an authorized capital stock of P250 million and a paid up
capital of P60 million. Therefore, at the time of approval of the sale by the DENR, the debt-to-
equity ratio of the transferee was over 9:1 -- hardly ideal for an FTAA contractor, according to
petitioners.
However, private respondents counter that the Deed of Sale specifically provides that the
payment of the purchase price would take place only after Sagittarius' commencement of
commercial production from mining operations, if at all. Consequently, under the circumstances,
we believe it would not be reasonable to conclude, as petitioners did, that the transferee's high
debt-to-equity ratio per se necessarily carried negative implications for the enterprise; and it
would certainly be improper to invalidate the sale on that basis, as petitioners propose.
FTAA Not Void,
Thus Transferrable
To bolster further their claim that the case is not moot, petitioners insist that the FTAA is void
and, hence cannot be transferred; and that its transfer does not operate to cure the
constitutional infirmity that is inherent in it; neither will a change in the circumstances of one of
the parties serve to ratify the void contract.
While the discussion in their Final Memorandum was skimpy, petitioners in their Comment (on
the MR) did ratiocinate that this Court had declared the FTAA to be void because, at the time it
was executed with WMCP, the latter was a fully foreign-owned corporation, in which the former
vested full control and management with respect to the exploration, development and utilization
of mineral resources, contrary to the provisions of paragraph 4 of Section 2 of Article XII of the
Constitution. And since the FTAA was per se void, no valid right could be transferred; neither
could it be ratified, so petitioners conclude.
Petitioners have assumed as fact that which has yet to be established. First and foremost, the
Decision of this Court declaring the FTAA void has not yet become final. That was precisely the
reason the Court still heard Oral Argument in this case. Second, the FTAA does not vest in the
foreign corporation full control and supervision over the exploration, development and utilization
of mineral resources, to the exclusion of the government. This point will be dealt with in greater
detail below; but for now, suffice it to say that a perusal of the FTAA provisions will prove that
the government has effective overall direction and control of the mining operations, including
marketing and product pricing, and that the contractor's work programs and budgets are subject
to its review and approval or disapproval.
As will be detailed later on, the government does not have to micro-manage the mining
operations and dip its hands into the day-to-day management of the enterprise in order to be
considered as having overall control and direction. Besides, for practical and pragmatic reasons,
there is a need for government agencies to delegate certain aspects of the management work to
the contractor. Thus the basis for declaring the FTAA void still has to be revisited, reexamined
and reconsidered.
Petitioners sniff at the citation of Chavez v. Public Estates Authority,14 and Halili v. CA,15 claiming
that the doctrines in these cases are wholly inapplicable to the instant case.
Chavez clearly teaches: "Thus, the Court has ruled consistently that where a Filipino citizen
sells land to an alien who later sells the land to a Filipino, the invalidity of the first transfer is
corrected by the subsequent sale to a citizen. Similarly, where the alien who buys the land
subsequently acquires Philippine citizenship, the sale is validated since the purpose of the
constitutional ban to limit land ownership to Filipinos has been achieved. In short, the law
disregards the constitutional disqualification of the buyer to hold land if the land is subsequently
transferred to a qualified party, or the buyer himself becomes a qualified party."16
In their Comment, petitioners contend that in Chavez and Halili, the object of the transfer (the
land) was not what was assailed for alleged unconstitutionality. Rather, it was the transaction
that was assailed; hence subsequent compliance with constitutional provisions would cure its
infirmity. In contrast, in the instant case it is the FTAA itself, the object of the transfer, that is
being assailed as invalid and unconstitutional. So, petitioners claim that the subsequent transfer
of a void FTAA to a Filipino corporation would not cure the defect.
Petitioners are confusing themselves. The present Petition has been filed, precisely because the
grantee of the FTAA was a wholly owned subsidiary of a foreign corporation. It cannot be
gainsaid that anyone would have asserted that the same FTAA was void if it had at the outset
been issued to a Filipino corporation. The FTAA, therefore, is not per se defective or
unconstitutional. It was questioned only because it had been issued to an allegedly non-
qualified, foreign-owned corporation.
We believe that this case is clearly analogous to Halili, in which the land acquired by a non-
Filipino was re-conveyed to a qualified vendee and the original transaction was thereby cured.
Paraphrasing Halili, the same rationale applies to the instant case: assuming arguendo the
invalidity of its prior grant to a foreign corporation, the disputed FTAA -- being now held by a
Filipino corporation -- can no longer be assailed; the objective of the constitutional provision -- to
keep the exploration, development and utilization of our natural resources in Filipino hands --
has been served.
More accurately speaking, the present situation is one degree better than that obtaining
in Halili, in which the original sale to a non-Filipino was clearly and indisputably violative of the
constitutional prohibition and thus void ab initio. In the present case, the issuance/grant of the
subject FTAA to the then foreign-owned WMCP was not illegal, void or unconstitutional at the
time. The matter had to be brought to court, precisely for adjudication as to whether the FTAA
and the Mining Law had indeed violated the Constitution. Since, up to this point, the decision of
this Court declaring the FTAA void has yet to become final, to all intents and purposes, the
FTAA must be deemed valid and constitutional.17
At bottom, we find completely outlandish petitioners' contention that an FTAA could be entered
into by the government only with a foreign corporation, never with a Filipino enterprise. Indeed,
the nationalistic provisions of the Constitution are all anchored on the protection of Filipino
interests. How petitioners can now argue that foreigners have the exclusive right to FTAAs
totally overturns the entire basis of the Petition -- preference for the Filipino in the exploration,
development and utilization of our natural resources. It does not take deep knowledge of law
and logic to understand that what the Constitution grants to foreigners should be equally
available to Filipinos.
Second Issue:
Whether the Court Can Still Decide the Case,
Even Assuming It Is Moot
All the protagonists are in agreement that the Court has jurisdiction to decide this controversy,
even assuming it to be moot.
Petitioners stress the following points. First, while a case becomes moot and academic
when "there is no more actual controversy between the parties or no useful purpose can be
served in passing upon the merits,"18 what is at issue in the instant case is not only the validity of
the WMCP FTAA, but also the constitutionality of RA 7942 and its Implementing Rules and
Regulations. Second, the acts of private respondent cannot operate to cure the law of its alleged
unconstitutionality or to divest this Court of its jurisdiction to decide. Third, the Constitution
imposes upon the Supreme Court the duty to declare invalid any law that offends the
Constitution.
Petitioners also argue that no amendatory laws have been passed to make the Mining Act of
1995 conform to constitutional strictures (assuming that, at present, it does not); that public
respondents will continue to implement and enforce the statute until this Court rules otherwise;
and that the said law continues to be the source of legal authority in accepting, processing and
approving numerous applications for mining rights.
Indeed, it appears that as of June 30, 2002, some 43 FTAA applications had been filed with the
Mines and Geosciences Bureau (MGB), with an aggregate area of 2,064,908.65 hectares --
spread over Luzon, the Visayas and Mindanao19 -- applied for. It may be a bit far-fetched to
assert, as petitioners do, that each and every FTAA that was entered into under the provisions
of the Mining Act "invites potential litigation" for as long as the constitutional issues are not
resolved with finality. Nevertheless, we must concede that there exists the distinct possibility that
one or more of the future FTAAs will be the subject of yet another suit grounded on
constitutional issues.
But of equal if not greater significance is the cloud of uncertainty hanging over the mining
industry, which is even now scaring away foreign investments. Attesting to this climate of anxiety
is the fact that the Chamber of Mines of the Philippines saw the urgent need to intervene in the
case and to present its position during the Oral Argument; and that Secretary General Romulo
Neri of the National Economic Development Authority (NEDA) requested this Court to allow him
to speak, during that Oral Argument, on the economic consequences of the Decision of January
27, 2004.20
We are convinced. We now agree that the Court must recognize the exceptional character of the
situation and the paramount public interest involved, as well as the necessity for a ruling to put
an end to the uncertainties plaguing the mining industry and the affected communities as a
result of doubts cast upon the constitutionality and validity of the Mining Act, the subject FTAA
and future FTAAs, and the need to avert a multiplicity of suits. Paraphrasing Gonzales v.
Commission on Elections, 21 it is evident that strong reasons of public policy demand that the
constitutionality issue be resolved now.22
In further support of the immediate resolution of the constitutionality issue, public respondents
cite Acop v. Guingona,23 to the effect that the courts will decide a question -- otherwise moot and
academic -- if it is "capable of repetition, yet evading review."24 Public respondents ask the Court
to avoid a situation in which the constitutionality issue may again arise with respect to another
FTAA, the resolution of which may not be achieved until after it has become too late for our
mining industry to grow out of its infancy. They also recall Salonga v. Cruz Paño,25 in which this
Court declared that "(t)he Court also has the duty to formulate guiding and controlling
constitutional principles, precepts, doctrines or rules. It has the symbolic function of educating
the bench and bar on the extent of protection given by constitutional guarantees. x x x."
The mootness of the case in relation to the WMCP FTAA led the undersigned ponente to state
in his dissent to the Decision that there was no more justiciable controversy and the plea to
nullify the Mining Law has become a virtual petition for declaratory relief.26 The entry of the
Chamber of Mines of the Philippines, Inc., however, has put into focus the seriousness of the
allegations of unconstitutionality of RA 7942 and DAO 96-40 which converts the case to one for
prohibition27 in the enforcement of the said law and regulations.
Indeed, this CMP entry brings to fore that the real issue in this case is whether paragraph 4 of
Section 2 of Article XII of the Constitution is contravened by RA 7942 and DAO 96-40, not
whether it was violated by specific acts implementing RA 7942 and DAO 96-40. "[W]hen an act
of the legislative department is seriously alleged to have infringed the Constitution, settling the
controversy becomes the duty of this Court. By the mere enactment of the questioned law or the
approval of the challenged action, the dispute is said to have ripened into a judicial controversy
even without any other overt act."28 This ruling can be traced from Tañada v. Angara,29 in which
the Court said:
"In seeking to nullify an act of the Philippine Senate on the ground that it contravenes the
Constitution, the petition no doubt raises a justiciable controversy. Where an action of the
legislative branch is seriously alleged to have infringed the Constitution, it becomes not only the
right but in fact the duty of the judiciary to settle the dispute.
xxxxxxxxx
"As this Court has repeatedly and firmly emphasized in many cases, it will not shirk, digress from
or abandon its sacred duty and authority to uphold the Constitution in matters that involve grave
abuse of discretion brought before it in appropriate cases, committed by any officer, agency,
instrumentality or department of the government."30
Additionally, the entry of CMP into this case has also effectively forestalled any possible
objections arising from the standing or legal interest of the original parties.
For all the foregoing reasons, we believe that the Court should proceed to a resolution of the
constitutional issues in this case.
Third Issue:
The Proper Interpretation of the Constitutional Phrase
"Agreements Involving Either Technical or Financial Assistance"
The constitutional provision at the nucleus of the controversy is paragraph 4 of Section 2 of
Article XII of the 1987 Constitution. In order to appreciate its context, Section 2 is reproduced in
full:
"Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils,
all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other
natural resources are owned by the State. With the exception of agricultural lands, all other
natural resources shall not be alienated. The exploration, development and utilization of natural
resources shall be under the full control and supervision of the State. The State may directly
undertake such activities, or it may enter into co-production, joint venture or production-sharing
agreements with Filipino citizens or corporations or associations at least sixty per centum of
whose capital is owned by such citizens. Such agreements may be for a period not exceeding
twenty-five years, renewable for not more than twenty-five years, and under such terms and
conditions as may be provided by law. In cases of water rights for irrigation, water supply,
fisheries, or industrial uses other than the development of water power, beneficial use may be
the measure and limit of the grant.
"The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea, and
exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.
"The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens,
as well as cooperative fish farming, with priority to subsistence fishermen and fish-workers in
rivers, lakes, bays and lagoons.
"The President may enter into agreements with foreign-owned corporations involving either
technical or financial assistance for large-scale exploration, development, and utilization
of minerals, petroleum, and other mineral oils according to the general terms and conditions
provided by law, based on real contributions to the economic growth and general welfare of the
country. In such agreements, the State shall promote the development and use of local scientific
and technical resources.
"The President shall notify the Congress of every contract entered into in accordance with this
provision, within thirty days from its execution."31
No Restriction of Meaning by
a  Verba Legis  Interpretation
To interpret the foregoing provision, petitioners adamantly assert that the language of the
Constitution should prevail; that the primary method of interpreting it is to seek the ordinary
meaning of the words used in its provisions. They rely on rulings of this Court, such as the
following:
"The fundamental principle in constitutional construction however is that the primary source from
which to ascertain constitutional intent or purpose is the language of the provision itself. The
presumption is that the words in which the constitutional provisions are couched express the
objective sought to be attained. In other words, verba legis prevails. Only when the meaning of
the words used is unclear and equivocal should resort be made to extraneous aids of
construction and interpretation, such as the proceedings of the Constitutional Commission or
Convention to shed light on and ascertain the true intent or purpose of the provision being
construed."32
Very recently, in Francisco v. The House of Representatives,33 this Court indeed had the
occasion to reiterate the well-settled principles of constitutional construction:
"First, verba legis, that is, wherever possible, the words used in the Constitution must be given
their ordinary meaning except where technical terms are employed. x x x.
xxxxxxxxx
"Second, where there is ambiguity, ratio legis est anima. The words of the Constitution should
be interpreted in accordance with the intent of its framers. x x x.
xxxxxxxxx
"Finally, ut magis valeat quam pereat. The Constitution is to be interpreted as a whole."34
For ease of reference and in consonance with verba legis, we reconstruct and stratify the
aforequoted Section 2 as follows:
1. All natural resources are owned by the State. Except for agricultural lands, natural resources
cannot be alienated by the State.
2. The exploration, development and utilization (EDU) of natural resources shall be under the full
control and supervision of the State.
3. The State may undertake these EDU activities through either of the following:
(a) By itself directly and solely
(b) By (i) co-production; (ii) joint venture; or (iii) production sharing agreements with Filipino
citizens or corporations, at least 60 percent of the capital of which is owned by such citizens
4. Small-scale utilization of natural resources may be allowed by law in favor of Filipino citizens.
5. For large-scale EDU of minerals, petroleum and other mineral oils, the President may enter
into "agreements with foreign-owned corporations involving either technical or financial
assistance according to the general terms and conditions provided by law x x x."
Note that in all the three foregoing mining activities -- exploration, development and utilization --
the State may undertake such EDU activities by itself or in tandem with Filipinos or Filipino
corporations, except in two instances: first, in small-scale utilization of natural resources, which
Filipinos may be allowed by law to undertake; and second, in large-scale EDU of minerals,
petroleum and mineral oils, which may be undertaken by the State via "agreementswith foreign-
owned corporations involving either technical or financial assistance" as provided by law.
Petitioners claim that the phrase "agreements x x x involving either technical or financial
assistance" simply means technical assistance or financial assistance agreements, nothing
more and nothing else. They insist that there is no ambiguity in the phrase, and that a plain
reading of paragraph 4 quoted above leads to the inescapable conclusion that what a foreign-
owned corporation may enter into with the government is merely an agreement
for eitherfinancial or technical assistance only, for the large-scale exploration, development and
utilization of minerals, petroleum and other mineral oils; such a limitation, they argue, excludes
foreign management and operation of a mining enterprise.35
This restrictive interpretation, petitioners believe, is in line with the general policy enunciated by
the Constitution reserving to Filipino citizens and corporations the use and enjoyment of the
country's natural resources. They maintain that this Court's Decision36 of January 27, 2004
correctly declared the WMCP FTAA, along with pertinent provisions of RA 7942, void for
allowing a foreign contractor to have direct and exclusive management of a mining enterprise.
Allowing such a privilege not only runs counter to the "full control and supervision" that the State
is constitutionally mandated to exercise over the exploration, development and utilization of the
country's natural resources; doing so also vests in the foreign company "beneficial ownership" of
our mineral resources. It will be recalled that the Decision of January 27, 2004 zeroed in on
"management or other forms of assistance" or other activities associated with the "service
contracts" of the martial law regime, since "the management or operation of mining activities by
foreign contractors, which is the primary feature of service contracts, was precisely the evil that
the drafters of the 1987 Constitution sought to eradicate."
On the other hand, the intervenor37 and public respondents argue that the FTAA allowed by
paragraph 4 is not merely an agreement for supplying limited and specific financial or technical
services to the State. Rather, such FTAA is a comprehensive agreement for the foreign-owned
corporation's integrated exploration, development and utilization of mineral, petroleum or other
mineral oils on a large-scale basis. The agreement, therefore, authorizes the foreign contractor's
rendition of a whole range of integrated and comprehensive services, ranging from the discovery
to the development, utilization and production of minerals or petroleum products.
We do not see how applying a strictly literal or verba legis interpretation of paragraph 4 could
inexorably lead to the conclusions arrived at in the ponencia. First, the drafters' choice of words
-- their use of the phrase agreements x x x involving either technical or financial assistance --
does not indicate the intent to exclude other modes of assistance. The drafters opted to
use involving when they could have simply said agreements for financial or technical
assistance, if that was their intention to begin with. In this case, the limitation would be very clear
and no further debate would ensue.
In contrast, the use of the word "involving" signifies the possibility of the inclusion of other
forms of assistance or activities having to do with, otherwise related to or compatible with
financial or technical assistance. The word "involving" as used in this context has three
connotations that can be differentiated thus: one, the sense of "concerning," "having to do with,"
or "affecting"; two, "entailing," "requiring," "implying" or "necessitating"; and three, "including,"
"containing" or "comprising."38
Plainly, none of the three connotations convey a sense of exclusivity. Moreover, the word
"involving," when understood in the sense of "including," as in including technical or financial
assistance, necessarily implies that there are activities other than those that are being included.
In other words, if an agreement includes technical or financial assistance, there is apart from
such assistance -- something else already in, and covered or may be covered by, the said
agreement.
In short, it allows for the possibility that matters, other than those explicitly mentioned, could be
made part of the agreement. Thus, we are now led to the conclusion that the use of the word
"involving" implies that these agreements with foreign corporations are not limited to mere
financial or technical assistance. The difference in sense becomes very apparent when we
juxtapose "agreements for technical or financial assistance" against
"agreements including technical or financial assistance." This much is unalterably clear in
a verba legis approach.
Second, if the real intention of the drafters was to confine foreign corporations to financial or
technical assistance and nothing more, their language would have certainly been
so unmistakably restrictive and stringent as to leave no doubt in anyone's mind about their
true intent. For example, they would have used the sentence foreign corporations
are absolutely prohibited from involvement in the management or operation of mining or
similar ventures or words of similar import. A search for such stringent wording yields negative
results. Thus, we come to the inevitable conclusion that there was a conscious and
deliberate decision to avoid the use of restrictive wording that bespeaks an intent not to
use the expression "agreements x x x involving either technical or financial assistance"
in an exclusionary and limiting manner.
Deletion of "Service Contracts" to
Avoid Pitfalls of Previous Constitutions,
Not to Ban Service Contracts Per Se
Third, we do not see how a verba legis approach leads to the conclusion that "the management
or operation of mining activities by foreign contractors, which is the primary feature of service
contracts, was precisely the evil that the drafters of the 1987 Constitution sought to
eradicate." Nowhere in the above-quoted Section can be discerned the objective to keep out of
foreign hands the management or operation of mining activities or the plan to eradicate service
contracts as these were understood in the 1973 Constitution. Still, petitioners maintain that the
deletion or omission from the 1987 Constitution of the term "service contracts" found in the 1973
Constitution sufficiently proves the drafters' intent to exclude foreigners from the management of
the affected enterprises.
To our mind, however, such intent cannot be definitively and conclusively established from the
mere failure to carry the same expression or term over to the new Constitution, absent a more
specific, explicit and unequivocal statement to that effect. What petitioners seek (a complete ban
on foreign participation in the management of mining operations, as previously allowed by the
earlier Constitutions) is nothing short of bringing about a momentous sea change in the
economic and developmental policies; and the fundamentally capitalist, free-enterprise
philosophy of our government. We cannot imagine such a radical shift being undertaken by our
government, to the great prejudice of the mining sector in particular and our economy in general,
merely on the basis of the omission of the terms service contract from or the failure to carry
them over to the new Constitution. There has to be a much more definite and even unarguable
basis for such a drastic reversal of policies.
Fourth, a literal and restrictive interpretation of paragraph 4, such as that proposed by
petitioners, suffers from certain internal logical inconsistencies that generate ambiguities in the
understanding of the provision. As the intervenor pointed out, there has never been any
constitutional or statutory provision that reserved to Filipino citizens or corporations, at least 60
percent of which is Filipino-owned, the rendition of financial or technical assistance to
companies engaged in mining or the development of any other natural resource. The taking out
of foreign-currency or peso-denominated loans or any other kind of financial assistance, as well
as the rendition of technical assistance -- whether to the State or to any other entity in the
Philippines -- has never been restricted in favor of Filipino citizens or corporations having a
certain minimum percentage of Filipino equity. Such a restriction would certainly be
preposterous and unnecessary. As a matter of fact, financial, and even technical
assistance, regardless of the nationality of its source, would be welcomed in the mining industry
anytime with open arms, on account of the dearth of local capital and the need to continually
update technological know-how and improve technical skills.
There was therefore no need for a constitutional provision specifically allowing foreign-owned
corporations to render financial or technical assistance, whether in respect of mining or some
other resource development or commercial activity in the Philippines. The last point needs to
be emphasized: if merely financial or technical assistance agreements are allowed, there
would be no need to limit them to large-scale mining operations, as there would be far
greater need for them in the smaller-scale mining activities (and even in non-mining
areas). Obviously, the provision in question was intended to refer to agreements other
than those for mere financial or technical assistance.
In like manner, there would be no need to require the President of the Republic to report to
Congress, if only financial or technical assistance agreements are involved. Such agreements
are in the nature of foreign loans that -- pursuant to Section 20 of Article VII39 of the 1987
Constitution -- the President may contract or guarantee, merely with the prior concurrence of the
Monetary Board. In turn, the Board is required to report to Congress within thirty days from the
end of every quarter of the calendar year, not thirty days after the agreement is entered into.
And if paragraph 4 permits only agreements for loans and other forms of financial, or technical
assistance, what is the point of requiring that they be based on real contributions to the
economic growth and general welfare of the country? For instance, how is one to measure and
assess the "real contributions" to the "economic growth" and "general welfare" of the country
that may ensue from a foreign-currency loan agreement or a technical-assistance agreement
for, say, the refurbishing of an existing power generating plant for a mining operation
somewhere in Mindanao? Such a criterion would make more sense when applied to a major
business investment in a principal sector of the industry.
The conclusion is clear and inescapable -- a verba legis construction shows that paragraph 4 is
not to be understood as one limited only to foreign loans (or other forms of financial support) and
to technical assistance. There is definitely more to it than that. These are provisions
permitting participation by foreign companies; requiring the President's report to
Congress; and using, as yardstick, contributions based on economic growth and general
welfare. These were neither accidentally inserted into the Constitution nor carelessly
cobbled together by the drafters in lip service to shallow nationalism. The provisions
patently have significance and usefulness in a context that allows agreements with foreign
companies to include more than mere financial or technical assistance.
Fifth, it is argued that Section 2 of Article XII authorizes nothing more than a rendition of specific
and limited financial service or technical assistance by a foreign company. This argument begs
the question "To whom or for whom would it be rendered"? or Who is being assisted? If the
answer is "The State," then it necessarily implies that the State itself is the
one directly and solely undertaking the large-scale exploration, development and utilization of a
mineral resource, so it follows that the State must itself bear the liability and cost of repaying the
financing sourced from the foreign lender and/or of paying compensation to the foreign entity
rendering technical assistance.
However, it is of common knowledge, and of judicial notice as well, that the government is and
has for many many years been financially strapped, to the point that even the most essential
services have suffered serious curtailments -- education and health care, for instance, not to
mention judicial services -- have had to make do with inadequate budgetary allocations. Thus,
government has had to resort to build-operate-transfer and similar arrangements with the private
sector, in order to get vital infrastructure projects built without any governmental outlay.
The very recent brouhaha over the gargantuan "fiscal crisis" or "budget deficit" merely confirms
what the ordinary citizen has suspected all along. After the reality check, one will have to admit
the implausibility of a direct undertaking -- by the State itself -- of large-scale exploration,
development and utilization of minerals, petroleum and other mineral oils. Such an undertaking
entails not only humongous capital requirements, but also the attendant risk of never finding and
developing economically viable quantities of minerals, petroleum and other mineral oils.40
It is equally difficult to imagine that such a provision restricting foreign companies to the rendition
of only financial or technical assistance to the government was deliberately crafted by the
drafters of the Constitution, who were all well aware of the capital-intensive and technology-
oriented nature of large-scale mineral or petroleum extraction and the country's deficiency in
precisely those areas.41 To say so would be tantamount to asserting that the provision was
purposely designed to ladle the large-scale development and utilization of mineral, petroleum
and related resources with impossible conditions; and to remain forever and permanently
"reserved" for future generations of Filipinos.
A More Reasonable Look
at the Charter's Plain Language
Sixth, we shall now look closer at the plain language of the Charter and examining the logical
inferences. The drafters chose to emphasize and highlight agreements x x x involving either
technical or financial assistance in relation to foreign corporations' participation in large-scale
EDU. The inclusion of this clause on "technical or financial assistance" recognizes the fact that
foreign business entities and multinational corporations are the ones with the resources and
know-how to provide technical and/or financial assistance of the magnitude and type required for
large-scale exploration, development and utilization of these resources.
The drafters -- whose ranks included many academicians, economists, businessmen, lawyers,
politicians and government officials -- were not unfamiliar with the practices of foreign
corporations and multinationals.
Neither were they so naïve as to believe that these entities would provide "assistance" without
conditionalities or some quid pro quo. Definitely, as business persons well know and as a matter
of judicial notice, this matter is not just a question of signing a promissory note or executing a
technology transfer agreement. Foreign corporations usually require that they be given a say in
the management, for instance, of day-to-day operations of the joint venture. They would demand
the appointment of their own men as, for example, operations managers, technical experts,
quality control heads, internal auditors or comptrollers. Furthermore, they would probably require
seats on the Board of Directors -- all these to ensure the success of the enterprise and the
repayment of the loans and other financial assistance and to make certain that the funding and
the technology they supply would not go to waste. Ultimately, they would also want to protect
their business reputation and bottom lines.42
In short, the drafters will have to be credited with enough pragmatism and savvy to know that
these foreign entities will not enter into such "agreements involving assistance" without requiring
arrangements for the protection of their investments, gains and benefits.
Thus, by specifying such "agreements involving assistance," the drafters necessarily gave
implied assent to everything that these agreements necessarily entailed; or that could
reasonably be deemed necessary to make them tenable and effective, including management
authority with respect to the day-to-day operations of the enterprise and measures for the
protection of the interests of the foreign corporation, PROVIDED THAT Philippine sovereignty
over natural resources and full control over the enterprise undertaking the EDU activities remain
firmly in the State.
Petitioners' Theory Deflated by the
Absence of Closing-Out Rules or Guidelines
Seventh and final point regarding the plain-language approach, one of the practical difficulties
that results from it is the fact that there is nothing by way of transitory provisions that would
serve to confirm the theory that the omission of the term "service contract" from the 1987
Constitution signaled the demise of service contracts.
The framers knew at the time they were deliberating that there were various service contracts
extant and in force and effect, including those in the petroleum industry. Many of these service
contracts were long-term (25 years) and had several more years to run. If they had meant to ban
service contracts altogether, they would have had to provide for the termination or
pretermination of the existing contracts. Accordingly, they would have supplied the specifics and
the when and how of effecting the extinguishment of these existing contracts (or at least the
mechanics for determining them); and of putting in place the means to address the just claims of
the contractors for compensation for their investments, lost opportunities, and so on, if not for
the recovery thereof.
If the framers had intended to put an end to service contracts, they would have at least left
specific instructions to Congress to deal with these closing-out issues, perhaps by way of
general guidelines and a timeline within which to carry them out. The following are some extant
examples of such transitory guidelines set forth in Article XVIII of our Constitution:
"Section 23. Advertising entities affected by paragraph (2), Section 11 of Article XVI of this
Constitution shall have five years from its ratification to comply on a graduated and
proportionate basis with the minimum Filipino ownership requirement therein.
xxxxxxxxx
"Section 25. After the expiration in 1991 of the Agreement between the Republic of the
Philippines and the United States of America concerning military bases, foreign military bases,
troops, or facilities shall not be allowed in the Philippines except under a treaty duly concurred in
by the Senate and, when the Congress so requires, ratified by a majority of the votes cast by the
people in a national referendum held for that purpose, and recognized as a treaty by the other
contracting State.
"Section 26. The authority to issue sequestration or freeze orders under Proclamation No. 3
dated March 25, 1986 in relation to the recovery of ill-gotten wealth shall remain operative for
not more than eighteen months after the ratification of this Constitution. However, in the national
interest, as certified by the President, the Congress may extend such period.
A sequestration or freeze order shall be issued only upon showing of a prima facie case. The
order and the list of the sequestered or frozen properties shall forthwith be registered with the
proper court. For orders issued before the ratification of this Constitution, the corresponding
judicial action or proceeding shall be filed within six months from its ratification. For those issued
after such ratification, the judicial action or proceeding shall be commenced within six months
from the issuance thereof.
The sequestration or freeze order is deemed automatically lifted if no judicial action or
proceeding is commenced as herein provided."  43]
It is inconceivable that the drafters of the Constitution would leave such an important matter --
an expression of sovereignty as it were -- indefinitely hanging in the air in a formless and
ineffective state. Indeed, the complete absence of even a general framework only serves to
further deflate petitioners' theory, like a child's balloon losing its air.
