Republic

of
the
Philippines
SUPREME
COURT
Manila
THIRD DIVISION
G.R. No. 163509
December 6, 2006
PICOP
RESOURCES,
INC., petitioner,
vs.
BASE METALS MINERAL RESOURCES CORPORATION, and THE MINES ADJUDICATION
BOARD,respondents.
TINGA, J.:
PICOP Resources, Inc. (PICOP) assails the Decision 1 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
MPSA applications with the Bureau of Mines to substitute itself as applicant and to
submit additional documents in support of the application. Area clearances from the
DENR Regional Director and Superintendent of the Agusan Marsh and Wildlife Sanctuary
were submitted, as required.
On October 7, 1997, private respondent Base Metals' amended MPSA applications were
published in accordance with the requirements of the Mining Act of 1995.
On November 18, 1997, petitioner PICOP filed with the Mines Geo-Sciences Bureau
(MGB), Caraga Regional Office No. XIII an Adverse Claim and/or Opposition to private
respondent Base Metals' application on the following grounds:

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 nonimpairment 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 PTLA4which 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.
Base Metals reiterates that the non-impairment clause is a limit on the exercise of legislative
power and not of judicial or quasi-judicial power. The Constitution prohibits the passage of a law
which enlarges, abridges or in any manner changes the intention of the contracting parties. The
decision of the MAB and the Court of Appeals are not legislative acts within the purview of the
constitutional proscription. Besides, the Presidential Warranty is not a contract that may be
impaired by the reinstatement of the MPSA. It is a mere confirmation of PICOP's timber license
and draws its life from PTLA No. 47. Furthermore, PICOP fails to show how the reinstatement of
the MPSA will impair its timber license.
Following the regalian doctrine, Base Metals avers that the State may opt to enter into contractual
arrangements for the exploration, development, and extraction of minerals even it the same
should mean amending, revising, or even revoking PICOP's timber license. To require the State to
secure PICOP's prior consent before it can enter into such contracts allegedly constitutes an
undue delegation of sovereign power.
Base Metals further notes that Presidential Decree No. 705 (PD 705), under which PTLA No. 47,
IFMA No. 35 and the Presidential Warranty were issued, requires notice to PICOP rather than
consent before any mining activity can be commenced in the latter's concession areas.
The Office of the Solicitor General (OSG) filed a Memorandum 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
contested area is classified as a permanent forest and hence, closed to mining activities, is
offensive to due process and should not be allowed.
The OSG argues that a timber license is not a contract within the purview of the due process and
non-impairment clauses. The Presidential Warranty merely guarantees PICOP's tenure over its
concession area and covers only the right to cut, collect and remove timber therein. It is a mere
collateral undertaking and cannot amplify PICOP's rights under its PTLA No. 47 and IFMA No. 35.
To hold that the Presidential Warranty is a contract separate from PICOP's timber license
effectively gives the latter PICOP an exclusive, perpetual and irrevocable right over its concession
area and impairs the State's sovereign exercise of its power over the exploration, development,
and utilization of natural resources.
The case of PICOP Resources, Inc. v. Hon. Heherson T. Alvarez, supra, cited by PICOP cannot be
relied upon to buttress the latter's claim that a presidential warranty is a valid and subsisting
contract between PICOP and the Government because the decision of the appellate court in that
case is still pending review before the Court's Second Division.
The OSG further asserts that mining operations are legally permissible over PICOP's concession
areas. Allegedly, what is closed to mining applications under RA 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 AgusanSurigao-Davao Forest Reserve. In fact, the Court held that the area is not open to mining location
because the proper procedure is to file an application for a permit to prospect with the Bureau of
Forest and Development.

In addition, PICOP's claimed wilderness area has not been designated as a protected area that
would operate to bar mining operations therein. PICOP failed to prove that the alleged wilderness
area has been designated as an initial component of the NIPAS pursuant to a law, presidential
decree, presidential proclamation or executive order. Hence, it cannot correctly claim that the
same falls within the coverage of the restrictive provisions of RA 7586.
The OSG points out that the Administrative Code of 1917 which RA 3092 amended has been
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 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.
Moreover, Clauses 10 and 14 of PICOP's IFMA No. 35 specifically provides that the area covered by
the agreement is open for mining if public interest so requires. Likewise, PTLA No. 47 provides
that the area covered by the license agreement may be opened for mining purposes.
Finally, the OSG maintains that pursuant to the State's policy of multiple land use, R.A. No. 7942
provides for appropriate measures for a harmonized utilization of the forest resources and
compensation for whatever damage done to the property of the surface owner or concessionaire
as a consequence of mining operations. Multiple land use is best demonstrated by the
Memorandum of Agreement between PICOP and Banahaw Mining.
First, the procedural question of whether PICOP is raising new issues in the instant petition. It is
the contention of the OSG and Base Metals that PICOP's argument that the area covered by the
MPSA is classified as permanent forest and therefore closed to mining activities was raised for the
first time in PICOP's motion for reconsideration with the Court of Appeals.
Our own perusal of the records of this case reveals that this is not entirely true.
In its Adverse Claim and/or Opposition 16 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 Answer 18 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.20Besides, 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;

(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 in areas expressly
prohibited under the National Ingrated Protected Areas System (NIPAS) under Republic
Act No. 7586, Department Administrative Order No. 25, series of 1992 and other laws.
[emphasis supplied]
We analyzed each of the categories under which PICOP claims that its concession area is closed to
mining activities and conclude that PICOP's contention must fail.
Firstly, assuming that the area covered by Base Metals' MPSA is a government reservation,
defined as proclaimed reserved lands for specific purposes other than mineral reservations, 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.
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:
Sec. 6. Other Reservations.Mining operations in reserved lands other than mineral
reservations may be undertaken by the Department, subject to limitations as herein
provided. In the event that the Department cannot undertake such activities, they may
be undertaken by a qualified person in accordance with the rules and regulations
promulgated by the Secretary. The right to develop and utilize the minerals found therein
shall be awarded by the President under such terms and conditions as recommended by
the Director and approved by the Secretary: Provided, That the party who undertook the
exploration of said reservations shall be given priority. The mineral land so awarded shall
be automatically excluded from the reservation during the term of the
agreement: Provided, further, That the right of the lessee of a valid mining contract
existing within the reservation at the time of its establishment shall not be prejudiced or
impaired.
Secondly, RA 7942 does not disallow mining applications in all forest reserves but only
those proclaimed aswatershed forest reserves. There is no evidence in this case that the area
covered by Base Metals' MPSA has been proclaimed as watershed forest reserves.
Even granting that the area covered by the MPSA is part of the Agusan-Davao-Surigao Forest
Reserve, such does not necessarily signify that the area is absolutely closed to mining activities.
Contrary to PICOP's obvious misreading of our decision in Apex Mining Co., Inc. v. Garcia, supra, to
the effect that mineral agreements are not allowed in the forest reserve established under
Proclamation 369, the Court in that case actually ruled that pursuant to PD 463 as amended by
PD 1385, one can acquire mining rights within forest reserves, such as the Agusan-Davao-Surigao
Forest Reserve, by initially applying for a permit to prospect with the Bureau of Forest and
Development and subsequently for a permit to explore with the Bureau of Mines and Geosciences.
Moreover, Sec. 18 RA 7942 allows mining even in timberland or forestty subject to existing rights
and reservations. It provides:
Sec. 18. Areas Open to Mining Operations.Subject to any existing rights or reservations
and prior agreements of all parties, all mineral resources in public or private lands,
including timber or forestlands as defined in existing laws, shall be open to mineral
agreements or financial or technical assistance agreement applications. Any conflict that
may arise under this provision shall be heard and resolved by the panel of arbitrators.

Similarly, Sec. 47 of PD 705 permits mining operations in forest lands which include the public
forest, the permanent forest or forest reserves, and forest reservations. 22 It states:
Sec. 47. Mining Operations.Mining operations in forest lands shall be regulated and
conducted with due regard to protection, development and utilization of other surface
resources. Location, prospecting, exploration, utilization or exploitation of mineral
resources in forest reservations shall be governed by mining laws, rules and regulations.
No location, prospecting, exploration, utilization, or exploitation of mineral resources
inside forest concessions shall be allowed unless proper notice has been served upon the
licensees thereof and the prior approval of the Director, secured.

Significantly, the above-quoted provision does not require that the consent of existing licensees
be obtained but that they be notified before mining activities may be commenced inside forest
concessions.
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 timber or
forest lands, military and other government reservations, forest reservations, forest reserves
other than critical watershed forest reserves, and existing DENR Project Areas within timber or
forest lands, reservations and reserves, among others, are open to mining applications subject to
area status and clearance.
To this end, area status clearances or land status certifications have been issued to Base Metals
relative to its mining right application, to wit:
II. MPSA No. 010
1. Portion colored green is the area covered by the aforestated Timberland
Project No. 31-E, Block A and Project No. 59-C, Block A, L.C. Map No. 2466
certified as such on June 30, 1961; and
2. Shaded brown represent CADC claim.23
III. MPSA No. 011
1. The area applied covers the Timberland, portion of Project No. 31-E, Block-E,
L.C. Map No. 2468 and Project No. 36-A Block II, Alienable and Disposable Land,
L.C. Map No. 1822, certified as such on June 30, 1961 and January 1, 1955,
respectively;
2. The green shade is the remaining portion of Timber Land Project;
3. The portion colored brown is an applied and CADC areas;
4. Red shade denotes alienable and disposable land.24
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 [SeeSections 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.
Quisumbing, J., Chairperson, Carpio, Carpio Morales, and Velasco, Jr., JJ., concur.

Republic
of
the
Philippines
SUPREME
COURT
Baguio City
FIRST DIVISION
G.R. NO. 134030
April 25, 2006
ASAPHIL
CONSTRUCTION
AND
DEVELOPMENT
CORPORATION, Petitioner,
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 Tuasons mining claim located in Taysa, Daraga, Albay.
In exchange, Induplex will assist Tuason in securing and perfecting his right over the mining
claim.3
Thereafter, Tuason executed on May 29, 1976, an Agreement to Operate Mining Claims in favor of
petitioner Asaphil Construction and Development Corporation (Asaphil). 4
On November 9, 1990, Tuason filed with the Bureau of Mines, Department of Environment and
Natural Resources (DENR), a complaint against Asaphil and 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 Ibalons mining claim; that this is in violation of the condition imposed by the Board of
Investments (BOI) on Induplex in its Joint Venture Agreement with Grefco, Inc. dated September 3,
1974, prohibiting Induplex from 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 Ibalons shares were also transferred to Virgilio R. Romero, who is a stockholder of Induplex,
Asaphil and Ibalon. Tuason claimed that said acts adversely affected, not only his interest as
claimowner, but the governments interest as well. 5
Asaphil filed its Answer, praying for the dismissal of the complaint on the ground that the DENR
has no jurisdiction over the case.6
Induplex filed a Motion to Dismiss the complaint, also on ground of lack of jurisdiction. Induplex
contended that to fall within the jurisdiction of the DENR, the controversy should involve a mining
property and the contending parties must be claimholders and/or mining operators; and that the
dispute in this case involves "mineral product" and not a mining property, and the protagonists
are claimholders (Tuason) and a buyer (Induplex).7
The DENR, through the Regional Executive Director, found merit in Induplexs arguments and
dismissed the complaint. The dispositive portion of the Regional Executive Directors Decision
reads:
WHEREFORE, in view of the foregoing, the instant complaint should be, as it is hereby
dismissed.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
Induplexs assumption of the mining operation violated the BOI prohibition. With regard, however,
to the validity of the Contract for Sale and Purchase of Perlite Ore, the MAB ruled that the
evidence does not support Tuasons plea for its cancellation.9
Asaphil and Induplex filed a motion for reconsideration which was denied by the MAB per Order
dated March 23, 1998.10
Hence, the herein petition by Asaphil on the following grounds:
A. THE BOARD A QUO HAS DECIDED A QUESTION OF SUBSTANCE UNDER THE RECENTLY ENACTED
MINING ACT OF 1995 (R.A. NO. 7942), NOT THERETOFORE DETERMINED BY THIS HONORABLE
TRIBUNAL
o
BY VIOLATING ARTICLE 1930 OF THE CIVIL CODE OF THE PHILIPPINES WHEN IT
CANCELLED ASAPHILS AGENCY (COUPLED WITH AN INTEREST) UNDER THE OPERATING
AGREEMENT.
o
BY VIOLATING ASAPHILS CONSTITUTIONAL RIGHT TO DUE PROCESS OF LAW WHEN THE
BOARD ADJUDICATED UPON ALLEGED VIOLATION OF THE AGREEMENT ON THE PART OF
ASAPHIL, BUT WITHOUT RECEIVING EVIDENCE OF ANY SUCH VIOLATION.

BY IGNORING ASAPHILS 52.5% INTEREST UNDER THE OPERATING AGREEMENT WHICH

GIVES TO ASAPHIL THE RIGHT TO DETERMINE WHETHER OR NOT THE OPERATING
AGREEMENT MUST BE CANCELLED.
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 TUASONS
APPEAL FROM THE ORDER OF DISMISSAL, AS THE LATTER WAS CONCERNED
SOLELY WITH THE ISSUE OF JURISDICTION WHICH, BEING A MATTER OF LAW, IS
COGNIZABLE BY THIS HONORABLE TRIBUNAL AND/OR BY THE COURT OF
APPEALS.
4. GRANTING THAT THE MINES ADJUDICATION BOARD COULD VALIDLY ASSUME THE
FACTS (WITHOUT RECEIVING EVIDENCE),
a) THE MINES ADJUDICATION BOARD NONETHELESS ERRED IN ANNULLING THE
OPERATING AGREEMENT BETWEEN TUASON AND ASAPHIL, ON THE MERE
CIRCUMSTANCE THAT A STOCKHOLDER OF INDUPLEX HAD BECOME A
STOCKHOLDER OF ASAPHIL IN 1990.
b) THE MINES ADJUDICATION BOARD LIKEWISE ERRED IN ANNULING THE
OPERATING AGREEMENT BETWEEN TUASON AND ASAPHIL ON THE BASIS OF
THE ASAPAHILS PURPORTED VIOLATION OF THE TERMS OF THE OPERATING
AGREEMENT.
5. THE MINES ADJUDICATION BOARD FURTHER ERRED IN ANNULING THE OPERATING
AGREEMENT BETWEEN TUASON AND ASAPHIL AND AT THE SAME TIME THE BOARD
UPHELD THE VALIDITY OF THE SUPPLY CONTRACT BETWEEN TUASON AND INDUPLEX
BASED ON THE SAME INVALIDATING CAUSE.11 (Emphasis supplied)
Petitioners arguments may be summed up into two basic issues: first, whether or not the DENR
has jurisdiction over Tuasons complaint for the annulment of the Contract for Sale and Purchase
of Perlite Ore between Tuason and Induplex, and the Agreement to Operate Mining Claims
between Tuason and Asaphil; and second, whether or not the MAB erred in invalidating the
Agreement to Operate Mining Claims.
As a preliminary matter, it should be stated that MAB decisions are appealable to the Court of
Appeals (CA) under Rule 43 of the Rules of Court. In Carpio v. 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 DENRs jurisdiction, and the
fact that the records of the case are already before the Court, it is more appropriate and practical
to resolve the petition in order to avoid further delay.13
With regard to the issue of jurisdiction, the DENR Regional Executive Director opined that the
DENR does not have jurisdiction over the case, while the MAB ruled that the DENR has
jurisdiction.
o

The Court upholds the finding of the DENR Regional Executive Director that the DENR does not
have jurisdiction over Tuasons complaint.
At the time of the filing of the complaint, the jurisdiction of the DENR over mining disputes and
controversies is governed by P.D. No. 1281, entitled "Revising Commonwealth Act No. 136,
Creating the Bureau of Mines, and for Other Purposes." 14 Particularly, P.D. No. 1281 vests the
Bureau of Mines (now the Mines and Geo-Sciences Bureau) of the DENR with jurisdictional
supervision and control over all holders of mining claims or applicants for and/or grantees of
mining licenses, permits, leases and/or operators thereof, including mining service contracts and
service contractors insofar as their mining activities are concerned. 15 Under Section 7 of P.D. No.
1281, the Bureau of Mines also has quasi-judicial powers over cases involving the following:
(a) a mining property subject of different agreements entered into by the claim holder
thereof with several mining operators;
(b) complaints from claimowners that the mining property subject of an operating
agreement has not been placed into actual operations within the period stipulated
therein; and
(c) cancellation and/or enforcement of mining contracts due to the refusal of the
claimowner/operator to abide by the terms and conditions thereof.
In Pearson v. Intermediate Appellate Court,16 this Court observed that the trend has been to make
the adjudication of mining cases a purely administrative matter, although it does not mean that
administrative bodies have complete rein over mining disputes. In several cases on mining
disputes, the Court recognized a distinction between (1) the primary powers granted by pertinent
provisions of law to the then Secretary of Agriculture and Natural Resources (and the bureau
directors) of an executive or administrative nature, such as granting of license, permits, lease and
contracts, or approving, rejecting, reinstating or canceling applications, or deciding conflicting
applications, and (2) controversies or disagreements of civil or contractual nature between
litigants which are questions of a judicial nature that may be adjudicated only by the courts of
justice.17
The allegations in Tuasons complaint do not make out a case for a mining dispute or controversy
within the jurisdiction of the DENR. While the Agreement to Operate Mining Claims is a mining
contract, the ground upon which the contract is sought to be annulled is not due to Asaphils
refusal to abide by the terms and conditions of the agreement, but due to Induplexs alleged
violation of the condition imposed by the BOI in its Joint Venture Agreement with Grefco, Inc.. Also,
Tuason sought the nullity of the Contract for Sale and Purchase of Perlite Ore, based on the same
alleged violation. Obviously, this raises a judicial question, which is proper for determination by
the regular courts.18 A judicial question is raised when the determination of the question involves
the exercise of a judicial function; that is, the question involves the determination of what the law
is and what the legal rights of the parties are with respect to the matter in controversy. 19
The DENR is not called upon to exercise its technical knowledge or expertise over any mining
operations or dispute; rather, it is being asked to determine the validity of the agreements based
on circumstances beyond the respective rights of the parties under the two contracts. In Gonzales
v. Climax Mining Ltd.,20 the Court ruled that:
x x x whether the case involves void or voidable contracts is still a judicial question. It may, in
some instances, involve questions of fact especially with regard to the determination of the
circumstances of the execution of the contracts. But the resolution of the validity or
voidness of the contracts remains a legal or judicial question as it requires the
exercise of judicial function. It requires the ascertainment of what laws are applicable to the
dispute, the interpretation and application of those laws, and the rendering of a judgment based
thereon. Clearly, the dispute is not a mining conflict. It is essentially judicial. The complaint was
not merely for the determination of rights under the mining contracts since the very
validity of those contracts is put in issue. (Emphasis supplied)
Thus, the DENR Regional Executive Director was correct in dismissing the complaint for lack of
jurisdiction over Tuasons complaint; consequently, the MAB committed an error in taking
cognizance of the appeal, and in ruling upon the validity of the contracts.

Given the DENRs lack of jurisdiction to take cognizance of Tuasons complaint, the Court finds it
unnecessary to rule on the issue of validity of the contracts, as this should have been brought
before and resolved by the regular trial courts, to begin with.
WHEREFORE, the petition is GRANTED. The Decision of the Mines Adjudication Board dated
August 18, 1997 isSET 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
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
CAMCs FTAA. In effect, public respondents insist that the issue of eminent domain is not a
justiciable controversy which this Court can take cognizance of.
A justiciable controversy is defined as a definite and concrete dispute touching on the legal
relations of parties having adverse legal interests which may be resolved by a court of law
through the application of a law.2 Thus, courts have no judicial power to review cases involving
political questions and as a rule, will desist from taking cognizance of speculative or hypothetical
cases, advisory opinions and cases that have become moot. 3 The Constitution is quite explicit on
this matter.4 It provides that judicial power includes the duty of the courts of justice to settle
actual controversies involving rights which are legally demandable and enforceable. Pursuant to
this constitutional mandate, courts, through the power of judicial review, are to entertain only real
disputes between conflicting parties through the application of law. For the courts to exercise the
power of judicial review, the following must be extant (1) there must be an actual case calling for
the exercise of judicial power; (2) the question must be ripe for adjudication; and (3) the person
challenging must have the "standing." 5
An actual case or controversy involves a conflict of legal rights, an assertion of opposite legal
claims, susceptible of judicial resolution as distinguished from a hypothetical or abstract

difference or dispute.6 There must be a contrariety of legal rights that can be interpreted and
enforced on the basis of existing law and jurisprudence.
Closely related to the second requisite is that the question must be ripe for adjudication. A
question is considered ripe for adjudication when the act being challenged has had a direct
adverse effect on the individual challenging it.7
The third requisite is legal standing or locus standi. It is defined as a personal or substantial
interest in the case such that the party has sustained or will sustain direct injury as a result of the
governmental act that is being challenged, alleging more than a generalized grievance. 8 The gist
of the question of standing is whether a party alleges "such personal stake in the outcome of the
controversy as to assure that concrete adverseness which sharpens the presentation of issues
upon which the court depends for illumination of difficult constitutional questions." 9 Unless a
person is injuriously affected in any of his constitutional rights by the operation of statute or
ordinance, he has no standing.10
In the instant case, there exists a live controversy involving a clash of legal rights as Rep. Act No.
7942 has been enacted, DAO 96-40 has been approved and an FTAAs have been entered into. The
FTAA holders have already been operating in various provinces of the country. Among them is
CAMC which operates in the provinces of 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 MultiPurpose Association, Inc., an organization of farmers and indigenous peoples organized under
Philippine laws, representing a community actually affected by the mining activities of CAMC, as
well as other residents of areas affected by the mining activities of CAMC. These petitioners have
the standing to raise the constitutionality of the questioned FTAA as they allege a personal and
substantial injury.14 They assert that they are affected by the mining activities of CAMC. Likewise,
they are under imminent threat of being displaced from their landholdings as a result of the
implementation of the questioned FTAA. They thus meet the appropriate case requirement as
they assert an interest adverse to that of respondents who, on the other hand, claim the validity
of the assailed statute and the FTAA of CAMC.
Besides, the transcendental importance of the issues raised and the magnitude of the public
interest involved will have a bearing on the countrys economy which is to a greater extent
dependent upon the mining industry. Also affected by the resolution of this case are the
proprietary rights of numerous residents in the mining contract areas as well as the social
existence of indigenous peoples which are threatened. Based on these considerations, this Court
deems it proper to take cognizance of the instant petition.
Having resolved the procedural question, the constitutionality of the law under attack must be
addressed squarely.
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. Gutierrez 16 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.25However, when a property interest is
appropriated and applied to some public purpose, there is compensable taking. 26
According to noted constitutionalist, Fr. Joaquin Bernas, SJ, in the exercise of its police power
regulation, the state restricts the use of private property, but none of the property interests in the
bundle of rights which constitute ownership is appropriated for use by or for the benefit of the
public.27 Use of the property by the owner was limited, but no aspect of the property is used by or
for the public.28 The deprivation of use can in fact be total and it will not constitute compensable
taking if nobody else acquires use of the property or any interest therein. 29
If, however, in the regulation of the use of the property, somebody else acquires the use or
interest thereof, such restriction constitutes compensable taking. Thus, in City Government of
Quezon City v. Ericta,30 it was argued by the local government that an ordinance requiring private
cemeteries to reserve 6% of their total areas for the burial of paupers was a valid exercise of the
police power under the general welfare clause. This court did not agree in the contention, ruling
that property taken under the police power is sought to be destroyed and not, as in this case, to
be devoted to a public use. It further declared that the ordinance in question was actually a taking
of private property without just compensation of a certain area from a private cemetery to benefit
paupers who are charges of the local government. Being an exercise of eminent domain without

provision for the payment of just compensation, the same was rendered invalid as it violated the
principles governing eminent domain.
In People v. Fajardo,31 the municipal mayor refused Fajardo permission to build a house on his own
land on the ground that the proposed structure would destroy the view or beauty of the public
plaza. The ordinance relied upon by the mayor prohibited the construction of any building that
would destroy the view of the plaza from the highway. The court ruled that the municipal
ordinance under the guise of police power permanently divest owners of the beneficial use of
their property for the benefit of the public; hence, considered as a taking under the power of
eminent domain that could not be countenanced without payment of just compensation to the
affected owners. In this case, what the municipality wanted was to impose an easement on the
property in order to preserve the view or beauty of the public plaza, which was a form of
utilization of Fajardos property for public benefit. 32
While the power of eminent domain often results in the appropriation of title to or possession of
property, it need not always be the case. Taking may include trespass without actual eviction of
the owner, material impairment of the value of the property or prevention of the ordinary uses for
which the property was intended such as the establishment of an easement. 33 In Ayala de Roxas v.
City of Manila,34 it was held that the imposition of burden over a private property through
easement was considered taking; hence, payment of just compensation is required. The Court
declared:
And, considering that the easement intended to be established, whatever may be the object
thereof, is not merely a real right that will encumber the property, but is one tending to prevent
the exclusive use of one portion of the same, by expropriating it for public use which, be it what it
may, can not be accomplished unless the owner of the property condemned or seized be
previously and duly indemnified, it is proper to protect the appellant by means of the remedy
employed in such cases, as it is only adequate remedy when no other legal action can be resorted
to, against an intent which is nothing short of an arbitrary restriction imposed by the city by virtue
of the coercive power with which the same is invested.
And in the case of National Power Corporation v. Gutierrez, 35 despite the NPCs protestation that
the owners were not totally deprived of the use of the land and could still plant the same crops as
long as they did not come into contact with the wires, the Court nevertheless held that the
easement of right-of-way was a taking under the power of eminent domain. The Court said:
In the case at bar, the easement of right-of-way is definitely a taking under the power of eminent
domain. Considering the nature and effect of the installation of 230 KV Mexico-Limay transmission
lines, the limitation imposed by NPC against the use of the land for an indefinite period deprives
private respondents of its ordinary use.
A case exemplifying an instance of compensable taking which does not entail transfer of title is
Republic v. Philippine Long Distance Telephone Co. 36 Here, the Bureau of Telecommunications, a
government instrumentality, had contracted with the PLDT for the interconnection between the
Government Telephone System and that of the PLDT, so that the former could make use of the
lines and facilities of the PLDT. In its desire to expand services to government offices, the Bureau
of Telecommunications demanded to expand its use of the PLDT lines. Disagreement ensued on
the terms of the contract for the use of the PLDT facilities. The Court ruminated:
Normally, of course, the power of eminent domain results in the taking or appropriation of title to,
and possession of, the expropriated property; but no cogent reason appears why said power may
not be availed of to impose only a burden upon the owner of the condemned property, without
loss of title and possession. It is unquestionable that real property may, through expropriation, be
subjected to an easement right of way.37

In Republic v. Castellvi,38 this Court had the occasion to spell out the requisites of taking in
eminent domain, to wit:
(1) the expropriator must enter a private property;
(2) the entry must be for more than a momentary period.
(3) the entry must be under warrant or color of legal authority;
(4) the property must be devoted to public use or otherwise informally appropriated or
injuriously affected;
(5) the utilization of the property for public use must be in such a way as to oust the
owner and deprive him of beneficial enjoyment of the property.
As shown by the foregoing jurisprudence, a regulation which substantially deprives the owner of
his proprietary rights and restricts the beneficial use and enjoyment for public use amounts to
compensable taking. In the case under consideration, the entry referred to in Section 76 and the
easement rights under Section 75 of Rep. Act No. 7942 as well as the various rights to CAMC
under its FTAA are no different from the deprivation of proprietary rights in the cases discussed
which this Court considered as taking. Section 75 of the law in question reads:
Easement Rights. - When mining areas are so situated that for purposes of more convenient
mining operations it is necessary to build, construct or install on the mining areas or lands owned,
occupied or leased by other persons, such infrastructure as roads, railroads, mills, waste dump
sites, tailing ponds, warehouses, staging or storage areas and port facilities, tramways, runways,
airports, electric transmission, telephone or telegraph lines, dams and their normal flood and
catchment areas, sites for water wells, ditches, canals, new river beds, pipelines, flumes, cuts,
shafts, tunnels, or mills, the contractor, upon payment of just compensation, shall be entitled to
enter and occupy said mining areas or lands.
Section 76 provides:
Entry into private lands and concession areas Subject to prior notification, holders of mining
rights shall not be prevented from entry into private lands and concession areas by surface
owners, occupants, or concessionaires when conducting mining operations therein.
The CAMC FTAA grants in favor of CAMC the right of possession of the Exploration Contract Area,
the full right of ingress and egress and the right to occupy the same. It also bestows CAMC the
right not to be prevented from entry into private lands by surface owners or occupants thereof
when prospecting, exploring and exploiting minerals therein.
The entry referred to in Section 76 is not just a simple right-of-way which is ordinarily allowed
under the provisions of the Civil Code. Here, the holders of mining rights enter private lands for
purposes of conducting mining activities such as exploration, extraction and processing of
minerals. Mining right holders build mine infrastructure, dig mine shafts and connecting tunnels,
prepare tailing ponds, storage areas and vehicle depots, install their machinery, equipment and
sewer systems. On top of this, under Section 75, easement rights are accorded to them where
they may build warehouses, port facilities, electric transmission, railroads and other
infrastructures necessary for mining operations. All these will definitely oust the owners or
occupants of the affected areas the beneficial ownership of their lands. Without a doubt, taking
occurs once mining operations commence.
Section 76 of Rep. Act No. 7942 is a Taking Provision
Moreover, it would not be amiss to revisit the history of mining laws of this country which would
help us understand Section 76 of Rep. Act No. 7942.
This provision is first found in Section 27 of Commonwealth Act No. 137 which took effect on 7
November 1936, viz:
Before entering private lands the prospector shall first apply in writing for written permission of
the private owner, claimant, or holder thereof, and in case of refusal by such private owner,

claimant, or holder to grant such permission, or in case of disagreement as to the amount of

compensation to be paid for such privilege of prospecting therein, the amount of such
compensation shall be fixed by agreement among the prospector, the Director of the Bureau of
Mines and the surface owner, and in case of their failure to unanimously agree as to the amount
of compensation, all questions at issue shall be determined by the Court of First Instance.
Similarly, the pertinent provision of Presidential Decree No. 463, otherwise known as "The Mineral
Resources Development Decree of 1974," provides:
SECTION 12. Entry to Public and Private Lands. A person who desires to conduct prospecting or
other mining operations within public lands covered by concessions or rights other than mining
shall first obtain the written permission of the government official concerned before entering such
lands. In the case of private lands, the written permission of the owner or possessor of the land
must be obtained before entering such lands. In either case, if said permission is denied, the
Director, at the request of the interested person may intercede with the owner or possessor of the
land. If the intercession fails, the interested person may bring suit in the Court of First Instance of
the province where the land is situated. If the court finds the request justified, it shall issue an
order granting the permission after fixing the amount of compensation and/or rental due the
owner or possessor: Provided, That pending final adjudication of such amount, the court shall
upon recommendation of the Director permit the interested person to enter, prospect and/or
undertake other mining operations on the disputed land upon posting by such interested person
of a bond with the court which the latter shall consider adequate to answer for any damage to the
owner or possessor of the land resulting from such entry, prospecting or any other mining
operations.
Hampered by the difficulties and delays in securing surface rights for the entry into private lands
for purposes of mining operations, Presidential Decree No. 512 dated 19 July 1974 was passed
into law in order to achieve full and accelerated mineral resources development. Thus,
Presidential Decree No. 512 provides for a new system of surface rights acquisition by mining
prospectors and claimants. Whereas in Commonwealth Act No. 137 and Presidential Decree No.
463 eminent domain may only be exercised in order that the mining claimants can build,
construct or install roads, railroads, mills, warehouses and other facilities, this time, the power of
eminent domain may now be invoked by mining operators for the entry, acquisition and use of
private lands, viz:
SECTION 1. Mineral prospecting, location, exploration, development and exploitation is hereby
declared of public use and benefit, and for which the power of eminent domain may be invoked
and exercised for the entry, acquisition and use of private lands. x x x.
The evolution of mining laws gives positive indication that mining operators who are qualified to
own lands were granted the authority to exercise eminent domain for the entry, acquisition, and
use of private lands in areas open for mining operations. This grant of authority extant in Section
1 of Presidential Decree No. 512 is not expressly repealed by Section 76 of Rep. Act No. 7942; and
neither are the former statutes impliedly repealed by the former. These two provisions can stand
together even if Section 76 of Rep. Act No. 7942 does not spell out the grant of the privilege to
exercise eminent domain which was present in the old law.
It is an established rule in statutory construction that in order that one law may operate to repeal
another law, the two laws must be inconsistent. 39 The former must be so repugnant as to be
irreconciliable with the latter act. Simply because a latter enactment may relate to the same
subject matter as that of an earlier statute is not of itself sufficient to cause an implied repeal of
the latter, since the new law may be cumulative or a continuation of the old one. As has been the
ruled, repeals by implication are not favored, and will not be decreed unless it is manifest that the

legislature so intended.40 As laws are presumed to be passed with deliberation and with full
knowledge of all existing ones on the subject, it is but reasonable to conclude that in passing a
statute it was not intended to interfere with or abrogate any former law relating to the same
matter, unless the repugnancy between the two is not only irreconcilable, but also clear and
convincing, and flowing necessarily from the language used, unless the later act fully embraces
the subject matter of the earlier, or unless the reason for the earlier act is beyond peradventure
removed.41 Hence, every effort must be used to make all acts stand and if, by any reasonable
construction, they can be reconciled, the latter act will not operate as a repeal of the earlier.
Considering that Section 1 of Presidential Decree No. 512 granted the qualified mining operators
the authority to exercise eminent domain and since this grant of authority is deemed incorporated
in Section 76 of Rep. Act No. 7942, the inescapable conclusion is that the latter provision is a
taking provision.
While this Court declares that the assailed provision is a taking provision, this does not mean that
it is unconstitutional on the ground that it allows taking of private property without the
determination of public use and the payment of just compensation.
The taking to be valid must be for public use. 42 Public use as a requirement for the valid exercise
of the power of eminent domain is now synonymous with public interest, public benefit, public
welfare and public convenience.43It includes the broader notion of indirect public benefit or
advantage. Public use as traditionally understood as "actual use by the public" has already been
abandoned.44
Mining industry plays a pivotal role in the economic development of the country and is a vital tool
in the governments thrust of accelerated recovery. 45 The importance of the mining industry for
national development is expressed in Presidential Decree No. 463:
WHEREAS, mineral production is a major support of the national economy, and therefore the
intensified discovery, exploration, development and wise utilization of the countrys mineral
resources are urgently needed for national development.
Irrefragably, mining is an industry which is of public benefit.
That public use is negated by the fact that the state would be taking private properties for the
benefit of private mining firms or mining contractors is not at all true. In Heirs of Juancho Ardona
v. Reyes,46 petitioners therein contended that the promotion of tourism is not for public use
because private concessionaires would be allowed to maintain various facilities such as
restaurants, hotels, stores, etc., inside the tourist area. The Court thus contemplated:
The rule in Berman v. Parker [348 U.S. 25; 99 L. ed. 27] of deference to legislative policy even if
such policy might mean taking from one private person and conferring on another private person
applies as well in the Philippines.
". . . Once the object is within the authority of Congress, the means by which it will be attained is
also for Congress to determine. Here one of the means chosen is the use of private enterprise for
redevelopment of the area. Appellants argue that this makes the project a taking from one
businessman for the benefit of another businessman. But the means of executing the project are
for Congress and Congress alone to determine, once the public purpose has been established. x x
x"47
Petitioners further maintain that the states discretion to decide when to take private property is
reduced contractually by Section 13.5 of the CAMC FTAA, which reads:
If the CONTRACTOR so requests at its option, the GOVERNMENT shall use its offices and legal
powers to assist in the acquisition at reasonable cost of any surface areas or rights required by
the CONTRACTOR at the CONTRACTORs cost to carry out the Mineral Exploration and the Mining
Operations herein.