Under the circumstances, the logical inconsistencies resulting from petitioners' literal and
purely verba legisapproach to paragraph 4 of Section 2 of Article XII compel a resort to other
aids to interpretation.
Petitioners' Posture Also Negated 
by  Ratio Legis Et Anima
Thus, in order to resolve the inconsistencies, incongruities and ambiguities encountered and to
supply the deficiencies of the plain-language approach, there is a need for recourse to the
proceedings of the 1986 Constitutional Commission. There is a need for ratio legis et anima.
Service Contracts Not
"Deconstitutionalized"
Pertinent portions of the deliberations of the members of the Constitutional Commission
(ConCom) conclusively show that they discussed agreements involving either technical or
financial assistance in the same breadth as service contracts and used the terms
interchangeably. The following exchange between Commissioner Jamir (sponsor of the
provision) and Commissioner Suarez irrefutably proves that the "agreements involving technical
or financial assistance" were none other than service contracts.
THE PRESIDENT. Commissioner Jamir is recognized. We are still on Section 3.
MR. JAMIR. Yes, Madam President. With respect to the second paragraph of Section 3, my
amendment by substitution reads: THE PRESIDENT MAY ENTER INTO AGREEMENTS WITH
FOREIGN-OWNED CORPORATIONS INVOLVING EITHER TECHNICAL OR FINANCIAL
ASSISTANCE FOR LARGE-SCALE EXPLORATION, DEVELOPMENT AND UTILIZATION OF
NATURAL RESOURCES ACCORDING TO THE TERMS AND CONDITIONS PROVIDED BY
LAW.
MR. VILLEGAS. The Committee accepts the amendment. Commissioner Suarez will give the
background.
MR. JAMIR. Thank you.
THE PRESIDENT. Commissioner Suarez is recognized.
MR. SUAREZ. Thank you, Madam President.
Will Commissioner Jamir answer a few clarificatory questions?
MR. JAMIR. Yes, Madam President.
MR. SUAREZ. This particular portion of the section has reference to what was popularly
known before as service contracts, among other things, is that correct?
MR. JAMIR. Yes, Madam President.
MR. SUAREZ. As it is formulated, the President may enter into service contracts but subject to
the guidelines that may be promulgated by Congress?
MR. JAMIR. That is correct.
MR. SUAREZ. Therefore, that aspect of negotiation and consummation will fall on the President,
not upon Congress?
MR. JAMIR. That is also correct, Madam President.
MR. SUAREZ. Except that all of these contracts, service or otherwise, must be made strictly
in accordance with guidelines prescribed by Congress?
MR. JAMIR. That is also correct.
MR. SUAREZ. And the Gentleman is thinking in terms of a law that uniformly covers situations of
the same nature?
MR. JAMIR. That is 100 percent correct.
MR. SUAREZ. I thank the Commissioner.
MR. JAMIR. Thank you very much.44
The following exchange leaves no doubt that the commissioners knew exactly what they were
dealing with: service contracts.
THE PRESIDENT. Commissioner Gascon is recognized.
MR. GASCON. Commissioner Jamir had proposed an amendment with regard to
special service contractswhich was accepted by the Committee. Since the Committee has
accepted it, I would like to ask some questions.
THE PRESIDENT. Commissioner Gascon may proceed.
MR. GASCON. As it is proposed now, such service contracts will be entered into by the
President with the guidelines of a general law on service contract to be enacted by Congress.
Is that correct?
MR. VILLEGAS. The Commissioner is right, Madam President.
MR. GASCON. According to the original proposal, if the President were to enter into a particular
agreement, he would need the concurrence of Congress. Now that it has been changed by the
proposal of Commissioner Jamir in that Congress will set the general law to which the President
shall comply, the President will, therefore, not need the concurrence of Congress every time he
enters into service contracts. Is that correct?
MR. VILLEGAS. That is right.
MR. GASCON. The proposed amendment of Commissioner Jamir is in indirect contrast to my
proposed amendment, so I would like to object and present my proposed amendment to the
body.
xxxxxxxxx
MR. GASCON. Yes, it will be up to the body.
I feel that the general law to be set by Congress as regard service contract agreements which
the President will enter into might be too general or since we do not know the content yet of
such a law, it might be that certain agreements will be detrimental to the interest of the Filipinos.
This is in direct contrast to my proposal which provides that there be effective constraints in the
implementation of service contracts.
So instead of a general law to be passed by Congress to serve as a guideline to the President
when entering into service contract agreements, I propose that every service
contract entered into by the President would need the concurrence of Congress, so as to
assure the Filipinos of their interests with regard to the issue in Section 3 on all lands of the
public domain. My alternative amendment, which we will discuss later, reads: THAT THE
PRESIDENT SHALL ENTER INTO SUCH AGREEMENTS ONLY WITH THE CONCURRENCE
OF TWO-THIRDS VOTE OF ALL THE MEMBERS OF CONGRESS SITTING SEPARATELY.
xxxxxxxxx
MR. BENGZON. The reason we made that shift is that we realized the original proposal could
breed corruption. By the way, this is not just confined to service contracts but also to financial
assistance. If we are going to make every single contract subject to the concurrence of
Congress – which, according to the Commissioner's amendment is the concurrence of two-thirds
of Congress voting separately – then (1) there is a very great chance that each contract will be
different from another; and (2) there is a great temptation that it would breed corruption because
of the great lobbying that is going to happen. And we do not want to subject our legislature to
that.
Now, to answer the Commissioner's apprehension, by "general law," we do not mean
statements of motherhood. Congress can build all the restrictions that it wishes into that general
law so that every contract entered into by the President under that specific area will have to be
uniform. The President has no choice but to follow all the guidelines that will be provided by law.
MR. GASCON. But my basic problem is that we do not know as of yet the contents of such a
general law as to how much constraints there will be in it. And to my mind, although the
Committee's contention that the regular concurrence from Congress would subject Congress to
extensive lobbying, I think that is a risk we will have to take since Congress is a body of
representatives of the people whose membership will be changing regularly as there will be
changing circumstances every time certain agreements are made. It would be best then to keep
in tab and attuned to the interest of the Filipino people, whenever the President enters into any
agreement with regard to such an important matter as technical or financial assistance for
large-scale exploration, development and utilization of natural resources or service
contracts, the people's elected representatives should be on top of it.
xxxxxxxxx
MR. OPLE. Madam President, we do not need to suspend the session. If Commissioner Gascon
needs a few minutes, I can fill up the remaining time while he completes his proposed
amendment. I just wanted to ask Commissioner Jamir whether he would entertain a minor
amendment to his amendment, and it reads as follows: THE PRESIDENT SHALL
SUBSEQUENTLY NOTIFY CONGRESS OF EVERY SERVICE CONTRACT ENTERED INTO
IN ACCORDANCE WITH THE GENERAL LAW. I think the reason is, if I may state it briefly, as
Commissioner Bengzon said, Congress can always change the general law later on to conform
to new perceptions of standards that should be built into service contracts. But the only way
Congress can do this is if there were a notification requirement from the Office of the President
that such service contracts had been entered into, subject then to the scrutiny of the Members
of Congress. This pertains to a situation where the service contracts are already entered into,
and all that this amendment seeks is the reporting requirement from the Office of the President.
Will Commissioner Jamir entertain that?
MR. JAMIR. I will gladly do so, if it is still within my power.
MR. VILLEGAS. Yes, the Committee accepts the amendment.
xxxxxxxxx
SR. TAN. Madam President, may I ask a question?
THE PRESIDENT. Commissioner Tan is recognized.
SR. TAN. Am I correct in thinking that the only difference between these future service
contracts and the past service contracts under Mr. Marcos is the general law to be enacted by
the legislature and the notification of Congress by the President? That is the only difference, is it
not?
MR. VILLEGAS. That is right.
SR. TAN. So those are the safeguards.
MR. VILLEGAS. Yes. There was no law at all governing service contracts before.
SR. TAN. Thank you, Madam President.45
More Than Mere Financial
and Technical Assistance
Entailed by the Agreements
The clear words of Commissioner Jose N. Nolledo quoted below explicitly and eloquently
demonstrate that the drafters knew that the agreements with foreign corporations were going to
entail not mere technical or financial assistance but, rather, foreign investment in and
management of an enterprise involved in large-scale exploration, development and utilization of
minerals, petroleum, and other mineral oils.
THE PRESIDENT. Commissioner Nolledo is recognized.
MR. NOLLEDO. Madam President, I have the permission of the Acting Floor Leader to speak for
only two minutes in favor of the amendment of Commissioner Gascon.
THE PRESIDENT. Commissioner Nolledo may proceed.
MR. NOLLEDO. With due respect to the members of the Committee and Commissioner Jamir, I
am in favor of the objection of Commissioner Gascon.
Madam President, I was one of those who refused to sign the 1973 Constitution, and one of the
reasons is that there were many provisions in the Transitory Provisions therein that favored
aliens. I was shocked when I read a provision authorizing service contracts while we, in this
Constitutional Commission, provided for Filipino control of the economy. We are, therefore,
providing for exceptional instances where aliens may circumvent Filipino control of our economy.
And one way of circumventing the rule in favor of Filipino control of the economy is to
recognize service contracts.
As far as I am concerned, if I should have my own way, I am for the complete deletion of this
provision. However, we are presenting a compromise in the sense that we are requiring a
two-thirds vote of all the Members of Congress as a safeguard. I think we should not mistrust the
future Members of Congress by saying that the purpose of this provision is to avoid corruption.
We cannot claim that they are less patriotic than we are. I think the Members of this Commission
should know that entering into service contracts is an exception to the rule on protection of
natural resources for the interest of the nation, and therefore, being an exception it should be
subject, whenever possible, to stringent rules. It seems to me that we are liberalizing the rules in
favor of aliens.
I say these things with a heavy heart, Madam President. I do not claim to be a nationalist, but I
love my country. Although we need investments, we must adopt safeguards that are truly
reflective of the sentiments of the people and not mere cosmetic safeguards as they now appear
in the Jamir amendment. (Applause)
Thank you, Madam President.46
Another excerpt, featuring then Commissioner (now Chief Justice) Hilario G. Davide Jr.,
indicates the limitations of the scope of such service contracts -- they are valid only in regard to
minerals, petroleum and other mineral oils, not to all natural resources.
THE PRESIDENT. Commissioner Davide is recognized.
MR. DAVIDE. Thank you, Madam President. This is an amendment to the Jamir amendment
and also to the Ople amendment. I propose to delete "NATURAL RESOURCES" and substitute
it with the following: MINERALS, PETROLEUM AND OTHER MINERAL OILS. On the Ople
amendment, I propose to add: THE NOTIFICATION TO CONGRESS SHALL BE WITHIN
THIRTY DAYS FROM THE EXECUTION OF THE SERVICE CONTRACT.
THE PRESIDENT. What does the Committee say with respect to the first amendment in lieu of
"NATURAL RESOURCES"?
MR. VILLEGAS. Could Commissioner Davide explain that?
MR. DAVIDE. Madam President, with the use of "NATURAL RESOURCES" here, it would
necessarily include all lands of the public domain, our marine resources, forests, parks and so
on. So we would like to limit the scope of these service contracts to those areas really where
these may be needed, the exploitation, development and exploration of minerals, petroleum and
other mineral oils. And so, we believe that we should really, if we want to grant service
contracts at all, limit the same to only those particular areas where Filipino capital may not
be sufficient, and not to all natural resources.
MR. SUAREZ. Just a point of clarification again, Madam President. When the Commissioner
made those enumerations and specifications, I suppose he deliberately did not include
"agricultural land"?
MR. DAVIDE. That is precisely the reason we have to enumerate what these resources are into
which service contracts may enter. So, beyond the reach of any service contract will be lands
of the public domain, timberlands, forests, marine resources, fauna and flora, wildlife and
national parks.47
After the Jamir amendment was voted upon and approved by a vote of 21 to 10 with 2
abstentions, Commissioner Davide made the following statement, which is very relevant to our
quest:
THE PRESIDENT. Commissioner Davide is recognized.
MR. DAVIDE. I am very glad that Commissioner Padilla emphasized minerals, petroleum and
mineral oils. The Commission has just approved the possible foreign entry into the development,
exploration and utilization of these minerals, petroleum and other mineral oils by virtue of the
Jamir amendment. I voted in favor of the Jamir amendment because it will eventually give way
to vesting in exclusively Filipino citizens and corporations wholly owned by Filipino citizens the
right to utilize the other natural resources. This means that as a matter of policy, natural
resources should be utilized and exploited only by Filipino citizens or corporations wholly owned
by such citizens. But by virtue of the Jamir amendment, since we feel that Filipino capital may
not be enough for the development and utilization of minerals, petroleum and other mineral oils,
the President can enter into service contracts with foreign corporations precisely for the
development and utilization of such resources. And so, there is nothing to fear that we will
stagnate in the development of minerals, petroleum and mineral oils because we now allow
service contracts. x x x."48
The foregoing are mere fragments of the framers' lengthy discussions of the provision dealing
with agreements x x x involving either technical or financial assistance, which ultimately became
paragraph 4 of Section 2 of Article XII of the Constitution. Beyond any doubt, the members of
the ConCom were actually debating about the martial-law-era service contracts for which they
were crafting appropriate safeguards.
In the voting that led to the approval of Article XII by the ConCom, the explanations given by
Commissioners Gascon, Garcia and Tadeo indicated that they had voted to reject this provision
on account of their objections to the "constitutionalization" of the "service contract" concept.
Mr. Gascon said, "I felt that if we would constitutionalize any provision on service contracts,
this should always be with the concurrence of Congress and not guided only by a general law to
be promulgated by Congress."49 Mr. Garcia explained, "Service contracts are given
constitutional legitimization in Sec. 3, even when they have been proven to be inimical to the
interests of the nation, providing, as they do, the legal loophole for the exploitation of our natural
resources for the benefit of foreign interests." 50 Likewise, Mr. Tadeo cited inter alia the fact that
service contracts continued to subsist, enabling foreign interests to benefit from our natural
resources.51 It was hardly likely that these gentlemen would have objected so strenuously,
had the provision called for mere technical or financial assistance and nothing more.
The deliberations of the ConCom and some commissioners' explanation of their votes leave no
room for doubt that the service contract concept precisely underpinned the commissioners'
understanding of the "agreements involving either technical or financial assistance."
Summation of the
Concom Deliberations
At this point, we sum up the matters established, based on a careful reading of the ConCom
deliberations, as follows:
· In their deliberations on what was to become paragraph 4, the framers used the term service
contracts in referring to agreements x x x involving either technical or financial assistance.
· They spoke of service contracts as the concept was understood in the 1973 Constitution.
· It was obvious from their discussions that they were not about to ban or eradicate service
contracts.
· Instead, they were plainly crafting provisions to put in place safeguards that would eliminate or
minimize the abuses prevalent during the marital law regime. In brief, they were going to permit
service contracts with foreign corporations as contractors, but with safety measures to prevent
abuses, as an exception to the general norm established in the first paragraph of Section 2 of
Article XII. This provision reserves or limits to Filipino citizens -- and corporations at least 60
percent of which is owned by such citizens -- the exploration, development and utilization of
natural resources.
· This provision was prompted by the perceived insufficiency of Filipino capital and the felt need
for foreign investments in the EDU of minerals and petroleum resources.
· The framers for the most part debated about the sort of safeguards that would be considered
adequate and reasonable. But some of them, having more "radical" leanings, wanted to ban
service contracts altogether; for them, the provision would permit aliens to exploit and benefit
from the nation's natural resources, which they felt should be reserved only for Filipinos.
· In the explanation of their votes, the individual commissioners were heard by the entire body.
They sounded off their individual opinions, openly enunciated their philosophies, and supported
or attacked the provisions with fervor. Everyone's viewpoint was heard.
· In the final voting, the Article on the National Economy and Patrimony -- including paragraph 4
allowing service contracts with foreign corporations as an exception to the general norm in
paragraph 1 of Section 2 of the same article -- was resoundingly approved by a vote of 32 to 7,
with 2 abstentions.
Agreements Involving Technical
or Financial Assistance Are
Service Contracts With Safeguards
From the foregoing, we are impelled to conclude that the phrase agreements involving either
technical or financial assistance, referred to in paragraph 4, are in fact service contracts. But
unlike those of the 1973 variety, the new ones are between foreign corporations acting as
contractors on the one hand; and on the other, the government as principal or "owner" of the
works. In the new service contracts, the foreign contractors provide capital, technology and
technical know-how, and managerial expertise in the creation and operation of large-scale
mining/extractive enterprises; and the government, through its agencies (DENR, MGB), actively
exercises control and supervision over the entire operation.
Such service contracts may be entered into only with respect to minerals, petroleum and other
mineral oils. The grant thereof is subject to several safeguards, among which are these
requirements:
(1) The service contract shall be crafted in accordance with a general law that will set standard
or uniform terms, conditions and requirements, presumably to attain a certain uniformity in
provisions and avoid the possible insertion of terms disadvantageous to the country.
(2) The President shall be the signatory for the government because, supposedly before an
agreement is presented to the President for signature, it will have been vetted several times over
at different levels to ensure that it conforms to law and can withstand public scrutiny.
(3) Within thirty days of the executed agreement, the President shall report it to Congress to give
that branch of government an opportunity to look over the agreement and interpose timely
objections, if any.
Use of the Record of the
ConCom to Ascertain Intent
At this juncture, we shall address, rather than gloss over, the use of the "framers' intent"
approach, and the criticism hurled by petitioners who quote a ruling of this Court:
"While it is permissible in this jurisdiction to consult the debates and proceedings of the
constitutional convention in order to arrive at the reason and purpose of the resulting
Constitution, resort thereto may be had only when other guides fail as said proceedings are
powerless to vary the terms of the Constitution when the meaning is clear. Debates in the
constitutional convention 'are of value as showing the views of the individual members, and as
indicating the reason for their votes, but they give us no light as to the views of the large majority
who did not talk, much less the mass of our fellow citizens whose votes at the polls gave that
instrument the force of fundamental law. We think it safer to construe the constitution from what
appears upon its face.' The proper interpretation therefore depends more on how it was
understood by the people adopting it than in the framers' understanding thereof."52
The notion that the deliberations reflect only the views of those members who spoke out and not
the views of the majority who remained silent should be clarified. We must never forget that
those who spoke out were heard by those who remained silent and did not react. If the latter
were silent because they happened not to be present at the time, they are presumed to have
read the minutes and kept abreast of the deliberations. By remaining silent, they are deemed to
have signified their assent to and/or conformity with at least some of the views propounded or
their lack of objections thereto. It was incumbent upon them, as representatives of the entire
Filipino people, to follow the deliberations closely and to speak their minds on the matter if they
did not see eye to eye with the proponents of the draft provisions.
In any event, each and every one of the commissioners had the opportunity to speak out and to
vote on the matter. Moreover, the individual explanations of votes are on record, and they show
where each delegate stood on the issues. In sum, we cannot completely denigrate the value
or usefulness of the record of the ConCom, simply because certain members chose not
to speak out.
It is contended that the deliberations therein did not necessarily reflect the thinking of the voting
population that participated in the referendum and ratified the Constitution. Verily, whether we
like it or not, it is a bit too much to assume that every one of those who voted to ratify the
proposed Charter did so only after carefully reading and mulling over it, provision by provision.
Likewise, it appears rather extravagant to assume that every one of those who did in fact bother
to read the draft Charter actually understood the import of its provisions, much less analyzed it
vis-à-vis the previous Constitutions. We believe that in reality, a good percentage of those who
voted in favor of it did so more out of faith and trust. For them, it was the product of the hard
work and careful deliberation of a group of intelligent, dedicated and trustworthy men and
women of integrity and conviction, whose love of country and fidelity to duty could not be
questioned.
In short, a large proportion of the voters voted "yes" because the drafters, or a majority of them,
endorsed the proposed Constitution. What this fact translates to is the inescapable conclusion
that many of the voters in the referendum did not form their own isolated judgment about the
draft Charter, much less about particular provisions therein. They only relied or fell back and
acted upon the favorable endorsement or recommendation of the framers as a group. In other
words, by voting yes, they may be deemed to have signified their voluntary adoption of the
understanding and interpretation of the delegates with respect to the proposed Charter and its
particular provisions. "If it's good enough for them, it's good enough for me;" or, in many
instances, "If it's good enough for President Cory Aquino, it's good enough for me."
And even for those who voted based on their own individual assessment of the proposed
Charter, there is no evidence available to indicate that their assessment or understanding of its
provisions was in fact different from that of the drafters. This unwritten assumption seems to be
petitioners' as well. For all we know, this segment of voters must have read and understood the
provisions of the Constitution in the same way the framers had, an assumption that would
account for the favorable votes.
Fundamentally speaking, in the process of rewriting the Charter, the members of the ConCom
as a group were supposed to represent the entire Filipino people. Thus, we cannot but regard
their views as being very much indicative of the thinking of the people with respect to the matters
deliberated upon and to the Charter as a whole.
It is therefore reasonable and unavoidable to make the following conclusion, based on
the above arguments. As written by the framers and ratified and adopted by the people,
the Constitution allows the continued use of service contracts with foreign corporations
-- as contractors who would invest in and operate and manage extractive enterprises,
subject to the full control and supervision of the State -- sans the abuses of the past
regime. The purpose is clear: to develop and utilize our mineral, petroleum and other
resources on a large scale for the immediate and tangible benefit of the Filipino people.
In view of the foregoing discussion, we should reverse the Decision of January 27, 2004, and in
fact now hold a view different from that of the Decision, which had these findings: (a) paragraph
4 of Section 2 of Article XII limits foreign involvement in the local mining industry to agreements
strictly for either financial or technical assistance only; (b) the same paragraph precludes
agreements that grant to foreign corporations the management of local mining operations, as
such agreements are purportedly in the nature of service contracts as these were understood
under the 1973 Constitution; (c) these service contracts were supposedly "de-constitutionalized"
and proscribed by the omission of the term service contracts from the 1987 Constitution; (d)
since the WMCP FTAA contains provisions permitting the foreign contractor to manage the
concern, the said FTAA is invalid for being a prohibited service contract; and (e) provisions of
RA 7942 and DAO 96-40, which likewise grant managerial authority to the foreign contractor,
are also invalid and unconstitutional.
Ultimate Test: State's "Control"
Determinative of Constitutionality
But we are not yet at the end of our quest. Far from it. It seems that we are confronted with a
possible collision of constitutional provisions. On the one hand, paragraph 1 of Section 2 of
Article XII explicitly mandates the State to exercise "full control and supervision" over the
exploration, development and utilization of natural resources. On the other hand, paragraph 4
permits safeguarded service contracts with foreign contractors. Normally, pursuant thereto, the
contractors exercise management prerogatives over the mining operations and the enterprise as
a whole. There is thus a legitimate ground to be concerned that either the State's full control and
supervision may rule out any exercise of management authority by the foreign contractor; or, the
other way around, allowing the foreign contractor full management prerogatives may ultimately
negate the State's full control and supervision.
Ut Magis Valeat
Quam Pereat
Under the third principle of constitutional construction laid down in Francisco -- ut magis valeat
quam pereat -- every part of the Constitution is to be given effect, and the Constitution is to be
read and understood as a harmonious whole. Thus, "full control and supervision" by the State
must be understood as one that does not preclude the legitimate exercise of management
prerogatives by the foreign contractor. Before any further discussion, we must stress the
primacy and supremacy of the principle of sovereignty and State control and supervision over all
aspects of exploration, development and utilization of the country's natural resources, as
mandated in the first paragraph of Section 2 of Article XII.
But in the next breadth we have to point out that "full control and supervision" cannot be taken
literally to mean that the State controls and supervises everything involved, down to the minutest
details, and makes all decisions required in the mining operations. This strained concept of
control and supervision over the mining enterprise would render impossible the legitimate
exercise by the contractors of a reasonable degree of management prerogative and authority
necessary and indispensable to their proper functioning.
For one thing, such an interpretation would discourage foreign entry into large-scale exploration,
development and utilization activities; and result in the unmitigated stagnation of this sector, to
the detriment of our nation's development. This scenario renders paragraph 4 inoperative and
useless. And as respondents have correctly pointed out, the government does not have to
micro-manage the mining operations and dip its hands into the day-to-day affairs of the
enterprise in order for it to be considered as having full control and supervision.
The concept of control53 adopted in Section 2 of Article XII must be taken to mean less than
dictatorial, all-encompassing control; but nevertheless sufficient to give the State the power to
direct, restrain, regulate and govern the affairs of the extractive enterprises. Control by the State
may be on a macro level, through the establishment of policies, guidelines, regulations, industry
standards and similar measures that would enable the government to control the conduct of
affairs in various enterprises and restrain activities deemed not desirable or beneficial.
The end in view is ensuring that these enterprises contribute to the economic development and
general welfare of the country, conserve the environment, and uplift the well-being of the
affected local communities. Such a concept of control would be compatible with permitting the
foreign contractor sufficient and reasonable management authority over the enterprise it
invested in, in order to ensure that it is operating efficiently and profitably, to protect its
investments and to enable it to succeed.
The question to be answered, then, is whether RA 7942 and its Implementing Rules
enable the government to exercise that degree of control sufficient to direct and regulate
the conduct of affairs of individual enterprises and restrain undesirable activities.
On the resolution of these questions will depend the validity and constitutionality of certain
provisions of the Philippine Mining Act of 1995 (RA 7942) and its Implementing Rules and
Regulations (DAO 96-40), as well as the WMCP FTAA.
Indeed, petitioners charge54 that RA 7942, as well as its Implementing Rules and Regulations,
makes it possible for FTAA contracts to cede full control and management of mining enterprises
over to fully foreign-owned corporations, with the result that the State is allegedly reduced to a
passive regulator dependent on submitted plans and reports, with weak review and audit
powers. The State does not supposedly act as the owner of the natural resources for and on
behalf of the Filipino people; it practically has little effective say in the decisions made by the
enterprise. Petitioners then conclude that the law, the implementing regulations, and the WMCP
FTAA cede "beneficial ownership" of the mineral resources to the foreign contractor.
A careful scrutiny of the provisions of RA 7942 and its Implementing Rules belies petitioners'
claims. Paraphrasing the Constitution, Section 4 of the statute clearly affirms the State's control
thus:
"Sec. 4. Ownership of Mineral Resources. – Mineral resources are owned by the State and the
exploration, development, utilization and processing thereof shall be under its full control and
supervision. The State may directly undertake such activities or it may enter into mineral
agreements with contractors.
"The State shall recognize and protect the rights of the indigenous cultural communities to their
ancestral lands as provided for by the Constitution."
The aforequoted provision is substantively reiterated in Section 2 of DAO 96-40 as follows:
"Sec. 2. Declaration of Policy. All mineral resources in public and private lands within the
territory and exclusive economic zone of the Republic of the Philippines are owned by the State.
It shall be the responsibility of the State to promote their rational exploration, development,
utilization and conservation through the combined efforts of the Government and private sector
in order to enhance national growth in a way that effectively safeguards the environment and
protects the rights of affected communities."
Sufficient Control Over Mining
Operations Vested in the State
by RA 7942 and DAO 96-40
RA 7942 provides for the State's control and supervision over mining operations. The following
provisions thereof establish the mechanism of inspection and visitorial rights over mining
operations and institute reportorial requirements in this manner:
1. Sec. 8 which provides for the DENR's power of over-all supervision and periodic review for
"the conservation, management, development and proper use of the State's mineral resources";
2. Sec. 9 which authorizes the Mines and Geosciences Bureau (MGB) under the DENR to
exercise "direct charge in the administration and disposition of mineral resources", and
empowers the MGB to "monitor the compliance by the contractor of the terms and conditions of
the mineral agreements", "confiscate surety and performance bonds", and deputize whenever
necessary any member or unit of the Phil. National Police, barangay, duly registered non-
governmental organization (NGO) or any qualified person to police mining activities;
3. Sec. 66 which vests in the Regional Director "exclusive jurisdiction over safety inspections of
all installations, whether surface or underground", utilized in mining operations.
4. Sec. 35, which incorporates into all FTAAs the following terms, conditions and warranties:
"(g) Mining operations shall be conducted in accordance with the provisions of the Act and its
IRR.
"(h) Work programs and minimum expenditures commitments.
xxxxxxxxx
"(k) Requiring proponent to effectively use appropriate anti-pollution technology and facilities to
protect the environment and restore or rehabilitate mined-out areas.
"(l) The contractors shall furnish the Government records of geologic, accounting and other
relevant data for its mining operation, and that books of accounts and records shall be open for
inspection by the government. x x x.
"(m) Requiring the proponent to dispose of the minerals at the highest price and more
advantageous terms and conditions.
"(n) x x x x x x x x x
"(o) Such other terms and conditions consistent with the Constitution and with this Act as the
Secretary may deem to be for the best interest of the State and the welfare of the Filipino
people."
The foregoing provisions of Section 35 of RA 7942 are also reflected and implemented in
Section 56 (g), (h), (l), (m) and (n) of the Implementing Rules, DAO 96-40.
Moreover, RA 7942 and DAO 96-40 also provide various stipulations confirming the
government's control over mining enterprises:
· The contractor is to relinquish to the government those portions of the contract area not
needed for mining operations and not covered by any declaration of mining feasibility (Section
35-e, RA 7942; Section 60, DAO 96-40).
· The contractor must comply with the provisions pertaining to mine safety, health and
environmental protection (Chapter XI, RA 7942; Chapters XV and XVI, DAO 96-40).
· For violation of any of its terms and conditions, government may cancel an FTAA. (Chapter
XVII, RA 7942; Chapter XXIV, DAO 96-40).
· An FTAA contractor is obliged to open its books of accounts and records for inspection by the
government (Section 56-m, DAO 96-40).
· An FTAA contractor has to dispose of the minerals and by-products at the highest market price
and register with the MGB a copy of the sales agreement (Section 56-n, DAO 96-40).