All obligations, payments and expenses arising from, or incident to, such agreements or
acquisition of right shall be for the account of the CONTRACTOR and shall be recoverable as
Operating Expense.
According to petitioners, the government is reduced to a sub-contractor upon the request of the
private respondent, and on account of the foregoing provision, the contractor can compel the
government to exercise its power of eminent domain thereby derogating the latters power to
expropriate property.
The provision of the FTAA in question lays down the ways and means by which the foreign-owned
contractor, disqualified to own land, identifies to the government the specific surface areas within
the FTAA contract area to be acquired for the mine infrastructure. 48 The government then acquires
ownership of the surface land areas on behalf of the contractor, through a voluntary transaction in
order to enable the latter to proceed to fully implement the FTAA. Eminent domain is not yet
called for at this stage since there are still various avenues by which surface rights can be
acquired other than expropriation. The FTAA provision under attack merely facilitates the
implementation of the FTAA given to CAMC and shields it from violating the Anti-Dummy Law.
Hence, when confronted with the same question in La Bugal-BLaan Tribal Association, Inc. v.
Ramos,49 the Court answered:
Clearly, petitioners have needlessly jumped to unwarranted conclusions, without being aware of
the rationale for the said provision. That provision does not call for the exercise of the power of
eminent domain -- and determination of just compensation is not an issue -- as much as it calls for
a qualified party to acquire the surface rights on behalf of a foreign-owned contractor.
Rather than having the foreign contractor act through a dummy corporation, having the State do
the purchasing is a better alternative. This will at least cause the government to be aware of such
transaction/s and foster transparency in the contractors dealings with the local property owners.
The government, then, will not act as a subcontractor of the contractor; rather, it will facilitate the
transaction and enable the parties to avoid a technical violation of the Anti-Dummy Law.
There is also no basis for the claim that the Mining Law and its implementing rules and
regulations do not provide for just compensation in expropriating private properties. Section 76 of
Rep. Act No. 7942 and Section 107 of DAO 96-40 provide for the payment of just compensation:
Section 76. xxx Provided, that any damage to the property of the surface owner, occupant, or
concessionaire as a consequence of such operations shall be properly compensated as may be
provided for in the implementing rules and regulations.
Section 107. Compensation of the Surface Owner and Occupant- Any damage done to the
property of the surface owners, occupant, or concessionaire thereof as a consequence of the
mining operations or as a result of the construction or installation of the infrastructure mentioned
in 104 above shall be properly and justly compensated.
Such compensation shall be based on the agreement entered into between the holder of mining
rights and the surface owner, occupant or concessionaire thereof, where appropriate, in
accordance with P.D. No. 512. (Emphasis supplied.)
Second Substantive Issue: Power of Courts to Determine Just Compensation
Closely-knit to the issue of taking is the determination of just compensation. It is contended that
Rep. Act No. 7942 and Section 107 of DAO 96-40 encroach on the power of the trial courts to
determine just compensation in eminent domain cases inasmuch as the same determination of
proper compensation are cognizable only by the Panel of Arbitrators.
The question on the judicial determination of just compensation has been settled in the case of
Export Processing Zone Authority v. 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 courts findings.
Implementing Section 76 of Rep. Act No. 7942, Section 105 of DAO 96-40 states that holder(s) of
mining right(s) shall not be prevented from entry into its/their contract/mining areas for the
purpose of exploration, development, and/or utilization. That in cases where surface owners of the
lands, occupants or concessionaires refuse to allow the permit holder or contractor entry, the
latter shall bring the matter before the Panel of Arbitrators for proper disposition. Section 106
states that voluntary agreements between the two parties permitting the mining right holders to
enter and use the surface owners lands shall be registered with the Regional Office of the MGB. In
connection with Section 106, Section 107 provides that the compensation for the damage done to
the surface owner, occupant or concessionaire as a consequence of mining operations or as a
result of the construction or installation of the 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 latters 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 Appeals 53:
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-BLaan Tribal Association, Inc.
v. Ramos,54where the Court answered in the following manner:
RA 7942 provides for the states 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 DENRs power of over-all supervision and periodic review
for "the conservation, management, development and proper use of the States 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 governments
control over mining enterprises:

o
o
o
o

o
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).
The contractor must comply with the provisions pertaining to mine safety, health and
environmental protection (Chapter XI, RA 7942; Chapters XV and XVI, DAO 96-40).
For violation of any of its terms and conditions, government may cancel an FTAA.
(Chapter XVII, RA 7942; Chapter XXIV, DAO 96-40).
An FTAA contractor is obliged to open its books of accounts and records for 0inspection
by the government (Section 56-m, DAO 96-40).
An FTAA contractor has to dispose of the minerals and by-products at the highest market
price and register with the MGB a copy of the sales agreement (Section 56-n, DAO 9640).
MGB is mandated to monitor the contractors compliance with the terms and conditions
of the FTAA; and to deputize, when necessary, any member or unit of the Philippine
National Police, the barangay or a DENR-accredited nongovernmental organization to
police mining activities (Section 7-d and -f, DAO 96-40).
An FTAA cannot be transferred or assigned without prior approval by the President
(Section 40, RA 7942; Section 66, DAO 96-40).
A
mining
project
under
an
FTAA
cannot
proceed
to
the
construction/development/utilization stage, unless its Declaration of Mining Project
Feasibility has been approved by government (Section 24, RA 7942).
The Declaration of Mining Project Feasibility filed by the contractor cannot be approved
without submission of the following documents:
1. Approved mining project feasibility study (Section 53-d, DAO 96-40)
2. Approved three-year work program (Section 53-a-4, DAO 96-40)
3. Environmental compliance certificate (Section 70, RA 7942)
4. Approved environmental protection and enhancement program (Section 69,
RA 7942)
5. Approval by the Sangguniang Panlalawigan/Bayan/Barangay (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).
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 56m); 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 contractors compliance with mandatory requirements on
mine safety, health and environmental protection, and the use of anti-pollution technology and
facilities. Moreover, the contractor is also obligated to assist in the development of the mining
community and to pay royalties to the indigenous peoples concerned.
Cancellation of the FTAA may be the penalty for violation of any of its terms and conditions and/or
noncompliance with statutes or regulations. This general, all-around, multipurpose sanction is no
trifling matter, especially to a contractor who may have yet to recover the tens or hundreds of
millions of dollars sunk into a mining project.
Overall, considering the provisions of the statute and the regulations just discussed, we believe
that the State definitely possesses the means by which it can have the ultimate word in the
operation of the enterprise, set directions and objectives, and detect deviations and
noncompliance by the contractor; likewise, it has the capability to enforce compliance and to
impose sanctions, should the occasion therefor arise.
In other words, the FTAA contractor is not free to do whatever it pleases and get away with it; on
the contrary, it will have to follow the government line if it wants to stay in the enterprise.
o

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 coproduction, joint venture or production sharing agreements. They likewise insist that the fourth
paragraph allows foreign-owned corporations to participate in the large-scale exploration,
development and utilization of natural resources, but such participation, however, is merely
limited to an agreement for either financial or technical assistance only.
Again, this issue has already been succinctly passed upon by this Court in La Bugal-BLaan Tribal
Association, Inc. v. Ramos.55 In discrediting such argument, the Court ratiocinated:
Petitioners claim that the phrase "agreements x x x involving either technical or financial
assistance" simply means technical assistance or financial assistance agreements, nothing more
and nothing else. They insist that there is no ambiguity in the phrase, and that a plain reading of
paragraph 4 quoted above leads to the inescapable conclusion that what a foreign-owned
corporation
may
enter
into
with
the
government
is
merely
an
agreement
for either financial or technical assistance only, for the large-scale exploration, development and
utilization of minerals, petroleum and other mineral oils; such a limitation, they argue, excludes
foreign management and operation of a mining enterprise.
This restrictive interpretation, petitioners believe, is in line with the general policy enunciated by
the Constitution reserving to Filipino citizens and corporations the use and enjoyment of the
countrys natural resources. They maintain that this Courts Decision of January 27, 2004 correctly
declared the WMCP FTAA, along with pertinent provisions of RA 7942, void for allowing a foreign
contractor to have direct and exclusive management of a mining enterprise. Allowing such a
privilege not only runs counter to the "full control and supervision" that the State is
constitutionally mandated to exercise over the exploration, development and utilization of the
countrys natural resources; doing so also vests in the foreign company "beneficial ownership" of
our mineral resources. It will be recalled that the Decision of January 27, 2004 zeroed in on
"management or other forms of assistance" or other activities associated with the "service
contracts" of the martial law regime, since "the management or operation of mining activities by

foreign contractors, which is the primary feature of service contracts, was precisely the evil that
the drafters of the 1987 Constitution sought to eradicate."
xxxx
We do not see how applying a strictly literal or verba legis interpretation of paragraph 4 could
inexorably lead to the conclusions arrived at in the ponencia. First, the drafters choice of words -their use of the phraseagreements x x x involving either technical or financial assistance -- does
not indicate the intent to exclude other modes of assistance. The drafters opted to
use involving when they could have simply said agreements forfinancial or technical
assistance, if that was their intention to begin with. In this case, the limitation would be very clear
and no further debate would ensue.
In contrast, the use of the word "involving" signifies the possibility of the inclusion of other
forms of assistance or activities having to do with, otherwise related to or compatible with
financial or technical assistance. The word "involving" as used in this context has three
connotations that can be differentiated thus:one, the sense of "concerning," "having to do with,"
or "affecting"; two, "entailing," "requiring," "implying" or "necessitating"; and three, "including,"
"containing" or "comprising."
Plainly, none of the three connotations convey a sense of exclusivity. Moreover, the word
"involving," when understood in the sense of "including," as in including technical or financial
assistance, necessarily implies that there are activities other than those that are being included.
In other words, if an agreement includes technical or financial assistance, there is apart from such
assistance -- something else already in, and covered or may be covered by, the said agreement.
In short, it allows for the possibility that matters, other than those explicitly mentioned, could be
made part of the agreement. Thus, we are now led to the conclusion that the use of the word
"involving" implies that these agreements with foreign corporations are not limited to mere
financial or technical assistance. The difference in sense becomes very apparent when we
juxtapose
"agreements for technical
or
financial
assistance"
against
"agreements including technical or financial assistance." This much is unalterably clear in
a verba legisapproach.
Second, if the real intention of the drafters was to confine foreign corporations to financial or
technical assistance and nothing more, their language would have certainly been so unmistakably
restrictive and stringent as to leave no doubt in anyones mind about their true intent. For
example, they would have used the sentence foreign corporations are absolutely prohibited from
involvement in the management or operation of mining or similar ventures or words of similar
import. A search for such stringent wording yields negative results. Thus, we come to the
inevitable conclusion that there was a conscious and deliberate decision to avoid the
use of restrictive wording that bespeaks an intent not to use the expression
"agreements x x x involving either technical or financial assistance" in an exclusionary
and limiting manner.
Fifth Substantive Issue: Service Contracts Not Deconstitutionalized
Lastly, petitioners stress that the service contract regime under the 1973 Constitution is expressly
prohibited under the 1987 Constitution as the term service contracts found in the former was
deleted in the latter to avoid the circumvention of constitutional prohibitions that were prevalent
in the 1987 Constitution. According to them, the framers of the 1987 Constitution only intended
for foreign-owned corporations to provide either technical assistance or financial assistance. Upon
perusal of the CAMC FTAA, petitioners are of the opinion that the same is a replica of the service
contract agreements that the present constitution allegedly prohibit.
Again, this contention is not well-taken. The mere fact that the term service contracts found in the
1973 Constitution was not carried over to the present constitution, sans any categorical

statement banning service contracts in mining activities, does not mean that service contracts as
understood in the 1973 Constitution was eradicated in the 1987 Constitution. 56 The 1987
Constitution allows the continued use of service contracts with foreign corporations as contractors
who would invest in and operate and manage extractive enterprises, subject to the full control
and supervision of the State; this time, however, safety measures were put in place to prevent
abuses of the past regime.57 We ruled, thus:
To our mind, however, such intent cannot be definitively and conclusively established from the
mere failure to carry the same expression or term over to the new Constitution, absent a more
specific, explicit and unequivocal statement to that effect. What petitioners seek (a complete ban
on foreign participation in the management of mining operations, as previously allowed by the
earlier Constitutions) is nothing short of bringing about a momentous sea change in the economic
and developmental policies; and the fundamentally capitalist, free-enterprise philosophy of our
government. We cannot imagine such a radical shift being undertaken by our government, to the
great prejudice of the mining sector in particular and our economy in general, merely on the basis
of the omission of the terms service contract from or the failure to carry them over to the new
Constitution. There has to be a much more definite and even unarguable basis for such a drastic
reversal of policies.
xxxx
The foregoing are mere fragments of the framers lengthy discussions of the provision dealing
with agreements x x x involving either technical or financial assistance, which ultimately became
paragraph 4 of Section 2 of Article XII of the Constitution. Beyond any doubt, the members of the
ConCom were actually debating about the martial-law-era service contracts for which they were
crafting appropriate safeguards.
In the voting that led to the approval of Article XII by the ConCom, the explanations given by
Commissioners Gascon, Garcia and Tadeo indicated that they had voted to reject this provision on
account of their objections to the "constitutionalization" of the "service contract" concept.
Mr. Gascon said, "I felt that if we would constitutionalize any provision on service contracts, this
should always be with the concurrence of Congress and not guided only by a general law to be
promulgated by Congress." Mr. Garcia explained, "Service contracts are given constitutional
legitimization in Sec. 3, even when they have been proven to be inimical to the interests of the
nation, providing, as they do, the legal loophole for the exploitation of our natural resources for
the benefit of foreign interests." Likewise, Mr. Tadeo cited inter alia the fact that service contracts
continued to subsist, enabling foreign interests to benefit from our natural resources. It was
hardly likely that these gentlemen would have objected so strenuously, had the
provision called for mere technical or financial assistance and nothing more.
The deliberations of the ConCom and some commissioners explanation of their votes leave no
room for doubt that the service contract concept precisely underpinned the commissioners
understanding of the "agreements involving either technical or financial assistance."
xxxx
From the foregoing, we are impelled to conclude that the phrase agreements involving either
technical or financial assistance, referred to in paragraph 4, are in fact service contracts. But
unlike those of the 1973 variety, the new ones are between foreign corporations acting as
contractors on the one hand; and on the other, the government as principal or "owner" of the
works. In the new service contracts, the foreign contractors provide capital, technology and
technical know-how, and managerial expertise in the creation and operation of large-scale
mining/extractive enterprises; and the government, through its agencies (DENR, MGB), actively
exercises control and supervision over the entire operation.
xxxx

It is therefore reasonable and unavoidable to make the following conclusion, based on the above
arguments. As written by the framers and ratified and adopted by the people, the Constitution
allows the continued use of service contracts with foreign corporations -- as contractors who
would invest in and operate and manage extractive enterprises, subject to the full control and
supervision of the State -- sans the abuses of the past regime. The purpose is clear: to develop
and utilize our mineral, petroleum and other resources on a large scale for the immediate and
tangible benefit of the Filipino people.58
WHEREFORE, the instant petition for prohibition and mandamus is hereby DISMISSED. Section 76
of Republic Act No. 7942 and Section 107 of DAO 96-40; Republic Act No. 7942 and its
Implementing Rules and Regulations contained in DAO 96-40 insofar as they relate to financial
and technical assistance agreements referred to in paragraph 4 of Section 2 of Article XII of the
Constitution are NOT UNCONSTITUTIONAL.
SO ORDERED.

G.R. No. 149927

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,
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 Resolution 3 of the Court of Appeals (CA) in CA-GR
SP No. 46878. The CA disposed as follows:
"WHEREFORE, premises considered, the appealed Decision is hereby AFFIRMED in toto." 4
The questioned Resolution denied petitioners Motion for Reconsideration.
On the other hand, trial courts Decision, which was affirmed by the CA, had disposed as follows:
"WHEREFORE, judgment is hereby rendered as follows:
1. Declaring that the cancellation of License No. 33 was done without jurisdiction and in
gross violation of the Constitutional right of the petitioners against deprivation of their
property rights without due process of law and is hereby set aside.
2. Declaring that the petitioners right to continue the exploitation of the marble
deposits in the area covered by License No. 33 is maintained for the duration of the
period of its life of twenty-five (25) years, less three (3) years of continuous operation
before License No. 33 was cancelled, unless sooner terminated for violation of any of the
conditions specified therein, with due process.
3. Making the Writ of preliminary injunction and the Writ of Preliminary Mandatory
Injunction issued as permanent.
4. Ordering the cancellation of the bond filed by the Petitioners in the sum of 1 Million.

5. Allowing the petitioners to present evidence in support of the damages they claim to
have suffered from, as a consequence of the summary cancellation of License No. 33
pursuant to the agreement of the parties on such dates as maybe set by the Court; and
6. Denying for lack of merit the motions for contempt, it appearing that actuations of the
respondents were not contumacious and intended to delay the proceedings or
undermine the integrity of the Court.
No pronouncement yet as to costs." 5
The Facts
The CA narrated the facts as follows:
"The four (4) petitioners, namely, Dr. Lourdes S. Pascual, Dr. Pedro De la Concha, Alejandro De La
Concha, and Rufo De Guzman, after having been granted permission to prospect for marble
deposits in the mountains of Biak-na-Bato, San Miguel, Bulacan, succeeded in discovering marble
deposits of high quality and in commercial quantities in Mount Mabio which forms part of the Biakna-Bato mountain range.
"Having succeeded in discovering said marble deposits, and as a result of their tedious efforts and
substantial expenses, the petitioners applied with the Bureau of Mines, now Mines and
Geosciences Bureau, for the issuance of the corresponding license to exploit said marble deposits.
xxxxxxxxx
"After compliance with numerous required conditions, License No. 33 was issued by the Bureau of
Mines in favor of the herein petitioners.
xxxxxxxxx
"Shortly after Respondent Ernesto R. Maceda was appointed Minister of the Department of Energy
and Natural Resources (DENR), petitioners License No. 33 was cancelled by him through his letter
to ROSEMOOR MINING AND DEVELOPMENT CORPORATION dated September 6, 1986 for the
reasons stated therein. Because of the aforesaid cancellation, the original petition was filed and
later substituted by the petitioners AMENDED PETITION dated August 21, 1991 to assail the
same.
"Also after due hearing, the prayer for injunctive relief was granted in the Order of this Court
dated February 28, 1992. Accordingly, the corresponding preliminary writs were issued after the
petitioners filed their injunction bond in the amount of ONE MILLION PESOS (P1,000,000.00).
xxxxxxxxx
"On September 27, 1996, the trial court rendered the herein questioned decision." 6
The trial court ruled that the privilege granted under respondents license had already ripened
into a property right, which was protected under the due process clause of the Constitution. Such
right was supposedly violated when the license was cancelled without notice and hearing. The
cancellation was said to be unjustified, because the area that could be covered by the four
separate applications of respondents was 400 hectares. Finally, according to the RTC,
Proclamation No. 84, which confirmed the cancellation of the license, was an ex post facto law; as
such, it violated Section 3 of Article XVIII of the 1987 Constitution.
On appeal to the Court of Appeals, herein petitioners asked whether PD 463 or the Mineral
Resources Development Decree of 1974 had been violated by the award of the 330.3062 hectares
to respondents in accordance with Proclamation No. 2204. They also questioned the validity of the
cancellation of respondents Quarry License/Permit (QLP) No. 33.
Ruling of the Court of Appeals
Sustaining the trial court in toto, the CA held that the grant of the quarry license covering
330.3062 hectares to respondents was authorized by law, because the license was embraced by
four (4) separate applications -- each for an area of 81 hectares. Moreover, it held that the
limitation under Presidential Decree No. 463 -- that a quarry license should cover not more than
100 hectares in any given province -- was supplanted by Republic Act No. 7942, 7 which increased
the mining areas allowed under PD 463.
It also ruled that the cancellation of respondents license without notice and hearing was
tantamount to a deprivation of property without due process of law. It added that under the

clause in the Constitution dealing with the non-impairment of obligations and contracts,
respondents license must be respected by the State.
Hence, this Petition.8
Issues
Petitioners submit the following issues for the Courts consideration:
"(1) [W]hether or not QLP No. 33 was issued in blatant contravention of Section 69, P.D. No. 463;
and (2) whether or not Proclamation No. 84 issued by then President Corazon Aquino is valid. The
corollary issue is whether or not the Constitutional prohibition against ex post facto law applies to
Proclamation No. 84"9
The Courts Ruling
The Petition has merit.
First
Issue:
Validity of License
Respondents contend that the Petition has no legal basis, because PD 463 has already been
repealed.10 In effect, they ask for the dismissal of the Petition on the ground of mootness.
PD 463, as amended, pertained to the old system of exploration, development and utilization of
natural resources through licenses, concessions or leases. 11 While these arrangements were
provided under the 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 Macedas letter
did not cancel or revoke QLP No. 33, but merely declared the latters nullity. They further argue
that respondents waived notice and hearing in their application for the license.
On the other hand, respondents submit that, as provided for in Section 74 of PD 463, their right to
due process was violated when their license was cancelled without notice and hearing. They
likewise contend that Proclamation No. 84 is not valid for the following reasons: 1) it violates the
clause on the non-impairment of contracts; 2) it is an ex post facto law and/or a bill of attainder;
and 3) it was issued by the President after the effectivity of the 1987 Constitution.
This Court ruled on the nature of a natural resource exploration permit, which was akin to the
present respondents license, in Southeast Mindanao Gold Mining Corporation v. Balite Portal
Mining Cooperative,24which held:
"x x x. As correctly held by the Court of Appeals in its challenged decision, EP No. 133
merely evidences a privilege granted by the State, which may be amended, modified or
rescinded when the national interest so requires. This is necessarily so since the
exploration, development and utilization of the countrys natural mineral resources are
matters impressed with great public interest. Like timber permits, mining exploration
permits do not vest in the grantee any permanent or irrevocable right within the purview
of the non-impairment of contract and due process clauses of the Constitution, since the
State, under its all-encompassing police power, may alter, modify or amend the same, in
accordance with the demands of the general welfare." 25
This same ruling had been made earlier in Tan v. Director of Forestry 26 with regard to a timber
license, a pronouncement that was reiterated in Ysmael v. Deputy Executive Secretary, 27 the
pertinent portion of which reads:
"x x x. Timber licenses, permits and license agreements are the principal instruments by
which the State regulates the utilization and disposition of forest resources to the end
that public welfare is promoted. And it can hardly be gainsaid that they merely evidence
a privilege granted by the State to qualified entities, and do not vest in the latter a
permanent or irrevocable right to the particular concession area and the forest products
therein. They may be validly amended, modified, replaced or rescinded by the Chief
Executive when national interests so require. Thus, they are not deemed contracts within
the purview of the due process of law clause [See Sections 3(ee) and 20 of Pres. Decree
No. 705, as amended. Also, Tan v. Director of Forestry, G.R. No. L-24548, October 27,
1983, 125 SCRA 302]."28 (Italics supplied)
In line with the foregoing jurisprudence, respondents license may be revoked or rescinded by
executive action when the national interest so requires, because it is not a contract, property or a
property right protected by the due process clause of the Constitution. 29 Respondents themselves
acknowledge this condition of the grant under paragraph 7 of QLP No. 33, which we quote:
"7. This permit/license may be revoked or cancelled at any time by the Director of Mines
and Geo-Sciences when, in his opinion public interests so require or, upon failure of the
permittee/licensee to comply with the provisions of Presidential Decree No. 463, as
amended, and the rules and regulations promulgated thereunder, as well as with the
terms and conditions specified herein; Provided, That if a permit/license is cancelled, or
otherwise terminated, the permittee/licensee shall be liable for all unpaid rentals and
royalties due up to the time of the termination or cancellation of the
permit/license[.]"30 (Italics supplied)
The determination of what is in the public interest is necessarily vested in the State as owner of
all mineral resources. That determination was based on policy considerations formally enunciated
in the letter dated September 15, 1986, issued by then Minister Maceda and, subsequently, by
the President through Proclamation No. 84. As to the exercise of prerogative by Maceda, suffice it
to say that while the cancellation or revocation of the license is vested in the director of mines

and geo-sciences, the latter is subject to the formers control as the department head. We also
stress the clear prerogative of the Executive Department in the evaluation and the consequent
cancellation of licenses in the process of its formulation of policies with regard to their utilization.
Courts will not interfere with the exercise of that discretion without any clear showing of grave
abuse of discretion.31
Moreover, granting that respondents license is valid, it can still be validly revoked by the State in
the exercise of police power.32 The exercise of such power through Proclamation No. 84 is clearly
in accord with jura regalia, which reserves to the State ownership of all natural resources. 33 This
Regalian doctrine is an exercise of its sovereign power as owner of lands of the public domain and
of the patrimony of the nation, the mineral deposits of which are a valuable asset. 34
Proclamation No. 84 cannot be stigmatized as a violation of the non-impairment clause. As
pointed out earlier, respondents license is not a contract to which the protection accorded by the
non-impairment clause may extend.35 Even if the license were, it is settled that provisions of
existing laws and a reservation of police power are deemed read into it, because it concerns a
subject impressed with public welfare.36 As it is, the non-impairment clause must yield to the
police power of the state.37
We cannot sustain the argument that Proclamation No. 84 is a bill of attainder; that is, a
"legislative act which inflicts punishment without judicial trial." 38 Its declaration that QLP No. 33 is
a patent 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 action
that was done before the passing of the law and that was innocent when it was done; 2) it
aggravates a crime or makes it greater than it was when it was committed; 3) it changes the
punishment and inflicts one that is greater than that imposed by the law annexed to the crime
when it was committed; 4) it alters the legal rules of evidence and authorizes conviction upon a
less or different testimony than that required by the law at the time of the commission of the
offense; 5) it assumes the regulation of civil rights and remedies only, but in effect imposes a
penalty or a deprivation of a right as a consequence of something that was considered lawful
when it was done; and 6) it deprives a person accused of a crime of some lawful protection to
which he or she become entitled, such as the protection of a former conviction or an acquittal or
the proclamation of an amnesty.40 Proclamation No. 84 does not fall under any of the enumerated
categories; hence, it is not an ex post facto law.
It is settled that an ex post facto law is limited in its scope only to matters criminal in
nature.41 Proclamation 84, which merely restored the area excluded from the Biak-na-Bato
national park by canceling respondents license, is clearly not penal in character.
Finally, it is stressed that at the time President Aquino issued Proclamation No. 84 on March 9,
1987, she was still validly exercising legislative powers under the Provisional Constitution of
1986.42 Section 1 of Article II of Proclamation No. 3, which promulgated the Provisional
Constitution, granted her legislative power "until a legislature is elected and convened under a
new Constitution." The grant of such power is also explicitly recognized and provided for in
Section 6 of Article XVII of the 1987 Constitution. 43
WHEREFORE, this Petition is hereby GRANTED and the appealed Decision of the Court of Appeals
SET ASIDE. No costs.
SO ORDERED.
G.R. No. 127882
January 27, 2004
LA BUGAL-B'LAAN TRIBAL ASSOCIATION, INC., represented by its Chairman F'LONG
MIGUEL M. LUMAYONG, WIGBERTO E. TAADA, PONCIANO BENNAGEN, JAIME TADEO,
RENATO R. CONSTANTINO, JR., F'LONG AGUSTIN M. DABIE, ROBERTO P. AMLOY, RAQIM
L. DABIE, SIMEON H. DOLOJO, IMELDA M. GANDON, LENY B. GUSANAN, MARCELO L.
GUSANAN, QUINTOL A. LABUAYAN, LOMINGGES D. LAWAY, BENITA P. TACUAYAN, minors

JOLY L. BUGOY, represented by his father UNDERO D. BUGOY, ROGER M. DADING,

represented by his father ANTONIO L. DADING, ROMY M. LAGARO, represented by his
father TOTING A. LAGARO, MIKENY JONG B. LUMAYONG, represented by his father
MIGUEL M. LUMAYONG, RENE T. MIGUEL, represented by his mother EDITHA T. MIGUEL,
ALDEMAR L. SAL, represented by his father DANNY M. SAL, DAISY RECARSE,
represented by her mother LYDIA S. SANTOS, EDWARD M. EMUY, ALAN P. MAMPARAIR,
MARIO L. MANGCAL, ALDEN S. TUSAN, AMPARO S. YAP, VIRGILIO CULAR, MARVIC M.V.F.
LEONEN, JULIA REGINA CULAR, GIAN CARLO CULAR, VIRGILIO CULAR, JR., represented
by their father VIRGILIO CULAR, PAUL ANTONIO P. VILLAMOR, represented by his
parents JOSE VILLAMOR and ELIZABETH PUA-VILLAMOR, ANA GININA R. TALJA,
represented by her father MARIO JOSE B. TALJA, SHARMAINE R. CUNANAN, represented
by her father ALFREDO M. CUNANAN, ANTONIO JOSE A. VITUG III, represented by his
mother ANNALIZA A. VITUG, LEAN D. NARVADEZ, represented by his father MANUEL E.
NARVADEZ, JR., ROSERIO MARALAG LINGATING, represented by her father RIO OLIMPIO
A. LINGATING, MARIO JOSE B. TALJA, DAVID E. DE VERA, MARIA MILAGROS L. SAN JOSE,
SR., SUSAN O. BOLANIO, OND, LOLITA G. DEMONTEVERDE, BENJIE L. NEQUINTO, 1 ROSE
LILIA S. ROMANO, ROBERTO S. VERZOLA, EDUARDO AURELIO C. REYES, LEAN LOUEL A.
PERIA, represented by his father ELPIDIO V. PERIA,2 GREEN FORUM PHILIPPINES,
GREEN FORUM WESTERN VISAYAS, (GF-WV), ENVIRONMETAL LEGAL ASSISTANCE
CENTER (ELAC), PHILIPPINE KAISAHAN TUNGO SA KAUNLARAN NG KANAYUNAN AT
REPORMANG PANSAKAHAN (KAISAHAN),3 KAISAHAN TUNGO SA KAUNLARAN NG
KANAYUNAN AT REPORMANG PANSAKAHAN (KAISAHAN), PARTNERSHIP FOR AGRARIAN
REFORM and RURAL DEVELOPMENT SERVICES, INC. (PARRDS), PHILIPPINE
PART`NERSHIP FOR THE DEVELOPMENT OF HUMAN RESOURCES IN THE RURAL AREAS,
INC. (PHILDHRRA), WOMEN'S LEGAL BUREAU (WLB), CENTER FOR ALTERNATIVE
DEVELOPMENT INITIATIVES, INC. (CADI), UPLAND DEVELOPMENT INSTITUTE (UDI),
KINAIYAHAN FOUNDATION, INC., SENTRO NG ALTERNATIBONG LINGAP PANLIGAL
(SALIGAN), LEGAL RIGHTS AND NATURAL RESOURCES CENTER, INC. (LRC), petitioners,
vs.
VICTOR O. RAMOS, SECRETARY, DEPARTMENT OF ENVIRONMENT AND NATURAL
RESOURCES (DENR), HORACIO RAMOS, DIRECTOR, MINES AND GEOSCIENCES BUREAU
(MGB-DENR), RUBEN TORRES, EXECUTIVE SECRETARY, and WMC (PHILIPPINES),
INC.4 respondents.
DECISION
CARPIO-MORALES, J.:
The present petition for mandamus and prohibition assails the constitutionality of Republic Act No.
7942,5otherwise known as the PHILIPPINE MINING ACT OF 1995, along with the Implementing
Rules and Regulations issued pursuant thereto, Department of Environment and Natural
Resources (DENR) Administrative Order 96-40, and of the Financial and Technical Assistance
Agreement (FTAA) entered into on March 30, 1995 by the Republic of the Philippines and WMC
(Philippines), Inc. (WMCP), a corporation organized under Philippine laws.
On July 25, 1987, then President Corazon C. Aquino issued Executive Order (E.O.) No.
2796 authorizing the DENR Secretary to accept, consider and evaluate proposals from foreignowned corporations or foreign investors for contracts or agreements involving either technical or
financial assistance for large-scale exploration, development, and utilization of minerals, which,
upon appropriate recommendation of the Secretary, the President may execute with the foreign
proponent. In entering into such proposals, the President shall consider the real contributions to
the economic growth and general welfare of the country that will be realized, as well as the
development and use of local scientific and technical resources that will be promoted by the
proposed contract or agreement. Until Congress shall determine otherwise, large-scale mining, for
purpose of this Section, shall mean those proposals for contracts or agreements for mineral
resources exploration, development, and utilization involving a committed capital investment in a

single mining unit project of at least Fifty Million Dollars in United States Currency (US
$50,000,000.00).7
On March 3, 1995, then President Fidel V. Ramos approved R.A. No. 7942 to "govern the
exploration, development, utilization and processing of all mineral resources." 8 R.A. No. 7942
defines the modes of mineral agreements for mining operations, 9 outlines the procedure for their
filing and approval,10 assignment/transfer11and withdrawal,12 and fixes their terms.13 Similar
provisions govern financial or technical assistance agreements.14
The law prescribes the qualifications of contractors 15 and grants them certain rights, including
timber,16 water17and easement18 rights, and the right to possess explosives. 19 Surface owners,
occupants, or concessionaires are forbidden from preventing holders of mining rights from
entering private lands and concession areas. 20 A procedure for the settlement of conflicts is
likewise provided for.21
The Act restricts the conditions for exploration, 22 quarry23 and other24 permits. It regulates the
transport, sale and processing of minerals, 25 and promotes the development of mining
communities, science and mining technology, 26 and safety and environmental protection.27
The government's share in the agreements is spelled out and allocated, 28 taxes and fees are
imposed,29incentives granted.30 Aside from penalizing certain acts,31 the law likewise specifies
grounds for the cancellation, revocation and termination of agreements and permits. 32
On April 9, 1995, 30 days following its publication on March 10, 1995 in Malaya and Manila Times,
two newspapers of general circulation, R.A. No. 7942 took effect. 33 Shortly before the effectivity of
R.A. No. 7942, however, or on March 30, 1995, the President entered into an FTAA with WMCP
covering 99,387 hectares of land in South Cotabato, Sultan Kudarat, Davao del Sur and North
Cotabato.34
On August 15, 1995, then DENR Secretary Victor O. Ramos issued DENR Administrative Order
(DAO) No. 95-23, s. 1995, otherwise known as the Implementing Rules and Regulations of R.A. No.
7942. This was later repealed by DAO No. 96-40, s. 1996 which was adopted on December 20,
1996.
On January 10, 1997, counsels for petitioners sent a letter to the DENR Secretary demanding that
the DENR stop the implementation of R.A. No. 7942 and DAO No. 96-40, 35 giving the DENR fifteen
days from receipt36 to act thereon. The DENR, however, has yet to respond or act on petitioners'
letter.37
Petitioners thus filed the present petition for prohibition and mandamus, with a prayer for a
temporary restraining order. They allege that at the time of the filing of the petition, 100 FTAA
applications had already been filed, covering an area of 8.4 million hectares, 38 64 of which
applications are by fully foreign-owned corporations covering a total of 5.8 million hectares, and
at least one by a fully foreign-owned mining company over offshore areas. 39
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. 40
They pray that the Court issue an order:
(a) Permanently enjoining respondents from acting on any application for Financial or
Technical Assistance Agreements;
(b) Declaring the Philippine Mining Act of 1995 or Republic Act No. 7942 as
unconstitutional and null and void;
(c) Declaring the Implementing Rules and Regulations of the Philippine Mining Act
contained in DENR Administrative Order No. 96-40 and all other similar administrative
issuances as unconstitutional and null and void; and
(d) Cancelling the Financial and Technical Assistance Agreement issued to Western
Mining Philippines, Inc. as unconstitutional, illegal and null and void. 41
Impleaded as public respondents are Ruben Torres, the then Executive Secretary, Victor O. Ramos,
the then DENR Secretary, and Horacio Ramos, Director of the Mines and Geosciences Bureau of
the DENR. Also impleaded is private respondent WMCP, which entered into the assailed FTAA with
the Philippine Government. WMCP is owned by WMC Resources International Pty., Ltd. (WMC), "a
wholly owned subsidiary of Western Mining Corporation Holdings Limited, a publicly listed major
Australian mining and exploration company."42 By WMCP's information, "it is a 100% owned
subsidiary of WMC LIMITED."43
Respondents, aside from meeting petitioners' contentions, argue that the requisites for judicial
inquiry have not been met and that the petition does not comply with the criteria for prohibition
and mandamus. Additionally, respondent WMCP argues that there has been a violation of the rule
on hierarchy of courts.
After petitioners filed their reply, this Court granted due course to the petition. The parties have
since filed their respective memoranda.
WMCP subsequently filed a Manifestation dated September 25, 2002 alleging that on January 23,
2001, WMC sold all its shares in WMCP to Sagittarius Mines, Inc. (Sagittarius), a corporation
organized under Philippine laws.44 WMCP was subsequently renamed "Tampakan Mineral
Resources Corporation."45 WMCP claims that at least 60% of the equity of Sagittarius is owned by
Filipinos and/or Filipino-owned corporations while about 40% is owned by Indophil Resources NL,
an Australian company.46 It further claims that by such sale and transfer of shares, "WMCP has
ceased to be connected in any way with WMC."47
By virtue of such sale and transfer, the DENR Secretary, by Order of December 18,
2001,48 approved the transfer and registration of the subject FTAA from WMCP to Sagittarius. Said
Order, however, was appealed by Lepanto Consolidated Mining Co. (Lepanto) to the Office of the
President which upheld it by Decision of July 23, 2002. 49Its motion for reconsideration having been
denied by the Office of the President by Resolution of November 12, 2002, 50 Lepanto filed a
petition for review51 before the Court of Appeals. Incidentally, two other petitions for review

related to the approval of the transfer and registration of the FTAA to Sagittarius were recently
resolved by this Court.52
It bears stressing that this case has not been rendered moot either by the transfer and
registration of the FTAA to a Filipino-owned corporation or by the non-issuance of a temporary
restraining order or a preliminary injunction to stay the above-said July 23, 2002 decision of the
Office of the President.53 The validity of the transfer remains in dispute and awaits final judicial
determination. This assumes, of course, that such transfer cures the FTAA's alleged
unconstitutionality, on which question judgment is reserved.
WMCP also points out that the original claimowners of the major mineralized areas included in the
WMCP FTAA, namely, Sagittarius, Tampakan Mining Corporation, and Southcot Mining Corporation,
are all Filipino-owned corporations,54 each of which was a holder of an approved Mineral
Production Sharing Agreement awarded in 1994, albeit their respective mineral claims were
subsumed in the WMCP FTAA; 55 and that these three companies are the same companies that
consolidated their interests in Sagittarius to whom WMC sold its 100% equity in WMCP. 56 WMCP
concludes that in the event that the FTAA is invalidated, the MPSAs of the three corporations
would be revived and the mineral claims would revert to their original claimants. 57
These circumstances, while informative, are hardly significant in the resolution of this case, it
involving the validity of the FTAA, not the possible consequences of its invalidation.
Of the above-enumerated seven grounds cited by petitioners, as will be shown later, only the first
and the last need be delved into; in the latter, the discussion shall dwell only insofar as it
questions the effectivity of E. O. No. 279 by virtue of which order the questioned FTAA was forged.
I
Before going into the substantive issues, the procedural questions posed by respondents shall
first be tackled.
REQUISITES FOR JUDICIAL REVIEW
When an issue of constitutionality is raised, this Court can exercise its power of judicial review
only if the following requisites are present:
(1) The existence of an actual and appropriate case;
(2) A personal and substantial interest of the party raising the constitutional question;
(3) The exercise of judicial review is pleaded at the earliest opportunity; and
(4) The constitutional question is the lis mota of the case. 58
Respondents claim that the first three requisites are not present.
Section 1, Article VIII of the Constitution states that "(j)udicial power includes the duty of the
courts of justice to settle actual controversies involving rights which are legally demandable and
enforceable." The power of judicial review, therefore, is limited to the determination of actual
cases and controversies.59
An actual case or controversy means an existing case or controversy that is appropriate or ripe for
determination, not conjectural or anticipatory, 60 lest the decision of the court would amount to an
advisory opinion.61 The power does not extend to hypothetical questions 62 since any attempt at
abstraction could only lead to dialectics and barren legal questions and to sterile conclusions
unrelated to actualities.63
"Legal standing" or locus standi has been defined as a personal and substantial interest in the
case such that the party has sustained or will sustain direct injury as a result of the governmental
act that is being challenged,64alleging more than a generalized grievance.65 The gist of the
question of standing is whether a party alleges "such personal stake in the outcome of the
controversy as to assure that concrete adverseness which sharpens the presentation of issues
upon which the court depends for illumination of difficult constitutional questions." 66Unless a
person is injuriously affected in any of his constitutional rights by the operation of statute or
ordinance, he has no standing.67
Petitioners traverse a wide range of sectors. Among them are La Bugal B'laan Tribal Association,
Inc., a farmers and indigenous people's cooperative organized under Philippine laws representing
a community actually affected by the mining activities of WMCP, members of said
cooperative,68 as well as other residents of areas also affected by the mining activities of

WMCP.69 These petitioners have standing to raise the constitutionality of the questioned FTAA as
they allege a personal and substantial injury. They claim that they would suffer "irremediable
displacement"70 as a result of the implementation of the FTAA allowing WMCP to conduct mining
activities in their area of residence. They thus meet the appropriate case requirement as they
assert an interest adverse to that of respondents who, on the other hand, insist on the FTAA's
validity.
In view of the alleged impending injury, petitioners also have standing to assail the validity of E.O.
No. 279, by authority of which the FTAA was executed.
Public respondents maintain that petitioners, being strangers to the FTAA, cannot sue either or
both contracting parties to annul it.71 In other words, they contend that petitioners are not real
parties in interest in an action for the annulment of contract.
Public respondents' contention fails. The present action is not merely one for annulment of
contract but for prohibition and mandamus. Petitioners allege that public respondents acted
without or in excess of jurisdiction in implementing the FTAA, which they submit is
unconstitutional. As the case involves constitutional questions, this Court is not concerned with
whether petitioners are real parties in interest, but with whether they have legal standing. As held
in Kilosbayan v. Morato:72
x x x. "It is important to note . . . that standing because of its constitutional and public policy
underpinnings, is very different from questions relating to whether a particular plaintiff is the real
party in interest or has capacity to sue. Although all three requirements are directed towards
ensuring that only certain parties can maintain an action, standing restrictions require a partial
consideration of the merits, as well as broader policy concerns relating to the proper role of the
judiciary in certain areas.["] (FRIEDENTHAL, KANE AND MILLER, CIVIL PROCEDURE 328 [1985])
Standing is a special concern in constitutional law because in some cases suits are brought not by
parties who have been personally injured by the operation of a law or by official action taken, but
by concerned citizens, taxpayers or voters who actually sue in the public interest. Hence, the
question in standing is whether such parties have "alleged such a personal stake in the outcome
of the controversy as to assure that concrete adverseness which sharpens the presentation of
issues upon which the court so largely depends for illumination of difficult constitutional
questions." (Baker v. Carr, 369 U.S. 186, 7 L.Ed.2d 633 [1962].)
As earlier stated, petitioners meet this requirement.
The challenge against the constitutionality of R.A. No. 7942 and DAO No. 96-40 likewise fulfills the
requisites of justiciability. Although these laws were not in force when the subject FTAA was
entered into, the question as to their validity is ripe for adjudication.
The WMCP FTAA provides:
14.3 Future Legislation
Any term and condition more favourable to Financial &Technical Assistance Agreement
contractors resulting from repeal or amendment of any existing law or regulation or from the
enactment of a law, regulation or administrative order shall be considered a part of this
Agreement.
It is undisputed that R.A. No. 7942 and DAO No. 96-40 contain provisions that are more favorable
to WMCP, hence, these laws, to the extent that they are favorable to WMCP, govern the FTAA.
In addition, R.A. No. 7942 explicitly makes certain provisions apply to pre-existing agreements.
SEC. 112. Non-impairment of Existing Mining/Quarrying Rights. x x x That the provisions of
Chapter XIV on government share in mineral production-sharing agreement and of Chapter XVI on
incentives of this Act shall immediately govern and apply to a mining lessee or contractor unless
the mining lessee or contractor indicates his intention to the secretary, in writing, not to avail of
said provisions x x x Provided, finally, That such leases, production-sharing agreements, financial
or technical assistance agreements shall comply with the applicable provisions of this Act and its
implementing rules and regulations.
As there is no suggestion that WMCP has indicated its intention not to avail of the provisions of
Chapter XVI of R.A. No. 7942, it can safely be presumed that they apply to the WMCP FTAA.

Misconstruing the application of the third requisite for judicial review that the exercise of the
review is pleaded at the earliest opportunity WMCP points out that the petition was filed only
almost two years after the execution of the FTAA, hence, not raised at the earliest opportunity.
The third requisite should not be taken to mean that the question of constitutionality must be
raised immediately after the execution of the state action complained of. That the question of
constitutionality has not been raised before is not a valid reason for refusing to allow it to be
raised later.73 A contrary rule would mean that a law, otherwise unconstitutional, would lapse into
constitutionality by the mere failure of the proper party to promptly file a case to challenge the
same.
PROPRIETY OF PROHIBITION AND MANDAMUS
Before the effectivity in July 1997 of the Revised Rules of Civil Procedure, Section 2 of Rule 65
read:
SEC. 2. Petition for prohibition. When the proceedings of any tribunal, corporation, board, or
person, whether exercising functions judicial or ministerial, are without or in excess of its or his
jurisdiction, or with grave abuse of discretion, and there is no appeal or any other plain, speedy,
and adequate remedy in the ordinary course of law, a person aggrieved thereby may file a
verified petition in the proper court alleging the facts with certainty and praying that judgment be
rendered commanding the defendant to desist from further proceeding in the action or matter
specified therein.
Prohibition is a preventive remedy. 74 It seeks a judgment ordering the defendant to desist from
continuing with the commission of an act perceived to be illegal.75
The petition for prohibition at bar is thus an appropriate remedy. While the execution of the
contract itself may be fait accompli, its implementation is not. Public respondents, in behalf of the
Government, have obligations to fulfill under said contract. Petitioners seek to prevent them from
fulfilling such obligations on the theory that the contract is unconstitutional and, therefore, void.
The propriety of a petition for prohibition being upheld, discussion of the propriety of the
mandamus aspect of the petition is rendered unnecessary.
HIERARCHY OF COURTS
The contention that the filing of this petition violated the rule on hierarchy of courts does not
likewise lie. The rule has been explained thus:
Between two courts of concurrent original jurisdiction, it is the lower court that should initially
pass upon the issues of a case. That way, as a particular case goes through the hierarchy of
courts, it is shorn of all but the important legal issues or those of first impression, which are the
proper subject of attention of the appellate court. This is a procedural rule borne of experience
and adopted to improve the administration of justice.
This Court has consistently enjoined litigants to respect the hierarchy of courts. Although this
Court has concurrent jurisdiction with the Regional Trial Courts and the Court of Appeals to issue
writs of certiorari, prohibition, mandamus, quo warranto, habeas corpus and injunction, such
concurrence does not give a party unrestricted freedom of choice of court forum. The resort to
this Court's primary jurisdiction to issue said writs shall be allowed only where the redress desired
cannot be obtained in the appropriate courts or where exceptional and compelling circumstances
justify such invocation. We held in People v. Cuaresma that:
A becoming regard for judicial hierarchy most certainly indicates that petitions for the issuance of
extraordinary writs against first level ("inferior") courts should be filed with the Regional Trial
Court, and those against the latter, with the Court of Appeals. A direct invocation of the Supreme
Court's original jurisdiction to issue these writs should be allowed only where there are special
and important reasons therefor, clearly and specifically set out in the petition. This is established
policy. It is a policy necessary to prevent inordinate demands upon the Court's time and attention
which are better devoted to those matters within its exclusive jurisdiction, and to prevent further
over-crowding of the Court's docket x x x. 76 [Emphasis supplied.]
The repercussions of the issues in this case on the Philippine mining industry, if not the national
economy, as well as the novelty thereof, constitute exceptional and compelling circumstances to
justify resort to this Court in the first instance.

In all events, this Court has the discretion to take cognizance of a suit which does not satisfy the
requirements of an actual case or legal standing when paramount public interest is
involved.77 When the issues raised are of paramount importance to the public, this Court may
brush aside technicalities of procedure.78
II
Petitioners contend that E.O. No. 279 did not take effect because its supposed date of effectivity
came after President Aquino had already lost her legislative powers under the Provisional
Constitution.
And they likewise claim that the WMC FTAA, which was entered into pursuant to E.O. No. 279,
violates Section 2, Article XII of the Constitution because, among other reasons:
(1) It allows foreign-owned companies to extend more than mere financial or technical
assistance to the State in the exploitation, development, and utilization of minerals,
petroleum, and other mineral oils, and even permits foreign owned companies to
"operate and manage mining activities."
(2) It allows foreign-owned companies to extend both technical and financial assistance,
instead of "either technical or financial assistance."
To appreciate the import of these issues, a visit to the history of the pertinent constitutional
provision, the concepts contained therein, and the laws enacted pursuant thereto, is in order.
Section 2, Article XII reads in full:
Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception of agricultural lands, all other natural
resources shall not be alienated. The exploration, development, and utilization of natural
resources shall be under the full control and supervision of the State. The State may directly
undertake such activities or it may enter into co-production, joint venture, or production-sharing
agreements with Filipino citizens, or corporations or associations at least sixty per centum of
whose capital is owned by such citizens. Such agreements may be for a period not exceeding
twenty-five years, renewable for not more than twenty-five years, and under such terms and
conditions as may be provided by law. In cases of water rights for irrigation, water supply,
fisheries, or industrial uses other than the development of water power, beneficial use may be the
measure and limit of the grant.
The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea, and
exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.
The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as
well as cooperative fish farming, with priority to subsistence fishermen and fish-workers in rivers,
lakes, bays, and lagoons.
The President may enter into agreements with foreign-owned corporations involving either
technical or financial assistance for large-scale exploration, development, and utilization of
minerals, petroleum, and other mineral oils according to the general terms and conditions
provided by law, based on real contributions to the economic growth and general welfare of the
country. In such agreements, the State shall promote the development and use of local scientific
and technical resources.
The President shall notify the Congress of every contract entered into in accordance with this
provision, within thirty days from its execution.
THE SPANISH REGIME AND THE REGALIAN DOCTRINE
The first sentence of Section 2 embodies the Regalian doctrine or jura regalia. Introduced by
Spain into these Islands, this feudal concept is based on the State's power of dominium, which is
the capacity of the State to own or acquire property.79
In its broad sense, the term "jura regalia" refers to royal rights, or those rights which the King has
by virtue of his prerogatives. In Spanish law, it refers to a right which the sovereign has over
anything in which a subject has a right of property or propriedad. These were rights enjoyed
during feudal times by the king as the sovereign.

The theory of the feudal system was that title to all lands was originally held by the King, and
while the use of lands was granted out to others who were permitted to hold them under certain
conditions, the King theoretically retained the title. By fiction of law, the King was regarded as the
original proprietor of all lands, and the true and only source of title, and from him all lands were
held. The theory of jura regalia was therefore nothing more than a natural fruit of conquest. 80
The Philippines having passed to Spain by virtue of discovery and conquest, 81 earlier Spanish
decrees declared that "all lands were held from the Crown." 82
The Regalian doctrine extends not only to land but also to "all natural wealth that may be found in
the bowels of the earth."83 Spain, in particular, recognized the unique value of natural resources,
viewing them, especially minerals, as an abundant source of revenue to finance its wars against
other nations.84 Mining laws during the Spanish regime reflected this perspective. 85
THE AMERICAN OCCUPATION AND THE CONCESSION REGIME
By the Treaty of Paris of December 10, 1898, Spain ceded "the archipelago known as the
Philippine Islands" to the United States. The Philippines was hence governed by means of organic
acts that were in the nature of charters serving as a Constitution of the occupied territory from
1900 to 1935.86 Among the principal organic acts of the Philippines was the Act of Congress of July
1, 1902, more commonly known as the Philippine Bill of 1902, through which the United States
Congress assumed the administration of the Philippine Islands. 87 Section 20 of said Bill reserved
the disposition of mineral lands of the public domain from sale. Section 21 thereof allowed the
free and open exploration, occupation and purchase of mineral deposits not only to citizens of the
Philippine Islands but to those of the United States as well:
Sec. 21. That all valuable mineral deposits in public lands in the Philippine Islands, both surveyed
and unsurveyed, are hereby declared to be free and open to exploration, occupation and
purchase, and the land in which they are found, to occupation and purchase, by citizens of the
United States or of said Islands: Provided, That when on any lands in said Islands entered and
occupied as agricultural lands under the provisions of this Act, but not patented, mineral deposits
have been found, the working of such mineral deposits is forbidden until the person, association,
or corporation who or which has entered and is occupying such lands shall have paid to the
Government of said Islands such additional sum or sums as will make the total amount paid for
the mineral claim or claims in which said deposits are located equal to the amount charged by the
Government for the same as mineral claims.
Unlike Spain, the United States considered natural resources as a source of wealth for its nationals
and saw fit to allow both Filipino and American citizens to explore and exploit minerals in public
lands, and to grant patents to private mineral lands. 88 A person who acquired ownership over a
parcel of private mineral land pursuant to the laws then prevailing could exclude other persons,
even the State, from exploiting minerals within his property. 89Thus, earlier jurisprudence90 held
that:
A valid and subsisting location of mineral land, made and kept up in accordance with the
provisions of the statutes of the United States, has the effect of a grant by the United States of
the present and exclusive possession of the lands located, and this exclusive right of possession
and enjoyment continues during the entire life of the location. x x x.
x x x.
The discovery of minerals in the ground by one who has a valid mineral location perfects his claim
and his location not only against third persons, but also against the Government. x x x. [Italics in
the original.]
The Regalian doctrine and the American system, therefore, differ in one essential respect. Under
the Regalian theory, mineral rights are not included in a grant of land by the state; under the
American doctrine, mineral rights are included in a grant of land by the government. 91
Section 21 also made possible the concession (frequently styled "permit", license" or
"lease")92 system.93 This was the traditional regime imposed by the colonial administrators for the
exploitation of natural resources in the extractive sector (petroleum, hard minerals, timber, etc.). 94
Under the concession system, the concessionaire makes a direct equity investment for the
purpose of exploiting a particular natural resource within a given area. 95 Thus, the concession

amounts to complete control by the concessionaire over the country's natural resource, for it is
given exclusive and plenary rights to exploit a particular resource at the point of extraction. 96 In
consideration for the right to exploit a natural resource, the concessionaire either pays rent or
royalty, which is a fixed percentage of the gross proceeds. 97
Later statutory enactments by the legislative bodies set up in the Philippines adopted the
contractual framework of the concession. 98 For instance, Act No. 2932, 99 approved on August 31,
1920, which provided for the exploration, location, and lease of lands containing petroleum and
other mineral oils and gas in the Philippines, and Act No. 2719, 100 approved on May 14, 1917,
which provided for the leasing and development of coal lands in the Philippines, both utilized the
concession system.101
THE 1935 CONSTITUTION AND THE NATIONALIZATION OF NATURAL RESOURCES
By the Act of United States Congress of March 24, 1934, popularly known as the Tydings-McDuffie
Law, the People of the Philippine Islands were authorized to adopt a constitution. 102 On July 30,
1934, the Constitutional Convention met for the purpose of drafting a constitution, and the
Constitution subsequently drafted was approved by the Convention on February 8, 1935. 103 The
Constitution was submitted to the President of the United States on March 18, 1935. 104 On March
23, 1935, the President of the United States certified that the Constitution conformed
substantially with the provisions of the Act of Congress approved on March 24, 1934. 105On May 14,
1935, the Constitution was ratified by the Filipino people.106
The 1935 Constitution adopted the Regalian doctrine, declaring all natural resources of the
Philippines, including mineral lands and minerals, to be property belonging to the State. 107 As
adopted in a republican system, the medieval concept of jura regalia is stripped of royal
overtones and ownership of the land is vested in the State.108
Section 1, Article XIII, on Conservation and Utilization of Natural Resources, of the 1935
Constitution provided:
SECTION 1. All agricultural, timber, and mineral lands of the public domain, waters,
minerals, coal, petroleum, and other mineral oils, all forces of potential energy, and other
natural resources of the Philippines belong to the State, and their disposition,
exploitation, development, or utilization shall be limited to citizens of the Philippines, or
to corporations or associations at least sixty per centum of the capital of which is owned
by such citizens, subject to any existing right, grant, lease, or concession at the time of
the inauguration of the Government established under this Constitution. Natural
resources, with the exception of public agricultural land, shall not be alienated, and no
license, concession, or lease for the exploitation, development, or utilization of any of the
natural resources shall be granted for a period exceeding twenty-five years, except as to
water rights for irrigation, water supply, fisheries, or industrial uses other than the
development of water power, in which cases beneficial use may be the measure and the
limit of the grant.
The nationalization and conservation of the natural resources of the country was one of the fixed
and dominating objectives of the 1935 Constitutional Convention.109 One delegate relates:
There was an overwhelming sentiment in the Convention in favor of the principle of state
ownership of natural resources and the adoption of the Regalian doctrine. State ownership of
natural resources was seen as a necessary starting point to secure recognition of the state's
power to control their disposition, exploitation, development, or utilization. The delegates of the
Constitutional Convention very well knew that the concept of State ownership of land and natural
resources was introduced by the Spaniards, however, they were not certain whether it was
continued and applied by the Americans. To remove all doubts, the Convention approved the
provision in the Constitution affirming the Regalian doctrine.
The adoption of the principle of state ownership of the natural resources and of the Regalian
doctrine was considered to be a necessary starting point for the plan of nationalizing and
conserving the natural resources of the country. For with the establishment of the principle of
state ownership of the natural resources, it would not be hard to secure the recognition of the
power of the State to control their disposition, exploitation, development or utilization. 110

The nationalization of the natural resources was intended (1) to insure their conservation for
Filipino posterity; (2) to serve as an instrument of national defense, helping prevent the extension
to the country of foreign control through peaceful economic penetration; and (3) to avoid making
the Philippines a source of international conflicts with the consequent danger to its internal
security and independence.111
The same Section 1, Article XIII also adopted the concession system, expressly permitting the
State to grant licenses, concessions, or leases for the exploitation, development, or utilization of
any of the natural resources. Grants, however, were limited to Filipinos or entities at least 60% of
the capital of which is owned by Filipinos.lawph!l.ne+
The swell of nationalism that suffused the 1935 Constitution was radically diluted when on
November 1946, the Parity Amendment, which came in the form of an "Ordinance Appended to
the Constitution," was ratified in a plebiscite.112 The Amendment extended, from July 4, 1946 to
July 3, 1974, the right to utilize and exploit our natural resources to citizens of the United States
and business enterprises owned or controlled, directly or indirectly, by citizens of the United
States:113
Notwithstanding the provision of section one, Article Thirteen, and section eight, Article Fourteen,
of the foregoing Constitution, during the effectivity of the Executive Agreement entered into by
the President of the Philippines with the President of the United States on the fourth of July,
nineteen hundred and forty-six, pursuant to the provisions of Commonwealth Act Numbered
Seven hundred and thirty-three, but in no case to extend beyond the third of July, nineteen
hundred and seventy-four, the disposition, exploitation, development, and utilization of all
agricultural, timber, and mineral lands of the public domain, waters, minerals, coals, petroleum,
and other mineral oils, all forces and sources of potential energy, and other natural resources of
the Philippines, and the operation of public utilities, shall, if open to any person, be open to
citizens of the United States and to all forms of business enterprise owned or controlled, directly
or indirectly, by citizens of the United States in the same manner as to, and under the same
conditions imposed upon, citizens of the Philippines or corporations or associations owned or
controlled by citizens of the Philippines.
The Parity Amendment was subsequently modified by the 1954 Revised Trade Agreement, also
known as the Laurel-Langley Agreement, embodied in Republic Act No. 1355. 114
THE PETROLEUM ACT OF 1949 AND THE CONCESSION SYSTEM
In the meantime, Republic Act No. 387,115 also known as the Petroleum Act of 1949, was approved
on June 18, 1949.
The Petroleum Act of 1949 employed the concession system for the exploitation of the nation's
petroleum resources. Among the kinds of concessions it sanctioned were exploration and
exploitation concessions, which respectively granted to the concessionaire the exclusive right to
explore for116 or develop117 petroleum within specified areas.
Concessions may be granted only to duly qualified persons 118 who have sufficient finances,
organization, resources, technical competence, and skills necessary to conduct the operations to
be undertaken.119
Nevertheless, the Government reserved the right to undertake such work itself. 120 This proceeded
from the theory that all natural deposits or occurrences of petroleum or natural gas in public
and/or private lands in the Philippines belong to the State. 121 Exploration and exploitation
concessions did not confer upon the concessionaire ownership over the petroleum lands and
petroleum deposits.122 However, they did grant concessionaires the right to explore, develop,
exploit, and utilize them for the period and under the conditions determined by the law. 123
Concessions were granted at the complete risk of the concessionaire; the Government did not
guarantee the existence of petroleum or undertake, in any case, title warranty. 124
Concessionaires were required to submit information as maybe required by the Secretary of
Agriculture and Natural Resources, including reports of geological and geophysical examinations,
as well as production reports.125 Exploration126 and exploitation127 concessionaires were also
required to submit work programs.lavvphi1.net

Exploitation concessionaires, in particular, were obliged to pay an annual exploitation tax, 128 the
object of which is to induce the concessionaire to actually produce petroleum, and not simply to
sit on the concession without developing or exploiting it. 129 These concessionaires were also
bound to pay the Government royalty, which was not less than 12% of the petroleum produced
and saved, less that consumed in the operations of the concessionaire. 130 Under Article 66, R.A.
No. 387, the exploitation tax may be credited against the royalties so that if the concessionaire
shall be actually producing enough oil, it would not actually be paying the exploitation tax. 131
Failure to pay the annual exploitation tax for two consecutive years, 132 or the royalty due to the
Government within one year from the date it becomes due,133 constituted grounds for the
cancellation of the concession. In case of delay in the payment of the taxes or royalty imposed by
the law or by the concession, a surcharge of 1% per month is exacted until the same are paid. 134
As a rule, title rights to all equipment and structures that the concessionaire placed on the land
belong to the exploration or exploitation concessionaire. 135 Upon termination of such concession,
the concessionaire had a right to remove the same.136
The Secretary of Agriculture and Natural Resources was tasked with carrying out the provisions of
the law, through the Director of Mines, who acted under the Secretary's immediate supervision
and control.137 The Act granted the Secretary the authority to inspect any operation of the
concessionaire and to examine all the books and accounts pertaining to operations or conditions
related to payment of taxes and royalties.138
The same law authorized the Secretary to create an Administration Unit and a Technical
Board.139 The Administration Unit was charged, inter alia, with the enforcement of the provisions
of the law.140 The Technical Board had, among other functions, the duty to check on the
performance of concessionaires and to determine whether the obligations imposed by the Act and
its implementing regulations were being complied with. 141
Victorio Mario A. Dimagiba, Chief Legal Officer of the Bureau of Energy Development, analyzed
the benefits and drawbacks of the concession system insofar as it applied to the petroleum
industry:
Advantages of Concession. Whether it emphasizes income tax or royalty, the most positive aspect
of the concession system is that the State's financial involvement is virtually risk free and
administration is simple and comparatively low in cost. Furthermore, if there is a competitive
allocation of the resource leading to substantial bonuses and/or greater royalty coupled with a
relatively high level of taxation, revenue accruing to the State under the concession system may
compare favorably with other financial arrangements.
Disadvantages of Concession. There are, however, major negative aspects to this system.
Because the Government's role in the traditional concession is passive, it is at a distinct
disadvantage in managing and developing policy for the nation's petroleum resource. This is true
for several reasons. First, even though most concession agreements contain covenants requiring
diligence in operations and production, this establishes only an indirect and passive control of the
host country in resource development. Second, and more importantly, the fact that the host
country does not directly participate in resource management decisions inhibits its ability to train
and employ its nationals in petroleum development. This factor could delay or prevent the
country from effectively engaging in the development of its resources. Lastly, a direct role in
management is usually necessary in order to obtain a knowledge of the international petroleum
industry which is important to an appreciation of the host country's resources in relation to those
of other countries.142
Other liabilities of the system have also been noted:
x x x there are functional implications which give the concessionaire great economic power
arising from its exclusive equity holding. This includes, first, appropriation of the returns of the
undertaking, subject to a modest royalty; second, exclusive management of the project; third,
control of production of the natural resource, such as volume of production, expansion, research
and development; and fourth, exclusive responsibility for downstream operations, like processing,
marketing, and distribution. In short, even if nominally, the state is the sovereign and owner of
the natural resource being exploited, it has been shorn of all elements of control over such natural

resource because of the exclusive nature of the contractual regime of the concession. The
concession system, investing as it does ownership of natural resources, constitutes a consistent
inconsistency with the principle embodied in our Constitution that natural resources belong to the
state and shall not be alienated, not to mention the fact that the concession was the bedrock of
the colonial system in the exploitation of natural resources.143
Eventually, the concession system failed for reasons explained by Dimagiba:
Notwithstanding the good intentions of the Petroleum Act of 1949, the concession system could
not have properly spurred sustained oil exploration activities in the country, since it assumed that
such a capital-intensive, high risk venture could be successfully undertaken by a single individual
or a small company. In effect, concessionaires' funds were easily exhausted. Moreover, since the
concession system practically closed its doors to interested foreign investors, local capital was
stretched to the limits. The old system also failed to consider the highly sophisticated technology
and expertise required, which would be available only to multinational companies. 144
A shift to a new regime for the development of natural resources thus seemed imminent.
PRESIDENTIAL DECREE NO. 87, THE 1973 CONSTITUTION AND THE SERVICE CONTRACT
SYSTEM
The promulgation on December 31, 1972 of Presidential Decree No. 87, 145 otherwise known as The
Oil Exploration and Development Act of 1972 signaled such a transformation. P.D. No. 87
permitted the government to explore for and produce indigenous petroleum through "service
contracts."146
"Service contracts" is a term that assumes varying meanings to different people, and it has
carried many names in different countries, like "work contracts" in Indonesia, "concession
agreements" in Africa, "production-sharing agreements" in the Middle East, and "participation
agreements" in Latin America.147 A functional definition of "service contracts" in the Philippines is
provided as follows:
A service contract is a contractual arrangement for engaging in the exploitation and development
of petroleum, mineral, energy, land and other natural resources by which a government or its
agency, or a private person granted a right or privilege by the government authorizes the other
party (service contractor) to engage or participate in the exercise of such right or the enjoyment
of the privilege, in that the latter provides financial or technical resources, undertakes the
exploitation or production of a given resource, or directly manages the productive enterprise,
operations of the exploration and exploitation of the resources or the disposition of marketing or
resources.148
In a service contract under P.D. No. 87, service and technology are furnished by the service
contractor for which it shall be entitled to the stipulated service fee. 149 The contractor must be
technically competent and financially capable to undertake the operations required in the
contract.150
Financing is supposed to be provided by the Government to which all petroleum produced
belongs.151 In case the Government is unable to finance petroleum exploration operations, the
contractor may furnish services, technology and financing, and the proceeds of sale of the
petroleum produced under the contract shall be the source of funds for payment of the service
fee and the operating expenses due the contractor. 152 The contractor shall undertake, manage
and execute petroleum operations, subject to the government overseeing the management of the
operations.153 The contractor provides all necessary services and technology and the requisite
financing, performs the exploration work obligations, and assumes all exploration risks such that if
no petroleum is produced, it will not be entitled to reimbursement. 154 Once petroleum in
commercial quantity is discovered, the contractor shall operate the field on behalf of the
government.155
P.D. No. 87 prescribed minimum terms and conditions for every service contract. 156 It also granted
the contractor certain privileges, including exemption from taxes and payment of tariff
duties,157 and permitted the repatriation of capital and retention of profits abroad. 158

Ostensibly, the service contract system had certain advantages over the concession regime. 159 It
has been opined, though, that, in the Philippines, our concept of a service contract, at least in the
petroleum industry, was basically a concession regime with a production-sharing element. 160
On January 17, 1973, then President Ferdinand E. Marcos proclaimed the ratification of a new
Constitution.161Article XIV on the National Economy and Patrimony contained provisions similar to
the 1935 Constitution with regard to Filipino participation in the nation's natural resources.
Section 8, Article XIV thereof provides:
Sec. 8. All lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all
forces of potential energy, fisheries, wildlife, and other natural resources of the Philippines belong
to the State. With the exception of agricultural, industrial or commercial, residential and
resettlement lands of the public domain, natural resources shall not be alienated, and no license,
concession, or lease for the exploration, development, exploitation, or utilization of any of the
natural resources shall be granted for a period exceeding twenty-five years, renewable for not
more than twenty-five years, except as to water rights for irrigation, water supply, fisheries, or
industrial uses other than the development of water power, in which cases beneficial use may be
the measure and the limit of the grant.
While Section 9 of the same Article maintained the Filipino-only policy in the enjoyment of natural
resources, it also allowed Filipinos, upon authority of the Batasang Pambansa, to enter into
service contracts with any person or entity for the exploration or utilization of natural resources.
Sec. 9. The disposition, exploration, development, exploitation, or utilization of any of the natural
resources of the Philippines shall be limited to citizens, or to corporations or associations at least
sixty per centum of which is owned by such citizens. The Batasang Pambansa, in the national
interest, may allow such citizens, corporations or associations to enter into service contracts for
financial, technical, management, or other forms of assistance with any person or entity for the
exploration, or utilization of any of the natural resources. Existing valid and binding service
contracts for financial, technical, management, or other forms of assistance are hereby
recognized as such. [Emphasis supplied.]
The concept of service contracts, according to one delegate, was borrowed from the methods
followed by India, Pakistan and especially Indonesia in the exploration of petroleum and mineral
oils.162 The provision allowing such contracts, according to another, was intended to "enhance the
proper development of our natural resources since Filipino citizens lack the needed capital and
technical know-how which are essential in the proper exploration, development and exploitation
of the natural resources of the country." 163
The original idea was to authorize the government, not private entities, to enter into service
contracts with foreign entities.164 As finally approved, however, a citizen or private entity could be
allowed by the National Assembly to enter into such service contract. 165 The prior approval of the
National Assembly was deemed sufficient to protect the national interest. 166 Notably, none of the
laws allowing service contracts were passed by the Batasang Pambansa. Indeed, all of them were
enacted by presidential decree.
On March 13, 1973, shortly after the ratification of the new Constitution, the President
promulgated Presidential Decree No. 151.167 The law allowed Filipino citizens or entities which
have acquired lands of the public domain or which own, hold or control such lands to enter into
service contracts for financial, technical, management or other forms of assistance with any
foreign persons or entity for the exploration, development, exploitation or utilization of said
lands.168
Presidential Decree No. 463,169 also known as The Mineral Resources Development Decree of
1974, was enacted on May 17, 1974. Section 44 of the decree, as amended, provided that a
lessee of a mining claim may enter into a service contract with a qualified domestic or foreign
contractor for the exploration, development and exploitation of his claims and the processing and
marketing of the product thereof.
Presidential Decree No. 704170 (The Fisheries Decree of 1975), approved on May 16, 1975, allowed
Filipinos engaged in commercial fishing to enter into contracts for financial, technical or other

forms of assistance with any foreign person, corporation or entity for the production, storage,
marketing and processing of fish and fishery/aquatic products.171
Presidential Decree No. 705172 (The Revised Forestry Code of the Philippines), approved on May
19, 1975, allowed "forest products licensees, lessees, or permitees to enter into service contracts
for financial, technical, management, or other forms of assistance . . . with any foreign person or
entity for the exploration, development, exploitation or utilization of the forest resources." 173
Yet another law allowing service contracts, this time for geothermal resources, was Presidential
Decree No. 1442,174 which was signed into law on June 11, 1978. Section 1 thereof authorized the
Government to enter into service contracts for the exploration, exploitation and development of
geothermal resources with a foreign contractor who must be technically and financially capable of
undertaking the operations required in the service contract.
Thus, virtually the entire range of the country's natural resources from petroleum and minerals
to geothermal energy, from public lands and forest resources to fishery products was well
covered by apparent legal authority to engage in the direct participation or involvement of foreign
persons or corporations (otherwise disqualified) in the exploration and utilization of natural
resources through service contracts.175
THE 1987 CONSTITUTION AND TECHNICAL OR FINANCIAL ASSISTANCE AGREEMENTS
After the February 1986 Edsa Revolution, Corazon C. Aquino took the reins of power under a
revolutionary government. On March 25, 1986, President Aquino issued Proclamation No.
3,176 promulgating the Provisional Constitution, more popularly referred to as the Freedom
Constitution. By authority of the same Proclamation, the President created a Constitutional
Commission (CONCOM) to draft a new constitution, which took effect on the date of its ratification
on February 2, 1987.177
The 1987 Constitution retained the Regalian doctrine. The first sentence of Section 2, Article XII
states: "All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils,
all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other
natural resources are owned by the State."
Like the 1935 and 1973 Constitutions before it, the 1987 Constitution, in the second sentence of
the same provision, prohibits the alienation of natural resources, except agricultural lands.
The third sentence of the same paragraph is new: "The exploration, development and utilization
of natural resources shall be under the full control and supervision of the State." The
constitutional policy of the State's "full control and supervision" over natural resources proceeds
from the concept of jura regalia, as well as the recognition of the importance of the country's
natural resources, not only for national economic development, but also for its security and
national defense.178 Under this provision, the State assumes "a more dynamic role" in the
exploration, development and utilization of natural resources.179
Conspicuously absent in Section 2 is the provision in the 1935 and 1973 Constitutions authorizing
the State to grant licenses, concessions, or leases for the exploration, exploitation, development,
or utilization of natural resources. By such omission, the utilization of inalienable lands of public
domain through "license, concession or lease" is no longer allowed under the 1987 Constitution. 180
Having omitted the provision on the concession system, Section 2 proceeded to introduce
"unfamiliar language":181
The State may directly undertake such activities or it may enter into co-production, joint venture,
or production-sharing agreements with Filipino citizens, or corporations or associations at least
sixty per centum of whose capital is owned by such citizens.
Consonant with the State's "full supervision and control" over natural resources, Section 2 offers
the State two "options."182 One, the State may directly undertake these activities itself; or two, it
may enter into co-production, joint venture, or production-sharing agreements with Filipino
citizens, or entities at least 60% of whose capital is owned by such citizens.
A third option is found in the third paragraph of the same section:
The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as
well as cooperative fish farming, with priority to subsistence fishermen and fish-workers in rivers,
lakes, bays, and lagoons.