· MGB is mandated to monitor the contractor's compliance with the terms and conditions of the
FTAA; and to deputize, when necessary, any member or unit of the Philippine National Police,
the barangay or a DENR-accredited nongovernmental organization to police mining activities
(Section 7-d and -f, DAO 96-40).
· An FTAA cannot be transferred or assigned without prior approval by the President (Section
40, RA 7942; Section 66, DAO 96-40).
· A mining project under an FTAA cannot proceed to the construction/development/utilization
stage, unless its Declaration of Mining Project Feasibility has been approved by government
(Section 24, RA 7942).
· The Declaration of Mining Project Feasibility filed by the contractor cannot be approved without
submission of the following documents:
1. Approved mining project feasibility study (Section 53-d, DAO 96-40)
2. Approved three-year work program (Section 53-a-4, DAO 96-40)
3. Environmental compliance certificate (Section 70, RA 7942)
4. Approved environmental protection and enhancement program (Section 69, RA 7942)
5. Approval by the Sangguniang Panlalawigan/Bayan/Barangay (Section 70, RA 7942; Section
27, RA 7160)
6. Free and prior informed consent by the indigenous peoples concerned, including payment of
royalties through a Memorandum of Agreement (Section 16, RA 7942; Section 59, RA 8371)
· The FTAA contractor is obliged to assist in the development of its mining community,
promotion of the general welfare of its inhabitants, and development of science and mining
technology (Section 57, RA 7942).
· The FTAA contractor is obliged to submit reports (on quarterly, semi-annual or annual basis as
the case may be; per Section 270, DAO 96-40), pertaining to the following:
1. Exploration
2. Drilling
3. Mineral resources and reserves
4. Energy consumption
5. Production
6. Sales and marketing
7. Employment
8. Payment of taxes, royalties, fees and other Government Shares
9. Mine safety, health and environment
10. Land use
11. Social development
12. Explosives consumption
· An FTAA pertaining to areas within government reservations cannot be granted without a
written clearance from the government agencies concerned (Section 19, RA 7942; Section 54,
DAO 96-40).
· An FTAA contractor is required to post a financial guarantee bond in favor of the government in
an amount equivalent to its expenditures obligations for any particular year. This requirement is
apart from the representations and warranties of the contractor that it has access to all the
financing, managerial and technical expertise and technology necessary to carry out the
objectives of the FTAA (Section 35-b, -e, and -f, RA 7942).
· Other reports to be submitted by the contractor, as required under DAO 96-40, are as follows:
an environmental report on the rehabilitation of the mined-out area and/or mine waste/tailing
covered area, and anti-pollution measures undertaken (Section 35-a-2); annual reports of the
mining operations and records of geologic accounting (Section 56-m); annual progress reports
and final report of exploration activities (Section 56-2).
· Other programs required to be submitted by the contractor, pursuant to DAO 96-40, are the
following: a safety and health program (Section 144); an environmental work program (Section
168); an annual environmental protection and enhancement program (Section 171).
The foregoing gamut of requirements, regulations, restrictions and limitations imposed upon the
FTAA contractor by the statute and regulations easily overturns petitioners' contention. The
setup under RA 7942 and DAO 96-40 hardly relegates the State to the role of a "passive
regulator" dependent on submitted plans and reports. On the contrary, the government agencies
concerned are empowered to approve or disapprove -- hence, to influence, direct and change --
the various work programs and the corresponding minimum expenditure commitments for each
of the exploration, development and utilization phases of the mining enterprise.
Once these plans and reports are approved, the contractor is bound to comply with its
commitments therein. Figures for mineral production and sales are regularly monitored and
subjected to government review, in order to ensure that the products and by-products are
disposed of at the best prices possible; even copies of sales agreements have to be submitted
to and registered with MGB. And the contractor is mandated to open its books of accounts and
records for scrutiny, so as to enable the State to determine if the government share has been
fully paid.
The State may likewise compel the contractor's compliance with mandatory requirements on
mine safety, health and environmental protection, and the use of anti-pollution technology and
facilities. Moreover, the contractor is also obligated to assist in the development of the mining
community and to pay royalties to the indigenous peoples concerned.
Cancellation of the FTAA may be the penalty for violation of any of its terms and conditions
and/or noncompliance with statutes or regulations. This general, all-around, multipurpose
sanction is no trifling matter, especially to a contractor who may have yet to recover the tens or
hundreds of millions of dollars sunk into a mining project.
Overall, considering the provisions of the statute and the regulations just discussed, we believe
that the State definitely possesses the means by which it can have the ultimate word in the
operation of the enterprise, set directions and objectives, and detect deviations and
noncompliance by the contractor; likewise, it has the capability to enforce compliance and to
impose sanctions, should the occasion therefor arise.
In other words, the FTAA contractor is not free to do whatever it pleases and get away
with it; on the contrary, it will have to follow the government line if it wants to stay in the
enterprise. Ineluctably then, RA 7942 and DAO 96-40 vest in the government more than a
sufficient degree of control and supervision over the conduct of mining operations.
Section 3(aq) of RA 7942
Not Unconstitutional
55 
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 corporations to
undertake mining operations directly. They may act only as contractors of the State under an
FTAA; and the State, as the party directly undertaking exploitation of its natural resources, must
hold through the government all exploration permits and similar authorizations. Hence, Section
3(aq), in permitting foreign-owned corporations to hold exploration permits, is unconstitutional.
The objection, however, is not well-founded. While the Constitution mandates the State to
exercise full control and supervision over the exploitation of mineral resources, nowhere does it
require the government to hold all exploration permits and similar authorizations. In fact, there is
no prohibition at all against foreign or local corporations or contractors holding exploration
permits. The reason is not hard to see.
Pursuant to Section 20 of RA 7942, an exploration permit merely grants to a qualified person the
right to conduct exploration for all minerals in specified areas. Such a permit does not amount to
an authorization to extract and carry off the mineral resources that may be discovered. This
phase involves nothing but expenditures for exploring the contract area and locating the mineral
bodies. As no extraction is involved, there are no revenues or incomes to speak of. In short, the
exploration permit is an authorization for the grantee to spend its own funds on exploration
programs that are pre-approved by the government, without any right to recover anything should
no minerals in commercial quantities be discovered. The State risks nothing and loses nothing
by granting these permits to local or foreign firms; in fact, it stands to gain in the form of data
generated by the exploration activities.
Pursuant to Section 24 of RA 7942, an exploration permit grantee who determines the
commercial viability of a mining area may, within the term of the permit, file with the MGB a
declaration of mining project feasibility accompanied by a work program for development. The
approval of the mining project feasibility and compliance with other requirements of RA 7942
vests in the grantee the exclusive right to an MPSA or any other mineral agreement, or to an
FTAA.
Thus, the permit grantee may apply for an MPSA, a joint venture agreement, a co-production
agreement, or an FTAA over the permit area, and the application shall be approved if the permit
grantee meets the necessary qualifications and the terms and conditions of any such
agreement. Therefore, the contractor will be in a position to extract minerals and earn revenues
only when the MPSA or another mineral agreement, or an FTAA, is granted. At that point, the
contractor's rights and obligations will be covered by an FTAA or a mineral agreement.
But prior to the issuance of such FTAA or mineral agreement, the exploration permit grantee (or
prospective contractor) cannot yet be deemed to have entered into any contract or agreement
with the State, and the grantee would definitely need to have some document or instrument as
evidence of its right to conduct exploration works within the specified area. This need is met by
the exploration permit issued pursuant to Sections 3(aq), 20 and 23 of RA 7942.
In brief, the exploration permit serves a practical and legitimate purpose in that it protects
the interests and preserves the rights of the exploration permit grantee (the would-be
contractor) -- foreign or local -- during the period of time that it is spending heavily on
exploration works, without yet being able to earn revenues to recoup any of its
investments and expenditures. Minus this permit and the protection it affords, the exploration
works and expenditures may end up benefiting only claim-jumpers. Such a possibility tends to
discourage investors and contractors. Thus, Section 3(aq) of RA 7942 may not be deemed
unconstitutional.
The Terms of the WMCP FTAA
A Deference to State Control
A perusal of the WMCP FTAA also reveals a slew of stipulations providing for State control and
supervision:
1. The contractor is obligated to account for the value of production and sale of minerals (Clause
1.4).
2. The contractor's work program, activities and budgets must be approved by/on behalf of the
State (Clause 2.1).
3. The DENR secretary has the power to extend the exploration period (Clause 3.2-a).
4. Approval by the State is necessary for incorporating lands into the FTAA contract area
(Clause 4.3-c).
5. The Bureau of Forest Development is vested with discretion in regard to approving the
inclusion of forest reserves as part of the FTAA contract area (Clause 4.5).
6. The contractor is obliged to relinquish periodically parts of the contract area not needed for
exploration and development (Clause 4.6).
7. A Declaration of Mining Feasibility must be submitted for approval by the State (Clause 4.6-b).
8. The contractor is obligated to report to the State its exploration activities (Clause 4.9).
9. The contractor is required to obtain State approval of its work programs for the succeeding
two-year periods, containing the proposed work activities and expenditures budget related to
exploration (Clause 5.1).
10. The contractor is required to obtain State approval for its proposed expenditures for
exploration activities (Clause 5.2).
11. The contractor is required to submit an annual report on geological, geophysical,
geochemical and other information relating to its explorations within the FTAA area (Clause 5.3-
a).
12. The contractor is to submit within six months after expiration of exploration period a final
report on all its findings in the contract area (Clause 5.3-b).
13. The contractor, after conducting feasibility studies, shall submit a declaration of mining
feasibility, along with a description of the area to be developed and mined, a description of the
proposed mining operations and the technology to be employed, and a proposed work program
for the development phase, for approval by the DENR secretary (Clause 5.4).
14. The contractor is obliged to complete the development of the mine, including construction of
the production facilities, within the period stated in the approved work program (Clause 6.1).
15. The contractor is obligated to submit for approval of the DENR secretary a work program
covering each period of three fiscal years (Clause 6.2).
16. The contractor is to submit reports to the DENR secretary on the production, ore reserves,
work accomplished and work in progress, profile of its work force and management staff, and
other technical information (Clause 6.3).
17. Any expansions, modifications, improvements and replacements of mining facilities shall be
subject to the approval of the secretary (Clause 6.4).
18. The State has control with respect to the amount of funds that the contractor may borrow
within the Philippines (Clause 7.2).
19. The State has supervisory power with respect to technical, financial and marketing issues
(Clause 10.1-a).
20. The contractor is required to ensure 60 percent Filipino equity in the contractor, within ten
years of recovering specified expenditures, unless not so required by subsequent legislation
(Clause 10.1).
21. The State has the right to terminate the FTAA for the contractor's unremedied substantial
breach thereof (Clause 13.2);
22. The State's approval is needed for any assignment of the FTAA by the contractor to an entity
other than an affiliate (Clause 14.1).
We should elaborate a little on the work programs and budgets, and what they mean with
respect to the State's ability to exercise full control and effective supervision over the enterprise.
For instance, throughout the initial five-year exploration and feasibility phase of the project, the
contractor is mandated by Clause 5.1 of the WMCP FTAA to submit a series of work programs
(copy furnished the director of MGB) to the DENR secretary for approval. The programs will
detail the contractor's proposed exploration activities and budget covering each subsequent
period of two fiscal years.
In other words, the concerned government officials will be informed beforehand of the proposed
exploration activities and expenditures of the contractor for each succeeding two-year period,
with the right to approve/disapprove them or require changes or adjustments therein if deemed
necessary.
Likewise, under Clause 5.2(a), the amount that the contractor was supposed to spend for
exploration activities during the first contract year of the exploration period was fixed at not less
than P24 million; and then for the succeeding years, the amount shall be as agreed between the
DENR secretary and the contractor prior to the commencement of each subsequent fiscal year.
If no such agreement is arrived upon, the previous year's expenditure commitment shall apply.
This provision alone grants the government through the DENR secretary a very big say in the
exploration phase of the project. This fact is not something to be taken lightly, considering that
the government has absolutely no contribution to the exploration expenditures or work activities
and yet is given veto power over such a critical aspect of the project. We cannot but construe as
very significant such a degree of control over the project and, resultantly, over the mining
enterprise itself.
Following its exploration activities or feasibility studies, if the contractor believes that any part of
the contract area is likely to contain an economic mineral resource, it shall submit to the DENR
secretary a declaration of mining feasibility (per Clause 5.4 of the FTAA), together with a
technical description of the area delineated for development and production, a description of the
proposed mining operations including the technology to be used, a work program for
development, an environmental impact statement, and a description of the contributions to the
economic and general welfare of the country to be generated by the mining operations (pursuant
to Clause 5.5).
The work program for development is subject to the approval of the DENR secretary. Upon its
approval, the contractor must comply with it and complete the development of the mine,
including the construction of production facilities and installation of machinery and equipment,
within the period provided in the approved work program for development (per Clause 6.1).
Thus, notably, the development phase of the project is likewise subject to the control and
supervision of the government. It cannot be emphasized enough that the proper and timely
construction and deployment of the production facilities and the development of the mine are of
pivotal significance to the success of the mining venture. Any missteps here will potentially be
very costly to remedy. Hence, the submission of the work program for development to the DENR
secretary for approval is particularly noteworthy, considering that so many millions of dollars
worth of investments -- courtesy of the contractor -- are made to depend on the State's
consideration and action.
Throughout the operating period, the contractor is required to submit to the DENR secretary for
approval, copy furnished the director of MGB, work programs covering each period of three
fiscal years (per Clause 6.2). During the same period (per Clause 6.3), the contractor is
mandated to submit various quarterly and annual reports to the DENR secretary, copy furnished
the director of MGB, on the tonnages of production in terms of ores and concentrates, with
corresponding grades, values and destinations; reports of sales; total ore reserves, total tonnage
of ores, work accomplished and work in progress (installations and facilities related to mining
operations), investments made or committed, and so on and so forth.
Under Section VIII, during the period of mining operations, the contractor is also required to
submit to the DENR secretary (copy furnished the director of MGB) the work program and
corresponding budget for the contract area, describing the mining operations that are proposed
to be carried out during the period covered. The secretary is, of course, entitled to grant or deny
approval of any work program or budget and/or propose revisions thereto. Once the
program/budget has been approved, the contractor shall comply therewith.
In sum, the above provisions of the WMCP FTAA taken together, far from constituting a
surrender of control and a grant of beneficial ownership of mineral resources to the contractor in
question, bestow upon the State more than adequate control and supervision over the
activities of the contractor and the enterprise.
No Surrender of Control
Under the WMCP FTAA
Petitioners, however, take aim at Clause 8.2, 8.3, and 8.5 of the WMCP FTAA which, they say,
amount to a relinquishment of control by the State, since it "cannot truly impose its own
discretion" in respect of the submitted work programs.
"8.2. The Secretary shall be deemed to have approved any Work Programme or Budget or
variation thereofsubmitted by the Contractor unless within sixty (60) days after submission by
the Contractor the Secretary gives notice declining such approval or proposing a revision of
certain features and specifying its reasons therefor ('the Rejection Notice').
8.3. If the Secretary gives a Rejection Notice, the Parties shall promptly meet and endeavor to
agree on amendments to the Work Programme or Budget. If the Secretary and the Contractor
fail to agree on the proposed revision within 30 days from delivery of the Rejection Notice then
the Work Programme or Budget or variation thereof proposed by the Contractor shall be
deemed approved, so as not to unnecessarily delay the performance of the Agreement.
8.4. x x x x x x x x x
8.5. So far as is practicable, the Contractor shall comply with any approved Work Programme
and Budget. It is recognized by the Secretary and the Contractor that the details of any Work
Programmes or Budgets may require changes in the light of changing circumstances. The
Contractor may make such changes without approval of the Secretary provided they do not
change the general objective of any Work Programme, nor entail a downward variance of more
than twenty per centum (20percent) of the relevant Budget. All other variations to an approved
Work Programme or Budget shall be submitted for approval of the Secretary."
From the provisions quoted above, petitioners generalize by asserting that the government does
not participate in making critical decisions regarding the operations of the mining firm.
Furthermore, while the State can require the submission of work programs and budgets, the
decision of the contractor will still prevail, if the parties have a difference of opinion with regard to
matters affecting operations and management.
We hold, however, that the foregoing provisions do not manifest a relinquishment of control. For
instance, Clause 8.2 merely provides a mechanism for preventing the business or mining
operations from grinding to a complete halt as a result of possibly over-long and unjustified
delays in the government's handling, processing and approval of submitted work programs and
budgets. Anyway, the provision does give the DENR secretary more than sufficient time (60
days) to react to submitted work programs and budgets. It cannot be supposed that proper
grounds for objecting thereto, if any exist, cannot be discovered within a period of two months.
On the other hand, Clause 8.3 seeks to provide a temporary, stop-gap solution in the event a
disagreement over the submitted work program or budget arises between the State and the
contractor and results in a stalemate or impasse, in order that there will be no unreasonably long
delays in the performance of the works.
These temporary or stop-gap solutions are not necessarily evil or wrong. Neither does it follow
that the government will inexorably be aggrieved if and when these temporary remedies come
into play. First, avoidance of long delays in these situations will undoubtedly redound to the
benefit of the State as well as the contractor. Second, who is to say that the work program or
budget proposed by the contractor and deemed approved under Clause 8.3 would not be the
better or more reasonable or more effective alternative? The contractor, being the "insider," as it
were, may be said to be in a better position than the State -- an outsider looking in -- to
determine what work program or budget would be appropriate, more effective, or more suitable
under the circumstances.
All things considered, we take exception to the characterization of the DENR secretary as a
subservient nonentity whom the contractor can overrule at will, on account of Clause 8.3. And
neither is it true that under the same clause, the DENR secretary has no authority whatsoever to
disapprove the work program. As Respondent WMCP reasoned in its Reply-Memorandum, the
State -- despite Clause 8.3 -- still has control over the contract area and it may, as sovereign
authority, prohibit work thereon until the dispute is resolved. And ultimately, the State may
terminate the agreement, pursuant to Clause 13.2 of the same FTAA, citing substantial breach
thereof. Hence, it clearly retains full and effective control of the exploitation of the mineral
resources.
On the other hand, Clause 8.5 is merely an acknowledgment of the parties' need for flexibility,
given that no one can accurately forecast under all circumstances, or predict how situations may
change. Hence, while approved work programs and budgets are to be followed and complied
with as far as practicable, there may be instances in which changes will have to be effected, and
effected rapidly, since events may take shape and unfold with suddenness and urgency. Thus,
Clause 8.5 allows the contractor to move ahead and make changes without the express or
implicit approval of the DENR secretary. Such changes are, however, subject to certain
conditions that will serve to limit or restrict the variance and prevent the contractor from straying
very far from what has been approved.
Clause 8.5 provides the contractor a certain amount of flexibility to meet unexpected situations,
while still guaranteeing that the approved work programs and budgets are not abandoned
altogether. Clause 8.5 does not constitute proof that the State has relinquished control. And
ultimately, should there be disagreement with the actions taken by the contractor in this instance
as well as under Clause 8.3 discussed above, the DENR secretary may resort to
cancellation/termination of the FTAA as the ultimate sanction.
Discretion to Select Contract
Area Not an Abdication of Control
Next, petitioners complain that the contractor has full discretion to select -- and the government
has no say whatsoever as to -- the parts of the contract area to be relinquished pursuant to
Clause 4.6 of the WMCP FTAA.56This clause, however, does not constitute abdication of control.
Rather, it is a mere acknowledgment of the fact that the contractor will have determined, after
appropriate exploration works, which portions of the contract area do not contain minerals in
commercial quantities sufficient to justify developing the same and ought therefore to be
relinquished. The State cannot just substitute its judgment for that of the contractor and dictate
upon the latter which areas to give up.
Moreover, we can be certain that the contractor's self-interest will propel proper and efficient
relinquishment. According to private respondent,57 a mining company tries to relinquish as much
non-mineral areas as soon as possible, because the annual occupation fees paid to the
government are based on the total hectarage of the contract area, net of the areas relinquished.
Thus, the larger the remaining area, the heftier the amount of occupation fees to be paid by the
contractor. Accordingly, relinquishment is not an issue, given that the contractor will not want to
pay the annual occupation fees on the non-mineral parts of its contract area. Neither will it want
to relinquish promising sites, which other contractors may subsequently pick up.
Government Not a Subcontractor
Petitioners further maintain that the contractor can compel the government to exercise its power
of eminent domain to acquire surface areas within the contract area for the contractor's use.
Clause 10.2 (e) of the WMCP FTAA provides that the government agrees that the contractor
shall "(e) have the right to require the Government at the Contractor's own cost, to purchase or
acquire surface areas for and on behalf of the Contractor at such price and terms as may be
acceptable to the contractor. At the termination of this Agreement such areas shall be sold by
public auction or tender and the Contractor shall be entitled to reimbursement of the costs of
acquisition and maintenance, adjusted for inflation, from the proceeds of sale."
According to petitioners, "government becomes a subcontractor to the contractor" and may, on
account of this provision, be compelled "to make use of its power of eminent domain, not for
public purposes but on behalf of a private party, i.e., the contractor." Moreover, the power of the
courts to determine the amount corresponding to the constitutional requirement of just
compensation has allegedly also been contracted away by the government, on account of the
latter's commitment that the acquisition shall be at such terms as may be acceptable to the
contractor.
However, private respondent has proffered a logical explanation for the provision.58 Section
10.2(e) contemplates a situation applicable to foreign-owned corporations. WMCP, at the time of
the execution of the FTAA, was a foreign-owned corporation and therefore not qualified to own
land. As contractor, it has at some future date to construct the infrastructure -- the mine
processing plant, the camp site, the tailings dam, and other infrastructure -- needed for the
large-scale mining operations. It will then have to identify and pinpoint, within the FTAA contract
area, the particular surface areas with favorable topography deemed ideal for such infrastructure
and will need to acquire the surface rights. The State owns the mineral deposits in the earth, and
is also qualified to own land.
Section 10.2(e) sets forth the mechanism whereby the foreign-owned contractor, disqualified to
own land, identifies to the government the specific surface areas within the FTAA contract area
to be acquired for the mine infrastructure. The government then acquires ownership of the
surface land areas on behalf of the contractor, in order to enable the latter to proceed to fully
implement the FTAA.
The contractor, of course, shoulders the purchase price of the land. Hence, the provision allows
it, after termination of the FTAA, to be reimbursed from proceeds of the sale of the surface
areas, which the government will dispose of through public bidding. It should be noted that this
provision will not be applicable to Sagittarius as the present FTAA contractor, since it is a Filipino
corporation qualified to own and hold land. As such, it may therefore freely negotiate with the
surface rights owners and acquire the surface property in its own right.
Clearly, petitioners have needlessly jumped to unwarranted conclusions, without being aware of
the rationale for the said provision. That provision does not call for the exercise of the power of
eminent domain -- and determination of just compensation is not an issue -- as much as it calls
for a qualified party to acquire the surface rights on behalf of a foreign-owned contractor.
Rather than having the foreign contractor act through a dummy corporation, having the State do
the purchasing is a better alternative. This will at least cause the government to be aware of
such transaction/s and foster transparency in the contractor's dealings with the local property
owners. The government, then, will not act as a subcontractor of the contractor; rather, it will
facilitate the transaction and enable the parties to avoid a technical violation of the Anti-Dummy
Law.
Absence of Provision
Requiring Sale at Posted
Prices Not Problematic
The supposed absence of any provision in the WMCP FTAA directly and explicitly requiring the
contractor to sell the mineral products at posted or market prices is not a problem. Apart from
Clause 1.4 of the FTAA obligating the contractor to account for the total value of mineral
production and the sale of minerals, we can also look to Section 35 of RA 7942, which
incorporates into all FTAAs certain terms, conditions and warranties, including the following:
"(l) The contractors shall furnish the Government records of geologic, accounting and other
relevant data for its mining operation, and that books of accounts and records shall be open for
inspection by the government.x x x
(m) Requiring the proponent to dispose of the minerals at the highest price and more
advantageous terms and conditions."
For that matter, Section 56(n) of DAO 99-56 specifically obligates an FTAA contractor to dispose
of the minerals and by-products at the highest market price and to register with the MGB a copy
of the sales agreement. After all, the provisions of prevailing statutes as well as rules and
regulations are deemed written into contracts.
Contractor's Right to Mortgage
Not Objectionable Per Se
Petitioners also question the absolute right of the contractor under Clause 10.2 (l) to mortgage
and encumber not only its rights and interests in the FTAA and the infrastructure and
improvements introduced, but also the mineral products extracted. Private respondents do not
touch on this matter, but we believe that this provision may have to do with the conditions
imposed by the creditor-banks of the then foreign contractor WMCP to secure the lendings
made or to be made to the latter. Ordinarily, banks lend not only on the security of mortgages
on fixed assets, but also on encumbrances of goods produced that can easily be sold and
converted into cash that can be applied to the repayment of loans. Banks even lend on the
security of accounts receivable that are collectible within 90 days.59
It is not uncommon to find that a debtor corporation has executed deeds of assignment "by way
of security" over the production for the next twelve months and/or the proceeds of the sale
thereof -- or the corresponding accounts receivable, if sold on terms -- in favor of its creditor-
banks. Such deeds may include authorizing the creditors to sell the products themselves and to
collect the sales proceeds and/or the accounts receivable.
Seen in this context, Clause 10.2(l) is not something out of the ordinary or objectionable. In any
case, as will be explained below, even if it is allowed to mortgage or encumber the mineral end-
products themselves, the contractor is not freed of its obligation to pay the government its basic
and additional shares in the net mining revenue, which is the essential thing to consider.
In brief, the alarum raised over the contractor's right to mortgage the minerals is simply
unwarranted. Just the same, the contractor must account for the value of mineral production and
the sales proceeds therefrom. Likewise, under the WMCP FTAA, the government remains
entitled to its sixty percent share in the net mining revenues of the contractor. The latter's right to
mortgage the minerals does not negate the State's right to receive its share of net mining
revenues.
Shareholders Free to Sell Their Stocks
Petitioners likewise criticize Clause 10.2(k), which gives the contractor authority "to change its
equity structure at any time." This provision may seem somewhat unusual, but considering that
WMCP then was 100 percent foreign-owned, any change would mean that such percentage
would either stay unaltered or be decreased in favor of Filipino ownership. Moreover, the
foreign-held shares may change hands freely. Such eventuality is as it should be.
We believe it is not necessary for government to attempt to limit or restrict the freedom of the
shareholders in the contractor to freely transfer, dispose of or encumber their shareholdings,
consonant with the unfettered exercise of their business judgment and discretion. Rather, what
is critical is that, regardless of the identity, nationality and percentage ownership of the various
shareholders of the contractor -- and regardless of whether these shareholders decide to take
the company public, float bonds and other fixed-income instruments, or allow the creditor-banks
to take an equity position in the company -- the foreign-owned contractor is always in a position
to render the services required under the FTAA, under the direction and control of the
government.
Contractor's Right to Ask
For Amendment Not Absolute
With respect to Clauses 10.4(e) and (i), petitioners complain that these provisions bind
government to allow amendments to the FTAA if required by banks and other financial
institutions as part of the conditions for new lendings. However, we do not find anything wrong
with Clause 10.4(e), which only states that "if the Contractor seeks to obtain financing
contemplated herein from banks or other financial institutions, (the Government shall) cooperate
with the Contractor in such efforts provided that such financing arrangements will in no event
reduce the Contractor's obligations or the Government's rights
hereunder." The colatilla obviously safeguards the State's interests; if breached, it will give the
government cause to object to the proposed amendments.
On the other hand, Clause 10.4(i) provides that "the Government shall favourably consider any
request from [the] Contractor for amendments of this Agreement which are necessary in order
for the Contractor to successfully obtain the financing." Petitioners see in this provision a
complete renunciation of control. We disagree.
The proviso does not say that the government shall grant any request for amendment. Clause
10.4(i) only obliges the State to favorably consider any such request, which is not at all
unreasonable, as it is not equivalent to saying that the government must automatically consent
to it. This provision should be read together with the rest of the FTAA provisions instituting
government control and supervision over the mining enterprise. The clause should not be given
an interpretation that enables the contractor to wiggle out of the restrictions imposed upon it by
merely suggesting that certain amendments are requested by the lenders.
Rather, it is up to the contractor to prove to the government that the requested changes to the
FTAA are indispensable, as they enable the contractor to obtain the needed financing; that
without such contract changes, the funders would absolutely refuse to extend the loan; that
there are no other sources of financing available to the contractor (a very unlikely scenario); and
that without the needed financing, the execution of the work programs will not proceed. But the
bottom line is, in the exercise of its power of control, the government has the final say on
whether to approve or disapprove such requested amendments to the FTAA. In short, approval
thereof is not mandatory on the part of the government.
In fine, the foregoing evaluation and analysis of the aforementioned FTAA provisions
sufficiently overturns petitioners' litany of objections to and criticisms of the State's
alleged lack of control.
Financial Benefits Not
Surrendered to the Contractor
One of the main reasons certain provisions of RA 7942 were struck down was the finding
mentioned in the Decision that beneficial ownership of the mineral resources had been
conveyed to the contractor. This finding was based on the underlying assumption, common to
the said provisions, that the foreign contractor manages the mineral resources in the same way
that foreign contractors in service contracts used to. "By allowing foreign contractors to manage
or operate all the aspects of the mining operation, the above-cited provisions of R.A. No. 7942
have in effect conveyed beneficial ownership over the nation's mineral resources to these
contractors, leaving the State with nothing but bare title thereto." 60 As the WMCP FTAA
contained similar provisions deemed by the ponente to be abhorrent to the Constitution, the
Decision struck down the Contract as well.