While the second and third options are limited only to Filipino citizens or, in the case of the
former, to corporations or associations at least 60% of the capital of which is owned by Filipinos, a
fourth allows the participation of foreign-owned corporations. The fourth and fifth paragraphs of
Section 2 provide:
The President may enter into agreements with foreign-owned corporations involving either
technical or financial assistance for large-scale exploration, development, and utilization of
minerals, petroleum, and other mineral oils according to the general terms and conditions
provided by law, based on real contributions to the economic growth and general welfare of the
country. In such agreements, the State shall promote the development and use of local scientific
and technical resources.
The President shall notify the Congress of every contract entered into in accordance with this
provision, within thirty days from its execution.
Although Section 2 sanctions the participation of foreign-owned corporations in the exploration,
development, and utilization of natural resources, it imposes certain limitations or conditions to
agreements with such corporations.
First, the parties to FTAAs. Only the President, in behalf of the State, may enter into these
agreements, and only with corporations. By contrast, under the 1973 Constitution, a
Filipino citizen, corporation or association may enter into a service contract with a
"foreign person or entity."
Second, the size of the activities: only large-scale exploration, development, and
utilization is allowed. The term "large-scale usually refers to very capital-intensive
activities."183
Third, the natural resources subject of the activities is restricted to minerals, petroleum
and other mineral oils, the intent being to limit service contracts to those areas where
Filipino capital may not be sufficient.184
Fourth, consistency with the provisions of statute. The agreements must be in
accordance with the terms and conditions provided by law.
Fifth, Section 2 prescribes certain standards for entering into such agreements. The
agreements must be based on real contributions to economic growth and general welfare
of the country.
Sixth, the agreements must contain rudimentary stipulations for the promotion of the
development and use of local scientific and technical resources.
Seventh, the notification requirement. The President shall notify Congress of every
financial or technical assistance agreement entered into within thirty days from its
execution.
Finally, the scope of the agreements. While the 1973 Constitution referred to "service
contracts for financial, technical, management, or other forms of assistance" the 1987
Constitution provides for "agreements. . . involving either financial or technical
assistance." It bears noting that the phrases "service contracts" and "management or
other forms of assistance" in the earlier constitution have been omitted.
By virtue of her legislative powers under the Provisional Constitution, 185 President Aquino, on July
10, 1987, signed into law E.O. No. 211 prescribing the interim procedures in the processing and
approval of applications for the exploration, development and utilization of minerals. The omission
in the 1987 Constitution of the term "service contracts" notwithstanding, the said E.O. still
referred to them in Section 2 thereof:
Sec. 2. Applications for the exploration, development and utilization of mineral resources,
including renewal applications and applications for approval of operating agreements and mining
service contracts, shall be accepted and processed and may be approved x x x. [Emphasis
supplied.]
The same law provided in its Section 3 that the "processing, evaluation and approval of all mining
applications . . . operating agreements and service contracts . . . shall be governed by Presidential
Decree No. 463, as amended, other existing mining laws, and their implementing rules and
regulations. . . ."

As earlier stated, on the 25th also of July 1987, the President issued E.O. No. 279 by authority of
which the subject WMCP FTAA was executed on March 30, 1995.
On March 3, 1995, President Ramos signed into law R.A. No. 7942. Section 15 thereof declares
that the Act "shall govern the exploration, development, utilization, and processing of all mineral
resources." Such declaration notwithstanding, R.A. No. 7942 does not actually cover all the modes
through which the State may undertake the exploration, development, and utilization of natural
resources.
The State, being the owner of the natural resources, is accorded the primary power and
responsibility in the exploration, development and utilization thereof. As such, it may undertake
these activities through four modes:
The State may directly undertake such activities.
(2) The State may enter into co-production, joint venture or production-sharing
agreements with Filipino citizens or qualified corporations.
(3) Congress may, by law, allow small-scale utilization of natural resources by Filipino
citizens.
(4) For the large-scale exploration, development and utilization of minerals, petroleum
and other mineral oils, the President may enter into agreements with foreign-owned
corporations involving technical or financial assistance.186
Except to charge the Mines and Geosciences Bureau of the DENR with performing researches and
surveys,187and a passing mention of government-owned or controlled corporations, 188 R.A. No.
7942 does not specify how the State should go about the first mode. The third mode, on the other
hand, is governed by Republic Act No. 7076 189 (the People's Small-Scale Mining Act of 1991) and
other pertinent laws.190 R.A. No. 7942 primarily concerns itself with the second and fourth modes.
Mineral production sharing, co-production and joint venture agreements are collectively classified
by R.A. No. 7942 as "mineral agreements."191 The Government participates the least in a mineral
production sharing agreement (MPSA). In an MPSA, the Government grants the contractor 192 the
exclusive right to conduct mining operations within a contract area 193 and shares in the gross
output.194 The MPSA contractor provides the financing, technology, management and personnel
necessary for the agreement's implementation. 195 The total government share in an MPSA is the
excise tax on mineral products under Republic Act No. 7729, 196 amending Section 151(a) of the
National Internal Revenue Code, as amended.197
In a co-production agreement (CA),198 the Government provides inputs to the mining operations
other than the mineral resource,199 while in a joint venture agreement (JVA), where the
Government enjoys the greatest participation, the Government and the JVA contractor organize a
company with both parties having equity shares. 200 Aside from earnings in equity, the Government
in a JVA is also entitled to a share in the gross output. 201 The Government may enter into a CA 202 or
JVA203 with one or more contractors. The Government's share in a CA or JVA is set out in Section 81
of the law:
The share of the Government in co-production and joint venture agreements shall be negotiated
by the Government and the contractor taking into consideration the: (a) capital investment of the
project, (b) the risks involved, (c) contribution of the project to the economy, and (d) other factors
that will provide for a fair and equitable sharing between the Government and the contractor. The
Government shall also be entitled to compensations for its other contributions which shall be
agreed upon by the parties, and shall consist, among other things, the contractor's income tax,
excise tax, special allowance, withholding tax due from the contractor's foreign stockholders
arising from dividend or interest payments to the said foreign stockholders, in case of a foreign
national and all such other taxes, duties and fees as provided for under existing laws.
All mineral agreements grant the respective contractors the exclusive right to conduct mining
operations and to extract all mineral resources found in the contract area. 204 A "qualified person"
may enter into any of the mineral agreements with the Government. 205 A "qualified person" is
any citizen of the Philippines with capacity to contract, or a corporation, partnership, association,
or cooperative organized or authorized for the purpose of engaging in mining, with technical and
financial capability to undertake mineral resources development and duly registered in

accordance with law at least sixty per centum (60%) of the capital of which is owned by citizens
of the Philippines x x x.206
The fourth mode involves "financial or technical assistance agreements." An FTAA is defined as "a
contract involving financial or technical assistance for large-scale exploration, development, and
utilization of natural resources." 207 Any qualified person with technical and financial capability to
undertake large-scale exploration, development, and utilization of natural resources in the
Philippines may enter into such agreement directly with the Government through the DENR. 208 For
the purpose of granting an FTAA, a legally organized foreign-owned corporation (any corporation,
partnership, association, or cooperative duly registered in accordance with law in which less than
50% of the capital is owned by Filipino citizens) 209 is deemed a "qualified person." 210
Other than the difference in contractors' qualifications, the principal distinction between mineral
agreements and FTAAs is the maximum contract area to which a qualified person may hold or be
granted.211 "Large-scale" under R.A. No. 7942 is determined by the size of the contract area, as
opposed to the amount invested (US $50,000,000.00), which was the standard under E.O. 279.
Like a CA or a JVA, an FTAA is subject to negotiation. 212 The Government's contributions, in the
form of taxes, in an FTAA is identical to its contributions in the two mineral agreements, save that
in an FTAA:
The collection of Government share in financial or technical assistance agreement shall
commence after the financial or technical assistance agreement contractor has fully recovered its
pre-operating expenses, exploration, and development expenditures, inclusive. 213
III
Having examined the history of the constitutional provision and statutes enacted pursuant
thereto, a consideration of the substantive issues presented by the petition is now in order.
THE EFFECTIVITY OF EXECUTIVE ORDER NO. 279
Petitioners argue that E.O. No. 279, the law in force when the WMC FTAA was executed, did not
come into effect.
E.O. No. 279 was signed into law by then President Aquino on July 25, 1987, two days before the
opening of Congress on July 27, 1987.214 Section 8 of the E.O. states that the same "shall take
effect immediately." This provision, according to petitioners, runs counter to Section 1 of E.O. No.
200,215 which provides:
SECTION 1. Laws shall take effect after fifteen days following the completion of their publication
either in the Official Gazette or in a newspaper of general circulation in the Philippines, unless it is
otherwise provided.216[Emphasis supplied.]
On that premise, petitioners contend that E.O. No. 279 could have only taken effect fifteen days
after its publication at which time Congress had already convened and the President's power to
legislate had ceased.
Respondents, on the other hand, counter that the validity of E.O. No. 279 was settled in Miners
Association of the Philippines v. Factoran, supra. This is of course incorrect for the issue in Miners
Association was not the validity of E.O. No. 279 but that of DAO Nos. 57 and 82 which were issued
pursuant thereto.
Nevertheless, petitioners' contentions have no merit.
It bears noting that there is nothing in E.O. No. 200 that prevents a law from taking effect on a
date other than even before the 15-day period after its publication. Where a law provides for
its own date of effectivity, such date prevails over that prescribed by E.O. No. 200. Indeed, this is
the very essence of the phrase "unless it is otherwise provided" in Section 1 thereof. Section 1,
E.O. No. 200, therefore, applies only when a statute does not provide for its own date of
effectivity.
What is mandatory under E.O. No. 200, and what due process requires, as this Court held in
Taada v. Tuvera,217 is the publication of the law for without such notice and publication, there
would be no basis for the application of the maxim "ignorantia legis n[eminem] excusat." It would
be the height of injustice to punish or otherwise burden a citizen for the transgression of a law of
which he had no notice whatsoever, not even a constructive one.

While the effectivity clause of E.O. No. 279 does not require its publication, it is not a ground for
its invalidation since the Constitution, being "the fundamental, paramount and supreme law of the
nation," is deemed written in the law. 218 Hence, the due process clause,219 which, so Taada held,
mandates the publication of statutes, is read into Section 8 of E.O. No. 279. Additionally, Section 1
of E.O. No. 200 which provides for publication "either in the Official Gazette or in a newspaper of
general circulation in the Philippines," finds suppletory application. It is significant to note that
E.O. No. 279 was actually published in the Official Gazette 220 on August 3, 1987.
From a reading then of Section 8 of E.O. No. 279, Section 1 of E.O. No. 200, and Taada v. Tuvera,
this Court holds that E.O. No. 279 became effective immediately upon its publication in the Official
Gazette on August 3, 1987.
That such effectivity took place after the convening of the first Congress is irrelevant. At the time
President Aquino issued E.O. No. 279 on July 25, 1987, she was still validly exercising legislative
powers under the Provisional Constitution. 221 Article XVIII (Transitory Provisions) of the 1987
Constitution explicitly states:
Sec. 6. The incumbent President shall continue to exercise legislative powers until the first
Congress is convened.
The convening of the first Congress merely precluded the exercise of legislative powers by
President Aquino; it did not prevent the effectivity of laws she had previously enacted.
There can be no question, therefore, that E.O. No. 279 is an effective, and a validly enacted,
statute.
THE CONSTITUTIONALITY OF THE WMCP FTAA
Petitioners submit that, in accordance with the text of Section 2, Article XII of the Constitution,
FTAAs should be limited to "technical or financial assistance" only. They observe, however, that,
contrary to the language of the Constitution, the WMCP FTAA allows WMCP, a fully foreign-owned
mining corporation, to extend more than mere financial or technical assistance to the State, for it
permits WMCP to manage and operate every aspect of the mining activity. 222
Petitioners' submission is well-taken. It is a cardinal rule in the interpretation of constitutions that
the instrument must be so construed as to give effect to the intention of the people who adopted
it.223 This intention is to be sought in the constitution itself, and the apparent meaning of the
words is to be taken as expressing it, except in cases where that assumption would lead to
absurdity, ambiguity, or contradiction.224 What the Constitution says according to the text of the
provision, therefore, compels acceptance and negates the power of the courts to alter it, based on
the postulate that the framers and the people mean what they say. 225 Accordingly, following the
literal text of the Constitution, assistance accorded by foreign-owned corporations in the largescale exploration, development, and utilization of petroleum, minerals and mineral oils should be
limited to "technical" or "financial" assistance only.
WMCP nevertheless submits that the word "technical" in the fourth paragraph of Section 2 of E.O.
No. 279 encompasses a "broad number of possible services," perhaps, "scientific and/or
technological in basis."226 It thus posits that it may also well include "the area of management or
operations . . . so long as such assistance requires specialized knowledge or skills, and are related
to the exploration, development and utilization of mineral resources." 227
This Court is not persuaded. As priorly pointed out, the phrase "management or other forms of
assistance" in the 1973 Constitution was deleted in the 1987 Constitution, which allows only
"technical or financial assistance." Casus omisus pro omisso habendus est. A person, object or
thing omitted from an enumeration must be held to have been omitted intentionally. 228 As will be
shown later, the management or operation of mining activities by foreign contractors, which is the
primary feature of service contracts, was precisely the evil that the drafters of the 1987
Constitution sought to eradicate.
Respondents insist that "agreements involving technical or financial assistance" is just another
term for service contracts. They contend that the proceedings of the CONCOM indicate "that
although the terminology 'service contract' was avoided [by the Constitution], the concept it
represented was not." They add that "[t]he concept is embodied in the phrase 'agreements

involving financial or technical assistance.'" 229 And point out how members of the CONCOM
referred to these agreements as "service contracts." For instance:
SR. TAN. Am I correct in thinking that the only difference between these future service
contracts and the past service contracts under Mr. Marcos is the general law to be
enacted by the legislature and the notification of Congress by the President? That is the
only difference, is it not?
MR. VILLEGAS. That is right.
SR. TAN. So those are the safeguards[?]
MR. VILLEGAS. Yes. There was no law at all governing service contracts before.
SR. TAN. Thank you, Madam President.230 [Emphasis supplied.]
WMCP also cites the following statements of Commissioners Gascon, Garcia, Nolledo and
Tadeo who alluded to service contracts as they explained their respective votes in the
approval of the draft Article:
MR. GASCON. Mr. Presiding Officer, I vote no primarily because of two reasons: One, the
provision on service contracts. I felt that if we would constitutionalize any provision on
service contracts, this should always be with the concurrence of Congress and not guided
only by a general law to be promulgated by Congress. x x x. 231 [Emphasis supplied.]
x x x.
MR. GARCIA. Thank you.
I vote no. x x x.
Service contracts are given constitutional legitimization in Section 3, even when they
have been proven to be inimical to the interests of the nation, providing as they do the
legal loophole for the exploitation of our natural resources for the benefit of foreign
interests. They constitute a serious negation of Filipino control on the use and disposition
of the nation's natural resources, especially with regard to those which are
nonrenewable.232 [Emphasis supplied.]
xxx
MR. NOLLEDO. While there are objectionable provisions in the Article on National
Economy and Patrimony, going over said provisions meticulously, setting aside prejudice
and personalities will reveal that the article contains a balanced set of provisions. I hope
the forthcoming Congress will implement such provisions taking into account that
Filipinos should have real control over our economy and patrimony, and if foreign equity
is permitted, the same must be subordinated to the imperative demands of the national
interest.
x x x.
It is also my understanding that service contracts involving foreign corporations or
entities are resorted to only when no Filipino enterprise or Filipino-controlled enterprise
could possibly undertake the exploration or exploitation of our natural resources and that
compensation under such contracts cannot and should not equal what should pertain to
ownership of capital. In other words, the service contract should not be an instrument to
circumvent the basic provision, that the exploration and exploitation of natural resources
should be truly for the benefit of Filipinos.
Thank you, and I vote yes.233 [Emphasis supplied.]
x x x.
MR. TADEO. Nais ko lamang ipaliwanag ang aking boto.
Matapos suriin ang kalagayan ng Pilipinas, ang saligang suliranin, pangunahin ang
salitang "imperyalismo." Ang ibig sabihin nito ay ang sistema ng lipunang pinaghaharian
ng iilang monopolyong kapitalista at ang salitang "imperyalismo" ay buhay na buhay sa
National Economy and Patrimony na nating ginawa. Sa pamamagitan ng salitang "based
on," naroroon na ang free trade sapagkat tayo ay mananatiling tagapagluwas ng hilaw
na sangkap at tagaangkat ng yaring produkto. Pangalawa, naroroon pa rin ang parity
rights, ang service contract, ang 60-40 equity sa natural resources. Habang naghihirap
ang sambayanang Pilipino, ginagalugad naman ng mga dayuhan ang ating likas na

yaman. Kailan man ang Article on National Economy and Patrimony ay hindi nagpaalis sa
pagkaalipin ng ating ekonomiya sa kamay ng mga dayuhan. Ang solusyon sa suliranin ng
bansa ay dalawa lamang: ang pagpapatupad ng tunay na reporma sa lupa at ang
national industrialization. Ito ang tinatawag naming pagsikat ng araw sa Silangan. Ngunit
ang mga landlords and big businessmen at ang mga komprador ay nagsasabi na ang
free trade na ito, ang kahulugan para sa amin, ay ipinipilit sa ating sambayanan na ang
araw ay sisikat sa Kanluran. Kailan man hindi puwedeng sumikat ang araw sa Kanluran. I
vote no.234 [Emphasis supplied.]
This Court is likewise not persuaded.
As earlier noted, the phrase "service contracts" has been deleted in the 1987 Constitution's
Article on National Economy and Patrimony. If the CONCOM intended to retain the concept of
service contracts under the 1973 Constitution, it could have simply adopted the old terminology
("service contracts") instead of employing new and unfamiliar terms ("agreements . . . involving
either technical or financial assistance"). Such a difference between the language of a provision in
a revised constitution and that of a similar provision in the preceding constitution is viewed as
indicative of a difference in purpose. 235 If, as respondents suggest, the concept of "technical or
financial assistance" agreements is identical to that of "service contracts," the CONCOM would not
have bothered to fit the same dog with a new collar. To uphold respondents' theory would reduce
the first to a mere euphemism for the second and render the change in phraseology meaningless.
An examination of the reason behind the change confirms that technical or financial assistance
agreements are not synonymous to service contracts.
[T]he Court in construing a Constitution should bear in mind the object sought to be accomplished
by its adoption, and the evils, if any, sought to be prevented or remedied. A doubtful provision will
be examined in light of the history of the times, and the condition and circumstances under which
the Constitution was framed. The object is to ascertain the reason which induced the framers of
the Constitution to enact the particular provision and the purpose sought to be accomplished
thereby, in order to construe the whole as to make the words consonant to that reason and
calculated to effect that purpose.236
As the following question of Commissioner Quesada and Commissioner Villegas' answer shows the
drafters intended to do away with service contracts which were used to circumvent the
capitalization (60%-40%) requirement:
MS. QUESADA. The 1973 Constitution used the words "service contracts." In this
particular Section 3, is there a safeguard against the possible control of foreign interests
if the Filipinos go into coproduction with them?
MR. VILLEGAS. Yes. In fact, the deletion of the phrase "service contracts" was our first
attempt to avoid some of the abuses in the past regime in the use of service contracts to
go around the 60-40 arrangement. The safeguard that has been introduced and this, of
course can be refined is found in Section 3, lines 25 to 30, where Congress will have to
concur with the President on any agreement entered into between a foreign-owned
corporation and the government involving technical or financial assistance for large-scale
exploration, development and utilization of natural resources.237 [Emphasis supplied.]
In a subsequent discussion, Commissioner Villegas allayed the fears of Commissioner
Quesada regarding the participation of foreign interests in Philippine natural resources,
which was supposed to be restricted to Filipinos.
MS. QUESADA. Another point of clarification is the phrase "and utilization of natural
resources shall be under the full control and supervision of the State." In the 1973
Constitution, this was limited to citizens of the Philippines; but it was removed and
substituted by "shall be under the full control and supervision of the State." Was the
concept changed so that these particular resources would be limited to citizens of the
Philippines? Or would these resources only be under the full control and supervision of
the State; meaning, noncitizens would have access to these natural resources? Is that
the understanding?

MR. VILLEGAS. No, Mr. Vice-President, if the Commissioner reads the next sentence, it
states:
Such activities may be directly undertaken by the State, or it may enter into co-production, joint
venture, production-sharing agreements with Filipino citizens.
So we are still limiting it only to Filipino citizens.
x x x.
MS. QUESADA. Going back to Section 3, the section suggests that:
The exploration, development, and utilization of natural resources may be directly undertaken
by the State, or it may enter into co-production, joint venture or production-sharing agreement
with . . . corporations or associations at least sixty per cent of whose voting stock or controlling
interest is owned by such citizens.
Lines 25 to 30, on the other hand, suggest that in the large-scale exploration, development and
utilization of natural resources, the President with the concurrence of Congress may enter into
agreements with foreign-owned corporations even for technical or financial assistance.
I wonder if this part of Section 3 contradicts the second part. I am raising this point for fear that
foreign investors will use their enormous capital resources to facilitate the actual exploitation or
exploration, development and effective disposition of our natural resources to the detriment of
Filipino investors. I am not saying that we should not consider borrowing money from foreign
sources. What I refer to is that foreign interest should be allowed to participate only to the extent
that they lend us money and give us technical assistance with the appropriate government
permit. In this way, we can insure the enjoyment of our natural resources by our own people.
MR. VILLEGAS. Actually, the second provision about the President does not permit foreign
investors to participate. It is only technical or financial assistance they do not own anything
but on conditions that have to be determined by law with the concurrence of Congress. So, it is
very restrictive.
If the Commissioner will remember, this removes the possibility for service contracts which we
said yesterday were avenues used in the previous regime to go around the 60-40
requirement.238 [Emphasis supplied.]
The present Chief Justice, then a member of the CONCOM, also referred to this limitation in scope
in proposing an amendment to the 60-40 requirement:
MR. DAVIDE. May I be allowed to explain the proposal?
MR. MAAMBONG. Subject to the three-minute rule, Madam President.
MR. DAVIDE. It will not take three minutes.
The Commission had just approved the Preamble. In the Preamble we clearly stated that the
Filipino people are sovereign and that one of the objectives for the creation or establishment of a
government is to conserve and develop the national patrimony. The implication is that the
national patrimony or our natural resources are exclusively reserved for the Filipino people. No
alien must be allowed to enjoy, exploit and develop our natural resources. As a matter of fact,
that principle proceeds from the fact that our natural resources are gifts from God to the Filipino
people and it would be a breach of that special blessing from God if we will allow aliens to exploit
our natural resources.
I voted in favor of the Jamir proposal because it is not really exploitation that we granted to the
alien corporations but only for them to render financial or technical assistance. It is not for them
to enjoy our natural resources. Madam President, our natural resources are depleting; our
population is increasing by leaps and bounds. Fifty years from now, if we will allow these aliens to
exploit our natural resources, there will be no more natural resources for the next generations of
Filipinos. It may last long if we will begin now. Since 1935 the aliens have been allowed to enjoy to
a certain extent the exploitation of our natural resources, and we became victims of foreign
dominance and control. The aliens are interested in coming to the Philippines because they would
like to enjoy the bounty of nature exclusively intended for Filipinos by God.
And so I appeal to all, for the sake of the future generations, that if we have to pray in the
Preamble "to preserve and develop the national patrimony for the sovereign Filipino people and

for the generations to come," we must at this time decide once and for all that our natural
resources must be reserved only to Filipino citizens.
Thank you.239 [Emphasis supplied.]
The opinion of another member of the CONCOM is persuasive 240 and leaves no doubt as to the
intention of the framers to eliminate service contracts altogether. He writes:
Paragraph 4 of Section 2 specifies large-scale, capital-intensive, highly technological undertakings
for which the President may enter into contracts with foreign-owned corporations, and enunciates
strict conditions that should govern such contracts. x x x.
This provision balances the need for foreign capital and technology with the need to maintain the
national sovereignty. It recognizes the fact that as long as Filipinos can formulate their own terms
in their own territory, there is no danger of relinquishing sovereignty to foreign interests.
Are service contracts allowed under the new Constitution? No. Under the new Constitution, foreign
investors (fully alien-owned) can NOT participate in Filipino enterprises except to provide: (1)
Technical Assistance for highly technical enterprises; and (2) Financial Assistance for large-scale
enterprises.
The intent of this provision, as well as other provisions on foreign investments, is to prevent the
practice (prevalent in the Marcos government) of skirting the 60/40 equation using the cover of
service contracts.241[Emphasis supplied.]
Furthermore, it appears that Proposed Resolution No. 496,242 which was the draft Article on
National Economy and Patrimony, adopted the concept of "agreements . . . involving either
technical or financial assistance" contained in the "Draft of the 1986 U.P. Law Constitution Project"
(U.P. Law draft) which was taken into consideration during the deliberation of the CONCOM. 243 The
former, as well as Article XII, as adopted, employed the same terminology, as the comparative
table below shows:

DRAFT OF THE UP LAW

CONSTITUTION PROJECT

PROPOSED RESOLUTION
NO.
496
OF
THE
CONSTITUTIONAL
COMMISSION

ARTICLE XII OF THE 1987

CONSTITUTION

Sec. 1. All lands of the

public domain, waters,
minerals,
coal,
petroleum
and
other
mineral oils, all forces of
potential
energy,
fisheries, flora and fauna
and
other
natural
resources
of
the
Philippines are owned by
the State. With the
exception of agricultural
lands, all other natural
resources shall not be
alienated.
The
exploration,

Sec. 3. All lands of the

public domain, waters,
minerals,
coal,
petroleum
and
other
mineral oils, all forces of
potential
energy,
fisheries, forests, 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

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.
Such activities may be
directly undertaken by
the state, or it may enter
into co-production, joint
venture,
production
sharing agreements with
Filipino
citizens
or
corporations
or
associations sixty per
cent of whose voting
stock
or
controlling
interest is owned by
such citizens for a period
of not more than twentyfive years, renewable for
not more than twentyfive years and under
such
terms
and
conditions as may be
provided by law. In case
as to 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 National Assembly
may by law allow small
scale
utilization
of
natural
resources
by
Filipino citizens.
The National Assembly,
may, by two-thirds vote
of all its members by
special law provide the
terms and conditions
under which a foreignowned corporation may
enter into agreements
with the government
involving either
technical or financial

utilization
of
natural
resources shall be under
the full control and
supervision of the State.
Such activities may be
directly undertaken by
the State, or it may enter
into co-production, joint
venture,
productionsharing agreements with
Filipino
citizens
or
corporations
or
associations
at
least
sixty per cent of whose
voting
stock
or
controlling interest is
owned by such citizens.
Such agreements shall
be for a period of
twenty-five
years,
renewable for not more
than twenty-five years,
and under such term 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 for water
power, beneficial use
may be the measure and
limit of the grant.
The Congress may by
law allow small-scale
utilization
of
natural
resources
by
Filipino
citizens, as well as
cooperative fish farming
in rivers, lakes, bays,
and lagoons.
The President with the
concurrence of Congress,
by special law, shall
provide the terms and
conditions under which a
foreign-owned
corporation may enter
into agreements with the

development,
and
utilization
of
natural
resources shall be under
the full control and
supervision of the State.
The State may directly
undertake such activities
or it may enter into coproduction, joint venture,
or
production-sharing
agreements with Filipino
citizens, or corporations
or associations at least
sixty per centum of
whose capital is owned
by such citizens. Such
agreements may be for a
period not exceeding
twenty-five
years,
renewable for not more
than twenty-five years,
and under such terms
and conditions as may
be provided by law. In
case of water rights for
irrigation, water supply,
fisheries, or industrial
uses other than the
development of water
power, beneficial use
may be the measure and
limit of the grant.
The State shall protect
the
nation's
marine
wealth in its archipelagic
waters, territorial sea,
and exclusive economic
zone, and reserve its use
and
enjoyment
exclusively to Filipino
citizens.
The Congress may, by
law, allow small-scale
utilization
of
natural
resources
by
Filipino
citizens, as well as
cooperative fish farming,
with
priority
to
subsistence
fishermen

assistance for
largescale
exploration,
development,
or
utilization
of
natural
resources.
[Emphasis
supplied.]

government
involving either
technical or financial
assistance for
largescale
exploration,
development,
and
utilization
of
natural
resources.
[Emphasis
supplied.]

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
largescale
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.
[Emphasis supplied.]
The President shall notify
the Congress of every
contract entered into in
accordance
with
this
provision, within thirty
days from its execution.

The insights of the proponents of the U.P. Law draft are, therefore, instructive in interpreting the
phrase "technical or financial assistance."
In his position paper entitled Service Contracts: Old Wine in New Bottles?, Professor Pacifico A.
Agabin, who was a member of the working group that prepared the U.P. Law draft, criticized
service contracts for they "lodge exclusive management and control of the enterprise to the
service contractor, which is reminiscent of the old concession regime. Thus, notwithstanding the
provision of the Constitution that natural resources belong to the State, and that these shall not
be alienated, the service contract system renders nugatory the constitutional provisions
cited."244 He elaborates:
Looking at the Philippine model, we can discern the following vestiges of the concession regime,
thus:

1. Bidding of a selected area, or leasing the choice of the area to the interested party
and then negotiating the terms and conditions of the contract; (Sec. 5, P.D. 87)
2. Management of the enterprise vested on the contractor, including operation of the
field if petroleum is discovered; (Sec. 8, P.D. 87)
3. Control of production and other matters such as expansion and development; (Sec. 8)
4. Responsibility for downstream operations marketing, distribution, and processing
may be with the contractor (Sec. 8);
5. Ownership of equipment, machinery, fixed assets, and other properties remain with
contractor (Sec. 12, P.D. 87);
6. Repatriation of capital and retention of profits abroad guaranteed to the contractor
(Sec. 13, P.D. 87); and
7. While title to the petroleum discovered may nominally be in the name of the
government, the contractor has almost unfettered control over its disposition and sale,
and even the domestic requirements of the country is relegated to a pro rata basis (Sec.
8).
In short, our version of the service contract is just a rehash of the old concession regime x x x.
Some people have pulled an old rabbit out of a magician's hat, and foisted it upon us as a new
and different animal.
The service contract as we know it here is antithetical to the principle of sovereignty over our
natural resources restated in the same article of the [1973] Constitution containing the provision
for service contracts. If the service contractor happens to be a foreign corporation, the contract
would also run counter to the constitutional provision on nationalization or Filipinization, of the
exploitation of our natural resources.245 [Emphasis supplied. Underscoring in the original.]
Professor Merlin M. Magallona, also a member of the working group, was harsher in his reproach
of the system:
x x x the nationalistic phraseology of the 1935 [Constitution] was retained by the [1973] Charter,
but the essence of nationalism was reduced to hollow rhetoric. The 1973 Charter still provided
that the exploitation or development of the country's natural resources be limited to Filipino
citizens or corporations owned or controlled by them. However, the martial-law Constitution
allowed them, once these resources are in their name, to enter into service contracts with foreign
investors for financial, technical, management, or other forms of assistance. Since foreign
investors have the capital resources, the actual exploitation and development, as well as the
effective disposition, of the country's natural resources, would be under their direction, and
control, relegating the Filipino investors to the role of second-rate partners in joint ventures.
Through the instrumentality of the service contract, the 1973 Constitution had legitimized at the
highest level of state policy that which was prohibited under the 1973 Constitution, namely: the
exploitation of the country's natural resources by foreign nationals. The drastic impact of [this]
constitutional change becomes more pronounced when it is considered that the active party to
any service contract may be a corporation wholly owned by foreign interests. In such a case, the
citizenship requirement is completely set aside, permitting foreign corporations to obtain actual
possession, control, and [enjoyment] of the country's natural resources. 246[Emphasis supplied.]
Accordingly, Professor Agabin recommends that:
Recognizing the service contract for what it is, we have to expunge it from the Constitution and
reaffirm ownership over our natural resources. That is the only way we can exercise effective
control over our natural resources.
This should not mean complete isolation of the country's natural resources from foreign
investment. Other contract forms which are less derogatory to our sovereignty and control over
natural resources like technical assistance agreements, financial assistance [agreements], coproduction agreements, joint ventures, production-sharing could still be utilized and adopted
without violating constitutional provisions. In other words, we can adopt contract forms which
recognize and assert our sovereignty and ownership over natural resources, and where the
foreign entity is just a pure contractor instead of the beneficial owner of our economic
resources.247[Emphasis supplied.]