Beneficial ownership has been defined as ownership recognized by law and capable of being
enforced in the courts at the suit of the beneficial owner.61 Black's Law Dictionary indicates that
the term is used in two senses: first, to indicate the interest of a beneficiary in trust property (also
called "equitable ownership"); and second, to refer to the power of a corporate shareholder to
buy or sell the shares, though the shareholder is not registered in the corporation's books as the
owner.62 Usually, beneficial ownership is distinguished from naked ownership, which is the
enjoyment of all the benefits and privileges of ownership, as against possession of the bare title
to property.
An assiduous examination of the WMCP FTAA uncovers no indication that it confers upon
WMCP ownership, beneficial or otherwise, of the mining property it is to develop, the minerals to
be produced, or the proceeds of their sale, which can be legally asserted and enforced as
against the State.
As public respondents correctly point out, any interest the contractor may have in the proceeds
of the mining operation is merely the equivalent of the consideration the government has
undertaken to pay for its services. All lawful contracts require such mutual prestations, and the
WMCP FTAA is no different. The contractor commits to perform certain services for the
government in respect of the mining operation, and in turn it is to be compensated out of the net
mining revenues generated from the sale of mineral products. What would be objectionable is a
contractual provision that unduly benefits the contractor far in excess of the service rendered or
value delivered, if any, in exchange therefor.
A careful perusal of the statute itself and its implementing rules reveals that neither RA 7942 nor
DAO 99-56 can be said to convey beneficial ownership of any mineral resource or product to
any foreign FTAA contractor.
Equitable Sharing
of Financial Benefits
On the contrary, DAO 99-56, entitled "Guidelines Establishing the Fiscal Regime of Financial or
Technical Assistance Agreements" aims to ensure an equitable sharing of the benefits derived
from mineral resources. These benefits are to be equitably shared among the government
(national and local), the FTAA contractor, and the affected communities. The purpose is to
ensure sustainable mineral resources development; and a fair, equitable, competitive and stable
investment regime for the large-scale exploration, development and commercial utilization of
minerals. The general framework or concept followed in crafting the fiscal regime of the FTAA is
based on the principle that the government expects real contributions to the economic growth
and general welfare of the country, while the contractor expects a reasonable return on its
investments in the project.63
Specifically, under the fiscal regime, the government's expectation is, inter alia, the receipt of its
share from the taxes and fees normally paid by a mining enterprise. On the other hand, the
FTAA contractor is granted by the government certain fiscal and non-fiscal incentives64 to help
support the former's cash flow during the most critical phase (cost recovery) and to make the
Philippines competitive with other mineral-producing countries. After the contractor has
recovered its initial investment, it will pay all the normal taxes and fees comprising the basic
share of the government, plus an additional share for the government based on the options and
formulae set forth in DAO 99-56.
The said DAO spells out the financial benefits the government will receive from an FTAA,
referred to as "the Government Share," composed of a basic government share and
an additional government share.
The basic government share is comprised of all direct taxes, fees and royalties, as well as
other payments made by the contractor during the term of the FTAA. These are amounts paid
directly to (i) the national government (through the Bureau of Internal Revenue, Bureau of
Customs, Mines & Geosciences Bureau and other national government agencies imposing
taxes or fees), (ii) the local government units where the mining activity is conducted, and (iii)
persons and communities directly affected by the mining project. The major taxes and other
payments constituting the basic government share are enumerated below:65
Payments to the National Government:
· Excise tax on minerals - 2 percent of the gross output of mining operations
· Contractor' income tax - maximum of 32 percent of taxable income for corporations
· Customs duties and fees on imported capital equipment -the rate is set by the Tariff and
Customs Code (3-7 percent for chemicals; 3-10 percent for explosives; 3-15 percent for
mechanical and electrical equipment; and 3-10 percent for vehicles, aircraft and vessels
· VAT on imported equipment, goods and services – 10 percent of value
· Royalties due the government on minerals extracted from mineral reservations, if applicable –
5 percent of the actual market value of the minerals produced
· Documentary stamp tax - the rate depends on the type of transaction
· Capital gains tax on traded stocks - 5 to 10 percent of the value of the shares
· Withholding tax on interest payments on foreign loans -15 percent of the amount of interest
· Withholding tax on dividend payments to foreign stockholders – 15 percent of the dividend
· Wharfage and port fees
· Licensing fees (for example, radio permit, firearms permit, professional fees)
· Other national taxes and fees.
Payments to Local Governments:
· Local business tax - a maximum of 2 percent of gross sales or receipts (the rate varies among
local government units)
· Real property tax - 2 percent of the fair market value of the property, based on an assessment
level set by the local government
· Special education levy - 1 percent of the basis used for the real property tax
· Occupation fees - PhP50 per hectare per year; PhP100 per hectare per year if located in a
mineral reservation
· Community tax - maximum of PhP10,500 per year
· All other local government taxes, fees and imposts as of the effective date of the FTAA - the
rate and the type depend on the local government
Other Payments:
· Royalty to indigenous cultural communities, if any – 1 percent of gross output from mining
operations
· Special allowance - payment to claim owners and surface rights holders
Apart from the basic share, an additional government share is also collected from the FTAA
contractor in accordance with the second paragraph of Section 81 of RA 7942, which provides
that the government share shall be comprised of, among other things, certain taxes, duties and
fees. The subject proviso reads:
"The Government share in a financial or technical assistance agreement shall consist
of, among other things, the contractor's corporate income tax, excise tax, special allowance,
withholding tax due from the contractor's foreign stockholders arising from dividend or interest
payments to the said foreign stockholder in case of a foreign national, and all such other taxes,
duties and fees as provided for under existing laws." (Bold types supplied.)
The government, through the DENR and the MGB, has interpreted the insertion of the
phrase among other things as signifying that the government is entitled to an "additional
government share" to be paid by the contractor apart from the "basic share," in order to attain a
fifty-fifty sharing of net benefits from mining.
The additional government share is computed by using one of three options or schemes
presented in DAO 99-56: (1) a fifty-fifty sharing in the cumulative present value of cash flows; (2)
the share based on excess profits; and (3) the sharing based on the cumulative net mining
revenue. The particular formula to be applied will be selected by the contractor, with a written
notice to the government prior to the commencement of the development and construction
phase of the mining project.66
Proceeds from the government shares arising from an FTAA contract are distributed to and
received by the different levels of government in the following proportions:
National Government 50 percent
Provincial Government 10 percent
Municipal Government 20 percent
Affected Barangays 20 percent
The portion of revenues remaining after the deduction of the basic and additional government
shares is what goes to the contractor.
Government's Share in an
FTAA Not Consisting Solely
of Taxes, Duties and Fees
In connection with the foregoing discussion on the basic and additional government shares, it
is pertinent at this juncture to mention the criticism leveled at the second paragraph of Section
81 of RA 7942, quoted earlier. The said proviso has been denounced, because, allegedly, the
State's share in FTAAs with foreign contractors has been limited to taxes, fees and duties only;
in effect, the State has been deprived of a share in the after-tax income of the enterprise. In the
face of this allegation, one has to consider that the law does not define the term among other
things; and the Office of the Solicitor General, in its Motion for Reconsideration, appears to have
erroneously claimed that the phrase refers to indirect taxes.
The law provides no definition of the term among other things, for the reason that Congress
deliberately avoided setting unnecessary limitations as to what may constitute compensation to
the State for the exploitation and use of mineral resources. But the inclusion of that phrase
clearly and unmistakably reveals the legislative intent to have the State collect more than just
the usual taxes, duties and fees. Certainly, there is nothing in that phrase -- or in the second
paragraph of Section 81 -- that would suggest that such phrase should be interpreted as
referring only to taxes, duties, fees and the like.
Precisely for that reason, to fulfill the legislative intent behind the inclusion of the phrase among
other things in the second paragraph of Section 81,67 the DENR structured and formulated in
DAO 99-56 the said additional government share. Such a share was to consist not of taxes,
but of a share in the earnings or cash flows of the mining enterprise. The additional
government share was to be paid by the contractor on top of the basic share, so as to achieve a
fifty-fifty sharing -- between the government and the contractor -- of net benefits from mining. In
the Ramos-DeVera paper, the explanation of the three options or formulas68 -- presented in
DAO 99-56 for the computation of the additional government share -- serves to debunk the claim
that the government's take from an FTAA consists solely of taxes, fees and duties.
Unfortunately, the Office of the Solicitor General -- although in possession of the relevant data --
failed to fully replicate or echo the pertinent elucidation in the Ramos-DeVera paper regarding
the three schemes or options for computing the additional government share presented in DAO
99-56. Had due care been taken by the OSG, the Court would have been duly apprised of the
real nature and particulars of the additional share.
But, perhaps, on account of the esoteric discussion in the Ramos-DeVera paper, and the even
more abstruse mathematical jargon employed in DAO 99-56, the OSG omitted any mention of
the three options. Instead, the OSG skipped to a side discussion of the effect of indirect
taxes, which had nothing at all to do with the additional government share, to begin
with. Unfortunately, this move created the wrong impression, pointed out in Justice Antonio T.
Carpio's Opinion, that the OSG had taken the position that the additional government share
consisted of indirect taxes.
In any event, what is quite evident is the fact that the additional government share, as
formulated, has nothing to do with taxes -- direct or indirect -- or with duties, fees or charges. To
repeat, it is over and above the basic government share composed of taxes and duties. Simply
put, the additional share may be (a) an amount that will result in a 50-50 sharing of the
cumulative present value of the cash flows69 of the enterprise; (b) an amount equivalent to 25
percent of the additional or excess profits of the enterprise, reckoned against a benchmark
return on investments; or (c) an amount that will result in a fifty-fifty sharing of the cumulative net
mining revenue from the end of the recovery period up to the taxable year in question. The
contractor is required to select one of the three options or formulae for computing the additional
share, an option it will apply to all of its mining operations.
As used above, "net mining revenue" is defined as the gross output from mining operations for a
calendar year, less deductible expenses (inclusive of taxes, duties and fees). Such revenue
would roughly be equivalent to "taxable income" or income before income tax. Definitely, as
compared with, say, calculating the additional government share on the basis of net income
(after income tax), the net mining revenue is a better and much more reasonable basis for such
computation, as it gives a truer picture of the profitability of the company.
To demonstrate that the three options or formulations will operate as intended, Messrs. Ramos
and de Vera also performed some quantifications of the government share via a financial
modeling of each of the three options discussed above. They found that the government would
get the highest share from the option that is based on the net mining revenue, as compared with
the other two options, considering only the basic and the additional shares; and that, even
though production rate decreases, the government share will actually increase when the net
mining revenue and the additional profit-based options are used.
Furthermore, it should be noted that the three options or formulae do not yet take into account
the indirect taxes70and other financial contributions71 of mining projects. These indirect taxes and
other contributions are real and actual benefits enjoyed by the Filipino people and/or
government. Now, if some of the quantifiable items are taken into account in the computations,
the financial modeling would show that the total government share increases to 60 percent or
higher -- in one instance, as much as 77 percent and even 89 percent -- of the net present value
of total benefits from the project. As noted in the Ramos-DeVera paper, these results are not at
all shabby, considering that the contractor puts in all the capital requirements and assumes all
the risks, without the government having to contribute or risk anything.
Despite the foregoing explanation, Justice Carpio still insisted during the Court's deliberations
that the phrase among other things refers only to taxes, duties and fees. We are bewildered by
his position. On the one hand, he condemns the Mining Law for allegedly limiting the
government's benefits only to taxes, duties and fees; and on the other, he refuses to allow the
State to benefit from the correct and proper interpretation of the DENR/MGB. To remove all
doubts then, we hold that the State's share is not limited to taxes, duties and fees only and that
the DENR/MGB interpretation of the phrase among other things is correct. Definitely, this
DENR/MGB interpretation is not only legally sound, but also greatly advantageous to the
government.
One last point on the subject. The legislature acted judiciously in not defining the terms among
other things and, instead, leaving it to the agencies concerned to devise and develop the various
modes of arriving at a reasonable and fair amount for the additional government share. As
can be seen from DAO 99-56, the agencies concerned did an admirable job of conceiving and
developing not just one formula, but three different formulae for arriving at the additional
government share. Each of these options is quite fair and reasonable; and, as Messrs. Ramos
and De Vera stated, other alternatives or schemes for a possible improvement of the fiscal
regime for FTAAs are also being studied by the government.
Besides, not locking into a fixed definition of the term among other things will ultimately be more
beneficial to the government, as it will have that innate flexibility to adjust to and cope with
rapidly changing circumstances, particularly those in the international markets. Such flexibility is
especially significant for the government in terms of helping our mining enterprises remain
competitive in world markets despite challenging and shifting economic scenarios.
In conclusion, we stress that we do not share the view that in FTAAs with foreign
contractors under RA 7942, the government's share is limited to taxes, fees and duties.
Consequently, we find the attacks on the second paragraph of Section 81 of RA 7942
totally unwarranted.
Collections Not Made Uncertain
by the Third Paragraph of Section 81
The third or last paragraph of Section 8172 provides that the government share in FTAAs shall be
collected when the contractor shall have recovered its pre-operating expenses and exploration
and development expenditures. The objection has been advanced that, on account of the
proviso, the collection of the State's share is not even certain, as there is no time limit in RA
7942 for this grace period or recovery period.
We believe that Congress did not set any time limit for the grace period, preferring to leave it to
the concerned agencies, which are, on account of their technical expertise and training, in a
better position to determine the appropriate durations for such recovery periods. After all, these
recovery periods are determined, to a great extent, by technical and technological factors
peculiar to the mining industry. Besides, with developments and advances in technology and in
the geosciences, we cannot discount the possibility of shorter recovery periods. At any rate, the
concerned agencies have not been remiss in this area. The 1995 and 1996 Implementing Rules
and Regulations of RA 7942 specify that the period of recovery, reckoned from the date of
commercial operation, shall be for a period not exceeding five years, or until the date
of actual recovery, whichever comes earlier.
Approval of Pre-Operating
Expenses Required by RA 7942
Still, RA 7942 is criticized for allegedly not requiring government approval of pre-operating,
exploration and development expenses of the foreign contractors, who are in effect given
unfettered discretion to determine the amounts of such expenses. Supposedly, nothing prevents
the contractors from recording such expenses in amounts equal to the mining revenues
anticipated for the first 10 or 15 years of commercial production, with the result that the share of
the State will be zero for the first 10 or 15 years. Moreover, under the circumstances, the
government would be unable to say when it would start to receive its share under the FTAA.
We believe that the argument is based on incorrect information as well as speculation.
Obviously, certain crucial provisions in the Mining Law were overlooked. Section 23, dealing with
the rights and obligations of the exploration permit grantee, states: "The permittee shall
undertake exploration work on the area as specified by its permit based on an approved work
program." The next proviso reads: "Any expenditure in excess of the yearly budget of
the approved work program may be carried forward and credited to the succeeding years
covering the duration of the permit. x x x." (underscoring supplied)
Clearly, even at the stage of application for an exploration permit, the applicant is required to
submit -- for approval by the government -- a proposed work program for exploration, containing
a yearly budget of proposed expenditures. The State has the opportunity to pass upon (and
approve or reject) such proposed expenditures, with the foreknowledge that -- if approved --
these will subsequently be recorded as pre-operating expenses that the contractor will have to
recoup over the grace period. That is not all.
Under Section 24, an exploration permit holder who determines the commercial viability of a
project covering a mining area may, within the term of the permit, file with the Mines and
Geosciences Bureau a declaration of mining project feasibility. This declaration is to be
accompanied by a work program for development for the Bureau's approval, the necessary
prelude for entering into an FTAA, a mineral production sharing agreement (MPSA), or some
other mineral agreement. At this stage, too, the government obviously has the opportunity to
approve or reject the proposed work program and budgeted expenditures for development
works on the project. Such expenditures will ultimately become the pre-operating and
development costs that will have to be recovered by the contractor.
Naturally, with the submission of approved work programs and budgets for the exploration and
the development/construction phases, the government will be able to scrutinize and approve or
reject such expenditures. It will be well-informed as to the amounts of pre-operating and other
expenses that the contractor may legitimately recover and the approximate period of time
needed to effect such a recovery. There is therefore no way the contractor can just randomly
post any amount of pre-operating expenses and expect to recover the same.
The aforecited provisions on approved work programs and budgets have counterparts in Section
35, which deals with the terms and conditions exclusively applicable to FTAAs. The said
provision requires certain terms and conditions to be incorporated into FTAAs; among them, "a
firm commitment x x x of an amount corresponding to the expenditure obligation that will be
invested in the contract area" and "representations and warranties x x x to timely deploy
these [financing, managerial and technical expertise and technological] resources under its
supervision pursuant to the periodic work programs and related budgets x x x," as well as "work
programs and minimum expenditures commitments." (underscoring supplied)
Unarguably, given the provisions of Section 35, the State has every opportunity to pass upon the
proposed expenditures under an FTAA and approve or reject them. It has access to all the
information it may need in order to determine in advance the amounts of pre-operating and
developmental expenses that will have to be recovered by the contractor and the amount of time
needed for such recovery.
In summary, we cannot agree that the third or last paragraph of Section 81 of RA 7942 is
in any manner unconstitutional.
No Deprivation of Beneficial Rights
It is also claimed that aside from the second and the third paragraphs of Section 81 (discussed
above), Sections 80, 84 and 112 of RA 7942 also operate to deprive the State of beneficial
rights of ownership over mineral resources; and give them away for free to private business
enterprises (including foreign owned corporations). Likewise, the said provisions have been
construed as constituting, together with Section 81, an ingenious attempt to resurrect the old
and discredited system of "license, concession or lease."
Specifically, Section 80 is condemned for limiting the State's share in a mineral production-
sharing agreement (MPSA) to just the excise tax on the mineral product. Under Section 151(A)
of the Tax Code, such tax is only 2 percent of the market value of the gross output of the
minerals. The colatilla in Section 84, the portion considered offensive to the Constitution,
reiterates the same limitation made in Section 80.73
It should be pointed out that Section 80 and the colatilla in Section 84 pertain only to MPSAs
and have no application to FTAAs. These particular statutory provisions do not come within the
issues that were defined and delineated by this Court during the Oral Argument -- particularly
the third issue, which pertained exclusively to FTAAs. Neither did the parties argue upon them in
their pleadings. Hence, this Court cannot make any pronouncement in this case regarding the
constitutionality of Sections 80 and 84 without violating the fundamental rules of due process.
Indeed, the two provisos will have to await another case specifically placing them in issue.
On the other hand, Section 11274 is disparaged for allegedly reverting FTAAs and all mineral
agreements to the old and discredited "license, concession or lease" system. This Section states
in relevant part that "the provisions of Chapter XIV [which includes Sections 80 to 82] on
government share in mineral production-sharing agreement x x x shall immediately govern
and apply to a mining lessee or contractor." (underscoring supplied) This provision is construed
as signifying that the 2 percent excise tax which, pursuant to Section 80, comprises the
government share in MPSAs shall now also constitute the government share in FTAAs -- as well
as in co-production agreements and joint venture agreements -- to the exclusion of revenues of
any other nature or from any other source.
Apart from the fact that Section 112 likewise does not come within the issues delineated by this
Court during the Oral Argument, and was never touched upon by the parties in their pleadings, it
must also be noted that the criticism hurled against this Section is rooted in unwarranted
conclusions made without considering other relevant provisions in the statute. Whether Section
112 may properly apply to co-production or joint venture agreements, the fact of the matter is
that it cannot be made to apply to FTAAs.
First, Section 112 does not specifically mention or refer to FTAAs; the only reason it is being
applied to them at all is the fact that it happens to use the word "contractor." Hence, it is a bit of
a stretch to insist that it covers FTAAs as well. Second, mineral agreements, of which there are
three types -- MPSAs, co-production agreements, and joint venture agreements -- are covered
by Chapter V of RA 7942. On the other hand, FTAAs are covered by and in fact are the subject
of Chapter VI, an entirely different chapter altogether. The law obviously intends to treat them as
a breed apart from mineral agreements, since Section 35 (found in Chapter VI) creates a long
list of specific terms, conditions, commitments, representations and warranties -- which have not
been made applicable to mineral agreements -- to be incorporated into FTAAs.
Third, under Section 39, the FTAA contractor is given the option to "downgrade" -- to convert the
FTAA into a mineral agreement at any time during the term if the economic viability of the
contract area is inadequate to sustain large-scale mining operations. Thus, there is no reason to
think that the law through Section 112 intends to exact from FTAA contractors merely the same
government share (a 2 percent excise tax) that it apparently demands from contractors under
the three forms of mineral agreements. In brief, Section 112 does not apply to FTAAs.
Notwithstanding the foregoing explanation, Justices Carpio and Morales maintain that the Court
must rule now on the constitutionality of Sections 80, 84 and 112, allegedly because the WMCP
FTAA contains a provision which grants the contractor unbridled and "automatic" authority to
convert the FTAA into an MPSA; and should such conversion happen, the State would be
prejudiced since its share would be limited to the 2 percent excise tax. Justice Carpio adds that
there are five MPSAs already signed just awaiting the judgment of this Court on respondents'
and intervenor's Motions for Reconsideration. We hold however that, at this point, this argument
is based on pure speculation. The Court cannot rule on mere surmises and hypothetical
assumptions, without firm factual anchor. We repeat: basic due process requires that we hear
the parties who have a real legal interest in the MPSAs (i.e. the parties who executed them)
before these MPSAs can be reviewed, or worse, struck down by the Court. Anything less than
that requirement would be arbitrary and capricious.
In any event, the conversion of the present FTAA into an MPSA is problematic. First, the
contractor must comply with the law, particularly Section 39 of RA 7942; inter alia, it must
convincingly show that the "economic viability of the contract is found to be inadequate to justify
large-scale mining operations;" second, it must contend with the President's exercise of the
power of State control over the EDU of natural resources; and third, it will have to risk a possible
declaration of the unconstitutionality (in a proper case) of Sections 80, 84 and 112.
The first requirement is not as simple as it looks. Section 39 contemplates a situation in which
an FTAA has already been executed and entered into, and is presumably being implemented,
when the contractor "discovers" that the mineral ore reserves in the contract area are not
sufficient to justify large-scale mining, and thus the contractor requests the conversion of the
FTAA into an MPSA. The contractor in effect needs to explain why, despite its exploration
activities, including the conduct of various geologic and other scientific tests and procedures in
the contract area, it was unable to determine correctly the mineral ore reserves and the
economic viability of the area. The contractor must explain why, after conducting such
exploration activities, it decided to file a declaration of mining feasibility, and to apply for an
FTAA, thereby leading the State to believe that the area could sustain large-scale mining. The
contractor must justify fully why its earlier findings, based on scientific procedures, tests and
data, turned out to be wrong, or were way off. It must likewise prove that its new findings, also
based on scientific tests and procedures, are correct. Right away, this puts the contractor's
technical capabilities and expertise into serious doubt. We wonder if anyone would relish being
in this situation. The State could even question and challenge the contractor's qualification and
competence to continue the activity under an MPSA.
All in all, while there may be cogent grounds to assail the aforecited Sections, this Court
-- on considerations of due process -- cannot rule upon them here. Anyway, if later on
these Sections are declared unconstitutional, such declaration will not affect the other
portions since they are clearly separable from the rest.
Our Mineral Resources Not
Given Away for Free by RA 7942
Nevertheless, if only to disabuse our minds, we should address the contention that our mineral
resources are effectively given away for free by the law (RA 7942) in general and by Sections
80, 81, 84 and 112 in particular.
Foreign contractors do not just waltz into town one day and leave the next, taking away mineral
resources without paying anything. In order to get at the minerals, they have to invest huge
sums of money (tens or hundreds of millions of dollars) in exploration works first. If the
exploration proves unsuccessful, all the cash spent thereon will not be returned to the foreign
investors; rather, those funds will have been infused into the local economy, to remain there
permanently. The benefits therefrom cannot be simply ignored. And assuming that the foreign
contractors are successful in finding ore bodies that are viable for commercial exploitation, they
do not just pluck out the minerals and cart them off. They have first to build camp sites and
roadways; dig mine shafts and connecting tunnels; prepare tailing ponds, storage areas and
vehicle depots; install their machinery and equipment, generator sets, pumps, water tanks and
sewer systems, and so on.
In short, they need to expend a great deal more of their funds for facilities, equipment and
supplies, fuel, salaries of local labor and technical staff, and other operating expenses. In the
meantime, they also have to pay taxes,75 duties, fees, and royalties. All told, the exploration, pre-
feasibility, feasibility, development and construction phases together add up to as many as
eleven years.76 The contractors have to continually shell out funds for the duration of over a
decade, before they can commence commercial production from which they would eventually
derive revenues. All that money translates into a lot of "pump-priming" for the local economy.
Granted that the contractors are allowed subsequently to recover their pre-operating expenses,
still, that eventuality will happen only after they shall have first put out the cash and fueled the
economy. Moreover, in the process of recouping their investments and costs, the foreign
contractors do not actually pull out the money from the economy. Rather, they recover or recoup
their investments out of actual commercial production by not paying a portion of the basic
government share corresponding to national taxes, along with the additional government share,
for a period of not more than five years77 counted from the commencement of commercial
production.
It must be noted that there can be no recovery without commencing actual commercial
production. In the meantime that the contractors are recouping costs, they need to continue
operating; in order to do so, they have to disburse money to meet their various needs. In short,
money is continually infused into the economy.
The foregoing discussion should serve to rid us of the mistaken belief that, since the foreign
contractors are allowed to recover their investments and costs, the end result is that they
practically get the minerals for free, which leaves the Filipino people none the better for it.
All Businesses Entitled
to Cost Recovery
Let it be put on record that not only foreign contractors, but all businessmen and all business
entities in general, have to recoup their investments and costs. That is one of the first things a
student learns in business school. Regardless of its nationality, and whether or not a business
entity has a five-year cost recovery period, it will -- must -- have to recoup its investments, one
way or another. This is just common business sense. Recovery of investments is absolutely
indispensable for business survival; and business survival ensures soundness of the economy,
which is critical and contributory to the general welfare of the people. Even government
corporations must recoup their investments in order to survive and continue in operation. And,
as the preceding discussion has shown, there is no business that gets ahead or earns profits
without any cost to it.
It must also be stressed that, though the State owns vast mineral wealth, such wealth is not
readily accessible or transformable into usable and negotiable currency without the intervention
of the credible mining companies. Those untapped mineral resources, hidden beneath tons of
earth and rock, may as well not be there for all the good they do us right now. They have first to
be extracted and converted into marketable form, and the country needs the foreign contractor's
funds, technology and know-how for that.
After about eleven years of pre-operation and another five years for cost recovery, the foreign
contractors will have just broken even. Is it likely that they would at that point stop their
operations and leave? Certainly not. They have yet to make profits. Thus, for the remainder of
the contract term, they must strive to maintain profitability. During this period, they pay the whole
of the basic government share and the additional government share which, taken together with
indirect taxes and other contributions, amount to approximately 60 percent or more of the entire
financial benefits generated by the mining venture.
In sum, we can hardly talk about foreign contractors taking our mineral resources for free. It
takes a lot of hard cash to even begin to do what they do. And what they do in this country
ultimately benefits the local economy, grows businesses, generates employment, and creates
infrastructure, as discussed above. Hence, we definitely disagree with the sweeping claim that
no FTAA under Section 81 will ever make any real contribution to the growth of the economy or
to the general welfare of the country. This is not a plea for foreign contractors. Rather, this is a
question of focusing the judicial spotlight squarely on all the pertinent facts as they bear upon
the issue at hand, in order to avoid leaping precipitately to ill-conceived conclusions not solidly
grounded upon fact.
Repatriation of After-Tax Income
Another objection points to the alleged failure of the Mining Law to ensure real contributions to
the economic growth and general welfare of the country, as mandated by Section 2 of Article XII
of the Constitution. Pursuant to Section 81 of the law, the entire after-tax income arising from the
exploitation of mineral resources owned by the State supposedly belongs to the foreign
contractors, which will naturally repatriate the said after-tax income to their home countries,
thereby resulting in no real contribution to the economic growth of this country. Clearly, this
contention is premised on erroneous assumptions.
First, as already discussed in detail hereinabove, the concerned agencies have correctly
interpreted the second paragraph of Section 81 of RA 7942 to mean that the government is
entitled to an additional share, to be computed based on any one of the following factors: net
mining revenues, the present value of the cash flows, or excess profits reckoned against a
benchmark rate of return on investments. So it is not correct to say that all of the after-tax
income will accrue to the foreign FTAA contractor, as the government effectively receives a
significant portion thereof.
Second, the foreign contractors can hardly "repatriate the entire after-tax income to their home
countries." Even a bit of knowledge of corporate finance will show that it will be impossible to
maintain a business as a "going concern" if the entire "net profit" earned in any particular year
will be taken out and repatriated. The "net income" figure reflected in the bottom line is a mere
accounting figure not necessarily corresponding to cash in the bank, or other quick assets. In
order to produce and set aside cash in an amount equivalent to the bottom line figure, one may
need to sell off assets or immediately collect receivables or liquidate short-term investments; but
doing so may very likely disrupt normal business operations.
In terms of cash flows, the funds corresponding to the net income as of a particular point in time
are actually in usein the normal course of business operations. Pulling out such net
income disrupts the cash flows and cash position of the enterprise and, depending on the
amount being taken out, could seriously cripple or endanger the normal operations and financial
health of the business enterprise. In short, no sane business person, concerned with
maintaining the mining enterprise as a going concern and keeping a foothold in its
market, can afford to repatriate the entire after-tax income to the home country.
The State's Receipt of Sixty
Percent of an FTAA Contractor's
After-Tax Income Not Mandatory
We now come to the next objection which runs this way: In FTAAs with a foreign contractor, the
State must receive at least 60 percent of the after-tax income from the exploitation of its mineral
resources. This share is the equivalent of the constitutional requirement that at least 60 percent
of the capital, and hence 60 percent of the income, of mining companies should remain in
Filipino hands.