Still another member of the working group, Professor Eduardo Labitag, proposed that:
2. Service contracts as practiced under the 1973 Constitution should be discouraged, instead the
government may be allowed, subject to authorization by special law passed by an extraordinary
majority to enter into either technical or financial assistance. This is justified by the fact that as
presently worded in the 1973 Constitution, a service contract gives full control over the contract
area to the service contractor, for him to work, manage and dispose of the proceeds or
production. It was a subterfuge to get around the nationality requirement of the
constitution.248 [Emphasis supplied.]
In the annotations on the proposed Article on National Economy and Patrimony, the U.P. Law draft
summarized the rationale therefor, thus:
5. The last paragraph is a modification of the service contract provision found in Section 9, Article
XIV of the 1973 Constitution as amended. This 1973 provision shattered the framework of
nationalism in our fundamental law (see Magallona, "Nationalism and its Subversion in the
Constitution"). Through the service contract, the 1973 Constitution had legitimized that which was
prohibited under the 1935 constitutionthe exploitation of the country's natural resources by
foreign nationals. Through the service contract, acts prohibited by the Anti-Dummy Law were
recognized as legitimate arrangements. Service contracts lodge exclusive management and
control of the enterprise to the service contractor, not unlike the old concession regime where the
concessionaire had complete control over the country's natural resources, having been given
exclusive and plenary rights to exploit a particular resource and, in effect, having been assured of
ownership of that resource at the point of extraction (see Agabin, "Service Contracts: Old Wine in
New Bottles"). Service contracts, hence, are antithetical to the principle of sovereignty over our
natural resources, as well as the constitutional provision on nationalization or Filipinization of the
exploitation of our natural resources.
Under the proposed provision, only technical assistance or financial assistance agreements may
be entered into, and only for large-scale activities. These are contract forms which recognize and
assert our sovereignty and ownership over natural resources since the foreign entity is just a pure
contractor and not a beneficial owner of our economic resources. The proposal recognizes the
need for capital and technology to develop our natural resources without sacrificing our
sovereignty and control over such resources by the safeguard of a special law which requires twothirds vote of all the members of the Legislature. This will ensure that such agreements will be
debated upon exhaustively and thoroughly in the National Assembly to avert prejudice to the
nation.249[Emphasis supplied.]
The U.P. Law draft proponents viewed service contracts under the 1973 Constitution as grants of
beneficial ownership of the country's natural resources to foreign owned corporations. While, in
theory, the State owns these natural resources and Filipino citizens, their beneficiaries service
contracts actually vested foreigners with the right to dispose, explore for, develop, exploit, and
utilize the same. Foreigners, not Filipinos, became the beneficiaries of Philippine natural
resources. This arrangement is clearly incompatible with the constitutional ideal of nationalization
of natural resources, with the Regalian doctrine, and on a broader perspective, with Philippine
sovereignty.
The proponents nevertheless acknowledged the need for capital and technical know-how in the
large-scale exploitation, development and utilization of natural resources the second paragraph
of the proposed draft itself being an admission of such scarcity. Hence, they recommended a
compromise to reconcile the nationalistic provisions dating back to the 1935 Constitution, which
reserved all natural resources exclusively to Filipinos, and the more liberal 1973 Constitution,
which allowed foreigners to participate in these resources through service contracts. Such a
compromise called for the adoption of a new system in the exploration, development, and
utilization of natural resources in the form of technical agreements or financial agreements which,
necessarily, are distinct concepts from service contracts.
The replacement of "service contracts" with "agreements involving either technical or financial
assistance," as well as the deletion of the phrase "management or other forms of assistance,"
assumes greater significance when note is taken that the U.P. Law draft proposed other equally

crucial changes that were obviously heeded by the CONCOM. These include the abrogation of the
concession system and the adoption of new "options" for the State in the exploration,
development, and utilization of natural resources. The proponents deemed these changes to be
more consistent with the State's ownership of, and its "full control and supervision" (a phrase also
employed by the framers) over, such resources. The Project explained:
3. In line with the State ownership of natural resources, the State should take a more active role in
the exploration, development, and utilization of natural resources, than the present practice of
granting licenses, concessions, or leases hence the provision that said activities shall be under
the full control and supervision of the State. There are three major schemes by which the State
could undertake these activities: first, directly by itself; second, by virtue of co-production, joint
venture, production sharing agreements with Filipino citizens or corporations or associations sixty
per cent (60%) of the voting stock or controlling interests of which are owned by such citizens; or
third, with a foreign-owned corporation, in cases of large-scale exploration, development, or
utilization of natural resources through agreements involving either technical or financial
assistance only. x x x.
At present, under the licensing concession or lease schemes, the government benefits from such
benefits only through fees, charges, ad valorem taxes and income taxes of the exploiters of our
natural resources. Such benefits are very minimal compared with the enormous profits reaped by
theses licensees, grantees, concessionaires. Moreover, some of them disregard the conservation
of natural resources and do not protect the environment from degradation. The proposed role of
the State will enable it to a greater share in the profits it can also actively husband its natural
resources and engage in developmental programs that will be beneficial to them.
4. Aside from the three major schemes for the exploration, development, and utilization of our
natural resources, the State may, by law, allow Filipino citizens to explore, develop, utilize natural
resources in small-scale. This is in recognition of the plight of marginal fishermen, forest dwellers,
gold panners, and others similarly situated who exploit our natural resources for their daily
sustenance and survival.250
Professor Agabin, in particular, after taking pains to illustrate the similarities between the two
systems, concluded that the service contract regime was but a "rehash" of the concession
system. "Old wine in new bottles," as he put it. The rejection of the service contract regime,
therefore, is in consonance with the abolition of the concession system.
In light of the deliberations of the CONCOM, the text of the Constitution, and the adoption of other
proposed changes, there is no doubt that the framers considered and shared the intent of the U.P.
Law proponents in employing the phrase "agreements . . . involving either technical or financial
assistance."
While certain commissioners may have mentioned the term "service contracts" during the
CONCOM deliberations, they may not have been necessarily referring to the concept of service
contracts under the 1973 Constitution. As noted earlier, "service contracts" is a term that
assumes different meanings to different people. 251 The commissioners may have been using the
term loosely, and not in its technical and legal sense, to refer, in general, to agreements
concerning natural resources entered into by the Government with foreign corporations. These
loose statements do not necessarily translate to the adoption of the 1973 Constitution provision
allowing service contracts.
It is true that, as shown in the earlier quoted portions of the proceedings in CONCOM, in response
to Sr. Tan's question, Commissioner Villegas commented that, other than congressional
notification, the only difference between "future" and "past" "service contracts" is the
requirement of a general law as there were no laws previously authorizing the same. 252 However,
such remark is far outweighed by his more categorical statement in his exchange with
Commissioner Quesada that the draft article "does not permit foreign investors to participate" in
the nation's natural resources which was exactly what service contracts did except to provide
"technical or financial assistance." 253
In the case of the other commissioners, Commissioner Nolledo himself clarified in his work that
the present charter prohibits service contracts. 254 Commissioner Gascon was not totally averse to

foreign participation, but favored stricter restrictions in the form of majority congressional
concurrence.255 On the other hand, Commissioners Garcia and Tadeo may have veered to the
extreme side of the spectrum and their objections may be interpreted as votes against any
foreign participation in our natural resources whatsoever.
WMCP cites Opinion No. 75, s. 1987,256 and Opinion No. 175, s. 1990257 of the Secretary of Justice,
expressing the view that a financial or technical assistance agreement "is no different in concept"
from the service contract allowed under the 1973 Constitution. This Court is not, however, bound
by this interpretation. When an administrative or executive agency renders an opinion or issues a
statement of policy, it merely interprets a pre-existing law; and the administrative interpretation
of the law is at best advisory, for it is the courts that finally determine what the law means. 258
In any case, the constitutional provision allowing the President to enter into FTAAs with foreignowned corporations is an exception to the rule that participation in the nation's natural resources
is reserved exclusively to Filipinos. Accordingly, such provision must be construed strictly against
their enjoyment by non-Filipinos. As Commissioner Villegas emphasized, the provision is "very
restrictive."259 Commissioner Nolledo also remarked that "entering into service contracts is an
exception to the rule on protection of natural resources for the interest of the nation and,
therefore, being an exception, it should be subject, whenever possible, to stringent
rules."260Indeed, exceptions should be strictly but reasonably construed; they extend only so far
as their language fairly warrants and all doubts should be resolved in favor of the general
provision rather than the exception.261
With the foregoing discussion in mind, this Court finds that R.A. No. 7942 is invalid insofar as said
Act authorizes service contracts. Although the statute employs the phrase "financial and technical
agreements" in accordance with the 1987 Constitution, it actually treats these agreements as
service contracts that grant beneficial ownership to foreign contractors contrary to the
fundamental law.
Section 33, which is found under Chapter VI (Financial or Technical Assistance Agreement) of R.A.
No. 7942 states:
SEC. 33. Eligibility.Any qualified person with technical and financial capability to undertake
large-scale exploration, development, and utilization of mineral resources in the Philippines may
enter into a financial or technical assistance agreement directly with the Government through the
Department. [Emphasis supplied.]
"Exploration," as defined by R.A. No. 7942,
means the searching or prospecting for mineral resources by geological, geochemical or
geophysical surveys, remote sensing, test pitting, trending, drilling, shaft sinking, tunneling or any
other means for the purpose of determining the existence, extent, quantity and quality thereof
and the feasibility of mining them for profit.262
A legally organized foreign-owned corporation may be granted an exploration permit, 263 which
vests it with the right to conduct exploration for all minerals in specified areas, 264 i.e., to enter,
occupy and explore the same.265Eventually, the foreign-owned corporation, as such permittee,
may apply for a financial and technical assistance agreement.266
"Development" is the work undertaken to explore and prepare an ore body or a mineral deposit
for mining, including the construction of necessary infrastructure and related facilities. 267
"Utilization" "means the extraction or disposition of minerals." 268 A stipulation that the proponent
shall dispose of the minerals and byproducts produced at the highest price and more
advantageous terms and conditions as provided for under the implementing rules and regulations
is required to be incorporated in every FTAA. 269
A foreign-owned/-controlled corporation may likewise be granted a mineral processing
permit.270 "Mineral processing" is the milling, beneficiation or upgrading of ores or minerals and
rocks or by similar means to convert the same into marketable products. 271
An FTAA contractor makes a warranty that the mining operations shall be conducted in
accordance with the provisions of R.A. No. 7942 and its implementing rules 272 and for work
programs and minimum expenditures and commitments. 273 And it obliges itself to furnish the
Government records of geologic, accounting, and other relevant data for its mining operation. 274

"Mining operation," as the law defines it, means mining activities involving exploration, feasibility,
development, utilization, and processing.275
The underlying assumption in all these provisions is that the foreign contractor manages the
mineral resources, just like the foreign contractor in a service contract.
Furthermore, Chapter XII of the Act grants foreign contractors in FTAAs the same auxiliary mining
rights that it grants contractors in mineral agreements (MPSA, CA and JV). 276 Parenthetically,
Sections 72 to 75 use the term "contractor," without distinguishing between FTAA and mineral
agreement contractors. And so does "holders of mining rights" in Section 76. A foreign contractor
may even convert its FTAA into a mineral agreement if the economic viability of the contract area
is found to be inadequate to justify large-scale mining operations, 277provided that it reduces its
equity in the corporation, partnership, association or cooperative to forty percent (40%). 278
Finally, under the Act, an FTAA contractor warrants that it "has or has access to all the financing,
managerial, and technical expertise. . . ." 279 This suggests that an FTAA contractor is bound to
provide some management assistance a form of assistance that has been eliminated and,
therefore, proscribed by the present Charter.
By allowing foreign contractors to manage or operate all the aspects of the mining operation, the
above-cited provisions of R.A. No. 7942 have in effect conveyed beneficial ownership over the
nation's mineral resources to these contractors, leaving the State with nothing but bare title
thereto.
Moreover, the same provisions, whether by design or inadvertence, permit a circumvention of the
constitutionally ordained 60%-40% capitalization requirement for corporations or associations
engaged in the exploitation, development and utilization of Philippine natural resources.
In sum, the Court finds the following provisions of R.A. No. 7942 to be violative of Section 2,
Article XII of the Constitution:
(1) The proviso in Section 3 (aq), which defines "qualified person," to wit:
Provided, That a legally organized foreign-owned corporation shall be deemed a qualified
person for purposes of granting an exploration permit, financial or technical assistance
agreement or mineral processing permit.
(2) Section 23,280 which specifies the rights and obligations of an exploration permittee,
insofar as said section applies to a financial or technical assistance agreement,
(3) Section 33, which prescribes the eligibility of a contractor in a financial or technical
assistance agreement;
(4) Section 35,281 which enumerates the terms and conditions for every financial or
technical assistance agreement;
(5) Section 39,282 which allows the contractor in a financial and technical assistance
agreement to convert the same into a mineral production-sharing agreement;
(6) Section 56,283 which authorizes the issuance of a mineral processing permit to a
contractor in a financial and technical assistance agreement;
The following provisions of the same Act are likewise void as they are dependent on the foregoing
provisions and cannot stand on their own:
(1) Section 3 (g),284 which defines the term "contractor," insofar as it applies to a
financial or technical assistance agreement.
Section 34,285 which prescribes the maximum contract area in a financial or technical
assistance agreements;
Section 36,286 which allows negotiations for financial or technical assistance agreements;
Section 37,287 which prescribes the procedure for filing and evaluation of financial or
technical assistance agreement proposals;
Section 38,288 which limits the term of financial or technical assistance agreements;
Section 40,289 which allows the assignment or transfer of financial or technical assistance
agreements;
Section 41,290 which allows the withdrawal of the contractor in an FTAA;
The second and third paragraphs of Section 81, 291 which provide for the Government's
share in a financial and technical assistance agreement; and

Section 90,292 which provides for incentives to contractors in FTAAs insofar as it applies to
said contractors;
When the parts of the statute are so mutually dependent and connected as conditions,
considerations, inducements, or compensations for each other, as to warrant a belief that the
legislature intended them as a whole, and that if all could not be carried into effect, the legislature
would not pass the residue independently, then, if some parts are unconstitutional, all the
provisions which are thus dependent, conditional, or connected, must fall with them. 293
There can be little doubt that the WMCP FTAA itself is a service contract.
Section 1.3 of the WMCP FTAA grants WMCP "the exclusive right to explore, exploit, utilise[,]
process and dispose of all Minerals products and by-products thereof that may be produced from
the Contract Area."294 The FTAA also imbues WMCP with the following rights:
(b) to extract and carry away any Mineral samples from the Contract area for the
purpose of conducting tests and studies in respect thereof;
(c) to determine the mining and treatment processes to be utilised during the
Development/Operating Period and the project facilities to be constructed during the
Development and Construction Period;
(d) have the right of possession of the Contract Area, with full right of ingress and egress
and the right to occupy the same, subject to the provisions of Presidential Decree No.
512 (if applicable) and not be prevented from entry into private ands by surface owners
and/or occupants thereof when prospecting, exploring and exploiting for minerals
therein;
xxx
(f) to construct roadways, mining, drainage, power generation and transmission facilities
and all other types of works on the Contract Area;
(g) to erect, install or place any type of improvements, supplies, machinery and other
equipment relating to the Mining Operations and to use, sell or otherwise dispose of,
modify, remove or diminish any and all parts thereof;
(h) enjoy, subject to pertinent laws, rules and regulations and the rights of third Parties,
easement rights and the use of timber, sand, clay, stone, water and other natural
resources in the Contract Area without cost for the purposes of the Mining Operations;
xxx
(i) have the right to mortgage, charge or encumber all or part of its interest and
obligations under this Agreement, the plant, equipment and infrastructure and the
Minerals produced from the Mining Operations;
x x x. 295
All materials, equipment, plant and other installations erected or placed on the Contract Area
remain the property of WMCP, which has the right to deal with and remove such items within
twelve months from the termination of the FTAA. 296
Pursuant to Section 1.2 of the FTAA, WMCP shall provide "[all] financing, technology, management
and personnel necessary for the Mining Operations." The mining company binds itself to "perform
all Mining Operations . . . providing all necessary services, technology and financing in connection
therewith,"297 and to "furnish all materials, labour, equipment and other installations that may be
required for carrying on all Mining Operations." 298> WMCP may make expansions, improvements
and replacements of the mining facilities and may add such new facilities as it considers
necessary for the mining operations.299
These contractual stipulations, taken together, grant WMCP beneficial ownership over natural
resources that properly belong to the State and are intended for the benefit of its citizens. These
stipulations are abhorrent to the 1987 Constitution. They are precisely the vices that the
fundamental law seeks to avoid, the evils that it aims to suppress. Consequently, the contract
from which they spring must be struck down.
In arguing against the annulment of the FTAA, WMCP invokes the Agreement on the Promotion
and Protection of Investments between the Philippine and Australian Governments, which was
signed in Manila on January 25, 1995 and which entered into force on December 8, 1995.

x x x. Article 2 (1) of said treaty states that it applies to investments whenever made and thus the
fact that [WMCP's] FTAA was entered into prior to the entry into force of the treaty does not
preclude the Philippine Government from protecting [WMCP's] investment in [that] FTAA. Likewise,
Article 3 (1) of the treaty provides that "Each Party shall encourage and promote investments in
its area by investors of the other Party and shall [admit] such investments in accordance with its
Constitution, Laws, regulations and investment policies" and in Article 3 (2), it states that "Each
Party shall ensure that investments are accorded fair and equitable treatment." The latter
stipulation indicates that it was intended to impose an obligation upon a Party to afford fair and
equitable treatment to the investments of the other Party and that a failure to provide such
treatment by or under the laws of the Party may constitute a breach of the treaty. Simply stated,
the Philippines could not, under said treaty, rely upon the inadequacies of its own laws to deprive
an Australian investor (like [WMCP]) of fair and equitable treatment by invalidating [WMCP's] FTAA
without likewise nullifying the service contracts entered into before the enactment of RA 7942
such as those mentioned in PD 87 or EO 279.
This becomes more significant in the light of the fact that [WMCP's] FTAA was executed not by a
mere Filipino citizen, but by the Philippine Government itself, through its President no less, which,
in entering into said treaty is assumed to be aware of the existing Philippine laws on service
contracts over the exploration, development and utilization of natural resources. The execution of
the FTAA by the Philippine Government assures the Australian Government that the FTAA is in
accordance with existing Philippine laws.300 [Emphasis and italics by private respondents.]
The invalidation of the subject FTAA, it is argued, would constitute a breach of said treaty which,
in turn, would amount to a violation of Section 3, Article II of the Constitution adopting the
generally accepted principles of international law as part of the law of the land. One of these
generally accepted principles is pacta sunt servanda, which requires the performance in good
faith of treaty obligations.
Even assuming arguendo that WMCP is correct in its interpretation of the treaty and its assertion
that "the Philippines could not . . . deprive an Australian investor (like [WMCP]) of fair and
equitable treatment by invalidating [WMCP's] FTAA without likewise nullifying the service
contracts entered into before the enactment of RA 7942 . . .," the annulment of the FTAA would
not constitute a breach of the treaty invoked. For this decision herein invalidating the subject
FTAA forms part of the legal system of the Philippines.301 The equal protection
clause302 guarantees that such decision shall apply to all contracts belonging to the same class,
hence, upholding rather than violating, the "fair and equitable treatment" stipulation in said
treaty.
One other matter requires clarification. Petitioners contend that, consistent with the provisions of
Section 2, Article XII of the Constitution, the President may enter into agreements involving
"either technical or financial assistance" only. The agreement in question, however, is a technical
and financial assistance agreement.
Petitioners' contention does not lie. To adhere to the literal language of the Constitution would
lead to absurd consequences.303 As WMCP correctly put it:
x x x such a theory of petitioners would compel the government (through the President) to enter
into contract with two (2) foreign-owned corporations, one for financial assistance agreement and
with the other, for technical assistance over one and the same mining area or land; or to execute
two (2) contracts with only one foreign-owned corporation which has the capability to provide
both financial and technical assistance, one for financial assistance and another for technical
assistance, over the same mining area. Such an absurd result is definitely not sanctioned under
the canons of constitutional construction.304 [Underscoring in the original.]
Surely, the framers of the 1987 Charter did not contemplate such an absurd result from their use
of "either/or." A constitution is not to be interpreted as demanding the impossible or the
impracticable; and unreasonable or absurd consequences, if possible, should be avoided. 305 Courts
are not to give words a meaning that would lead to absurd or unreasonable consequences and a
literal interpretation is to be rejected if it would be unjust or lead to absurd results. 306 That is a
strong argument against its adoption.307 Accordingly, petitioners' interpretation must be rejected.

The foregoing discussion has rendered unnecessary the resolution of the other issues raised by
the petition.
WHEREFORE, the petition is GRANTED. The Court hereby declares unconstitutional and void:
(1) The following provisions of Republic Act No. 7942:
(a) The proviso in Section 3 (aq),
(b) Section 23,
(c) Section 33 to 41,
(d) Section 56,
(e) The second and third paragraphs of Section 81, and
(f) Section 90.
(2) All provisions of Department of Environment and Natural Resources Administrative
Order 96-40, s. 1996 which are not in conformity with this Decision, and
(3) The Financial and Technical Assistance Agreement between the Government of the
Republic of the Philippines and WMC Philippines, Inc.
SO ORDERED.
G.R. No. 127882
December 1, 2004
LA BUGAL-B'LAAN TRIBAL ASSOCIATION, INC., Represented by its Chairman F'LONG
MIGUEL M. LUMAYONG; WIGBERTO E. TAADA; PONCIANO BENNAGEN; JAIME TADEO;
RENATO R. CONSTANTINO JR.; F'LONG AGUSTIN M. DABIE; ROBERTO P. AMLOY; RAQIM L.
DABIE; SIMEON H. DOLOJO; IMELDA M. GANDON; LENY B. GUSANAN; MARCELO L.
GUSANAN; QUINTOL A. LABUAYAN; LOMINGGES D. LAWAY; BENITA P. TACUAYAN; Minors
JOLY L. BUGOY, Represented by His Father UNDERO D. BUGOY and ROGER M. DADING;
Represented by His Father ANTONIO L. DADING; ROMY M. LAGARO, Represented by His
Father TOTING A. LAGARO; MIKENY JONG B. LUMAYONG, Represented by His Father
MIGUEL M. LUMAYONG; RENE T. MIGUEL, Represented by His Mother EDITHA T. MIGUEL;
ALDEMAR L. SAL, Represented by His Father DANNY M. SAL; DAISY RECARSE,
Represented by Her Mother LYDIA S. SANTOS; EDWARD M. EMUY; ALAN P. MAMPARAIR;
MARIO L. MANGCAL; ALDEN S. TUSAN; AMPARO S. YAP; VIRGILIO CULAR; MARVIC M.V.F.
LEONEN; JULIA REGINA CULAR, GIAN CARLO CULAR, VIRGILIO CULAR JR., Represented
by Their Father VIRGILIO CULAR; PAUL ANTONIO P. VILLAMOR, Represented by His
Parents JOSE VILLAMOR and ELIZABETH PUA-VILLAMOR; ANA GININA R. TALJA,
Represented by Her Father MARIO JOSE B. TALJA; SHARMAINE R. CUNANAN,
Represented by Her Father ALFREDO M. CUNANAN; ANTONIO JOSE A. VITUG III,
Represented by His Mother ANNALIZA A. VITUG, LEAN D. NARVADEZ, Represented by
His Father MANUEL E. NARVADEZ JR.; ROSERIO MARALAG LINGATING, Represented by
Her Father RIO OLIMPIO A. LINGATING; MARIO JOSE B. TALJA; DAVID E. DE VERA; MARIA
MILAGROS L. SAN JOSE; Sr. SUSAN O. BOLANIO, OND; LOLITA G. DEMONTEVERDE;
BENJIE L. NEQUINTO;1 ROSE LILIA S. ROMANO; ROBERTO S. VERZOLA; EDUARDO
AURELIO C. REYES; LEAN LOUEL A. PERIA, Represented by His Father ELPIDIO V.
PERIA;2 GREEN FORUM PHILIPPINES; GREEN FORUM WESTERN VISAYAS (GF-WV);
ENVIRONMENTAL LEGAL ASSISTANCE CENTER (ELAC); KAISAHAN TUNGO SA
KAUNLARAN
NG
KANAYUNAN
AT
REPORMANG
PANSAKAHAN
(KAISAHAN);3 PARTNERSHIP FOR AGRARIAN REFORM and RURAL DEVELOPMENT
SERVICES, INC. (PARRDS); PHILIPPINE PARTNERSHIP FOR THE DEVELOPMENT OF
HUMAN RESOURCES IN THE RURAL AREAS, INC. (PHILDHRRA); WOMEN'S LEGAL
BUREAU (WLB); CENTER FOR ALTERNATIVE DEVELOPMENT INITIATIVES, INC. (CADI);
UPLAND DEVELOPMENT INSTITUTE (UDI); KINAIYAHAN FOUNDATION, INC.; SENTRO NG
ALTERNATIBONG LINGAP PANLIGAL (SALIGAN); and LEGAL RIGHTS AND NATURAL
RESOURCES
CENTER,
INC.
(LRC), petitioners,
vs.
VICTOR O. RAMOS, Secretary, Department of Environment and Natural Resources

(DENR); HORACIO RAMOS, Director, Mines and Geosciences Bureau (MGB-DENR);

RUBEN TORRES, Executive Secretary; and WMC (PHILIPPINES), INC., 4 respondents.

RESOLUTION

PANGANIBAN, J.:
All mineral resources are owned by the State. Their exploration, development and utilization
(EDU) must always be subject to the full control and supervision of the State. More specifically,
given the inadequacy of Filipino capital and technology in large-scale EDU activities, the State
may secure the help of foreign companies in all relevant matters -- especially financial and
technical assistance -- provided that, at all times, the State maintains its right of full control. The
foreign assistor or contractor assumes all financial, technical and entrepreneurial risks in the EDU
activities; hence, it may be given reasonable management, operational, marketing, audit and
other prerogatives to protect its investments and to enable the business to succeed.
Full control is not anathematic to day-to-day management by the contractor, provided that the
State retains the power to direct overall strategy; and to set aside, reverse or modify plans and
actions of the contractor. The idea of full control is similar to that which is exercised by the board
of directors of a private corporation: the performance of managerial, operational, financial,
marketing and other functions may be delegated to subordinate officers or given to contractual
entities, but the board retains full residual control of the business.
Who or what organ of government actually exercises this power of control on behalf of the State?
The Constitution is crystal clear: the President. Indeed, the Chief Executive is the official
constitutionally mandated to "enter into agreements with foreign owned corporations." On the
other hand, Congress may review the action of the President once it is notified of "every contract
entered into in accordance with this [constitutional] provision within thirty days from its
execution." In contrast to this express mandate of the President and Congress in the EDU of
natural resources, Article XII of the Constitution is silent on the role of the judiciary. However,
should the President and/or Congress gravely abuse their discretion in this regard, the courts may
-- in a proper case -- exercise their residual duty under Article VIII. Clearly then, the judiciary
should not inordinately interfere in the exercise of this presidential power of control over the EDU
of our natural resources.
The Constitution should be read in broad, life-giving strokes. It should not be used to strangulate
economic growth or to serve narrow, parochial interests. Rather, it should be construed to grant
the President and Congress sufficient discretion and reasonable leeway to enable them to attract
foreign investments and expertise, as well as to secure for our people and our posterity the
blessings of prosperity and peace.
On the basis of this control standard, this Court upholds the constitutionality of the Philippine
Mining Law, its Implementing Rules and Regulations -- insofar as they relate to financial and
technical agreements -- as well as the subject Financial and Technical Assistance Agreement
(FTAA).5
Background
The Petition for Prohibition and Mandamus before the Court challenges the constitutionality of (1)
Republic Act No. [RA] 7942 (The Philippine Mining Act of 1995); (2) its Implementing Rules and
Regulations (DENR Administrative Order No. [DAO] 96-40); and (3) the FTAA dated March 30,
1995,6 executed by the government with Western Mining Corporation (Philippines), Inc. (WMCP). 7
On January 27, 2004, the Court en banc promulgated its Decision8 granting the Petition and
declaring the unconstitutionality of certain provisions of RA 7942, DAO 96-40, as well as of the
entire FTAA executed between the government and WMCP, mainly on the finding that FTAAs
are service contracts prohibited by the 1987 Constitution.
The Decision struck down the subject FTAA for being similar to service contracts, 9 which, though
permitted under the 1973 Constitution, 10 were subsequently denounced for being antithetical to

the principle of sovereignty over our natural resources, because they allowed foreign control over
the exploitation of our natural resources, to the prejudice of the Filipino nation.
The Decision quoted several legal scholars and authors who had criticized service contracts
for, inter alia, vesting in the foreign contractor exclusive management and control of the
enterprise, including operation of the field in the event petroleum was discovered; control of
production, expansion and development; nearly unfettered control over the disposition and sale of
the products discovered/extracted; effective ownership of the natural resource at the point of
extraction; and beneficial ownership of our economic resources. According to the Decision, the
1987 Constitution (Section 2 of Article XII) effectively banned such service contracts.
Subsequently, respondents filed separate Motions for Reconsideration. In a Resolution dated
March 9, 2004, the Court required petitioners to comment thereon. In the Resolution of June 8,
2004, it set the case for Oral Argument on June 29, 2004.
After hearing the opposing sides, the Court required the parties to submit their respective
Memoranda in amplification of their arguments. In a Resolution issued later the same day, June
29, 2004, the Court noted, inter alia, the Manifestation and Motion (in lieu of comment) filed by
the Office of the Solicitor General (OSG) on behalf of public respondents. The OSG said that it was
not interposing any objection to the Motion for Intervention filed by the Chamber of Mines of the
Philippines, Inc. (CMP) and was in fact joining and adopting the latter's Motion for Reconsideration.
Memoranda were accordingly filed by the intervenor as well as by petitioners, public respondents,
and private respondent, dwelling at length on the three issues discussed below. Later, WMCP
submitted its Reply Memorandum, while the OSG -- in obedience to an Order of this Court -- filed a
Compliance submitting copies of more FTAAs entered into by the government.
Three Issues Identified by the Court
During the Oral Argument, the Court identified the three issues to be resolved in the present
controversy, as follows:
1. Has the case been rendered moot by the sale of WMC shares in WMCP to Sagittarius (60
percent of Sagittarius' equity is owned by Filipinos and/or Filipino-owned corporations while 40
percent is owned by Indophil Resources NL, an Australian company) and by the subsequent
transfer and registration of the FTAA from WMCP to Sagittarius?
2. Assuming that the case has been rendered moot, would it still be proper to resolve the
constitutionality of the assailed provisions of the Mining Law, DAO 96-40 and the WMCP FTAA?
3. What is the proper interpretation of the phrase Agreements Involving Either Technical or
Financial Assistancecontained in paragraph 4 of Section 2 of Article XII of the Constitution?
Should the Motion for Reconsideration Be Granted?
Respondents' and intervenor's Motions for Reconsideration should be granted, for the reasons
discussed below. The foregoing three issues identified by the Court shall now be taken
up seriatim.
First Issue:
Mootness
In declaring unconstitutional certain provisions of RA 7942, DAO 96-40, and the WMCP FTAA, the
majority Decision agreed with petitioners' contention that the subject FTAA had been executed in
violation of Section 2 of Article XII of the 1987 Constitution. According to petitioners, the FTAAs
entered into by the government with foreign-owned corporations are limited by the fourth
paragraph of the said provision to agreements involving only technical or financial assistance for
large-scale exploration, development and utilization of minerals, petroleum and other mineral oils.
Furthermore, the foreign contractor is allegedly permitted by the FTAA in question to fully manage
and control the mining operations and, therefore, to acquire "beneficial ownership" of our mineral
resources.
The Decision merely shrugged off the Manifestation by WMPC informing the Court (1) that on
January 23, 2001, WMC had sold all its shares in WMCP to Sagittarius Mines, Inc., 60 percent of
whose equity was held by Filipinos; and (2) that the assailed FTAA had likewise been transferred
from WMCP to Sagittarius.11 The 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. 12 Patently
therefore, the Decision is anchored on the assumption that WMCP had remained
aforeign corporation.
The crux of this issue of mootness is the fact that WMCP, at the time it entered into the
FTAA, happened to be wholly owned by WMC Resources International Pty., Ltd. (WMC), which in
turn was a wholly owned subsidiary of Western Mining Corporation Holdings Ltd., a publicly listed
major Australian mining and exploration company.
The nullity of the FTAA was obviously premised upon the contractor being a foreign corporation.
Had the FTAA been originally issued to a Filipino-owned corporation, there would have been no
constitutionality issue to speak of. Upon the other hand, the conveyance of the WMCP FTAA to a
Filipino corporation can be likened to the sale of land to a foreigner who subsequently acquires
Filipino citizenship, or who later resells the same land to a Filipino citizen. The conveyance would
be validated, as the property in question would no longer be owned by a disqualified vendee.
And, inasmuch as the FTAA is to be implemented now by a Filipino corporation, it is no longer
possible for the Court to declare it unconstitutional. The case pending in the Court of Appeals is a
dispute between two Filipino companies (Sagittarius and Lepanto), both claiming the right to
purchase the foreign shares in WMCP. So, regardless of which side eventually wins, the FTAA
would still be in the hands of a qualified Filipino company. Considering that there is no longer any
justiciable controversy, the plea to nullify the Mining Law has become a virtual petition for
declaratory relief, over which this Court has no original jurisdiction.
In their Final Memorandum, however, petitioners argue that the case has not become moot,
considering the invalidity of the alleged sale of the shares in WMCP from WMC to Sagittarius, and
of the transfer of the FTAA from WMCP to Sagittarius, resulting in the change of contractor in the
FTAA in question. And even assuming that the said transfers were valid, there still exists an actual
case predicated on the invalidity of RA 7942 and its Implementing Rules and Regulations (DAO 9640). 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 coproduction, joint venture, or production-sharing agreements with Filipino citizens, or corporations
or associations at least sixty per centum of whose capital is owned by such citizens. x x
x." Nowhere in the provision is there any express limitation or restriction insofar as arrangements
other than the three aforementioned contractual schemes are concerned.
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 voidab initio. In the present case, the issuance/grant of the
subject FTAA to the then foreign-owned WMCP was notillegal, void or unconstitutional at the time.
The matter had to be brought to court, precisely for adjudication as to whether the FTAA and the
Mining Law had indeed violated the Constitution. Since, up to this point, the decision of this Court
declaring the FTAA void has yet to become final, to all intents and purposes, the FTAA must be
deemed valid and constitutional.17
At bottom, we find completely outlandish petitioners' contention that an FTAA could be entered
into by the government only with a foreign corporation, never with a Filipino enterprise. Indeed,
the nationalistic provisions of the Constitution are all anchored on the protection of Filipino
interests. How petitioners can now argue that foreigners have the exclusive right to FTAAs totally
overturns the entire basis of the Petition -- preference for the Filipino in the exploration,
development and utilization of our natural resources. It does not take deep knowledge of law and
logic to understand that what the Constitution grants to foreigners should be equally available to
Filipinos.
Second Issue:
Whether
the
Court
Can
Still
Decide
the
Case,
Even Assuming It Is Moot
All the protagonists are in agreement that the Court has jurisdiction to decide this controversy,
even assuming it to be moot.
Petitioners stress the following points. First, while a case becomes moot and academic
when "there is no more actual controversy between the parties or no useful purpose can be
served in passing upon the merits," 18 what is at issue in the instant case is not only the validity of
the WMCP FTAA, but also the constitutionality of RA 7942 and its Implementing Rules and
Regulations. Second, the acts of private respondent cannot operate to cure the law of its alleged
unconstitutionality or to divest this Court of its jurisdiction to decide. Third, the Constitution
imposes upon the Supreme Court the duty to declare invalid any law that offends the
Constitution.
Petitioners also argue that no amendatory laws have been passed to make the Mining Act of 1995
conform to constitutional strictures (assuming that, at present, it does not); that public
respondents will continue to implement and enforce the statute until this Court rules otherwise;
and that the said law continues to be the source of legal authority in accepting, processing and
approving numerous applications for mining rights.
Indeed, it appears that as of June 30, 2002, some 43 FTAA applications had been filed with the
Mines and Geosciences Bureau (MGB), with an aggregate area of 2,064,908.65 hectares -- spread
over Luzon, the Visayas and Mindanao 19 -- applied for. It may be a bit far-fetched to assert, as
petitioners do, that each and every FTAA that was entered into under the provisions of the Mining
Act "invites potential litigation" for as long as the constitutional issues are not resolved with
finality. Nevertheless, we must concede that there exists the distinct possibility that one or more
of the future FTAAs will be the subject of yet another suit grounded on constitutional issues.
But of equal if not greater significance is the cloud of uncertainty hanging over the mining
industry, which is even now scaring away foreign investments. Attesting to this climate of anxiety
is the fact that the Chamber of Mines of the Philippines saw the urgent need to intervene in the
case and to present its position during the Oral Argument; and that Secretary General Romulo
Neri of the National Economic Development Authority (NEDA) requested this Court to allow him to

speak, during that Oral Argument, on the economic consequences of the Decision of January 27,
2004.20
We are convinced. We now agree that the Court must recognize the exceptional character of the
situation and the paramount public interest involved, as well as the necessity for a ruling to put
an end to the uncertainties plaguing the mining industry and the affected communities as a result
of doubts cast upon the constitutionality and validity of the Mining Act, the subject FTAA and
future FTAAs, and the need to avert a multiplicity of suits. ParaphrasingGonzales v. Commission
on Elections,21 it is evident that strong reasons of public policy demand that the constitutionality
issue be resolved now.22
In further support of the immediate resolution of the constitutionality issue, public respondents
cite Acop v. Guingona,23 to the effect that the courts will decide a question -- otherwise moot and
academic -- if it is "capable of repetition, yet evading review." 24 Public respondents ask the Court
to avoid a situation in which the constitutionality issue may again arise with respect to another
FTAA, the resolution of which may not be achieved until after it has become too late for our
mining industry to grow out of its infancy. They also recall Salonga v. Cruz Pao,25 in which this
Court declared that "(t)he Court also has the duty to formulate guiding and controlling
constitutional principles, precepts, doctrines or rules. It has the symbolic function of educating
the bench and bar on the extent of protection given by constitutional guarantees. x x x."
The mootness of the case in relation to the WMCP FTAA led the undersigned ponente to state in
his dissent to the Decision that there was no more justiciable controversy and the plea to nullify
the Mining Law has become a virtual petition for declaratory relief. 26 The entry of the Chamber of
Mines of the Philippines, Inc., however, has put into focus the seriousness of the allegations of
unconstitutionality of RA 7942 and DAO 96-40 which converts the case to one for prohibition 27 in
the enforcement of the said law and regulations.
Indeed, this CMP entry brings to fore that the real issue in this case is whether paragraph 4 of
Section 2 of Article XII of the Constitution is contravened by RA 7942 and DAO 96-40, not whether
it was violated by specific acts implementing RA 7942 and DAO 96-40. "[W]hen an act of the
legislative department is seriously alleged to have infringed the Constitution, settling the
controversy becomes the duty of this Court. By the mere enactment of the questioned law or the
approval of the challenged action, the dispute is said to have ripened into a judicial controversy
even without any other overt act." 28 This ruling can be traced from Taada v. Angara,29 in which
the Court said:
"In seeking to nullify an act of the Philippine Senate on the ground that it contravenes
the Constitution, the petition no doubt raises a justiciable controversy. Where an action
of the legislative branch is seriously alleged to have infringed the Constitution, it
becomes not only the right but in fact the duty of the judiciary to settle the dispute.
xxxxxxxxx
"As this Court has repeatedly and firmly emphasized in many cases, it will not shirk,
digress from or abandon its sacred duty and authority to uphold the Constitution in
matters that involve grave abuse of discretion brought before it in appropriate cases,
committed by any officer, agency, instrumentality or department of the government." 30
Additionally, the entry of CMP into this case has also effectively forestalled any possible objections
arising from the standing or legal interest of the original parties.
For all the foregoing reasons, we believe that the Court should proceed to a resolution of the
constitutional issues in this case.
Third Issue:
The
Proper
Interpretation
of
the
Constitutional
Phrase
"Agreements Involving Either Technical or Financial Assistance"
The constitutional provision at the nucleus of the controversy is paragraph 4 of Section 2 of Article
XII of the 1987 Constitution. In order to appreciate its context, Section 2 is reproduced in full:
"Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and
fauna, and other natural resources are owned by the State. With the exception of

agricultural lands, all other natural resources shall not be alienated. The exploration,
development and utilization of natural resources shall be under the full control and
supervision of the State. The State may directly undertake such activities, or it may
enter into co-production, joint venture or production-sharing agreements with Filipino
citizens or corporations or associations at least sixty per centum of whose capital is
owned by such citizens. Such agreements may be for a period not exceeding twenty-five
years, renewable for not more than 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 theirordinary meaning except where technical terms are employed. x x x.
xxxxxxxxx
"Second, where there is ambiguity, ratio legis est anima. The words of the Constitution
should be interpreted in accordance with the intent of its framers. x x x.
xxxxxxxxx
"Finally, ut magis valeat quam pereat. The Constitution is to be interpreted as a whole."34
For ease of reference and in consonance with verba legis, we reconstruct and stratify the
aforequoted Section 2 as follows:
1. All natural resources are owned by the State. Except for agricultural lands, natural
resources cannot be alienated by the State.

2. The exploration, development and utilization (EDU) of natural resources shall be under
the full control and supervision of the State.
3. The State may undertake these EDU activities through either of the following:
(a) By itself directly and solely
(b) By (i) co-production; (ii) joint venture; or (iii) production sharing agreements
with Filipino citizens or corporations, at least 60 percent of the capital of which
is owned by such citizens
4. Small-scale utilization of natural resources may be allowed by law in favor of Filipino
citizens.
5. For large-scale EDU of minerals, petroleum and other mineral oils, the President may
enter into "agreements with foreign-owned corporations involving either technical or
financial assistance according to the general terms and conditions provided by law x x
x."
Note that in all the three foregoing mining activities -- exploration, development and utilization -the State may undertake such EDU activities by itself or in tandem with Filipinos or Filipino
corporations, except in two instances:first, in small-scale utilization of natural resources, which
Filipinos may be allowed by law to undertake; andsecond, in large-scale EDU of minerals,
petroleum and mineral oils, which may be undertaken by the State via "agreements with foreignowned corporations involving either technical or financial assistance" as provided by law.
Petitioners claim that the phrase "agreements x x x involving either technical or financial
assistance" simply means technical assistance or financial assistance agreements, nothing more
and nothing else. They insist that there is no ambiguity in the phrase, and that a plain reading of
paragraph 4 quoted above leads to the inescapable conclusion that what a foreign-owned
corporation
may
enter
into
with
the
government
is
merely
an
agreement
for either financial or technical assistance only, for the large-scale exploration, development and
utilization of minerals, petroleum and other mineral oils; such a limitation, they argue, excludes
foreign management and operation of a mining enterprise. 35
This restrictive interpretation, petitioners believe, is in line with the general policy enunciated by
the Constitution reserving to Filipino citizens and corporations the use and enjoyment of the
country's natural resources. They maintain that this Court's Decision 36 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 intervenor 37 and public respondents argue that the FTAA allowed by
paragraph 4 is not merely an agreement for supplying limited and specific financial or technical
services to the State. Rather, such FTAA is a comprehensive agreement for the foreign-owned
corporation's integrated exploration, development and utilization of mineral, petroleum or other
mineral oils on a large-scale basis. The agreement, therefore, authorizes the foreign contractor's
rendition of a whole range of integrated and comprehensive services, ranging from the discovery
to the development, utilization and production of minerals or petroleum products.
We do not see how applying a strictly literal or verba legis interpretation of paragraph 4 could
inexorably lead to the conclusions arrived at in the ponencia. First, the drafters' choice of words -their use of the phraseagreements x x x involving either technical or financial assistance -- does
not indicate the intent to exclude other modes of assistance. The drafters opted to
use involving when they could have simply said agreements forfinancial or technical

assistance, if that was their intention to begin with. In this case, the limitation would be very clear
and no further debate would ensue.
In contrast, the use of the word "involving" signifies the possibility of the inclusion of other
forms of assistance or activities having to do with, otherwise related to or compatible with
financial or technical assistance. The word "involving" as used in this context has three
connotations that can be differentiated thus:one, the sense of "concerning," "having to do with,"
or "affecting"; two, "entailing," "requiring," "implying" or "necessitating"; and three, "including,"
"containing" or "comprising."38
Plainly, none of the three connotations convey a sense of exclusivity. Moreover, the word
"involving," when understood in the sense of "including," as in including technical or financial
assistance, necessarily implies that there are activities other than those that are being included.
In other words, if an agreement includes technical or financial assistance, there is apart from such
assistance -- something else already in, and covered or may be covered by, the said agreement.
In short, it allows for the possibility that matters, other than those explicitly mentioned, could be
made part of the agreement. Thus, we are now led to the conclusion that the use of the word
"involving" implies that these agreements with foreign corporations are not limited to mere
financial or technical assistance. The difference in sense becomes very apparent when we
juxtapose
"agreements for technical
or
financial
assistance"
against
"agreements including technical or financial assistance." This much is unalterably clear in
a verba legisapproach.
Second, if the real intention of the drafters was to confine foreign corporations to financial or
technical assistance and nothing more, their language would have certainly been
so unmistakably restrictive and stringent as to leave no doubt in anyone's mind about their
true intent. For example, they would have used the sentence foreign corporations are absolutely
prohibited from involvement in the management or operation of mining or similar ventures or
words of similar import. A search for such stringent wording yields negative results. Thus, we
come to the inevitable conclusion that there was a conscious and deliberate decision
to avoid the use of restrictive wording that bespeaks an intent not to use the
expression "agreements x x x involving either technical or financial assistance" in an
exclusionary and limiting manner.
Deletion
of
"Service
Contracts"
to
Avoid
Pitfalls
of
Previous
Constitutions,
Not to Ban Service Contracts Per Se
Third, we do not see how a verba legis approach leads to the conclusion that "the management or
operation of mining activities by foreign contractors, which is the primary feature of service
contracts, was precisely the evil that the drafters of the 1987 Constitution sought to
eradicate." Nowhere in the above-quoted Section can be discerned the objective to keep out of
foreign hands the management or operation of mining activities or the plan to eradicate service
contracts as these were understood in the 1973 Constitution. Still, petitioners maintain that the
deletion or omission from the 1987 Constitution of the term "service contracts" found in the 1973
Constitution sufficiently proves the drafters' intent to exclude foreigners from the management of
the affected enterprises.
To our mind, however, such intent cannot be definitively and conclusively established from the
mere failure to carry the same expression or term over to the new Constitution, absent a more
specific, explicit and unequivocal statement to that effect. What petitioners seek (a complete ban
on foreign participation in the management of mining operations, as previously allowed by the
earlier Constitutions) is nothing short of bringing about a momentous sea change in the economic
and developmental policies; and the fundamentally capitalist, 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 foreigncurrency 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 nonmining areas). Obviously, the provision in question was intended to refer to
agreements other than those for mere financial or technical assistance.
In like manner, there would be no need to require the President of the Republic to report to
Congress, if only financial or technical assistance agreements are involved. Such agreements are
in the nature of foreign loans that -- pursuant to Section 20 of Article VII 39 of the 1987 Constitution
-- the President may contract or guarantee, merely with the prior concurrence of the Monetary
Board. In turn, the Board is required to report to Congresswithin thirty days from the end of every
quarter of the calendar year, not thirty days after the agreement is entered into.
And if paragraph 4 permits only agreements for loans and other forms of financial, or technical
assistance, what is the point of requiring that they be based on real contributions to the economic
growth and general welfare of the country? For instance, how is one to measure and assess the
"real contributions" to the "economic growth" and "general welfare" of the country that may
ensue from a foreign-currency loan agreement or a 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 technologyoriented nature of large-scale mineral or petroleum extraction and the country's deficiency in
precisely those areas.41 To say so would be tantamount to asserting that the provision was
purposely designed to ladle the large-scale development and utilization of mineral, petroleum and
related resources with impossible conditions; and to remain forever and permanently "reserved"
for future generations of Filipinos.
A
More
Reasonable
Look
at the Charter's Plain Language
Sixth, we shall now look closer at the plain language of the Charter and examining the logical
inferences. The drafters chose to emphasize and highlight agreements x x x involving either
technical or financial assistance in relation to foreign corporations' participation in large-scale
EDU. The inclusion of this clause on "technical or financial assistance" recognizes the fact that
foreign business entities and multinational corporations are the ones with the resources and
know-how to provide technical and/or financial assistance of the magnitude and type required for
large-scale exploration, development and utilization of these resources.
The drafters -- whose ranks included many academicians, economists, businessmen, lawyers,
politicians and government officials -- were not unfamiliar with the practices of foreign
corporations and multinationals.
Neither were they so nave as to believe that these entities would provide "assistance" without
conditionalities or some quid pro quo. Definitely, as business persons well know and as a matter
of judicial notice, this matter is not just a question of signing a promissory note or executing a
technology transfer agreement. Foreign corporations usually require that they be given a say in
the management, for instance, of day-to-day operations of the joint venture. They would demand
the appointment of their own men as, for example, operations managers, technical experts,
quality control heads, internal auditors or comptrollers. Furthermore, they would probably require
seats on the Board of Directors -- all these to ensure the success of the enterprise and the
repayment of the loans and other financial assistance and to make certain that the funding and
the technology they supply would not go to waste. Ultimately, they would also want to protect
their business reputation and bottom lines.42
In short, the drafters will have to be credited with enough pragmatism and savvy to know that
these foreign entities will not enter into such "agreements involving assistance" without requiring
arrangements for the protection of their investments, gains and benefits.
Thus, by specifying such "agreements involving assistance," the drafters necessarily gave implied
assent to everything that these agreements necessarily entailed; or that could reasonably be
deemed necessary to make them tenable and effective, including management authority with
respect to the day-to-day operations of the enterprise and measures for the protection of the
interests of the foreign corporation, PROVIDED THAT Philippine sovereignty over natural resources
and full control over the enterprise undertaking the EDU activities remain firmly in the State.

Petitioners'
Theory
Deflated
by
the
Absence of Closing-Out Rules or Guidelines
Seventh and final point regarding the plain-language approach, one of the practical difficulties
that results from it is the fact that there is nothing by way of transitory provisions that would
serve to confirm the theory that the omission of the term "service contract" from the 1987
Constitution signaled the demise of service contracts.
The framers knew at the time they were deliberating that there were various service contracts
extant and in force and effect, including those in the petroleum industry. Many of these service
contracts were long-term (25 years) and had several more years to run. If they had meant to ban
service contracts altogether, they would have had to provide for the termination or
pretermination of the existing contracts. Accordingly, they would have supplied the specifics and
the when and how of effecting the extinguishment of these existing contracts (or at least the
mechanics for determining them); and of putting in place the means to address the just claims of
the contractors for compensation for their investments, lost opportunities, and so on, if not for the
recovery thereof.
If the framers had intended to put an end to service contracts, they would have at least left
specific instructions to Congress to deal with these closing-out issues, perhaps by way of general
guidelines and a timeline within which to carry them out. The following are some extant examples
of such transitory guidelines set forth in Article XVIII of our Constitution:
"Section 23. Advertising entities affected by paragraph (2), Section 11 of Article XVI of
this Constitution shall have five years from its ratification to comply on a graduated and
proportionate basis with the minimum Filipino ownership requirement therein.
xxxxxxxxx
"Section 25. After the expiration in 1991 of the Agreement between the Republic of the
Philippines and the United States of America concerning military bases, foreign military
bases, troops, or facilities shall not be allowed in the Philippines except under a treaty
duly concurred in by the Senate and, when the Congress so requires, ratified by a
majority of the votes cast by the people in a national referendum held for that purpose,
and recognized as a treaty by the other contracting State.
"Section 26. The authority to issue sequestration or freeze orders under Proclamation
No. 3 dated March 25, 1986 in relation to the recovery of ill-gotten wealth shall remain
operative for not more than eighteen months after the ratification of this Constitution.
However, in the national interest, as certified by the President, the Congress may extend
such period.
A sequestration or freeze order shall be issued only upon showing of a prima facie case.
The order and the list of the sequestered or frozen properties shall forthwith be
registered with the proper court. For orders issued before the ratification of this
Constitution, the corresponding judicial action or proceeding shall be filed within six
months from its ratification. For those issued after such ratification, the judicial action or
proceeding shall be commenced within six months from the issuance thereof.
The sequestration or freeze order is deemed automatically lifted if no judicial action or
proceeding is commenced as herein provided." 43]
It is inconceivable that the drafters of the Constitution would leave such an important matter -- an
expression of sovereignty as it were -- indefinitely hanging in the air in a formless and ineffective
state. Indeed, the complete absence of even a general framework only serves to further deflate
petitioners' theory, like a child's balloon losing its air.
Under the circumstances, the logical inconsistencies resulting from petitioners' literal and
purely verba legisapproach to paragraph 4 of Section 2 of Article XII compel a resort to other aids
to interpretation.
Petitioners'
Posture
Also
Negated
by Ratio Legis Et Anima

Thus, in order to resolve the inconsistencies, incongruities and ambiguities encountered and to
supply the deficiencies of the plain-language approach, there is a need for recourse to the
proceedings of the 1986 Constitutional Commission. There is a need for ratio legis et anima.
Service
Contracts
Not
"Deconstitutionalized"
Pertinent portions of the deliberations of the members of the Constitutional Commission
(ConCom) conclusively show that they discussed agreements involving either technical or
financial assistance in the same breadth asservice contracts and used the terms interchangeably.
The following exchange between Commissioner Jamir (sponsor of the provision) and
Commissioner Suarez irrefutably proves that the "agreements involving technical or financial
assistance" were none other than service contracts.
THE PRESIDENT. Commissioner Jamir is recognized. We are still on Section 3.
MR. JAMIR. Yes, Madam President. With respect to the second paragraph of Section 3, my
amendment by substitution reads: THE PRESIDENT MAY ENTER INTO AGREEMENTS WITH
FOREIGN-OWNED CORPORATIONS INVOLVING EITHER TECHNICAL OR FINANCIAL
ASSISTANCE FOR 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 contracts which was accepted by the Committee. Since the Committee
has accepted it, I would like to ask some questions.
THE PRESIDENT. Commissioner Gascon may proceed.
MR. GASCON. As it is proposed now, such service contracts will be entered into by the
President with the guidelines of a general law on service contract to be enacted by
Congress. Is that correct?
MR. VILLEGAS. The Commissioner is right, Madam President.

MR. GASCON. According to the original proposal, if the President were to enter into a
particular agreement, he would need the concurrence of Congress. Now that it has been
changed by the proposal of Commissioner Jamir in that Congress will set the general law
to which the President shall comply, the President will, therefore, not need the
concurrence of Congress every time he enters into service contracts. Is that correct?
MR. VILLEGAS. That is right.
MR. GASCON. The proposed amendment of Commissioner Jamir is in indirect contrast to
my proposed amendment, so I would like to object and present my proposed amendment
to the body.
xxxxxxxxx
MR. GASCON. Yes, it will be up to the body.
I feel that the general law to be set by Congress as regard service contract
agreements which the President will enter into might be too general or since we do not
know the content yet of such a law, it might be that certain agreements will be
detrimental to the interest of the Filipinos. This is in direct contrast to my proposal which
provides that there be effective constraints in the implementation of service contracts.
So instead of a general law to be passed by Congress to serve as a guideline to the
President when entering into service contract agreements, I propose that
every service contract entered into by the President would need the concurrence of
Congress, so as to assure the Filipinos of their interests with regard to the issue in
Section 3 on all lands of the public domain. My alternative amendment, which we will
discuss later, reads: THAT THE PRESIDENT SHALL ENTER INTO SUCH AGREEMENTS ONLY
WITH THE CONCURRENCE OF TWO-THIRDS VOTE OF ALL THE MEMBERS OF CONGRESS
SITTING SEPARATELY.
xxxxxxxxx
MR. BENGZON. The reason we made that shift is that we realized the original proposal
could breed corruption. By the way, this is not just confined to service contracts but
also to financial assistance. If we are going to make every single contract subject to
the concurrence of Congress which, according to the Commissioner's amendment is the
concurrence of two-thirds of Congress voting separately then (1) there is a very great
chance that each contract will be different from another; and (2) there is a great
temptation that it would breed corruption because of the great lobbying that is going to
happen. And we do not want to subject our legislature to that.
Now, to answer the Commissioner's apprehension, by "general law," we do not mean
statements of motherhood. Congress can build all the restrictions that it wishes into that
general law so that every contract entered into by the President under that specific area
will have to be uniform. The President has no choice but to follow all the guidelines that
will be provided by law.
MR. GASCON. But my basic problem is that we do not know as of yet the contents of such
a general law as to how much constraints there will be in it. And to my mind, although
the Committee's contention that the regular concurrence from Congress would subject
Congress to extensive lobbying, I think that is a risk we will have to take since Congress
is a body of representatives of the people whose membership will be changing regularly
as there will be changing circumstances every time certain agreements are made. It
would be best then to keep in tab and attuned to the interest of the Filipino people,
whenever the President enters into any agreement with regard to such an important
matter as technical or financial assistance for large-scale exploration,
development and utilization of natural resources or service contracts, the
people's elected representatives should be on top of it.
xxxxxxxxx
MR. OPLE. Madam President, we do not need to suspend the session. If Commissioner
Gascon needs a few minutes, I can fill up the remaining time while he completes his
proposed amendment. I just wanted to ask Commissioner Jamir whether he would

entertain a minor amendment to his amendment, and it reads as follows: THE

PRESIDENT
SHALL
SUBSEQUENTLY
NOTIFY
CONGRESS
OF
EVERY SERVICE
CONTRACT ENTERED INTO IN ACCORDANCE WITH THE GENERAL LAW. I think the reason
is, if I may state it briefly, as Commissioner Bengzon said, Congress can always change
the general law later on to conform to new perceptions of standards that should be built
into service contracts. But the only way Congress can do this is if there were a
notification requirement from the Office of the President that suchservice
contracts had been entered into, subject then to the scrutiny of the Members of
Congress. This pertains to a situation where the service contracts are already entered
into, and all that this amendment seeks is the reporting requirement from the Office of
the President. Will Commissioner Jamir entertain that?
MR. JAMIR. I will gladly do so, if it is still within my power.
MR. VILLEGAS. Yes, the Committee accepts the amendment.
xxxxxxxxx
SR. TAN. Madam President, may I ask a question?
THE PRESIDENT. Commissioner Tan is recognized.
SR. TAN. Am I correct in thinking that the only difference between these future service
contracts and the past service contracts under Mr. Marcos is the general law to be
enacted by the legislature and the notification of Congress by the President? That is the
only difference, is it not?
MR. VILLEGAS. That is right.
SR. TAN. So those are the safeguards.
MR. VILLEGAS. Yes. There was no law at all governing service contracts before.
SR. TAN. Thank you, Madam President.45
More
Than
Mere
Financial
and
Technical
Assistance
Entailed by the Agreements
The clear words of Commissioner Jose N. Nolledo quoted below explicitly and eloquently
demonstrate that the drafters knew that the agreements with foreign corporations were going to
entail not mere technical or financial assistance but, rather, foreign investment in and
management of an enterprise involved in large-scale exploration,development and utilization of
minerals, petroleum, and other mineral oils.
THE PRESIDENT. Commissioner Nolledo is recognized.
MR. NOLLEDO. Madam President, I have the permission of the Acting Floor Leader to
speak for only two minutes in favor of the amendment of Commissioner Gascon.
THE PRESIDENT. Commissioner Nolledo may proceed.
MR. NOLLEDO. With due respect to the members of the Committee and Commissioner
Jamir, I am in favor of the objection of Commissioner Gascon.
Madam President, I was one of those who refused to sign the 1973 Constitution,
and one of the reasons is that there were many provisions in the Transitory
Provisions therein that favored aliens. I was shocked when I read a provision
authorizing service contracts while we, in this Constitutional Commission,
provided for Filipino control of the economy. We are, therefore, providing for
exceptional instances where aliens may circumvent Filipino control of our
economy. And one way of circumventing the rule in favor of Filipino control of
the economy is to recognize service contracts.
As far as I am concerned, if I should have my own way, I am for the complete
deletion of this provision. However, we are presenting a compromise in the
sense that we are requiring a 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 whichservice contracts may enter. So, beyond the reach of any service
contract will be lands of the public domain, timberlands, forests, marine resources,
fauna and flora, wildlife and national parks.47
After the Jamir amendment was voted upon and approved by a vote of 21 to 10 with 2
abstentions, Commissioner Davide made the following statement, which is very relevant to our
quest:
THE PRESIDENT. Commissioner Davide is recognized.
MR. DAVIDE. I am very glad that Commissioner Padilla emphasized minerals, petroleum
and mineral oils. The Commission has just approved the possible foreign entry into the
development, exploration and utilization of these minerals, petroleum and other mineral
oils by virtue of the Jamir amendment. I voted in favor of the Jamir amendment because
it will eventually give way to vesting in exclusively Filipino citizens and corporations
wholly owned by Filipino citizens the right to utilize the other natural resources. This
means that as a matter of policy, natural resources should be utilized and exploited only
by Filipino citizens or corporations wholly owned by such citizens. But by virtue of the
Jamir amendment, since we feel that Filipino capital may not be enough for the
development and utilization of minerals, petroleum and other mineral oils, the President
can enter into service contracts with foreign corporations precisely for the
development and utilization of such resources. And so, there is nothing to fear that we

will stagnate in the development of minerals, petroleum and mineral oils because we
now allow service contracts. x x x."48
The foregoing are mere fragments of the framers' lengthy discussions of the provision dealing
with agreements x x x involving either technical or financial assistance, which ultimately became
paragraph 4 of Section 2 of Article XII of the Constitution. Beyond any doubt, the members of the
ConCom were actually debating about the martial-law-era service contracts for which they were
crafting appropriate safeguards.
In the voting that led to the approval of Article XII by the ConCom, the explanations given by
Commissioners Gascon, Garcia and Tadeo indicated that they had voted to reject this provision on
account of their objections to the "constitutionalization" of the "service contract" concept.
Mr. Gascon said, "I felt that if we would constitutionalize any provision on service contracts, this
should always be with the concurrence of Congress and not guided only by a general law to be
promulgated by Congress."49Mr. Garcia explained, "Service contracts are given constitutional
legitimization in Sec. 3, even when they have been proven to be inimical to the interests of the
nation, providing, as they do, the legal loophole for the exploitation of our natural resources for
the benefit of foreign interests." 50 Likewise, Mr. Tadeo cited inter alia the fact that service
contracts continued to subsist, enabling foreign interests to benefit from our natural resources. 51It
was hardly likely that these gentlemen would have objected so strenuously, had the
provision called for mere technical or financial assistance and nothing more.
The deliberations of the ConCom and some commissioners' explanation of their votes leave no
room for doubt that the service contract concept precisely underpinned the commissioners'
understanding of the "agreements involving either technical or financial assistance."
Summation
of
the
Concom Deliberations
At this point, we sum up the matters established, based on a careful reading of the ConCom
deliberations, as follows:
In their deliberations on what was to become paragraph 4, the framers used the
term service contracts in referring to agreements x x x involving either technical or
financial assistance.
They spoke of service contracts as the concept was understood in the 1973
Constitution.
It was obvious from their discussions that they were not about to ban or
eradicate service contracts.
Instead, they were plainly crafting provisions to put in place safeguards that would
eliminate or minimize the abuses prevalent during the marital law regime. In brief, they
were going to permit service contracts with foreign corporations as contractors, but with
safety measures to prevent abuses, as an exception to the general norm established in
the first paragraph of Section 2 of Article XII. This provision reserves or limits to Filipino
citizens -- and corporations at least 60 percent of which is owned by such citizens -- the
exploration, development and utilization of natural resources.
This provision was prompted by the perceived insufficiency of Filipino capital and the
felt need for foreign investments in the EDU of minerals and petroleum resources.
The framers for the most part debated about the sort of safeguards that would be
considered adequate and reasonable. But some of them, having more "radical" leanings,
wanted to ban service contracts altogether; for them, the provision would permit aliens
to exploit and benefit from the nation's natural resources, which they felt should be
reserved only for Filipinos.
In the explanation of their votes, the individual commissioners were heard by the entire
body. They sounded off their individual opinions, openly enunciated their philosophies,
and supported or attacked the provisions with fervor. Everyone's viewpoint was heard.
In the final voting, the Article on the National Economy and Patrimony -- including
paragraph 4 allowing service contracts with foreign corporations as an exception to the

general norm in paragraph 1 of Section 2 of the same article -- was resoundingly

approved by a vote of 32 to 7, with 2 abstentions.
Agreements Involving Technical
or Financial Assistance Are
Service Contracts With Safeguards
From the foregoing, we are impelled to conclude that the phrase agreements involving either
technical or financial assistance, referred to in paragraph 4, are in fact service contracts. But
unlike those of the 1973 variety, the new ones are between foreign corporations acting as
contractors on the one hand; and on the other, the government as principal or "owner" of the
works. In the new service contracts, the foreign contractors provide capital, technology and
technical know-how, and managerial expertise in the creation and operation of 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--vis the previous Constitutions. We believe that in reality, a good percentage of those who
voted in favor of it did so more out of faith and trust. For them, it was the product of the hard
work and careful deliberation of a group of intelligent, dedicated and trustworthy men and women
of integrity and conviction, whose love of country and fidelity to duty could not be questioned.
In short, a large proportion of the voters voted "yes" because the drafters, or a majority of them,
endorsed the proposed Constitution. What this fact translates to is the inescapable conclusion
that many of the voters in the referendum did not form their own isolated judgment about the
draft Charter, much less about particular provisions therein. They only relied or fell back and
acted upon the favorable endorsement or recommendation of the framers as a group. In other
words, by voting yes, they may be deemed to have signified their voluntary adoption of the
understanding and interpretation of the delegates with respect to the proposed Charter and its
particular provisions. "If it's good enough for them, it's good enough for me;" or, in many
instances, "If it's good enough for President Cory Aquino, it's good enough for me."
And even for those who voted based on their own individual assessment of the proposed Charter,
there is no evidence available to indicate that their assessment or understanding of its provisions
was in fact different from that of the drafters. This unwritten assumption seems to be petitioners'
as well. For all we know, this segment of voters must have read and understood the provisions of
the Constitution in the same way the framers had, an assumption that would account for the
favorable votes.
Fundamentally speaking, in the process of rewriting the Charter, the members of the ConCom as
a group were supposed to represent the entire Filipino people. Thus, we cannot but regard their
views as being very much indicative of the thinking of the people with respect to the matters
deliberated upon and to the Charter as a whole.
It is therefore reasonable and unavoidable to make the following conclusion, based on
the above arguments. As written by the framers and ratified and adopted by the
people, the Constitution allows the continued use of service contracts with foreign
corporations -- as contractors who would invest in and operate and manage extractive
enterprises, subject to the full control and supervision of the State -- sans the abuses
of the past regime. The purpose is clear: to develop and utilize our mineral, petroleum
and other resources on a large scale for the immediate and tangible benefit of the
Filipino people.
In view of the foregoing discussion, we should reverse the Decision of January 27, 2004, and in
fact now hold a view different from that of the Decision, which had these findings: (a) paragraph 4
of Section 2 of Article XII limits foreign involvement in the local mining industry to agreements
strictly for either financial or technical assistance only; (b) the same paragraph precludes
agreements that grant to foreign corporations the management of local mining operations, as
such agreements are purportedly in the nature of service contracts as these were understood
under the 1973 Constitution; (c) these service contracts were supposedly "de-constitutionalized"
and proscribed by the omission of the term service contracts from the 1987 Constitution; (d) since
the WMCP FTAA contains provisions permitting the foreign contractor to manage the concern, the
said FTAA is invalid for being a prohibited service contract; and (e) provisions of RA 7942 and DAO
96-40, which likewise grant managerial authority to the foreign contractor, are also invalid and
unconstitutional.

Ultimate
Test:
State's
"Control"
Determinative of Constitutionality
But we are not yet at the end of our quest. Far from it. It seems that we are confronted with a
possible collision of constitutional provisions. On the one hand, paragraph 1 of Section 2 of Article
XII explicitly mandates the State to exercise "full control and supervision" over the exploration,
development and utilization of natural resources. On the other hand, paragraph 4 permits
safeguarded service contracts with foreign contractors. Normally, pursuant thereto, the
contractors exercise management prerogatives over the mining operations and the enterprise as
a whole. There is thus a legitimate ground to be concerned that either the State's full control and
supervision may rule out any exercise of management authority by the foreign contractor; or, the
other way around, allowing the foreign contractor full management prerogatives may ultimately
negate the State's full control and supervision.
Ut
Magis
Valeat
Quam Pereat
Under the third principle of constitutional construction laid down in Francisco -- ut magis valeat
quam pereat --every part of the Constitution is to be given effect, and the Constitution is to be
read and understood as a harmonious whole. Thus, "full control and supervision" by the State
must be understood as one that does not preclude the legitimate exercise of management
prerogatives by the foreign contractor. Before any further discussion, we must stress the primacy
and supremacy of the principle of sovereignty and State control and supervision over all aspects
of exploration, development and utilization of the country's natural resources, as mandated in the
first paragraph of Section 2 of Article XII.
But in the next breadth we have to point out that "full control and supervision" cannot be taken
literally to mean that the State controls and supervises everything involved, down to the minutest
details, and makes all decisionsrequired in the mining operations. This strained concept of control
and supervision over the mining enterprise would render impossible the legitimate exercise by the
contractors of a reasonable degree of management prerogative and authority necessary and
indispensable to their proper functioning.
For one thing, such an interpretation would discourage foreign entry into large-scale exploration,
development and utilization activities; and result in the unmitigated stagnation of this sector, to
the detriment of our nation's development. This scenario renders paragraph 4 inoperative and
useless. And as respondents have correctly pointed out, the government does not have to micromanage 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 56m); annual progress reports and final report of exploration activities (Section 56-2).
Other programs required to be submitted by the contractor, pursuant to DAO 96-40, are
the following: a safety and health program (Section 144); an environmental work
program (Section 168); an annual environmental protection and enhancement program
(Section 171).
The foregoing gamut of requirements, regulations, restrictions and limitations imposed upon the
FTAA contractor by the statute and regulations easily overturns petitioners' contention. The setup
under RA 7942 and DAO 96-40 hardly relegates the State to the role of a "passive regulator"
dependent on submitted plans and reports. On the contrary, the government agencies concerned
are empowered to approve or disapprove -- hence, to influence, direct and change -- the various
work programs and the corresponding minimum expenditure commitments for each of the
exploration, development and utilization phases of the mining enterprise.
Once these plans and reports are approved, the contractor is bound to comply with its
commitments therein. Figures for mineral production and sales are regularly monitored and
subjected to government review, in order to ensure that the products and by-products are
disposed of at the best prices possible; even copies of sales agreements have to be submitted to
and registered with MGB. And the contractor is mandated to open its books of accounts and
records for scrutiny, so as to enable the State to determine if the government share has been fully
paid.
The State may likewise compel the contractor's compliance with mandatory requirements on mine
safety, health and environmental protection, and the use of anti-pollution technology and
facilities. Moreover, the contractor is also obligated to assist in the development of the mining
community and to pay royalties to the indigenous peoples concerned.
Cancellation of the FTAA may be the penalty for violation of any of its terms and conditions and/or
noncompliance with statutes or regulations. This general, all-around, multipurpose sanction is no
trifling matter, especially to a contractor who may have yet to recover the tens or hundreds of
millions of dollars sunk into a mining project.
Overall, considering the provisions of the statute and the regulations just discussed, we believe
that the State definitely possesses the means by which it can have the ultimate word in the
operation of the enterprise, set directions and objectives, and detect deviations and

noncompliance by the contractor; likewise, it has the capability to enforce compliance and to
impose sanctions, should the occasion therefor arise.
In other words, the FTAA contractor is not free to do whatever it pleases and get away
with it; on the contrary, it will have to follow the government line if it wants to stay in
the enterprise. Ineluctably then, RA 7942 and DAO 96-40 vest in the government more
than a sufficient degree of control and supervision over the conduct of mining
operations.
Section
3(aq)
of
RA
7942
Not Unconstitutional
An objection has been expressed that Section 3(aq) 55 of RA 7942 -- which allows a foreign
contractor to apply for and hold an exploration permit -- is unconstitutional. The reasoning is that
Section 2 of Article XII of the Constitution does not allow foreign-owned corporations to undertake
mining operations directly. They may act only as contractors of the State under an FTAA; and the
State, as the party directly undertaking exploitation of its natural resources, must hold through
the government all exploration permits and similar authorizations. Hence, Section 3(aq), in
permitting foreign-owned corporations to hold exploration permits, is unconstitutional.
The objection, however, is not well-founded. While the Constitution mandates the State to
exercise full control and supervision over the exploitation of mineral resources, nowhere does it
require the government to hold all exploration permits and similar authorizations. In fact, there is
no prohibition at all against foreign or local corporations or contractors holding exploration
permits. The reason is not hard to see.
Pursuant to Section 20 of RA 7942, an exploration permit merely grants to a qualified person the
right to conduct exploration for all minerals in specified areas. Such a permit does not amount to
an authorization to extract and carry off the mineral resources that may be discovered. This
phase involves nothing but expenditures for exploring the contract area and locating the mineral
bodies. As no extraction is involved, there are no revenues or incomes to speak of. In short, the
exploration permit is an authorization for the grantee to spend its own funds on exploration
programs that are pre-approved by the government, without any right to recover anything should
no minerals in commercial quantities be discovered. The State risks nothing and loses nothing by
granting these permits to local or foreign firms; in fact, it stands to gain in the form of data
generated by the exploration activities.
Pursuant to Section 24 of RA 7942, an exploration permit grantee who determines the commercial
viability of a mining area may, within the term of the permit, file with the MGB a declaration of
mining project feasibility accompanied by a work program for development. The approval of the
mining project feasibility and compliance with other requirements of RA 7942 vests in the grantee
the exclusive right to an MPSA or any other mineral agreement, or to an FTAA.
Thus, the permit grantee may apply for an MPSA, a joint venture agreement, a co-production
agreement, or an FTAA over the permit area, and the application shall be approved if the permit
grantee meets the necessary qualifications and the terms and conditions of any such agreement.
Therefore, the contractor will be in a position to extract minerals and earn revenues only when
the MPSA or another mineral agreement, or an FTAA, is granted. At that point, the contractor's
rights and obligations will be covered by an FTAA or a mineral agreement.
But prior to the issuance of such FTAA or mineral agreement, the exploration permit grantee (or
prospective contractor) cannot yet be deemed to have entered into any contract or agreement
with the State, and the grantee would definitely need to have some document or instrument as
evidence of its right to conduct exploration works within the specified area. This need is met by
the exploration permit issued pursuant to Sections 3(aq), 20 and 23 of RA 7942.
In brief, the exploration permit serves a practical and legitimate purpose in that it
protects the interests and preserves the rights of the exploration permit grantee (the
would-be contractor) -- foreign or local -- during the period of time that it is spending
heavily on exploration works, without yet being able to earn revenues to recoup any of
its investments and expenditures. Minus this permit and the protection it affords, the
exploration works and expenditures may end up benefiting only claim-jumpers. Such a possibility

tends to discourage investors and contractors. Thus, Section 3(aq) of RA 7942 may not be
deemed unconstitutional.
The Terms of the WMCP FTAA
A Deference to State Control
A perusal of the WMCP FTAA also reveals a slew of stipulations providing for State control and
supervision:
1. The contractor is obligated to account for the value of production and sale of minerals
(Clause 1.4).
2. The contractor's work program, activities and budgets must be approved by/on behalf
of the State (Clause 2.1).
3. The DENR secretary has the power to extend the exploration period (Clause 3.2-a).
4. Approval by the State is necessary for incorporating lands into the FTAA contract area
(Clause 4.3-c).
5. The Bureau of Forest Development is vested with discretion in regard to approving the
inclusion of forest reserves as part of the FTAA contract area (Clause 4.5).
6. The contractor is obliged to relinquish periodically parts of the contract area not
needed for exploration and development (Clause 4.6).
7. A Declaration of Mining Feasibility must be submitted for approval by the State (Clause
4.6-b).
8. The contractor is obligated to report to the State its exploration activities (Clause 4.9).
9. The contractor is required to obtain State approval of its work programs for the
succeeding two-year periods, containing the proposed work activities and expenditures
budget related to exploration (Clause 5.1).
10. The contractor is required to obtain State approval for its proposed expenditures for
exploration activities (Clause 5.2).
11. The contractor is required to submit an annual report on geological, geophysical,
geochemical and other information relating to its explorations within the FTAA area
(Clause 5.3-a).
12. The contractor is to submit within six months after expiration of exploration period a
final report on all its findings in the contract area (Clause 5.3-b).
13. The contractor, after conducting feasibility studies, shall submit a declaration of
mining feasibility, along with a description of the area to be developed and mined, a
description of the proposed mining operations and the technology to be employed, and a
proposed work program for the development phase, for approval by the DENR secretary
(Clause 5.4).
14. The contractor is obliged to complete the development of the mine, including
construction of the production facilities, within the period stated in the approved work
program (Clause 6.1).
15. The contractor is obligated to submit for approval of the DENR secretary a work
program covering each period of three fiscal years (Clause 6.2).
16. The contractor is to submit reports to the DENR secretary on the production, ore
reserves, work accomplished and work in progress, profile of its work force and
management staff, and other technical information (Clause 6.3).
17. Any expansions, modifications, improvements and replacements of mining facilities
shall be subject to the approval of the secretary (Clause 6.4).
18. The State has control with respect to the amount of funds that the contractor may
borrow within the Philippines (Clause 7.2).
19. The State has supervisory power with respect to technical, financial and marketing
issues (Clause 10.1-a).
20. The contractor is required to ensure 60 percent Filipino equity in the contractor,
within ten years of recovering specified expenditures, unless not so required by
subsequent legislation (Clause 10.1).