First, we fail to see how we can properly conclude that the Constitution mandates the State to
extract at least 60 percent of the after-tax income from a mining company run by a foreign
contractor. The argument is that the Charter requires the State's partner in a co-production
agreement, joint venture agreement or MPSA to be a Filipino corporation (at least 60 percent
owned by Filipino citizens).
We question the logic of this reasoning, premised on a supposedly parallel or analogous
situation. We are, after all, dealing with an essentially different equation, one that involves
different elements. The Charter did not intend to fix an iron-clad rule on the 60 percent
share, applicable to all situations at all times and in all circumstances.If ever such was the
intention of the framers, they would have spelt it out in black and white. Verba legis will serve to
dispel unwarranted and untenable conclusions.
Second, if we would bother to do the math, we might better appreciate the impact (and
reasonableness) of what we are demanding of the foreign contractor. Let us use
a simplified illustration. Let us base it on gross revenues of, say, P500. After deducting operating
expenses, but prior to income tax, suppose a mining firm makes a taxable incomeof P100. A
corporate income tax of 32 percent results in P32 of taxable income going to the government,
leaving the mining firm with P68. Government then takes 60 percent thereof, equivalent
to P40.80, leaving only P27.20 for the mining firm.
At this point the government has pocketed P32.00 plus P40.80, or a total of P72.80 for
every P100 of taxable income, leaving the mining firm with only P27.20. But that is not all. The
government has also taken 2 percent excise tax "off the top," equivalent to another P10. Under
the minimum 60 percent proposal, the government nets around P82.80 (not counting other
taxes, duties, fees and charges) from a taxable income of P100 (assuming gross revenues
of P500, for purposes of illustration). On the other hand, the foreign contractor, which provided
all the capital, equipment and labor, and took all the entrepreneurial risks -- receives P27.20.
One cannot but wonder whether such a distribution is even remotely equitable and reasonable,
considering the nature of the mining business. The amount of P82.80 out of P100.00 is really a
lot – it does not matter that we call part of it excise tax or income tax, and another portion
thereof income from exploitation of mineral resources. Some might think it wonderful to be able
to take the lion's share of the benefits. But we have to ask ourselves if we are really serious in
attracting the investments that are the indispensable and key element in generating the
monetary benefits of which we wish to take the lion's share. Fairness is a credo not only in
law, but also in business.
Third, the 60 percent rule in the petroleum industry cannot be insisted upon at all times in the
mining business. The reason happens to be the fact that in petroleum operations, the bulk of
expenditures is in exploration, but once the contractor has found and tapped into the deposit,
subsequent investments and expenditures are relatively minimal. The crude (or gas) keeps
gushing out, and the work entailed is just a matter of piping, transporting and storing. Not so in
mineral mining. The ore body does not pop out on its own. Even after it has been located, the
contractor must continually invest in machineries and expend funds to dig and build tunnels in
order to access and extract the minerals from underneath hundreds of tons of earth and rock.
As already stated, the numerous intrinsic differences involved in their respective operations and
requirements, cost structures and investment needs render it highly inappropriate to use
petroleum operations FTAAs as benchmarks for mining FTAAs. Verily, we cannot just ignore the
realities of the distinctly different situations and stubbornly insist on the "minimum 60 percent."
The Mining and the Oil Industries
Different From Each Other
To stress, there is no independent showing that the taking of at least a 60 percent share in the
after-tax income of a mining company operated by a foreign contractor is fair and reasonable
under most if not all circumstances. The fact that some petroleum companies like Shell acceded
to such percentage of sharing does not ipso facto mean that it is per se reasonable and
applicable to non-petroleum situations (that is, mining companies) as well. We can take judicial
notice of the fact that there are, after all, numerous intrinsic differences involved in their
respective operations and equipment or technological requirements, costs structures and capital
investment needs, and product pricing and markets.
There is no showing, for instance, that mining companies can readily cope with a 60 percent
government share in the same way petroleum companies apparently can. What we have is a
suggestion to enforce the 60 percent quota on the basis of a disjointed analogy. The only factor
common to the two disparate situations is the extraction of natural resources.
Indeed, we should take note of the fact that Congress made a distinction between mining firms
and petroleum companies. In Republic Act No. 7729 -- "An Act Reducing the Excise Tax Rates
on Metallic and Non-Metallic Minerals and Quarry Resources, Amending for the Purpose
Section 151(a) of the National Internal Revenue Code, as amended" -- the lawmakers fixed the
excise tax rate on metallic and non-metallic minerals at two percent of the actual market value of
the annual gross output at the time of removal. However, in the case of petroleum, the
lawmakers set the excise tax rate for the first taxable sale at fifteen percent of the fair
international market price thereof.
There must have been a very sound reason that impelled Congress to impose two very
dissimilar excise tax rate. We cannot assume, without proof, that our honorable legislators acted
arbitrarily, capriciously and whimsically in this instance. We cannot just ignore the reality of two
distinctly different situations and stubbornly insist on going "minimum 60 percent."
To repeat, the mere fact that gas and oil exploration contracts grant the State 60 percent of the
net revenues does not necessarily imply that mining contracts should likewise yield a minimum
of 60 percent for the State. Jumping to that erroneous conclusion is like comparing apples with
oranges. The exploration, development and utilization of gas and oil are simply different from
those of mineral resources.
To stress again, the main risk in gas and oil is in the exploration. But once oil in commercial
quantities is struck and the wells are put in place, the risk is relatively over and black gold simply
flows out continuously with comparativelyless need for fresh investments and technology.
On the other hand, even if minerals are found in viable quantities, there is still need
for continuous fresh capital and expertise to dig the mineral ores from the mines. Just because
deposits of mineral ores are found in one area is no guarantee that an equal amount can be
found in the adjacent areas. There are simply continuing risks and need for more capital,
expertise and industry all the time.
Note, however, that the indirect benefits -- apart from the cash revenues -- are much more in the
mineral industry. As mines are explored and extracted, vast employment is created, roads and
other infrastructure are built, and other multiplier effects arise. On the other hand, once oil wells
start producing, there is less need for employment. Roads and other public works need not be
constructed continuously. In fine, there is no basis for saying that government revenues from the
oil industry and from the mineral industries are to be identical all the time.
Fourth, to our mind, the proffered "minimum 60 percent" suggestion tends to limit the flexibility
and tie the hands of government, ultimately hampering the country's competitiveness in the
international market, to the detriment of the Filipino people. This "you-have-to-give-us-60-
percent-of-after-tax-income-or-we-don't-do- business-with-you" approach is quite perilous. True,
this situation may not seem too unpalatable to the foreign contractor during good years, when
international market prices are up and the mining firm manages to keep its costs in check.
However, under unfavorable economic and business conditions, with costs spiraling skywards
and minerals prices plummeting, a mining firm may consider itself lucky to make just minimal
profits.
The inflexible, carved-in-granite demand for a 60 percent government share may spell the end of
the mining venture, scare away potential investors, and thereby further worsen the already
dismal economic scenario. Moreover, such an unbending or unyielding policy prevents the
government from responding appropriately to changing economic conditions and shifting market
forces. This inflexibility further renders our country less attractive as an investment option
compared with other countries.
And fifth, for this Court to decree imperiously that the government's share should be not less
than 60 percent of the after-tax income of FTAA contractors at all times is nothing short of
dictating upon the government. The result, ironically, is that the State ends up losing control. To
avoid compromising the State's full control and supervision over the exploitation of mineral
resources, this Court must back off from insisting upon a "minimum 60 percent" rule. It is
sufficient that the State has the power and means, should it so decide, to get a 60 percent share
(or more) in the contractor's net mining revenues or after-tax income, or whatever other basis
the government may decide to use in reckoning its share. It is not necessary for it to do so in
every case, regardless of circumstances.
In fact, the government must be trusted, must be accorded the liberty and the utmost flexibility to
deal, negotiate and transact with contractors and third parties as it sees fit; and upon terms that
it ascertains to be most favorable or most acceptable under the circumstances, even if it means
agreeing to less than 60 percent. Nothing must prevent the State from agreeing to a share less
than that, should it be deemed fit; otherwise the State will be deprived of full control over mineral
exploitation that the Charter has vested in it.
To stress again, there is simply no constitutional or legal provision fixing the minimum share of
the government in an FTAA at 60 percent of the net profit. For this Court to decree such
minimum is to wade into judicial legislation, and thereby inordinately impinge on the control
power of the State. Let it be clear: the Court is not against the grant of more benefits to the
State; in fact, the more the better. If during the FTAA negotiations, the President can secure 60
percent,78 or even 90 percent, then all the better for our people. But, if under the peculiar
circumstances of a specific contract, the President could secure only 50 percent or 55 percent,
so be it. Needless to say, the President will have to report (and be responsible for) the specific
FTAA to Congress, and eventually to the people.
Finally, if it should later be found that the share agreed to is grossly disadvantageous to the
government, the officials responsible for entering into such a contract on its behalf will have to
answer to the courts for their malfeasance. And the contract provision voided. But this Court
would abuse its own authority should it force the government's hand to adopt the 60 percent
demand of some of our esteemed colleagues.
Capital and Expertise Provided,
Yet All Risks Assumed by Contractor
Here, we will repeat what has not been emphasized and appreciated enough: the fact that the
contractor in an FTAA provides all the needed capital, technical and managerial expertise, and
technology required to undertake the project.
In regard to the WMCP FTAA, the then foreign-owned WMCP as contractor committed, at the
very outset, to make capital investments of up to US$50 million in that single mining project.
WMCP claims to have already poured in well over P800 million into the country as of February
1998, with more in the pipeline. These resources, valued in the tens or hundreds of millions of
dollars, are invested in a mining project that provides no assurance whatsoever that any part of
the investment will be ultimately recouped.
At the same time, the contractor must comply with legally imposed environmental standards and
the social obligations, for which it also commits to make significant expenditures of funds.
Throughout, the contractor assumes all the risks79 of the business, as mentioned earlier. These
risks are indeed very high, considering that the rate of success in exploration is extremely low.
The probability of finding any mineral or petroleum in commercially viable quantities is estimated
to be about 1:1,000 only. On that slim chance rides the contractor's hope of recouping
investments and generating profits. And when the contractor has recouped its initial investments
in the project, the government share increases to sixty percent of net benefits -- without the
State ever being in peril of incurring costs, expenses and losses.
And even in the worst possible scenario -- an absence of commercial quantities of minerals to
justify development -- the contractor would already have spent several million pesos for
exploration works, before arriving at the point in which it can make that determination and decide
to cut its losses. In fact, during the first year alone of the exploration period, the contractor was
already committed to spend not less than P24 million. The FTAA therefore clearly ensures
benefits for the local economy, courtesy of the contractor.
All in all, this setup cannot be regarded as disadvantageous to the State or the Filipino
people; it certainly cannot be said to convey beneficial ownership of our mineral
resources to foreign contractors.
Deductions Allowed by the
WMCP FTAA Reasonable
Petitioners question whether the State's weak control might render the sharing arrangements
ineffective. They cite the so-called "suspicious" deductions allowed by the WMCP FTAA in
arriving at the net mining revenue, which is the basis for computing the government share. The
WMCP FTAA, for instance, allows expenditures for "development within and outside the
Contract Area relating to the Mining Operations,"80 "consulting fees incurred both inside
and outside the Philippines for work related directly to the Mining Operations,"81 and "the
establishment and administration of field offices including administrative overheads incurred
within and outside the Philippines which are properly allocatable to the Mining Operations and
reasonably related to the performance of the Contractor's obligations and exercise of its rights
under this Agreement."82
It is quite well known, however, that mining companies do perform some marketing activities
abroad in respect of selling their mineral products and by-products. Hence, it would not be
improper to allow the deduction of reasonable consulting fees incurred abroad, as well as
administrative expenses and overheads related to marketing offices also located abroad --
provided that these deductions are directly related or properly allocatable to the mining
operations and reasonably related to the performance of the contractor's obligations and
exercise of its rights. In any event, more facts are needed. Until we see how these provisions
actually operate, mere "suspicions" will not suffice to propel this Court into taking action.
Section 7.9 of the WMCP FTAA
Invalid and Disadvantageous
Having defended the WMCP FTAA, we shall now turn to two defective provisos. Let us start with
Section 7.9 of the WMCP FTAA. While Section 7.7 gives the government a 60 percent share in
the net mining revenues of WMCP from the commencement of commercial production, Section
7.9 deprives the government of part or all of the said 60 percent. Under the latter provision,
should WMCP's foreign shareholders -- who originally owned 100 percent of the equity -- sell 60
percent or more of its outstanding capital stock to a Filipino citizen or corporation, the State
loses its right to receive its 60 percent share in net mining revenues under Section 7.7.
Section 7.9 provides:
The percentage of Net Mining Revenues payable to the Government pursuant to Clause 7.7
shall be reduced by 1percent of Net Mining Revenues for every 1percent ownership interest in
the Contractor (i.e., WMCP) held by a Qualified Entity.83
Evidently, what Section 7.7 grants to the State is taken away in the next breath by Section
7.9 without any offsetting compensation to the State. Thus, in reality, the State has no vested
right to receive any income from the FTAA for the exploitation of its mineral resources. Worse, it
would seem that what is given to the State in Section 7.7 is by mere tolerance of WMCP's
foreign stockholders, who can at any time cut off the government's entire 60 percent share.
They can do so by simply selling 60 percent of WMCP's outstanding capital stock to a Philippine
citizen or corporation. Moreover, the proceeds of such sale will of course accrue to the foreign
stockholders of WMCP, not to the State.
The sale of 60 percent of WMCP's outstanding equity to a corporation that is 60 percent Filipino-
owned and 40 percent foreign-owned will still trigger the operation of Section 7.9. Effectively, the
State will lose its right to receive all 60 percent of the net mining revenues of WMCP;
and foreign stockholders will own beneficially up to 64 percent of WMCP, consisting of the
remaining 40 percent foreign equity therein, plus the 24 percent pro-rata share in the buyer-
corporation.84
In fact, the January 23, 2001 sale by WMCP's foreign stockholder of the entire outstanding
equity in WMCP to Sagittarius Mines, Inc. -- a domestic corporation at least 60 percent Filipino
owned -- may be deemed to have automatically triggered the operation of Section 7.9, without
need of further action by any party, and removed the State's right to receive the 60 percent
share in net mining revenues.
At bottom, Section 7.9 has the effect of depriving the State of its 60 percent share in the net
mining revenues of WMCP without any offset or compensation whatsoever. It is possible that the
inclusion of the offending provision was initially prompted by the desire to provide some form of
incentive for the principal foreign stockholder in WMCP to eventually reduce its equity position
and ultimately divest in favor of Filipino citizens and corporations. However, as finally structured,
Section 7.9 has the deleterious effect of depriving government of the entire 60 percent share in
WMCP's net mining revenues, without any form of compensation whatsoever. Such an outcome
is completely unacceptable.
The whole point of developing the nation's natural resources is to benefit the Filipino people,
future generations included. And the State as sovereign and custodian of the nation's natural
wealth is mandated to protect, conserve, preserve and develop that part of the national
patrimony for their benefit. Hence, the Charter lays great emphasis on "real contributions to the
economic growth and general welfare of the country"85 as essential guiding principles to be kept
in mind when negotiating the terms and conditions of FTAAs.
Earlier, we held (1) that the State must be accorded the liberty and the utmost flexibility to deal,
negotiate and transact with contractors and third parties as it sees fit, and upon terms that it
ascertains to be most favorable or most acceptable under the circumstances, even if that should
mean agreeing to less than 60 percent; (2) that it is not necessary for the State to extract a 60
percent share in every case and regardless of circumstances; and (3) that should the State be
prevented from agreeing to a share less than 60 percent as it deems fit, it will be deprived of the
full control over mineral exploitation that the Charter has vested in it.
That full control is obviously not an end in itself; it exists and subsists precisely because of the
need to serve and protect the national interest. In this instance, national interest finds particular
application in the protection of the national patrimony and the development and exploitation of
the country's mineral resources for the benefit of the Filipino people and the enhancement of
economic growth and the general welfare of the country. Undoubtedly, such full control can
be misused and abused, as we now witness.
Section 7.9 of the WMCP FTAA effectively gives away the State's share of net mining revenues
(provided for in Section 7.7) without anything in exchange. Moreover, this outcome
constitutes unjust enrichment on the part of the local and foreign stockholders of WMCP. By
their mere divestment of up to 60 percent equity in WMCP in favor of Filipino citizens and/or
corporations, the local and foreign stockholders get a windfall. Their share in the net mining
revenues of WMCP is automatically increased, without their having to pay the government
anything for it. In short, the provision in question is without a doubt grossly disadvantageous to
the government, detrimental to the interests of the Filipino people, and violative of public policy.
Moreover, it has been reiterated in numerous decisions86 that the parties to a contract may
establish any agreements, terms and conditions that they deem convenient; but these should
not be contrary to law, morals, good customs, public order or public policy.87 Being precisely
violative of anti-graft provisions and contrary to public policy, Section 7.9 must therefore be
stricken off as invalid.
Whether the government officials concerned acceded to that provision by sheer mistake or with
full awareness of the ill consequences, is of no moment. It is hornbook doctrine that the principle
of estoppel does not operate against the government for the act of its agents,88 and that it is
never estopped by any mistake or error on their part.89 It is therefore possible and proper to
rectify the situation at this time. Moreover, we may also say that the FTAA in question does not
involve mere contractual rights; being impressed as it is with public interest, the contractual
provisions and stipulations must yield to the common good and the national interest.
90 
Since the offending provision is very much separable from Section 7.7 and the rest of the
FTAA, the deletion of Section 7.9 can be done without affecting or requiring the invalidation of
the WMCP FTAA itself. Such a deletion will preserve for the government its due share of the
benefits. This way, the mandates of the Constitution are complied with and the interests of the
government fully protected, while the business operations of the contractor are not needlessly
disrupted.
Section 7.8(e) of the WMCP FTAA
Also Invalid and Disadvantageous
Section 7.8(e) of the WMCP FTAA is likewise invalid. It provides thus:
"7.8 The Government Share shall be deemed to include all of the following sums:
"(a) all Government taxes, fees, levies, costs, imposts, duties and royalties including excise tax,
corporate income tax, customs duty, sales tax, value added tax, occupation and regulatory fees,
Government controlled price stabilization schemes, any other form of Government backed
schemes, any tax on dividend payments by the Contractor or its Affiliates in respect of revenues
from the Mining Operations and any tax on interest on domestic and foreign loans or other
financial arrangements or accommodations, including loans extended to the Contractor by its
stockholders;
"(b) any payments to local and regional government, including taxes, fees, levies, costs,
imposts, duties, royalties, occupation and regulatory fees and infrastructure contributions;
"(c) any payments to landowners, surface rights holders, occupiers, indigenous people or
Claimowners;
"(d) costs and expenses of fulfilling the Contractor's obligations to contribute to national
development in accordance with Clause 10.1(i) (1) and 10.1(i) (2);
"(e) an amount equivalent to whatever benefits that may be extended in the future by the
Government to the Contractor or to financial or technical assistance agreement contractors in
general;
"(f) all of the foregoing items which have not previously been offset against the Government
Share in an earlier Fiscal Year, adjusted for inflation." (underscoring supplied)
Section 7.8(e) is out of place in the FTAA. It makes no sense why, for instance, money spent by
the government for the benefit of the contractor in building roads leading to the mine site should
still be deductible from the State's share in net mining revenues. Allowing this deduction results
in benefiting the contractor twice over. It constitutes unjust enrichment on the part of the
contractor at the expense of the government, since the latter is effectively being made to pay
twice for the same item.91 For being grossly disadvantageous and prejudicial to the government
and contrary to public policy, Section 7.8(e) is undoubtedly invalid and must be declared to be
without effect. Fortunately, this provision can also easily be stricken off without affecting the rest
of the FTAA.
Nothing Left Over
After Deductions?
In connection with Section 7.8, an objection has been raised: Specified in Section 7.8 are
numerous items of deduction from the State's 60 percent share. After taking these into account,
will the State ever receive anything for its ownership of the mineral resources?
We are confident that under normal circumstances, the answer will be yes. If we examine the
various items of "deduction" listed in Section 7.8 of the WMCP FTAA, we will find that they
correspond closely to the components or elements of the basic government share established
in DAO 99-56, as discussed in the earlier part of this Opinion.
Likewise, the balance of the government's 60 percent share -- after netting out the items of
deduction listed in Section 7.8 --corresponds closely to the additional government
share provided for in DAO 99-56 which, we once again stress, has nothing at all to do with
indirect taxes. The Ramos-DeVera paper92 concisely presents the fiscal contribution of an FTAA
under DAO 99-56 in this equation:
Receipts from an FTAA = basic gov't share + add'l gov't share
Transposed into a similar equation, the fiscal payments system from the WMCP FTAA assumes
the following formulation:
Government's 60 percent share in net mining revenues of WMCP = items listed in Sec. 7.8 of
the FTAA + balance of Gov't share, payable 4 months from the end of the fiscal year
It should become apparent that the fiscal arrangement under the WMCP FTAA is very similar to
that under DAO 99-56, with the "balance of government share payable 4 months from end of
fiscal year" being the equivalent of the additional government share computed in accordance
with the "net-mining-revenue-based option" under DAO 99-56, as discussed above. As we have
emphasized earlier, we find each of the three options for computing the additional government
share -- as presented in DAO 99-56 -- to be sound and reasonable.
We therefore conclude that there is nothing inherently wrong in the fiscal regime of the
WMCP FTAA, and certainly nothing to warrant the invalidation of the FTAA in its entirety.
Section 3.3 of the WMCP
FTAA Constitutional
Section 3.3 of the WMCP FTAA is assailed for violating supposed constitutional restrictions on
the term of FTAAs. The provision in question reads:
"3.3 This Agreement shall be renewed by the Government for a further period of twenty-five (25)
years under the same terms and conditions provided that the Contractor lodges a request for
renewal with the Government not less than sixty (60) days prior to the expiry of the initial term of
this Agreement and provided that the Contractor is not in breach of any of the requirements of
this Agreement."
Allegedly, the above provision runs afoul of Section 2 of Article XII of the 1987 Constitution,
which states:
"Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils,
all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other
natural resources are owned by the State. With the exception of agricultural lands, all other
natural resources shall not be alienated. The exploration, development and utilization of natural
resources shall be under the full control and supervision of the State. The State may directly
undertake such activities, or it may enter into co-production, joint venture or production-sharing
agreements with Filipino citizens or corporations or associations at least sixty per centum of
whose capital is owned by such citizens. Such agreements may be for a period not
exceeding twenty-five years, renewable for not more than twenty-five years, and under
such terms and conditions as may be provided by law. In cases of water rights for irrigation,
water supply, fisheries, or industrial uses other than the development of water power, beneficial
use may be the measure and limit of the grant.
"The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea, and
exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.
"The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens,
as well as cooperative fish farming, with priority to subsistence fishermen and fish-workers in
rivers, lakes, bays and lagoons.
"The President may enter into agreements with foreign-owned corporations involving either
technical or financial assistance for large-scale exploration, development, and utilization of
minerals, petroleum, and other mineral oils according to the general terms and conditions
provided by law, based on real contributions to the economic growth and general welfare of the
country. In such agreements, the State shall promote the development and use of local scientific
and technical resources.
"The President shall notify the Congress of every contract entered into in accordance with this
provision, within thirty days from its execution."93
We hold that the term limitation of twenty-five years does not apply to FTAAs. The reason is that
the above provision is found within paragraph 1 of Section 2 of Article XII, which refers to
mineral agreements -- co-production agreements, joint venture agreements and mineral
production-sharing agreements -- which the government may enter into with Filipino citizens and
corporations, at least 60 percent owned by Filipino citizens. The word "such" clearly refers to
these three mineral agreements -- CPAs, JVAs and MPSAs -- not to FTAAs.
Specifically, FTAAs are covered by paragraphs 4 and 5 of Section 2 of Article XII of the
Constitution. It will be noted that there are no term limitations provided for in the said paragraphs
dealing with FTAAs. This shows that FTAAs are sui generis, in a class of their own. This
omission was obviously a deliberate move on the part of the framers. They probably realized
that FTAAs would be different in many ways from MPSAs, JVAs and CPAs. The reason the
framers did not fix term limitations applicable to FTAAs is that they preferred to leave the matter
to the discretion of the legislature and/or the agencies involved in implementing the laws
pertaining to FTAAs, in order to give the latter enough flexibility and elbow room to meet
changing circumstances.
Note also that, as previously stated, the exploratory phrases of an FTAA lasts up to eleven
years. Thereafter, a few more years would be gobbled up in start-up operations. It may take
fifteen years before an FTAA contractor can start earning profits. And thus, the period of 25
years may really be short for an FTAA. Consider too that in this kind of agreement, the
contractor assumes all entrepreneurial risks. If no commercial quantities of minerals are found,
the contractor bears all financial losses. To compensate for this long gestation period and extra
business risks, it would not be totally unreasonable to allow it to continue EDU activities for
another twenty five years.
In any event, the complaint is that, in essence, Section 3.3 gives the contractor the power to
compel the government to renew the WMCP FTAA for another 25 years and deprives the State
of any say on whether to renew the contract.
While we agree that Section 3.3 could have been worded so as to prevent it from favoring the
contractor, this provision does not violate any constitutional limits, since the said term limitation
does not apply at all to FTAAs. Neither can the provision be deemed in any manner to be illegal,
as no law is being violated thereby. It is certainly not illegal for the government to waive its
option to refuse the renewal of a commercial contract.
Verily, the government did not have to agree to Section 3.3. It could have said "No" to the
stipulation, but it did not. It appears that, in the process of negotiations, the other contracting
party was able to convince the government to agree to the renewal terms. Under the
circumstances, it does not seem proper for this Court to intervene and step in to undo what
might have perhaps been a possible miscalculation on the part of the State. If government
believes that it is or will be aggrieved by the effects of Section 3.3, the remedy is the
renegotiation of the provision in order to provide the State the option to not renew the FTAA.
Financial Benefits for Foreigners
Not Forbidden by the Constitution
Before leaving this subject matter, we find it necessary for us to rid ourselves of the false belief
that the Constitution somehow forbids foreign-owned corporations from deriving financial
benefits from the development of our natural or mineral resources.
The Constitution has never prohibited foreign corporations from acquiring and enjoying
"beneficial interest" in the development of Philippine natural resources. The State itself need not
directly undertake exploration, development, and utilization activities. Alternatively, the
Constitution authorizes the government to enter into joint venture agreements (JVAs), co-
production agreements (CPAs) and mineral production sharing agreements (MPSAs) with
contractors who are Filipino citizens or corporations that are at least 60 percent Filipino-owned.
They may do the actual "dirty work" -- the mining operations.
In the case of a 60 percent Filipino-owned corporation, the 40 percent individual and/or
corporate non-Filipino stakeholders obviously participate in the beneficial interest derived from
the development and utilization of our natural resources. They may receive by way of dividends,
up to 40 percent of the contractor's earnings from the mining project. Likewise, they may have a
say in the decisions of the board of directors, since they are entitled to representation therein to
the extent of their equity participation, which the Constitution permits to be up to 40 percent of
the contractor's equity. Hence, the non-Filipino stakeholders may in that manner also participate
in the management of the contractor's natural resource development work. All of this is permitted
by our Constitution, for any natural resource, and without limitation even in regard to the
magnitude of the mining project or operations (see paragraph 1 of Section 2 of Article XII).
It is clear, then, that there is nothing inherently wrong with or constitutionally objectionable about
the idea of foreign individuals and entities having or enjoying "beneficial interest" in -- and
participating in the management of operations relative to -- the exploration, development and
utilization of our natural resources.
FTAA More Advantageous
Than Other Schemes
Like CPA, JVA and MPSA
A final point on the subject of beneficial interest. We believe the FTAA is a more advantageous
proposition for the government as compared with other agreements permitted by the
Constitution. In a CPA that the government enters into with one or more contractors, the
government shall provide inputs to the mining operations other than the mineral resource itself. 94
In a JVA, a JV company is organized by the government and the contractor, with both parties
having equity shares (investments); and the contractor is granted the exclusive right to conduct
mining operations and to extract minerals found in the area.95 On the other hand, in an MPSA,
the government grants the contractor the exclusive right to conduct mining operations within the
contract area and shares in the gross output; and the contractor provides the necessary
financing, technology, management and manpower.
The point being made here is that, in two of the three types of agreements under consideration,
the government has to ante up some risk capital for the enterprise. In other words, government
funds (public moneys) are withdrawn from other possible uses, put to work in the venture
and placed at risk in case the venture fails. This notwithstanding, management and control of the
operations of the enterprise are -- in all three arrangements -- in the hands of the contractor,
with the government being mainly a silent partner. The three types of agreement mentioned
above apply to any natural resource, without limitation and regardless of the size or magnitude
of the project or operations.
In contrast to the foregoing arrangements, and pursuant to paragraph 4 of Section 2 of Article
XII, the FTAA is limited to large-scale projects and only for minerals, petroleum and other
mineral oils. Here, the Constitution removes the 40 percent cap on foreign ownership and allows
the foreign corporation to own up to 100 percent of the equity. Filipino capital may not be
sufficient on account of the size of the project, so the foreign entity may have to ante up all the
risk capital.
Correlatively, the foreign stakeholder bears up to 100 percent of the risk of loss if the project
fails. In respect of the particular FTAA granted to it, WMCP (then 100 percent foreign owned)
was responsible, as contractor, for providing the entire equity, including all the inputs for the
project. It was to bear 100 percent of the risk of loss if the project failed, but its maximum
potential "beneficial interest" consisted only of 40 percent of the net beneficial interest, because
the other 60 percent is the share of the government, which will never be exposed to any risk of
loss whatsoever.