21. The State has the right to terminate the FTAA for the contractor's unremedied
substantial breach thereof (Clause 13.2);
22. The State's approval is needed for any assignment of the FTAA by the contractor to
an entity other than an affiliate (Clause 14.1).
We should elaborate a little on the work programs and budgets, and what they mean with respect
to the State's ability to exercise full control and effective supervision over the enterprise. For
instance, throughout the initial five-year exploration and feasibility phase of the project, the
contractor is mandated by Clause 5.1 of the WMCP FTAA to submit a series of work programs
(copy furnished the director of MGB) to the DENR secretary for approval.The programs will detail
the contractor's proposed exploration activities and budget covering each subsequent period of
two fiscal years.
In other words, the concerned government officials will be informed beforehand of the proposed
exploration activities and expenditures of the contractor for each succeeding two-year period,
with the right to approve/disapprove them or require changes or adjustments therein if deemed
necessary.
Likewise, under Clause 5.2(a), the amount that the contractor was supposed to spend for
exploration activities during the first contract year of the exploration period was fixed at not less
than P24 million; and then for the succeeding years, the amount shall be as agreed between the
DENR secretary and the contractor prior to the commencement of each subsequent fiscal year. If
no such agreement is arrived upon, the previous year's expenditure commitment shall apply.
This provision alone grants the government through the DENR secretary a very big say in the
exploration phase of the project. This fact is not something to be taken lightly, considering that
the government has absolutely no contribution to the exploration expenditures or work activities
and yet is given veto power over such a critical aspect of the project. We cannot but construe as
very significant such a degree of control over the project and, resultantly, over the mining
enterprise itself.
Following its exploration activities or feasibility studies, if the contractor believes that any part of
the contract area is likely to contain an economic mineral resource, it shall submit to the DENR
secretary a declaration of mining feasibility (per Clause 5.4 of the FTAA), together with a technical
description of the area delineated for development and production, a description of the proposed
mining operations including the technology to be used, a work program for development, an
environmental impact statement, and a description of the contributions to the economic and
general welfare of the country to be generated by the mining operations (pursuant to Clause 5.5).
The work program for development is subject to the approval of the DENR secretary. Upon its
approval, the contractor must comply with it and complete the development of the mine,
including the construction of production facilities and installation of machinery and equipment,
within the period provided in the approved work program for development (per Clause 6.1).
Thus, notably, the development phase of the project is likewise subject to the control and
supervision of the government. It cannot be emphasized enough that the proper and timely
construction and deployment of the production facilities and the development of the mine are of
pivotal significance to the success of the mining venture. Any missteps here will potentially be
very costly to remedy. Hence, the submission of the work program for development to the DENR
secretary for approval is particularly noteworthy, considering that so many millions of dollars
worth of investments -- courtesy of the contractor -- are made to depend on the State's
consideration and action.
Throughout the operating period, the contractor is required to submit to the DENR secretary for
approval, copy furnished the director of MGB, work programs covering each period of three fiscal
years (per Clause 6.2). During the same period (per Clause 6.3), the contractor is mandated to
submit various quarterly and annual reports to the DENR secretary, copy furnished the director of
MGB, on the tonnages of production in terms of ores and concentrates, with corresponding
grades, values and destinations; reports of sales; total ore reserves, total tonnage of ores, work
accomplished and work in progress (installations and facilities related to mining operations),
investments made or committed, and so on and so forth.

Under Section VIII, during the period of mining operations, the contractor is also required to
submit to the DENR secretary (copy furnished the director of MGB) the work program and
corresponding budget for the contract area, describing the mining operations that are proposed to
be carried out during the period covered. The secretary is, of course, entitled to grant or deny
approval of any work program or budget and/or propose revisions thereto. Once the
program/budget has been approved, the contractor shall comply therewith.
In sum, the above provisions of the WMCP FTAA taken together, far from constituting a surrender
of control and a grant of beneficial ownership of mineral resources to the contractor in
question, bestow upon the State more than adequate control and supervision over the
activities of the contractor and the enterprise.
No
Surrender
of
Control
Under the WMCP FTAA
Petitioners, however, take aim at Clause 8.2, 8.3, and 8.5 of the WMCP FTAA which, they say,
amount to a relinquishment of control by the State, since it "cannot truly impose its own
discretion" in respect of the submitted work programs.
"8.2. The Secretary shall be deemed to have approved any Work Programme or Budget
or variation thereofsubmitted by the Contractor unless within sixty (60) days after
submission by the Contractor the Secretary gives notice declining such approval or
proposing a revision of certain features and specifying its reasons therefor ('the
Rejection Notice').
8.3. If the Secretary gives a Rejection Notice, the Parties shall promptly meet and
endeavor to agree on amendments to the Work Programme or Budget. If the Secretary
and the Contractor fail to agree on the proposed revision within 30 days from delivery of
the Rejection Notice then the Work Programme or Budget or variation thereof proposed
by the Contractor shall be deemed approved, so as not to unnecessarily delay the
performance of the Agreement.
8.4. x x x x x x x x x
8.5. So far as is practicable, the Contractor shall comply with any approved Work
Programme and Budget. It is recognized by the Secretary and the Contractor that the
details of any Work Programmes or Budgets may require changes in the light of
changing circumstances. The Contractor may make such changes without approval of
the Secretary provided they do not change the general objective of any Work
Programme, nor entail a downward variance of more than twenty per centum
(20percent) of the relevant Budget. All other variations to an approved Work Programme
or Budget shall be submitted for approval of the Secretary."
From the provisions quoted above, petitioners generalize by asserting that the government does
not participate in making critical decisions regarding the operations of the mining firm.
Furthermore, while the State can require the submission of work programs and budgets, the
decision of the contractor will still prevail, if the parties have a difference of opinion with regard to
matters affecting operations and management.
We hold, however, that the foregoing provisions do not manifest a relinquishment of control. For
instance, Clause 8.2 merely provides a mechanism for preventing the business or mining
operations from grinding to a complete halt as a result of possibly over-long and unjustified delays
in the government's handling, processing and approval of submitted work programs and budgets.
Anyway, the provision does give the DENR secretary more than sufficient time (60 days) to react
to submitted work programs and budgets. It cannot be supposed that proper grounds for
objecting thereto, if any exist, cannot be discovered within a period of two months.
On the other hand, Clause 8.3 seeks to provide a temporary, stop-gap solution in the event a
disagreement over the submitted work program or budget arises between the State and the
contractor and results in a stalemate or impasse, in order that there will be no unreasonably long
delays in the performance of the works.
These temporary or stop-gap solutions are not necessarily evil or wrong. Neither does it follow
that the government will inexorably be aggrieved if and when these temporary remedies come

into play. First, avoidance of long delays in these situations will undoubtedly redound to the
benefit of the State as well as the contractor.Second, who is to say that the work program or
budget proposed by the contractor and deemed approved under Clause 8.3 would not be the
better or more reasonable or more effective alternative? The contractor, being the "insider," as it
were, may be said to be in a better position than the State -- an outsider looking in -- to determine
what work program or budget would be appropriate, more effective, or more suitable under the
circumstances.
All things considered, we take exception to the characterization of the DENR secretary as a
subservient nonentity whom the contractor can overrule at will, on account of Clause 8.3. And
neither is it true that under the same clause, the DENR secretary has no authority whatsoever to
disapprove the work program. As Respondent WMCP reasoned in its Reply-Memorandum, the
State -- despite Clause 8.3 -- still has control over the contract area and it may, as sovereign
authority, prohibit work thereon until the dispute is resolved. And ultimately, the State may
terminate the agreement, pursuant to Clause 13.2 of the same FTAA, citing substantial breach
thereof. Hence, it clearly retains full and effective control of the exploitation of the mineral
resources.
On the other hand, Clause 8.5 is merely an acknowledgment of the parties' need for flexibility,
given that no one can accurately forecast under all circumstances, or predict how situations may
change. Hence, while approved work programs and budgets are to be followed and complied with
as far as practicable, there may be instances in which changes will have to be effected, and
effected rapidly, since events may take shape and unfold with suddenness and urgency. Thus,
Clause 8.5 allows the contractor to move ahead and make changes without the express or implicit
approval of the DENR secretary. Such changes are, however, subject to certain conditions that will
serve to limit or restrict the variance and prevent the contractor from straying very far from what
has been approved.
Clause 8.5 provides the contractor a certain amount of flexibility to meet unexpected situations,
while still guaranteeing that the approved work programs and budgets are not abandoned
altogether. Clause 8.5 does not constitute proof that the State has relinquished control. And
ultimately, should there be disagreement with the actions taken by the contractor in this instance
as well as under Clause 8.3 discussed above, the DENR secretary may resort to
cancellation/termination of the FTAA as the ultimate sanction.
Discretion
to
Select
Contract
Area Not an Abdication of Control
Next, petitioners complain that the contractor has full discretion to select -- and the government
has no say whatsoever as to -- the parts of the contract area to be relinquished pursuant to
Clause 4.6 of the WMCP FTAA.56This clause, however, does not constitute abdication of control.
Rather, it is a mere acknowledgment of the fact that the contractor will have determined, after
appropriate exploration works, which portions of the contract area do not contain minerals in
commercial quantities sufficient to justify developing the same and ought therefore to be
relinquished. The State cannot just substitute its judgment for that of the contractor and dictate
upon the latter which areas to give up.
Moreover, we can be certain that the contractor's self-interest will propel proper and efficient
relinquishment. According to private respondent, 57 a mining company tries to relinquish as much
non-mineral areas as soon as possible, because the annual occupation fees paid to the
government are based on the total hectarage of the contract area, net of the areas relinquished.
Thus, the larger the remaining area, the heftier the amount of occupation fees to be paid by the
contractor. Accordingly, relinquishment is not an issue, given that the contractor will not want to
pay the annual occupation fees on the non-mineral parts of its contract area. Neither will it want
to relinquish promising sites, which other contractors may subsequently pick up.
Government Not a Subcontractor
Petitioners further maintain that the contractor can compel the government to exercise its power
of eminent domain to acquire surface areas within the contract area for the contractor's use.
Clause 10.2 (e) of the WMCP FTAA provides that the government agrees that the contractor

shall "(e) have the right to require the Government at the Contractor's own cost, to purchase or
acquire surface areas for and on behalf of the Contractor at such price and terms as may be
acceptable to the contractor. At the termination of this Agreement such areas shall be sold by
public auction or tender and the Contractor shall be entitled to reimbursement of the costs of
acquisition and maintenance, adjusted for inflation, from the proceeds of sale."
According to petitioners, "government becomes a subcontractor to the contractor" and may, on
account of this provision, be compelled "to make use of its power of eminent domain, not for
public purposes but on behalf of a private party, i.e., the contractor." Moreover, the power of the
courts to determine the amount corresponding to the constitutional requirement of just
compensation has allegedly also been contracted away by the government, on account of the
latter's commitment that the acquisition shall be at such terms as may be acceptable to the
contractor.
However, private respondent has proffered a logical explanation for the provision. 58 Section
10.2(e) contemplates a situation applicable to foreign-owned corporations. WMCP, at the time of
the execution of the FTAA, was a foreign-owned corporation and therefore not qualified to own
land. As contractor, it has at some future date to construct the infrastructure -- the mine
processing plant, the camp site, the tailings dam, and other infrastructure -- needed for the largescale 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 creditorbanks. 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 endproducts 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 incentives 64 to help support
the former's cash flow during the most critical phase (cost recovery) and to make the Philippines
competitive with other mineral-producing countries. After the contractor has recovered its initial
investment, it will pay all the normal taxes and fees comprising the basic share of the
government, plus an additional share for the government based on the options and formulae set
forth in DAO 99-56.
The said DAO spells out the financial benefits the government will receive from an FTAA, referred
to as "the Government Share," composed of a basic government share and an additional
government share.
The basic government share is comprised of all direct taxes, fees and royalties, as well as other
payments made by the contractor during the term of the FTAA. These are amounts paid directly to
(i) the national government (through the Bureau of Internal Revenue, Bureau of Customs, Mines &
Geosciences Bureau and other national government agencies imposing taxes or fees), (ii) the
local government units where the mining activity is conducted, and (iii) persons and communities
directly affected by the mining project. The major taxes and other payments constituting the
basic government share are enumerated below: 65
Payments to the National Government:
Excise tax on minerals - 2 percent of the gross output of mining operations
Contractor' income tax - maximum of 32 percent of taxable income for
corporations
Customs duties and fees on imported capital equipment -the rate is set by the
Tariff and Customs Code (3-7 percent for chemicals; 3-10 percent for explosives;
3-15 percent for mechanical and electrical equipment; and 3-10 percent for
vehicles, aircraft and vessels
VAT on imported equipment, goods and services 10 percent of value
Royalties due the government on minerals extracted from mineral
reservations, if applicable 5 percent of the actual market value of the minerals
produced
Documentary stamp tax - the rate depends on the type of transaction
Capital gains tax on traded stocks - 5 to 10 percent of the value of the shares
Withholding tax on interest payments on foreign loans -15 percent of the
amount of interest

Withholding tax on dividend payments to foreign stockholders 15 percent of

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

National Government

50 percent

Provincial Government

10 percent

Municipal Government

20 percent

Affected Barangays

20 percent

The portion of revenues remaining after the deduction of the basic and additional government
shares is what goes to the contractor.
Government's
Share
in
an
FTAA
Not
Consisting
Solely
of Taxes, Duties and Fees
In connection with the foregoing discussion on the basic and additional government shares, it
is pertinent at this juncture to mention the criticism leveled at the second paragraph of Section 81
of RA 7942, quoted earlier. The said proviso has been denounced, because, allegedly, the State's
share in FTAAs with foreign contractors has been limited to taxes, fees and duties only; in effect,
the State has been deprived of a share in the after-tax income of the enterprise. In the face of this
allegation, one has to consider that the law does not define the 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 formulas 68 -- presented in DAO
99-56 for the computation of the additional government share -- serves to debunk the claim that
the government's take from an FTAA consists solely of taxes, fees and duties.
Unfortunately, the Office of the Solicitor General -- although in possession of the relevant data -failed to fully replicate or echo the pertinent elucidation in the Ramos-DeVera paper regarding the
three schemes or options for computing the additional government share presented in DAO 99-56.
Had due care been taken by the OSG, the Court would have been duly apprised of the real nature
and particulars of the additional share.
But, perhaps, on account of the esoteric discussion in the Ramos-DeVera paper, and the even
more abstruse mathematical jargon employed in DAO 99-56, the OSG omitted any mention of the
three options. Instead, the OSG skipped to a side discussion of the effect of indirect taxes, which
had nothing at all to do with the additional government share, to begin with. Unfortunately, this
move created the wrong impression, pointed out in Justice Antonio T. Carpio's Opinion, that the
OSG had taken the position that the additional government share consisted of indirect taxes.
In any event, what is quite evident is the fact that the additional government share, as
formulated, has nothing to do with taxes -- direct or indirect -- or with duties, fees or charges. To

repeat, it is over and above the basic government share composed of taxes and duties. Simply
put, the additional share may be (a) an amount that will result in a 50-50 sharing of the
cumulative present value of the cash flows69 of the enterprise; (b) an amount equivalent to 25
percent of the additional or excess profits of the enterprise, reckoned against a benchmark return
on investments; or (c) an amount that will result in a fifty-fifty sharing of the cumulative net
mining revenue from the end of the recovery period up to the taxable year in question. The
contractor is required to select one of the three options or formulae for computing the additional
share, an option it will apply to all of its mining operations.
As used above, "net mining revenue" is defined as the gross output from mining operations for a
calendar year, less deductible expenses (inclusive of taxes, duties and fees). Such revenue would
roughly be equivalent to "taxable income" or income before income tax. Definitely, as compared
with, say, calculating the additional government share on the basis of net income
(after income tax), the net mining revenue is a better and much more reasonable basis for such
computation, as it gives a truer picture of the profitability of the company.
To demonstrate that the three options or formulations will operate as intended, Messrs. Ramos
and de Vera also performed some quantifications of the government share via a financial
modeling of each of the three options discussed above. They found that the government would
get the highest share from the option that is based on the net mining revenue, as compared with
the other two options, considering only the basic and the additional shares; and that, even though
production rate decreases, the government share will actually increase when the net mining
revenue and the additional profit-based options are used.
Furthermore, it should be noted that the three options or formulae do not yet take into account
the indirect taxes70 and other financial contributions71 of mining projects. These indirect taxes and
other contributions are real and actual benefits enjoyed by the Filipino people and/or government.
Now, if some of the quantifiable items are taken into account in the computations, the financial
modeling would show that the total government share increases to 60 percent or higher -- in one
instance, as much as 77 percent and even 89 percent -- of the net present value of total benefits
from the project. As noted in the Ramos-DeVera paper, these results are not at all shabby,
considering that the contractor puts in all the capital requirements and assumes all the risks,
without the government having to contribute or risk anything.
Despite the foregoing explanation, Justice Carpio still insisted during the Court's deliberations that
the phraseamong other things refers only to taxes, duties and fees. We are bewildered by his
position. On the one hand, he condemns the Mining Law for allegedly limiting the government's
benefits only to taxes, duties and fees; and on the other, he refuses to allow the State to benefit
from the correct and proper interpretation of the DENR/MGB. To remove all doubts then, we hold
that the State's share is not limited to taxes, duties and fees only and that the DENR/MGB
interpretation of the phrase among other things is correct. Definitely, this DENR/MGB
interpretation is not only legally sound, but also greatly advantageous to the government.
One last point on the subject. The legislature acted judiciously in not defining the terms among
other things and, instead, leaving it to the agencies concerned to devise and develop the various
modes of arriving at a reasonable and fair amount for the additional government share. As
can be seen from DAO 99-56, the agencies concerned did an admirable job of conceiving and
developing not just one formula, but three different formulae for arriving at the additional
government share. Each of these options is quite fair and reasonable; and, as Messrs. Ramos and
De Vera stated, other alternatives or schemes for a possible improvement of the fiscal regime for
FTAAs are also being studied by the government.
Besides, not locking into a fixed definition of the term among other things will ultimately be more
beneficial to the government, as it will have that innate flexibility to adjust to and cope with
rapidly changing circumstances, particularly those in the international markets. Such flexibility is
especially significant for the government in terms of helping our mining enterprises remain
competitive in world markets despite challenging and shifting economic scenarios.
In conclusion, we stress that we do not share the view that in FTAAs with foreign
contractors under RA 7942, the government's share is limited to taxes, fees and

duties. Consequently, we find the attacks on the second paragraph of Section 81 of RA

7942 totally unwarranted.
Collections
Not
Made
Uncertain
by the Third Paragraph of Section 81
72
The third or last paragraph of Section 81 provides that the government share in FTAAs shall be
collected when the contractor shall have recovered its pre-operating expenses and exploration
and development expenditures. The objection has been advanced that, on account of the proviso,
the collection of the State's share is not even certain, as there is no time limit in RA 7942 for this
grace period or recovery period.
We believe that Congress did not set any time limit for the grace period, preferring to leave it to
the concerned agencies, which are, on account of their technical expertise and training, in a
better position to determine the appropriate durations for such recovery periods. After all, these
recovery periods are determined, to a great extent, by technical and technological factors
peculiar to the mining industry. Besides, with developments and advances in technology and in
the geosciences, we cannot discount the possibility of shorter recovery periods. At any rate, the
concerned agencies have not been remiss in this area. The 1995 and 1996 Implementing Rules
and Regulations of RA 7942 specify that the period of recovery, reckoned from the date of
commercial operation, shall be for a period not exceeding five years, or until the date
of actual recovery, whichever comes earlier.
Approval
of
Pre-Operating
Expenses Required by RA 7942
Still, RA 7942 is criticized for allegedly not requiring government approval of pre-operating,
exploration and development expenses of the foreign contractors, who are in effect given
unfettered discretion to determine the amounts of such expenses. Supposedly, nothing prevents
the contractors from recording such expenses in amounts equal to the mining revenues
anticipated for the first 10 or 15 years of commercial production, with the result that the share of
the State will be zero for the first 10 or 15 years. Moreover, under the circumstances, the
government would be unable to say when it would start to receive its share under the FTAA.
We believe that the argument is based on incorrect information as well as speculation. Obviously,
certain crucial provisions in the Mining Law were overlooked. Section 23, dealing with the rights
and obligations of the exploration permit grantee, states: "The permittee shall undertake
exploration work on the area as specified by its permit based on an approved work program." The
next proviso reads: "Any expenditure in excess of the yearly budget of the approved work
program may be carried forward and credited to the succeeding years covering the duration of
the permit. x x x." (underscoring supplied)
Clearly, even at the stage of application for an exploration permit, the applicant is required to
submit -- for approval by the government -- a proposed work program for exploration, containing
a yearly budget of proposed expenditures. The State has the opportunity to pass upon (and
approve or reject) such proposed expenditures, with the foreknowledge that -- if approved -- these
will subsequently be recorded as pre-operating expenses that the contractor will have to recoup
over the grace period. That is not all.
Under Section 24, an exploration permit holder who determines the commercial viability of a
project covering a mining area may, within the term of the permit, file with the Mines and
Geosciences Bureau a declaration of mining project feasibility. This declaration is to be
accompanied by a work program for development for the Bureau's approval, the necessary
prelude for entering into an FTAA, a mineral production sharing agreement (MPSA), or some other
mineral agreement. At this stage, too, the government obviously has the opportunity to approve
or reject the proposed work program and budgeted expenditures for development works on the
project. Such expenditures will ultimately become the pre-operating and development costs that
will have to be recovered by the contractor.
Naturally, with the submission of approved work programs and budgets for the exploration and
the development/construction phases, the government will be able to scrutinize and approve or
reject such expenditures. It will be well-informed as to the amounts of pre-operating and other

expenses that the contractor may legitimately recover and the approximate period of time
needed to effect such a recovery. There is therefore no way the contractor can just randomly post
any amount of pre-operating expenses and expect to recover the same.
The aforecited provisions on approved work programs and budgets have counterparts in Section
35, which deals with the terms and conditions exclusively applicable to FTAAs. The said provision
requires certain terms and conditions to be incorporated into FTAAs; among them, "a firm
commitment x x x of an amount corresponding to the expenditure obligation that will be invested
in the contract area" and "representations and warranties x x x to timely deploy these [financing,
managerial and technical expertise and technological] resources under its supervision pursuant to
the periodic work programs and related budgets x x x," as well as "work programs andminimum
expenditures commitments." (underscoring supplied)
Unarguably, given the provisions of Section 35, the State has every opportunity to pass upon the
proposed expenditures under an FTAA and approve or reject them. It has access to all the
information it may need in order to determine in advance the amounts of pre-operating and
developmental expenses that will have to be recovered by the contractor and the amount of time
needed for such recovery.
In summary, we cannot agree that the third or last paragraph of Section 81 of RA 7942
is in any manner unconstitutional.
No Deprivation of Beneficial Rights
It is also claimed that aside from the second and the third paragraphs of Section 81 (discussed
above), Sections 80, 84 and 112 of RA 7942 also operate to deprive the State of beneficial rights
of ownership over mineral resources; and give them away for free to private business enterprises
(including foreign owned corporations). Likewise, the said provisions have been construed as
constituting, together with Section 81, an ingenious attempt to resurrect the old and discredited
system of "license, concession or lease."
Specifically, Section 80 is condemned for limiting the State's share in a mineral productionsharing agreement (MPSA) to just the excise tax on the mineral product. Under Section 151(A) of
the Tax Code, such tax is only 2 percent of the market value of the gross output of the minerals.
The colatilla in Section 84, the portion considered offensive to the Constitution, reiterates the
same limitation made in Section 80.73
It should be pointed out that Section 80 and the colatilla in Section 84 pertain only to MPSAs and
have no application to FTAAs. These particular statutory provisions do not come within the issues
that were defined and delineated by this Court during the Oral Argument -- particularly the third
issue, which pertained exclusively to FTAAs. Neither did the parties argue upon them in their
pleadings. Hence, this Court cannot make any pronouncement in this case regarding the
constitutionality of Sections 80 and 84 without violating the fundamental rules of due process.
Indeed, the two provisos will have to await another case specifically placing them in issue.
On the other hand, Section 11274 is disparaged for allegedly reverting FTAAs and all mineral
agreements to the old and discredited "license, concession or lease" system. This Section states
in relevant part that "the provisions of Chapter XIV [which includes Sections 80 to 82] on
government share in mineral production-sharing agreement x x x shall immediately govern
and apply to a mining lessee or contractor." (underscoring supplied) This provision is construed as
signifying that the 2 percent excise tax which, pursuant to Section 80, comprises the government
share in MPSAs shall now also constitute the government share in FTAAs -- as well as in coproduction agreements and joint venture agreements -- to the exclusion of revenues of any other
nature or from any other source.
Apart from the fact that Section 112 likewise does not come within the issues delineated by this
Court during the Oral Argument, and was never touched upon by the parties in their pleadings, it
must also be noted that the criticism hurled against this Section is rooted in unwarranted
conclusions made without considering other relevant provisions in the statute. Whether Section
112 may properly apply to co-production or joint venture agreements, the fact of the matter is
that it cannot be made to apply to FTAAs.

First, Section 112 does not specifically mention or refer to FTAAs; the only reason it is being
applied to them at all is the fact that it happens to use the word "contractor." Hence, it is a bit of a
stretch to insist that it covers FTAAs as well. Second, mineral agreements, of which there are
three types -- MPSAs, co-production agreements, and joint venture agreements -- are covered by
Chapter V of RA 7942. On the other hand, FTAAs are covered by and in fact are the subject of
Chapter VI, an entirely different chapter altogether. The law obviously intends to treat them as a
breed apart from mineral agreements, since Section 35 (found in Chapter VI) creates a long list of
specific terms, conditions, commitments, representations and warranties -- which have not been
made applicable to mineral agreements -- to be incorporated into FTAAs.
Third, under Section 39, the FTAA contractor is given the option to "downgrade" -- to convert the
FTAA into a mineral agreement at any time during the term if the economic viability of the
contract area is inadequate to sustain large-scale mining operations. Thus, there is no reason to
think that the law through Section 112 intends to exact from FTAA contractors merely the same
government share (a 2 percent excise tax) that it apparently demands from contractors under the
three forms of mineral agreements. In brief, Section 112 does not apply to FTAAs.
Notwithstanding the foregoing explanation, Justices Carpio and Morales maintain that the Court
must rule now on the constitutionality of Sections 80, 84 and 112, allegedly because the WMCP
FTAA contains a provision which grants the contractor unbridled and "automatic" authority to
convert the FTAA into an MPSA; and should such conversion happen, the State would be
prejudiced since its share would be limited to the 2 percent excise tax. Justice Carpio adds that
there are five MPSAs already signed just awaiting the judgment of this Court on respondents' and
intervenor's Motions for Reconsideration. We hold however that, at this point, this argument is
based on pure speculation. The Court cannot rule on mere surmises and hypothetical
assumptions, without firm factual anchor. We repeat: basic due process requires that we hear the
parties who have a real legal interest in the MPSAs (i.e. the parties who executed them) before
these MPSAs can be reviewed, or worse, struck down by the Court. Anything less than that
requirement would be arbitrary and capricious.
In any event, the conversion of the present FTAA into an MPSA is problematic. First, the contractor
must comply with the law, particularly Section 39 of RA 7942; inter alia, it must convincingly show
that the "economic viability of the contract is found to be inadequate to justify large-scale mining
operations;" second, it must contend with the President's exercise of the power of State control
over the EDU of natural resources; and third, it will have to risk a possible declaration of the
unconstitutionality (in a proper case) of Sections 80, 84 and 112.
The first requirement is not as simple as it looks. Section 39 contemplates a situation in which an
FTAA has already been executed and entered into, and is presumably being implemented, when
the contractor "discovers" that the mineral ore reserves in the contract area are not sufficient to
justify large-scale mining, and thus the contractor requests the conversion of the FTAA into an
MPSA. The contractor in effect needs to explain why, despite its exploration activities, including
the conduct of various geologic and other scientific tests and procedures in the contract area, it
was unable to determine correctly the mineral ore reserves and the economic viability of the area.
The contractor must explain why, after conducting such exploration activities, it decided to file
a declaration of mining feasibility, and to apply for an FTAA, thereby leading the State to believe
that the area could sustain large-scale mining. The contractor must justify fully why its earlier
findings, based on scientific procedures, tests and data, turned out to be wrong, or were way off.
It must likewise prove that its new findings, also based on scientific tests and procedures, are
correct. Right away, this puts the contractor's technical capabilities and expertise into serious
doubt. We wonder if anyone would relish being in this situation. The State could even question
and challenge the contractor's qualification and competence to continue the activity under an
MPSA.
All in all, while there may be cogent grounds to assail the aforecited Sections, this
Court -- on considerations of due process -- cannot rule upon them here. Anyway, if
later on these Sections are declared unconstitutional, such declaration will not affect
the other portions since they are clearly separable from the rest.