In consonance with the degree of risk assumed, the FTAA vested in WMCP the day-to-day
management of the mining operations. Still such management is subject to the overall control
and supervision of the State in terms of regular reporting, approvals of work programs and
budgets, and so on.
So, one needs to consider in relative terms, the costs of inputs for, degree of risk attendant to,
and benefits derived or to be derived from a CPA, a JVA or an MPSA vis-à-vis those pertaining
to an FTAA. It may not be realistically asserted that the foreign grantee of an FTAA is being
unduly favored or benefited as compared with a foreign stakeholder in a corporation holding a
CPA, a JVA or an MPSA. Seen the other way around, the government is definitely better off with
an FTAA than a CPA, a JVA or an MPSA.
Developmental Policy on the Mining Industry
During the Oral Argument and in their Final Memorandum, petitioners repeatedly urged the
Court to consider whether mining as an industry and economic activity deserved to be accorded
priority, preference and government support as against, say, agriculture and other activities in
which Filipinos and the Philippines may have an "economic advantage." For instance, a recent
US study96 reportedly examined the economic performance of all local US counties that were
dependent on mining and 20 percent of whose labor earnings between 1970 and 2000 came
from mining enterprises.
The study -- covering 100 US counties in 25 states dependent on mining -- showed that per
capita income grew about 30 percent less in mining-dependent communities in the 1980s and
25 percent less for the entire period 1980 to 2000; the level of per capita income was also lower.
Therefore, given the slower rate of growth, the gap between these and other local counties
increased.
Petitioners invite attention to the OXFAM America Report's warning to developing nations that
mining brings with it serious economic problems, including increased regional inequality,
unemployment and poverty. They also cite the final report97 of the Extractive Industries Review
project commissioned by the World Bank (the WB-EIR Report), which warns of environmental
degradation, social disruption, conflict, and uneven sharing of benefits with local communities
that bear the negative social and environmental impact. The Report suggests that countries
need to decide on the best way to exploit their natural resources, in order to maximize the value
added from the development of their resources and ensure that they are on the path to
sustainable development once the resources run out.
Whatever priority or preference may be given to mining vis-à-vis other economic or non-
economic activities is a question of policy that the President and Congress will have to address;
it is not for this Court to decide. This Court declares what the Constitution and the laws say,
interprets only when necessary, and refrains from delving into matters of policy.
Suffice it to say that the State control accorded by the Constitution over mining activities assures
a proper balancing of interests. More pointedly, such control will enable the President to demand
the best mining practices and the use of the best available technologies to protect the
environment and to rehabilitate mined-out areas. Indeed, under the Mining Law, the government
can ensure the protection of the environment during and after mining. It can likewise provide for
the mechanisms to protect the rights of indigenous communities, and thereby mold a more
socially-responsive, culturally-sensitive and sustainable mining industry.
Early on during the launching of the Presidential Mineral Industry Environmental Awards on
February 6, 1997, then President Fidel V. Ramos captured the essence of balanced and
sustainable mining in these words:
"Long term, high profit mining translates into higher revenues for government, more decent jobs
for the population, more raw materials to feed the engines of downstream and allied industries,
and improved chances of human resource and countryside development by creating self-reliant
communities away from urban centers.
xxxxxxxxx
"Against a fragile and finite environment, it is sustainability that holds the key. In sustainable
mining, we take a middle ground where both production and protection goals are balanced, and
where parties-in-interest come to terms."
Neither has the present leadership been remiss in addressing the concerns of sustainable
mining operations. Recently, on January 16, 2004 and April 20, 2004, President Gloria
Macapagal Arroyo issued Executive Orders Nos. 270 and 270-A, respectively, "to
promote responsible mineral resources exploration, development and utilization, in order to
enhance economic growth, in a manner that adheres to the principles of sustainable
development and with due regard for justice and equity, sensitivity to the culture of the Filipino
people and respect for Philippine sovereignty."98
REFUTATION OF DISSENTS
The Court will now take up a number of other specific points raised in the dissents of Justices
Carpio and Morales.
1. Justice Morales introduced us to Hugh Morgan, former president and chief executive officer of
Western Mining Corporation (WMC) and former president of the Australian Mining Industry
Council, who spearheaded the vociferous opposition to the filing by aboriginal peoples of native
title claims against mining companies in Australia in the aftermath of the
landmark Mabo decision by the Australian High Court. According to sources quoted by our
esteemed colleague, Morgan was also a racist and a bigot. In the course of
protesting Mabo, Morgan allegedly uttered derogatory remarks belittling the aboriginal culture
and race.
An unwritten caveat of this introduction is that this Court should be careful not to permit the entry
of the likes of Hugh Morgan and his hordes of alleged racist-bigots at WMC. With all due
respect, such scare tactics should have no place in the discussion of this case. We are
deliberating on the constitutionality of RA 7942, DAO 96-40 and the FTAA originally granted to
WMCP, which had been transferred to Sagittarius Mining, a Filipino corporation. We are not
discussing the apparition of white Anglo-Saxon racists/bigots massing at our gates.
2. On the proper interpretation of the phrase agreements involving either technical or financial
assistance, Justice Morales points out that at times we "conveniently omitted" the use of the
disjunctive either…or, which according to her denotes restriction; hence the phrase must be
deemed to connote restriction and limitation.
But, as Justice Carpio himself pointed out during the Oral Argument, the disjunctive
phrase either technical or financial assistance would, strictly speaking, literally mean that a
foreign contractor may provide only one or the other, but not both. And if both technical and
financial assistance were required for a project, the State would have to deal with at least two
different foreign contractors -- one for financial and the other for technical assistance. And
following on that, a foreign contractor, though very much qualified to provide both kinds of
assistance, would nevertheless be prohibited from providing one kind as soon as it shall have
agreed to provide the other.
But if the Court should follow this restrictive and literal construction, can we really find two (or
more) contractors who are willing to participate in one single project -- one to provide the
"financial assistance" only and the other the "technical assistance" exclusively; it would be
excellent if these two or more contractors happen to be willing and are able to cooperate and
work closely together on the same project (even if they are otherwise competitors). And it would
be superb if no conflicts would arise between or among them in the entire course of the contract.
But what are the chances things will turn out this way in the real world? To think that the framers
deliberately imposed this kind of restriction is to say that they were either exceedingly optimistic,
or incredibly naïve. This begs the question -- What laudable objective or purpose could possibly
be served by such strict and restrictive literal interpretation?
3. Citing Oposa v. Factoran Jr., Justice Morales claims that a service contract is not a contract
or property right which merits protection by the due process clause of the Constitution, but
merely a license or privilege which may be validly revoked, rescinded or withdrawn by executive
action whenever dictated by public interest or public welfare.
Oposa cites Tan v. Director of Forestry and Ysmael v. Deputy Executive Secretary as authority.
The latter cases dealt specifically with timber licenses only. Oposa allegedly reiterated that a
license is merely a permit or privilege to do what otherwise would be unlawful, and is not a
contract between the authority, federal, state or municipal, granting it and the person to whom it
is granted; neither is it property or a property right, nor does it create a vested right; nor is it
taxation. Thus this Court held that the granting of license does not create irrevocable rights,
neither is it property or property rights.
Should Oposa be deemed applicable to the case at bar, on the argument that natural resources
are also involved in this situation? We do not think so. A grantee of a timber license, permit or
license agreement gets to cut the timber already growing on the surface; it need not dig up tons
of earth to get at the logs. In a logging concession, the investment of the licensee is not as
substantial as the investment of a large-scale mining contractor. If a timber license were
revoked, the licensee packs up its gear and moves to a new area applied for, and starts over;
what it leaves behind are mainly the trails leading to the logging site.
In contrast, the mining contractor will have sunk a great deal of money (tens of millions of
dollars) into the ground, so to speak, for exploration activities, for development of the mine site
and infrastructure, and for the actual excavation and extraction of minerals, including the
extensive tunneling work to reach the ore body. The cancellation of the mining contract will
utterly deprive the contractor of its investments (i.e., prevent recovery of investments), most of
which cannot be pulled out.
To say that an FTAA is just like a mere timber license or permit and does not involve contract or
property rights which merit protection by the due process clause of the Constitution, and may
therefore be revoked or cancelled in the blink of an eye, is to adopt a well-nigh confiscatory
stance; at the very least, it is downright dismissive of the property rights of businesspersons and
corporate entities that have investments in the mining industry, whose investments, operations
and expenditures do contribute to the general welfare of the people, the coffers of government,
and the strength of the economy. Such a pronouncement will surely discourage investments
(local and foreign) which are critically needed to fuel the engine of economic growth and move
this country out of the rut of poverty. In sum, Oposa is not applicable.
4. Justice Morales adverts to the supposedly "clear intention" of the framers of the Constitution
to reserve our natural resources exclusively for the Filipino people. She then quoted from the
records of the ConCom deliberations a passage in which then Commissioner Davide explained
his vote, arguing in the process that aliens ought not be allowed to participate in the enjoyment
of our natural resources. One passage does not suffice to capture the tenor or substance of the
entire extensive deliberations of the commissioners, or to reveal the clear intention of the
framers as a group. A re-reading of the entire deliberations (quoted here earlier) is necessary if
we are to understand the true intent of the framers.
5. Since 1935, the Filipino people, through their Constitution, have decided that the retardation
or delay in the exploration, development or utilization of the nation's natural resources is merely
secondary to the protection and preservation of their ownership of the natural resources, so says
Justice Morales, citing Aruego. If it is true that the framers of the 1987 Constitution did not care
much about alleviating the retardation or delay in the development and utilization of our natural
resources, why did they bother to write paragraph 4 at all? Were they merely paying lip service
to large-scale exploration, development and utilization? They could have just completely ignored
the subject matter and left it to be dealt with through a future constitutional amendment. But we
have to harmonize every part of the Constitution and to interpret each provision in a manner that
would give life and meaning to it and to the rest of the provisions. It is obvious that a literal
interpretation of paragraph 4 will render it utterly inutile and inoperative.
6. According to Justice Morales, the deliberations of the Constitutional Commission do not
support our contention that the framers, by specifying such agreements involving financial or
technical assistance, necessarily gave implied assent to everything that these agreements
implicitly entailed, or that could reasonably be deemed necessary to make them tenable and
effective, including management authority in the day-to-day operations. As proof thereof, she
quotes one single passage from the ConCom deliberations, consisting of an exchange among
Commissioners Tingson, Garcia and Monsod.
However, the quoted exchange does not serve to contradict our argument; it even bolsters it.
Comm. Christian Monsod was quoted as saying: "xxx I think we have to make a distinction that
it is not really realistic to say that we will borrow on our own terms. Maybe we can say that we
inherited unjust loans, and we would like to repay these on terms that are not prejudicial to our
own growth. But the general statement that we should only borrow on our own terms is a bit
unrealistic." Comm. Monsod is one who knew whereof he spoke.
7. Justice Morales also declares that the optimal time for the conversion of an FTAA into an
MPSA is after completion of the exploration phase and just before undertaking the development
and construction phase, on account of the fact that the requirement for a minimum investment of
$50 million is applicable only during the development, construction and utilization phase, but not
during the exploration phase, when the foreign contractor need merely comply with minimum
ground expenditures. Thus by converting, the foreign contractor maximizes its profits by
avoiding its obligation to make the minimum investment of $50 million.
This argument forgets that the foreign contractor is in the game precisely to make money. In
order to come anywhere near profitability, the contractor must first extract and sell the mineral
ore. In order to do that, it must also develop and construct the mining facilities, set up its
machineries and equipment and dig the tunnels to get to the deposit. The contractor is thus
compelled to expend funds in order to make profits. If it decides to cut back on investments and
expenditures, it will necessarily sacrifice the pace of development and utilization; it will
necessarily sacrifice the amount of profits it can make from the mining operations. In fact, at
certain less-than-optimal levels of operation, the stream of revenues generated may not even be
enough to cover variable expenses, let alone overhead expenses; this is a dismal situation
anyone would want to avoid. In order to make money, one has to spend money. This truism
applies to the mining industry as well.
8. Mortgaging the minerals to secure a foreign FTAA contractor's obligations is anomalous,
according to Justice Morales since the contractor was from the beginning obliged to provide all
financing needed for the mining operations. However, the mortgaging of minerals by the
contractor does not necessarily signify that the contractor is unable to provide all financing
required for the project, or that it does not have the financial capability to undertake large-scale
operations. Mortgaging of mineral products, just like the assignment (by way of security) of
manufactured goods and goods in inventory, and the assignment of receivables, is an ordinary
requirement of banks, even in the case of clients with more than sufficient financial resources.
And nowadays, even the richest and best managed corporations make use of bank credit
facilities -- it does not necessarily signify that they do not have the financial resources or are
unable to provide the financing on their own; it is just a manner of maximizing the use of their
funds.
9. Does the contractor in reality acquire the surface rights "for free," by virtue of the fact that it is
entitled to reimbursement for the costs of acquisition and maintenance, adjusted for inflation?
We think not. The "reimbursement" is possible only at the end of the term of the contract, when
the surface rights will no longer be needed, and the land previously acquired will have to be
disposed of, in which case the contractor gets reimbursement from the sales proceeds. The
contractor has to pay out the acquisition price for the land. That money will belong to the seller
of the land. Only if and when the land is finally sold off will the contractor get any reimbursement.
In other words, the contractor will have been cash-out for the entire duration of the term of the
contract -- 25 or 50 years, depending. If we calculate the cost of money at say 12 percent per
annum, that is the cost or opportunity loss to the contractor, in addition to the amount of the
acquisition price. 12 percent per annum for 50 years is 600 percent; this, without any
compounding yet. The cost of money is therefore at least 600 percent of the original acquisition
cost; it is in addition to the acquisition cost. "For free"? Not by a long shot.
10. The contractor will acquire and hold up to 5,000 hectares? We doubt it. The acquisition by
the State of land for the contractor is just to enable the contractor to establish its mine site, build
its facilities, establish a tailings pond, set up its machinery and equipment, and dig mine shafts
and tunnels, etc. It is impossible that the surface requirement will aggregate 5,000 hectares.
Much of the operations will consist of the tunneling and digging underground, which will not
require possessing or using any land surface. 5,000 hectares is way too much for the needs of a
mining operator. It simply will not spend its cash to acquire property that it will not need; the cash
may be better employed for the actual mining operations, to yield a profit.
11. Justice Carpio claims that the phrase among other things (found in the second paragraph of
Section 81 of the Mining Act) is being incorrectly treated as a delegation of legislative power to
the DENR secretary to issue DAO 99-56 and prescribe the formulae therein on the State's share
from mining operations. He adds that the phrase among other things was not intended as a
delegation of legislative power to the DENR secretary, much less could it be deemed a valid
delegation of legislative power, since there is nothing in the second paragraph of Section 81
which can be said to grant any delegated legislative power to the DENR secretary. And even if
there were, such delegation would be void, for lack of any standards by which the delegated
power shall be exercised.
While there is nothing in the second paragraph of Section 81 which can directly be construed as
a delegation of legislative power to the DENR secretary, it does not mean that DAO 99-56 is
invalid per se, or that the secretary acted without any authority or jurisdiction in issuing DAO 99-
56. As we stated earlier in our Prologue, "Who or what organ of government actually exercises
this power of control on behalf of the State? The Constitution is crystal clear: the President.
Indeed, the Chief Executive is the official constitutionally mandated to 'enter into agreements
with foreign owned corporations.' On the other hand, Congress may review the action of the
President once it is notified of 'every contract entered into in accordance with this [constitutional]
provision within thirty days from its execution.'"It is the President who is constitutionally
mandated to enter into FTAAs with foreign corporations, and in doing so, it is within the
President's prerogative to specify certain terms and conditions of the FTAAs, for example,
the fiscal regime of FTAAs -- i.e., the sharing of the net mining revenues between the contractor
and the State.
Being the President's alter ego with respect to the control and supervision of the mining industry,
the DENR secretary, acting for the President, is necessarily clothed with the requisite authority
and power to draw up guidelines delineating certain terms and conditions, and specifying therein
the terms of sharing of benefits from mining, to be applicable to FTAAs in general. It is important
to remember that DAO 99-56 has been in existence for almost six years, and has not been
amended or revoked by the President.
The issuance of DAO 99-56 did not involve the exercise of delegated legislative power. The
legislature did not delegate the power to determine the nature, extent and composition of the
items that would come under the phrase among other things. The legislature's power pertains to
the imposition of taxes, duties and fees. This power was not delegated to the DENR secretary.
But the power to negotiate and enter into FTAAs was withheld from Congress, and reserved for
the President. In determining the sharing of mining benefits, i.e., in specifying what the
phrase among other things include, the President (through the secretary acting in his/her behalf)
was not determining the amount or rate of taxes, duties and fees, but rather the amount of
INCOME to be derived from minerals to be extracted and sold, income which belongs to the
State as owner of the mineral resources. We may say that, in the second paragraph of Section
81, the legislature in a sense intruded partially into the President's sphere of authority when the
former provided that
"The Government share in financial or technical assistance agreement shall consist of, among
other things, the contractor's corporate income tax, excise tax, special allowance, withholding
tax due from the contractor's foreign stockholders arising from dividend or interest payments to
the said foreign stockholder in case of a foreign national and all such other taxes, duties and
fees as provided for under existing laws." (Italics supplied)
But it did not usurp the President's authority since the provision merely included the enumerated
items as part of the government share, without foreclosing or in any way preventing (as in fact
Congress could not validly prevent) the President from determining what constitutes the State's
compensation derived from FTAAs. In this case, the President in effect directed the inclusion or
addition of "other things," viz., INCOME for the owner of the resources, in the government's
share, while adopting the items enumerated by Congress as part of the government share also.
12. Justice Carpio's insistence on applying the ejusdem generis rule of statutory construction to
the phrase among other things is therefore useless, and must fall by the wayside. There is no
point trying to construe that phrase in relation to the enumeration of taxes, duties and fees found
in paragraph 2 of Section 81, precisely because "the constitutional power to prescribe the
sharing of mining income between the State and mining companies,"to quote Justice
Carpio pursuant to an FTAA is constitutionally lodged with the President, not with
Congress. It thus makes no sense to persist in giving the phrase among other things a
restricted meaning referring only to taxes, duties and fees.
13. Strangely, Justice Carpio claims that the DENR secretary can change the formulae in DAO
99-56 any time even without the approval of the President, and the secretary is the sole
authority to determine the amount of consideration that the State shall receive in an FTAA,
because Section 5 of the DAO states that "xxx any amendment of an FTAA other than the
provision on fiscal regime shall require the negotiation with the Negotiation Panel and the
recommendation of the Secretary for approval of the President xxx". Allegedly, because of that
provision, if an amendment in the FTAA involves non-fiscal matters, the amendment requires
approval of the President, but if the amendment involves a change in the fiscal regime, the
DENR secretary has the final authority, and approval of the President may be dispensed with;
hence the secretary is more powerful than the President.
We believe there is some distortion resulting from the quoted provision being taken out of
context. Section 5 of DAO 99-56 reads as follows:
"Section 5. Status of Existing FTAAs. All FTAAs approved prior to the effectivity of this
Administrative Order shall remain valid and be recognized by the Government: Provided, That
should a Contractor desire to amend its FTAA, it shall do so by filing a Letter of Intent (LOI) to
the Secretary thru the Director. Provided, further, That if the Contractor desires to amend the
fiscal regime of its FTAA, it may do so by seeking for the amendment of its FTAA's whole fiscal
regime by adopting the fiscal regime provided hereof: Provided, finally, That any amendment of
an FTAA other than the provision on fiscal regime shall require the negotiation with the
Negotiating Panel and the recommendation of the Secretary for approval of the President of the
Republic of the Philippines." (underscoring supplied)
It looks like another case of misapprehension. The proviso being objected to by Justice Carpio is
actually preceded by a phrase that requires a contractor desiring to amend the fiscal regime of
its FTAA, to amend the same by adopting the fiscal regime prescribed in DAO 99-56 -- i.e.,
solely in that manner, and in no other. Obviously, since DAO 99-56 was issued by the
secretary under the authority and with the presumed approval of the President, the
amendment of an FTAA by merely adopting the fiscal regime prescribed in said DAO 99-
56 (and nothing more) need not have the express clearance of the President anymore. It is
as if the same had been pre-approved. We cannot fathom the complaint that that makes the
secretary more powerful than the President, or that the former is trying to hide things from the
President or Congress.
14. Based on the first sentence of Section 5 of DAO 99-56, which states "[A]ll FTAAs approved
prior to the effectivity of this Administrative Order shall remain valid and be recognized by the
Government", Justice Carpio concludes that said Administrative Order
allegedly exempts FTAAs approved prior to its effectivity -- like the WMCP FTAA -- from having
to pay the State any share from their mining income, apart from taxes, duties and fees.
We disagree. What we see in black and white is the statement that the FTAAs approved before
the DAO came into effect are to continue to be valid and will be recognized by the
State. Nothing is said about their fiscal regimes. Certainly, there is no basis to claim that the
contractors under said FTAAs were being exempted from paying the government a share in their
mining incomes.
For the record, the WMCP FTAA is NOT and has never been exempt from paying the
government share. The WMCP FTAA has its own fiscal regime -- Section 7.7 -- which gives
the government a 60 percent share in the net mining revenues of WMCP from the
commencement of commercial production.
For that very reason, we have never said that DAO 99-56 is the basis for claiming that the
WMCP FTAA has a consideration. Hence, we find quite out of place Justice Carpio's statement
that ironically, DAO 99-56, the very authority cited to support the claim that the WMCP FTAA
has a consideration, does not apply to the WMCP FTAA. By its own express terms, DAO 99-56
does not apply to FTAAs executed before the issuance of DAO 99-56, like the WMCP FTAA.
The majority's position has allegedly no leg to stand on since even DAO 99-56, assuming it is
valid, cannot save the WMCP FTAA from want of consideration. Even assuming arguendo that
DAO 99-56 does not apply to the WMCP FTAA, nevertheless, the WMCP FTAA has its own
fiscal regime, found in Section 7.7 thereof. Hence, there is no such thing as "want of
consideration" here.
Still more startling is this claim: The majority supposedly agrees that the provisions of the
WMCP FTAA, which grant a sham consideration to the State, are void. Since the majority
agrees that the WMCP FTAA has a sham consideration, the WMCP FTAA thus lacks the third
element of a valid contract. The Decision should declare the WMCP FTAA void for want of
consideration unless it treats the contract as an MPSA under Section 80. Indeed the only
recourse of WMCP to save the validity of its contract is to convert it into an MPSA.
To clarify, we said that Sections 7.9 and 7.8(e) of the WMCP FTAA are provisions grossly
disadvantageous to government and detrimental to the interests of the Filipino people, as well as
violative of public policy, and must therefore be stricken off as invalid. Since the offending
provisions are very much separable from Section 7.7 and the rest of the FTAA, the deletion of
Sections 7.9 and 7.8(e) can be done without affecting or requiring the invalidation of the WMCP
FTAA itself, and such deletion will preserve for government its due share of the 60 percent
benefits. Therefore, the WMCP FTAA is NOT bereft of a valid consideration (assuming for the
nonce that indeed this is the "consideration" of the FTAA).
SUMMATION
To conclude, a summary of the key points discussed above is now in order.
The Meaning of "Agreements Involving
Either Technical or Financial Assistance"
Applying familiar principles of constitutional construction to the phrase agreements involving
either technical or financial assistance, the framers' choice of words does not indicate the intent
to exclude other modes of assistance, but rather implies that there are other things being
included or possibly being made part of the agreement, apart from financial or technical
assistance. The drafters avoided the use of restrictive and stringent phraseology; a verba
legis scrutiny of Section 2 of Article XII of the Constitution discloses not even a hint of a desire
to prohibit foreign involvement in the management or operation of mining activities, or
to eradicate service contracts. Such moves would necessarily imply an underlying drastic shift in
fundamental economic and developmental policies of the State. That change requires a much
more definite and irrefutable basis than mere omission of the words "service contract" from the
new Constitution.
Furthermore, a literal and restrictive interpretation of this paragraph leads to logical
inconsistencies. A constitutional provision specifically allowing foreign-owned corporations to
render financial or technical assistance in respect of mining or any other commercial activity was
clearly unnecessary; the provision was meant to refer to more than mere financial or technical
assistance.
Also, if paragraph 4 permits only agreements for financial or technical assistance, there would
be no point in requiring that they be "based on real contributions to the economic growth and
general welfare of the country." And considering that there were various long-term service
contracts still in force and effect at the time the new Charter was being drafted, the absence of
any transitory provisions to govern the termination and closing-out of the then existing service
contracts strongly militates against the theory that the mere omission of "service contracts"
signaled their prohibition by the new Constitution.
Resort to the deliberations of the Constitutional Commission is therefore unavoidable, and a
careful scrutiny thereof conclusively shows that the ConCom members discussed agreements
involving either technical or financial assistance in the same sense as service contracts and
used the terms interchangeably. The drafters in fact knew that the agreements with foreign
corporations were going to entail not mere technical or financial assistance but, rather, foreign
investment in and management of an enterprise for large-scale exploration, development and
utilization of minerals.
The framers spoke about service contracts as the concept was understood in the 1973
Constitution. It is obvious from their discussions that they did not intend to ban or eradicate
service contracts. Instead, they were intent on crafting provisions to put in place safeguards that
would eliminate or minimize the abuses prevalent during the martial law regime. In brief, they
were going to permit service contracts with foreign corporations as contractors, but with
safety measures to prevent abuses, as an exception to the general norm established in
the first paragraph of Section 2 of Article XII, which reserves or limits to Filipino citizens
and corporations at least 60 percent owned by such citizens the exploration,
development and utilization of mineral or petroleum resources. This was prompted by the
perceived insufficiency of Filipino capital and the felt need for foreign expertise in the EDU of
mineral resources.
Despite strong opposition from some ConCom members during the final voting, the Article on
the National Economy and Patrimony -- including paragraph 4 allowing service contracts with
foreign corporations as an exception to the general norm in paragraph 1 of Section 2 of the
same Article -- was resoundingly and overwhelmingly approved.
The drafters, many of whom were economists, academicians, lawyers, businesspersons and
politicians knew that foreign entities will not enter into agreements involving assistance without
requiring measures of protection to ensure the success of the venture and repayment of their
investments, loans and other financial assistance, and ultimately to protect the business
reputation of the foreign corporations. The drafters, by specifying such agreements involving
assistance, necessarily gave implied assent to everything that these agreements entailed or that
could reasonably be deemed necessary to make them tenable and effective -- including
management authority with respect to the day-to-day operations of the enterprise, and measures
for the protection of the interests of the foreign corporation, at least to the extent that they are
consistent with Philippine sovereignty over natural resources, the constitutional requirement of
State control, and beneficial ownership of natural resources remaining vested in the State.
From the foregoing, it is clear that agreements involving either technical or financial
assistance referred to in paragraph 4 are in fact service contracts, but such new service
contracts are between foreign corporations acting as contractors on the one hand, and on the
other hand government as principal or "owner" (of the works), whereby the foreign contractor
provides the capital, technology and technical know-how, and managerial expertise in the
creation and operation of the large-scale mining/extractive enterprise, and government through
its agencies (DENR, MGB) actively exercises full control and supervision over the entire
enterprise.
Such service contracts may be entered into only with respect to minerals, petroleum and other
mineral oils. The grant of such service contracts is subject to several safeguards, among them:
(1) that the service contract be crafted in accordance with a general law setting standard or
uniform terms, conditions and requirements; (2) the President be the signatory for the
government; and (3) the President report the executed agreement to Congress within thirty
days.
Ultimate Test: Full State Control
To repeat, the primacy of the principle of the State's sovereign ownership of all mineral
resources, and its full control and supervision over all aspects of exploration, development and
utilization of natural resources must be upheld. But "full control and supervision" cannot be taken
literally to mean that the State controls and supervises everything down to the minutest details
and makes all required actions, as this would render impossible the legitimate exercise by the
contractor of a reasonable degree of management prerogative and authority, indispensable to
the proper functioning of the mining enterprise. Also, government need not micro-manage
mining operations and day-to-day affairs of the enterprise in order to be considered as
exercising full control and supervision.
Control, as utilized in Section 2 of Article XII, must be taken to mean a degree of control
sufficient to enable the State to direct, restrain, regulate and govern the affairs of the extractive
enterprises. Control by the State may be on a macro level, through the establishment of policies,
guidelines, regulations, industry standards and similar measures that would enable government
to regulate the conduct of affairs in various enterprises, and restrain activities deemed not
desirable or beneficial, with the end in view of ensuring that these enterprises contribute to the
economic development and general welfare of the country, conserve the environment, and uplift
the well-being of the local affected communities. Such a degree of control would be compatible
with permitting the foreign contractor sufficient and reasonable management authority over the
enterprise it has invested in, to ensure efficient and profitable operation.
Government Granted Full Control
by RA 7942 and DAO 96-40
Baseless are petitioners' sweeping claims that RA 7942 and its Implementing Rules and
Regulations make it possible for FTAA contracts to cede full control and management of mining
enterprises over to fully foreign owned corporations. Equally wobbly is the assertion that the
State is reduced to a passive regulator dependent on submitted plans and reports, with weak
review and audit powers and little say in the decision-making of the enterprise, for which
reasons "beneficial ownership" of the mineral resources is allegedly ceded to the foreign
contractor.
As discussed hereinabove, the State's full control and supervision over mining operations are
ensured through the following provisions in RA 7942: Sections 8, 9, 16, 19, 24, 35[(b), (e), (f),
(g), (h), (k), (l), (m) and (o)], 40, 57, 66, 69, 70, and Chapters XI and XVII; as well as the
following provisions of DAO 96-40: Sections7[(d) and (f)], 35(a-2), 53[(a-4) and (d)], 54, 56[(g),
(h), (l), (m) and (n)], 56(2), 60, 66, 144, 168, 171 and 270, and also Chapters XV, XVI and XXIV.
Through the foregoing provisions, the government agencies concerned are empowered to
approve or disapprove -- hence, in a position to influence, direct, and change -- the various work
programs and the corresponding minimum expenditure commitments for each of the exploration,
development and utilization phases of the enterprise. Once they have been approved, the
contractor's compliance with its commitments therein will be monitored. Figures for mineral
production and sales are regularly monitored and subjected to government review, to ensure
that the products and by-products are disposed of at the best prices; copies of sales agreements
have to be submitted to and registered with MGB.
The contractor is mandated to open its books of accounts and records for scrutiny, to enable the
State to determine that the government share has been fully paid. The State may likewise
compel compliance by the contractor with mandatory requirements on mine safety, health and
environmental protection, and the use of anti-pollution technology and facilities. The contractor is
also obligated to assist the development of the mining community, and pay royalties to the
indigenous peoples concerned. And violation of any of the FTAA's terms and conditions, and/or
non-compliance with statutes or regulations, may be penalized by cancellation of the FTAA.
Such sanction is significant to a contractor who may have yet to recover the tens or hundreds of
millions of dollars sunk into a mining project.
Overall, the State definitely has a pivotal say in the operation of the individual enterprises, and
can set directions and objectives, detect deviations and non-compliances by the contractor, and
enforce compliance and impose sanctions should the occasion arise. Hence, RA 7942 and DAO
96-40 vest in government more than a sufficient degree of control and supervision over the
conduct of mining operations.
Section 3(aq) of RA 7942 was objected to as being unconstitutional for allowing a foreign
contractor to apply for and hold an exploration permit. During the exploration phase, the permit
grantee (and prospective contractor) is spending and investing heavily in exploration activities
without yet being able to extract minerals and generate revenues. The exploration permit issued
under Sections 3(aq), 20 and 23 of RA 7942, which allows exploration but not extraction, serves
to protect the interests and rights of the exploration permit grantee (and would-be contractor),
foreign or local. Otherwise, the exploration works already conducted, and expenditures already
made, may end up only benefiting claim-jumpers. Thus, Section 3(aq) of RA 7942 is not
unconstitutional.
WMCP FTAA Likewise Gives the
State Full Control and Supervision
The WMCP FTAA obligates the contractor to account for the value of production and sale of
minerals (Clause 1.4); requires that the contractor's work program, activities and budgets be
approved by the State (Clause 2.1); gives the DENR secretary power to extend the exploration
period (Clause 3.2-a); requires approval by the State for incorporation of lands into the contract
area (Clause 4.3-c); requires Bureau of Forest Development approval for inclusion of forest
reserves as part of the FTAA contract area (Clause 4.5); obligates the contractor to periodically
relinquish parts of the contract area not needed for exploration and development (Clause 4.6);
requires submission of a declaration of mining feasibility for approval by the State (Clause 4.6-
b); obligates the contractor to report to the State the results of its exploration activities (Clause
4.9); requires the contractor to obtain State approval for its work programs for the succeeding
two year periods, containing the proposed work activities and expenditures budget related to
exploration (Clause 5.1); requires the contractor to obtain State approval for its proposed
expenditures for exploration activities (Clause 5.2); requires the contractor to submit an annual
report on geological, geophysical, geochemical and other information relating to its explorations
within the FTAA area (Clause 5.3-a); requires the contractor to submit within six months after
expiration of exploration period a final report on all its findings in the contract area (Clause 5.3-
b); requires the contractor after conducting feasibility studies to submit a declaration of mining
feasibility, along with a description of the area to be developed and mined, a description of the
proposed mining operations and the technology to be employed, and the proposed work
program for the development phase, for approval by the DENR secretary (Clause 5.4); obligates
the contractor to complete the development of the mine, including construction of the production
facilities, within the period stated in the approved work program (Clause 6.1); requires the
contractor to submit for approval a work program covering each period of three fiscal years
(Clause 6.2); requires the contractor to submit reports to the secretary on the production, ore
reserves, work accomplished and work in progress, profile of its work force and management
staff, and other technical information (Clause 6.3); subjects any expansions, modifications,
improvements and replacements of mining facilities to the approval of the secretary (Clause
6.4); subjects to State control the amount of funds that the contractor may borrow within the
Philippines (Clause 7.2); subjects to State supervisory power any technical, financial and
marketing issues (Clause 10.1-a); obligates the contractor to ensure 60 percent Filipino equity in
the contractor within ten years of recovering specified expenditures unless not so required by
subsequent legislation (Clause 10.1); gives the State the right to terminate the FTAA for
unremedied substantial breach thereof by the contractor (Clause 13.2); requires State approval
for any assignment of the FTAA by the contractor to an entity other than an affiliate (Clause
14.1).
In short, the aforementioned provisions of the WMCP FTAA, far from constituting a surrender of
control and a grant of beneficial ownership of mineral resources to the contractor in question,
vest the State with control and supervision over practically all aspects of the operations of the
FTAA contractor, including the charging of pre-operating and operating expenses, and the
disposition of mineral products.
There is likewise no relinquishment of control on account of specific provisions of the WMCP
FTAA. Clause 8.2 provides a mechanism to prevent the mining operations from grinding to a
complete halt as a result of possible delays of more than 60 days in the government's
processing and approval of submitted work programs and budgets. Clause 8.3 seeks to provide
a temporary, stop-gap solution in case a disagreement between the State and the contractor
(over the proposed work program or budget submitted by the contractor) should result in a
deadlock or impasse, to avoid unreasonably long delays in the performance of the works.
The State, despite Clause 8.3, still has control over the contract area, and it may, as sovereign
authority, prohibit work thereon until the dispute is resolved, or it may terminate the FTAA, citing
substantial breach thereof. Hence, the State clearly retains full and effective control.
Clause 8.5, which allows the contractor to make changes to approved work programs and
budgets without the prior approval of the DENR secretary, subject to certain limitations with
respect to the variance/s, merely provides the contractor a certain amount of flexibility to meet
unexpected situations, while still guaranteeing that the approved work programs and budgets
are not abandoned altogether. And if the secretary disagrees with the actions taken by the
contractor in this instance, he may also resort to cancellation/termination of the FTAA as the
ultimate sanction.
Clause 4.6 of the WMCP FTAA gives the contractor discretion to select parts of the contract
area to be relinquished. The State is not in a position to substitute its judgment for that of the
contractor, who knows exactly which portions of the contract area do not contain minerals in
commercial quantities and should be relinquished. Also, since the annual occupation fees paid
to government are based on the total hectarage of the contract area, net of the areas
relinquished, the contractor's self-interest will assure proper and efficient relinquishment.
Clause 10.2(e) of the WMCP FTAA does not mean that the contractor can compel government
to use its power of eminent domain. It contemplates a situation in which the contractor is a
foreign-owned corporation, hence, not qualified to own land. The contractor identifies the surface
areas needed for it to construct the infrastructure for mining operations, and the State then
acquires the surface rights on behalf of the former. The provision does not call for the exercise
of the power of eminent domain (or determination of just compensation); it seeks to avoid a
violation of the anti-dummy law.
Clause 10.2(l) of the WMCP FTAA giving the contractor the right to mortgage and encumber the
mineral products extracted may have been a result of conditions imposed by creditor-banks to
secure the loan obligations of WMCP. Banks lend also upon the security of encumbrances
on goods produced, which can be easily sold and converted into cash and applied to the
repayment of loans. Thus, Clause 10.2(l) is not something out of the ordinary. Neither is it
objectionable, because even though the contractor is allowed to mortgage or encumber the
mineral end-products themselves, the contractor is not thereby relieved of its obligation to pay
the government its basic and additional shares in the net mining revenue. The contractor's ability
to mortgage the minerals does not negate the State's right to receive its share of net mining
revenues.
Clause 10.2(k) which gives the contractor authority "to change its equity structure at any time,"
means that WMCP, which was then 100 percent foreign owned, could permit Filipino equity
ownership. Moreover, what is important is that the contractor, regardless of its ownership, is
always in a position to render the services required under the FTAA, under the direction and
control of the government.
Clauses 10.4(e) and (i) bind government to allow amendments to the FTAA if required by banks
and other financial institutions as part of the conditions of new lendings. There is nothing
objectionable here, since Clause 10.4(e) also provides that such financing arrangements should
in no event reduce the contractor's obligations or the government's rights under the FTAA.
Clause 10.4(i) provides that government shall "favourably consider" any request for
amendments of this agreement necessary for the contractor to successfully obtain financing.
There is no renunciation of control, as the proviso does not say that government shall
automatically grant any such request. Also, it is up to the contractor to prove the need for the
requested changes. The government always has the final say on whether to approve or
disapprove such requests.
In fine, the FTAA provisions do not reduce or abdicate State control.
No Surrender of Financial Benefits
The second paragraph of Section 81 of RA 7942 has been denounced for allegedly limiting the
State's share in FTAAs with foreign contractors to just taxes, fees and duties, and depriving the
State of a share in the after-tax income of the enterprise. However, the inclusion of the
phrase "among other things" in the second paragraph of Section 81 clearly and unmistakably
reveals the legislative intent to have the State collect more than just the usual taxes, duties and
fees.
Thus, DAO 99-56, the "Guidelines Establishing the Fiscal Regime of Financial or Technical
Assistance Agreements," spells out the financial benefits government will receive from an FTAA,
as consisting of not only a basic government share, comprised of all direct taxes, fees and
royalties, as well as other payments made by the contractor during the term of the FTAA, but
also an additional government share, being a share in the earnings or cash flows of the
mining enterprise, so as to achieve a fifty-fifty sharing of net benefits from mining between the
government and the contractor.
The additional government share is computed using one of three (3) options or schemes
detailed in DAO 99-56, viz., (1) the fifty-fifty sharing of cumulative present value of cash flows;
(2) the excess profit-related additional government share; and (3) the additional sharing based
on the cumulative net mining revenue. Whichever option or computation is used, the additional
government share has nothing to do with taxes, duties, fees or charges. The portion of revenues
remaining after the deduction of the basic and additional government shares is what goes to the
contractor.
The basic government share and the additional government share do not yet take into account
the indirect taxes and other financial contributions of mining projects, which are real and actual
benefits enjoyed by the Filipino people; if these are taken into account, total government share
increases to 60 percent or higher (as much as 77 percent, and 89 percent in one instance) of the
net present value of total benefits from the project.
The third or last paragraph of Section 81 of RA 7942 is slammed for deferring the payment of
the government share in FTAAs until after the contractor shall have recovered its pre-operating
expenses, exploration and development expenditures. Allegedly, the collection of the State's
share is rendered uncertain, as there is no time limit in RA 7942 for this grace period or recovery
period. But although RA 7942 did not limit the grace period, the concerned agencies (DENR and
MGB) in formulating the 1995 and 1996 Implementing Rules and Regulations provided that the
period of recovery, reckoned from the date of commercial operation, shall be for a period not
exceeding five years, or until the date of actual recovery, whichever comes earlier.
And since RA 7942 allegedly does not require government approval for the pre-operating,
exploration and development expenses of the foreign contractors, it is feared that such
expenses could be bloated to wipe out mining revenues anticipated for 10 years, with the result
that the State's share is zero for the first 10 years. However, the argument is based on incorrect
information.
Under Section 23 of RA 7942, the applicant for exploration permit is required to submit a
proposed work program for exploration, containing a yearly budget of proposed expenditures,
which the State passes upon and either approves or rejects; if approved, the same will
subsequently be recorded as pre-operating expenses that the contractor will have to recoup
over the grace period.
Under Section 24, when an exploration permittee files with the MGB a declaration of mining
project feasibility, it must submit a work program for development, with corresponding budget,
for approval by the Bureau, before government may grant an FTAA or MPSA or other mineral
agreements; again, government has the opportunity to approve or reject the proposed work
program and budgeted expenditures for development works, which will become the pre-
operating and development costs that will have to be recovered. Government is able to know
ahead of time the amounts of pre-operating and other expenses to be recovered, and the
approximate period of time needed therefor. The aforecited provisions have counterparts in
Section 35, which deals with the terms and conditions exclusively applicable to FTAAs. In sum,
the third or last paragraph of Section 81 of RA 7942 cannot be deemed defective.
Section 80 of RA 7942 allegedly limits the State's share in a mineral production-sharing
agreement (MPSA) to just the excise tax on the mineral product, i.e., only 2 percent of market
value of the minerals. The colatilla in Section 84 reiterates the same limitation in Section
80. However, these two provisions pertain only to MPSAs, and have no application to
FTAAs. These particular provisions do not come within the issues defined by this Court.
Hence, on due process grounds, no pronouncement can be made in this case in respect
of the constitutionality of Sections 80 and 84.
Section 112 is disparaged for reverting FTAAs and all mineral agreements to the old "license,
concession or lease" system, because it allegedly effectively reduces the government share in
FTAAs to just the 2 percent excise tax which pursuant to Section 80 comprises the government
share in MPSAs. However, Section 112 likewise does not come within the issues delineated by
this Court, and was never touched upon by the parties in their pleadings. Moreover, Section 112
may not properly apply to FTAAs. The mining law obviously meant to treat FTAAs as a breed
apart from mineral agreements. There is absolutely no basis to believe that the law intends to
exact from FTAA contractors merely the same government share (i.e., the 2 percent excise tax)
that it apparently demands from contractors under the three forms of mineral agreements.
While there is ground to believe that Sections 80, 84 and 112 are indeed unconstitutional, they
cannot be ruled upon here. In any event, they are separable; thus, a later finding of nullity will
not affect the rest of RA 7942.
In fine, the challenged provisions of RA 7942 cannot be said to surrender financial
benefits from an FTAA to the foreign contractors.
Moreover, there is no concrete basis for the view that, in FTAAs with a foreign contractor, the
State must receive at least 60 percent of the after-tax income from the exploitation of its mineral
resources, and that such share is the equivalent of the constitutional requirement that at least 60
percent of the capital, and hence 60 percent of the income, of mining companies should remain
in Filipino hands. Even if the State is entitled to a 60 percent share from other mineral
agreements (CPA, JVA and MPSA), that would not create a parallel or analogous situation for
FTAAs. We are dealing with an essentially different equation. Here we have the old apples and
oranges syndrome.
The Charter did not intend to fix an iron-clad rule of 60 percent share, applicable to all situations,
regardless of circumstances. There is no indication of such an intention on the part of the
framers. Moreover, the terms and conditions of petroleum FTAAs cannot serve as standards for
mineral mining FTAAs, because the technical and operational requirements, cost structures
and investment needs of off-shore petroleum exploration and drilling companies do not
have the remotest resemblance to those of on-shore mining companies.
To take the position that government's share must be not less than 60 percent of after-tax
income of FTAA contractors is nothing short of this Court dictating upon the government. The
State resultantly ends up losing control. To avoid compromising the State's full control and
supervision over the exploitation of mineral resources, there must be no attempt to impose a
"minimum 60 percent" rule. It is sufficient that the State has the power and means, should it so
decide, to get a 60 percent share (or greater); and it is not necessary that the State does so
in every case.
Invalid Provisions of the WMCP FTAA
Section 7.9 of the WMCP FTAA clearly renders illusory the State's 60 percent share of WMCP's
revenues. Under Section 7.9, should WMCP's foreign stockholders (who originally owned 100
percent of the equity) sell 60 percent or more of their equity to a Filipino citizen or corporation,
the State loses its right to receive its share in net mining revenues under Section 7.7, without
any offsetting compensation to the State. And what is given to the State in Section 7.7 is by
mere tolerance of WMCP's foreign stockholders, who can at any time cut off the government's
entire share by simply selling 60 percent of WMCP's equity to a Philippine citizen or corporation.
In fact, the sale by WMCP's foreign stockholder on January 23, 2001 of the entire outstanding
equity in WMCP to Sagittarius Mines, Inc., a domestic corporation at least 60 percent Filipino
owned, can be deemed to have automatically triggered the operation of Section 7.9 and
removed the State's right to receive its 60 percent share. Section 7.9 of the WMCP FTAA
has effectively given away the State's share without anything in exchange.
Moreover, it constitutes unjust enrichment on the part of the local and foreign stockholders in
WMCP, because by the mere act of divestment, the local and foreign stockholders get a
windfall, as their share in the net mining revenues of WMCP is automatically increased, without
having to pay anything for it.
Being grossly disadvantageous to government and detrimental to the Filipino people, as well as
violative of public policy, Section 7.9 must therefore be stricken off as invalid. The FTAA in
question does not involve mere contractual rights but, being impressed as it is with public
interest, the contractual provisions and stipulations must yield to the common good and the
national interest. Since the offending provision is very much separable from the rest of the
FTAA, the deletion of Section 7.9 can be done without affecting or requiring the invalidation of
the entire WMCP FTAA itself.
Section 7.8(e) of the WMCP FTAA likewise is invalid, since by allowing the sums spent by
government for the benefit of the contractor to be deductible from the State's share in net mining
revenues, it results in benefiting the contractor twice over. This constitutes unjust enrichment on
the part of the contractor, at the expense of government. For being grossly disadvantageous and
prejudicial to government and contrary to public policy, Section 7.8(e) must also be declared
without effect. It may likewise be stricken off without affecting the rest of the FTAA.
EPILOGUE
AFTER ALL IS SAID AND DONE, it is clear that there is unanimous agreement in the Court
upon the key principle that the State must exercise full control and supervision over the
exploration, development and utilization of mineral resources.
The crux of the controversy is the amount of discretion to be accorded the Executive
Department, particularly the President of the Republic, in respect of negotiations over the terms
of FTAAs, particularly when it comes to the government share of financial benefits from
FTAAs. The Court believes that it is not unconstitutional to allow a wide degree of discretion to
the Chief Executive, given the nature and complexity of such agreements, the humongous
amounts of capital and financing required for large-scale mining operations, the complicated
technology needed, and the intricacies of international trade, coupled with the State's need to
maintain flexibility in its dealings, in order to preserve and enhance our country's
competitiveness in world markets.
We are all, in one way or another, sorely affected by the recently reported scandals involving
corruption in high places, duplicity in the negotiation of multi-billion peso government contracts,
huge payoffs to government officials, and other malfeasances; and perhaps, there is the desire
to see some measures put in place to prevent further abuse. However, dictating upon the
President what minimum share to get from an FTAA is not the solution.It sets a bad
precedent since such a move institutionalizes the very reduction if not deprivation of the State's
control. The remedy may be worse than the problem it was meant to address. In any event,
provisions in such future agreements which may be suspected to be grossly disadvantageous or
detrimental to government may be challenged in court, and the culprits haled before the bar of
justice.
Verily, under the doctrine of separation of powers and due respect for co-equal and coordinate
branches of government, this Court must restrain itself from intruding into policy matters and
must allow the President and Congress maximum discretion in using the resources of our
country and in securing the assistance of foreign groups to eradicate the grinding poverty of our
people and answer their cry for viable employment opportunities in the country.
"The judiciary is loath to interfere with the due exercise by coequal branches of government of
their official functions."99 As aptly spelled out seven decades ago by Justice George Malcolm,
"Just as the Supreme Court, as the guardian of constitutional rights, should not sanction
usurpations by any other department of government, so should it as strictly confine its own
sphere of influence to the powers expressly or by implication conferred on it by the Organic
Act."100 Let the development of the mining industry be the responsibility of the political branches
of government. And let not this Court interfere inordinately and unnecessarily.
The Constitution of the Philippines is the supreme law of the land. It is the repository of all the
aspirations and hopes of all the people. We fully sympathize with the plight of Petitioner La
Bugal B'laan and other tribal groups, and commend their efforts to uplift their communities.
However, we cannot justify the invalidation of an otherwise constitutional statute along with its
implementing rules, or the nullification of an otherwise legal and binding FTAA contract.
We must never forget that it is not only our less privileged brethren in tribal and cultural
communities who deserve the attention of this Court; rather, all parties concerned -- including
the State itself, the contractor (whether Filipino or foreign), and the vast majority of our citizens --
equally deserve the protection of the law and of this Court. To stress, the benefits to be derived
by the State from mining activities must ultimately serve the great majority of our fellow citizens.
They have as much right and interest in the proper and well-ordered development and utilization
of the country's mineral resources as the petitioners.
Whether we consider the near term or take the longer view, we cannot overemphasize the need
for an appropriate balancing of interests and needs -- the need to develop our stagnating
mining industry and extract what NEDA Secretary Romulo Neri estimates is some US$840
billion (approx. PhP47.04 trillion) worth of mineral wealth lying hidden in the ground, in order to
jumpstart our floundering economy on the one hand, and on the other, the need to enhance our
nationalistic aspirations, protect our indigenous communities, and prevent irreversible ecological
damage.
This Court cannot but be mindful that any decision rendered in this case will ultimately impact
not only the cultural communities which lodged the instant Petition, and not only the larger
community of the Filipino people now struggling to survive amidst a fiscal/budgetary deficit, ever
increasing prices of fuel, food, and essential commodities and services, the shrinking value of
the local currency, and a government hamstrung in its delivery of basic services by a severe lack
of resources, but also countless future generations of Filipinos.
For this latter group of Filipinos yet to be born, their eventual access to education, health care
and basic services, their overall level of well-being, the very shape of their lives are even now
being determined and affected partly by the policies and directions being adopted and
implemented by government today. And in part by the this Resolution rendered by this Court
today.
Verily, the mineral wealth and natural resources of this country are meant to benefit not merely a
select group of people living in the areas locally affected by mining activities, but the entire
Filipino nation, present and future, to whom the mineral wealth really belong. This Court has
therefore weighed carefully the rights and interests of all concerned, and decided for the greater
good of the greatest number. JUSTICE FOR ALL, not just for some; JUSTICE FOR THE
PRESENT AND THE FUTURE, not just for the here and now.
WHEREFORE, the Court RESOLVES to GRANT the respondents' and the intervenors' Motions
for Reconsideration; to REVERSE and SET ASIDE this Court's January 27, 2004 Decision;
to DISMISS the Petition; and to issue this new judgment declaring CONSTITUTIONAL (1)
Republic Act No. 7942 (the Philippine Mining Law), (2) its Implementing Rules and Regulations
contained in DENR Administrative Order (DAO) No. 9640 -- insofar as they relate to financial
and technical assistance agreements referred to in paragraph 4 of Section 2 of Article XII of the
Constitution; and (3) the Financial and Technical Assistance Agreement (FTAA) dated March 30,
1995 executed by the government and Western Mining Corporation Philippines Inc. (WMCP),
except Sections 7.8 and 7.9 of the subject FTAA which are hereby INVALIDATED for being
contrary to public policy and for being grossly disadvantageous to the government.
SO ORDERED.
Davide Jr., C.J., Sandoval-Gutierrez, Austria-Martinez, and Garcia, JJ., concur.
Puno, J., in the result and votes to invalidate sections 3.3; 7.8 and 7.9 of the WMC FTAA.
Quisumbing, J., in the result.
Ynares-Santiago, J., joins dissenting opinion of J. Antonio Carpio & J. Conchita C. Morales.
Carpio, and Carpio-Morales, JJ., see dissenting opinion.
Corona, J., certifies he voted affirmatively with the majority and he was allowed to do so
although he is on leave.
Callejo, Sr., J., concurs to the dissenting opinion of J. Carpio.
Azcuna, J., took no part-same reason.
Tinga, and Chico-Nazario, JJ., concur with a separate opinion.
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)
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.1 Thus –
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 control".
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 co-
production, 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
stockholder3 and, per Commissioner Padilla, "refusing 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 Philippines5 so that
control of all corporations 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 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.7 It must therefore be presumed that the Constitution did not at all intend
an interpretation of Section 2, Article XII which 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 enhance national growth in a way that
effectively safe-guards the environment and protect the rights of affected communities".8 This
policy, with reference specifically to 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."9 In this 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 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.10 To justify nullification of a law, there 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.
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. 79421 ("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.
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. 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. 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. RA 7942 "violates Section 1, Article III of the Constitution";
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";
5. RA 7942 "allows the inequitable sharing of wealth contrary to Section 1, paragraph 1,
and Section 2, paragraph 4, Article XII of the Constitution."2 (Emphasis supplied)
Petitioners also assail the validity of the Financial and Technical Assistance Agreement between
the Philippine Government and WMCP (Philippines), Inc. dated 2 March 19953 ("WMCP FTAA")
for violation of Section 2, Article XII of 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 Constitution4 provides as follows:
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 supervisionover 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 Regalian doctrine.5 The State, as owner of the
nation's natural resources, exercises the attributes of ownership over its natural resources.6 An
important attribute of ownership is the right to receive the income from any commercial
exploitation of the natural resources.7
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"8 system of exploitation under the
1935 and 1973 Constitutions.9 The "license, concession or lease" system 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.
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 by Filipino citizens can only lease the
same. Necessarily, 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 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.10 (Emphasis supplied)
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 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.12 (Emphasis supplied)
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.,13 the Court ruled
that "the old system of exploration, development and utilization of natural resources
through 'license, concession or lease' x x x has been disallowed 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.14 The
Constitution, 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 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. 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.
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 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 compensation 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 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 XIV15 on government share in
mineral 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"). 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) On coal and coke, a tax of Ten pesos (P10.00) per metric ton;
(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) 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:
(a) Copper and other metallic minerals:
(i) On the first three (3) years upon the effectivity of Republic Act No. 7729, one percent (1%);
(ii) On the fourth and the fifth years, one and a half percent (1½%); and
(iii) On the sixth year and thereafter, two percent (2%).
(b) Gold and chromite, two percent (2%).
x x x. (Emphasis supplied)
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."16 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 automobiles17 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."18 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.
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.19 The phrase 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 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 co-production and joint-venture agreements shall
be negotiated by the Government and the contractor" which is 60% Filipino owned.
In a co-production or joint venture agreement, the Government contributes other inputs or equity
in addition to its mineral resources.20 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 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 XIV21 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.
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 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.22 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.
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 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 mining 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 determined 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 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 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.25 On the contrary, the 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
party26 ("Occidental-Shell FTAA"), covering offshore exploitation of petroleum in Northwest
Palawan, contains the following provisions:
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," 27 now Department of
Energy ("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
b. The State receives 60% of the net proceeds from the petroleum operations, while the
foreign contractor receives the remaining 40%; 29
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)30within 60 days from completion of the audit, and if
there is no amicable settlement, the dispute goes to arbitration; 31
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
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
f. The petroleum output is sold at posted or market prices;34
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.35 (Emphasis
supplied)
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 contractor. The
foreign contractor can recover only the capital and operating expenses approved by the
DOE or by the arbitral panel.36 The Occidental-Shell FTAA also contains other 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." 37 Intervenor CMP also states that "the
contractor will get 40% of the financial benefits,"38 admitting that the 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
requirement for Filipino-owned corporations."39 Respondent 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."40 If the State has a 60% interest in the
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 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 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.
G. The WMCP FTAA Violates Section 2, Article XII of the 1987 Constitution
The WMCP FTAA41 ostensibly gives the State 60% share of the 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.42 The proceeds of such sale 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.43 WMCP's foreign stockholders can sell 60% of WMCP's 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 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.44 (Emphasis supplied)
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."45 Intervenor CMP
further insists that "60% of its (contractor's) net returns from mining, if any, will go to the
Government under the WMCP FTAA."46Intervenor CMP, however, fails to consider that the
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:
(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;
(b) any payments to local and regional government, including taxes, fees, levies, costs, imposts,
duties, royalties, occupation and regulatory fees and infrastructure contributions;
(c) any payments to landowners, surface rights holders, occupiers, indigenous people or Claim-
owners;
(d) costs and expenses of fulfilling the Contractor's obligations to contribute to national
development in accordance with Clause 10.1(i)(1) and 10.1(i)(2);
(e) an amount equivalent to whatever benefits that may be extended in the future by the
Government to the Contractor or to financial or technical assistance agreement contractors in
general;
(f) all of the foregoing items which have not previously been offset against the Government
Share in an earlier Fiscal year, adjusted for inflation.
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 resources. 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.47 This sale automatically triggered the operation of 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."48 This basic error in interpretation leads intervenor 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:
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.49 (Italics and underscoring in 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:
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 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.
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 renew the
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.
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)
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. (Underscoring supplied)
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 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,51 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.
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 81.52 The Solicitor General has interpreted these taxes to include "other national
taxes and fees" as well as "other local taxes and fees."
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.53 Under the
Constitution, the NEDA is the "independent (economic) planning agency of the
government."54 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?
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.55 Secretary Neri also estimates the "potential mining 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 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 7942.57 Such specious arguments 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 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 illusory 60% 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. DENR Department Administrative Order No. 56-99 ("DAO 56-99") is the basis for determining
the State's share in the mining income of the foreign FTAA contractor. The DENR Secretary
issued DAO 56-99 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. 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 3.3 of the WMCP FTAA
providing for a 50-year term at the sole option of WMCP.
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."
4. Foreign FTAA contractors and even foreign corporations can 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."
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 agreement 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 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 totaxes, 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 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)
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 petroleum58 -
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 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 "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 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.
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 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 56-9959prescribing the formulae on the State's share
from mining operations separate from taxes, duties and fees.
In short, the majority opinion says that the phrase "among other things" is a delegation of
legislative power to the DENR Secretary to adopt the formulae on the share of the State from
mining operations. The issue now is whether the phrase "among other things" in the
second paragraph of Section 81 is intended as a delegation of legislative power to the
DENR 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:
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. (Emphasis supplied)
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 56-99
based on a supposed delegated power in the second paragraph of Section 81. This makes DAO
56-99 void.
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. 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 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 56-99 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 56-99 derive life solely from the phrase "among other things." DAO 56-99
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 56-99.
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 56-99 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 56-99
states:
x x x any amendment of an FTAA other than the provision on fiscal regime shall require the
negotiation with the Negotiation Panel and the recommendation of the Secretary for approval of
the President 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 56-99 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 56-99, 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 56-99 even
seeks to hide changes in the fiscal regime from Congress. By its provisions alone, DAO 56-99 is
clearly unconstitutional and void.
Section 5 of DAO 56-99 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 56-99 "shall remain
valid and be recognized." If the earlier FTAA provides for a fiscal regime different from DAO 56-
99, then the fiscal regime in the earlier FTAA shall prevail. In effect, DAO 56-99 exempts an
FTAA approved prior to its effectivity from paying the State the share prescribed in the formulae
under DAO 56-99 if the earlier FTAA provides for a different fiscal regime. Such is the case of
the WMCP FTAA.
Based on the majority opinion's position that the 1987 Constitution requires payment in addition
to taxes, duties and fees, this makes DAO 56-99 unconstitutional and void. DAO 56-99 does not
require prior FTAAs to pay the State the share prescribed in the formulae under DAO 56-99
even if the consideration in the prior FTAAs is limited only to taxes, duties and fees. DAO 56-99
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 56-99, 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 56-99 does not apply to FTAAs executed before the issuance of DAO 56-99,
like the WMCP FTAA. The majority opinion's position has no leg to stand on since even DAO
56-99, assuming it is valid, cannot save the WMCP FTAA from want of consideration.
The formulae prescribed in DAO 56-99 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 56-99. No one in this Court can assure the Filipino people
that the formulae in DAO 56-99 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 56-99 as the
savior of Section 81 from certain constitutional infirmity.
The majority opinion gives the stamp of approval and legitimacy on DAO 56-99. This assumes
that the majority understand fully the formulae in DAO 56-99. Can the majority tell the Court and
the Filipino people the minimum share that the State will receive under the formulae in DAO 56-
99? The formulae in DAO 56-99 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 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 56-99. 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,61 the Court held:
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 Cigara,62 the Court 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,63 the Court ruled that broad expressions such as "and all
others" or "any others" or "other matters," when accompanied by an enumeration of items of
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 rule64 are present in 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.
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 56-99 a Mere Creation of DENR
The majority opinion praises the DENR for "conceiving and developing" the formulae in DAO
56-99. Thus, the majority opinion states:
As can be seen from DAO 56-99, 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
56-99. 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 56-99.
d. DAO 56-99 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 56-99, the FTAA contractor can still prevent the
State from collecting any share of the mining 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 56-99 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 56-99 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 56-99, 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; underscoring
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)
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 opinion contradicts its basic theory that DAO 56-99 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 56-99 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 56-99, 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.
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 "contrary 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.65 The DENR 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.
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.
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.66 These five MPSAs uniformly contain 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)
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:
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 centumof
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 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 consolidation of 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-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."67 (Emphasis supplied)
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 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)
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.
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 agreementsshall 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 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 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) "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:
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 authority 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)
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 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 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 xx 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.71 (Emphasis supplied)
As applied to the WMCP FTAA, intervenor CMP asserts that the "contractor's stipulated
share under the WMCP FTAA is limited to a maximum of 40% of the net
production."72 Intervenor CMP further insists that "60% of its (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.74 (Emphasis supplied)
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 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
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.
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
investment75 in Malampaya is 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 billion76 from its share in the Occidental-Shell FTAA.
In Consolidated Mines, Inc. v. Court of Tax Appeals,77 a case 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.
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 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 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 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.
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. Ramos1 by which it declared certain
provisions2 of the Mining Act of 19953 on Financial or Technical 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.
By Resolution of June 22, 2004, this Court, upon motion,4 impleaded Philippine Chamber of
Mines (PCM), as 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,5 intervenor PCM 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.
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,6 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.
Second, as noted in the Decision,7 the issue of whether the Mining Act and the WMCP FTAA
afford the State a just 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
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
x x x in signing and promulgating DENR Administrative Order No. 96-40 implementing Republic
Act No. 7942, the latter being unconstitutional in that it allows enjoyment by foreign citizens as
well as fully foreign owned corporations of the nation's marine wealth contrary to Section 2,
paragraph 2 of Article XII of the Constitution;
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.8 (Emphasis and
underscoring supplied)
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
contractors contrary to the fundamental law.9 (Emphasis and underscoring supplied)
Moreover, the issue of whether the State is deprived of its just share in the proceeds from
mining was touched upon by the parties in their memoranda. Thus, respondent WMCP argues
that:
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:
"7.7 Government Share
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."
In other words, the State is guaranteed a sixty per centum (60%) share of the Net 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. 10 (Emphasis and underscoring supplied)
while the petitioners, for their part, claim:
For instance, government share is computed on the basis of net mining revenue. Net mining
revenue is gross mining revenue less, among others, deductible expenses. Some of the
allowable deductions from the base amount to be used to compute government share are
suspicious. The WMCP FTAA contract, for instance, allows expenditures for development
"outside the Contract Area," consulting fees for work done "outside the Philippines," and the
"establishment and administration of field offices including administrative overheads incurred
within and outside the Philippines."
xxx
One mischief inherent in past service contracts was the practice of transfer pricing. UNCTAD
defines this as the "pricing of transfers of goods, services and other assets within a TNC
network." If government does not control the exploration, development and utilization of
natural resources, then the intra-transnational corporation pricing of expenditures may
not become transparent. 11 (Emphasis supplied; footnotes omitted)
In fine, the majority opinion skirts an issue raised in the original Petition for Prohibition and
Mandamus, passed upon in its Decision of January 27, 2004 and argued by the parties in the
present Motion for Reconsideration.
Instead, I find that the myriad arguments raised by the parties may be grouped according to two
broad categories: first, the arguments pertaining to the constitutionality of FTAA provisions of the
Mining Act; and second, those pertaining to the validity of the WMCP FTAA. Within these
categories, the following issues are submitted for resolution: (1) whether in invalidating certain
provisions of the Mining Act a non-justiciable political question is passed upon; (2) whether the
FTAAs contemplated in Section 2, Article XII of the 1987 Constitution are identical to, or
inclusive of, the "service contracts" provided for in the 1973 Constitution; (3) whether the
declaration of the unconstitutionality of certain provisions of the Mining Act should be
reconsidered; (4) whether the question of validity of the WMCP FTAA was rendered moot before
the promulgation of the Decision; and (5) whether the decision to declare the WMCP FTAA
unconstitutional and void should be reconsidered.
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.
The Constitution delineates the parameters of the powers of the legislative, the executive and
the judiciary.12Whether the first and second great departments of government exceeded those
parameters is the function of the third.13 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 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.15 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.16 In short, the
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.18 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.19
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 limitations20 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.
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
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 supervisionof the State. The State may directly
undertake such activities or it may enter into co-production, joint venture, or production-sharing
agreements with Filipino citizens, or corporations or associations at least sixty per centum of
whose capital is owned by such citizens. Such agreements may be for a period not exceeding
twenty-five years, renewable for not more than twenty-five years, and under such terms and
conditions as may be provided by law. In cases of water rights for irrigation, water supply,
fisheries, or industrial uses other than the development of water power, beneficial use may be
the measure and limit of the grant.
The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea, and
exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.
The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens,
as well as cooperative fish farming, with priority to subsistence fishermen and fish workers in
rivers, lakes, bays, and lagoons.
The President may enter into agreements with foreign-owned
corporations involving either technical or financial assistance for large-scale exploration,
development, and utilization of minerals, petroleum, and other mineral oils according to
the general terms and conditions provided by law, based on real contributions to the
economic growth and general welfare of the country. In such agreements, the State shall
promote the development and use of local scientific and technical resources.
The President shall notify the Congress of every contract entered into in accordance with
this provision, within thirty days from its execution. (Emphasis and underscoring supplied)
Its counterpart provision in Article XIV of the 1973 Constitution authorized "service contracts" as
follows:
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
underscoring 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.21 It hastens to add,
however, that the word "may" therein is permissive not restrictive;22 and that consistent with the
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.23 And it 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,25 as well as to address the absence of a governing law that led to the abuse of
service contracts.26 The phrase "technical or financial" is merely for emphasis, the OSG adds,
that it is descriptive, not definitive, of the forms of assistance that the State needs and which
foreign corporations may provide in the large-scale exploration, development and utilization of
the specified resources.27 Furthermore, the OSG 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."28 It argues that the President has broad discretion
to enter into any agreement, regardless of the scope of assistance, with foreign
corporations.29 Driving its point, the OSG poses: If the framers 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?30 Why does the Constitution require that
such agreements be based on real contributions to economic growth and general welfare of the
country?31 Why the condition in the last paragraph of Section 2 that the President report to
Congress?32 Finally, the OSG asserts that these requirements would be superfluous if the
assistance to be rendered were merely technical or financial.33 And that it would make more
sense if the phrase "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 petroleum by the foreign-owned corporation."34 In fine, intervenor
posits that the change in phraseology in the 1987 Constitution does not relate to the substance
of the agreement,35 otherwise, the State itself would be compelled to 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.38 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.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 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:
xxx 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.41 (Emphasis and underscoring supplied; 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 guardian-in-trust therof.42 (Emphasis and underscoring 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.43 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 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.44 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.
By way of concrete example, the Government may enter into a joint venture agreement45 with a
third party to explore, develop or utilize certain natural resources through a jointly 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,46 the 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 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
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 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.49 (Emphasis supplied)
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 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 dummyism is easily plugged by the
provision in the present Constitution that the President, not Congress or the Batasan
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 prevailing50 and had
a settled acceptation.
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 "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.52 (Emphasis and underscoring 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,53 and operates to
confer discretion upon a party.54 Thus, as used in 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."55 If the President opts to exercise the prerogative to 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 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,"56 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.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.58 However, modern English usage has
relaxed this rule when "either" is used as a conjunction.59 Thus, the word "either" may indicate
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 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 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.60 (Underscoring supplied).
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 indirectly.61 Further, the
proposition lends itself 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
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 out 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.62 (Emphasis and underscoring supplied)
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.
The Commission had just approved the Preamble. In the Preamble we clearly sated 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  technical or financial assistance contemplated by the 1987 Constitution are different and
to the aliencorporations but only for them to render financial or technical assistance. It is  dissimilar from the service contracts under the 1973 Constitution must thus be affirmed. That
not for them to enjoyour 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.63 (Emphasis and underscoring supplied)
The intent loses all significance if foreign-owned corporations are likewise allowed to participate
even in small or medium-scale ventures.
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 65 x
x x (Emphasis and underscoring supplied)
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, 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
there is this difference, as noted in the Decision, is gathered from the change in
phraseology.67 There was no need to employ strongly prohibitory language, like that found in the
Bill of Rights.68 For the framers to expressly prohibit "management and other forms of
assistance" would be redundant inasmuch as the elimination 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 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 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.69 (Emphasis supplied)
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 ournatural 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.70 (Emphasis &
underscoring supplied),
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 technicalassistance 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.71 As recently as 2001 in Commission on Audit of
the Province of Cebu v. Province of Cebu,72 this Court held that a person, object or thing omitted
from an enumeration must be held to have been omitted intentionally.73 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."
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 change in phraseology meaningless.74 (Emphasis and underscoring supplied; citation
omitted)
Second, expressio unius est exclusion alterius.75 The express mention of one person, thing, act,
or consequence excludes all others.76
Third and lastly, expressium facit cessare tacitum.77 What is expressed puts an end to that which
is implied.78 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.
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.
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.79 However, such remark is far outweighed by his more categorical statement in his
exchange with Commissioner Quesada that the draft article "does not permit foreign
investors to participate" in the nation's natural resources – which was exactly what
service contracts did – except to provide "technical or financial assistance."
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 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.80(Emphasis and underscoring
supplied; citations omitted)
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.
Necessarily, 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.82 (Emphasis and underscoring supplied)
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,83 this Court held:
xx
x Needless to say, all licenses may thus be revoked or rescinded by executive action. It is  or exercise his freedom of contract to work them harm. Equally fundamental with the private
not acontract, property or a property right protected by the due process clause of the Co
nstitution. 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 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 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 York quoted 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,
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.84 (Emphasi
s and underscoring supplied; 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 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.
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.85 (Emphasis and underscoring supplied)
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."86 With such high concentration of valuable minerals 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.
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.
ATTY. LEONEN:
Full management, your Honor.
JUSTICE PANGANIBAN:
Full management is excluded.
ATTY. LEONEN:
Yes your Honor.
JUSTICE PANGANIBAN:
But incidental management to protect the financial or technical assistance should be
allowed.
ATTY. LEONEN:
If a mining company would get the technical expertise to bring in drilling rig your Honor,
and that is the sole contract, then we cannot imagine a situation were it is not the
technicians that we will do the actual drilling your Honor, but for the entire contract area
your Honor as it is now in the FTAA then I think that would be different.
JUSTICE PANGANIBAN:
Yes I agree. In other words, the words financial or technical may include parts of
management, isn't it? Its reasonable in other words if I may re state it, it's reasonable to
expect that entities,foreign entities who don't know anything about this country, well that is an
exaggeration, who know not too much about this country, would not just extend money,
period. They would want to have a say a little bit of say management and sometimes even
in auditing of the company, isn't it reasonable to expect.
ATTY. LEONEN:
I would qualify my answer your Honor with management of what your Honor. It means if it's for
development and utilization of the minerals.
JUSTICE PANGANIBAN: 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
No. arrangement and put the words either financial and technical.

ATTY. LEONEN: JUSTICE PANGANIBAN:

Yes your Honor, but if it's management of sub-contracted activity like a symposium then that Yes but you just admitted earlier that these two words would also include some form of
would be all right your Honor. Mining companies do symposiums also. management or other things to protect the investment or the technology being put by the
foreign company.
JUSTICE PANGANIBAN:
ATTY. LEONEN:
Management to protect their own investments, whether it be technical or financial.
Yes your Honor for so long as it's not the entire.
ATTY. LEONEN:
JUSTICE PANGANIBAN:
Their investment, your Honor, which cannot be the entire mining operation from my
perspective, your Honor. Yes, yes provided the State does not lose control and supervision, isn't it?

JUSTICE PANGANIBAN: ATTY. LEONEN:

Yes I agree because there is the Constitutional provision of control and supervision, full Yes your Honor.87 (Emphasis and underscoring supplied)
control and supervision to the State.
Thus, the degree of the foreign corporation's participation in the management of the mining
ATTY. LEONEN: 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.
And Filipino corporations your Honor.
However, to whatever extent the foreign corporation's incidental participation in the management
JUSTICE PANGANIBAN: 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
Or even Filipino corporation, the full control and supervision is still with the State.
Government. While this does not necessarily mean that the Government must assume the role
ATTY. LEONEN: 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
Yes your Honor. people's beneficial interest in their natural resources are protected at all times.

JUSTICE PANGANIBAN: Moreover, the foreign contractor's limited participation in management, as the Court held in its
Decision, should not effectively grant foreign-owned corporations beneficial
Even with Filipino citizens being the contractors, full control and supervision is still with the State. ownership over the natural resources.

ATTY. LEONEN: 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
Yes, your Honor. not inconsistent with the foregoing conclusion. Commissioner Villegas opined:
JUSTICE PANGANIBAN: 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
In all these contract full control and supervision is with the State.
used during the Marcos regime as an instrument to circumvent the 60-40 limit in favor of Filipino
ATTY. LEONEN: 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
Yes your Honor and we can only hope that the State is responsive to the people we represent. ownership by the foreign partner.

xxx 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
JUSTICE PANGANIBAN: 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.
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 I maintain that the majority who voted Yes to this FTAA provision realized that an FTAA involved
craft out. 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
ATTY. LEONEN:
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 foreign
partners in the management of the enterprise engaged in the exploitation of natural
resources.88 (Emphasis supplied).
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,89 "managerial assistance" – a euphemism by which 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,90 which vested
foreign-owned corporations control and 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 licenses, concessions, or leases for the exploration, exploitation,
development, or utilization of natural resources.91
Prof. Agabin had no flattering words for the concession system, which he described in his
position paper as follows:
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 concession
amounts to a complete control by the concessionaire over the country's natural resource,
for it is given exclusive and plenary rights to exploit a particular resource and is in effect
assured ownership of that 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. But looking beyond the legal significance of the concession
regime, we can see that there are functional implications which give the concessionaire
great economic power arising from its exclusive equity holding. This includes, first,
appropriation of the returns of the undertaking, subject to a modest royalty; second,
exclusive management of the project; third, control of production of the natural resource,
such as volume of production, expansion, research and development; and fourth,
exclusive responsibility for downstream operations, like processing, marketing, and
distribution. In short, even if nominally, the state is the sovereign and owner of the
natural resource being exploited, it has been shorn of all elements of control over such
natural resource because of the exclusive nature of the contractual regime of the
concession. The concession system, investing as it does ownership of natural resources,
constitutes a consistent inconsistency with the principle embodied in our Constitution that natural
resources belong to the State and shall not be alienated, not to mention the fact that the
concession was the bedrock of the colonial system in the exploitation of natural
resources.92 (Underscoring in the original)
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 development. 93 Also, while title to the resource
discovered was nominally in the name of the government, the contractor had almost unfettered
control over its disposition and sale.94
The salutary intent of the 1987 Constitution notwithstanding, these stubborn features of the
concession system persist in the Mining Act of 1995. The statute allows a foreign-owned
corporation to carry out mining operations,95which includes the conduct of
exploration,96 development97 and utilization98 of the resources.99 The same law grants foreign
contractors auxiliary mining rights, i.e., timber rights,100 water rights,101 the right to possess
explosives,102 easement rights,103 and entry into private lands and concession areas.104 These
are the very same rights 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
underscoring supplied)
However, the majority opinion subsequently substantially reduces the scope of its definition of
"control" in this wise:
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 underscoring 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 commitments105 does not provide adequate protection. These were also
required under the old concession106 and service contract107 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 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.
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?109 If minerals are found to have been sold overseas at less than the most
advantageous market prices, how does the DENR obtain satisfaction from the offending foreign
FTAA contractor for the difference?
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,110 is
empowered to (1) appoint a conservator with such powers as shall be deemed necessary to
take charge of the assets, liabilities and management of a bank or quasi-bank;111 (2) under
certain well defined conditions, summarily and without need for prior hearing forbid a bank from
doing business in the Philippines and appoint the Philippine Deposit Insurance Corporation as
receiver;112 and (3) impose a number 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,114 the
Labor Code115 grants the Secretary of Labor the power to (1) issue compliance orders to give
effect to the labor standards provisions of the Code;116 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.117
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;118 (2) order the constructive distraint of the property of a taxpayer;119 and (3) impose
the summary 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 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.
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.
Provisions of the Mining Act pertaining to FTAAs
void for conveying beneficial ownership of 
Philippine mineral resources to foreign contractors
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. — x x x
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 concession121 and service contract122 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.123 They are not a return on investment or
property. Similarly, fees are imposed under the police power primarily for purposes of
regulation.124Again, they 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
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 99-56126 (DAO 99-56), is constitutional 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 fees127 and (2) an "additional government
share"128 computed according to one of three possible methods – (a) a 50-50 sharing in the
cumulative present value of cash flows,129 (b) a profit related additional government share130 or
(c) an additional share based on the cumulative net mining revenue131 – at the option of the
contractor.
Thus, the majority opinion claims that the total government share, equal to the sum of the "basic
government share" and the "additional government share," will achieve "a fifty-fifty sharing –
between the government and the contractor – of net benefits from mining."
This claim is misleading and meaningless for two reasons:
First, as priorly discussed, the taxes and fees which make up the government's "basic
share" cannot be considered a return on the resources mined corresponding to the
beneficial ownership of the Filipino people. Again, they do not correspond to a return on
investment or property.
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 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 underscoring supplied)
And under Section 80 of the Mining Act, in connection with Section 151(a) of the National
Internal Revenue Code132(Tax 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 inRepublic Act No. 7729, amending Section 151(a) of the
National Internal Revenue Code, as amended. (Emphasis supplied)
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) On coal and coke, a tax of ten pesos (P10.00) per metric ton.
(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) 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:
(a) Copper and other metallic minerals:
(i) On the first three (3) years upon the effectivity of this Act, one percent (1%);
(ii) On the fourth and fifth year, one and a half percent (1 1/2%); and
(iii) On the sixth year and thereafter, two percent (2%)
(b) Gold and chromite, two percent (2%)
(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.
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%133 while
the beneficial ownership of Filipinos would, at most,134 amount to 36% – 34% for the 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 that embodied 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 the Filipino people, and violative of public policy:"
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 1percent 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;
and foreign 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 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 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
completion of the exploration phase and just before undertaking the development, construction
and utilization phase. This is because under Section 56 (a) of DAO 40-96, the requirement for a
minimum investment of Fifty Million U.S. Dollars (US$ 50,000,000.00)135 is only applicable during
the 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:
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
12
22
38
48
5 18
6 23
and a minimum investment of Fifty Million US Dollars ($50,000,000.00) or its Philippine
Peso equivalent in the case of Filipino Contractor for infrastructure and development in
the contract area. If a Temporary/Special Exploration Permit has been issued prior to the
approval of an FTAA, the exploration expenditures incurred shall form part of the expenditures
during the first year of the exploration period of the FTAA.
In the event that the Contractor exceeds the minimum expenditure requirement in any one (1)
year, the amount in excess may be carried forward and deducted from the minimum expenditure
required in the subsequent year. In case the minimum ground expenditure commitment for a
given year is not met for justifiable reasons as determined by the Bureau/concerned Regional
Office, the unexpended amount may be spent on the subsequent year(s) of the exploration
period. (Emphasis supplied)
By converting its FTAA to an MPSA just before undertaking development, construction and
utilization activities, a foreign contractor further maximizes its profits by avoiding its obligation to
make a minimum investment of US$ 50,000,000.00. Assuming an exploration term of 6 years, it
will have paid out only a little over US$ 2.4 million136 in 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 foreign investments is merely hypothetical and
ultimately illusory.
Grant of Exploration Permits to Foreign 
Corporations is Unconstitutional
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."
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 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
23,137 and (2) the exclusive 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;138 but
requires none of the obligations 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).140 It
is not obligated to pay any 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.
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  the FTAA, why was an agreement with a foreign owned corporation entered into in the first
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."141 This Court 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.143 The rationale for this rule is that if the ban on aliens 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
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.
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 scandal145 and
recent Shell oil reserve controversy146 vividly illustrate.
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 questions concerning the
WMCP FTAA and its validity. First, if a Filipino corporation is capable of undertaking the terms of
place? Second, does not the fact that, as alleged by petitioners147 and admitted by respondent
WMCP,148 Sagittarius, WMCP's putative new owner, is capitalized at less than half the purchase
price149 of 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,150 why did WMC sell 100% of its shares in WMCP for
only US$10,000,000.00? Finally, considering that, as emphasized by WMCP,151 "payment of the
purchase price by Sagittarius to 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 peso152 interest in
Philippine mineral resources located in a contract area of 99,387 (alleged to have later been
reduced to 30,000)153 hectares of land spread across the four provinces of South Cotabato,
Sultan Kudarat, Davao del Sur and North Cotabato?
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 profit from 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,154 did not "cure" the FTAA nor moot the
petition at bar. 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:
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:
(b) to extract and carry away any Mineral samples from the Contract area for the purpose of
conducting tests and studies in respect thereof;
(c) to determine the mining and treatment processes to be utilized during the
Development/Operating Period and the project facilities to be constructed during the
Development and Construction Period;
(d) have the right of possession of the Contract Area, with full right of ingress and egress and
the right to occupy the same, subject to the provisions of Presidential Decree No. 512 (if
applicable) and not be prevented from entry into private lands by surface owners and/or
occupants thereof when prospecting, exploring and exploiting for minerals therein;
xxx
(f) to construct roadways, mining, drainage, power generation and transmission facilities and all
other types of works on the Contract Area;
(g) to erect, install or place any type of improvements, supplies, machinery and other equipment
relating to the Mining Operations and to use, sell or otherwise dispose of, modify, remove or
diminish any and all parts thereof;
(h) enjoy, subject to pertinent laws, rules and regulations and the rights of third Parties,
easement rights and the use of timber, sand, clay, stone, water and other natural resources in
the Contract Area without cost for the purposes of the Mining Operations;
xxx
(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 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.155 (Citations omitted)
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.156 The first paragraph of Section 2, Article XII 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 promise of
a thing or service by the other.157 On the part of 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 assistance, but virtually grant WMCP full control over its mining operations. Thus, in
Section 8.3158 of the FTAA, in case 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.159 They produce no effect whatsoever.160 They cannot be ratified,161 and so cannot 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 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. xxx (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 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:
xxx 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:
Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:
(1) That they be constituted to secure the fulfillment of a principal obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or
mortgaged;
(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 underscoring supplied)
From the foregoing provision of law, it is abundantly clear
that only the absolute owner of the minerals has theright to mortgage the same, and unde
r Section 2, Article XII of the Constitution the absolute owner of theminerals 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 resources in the Philippines;162 and, specifically, that the
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 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 "surface 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 3.3,164 the foreign FTAA
contractor would have the 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 thepower to hold inalienable mineral land of u
p to 5,000 hectares, with the assistance of the State's power ofeminent domain, free of ch
arge, for a period of up to 50 years in contravention of Section 3, Article XII of theConstitu
tion:
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)
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;165 it is a mine working in
which excavation is performed from the surface.166 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.167 It is used extensively in mining metal ores, copper, gold, iron,
aluminum168 – the very minerals which the Philippines is believed to possess in vast quantities;
and is considered the most cost-effective mining method.169
Furthermore, considering that FTAAs deal with large scale exploration, development and
utilization of mineral resources and that the original contract area of the WMCP FTAA was
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 40-96, 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.
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.
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.
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 DENRsince, 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:
xxx 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 underscoring 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 utilization 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 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 to another generation.
ACCORDINGLY, I vote to deny respondents' Motions for Reconsideration.
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,1 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.
My vote on the motions for reconsideration is hinged on a renewed exegesis of Section 22 of
Article XII in conjunction 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.
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.3 By investiture of the Constitution, the function of
executive power is parceled solely to the duly elected President.4 The Constitution contains
several express manifestations of executive power, such as the provision on control over all
executive departments, bureaus and offices,5 as well as the so-called "Commander-in-Chief"
clause.6
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. Manglapus7 concedes that
the President has powers other than those expressly stated under the Constitution,8 and thus
implies that these powers may be exercised without being derivative from constitutional
authority.9 The precedental value of Marcos v. Manglapus may be controvertible,10 but the
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 executive. Thus, in the landmark decision of Springer v. Government of the
Philippine Islands, 277 U.S. 189 (1928), on the 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:
. . . 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
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."12 The critical perspective of this case should
spring 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 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."13 As "Chief of State" the President is also regarded as the head
of this body corporate,14 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.
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 review15 and legislative oversight.16 The Constitution itself may expressly
restrict the exercise of any sort of executive function. Section 2 undeniably 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,17 and that
the State shall have full control and supervision over the exploration, development and utilization
of natural resources.18 These key postulates are facially broad and 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.
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.19 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."20
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.21 Hence, the variance in treatment from the timber industry and the rest of the
natural resources.
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 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,22 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.
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 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.23 These requisites imposed by the 1987 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.24Towards 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.25 The 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.26 The provision expressly adverts to "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 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 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 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 ponencia points 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. 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.27 However, 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 pursuit of the enterprise's
objectives.28 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.
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 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.29 Such a
limited construction would be inconvenient and absurd,30 not to mention potentially wasteful.
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 yielding too many management prerogatives to a remote overseer such as
the State. An early United Nations report once noted that while it is theoretically possible to
endow a government department with a high degree of operating flexibility, it is in practice
difficult to do so.31 It has been proposed that the further away a decision-maker is to the market,
the higher the information cost, or the opportunity cost to the gaining of
information.32 Remoteness can be achieved through the layering of bureaucratic structure, and
because of the information loss that accompanies the transmission of information and judgments
from lower levels of the hierarchy to higher levels, the ultimate basis of a decision may be
misleading at best and erroneous at worst.33
The same conclusion arises from the view that what the provision authorizes is foreign
investment. The foreign player necessarily at least has a reasonable say in how the mining
venture is run. The interest of the investor in seeing that the investment is not wasted should be
recognized not only as a right available to the investor, but from the broader view that such say
would lead to a more prudent management of the project. It must be noted that mineral and
petroleum resources are non-renewable, thus a paramount interest arises to ensure against
wasteful exploitation.
Next for consideration is the situation, as in this case, if management is ceded to the foreign
corporation, or even to a private domestic corporation for that matter. What should be the proper
dichotomy, if any, between the private entity's exercise of managerial control, and the State's full
control and supervision?
The President may insist on conditions into the agreement pertaining to the State's degree of
control and supervision in the mining activity. This was certainly done with the WMC FTAA,
which is replete with stipulations delineating the State's control which are judicially enforceable,
imposed presumably at the President's call. But the FTAA itself is not the only vehicle by which
State control and supervision is exercised. These can similarly be enforced through statutes, as
well as executive or administrative issuances. The Mining Act itself is an expression of State
control and supervision, implemented in coordination with the executive and legislative
branches.
As a general point, I believe that State control and supervision is unconstitutionally yielded if
either of the Mining Act or the FTAA precludes the application of the laws and regulations of the
Philippines, enunciatory as they are of State policy. Neither the Mining Act nor the WMC FTAA
are flawed in that regard. The agreements under contemplation are not beyond the ambit of our
regular laws, or regulatory enactments pertaining to such areas as environmental concerns.
Violations of these laws uttered in the name of the FTAA are punishable in this jurisdiction.
Still, the fact that the Constitution requires "full control 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-fairecapitalist. Most importantly, the State cannot abdicate its
traditional functions by contractual limitations. It could 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 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
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, 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 co-production 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 problems35 which 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 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.