Our
Mineral
Resources
Not
Given Away for Free by RA 7942
Nevertheless, if only to disabuse our minds, we should address the contention that our mineral
resources are effectively given away for free by the law (RA 7942) in general and by Sections 80,
81, 84 and 112 in particular.
Foreign contractors do not just waltz into town one day and leave the next, taking away mineral
resources without paying anything. In order to get at the minerals, they have to invest huge sums
of money (tens or hundreds of millions of dollars) in exploration works first. If the exploration
proves unsuccessful, all the cash spent thereon will not be returned to the foreign investors;
rather, those funds will have been infused into the local economy, to remain there permanently.
The benefits therefrom cannot be simply ignored. And assuming that the foreign contractors are
successful in finding ore bodies that are viable for commercial exploitation, they do not just pluck
out the minerals and cart them off. They have first to build camp sites and roadways; dig mine
shafts and connecting tunnels; prepare tailing ponds, storage areas and vehicle depots; install
their machinery and equipment, generator sets, pumps, water tanks and sewer systems, and so
on.
In short, they need to expend a great deal more of their funds for facilities, equipment and
supplies, fuel, salaries of local labor and technical staff, and other operating expenses. In the
meantime, they also have to pay taxes,75duties, fees, and royalties. All told, the exploration, prefeasibility, 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 years 77 counted from the commencement of commercial
production.
It must be noted that there can be no recovery without commencing actual commercial
production. In the meantime that the contractors are recouping costs, they need to continue
operating; in order to do so, they have to disburse money to meet their various needs. In short,
money is continually infused into the economy.
The foregoing discussion should serve to rid us of the mistaken belief that, since the foreign
contractors are allowed to recover their investments and costs, the end result is that they
practically get the minerals for free, which leaves the Filipino people none the better for it.
All
Businesses
Entitled
to Cost Recovery
Let it be put on record that not only foreign contractors, but all businessmen and all business
entities in general, have to recoup their investments and costs. That is one of the first things a
student learns in business school. Regardless of its nationality, and whether or not a business
entity has a five-year cost recovery period, it will -- must -- have to recoup its investments, one
way or another. This is just common business sense. Recovery of investments is absolutely
indispensable for business survival; and business survival ensures soundness of the economy,
which is critical and contributory to the general welfare of the people. Even government
corporations must recoup their investments in order to survive and continue in operation. And, as
the preceding discussion has shown, there is no business that gets ahead or earns profits without
any cost to it.
It must also be stressed that, though the State owns vast mineral wealth, such wealth is not
readily accessible or transformable into usable and negotiable currency without the intervention
of the credible mining companies. Those untapped mineral resources, hidden beneath tons of

earth and rock, may as well not be there for all the good they do us right now. They have first to
be extracted and converted into marketable form, and the country needs the foreign contractor's
funds, technology and know-how for that.
After about eleven years of pre-operation and another five years for cost recovery, the foreign
contractors will have just broken even. Is it likely that they would at that point stop their
operations and leave? Certainly not. They have yet to make profits. Thus, for the remainder of the
contract term, they must strive to maintain profitability. During this period, they pay the whole of
the basic government share and the additional government share which, taken together with
indirect taxes and other contributions, amount to approximately 60 percent or more of the entire
financial benefits generated by the mining venture.
In sum, we can hardly talk about foreign contractors taking our mineral resources for free. It takes
a lot of hard cash to even begin to do what they do. And what they do in this country ultimately
benefits the local economy, grows businesses, generates employment, and creates infrastructure,
as discussed above. Hence, we definitely disagree with the sweeping claim that no FTAA under
Section 81 will ever make any real contribution to the growth of the economy or to the general
welfare of the country. This is not a plea for foreign contractors. Rather, this is a question of
focusing the judicial spotlight squarely on all the pertinent facts as they bear upon the issue at
hand, in order to avoid leaping precipitately to ill-conceived conclusions not solidly grounded
upon fact.
Repatriation of After-Tax Income
Another objection points to the alleged failure of the Mining Law to ensure real contributions to
the economic growth and general welfare of the country, as mandated by Section 2 of Article XII
of the Constitution. Pursuant to Section 81 of the law, the entire after-tax income arising from the
exploitation of mineral resources owned by the State supposedly belongs to the foreign
contractors, which will naturally repatriate the said after-tax income to their home countries,
thereby resulting in no real contribution to the economic growth of this country. Clearly, this
contention is premised on erroneous assumptions.
First, as already discussed in detail hereinabove, the concerned agencies have correctly
interpreted the second paragraph of Section 81 of RA 7942 to mean that the government is
entitled to an additional share, to be computed based on any one of the following factors: net
mining revenues, the present value of the cash flows, or excess profits reckoned against a
benchmark rate of return on investments. So it is not correct to say that all of the after-tax income
will accrue to the foreign FTAA contractor, as the government effectively receives a significant
portion thereof.
Second, the foreign contractors can hardly "repatriate the entire after-tax income to their home
countries." Even a bit of knowledge of corporate finance will show that it will be impossible to
maintain a business as a "going concern" if the entire "net profit" earned in any particular year
will be taken out and repatriated. The "net income" figure reflected in the bottom line is a mere
accounting figure not necessarily corresponding to cash in the bank, or other quick assets. In
order to produce and set aside cash in an amount equivalent to the bottom line figure, one may
need to sell off assets or immediately collect receivables or liquidate short-term investments; but
doing so may very likely disrupt normal business operations.
In terms of cash flows, the funds corresponding to the net income as of a particular point in time
are actually in use in the normal course of business operations. Pulling out such net
income disrupts the cash flows and cash position of the enterprise and, depending on the amount
being taken out, could seriously cripple or endanger the normal operations and financial health of
the business enterprise. In short, no sane business person, concerned with maintaining
the mining enterprise as a going concern and keeping a foothold in its market, can
afford to repatriate the entire after-tax income to the home country.
The
State's
Receipt
of
Sixty
Percent
of
an
FTAA
Contractor's
After-Tax Income Not Mandatory

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

under most if not all circumstances. The fact that some petroleum companies like Shell acceded
to such percentage of sharing does not ipso facto mean that it is per se reasonable and applicable
to non-petroleum situations (that is, mining companies) as well. We can take judicial notice of the
fact that there are, after all, numerous intrinsic differences involved in their respective operations
and equipment or technological requirements, costs structures and capital investment needs, and
product pricing and markets.
There is no showing, for instance, that mining companies can readily cope with a 60 percent
government share in the same way petroleum companies apparently can. What we have is a
suggestion to enforce the 60 percent quota on the basis of a disjointed analogy. The only factor
common to the two disparate situations is the extraction of natural resources.
Indeed, we should take note of the fact that Congress made a distinction between mining firms
and petroleum companies. In Republic Act No. 7729 -- "An Act Reducing the Excise Tax Rates on
Metallic and Non-Metallic Minerals and Quarry Resources, Amending for the Purpose Section
151(a) of the National Internal Revenue Code, as amended" -- the lawmakers fixed the excise tax
rate on metallic and non-metallic minerals at two percent of the actual market value of the annual
gross output at the time of removal. However, in the case of petroleum, the lawmakers set the
excise tax rate for the first taxable sale at fifteen percent of the fair international market price
thereof.
There must have been a very sound reason that impelled Congress to impose two very dissimilar
excise tax rate. We cannot assume, without proof, that our honorable legislators acted arbitrarily,
capriciously and whimsically in this instance. We cannot just ignore the reality of two distinctly
different situations and stubbornly insist on going "minimum 60 percent."
To repeat, the mere fact that gas and oil exploration contracts grant the State 60 percent of the
net revenues does not necessarily imply that mining contracts should likewise yield a minimum of
60 percent for the State.Jumping to that erroneous conclusion is like comparing apples with
oranges. The exploration, development and utilization of gas and oil are simply different from
those of mineral resources.
To stress again, the main risk in gas and oil is in the exploration. But once oil in commercial
quantities is struck and the wells are put in place, the risk is relatively over and black gold simply
flows out continuously withcomparatively less need for fresh investments and technology.
On the other hand, even if minerals are found in viable quantities, there is still need
for continuous fresh capital and expertise to dig the mineral ores from the mines. Just because
deposits of mineral ores are found in one area is no guarantee that an equal amount can be found
in the adjacent areas. There are simply continuing risks and need for more capital, expertise and
industry all the time.
Note, however, that the indirect benefits -- apart from the cash revenues -- are much more in the
mineral industry. As mines are explored and extracted, vast employment is created, roads and
other infrastructure are built, and other multiplier effects arise. On the other hand, once oil wells
start producing, there is less need for employment. Roads and other public works need not be
constructed continuously. In fine, there is no basis for saying that government revenues from the
oil industry and from the mineral industries are to be identical all the time.
Fourth, to our mind, the proffered "minimum 60 percent" suggestion tends to limit the flexibility
and tie the hands of government, ultimately hampering the country's competitiveness in the
international market, to the detriment of the Filipino people. This "you-have-to-give-us-60percent-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 risks 79 of the business, as mentioned earlier. These
risks are indeed very high, considering that the rate of success in exploration is extremely low.
The probability of finding any mineral or petroleum in commercially viable quantities is estimated
to be about 1:1,000 only. On that slim chance rides the contractor's hope of recouping
investments and generating profits. And when the contractor has recouped its initial investments
in the project, the government share increases to sixty percent of net benefits -- without the State
ever being in peril of incurring costs, expenses and losses.
And even in the worst possible scenario -- an absence of commercial quantities of minerals to
justify development -- the contractor would already have spent several million pesos for

exploration works, before arriving at the point in which it can make that determination and decide
to cut its losses. In fact, during the first year alone of the exploration period, the contractor was
already committed to spend not less than P24 million. The FTAA therefore clearly ensures benefits
for the local economy, courtesy of the contractor.
All in all, this setup cannot be regarded as disadvantageous to the State or the Filipino
people; it certainly cannot be said to convey beneficial ownership of our mineral
resources to foreign contractors.
Deductions
Allowed
by
the
WMCP FTAA Reasonable
Petitioners question whether the State's weak control might render the sharing arrangements
ineffective. They cite the so-called "suspicious" deductions allowed by the WMCP FTAA in arriving
at the net mining revenue, which is the basis for computing the government share. The WMCP
FTAA, for instance, allows expenditures for "development within and outside the Contract
Area relating to the Mining Operations," 80 "consulting fees incurred both inside and outside the
Philippines for work related directly to the Mining Operations," 81 and "the establishment and
administration of field offices including administrative overheads incurred within and outside the
Philippines which are properly allocatable to the Mining Operations and reasonably related to the
performance of the Contractor's obligations and exercise of its rights under this Agreement." 82
It is quite well known, however, that mining companies do perform some marketing activities
abroad in respect of selling their mineral products and by-products. Hence, it would not be
improper to allow the deduction ofreasonable consulting fees incurred abroad, as well as
administrative expenses and overheads related to marketing offices also located abroad -provided that these deductions are directly related or properly allocatable to the mining
operations and reasonably related to the performance of the contractor's obligations and exercise
of its rights. In any event, more facts are needed. Until we see how these provisions actually
operate, mere "suspicions" will not suffice to propel this Court into taking action.
Section
7.9
of
the
WMCP
FTAA
Invalid and Disadvantageous
Having defended the WMCP FTAA, we shall now turn to two defective provisos. Let us start with
Section 7.9 of the WMCP FTAA. While Section 7.7 gives the government a 60 percent share in the
net mining revenues of WMCP from the commencement of commercial production, Section 7.9
deprives the government of part or all of the said 60 percent. Under the latter provision, should
WMCP's foreign shareholders -- who originally owned 100 percent of the equity -- sell 60 percent
or more of its outstanding capital stock to a Filipino citizen or corporation, the State loses its right
to receive its 60 percent share in net mining revenues under Section 7.7.
Section 7.9 provides:
The percentage of Net Mining Revenues payable to the Government pursuant to Clause
7.7 shall be reduced by 1percent of Net Mining Revenues for every 1percent ownership
interest in the Contractor (i.e., WMCP) held by a Qualified Entity.83
Evidently, what Section 7.7 grants to the State is taken away in the next breath by Section
7.9 without any offsetting compensation to the State. Thus, in reality, the State has no vested
right to receive any income from the FTAA for the exploitation of its mineral resources. Worse, it
would seem that what is given to the State in Section 7.7 is by mere tolerance of WMCP's foreign
stockholders, who can at any time cut off the government's entire 60 percent share. They can do
so by simply selling 60 percent of WMCP's outstanding capital stock to a Philippine citizen or
corporation. Moreover, the proceeds of such sale will of course accrue to the foreign stockholders
of WMCP, not to the State.
The sale of 60 percent of WMCP's outstanding equity to a corporation that is 60 percent Filipinoowned 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 decisions 86 that the parties to a contract may
establish any agreements, terms and conditions that they deem convenient; but these should not
be contrary to law, morals, good customs, public order or public policy. 87 Being precisely violative
of anti-graft provisions and contrary to public policy, Section 7.9 must therefore be stricken off as
invalid.
Whether the government officials concerned acceded to that provision by sheer mistake or with
full awareness of the ill consequences, is of no moment. It is hornbook doctrine that the principle
of estoppel does not operate against the government for the act of its agents, 88 and that it is
never estopped by any mistake or error on their part. 89 It is therefore possible and proper to
rectify the situation at this time. Moreover, we may also say that the FTAA in question does not
involve mere contractual rights; being impressed as it is with public interest, the contractual
provisions and stipulations must yield to the common good and the national interest.

Since the offending provision is very much separable 90 from Section 7.7 and the rest of the FTAA,
the deletion of Section 7.9 can be done without affecting or requiring the invalidation of the
WMCP FTAA itself. Such a deletion will preserve for the government its due share of the benefits.
This way, the mandates of the Constitution are complied with and the interests of the government
fully protected, while the business operations of the contractor are not needlessly disrupted.
Section
7.8(e)
of
the
WMCP
FTAA
Also Invalid and Disadvantageous
Section 7.8(e) of the WMCP FTAA is likewise invalid. It provides thus:
"7.8 The Government Share shall be deemed to include all of the following sums:
"(a) all Government taxes, fees, levies, costs, imposts, duties and royalties
including excise tax, corporate income tax, customs duty, sales tax, value
added tax, occupation and regulatory fees, Government controlled price
stabilization schemes, any other form of Government backed schemes, any tax
on dividend payments by the Contractor or its Affiliates in respect of revenues
from the Mining Operations and any tax on interest on domestic and foreign
loans or other financial arrangements or accommodations, including loans
extended to the Contractor by its stockholders;
"(b) any payments to local and regional government, including taxes, fees,
levies, costs, imposts, duties, royalties, occupation and regulatory fees and
infrastructure contributions;
"(c) any payments to landowners, surface rights holders, occupiers, indigenous
people or Claimowners;
"(d) costs and expenses of fulfilling the Contractor's obligations to contribute to
national development in accordance with Clause 10.1(i) (1) and 10.1(i) (2);
"(e) an amount equivalent to whatever benefits that may be extended in the
future by the Government to the Contractor or to financial or technical
assistance agreement contractors in general;
"(f) all of the foregoing items which have not previously been offset against the
Government Share in an earlier Fiscal Year, adjusted for inflation."
(underscoring supplied)
Section 7.8(e) is out of place in the FTAA. It makes no sense why, for instance, money spent by
the government for the benefit of the contractor in building roads leading to the mine site should
still be deductible from the State's share in net mining revenues. Allowing this deduction results in
benefiting the contractor twice over. It constitutesunjust enrichment on the part of the
contractor at the expense of the government, since the latter is effectively being made to pay
twice for the same item.91 For being grossly disadvantageous and prejudicial to the government
and contrary to public policy, Section 7.8(e) is undoubtedly invalid and must be declared to be
without effect. Fortunately, this provision can also easily be stricken off without affecting the rest
of the FTAA.
Nothing
Left
Over
After Deductions?
In connection with Section 7.8, an objection has been raised: Specified in Section 7.8 are
numerous items of deduction from the State's 60 percent share. After taking these into account,
will the State ever receive anything for its ownership of the mineral resources?
We are confident that under normal circumstances, the answer will be yes. If we examine the
various items of "deduction" listed in Section 7.8 of the WMCP FTAA, we will find that they
correspond closely to the components or elements of the basic government share established
in DAO 99-56, as discussed in the earlier part of this Opinion.
Likewise, the balance of the government's 60 percent share -- after netting out the items of
deduction listed in Section 7.8 --corresponds closely to the additional government
share provided for in DAO 99-56 which, we once again stress, has nothing at all to do with
indirect taxes. The Ramos-DeVera paper 92 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 twentyfive (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 productionsharing agreements -- which the government may enter into with Filipino citizens and
corporations, at least 60 percent owned by Filipino citizens. The word "such" clearly refers to
these three mineral agreements -- CPAs, JVAs and MPSAs -- not to FTAAs.
Specifically, FTAAs are covered by paragraphs 4 and 5 of Section 2 of Article XII of the
Constitution. It will be noted that there are no term limitations provided for in the said paragraphs
dealing with FTAAs. This shows that FTAAs are sui generis, in a class of their own. This omission
was obviously a deliberate move on the part of the framers. They probably realized that FTAAs
would be different in many ways from MPSAs, JVAs and CPAs. The reason the framers did not fix
term limitations applicable to FTAAs is that they preferred to leave the matter to the discretion of
the legislature and/or the agencies involved in implementing the laws pertaining to FTAAs, in
order to give the latter enough flexibility and elbow room to meet changing circumstances.
Note also that, as previously stated, the exploratory phrases of an FTAA lasts up to eleven years.
Thereafter, a few more years would be gobbled up in start-up operations. It may take fifteen years
before an FTAA contractor can start earning profits. And thus, the period of 25 years may really be
short for an FTAA. Consider too that in this kind of agreement, the contractor assumes all
entrepreneurial risks. If no commercial quantities of minerals are found, the contractor bears all
financial losses. To compensate for this long gestation period and extra business risks, it would
not be totally unreasonable to allow it to continue EDU activities for another twenty five years.
In any event, the complaint is that, in essence, Section 3.3 gives the contractor the power to
compel the government to renew the WMCP FTAA for another 25 years and deprives the State of
any say on whether to renew the contract.
While we agree that Section 3.3 could have been worded so as to prevent it from favoring the
contractor, this provision does not violate any constitutional limits, since the said term limitation
does not apply at all to FTAAs. Neither can the provision be deemed in any manner to be illegal,
as no law is being violated thereby. It is certainly not illegal for the government to waive its option
to refuse the renewal of a commercial contract.
Verily, the government did not have to agree to Section 3.3. It could have said "No" to the
stipulation, but it did not. It appears that, in the process of negotiations, the other contracting
party was able to convince the government to agree to the renewal terms. Under the
circumstances, it does not seem proper for this Court to intervene and step in to undo what might
have perhaps been a possible miscalculation on the part of the State. If government believes that
it is or will be aggrieved by the effects of Section 3.3, the remedy is the renegotiation of the
provision in order to provide the State the option to not renew the FTAA.
Financial
Benefits
for
Foreigners
Not Forbidden by the Constitution
Before leaving this subject matter, we find it necessary for us to rid ourselves of the false belief
that the Constitution somehow forbids foreign-owned corporations from deriving financial benefits
from the development of our natural or mineral resources.
The Constitution has never prohibited foreign corporations from acquiring and enjoying "beneficial
interest" in the development of Philippine natural resources. The State itself need not directly
undertake exploration, development, and utilization activities. Alternatively, the Constitution
authorizes the government to enter into joint venture agreements (JVAs), co-production
agreements (CPAs) and mineral production sharing agreements (MPSAs) with contractors who are
Filipino citizens or corporations that are at least 60 percent Filipino-owned. They may do the
actual "dirty work" -- the mining operations.
In the case of a 60 percent Filipino-owned corporation, the 40 percent individual and/or
corporate non-Filipino stakeholders obviously participate in the beneficial interest derived from
the development and utilization of our natural resources. They may receive by way of dividends,
up to 40 percent of the contractor's earnings from the mining project. Likewise, they may have a
say in the decisions of the board of directors, since they are entitled to representation therein to

the extent of their equity participation, which the Constitution permits to be up to 40 percent of
the contractor's equity. Hence, the non-Filipino stakeholders may in that manner also participate
in the management of the contractor's natural resource development work. All of this is permitted
by our Constitution, for any natural resource, and without limitation even in regard to the
magnitude of the mining project or operations (see paragraph 1 of Section 2 of Article XII).
It is clear, then, that there is nothing inherently wrong with or constitutionally objectionable about
the idea of foreign individuals and entities having or enjoying "beneficial interest" in -- and
participating in the management of operations relative to -- the exploration, development and
utilization of our natural resources.
FTAA
More
Advantageous
Than
Other
Schemes
Like CPA, JVA and MPSA
A final point on the subject of beneficial interest. We believe the FTAA is a more advantageous
proposition for the government as compared with other agreements permitted by the
Constitution. In a CPA that the government enters into with one or more contractors, the
government shall provide inputs to the mining operations other than the mineral resource itself. 94
In a JVA, a JV company is organized by the government and the contractor, with both parties
having equity shares (investments); and the contractor is granted the exclusive right to conduct
mining operations and to extract minerals found in the area. 95 On the other hand, in an MPSA, the
government grants the contractor the exclusive right to conduct mining operations within the
contract area and shares in the gross output; and the contractor provides the necessary
financing, technology, management and manpower.
The point being made here is that, in two of the three types of agreements under consideration,
the government has to ante up some risk capital for the enterprise. In other words, government
funds (public moneys) are withdrawn from other possible uses, put to work in the venture
and placed at risk in case the venture fails. This notwithstanding, management and control of the
operations of the enterprise are -- in all three arrangements -- in the hands of the contractor, with
the government being mainly a silent partner. The three types of agreement mentioned above
apply to any natural resource, without limitation and regardless of the size or magnitude of the
project or operations.
In contrast to the foregoing arrangements, and pursuant to paragraph 4 of Section 2 of Article XII,
the FTAA is limited to large-scale projects and only for minerals, petroleum and other mineral oils.
Here, the Constitution removes the 40 percent cap on foreign ownership and allows the foreign
corporation to own up to 100 percent of the equity. Filipino capital may not be sufficient on
account of the size of the project, so the foreign entity may have to ante up all the risk capital.
Correlatively, the foreign stakeholder bears up to 100 percent of the risk of loss if the project fails.
In respect of the particular FTAA granted to it, WMCP (then 100 percent foreign owned) was
responsible, as contractor, for providing the entire equity, including all the inputs for the project. It
was to bear 100 percent of the risk of loss if the project failed, but its maximum potential
"beneficial interest" consisted only of 40 percent of the net beneficial interest, because the other
60 percent is the share of the government, which will never be exposed to any risk of loss
whatsoever.
In consonance with the degree of risk assumed, the FTAA vested in WMCP the day-to-day
management of the mining operations. Still such management is subject to the overall control
and supervision of the State in terms of regular reporting, approvals of work programs and
budgets, and so on.
So, one needs to consider in relative terms, the costs of inputs for, degree of risk attendant to,
and benefits derived or to be derived from a CPA, a JVA or an MPSA vis--vis those pertaining to an
FTAA. It may not be realistically asserted that the foreign grantee of an FTAA is being unduly
favored or benefited as compared with a foreign stakeholder in a corporation holding a CPA, a JVA
or an MPSA. Seen the other way around, the government is definitely better off with an FTAA than
a CPA, a JVA or an MPSA.
Developmental Policy on the Mining Industry

During the Oral Argument and in their Final Memorandum, petitioners repeatedly urged the Court
to consider whether mining as an industry and economic activity deserved to be accorded
priority, preference and government support as against, say, agriculture and other activities in
which Filipinos and the Philippines may have an "economic advantage." For instance, a recent US
study96 reportedly examined the economic performance of all local US counties that were
dependent on mining and 20 percent of whose labor earnings between 1970 and 2000 came from
mining enterprises.
The study -- covering 100 US counties in 25 states dependent on mining -- showed that per capita
income grew about 30 percent less in mining-dependent communities in the 1980s and 25
percent less for the entire period 1980 to 2000; the level of per capita income was also lower.
Therefore, given the slower rate of growth, the gap between these and other local counties
increased.
Petitioners invite attention to the OXFAM America Report's warning to developing nations that
mining brings with it serious economic problems, including increased regional inequality,
unemployment and poverty. They also cite the final report 97 of the Extractive Industries Review
project commissioned by the World Bank (the WB-EIR Report), which warns of environmental
degradation, social disruption, conflict, and uneven sharing of benefits with local communities
that bear the negative social and environmental impact. The Report suggests that countries need
to decide on the best way to exploit their natural resources, in order to maximize the value added
from the development of their resources and ensure that they are on the path to sustainable
development once the resources run out.
Whatever priority or preference may be given to mining vis--vis other economic or non-economic
activities is a question of policy that the President and Congress will have to address; it is not for
this Court to decide. This Court declares what the Constitution and the laws say, interprets only
when necessary, and refrains from delving into matters of policy.
Suffice it to say that the State control accorded by the Constitution over mining activities assures
a proper balancing of interests. More pointedly, such control will enable the President to demand
the best mining practices and the use of the best available technologies to protect the
environment and to rehabilitate mined-out areas. Indeed, under the Mining Law, the government
can ensure the protection of the environment during and after mining. It can likewise provide for
the mechanisms to protect the rights of indigenous communities, and thereby mold a more
socially-responsive, culturally-sensitive and sustainable mining industry.
Early on during the launching of the Presidential Mineral Industry Environmental Awards on
February 6, 1997, then President Fidel V. Ramos captured the essence of balanced and
sustainable mining in these words:
"Long term, high profit mining translates into higher revenues for government, more
decent jobs for the population, more raw materials to feed the engines of downstream
and allied industries, and improved chances of human resource and countryside
development by creating self-reliant communities away from urban centers.
xxxxxxxxx
"Against a fragile and finite environment, it is sustainability that holds the key. In
sustainable mining, we take a middle ground where both production and protection
goals are balanced, and where parties-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 eitheror, which according to her denotes restriction; hence the phrase must be
deemed to connote restriction and limitation.
But, as Justice Carpio himself pointed out during the Oral Argument, the disjunctive phrase either
technical or financial assistance would, strictly speaking, literally mean that a foreign contractor
may provide only one or the other, but not both. And if both technical and financial assistance
were required for a project, the State would have to deal with at least two different foreign
contractors -- one for financial and the other for technical assistance. And following on that, a
foreign contractor, though very much qualified to provide both kinds of assistance, would
nevertheless be prohibited from providing one kind as soon as it shall have agreed to provide the
other.
But if the Court should follow this restrictive and literal construction, can we really find two (or
more) contractors who are willing to participate in one single project -- one to provide the
"financial assistance" only and the other the "technical assistance" exclusively; it would be
excellent if these two or more contractors happen to be willing and are able to cooperate and
work closely together on the same project (even if they are otherwise competitors). And it would
be superb if no conflicts would arise between or among them in the entire course of the contract.
But what are the chances things will turn out this way in the real world? To think that the framers
deliberately imposed this kind of restriction is to say that they were either exceedingly optimistic,
or incredibly nave. This begs the question -- What laudable objective or purpose could possibly be
served by such strict and restrictive literal interpretation?
3. Citing Oposa v. Factoran Jr., Justice Morales claims that a service contract is not a contract or
property right which merits protection by the due process clause of the Constitution, but merely a
license or privilege which may be validly revoked, rescinded or withdrawn by executive action
whenever dictated by public interest or public welfare.
Oposa cites Tan v. Director of Forestry and Ysmael v. Deputy Executive Secretary as authority. The
latter cases dealt specifically with timber licenses only. Oposa allegedly reiterated that a
license is merely a permit or privilege to do what otherwise would be unlawful, and is not a
contract between the authority, federal, state or municipal, granting it and the person to whom it
is granted; neither is it property or a property right, nor does it create a vested right; nor is it
taxation. Thus this Court held that the granting of license does not create irrevocable rights,
neither is it property or property rights.
Should Oposa be deemed applicable to the case at bar, on the argument that natural resources
are also involved in this situation? We do not think so. A grantee of a timber license, permit or
license agreement gets to cut the timber already growing on the surface; it need not dig up tons
of earth to get at the logs. In a logging concession, the investment of the licensee is not as
substantial as the investment of a large-scale mining contractor. If a timber license were revoked,
the licensee packs up its gear and moves to a new area applied for, and starts over; what it
leaves behind are mainly the trails leading to the logging site.

In contrast, the mining contractor will have sunk a great deal of money (tens of millions of dollars)
into the ground, so to speak, for exploration activities, for development of the mine site and
infrastructure, and for the actual excavation and extraction of minerals, including the extensive
tunneling work to reach the ore body. The cancellation of the mining contract will utterly deprive
the contractor of its investments (i.e., prevent recovery of investments), most of which cannot be
pulled out.
To say that an FTAA is just like a mere timber license or permit and does not involve contract or
property rights which merit protection by the due process clause of the Constitution, and may
therefore be revoked or cancelled in the blink of an eye, is to adopt a well-nigh confiscatory
stance; at the very least, it is downright dismissive of the property rights of businesspersons and
corporate entities that have investments in the mining industry, whose investments, operations
and expenditures do contribute to the general welfare of the people, the coffers of government,
and the strength of the economy. Such a pronouncement will surely discourage investments (local
and foreign) which are critically needed to fuel the engine of economic growth and move this
country out of the rut of poverty. In sum, Oposa is not applicable.
4. Justice Morales adverts to the supposedly "clear intention" of the framers of the Constitution to
reserve our natural resources exclusively for the Filipino people. She then quoted from the records
of the ConCom deliberations a passage in which then Commissioner Davide explained his vote,
arguing in the process that aliens ought not be allowed to participate in the enjoyment of our
natural resources. One passage does not suffice to capture the tenor or substance of the entire
extensive deliberations of the commissioners, or to reveal the clear intention of the framers as a
group. A re-reading of the entire deliberations (quoted here earlier) is necessary if we are to
understand the true intent of the framers.
5. Since 1935, the Filipino people, through their Constitution, have decided that the retardation or
delay in the exploration, development or utilization of the nation's natural resources is merely
secondary to the protection and preservation of their ownership of the natural resources, so says
Justice Morales, citing Aruego. If it is true that the framers of the 1987 Constitution did not care
much about alleviating the retardation or delay in the development and utilization of our natural
resources, why did they bother to write paragraph 4 at all? Were they merely paying lip service to
large-scale exploration, development and utilization? They could have just completely ignored the
subject matter and left it to be dealt with through a future constitutional amendment. But we
have to harmonize every part of the Constitution and to interpret each provision in a manner that
would give life and meaning to it and to the rest of the provisions. It is obvious that a literal
interpretation of paragraph 4 will render it utterly inutile and inoperative.
6. According to Justice Morales, the deliberations of the Constitutional Commission do not support
our contention that the framers, by specifying such agreements involving financial or technical
assistance, necessarily gave implied assent to everything that these agreements implicitly
entailed, or that could reasonably be deemed necessary to make them tenable and effective,
including management authority in the day-to-day operations. As proof thereof, she quotes one
single passage from the ConCom deliberations, consisting of an exchange among Commissioners
Tingson, Garcia and Monsod.
However, the quoted exchange does not serve to contradict our argument; it even bolsters it.
Comm. Christian Monsod was quoted as saying: "xxx I think we have to make a distinction that it
is not really realistic to say that we will borrow on our own terms. Maybe we can say that we
inherited unjust loans, and we would like to repay these on terms that are not prejudicial to our
own growth. But the general statement that we should only borrow on our own terms is a bit
unrealistic." Comm. Monsod is one who knew whereof he spoke.
7. Justice Morales also declares that the optimal time for the conversion of an FTAA into an MPSA
is after completion of the exploration phase and just before undertaking the development and
construction phase, on account of the fact that the requirement for a minimum investment of $50
million is applicable only during the development, construction and utilization phase, but not
during the exploration phase, when the foreign contractor need merely comply with minimum

ground expenditures. Thus by converting, the foreign contractor maximizes its profits by avoiding
its obligation to make the minimum investment of $50 million.
This argument forgets that the foreign contractor is in the game precisely to make money. In order
to come anywhere near profitability, the contractor must first extract and sell the mineral ore. In
order to do that, it must also develop and construct the mining facilities, set up its machineries
and equipment and dig the tunnels to get to the deposit. The contractor is thus compelled to
expend funds in order to make profits. If it decides to cut back on investments and expenditures,
it will necessarily sacrifice the pace of development and utilization; it will necessarily sacrifice the
amount of profits it can make from the mining operations. In fact, at certain less-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 phraseamong other things was not intended as a
delegation of legislative power to the DENR secretary, much less could it be deemed a valid
delegation of legislative power, since there is nothing in the second paragraph of Section 81
which can be said to grant any delegated legislative power to the DENR secretary. And even if
there were, such delegation would be void, for lack of any standards by which the delegated
power shall be exercised.

While there is nothing in the second paragraph of Section 81 which can directly be construed as a
delegation of legislative power to the DENR secretary, it does not mean that DAO 99-56 is invalid
per se, or that the secretary acted without any authority or jurisdiction in issuing DAO 99-56. As
we stated earlier in our Prologue, "Who or what organ of government actually exercises this
power of control on behalf of the State? The Constitution is crystal clear: the President. Indeed,
the Chief Executive is the official constitutionally mandated to 'enter into agreements with foreign
owned corporations.' On the other hand, Congress may review the action of the President once it
is notified of 'every contract entered into in accordance with this [constitutional] provision within
thirty days from its execution.'" It is the President who is constitutionally mandated to enter into
FTAAs with foreign corporations, and in doing so, it is within the President's prerogative to
specify certain terms and conditions of the FTAAs, for example, the fiscal regime of FTAAs -i.e., the sharing of the net mining revenues between the contractor and the State.
Being the President's alter ego with respect to the control and supervision of the mining industry,
the DENR secretary, acting for the President, is necessarily clothed with the requisite authority
and power to draw up guidelines delineating certain terms and conditions, and specifying therein
the terms of sharing of benefits from mining, to be applicable to FTAAs in general. It is important
to remember that DAO 99-56 has been in existence for almost six years, and has not been
amended or revoked by the President.
The issuance of DAO 99-56 did not involve the exercise of delegated legislative power. The
legislature did not delegate the power to determine the nature, extent and composition of the
items that would come under the phrase among other things. The legislature's power pertains to
the imposition of taxes, duties and fees. This power was not delegated to the DENR secretary. But
the power to negotiate and enter into FTAAs was withheld from Congress, and reserved for the
President. In determining the sharing of mining benefits, i.e., in specifying what the phrase among
other things include, the President (through the secretary acting in his/her behalf) was not
determining the amount or rate of taxes, duties and fees, but rather the amount of INCOME to be
derived from minerals to be extracted and sold, income which belongs to the State as owner of
the mineral resources. We may say that, in the second paragraph of Section 81, the legislature in
a sense intruded partially into the President's sphere of authority when the former provided that
"The Government share in financial or technical assistance agreement shall consist of,
among other things, the contractor's corporate income tax, excise tax, special
allowance, withholding tax due from the contractor's foreign stockholders arising from
dividend or interest payments to the said foreign stockholder in case of a foreign
national and all such other taxes, duties and fees as provided for under existing
laws."(Italics supplied)
But it did not usurp the President's authority since the provision merely included the enumerated
items as part of the government share, without foreclosing or in any way preventing (as in fact
Congress could not validly prevent) the President from determining what constitutes the State's
compensation derived from FTAAs. In this case, the President in effect directed the inclusion or
addition of "other things," viz., INCOME for the owner of the resources, in the government's share,
while adopting the items enumerated by Congress as part of the government share also.
12. Justice Carpio's insistence on applying the ejusdem generis rule of statutory construction to
the phraseamong other things is therefore useless, and must fall by the wayside. There is no point
trying to construe that phrase in relation to the enumeration of taxes, duties and fees found in
paragraph 2 of Section 81, precisely because "the constitutional power to prescribe the
sharing of mining income between the State and mining companies," to quote Justice
Carpio pursuant to an FTAA is constitutionally lodged with the President, not with
Congress. It thus makes no sense to persist in giving the phrase among other things a restricted
meaning referring only to taxes, duties and fees.
13. Strangely, Justice Carpio claims that the DENR secretary can change the formulae in DAO 9956 any time even without the approval of the President, and the secretary is the sole authority to
determine the amount of consideration that the State shall receive in an FTAA, because Section 5
of the DAO states that "xxx any amendment of an FTAA other than the provision on fiscal

regime shall require the negotiation with the Negotiation Panel and the recommendation of the
Secretary for approval of the President xxx". Allegedly, because of that provision, if an
amendment in the FTAA involves non-fiscal matters, the amendment requires approval of the
President, but if the amendment involves a change in the fiscal regime, the DENR secretary has
the final authority, and approval of the President may be dispensed with; hence the secretary is
more powerful than the President.
We believe there is some distortion resulting from the quoted provision being taken out of
context. Section 5 of DAO 99-56 reads as follows:
"Section 5. Status of Existing FTAAs. All FTAAs approved prior to the effectivity of this
Administrative Order shall remain valid and be recognized by the Government: Provided,
That should a Contractor desire to amend its FTAA, it shall do so by filing a Letter of
Intent (LOI) to the Secretary thru the Director. Provided, further, That if the Contractor
desires to amend the fiscal regime of its FTAA, it may do so by seeking for the
amendment of its FTAA's whole fiscal regime by adopting the fiscal regime provided
hereof: Provided, finally, That any amendment of an FTAA other than the provision on
fiscal regime shall require the negotiation with the Negotiating Panel and the
recommendation of the Secretary for approval of the President of the Republic of the
Philippines." (underscoring supplied)
It looks like another case of misapprehension. The proviso being objected to by Justice Carpio is
actually preceded by a phrase that requires a contractor desiring to amend the fiscal regime of its
FTAA, to amend thesame by adopting the fiscal regime prescribed in DAO 99-56 -- i.e., solely in
that manner, and in no other.Obviously, since DAO 99-56 was issued by the
secretary under the authority and with the presumed approval of the President, the
amendment of an FTAA by merely adopting the fiscal regime prescribed in said DAO
99-56 (and nothing more) need not have the express clearance of the President
anymore. It is as if the same had been pre-approved. We cannot fathom the complaint that that
makes the secretary more powerful than the President, or that the former is trying to hide things
from the President or Congress.
14. Based on the first sentence of Section 5 of DAO 99-56, which states "[A]ll FTAAs approved
prior to the effectivity of this Administrative Order shall remain valid and be recognized by the
Government", Justice Carpio concludes that said Administrative Order allegedly exempts FTAAs
approved prior to its effectivity -- like the WMCP FTAA -- from having to pay the State any share
from their mining income, apart from taxes, duties and fees.
We disagree. What we see in black and white is the statement that the FTAAs approved before the
DAO came into effect are to continue to be valid and will be recognized by the State. Nothing is
said about their fiscal regimes. Certainly, there is no basis to claim that the contractors under said
FTAAs were being exempted from paying the government a share in their mining incomes.
For the record, the WMCP FTAA is NOT and has never been exempt from paying the government
share. The WMCP FTAA has its own fiscal regime -- Section 7.7 -- which gives the
government a 60 percent share in the net mining revenues of WMCP from the
commencement of commercial production.
For that very reason, we have never said that DAO 99-56 is the basis for claiming that the WMCP
FTAA has a consideration. Hence, we find quite out of place Justice Carpio's statement
that ironically, DAO 99-56, the very authority cited to support the claim that the WMCP FTAA has a
consideration, does not apply to the WMCP FTAA. By its own express terms, DAO 99-56 does not
apply to FTAAs executed before the issuance of DAO 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 assistancein respect of mining or any other commercial activity was
clearly unnecessary; the provision was meant to refer to more than mere financial or technical
assistance.
Also, if paragraph 4 permits only agreements for financial or technical assistance, there would be
no point in requiring that they be "based on real contributions to the economic growth and
general welfare of the country."And considering that there were various long-term service
contracts still in force and effect at the time the new Charter was being drafted, the absence of
any transitory provisions to govern the termination and closing-out of the then existing service
contracts strongly militates against the theory that the mere omission of "service contracts"
signaled their prohibition by the new Constitution.
Resort to the deliberations of the Constitutional Commission is therefore unavoidable, and a
careful scrutiny thereof conclusively shows that the ConCom members discussed agreements
involving either technical or financial assistance in the same sense as service contracts and used
the terms interchangeably. The drafters in fact knew that the agreements with foreign
corporations were going to entail not mere technical or financial assistance but, rather, foreign
investment in and management of an enterprise for large-scale exploration, development and
utilization of minerals.
The framers spoke about service contracts as the concept was understood in the 1973
Constitution. It is obvious from their discussions that they did not intend to ban or eradicate
service contracts. Instead, they were intent on crafting provisions to put in place safeguards that
would eliminate or minimize the abuses prevalent during the martial law regime. In brief, they
were going to permit service contracts with foreign corporations as contractors, but
with safety measures to prevent abuses, as an exception to the general norm
established in the first paragraph of Section 2 of Article XII, which reserves or limits to
Filipino citizens and corporations at least 60 percent owned by such citizens the

exploration, development and utilization of mineral or petroleum resources. This was

prompted by the perceived insufficiency of Filipino capital and the felt need for foreign expertise
in the EDU of mineral resources.
Despite strong opposition from some ConCom members during the final voting, the Article on the
National Economy and Patrimony -- including paragraph 4 allowing service contracts with foreign
corporations as an exception to the general norm in paragraph 1 of Section 2 of the same Article
-- was resoundingly and overwhelmingly approved.
The drafters, many of whom were economists, academicians, lawyers, businesspersons and
politicians knew that foreign entities will not enter into agreements involving assistance without
requiring measures of protection to ensure the success of the venture and repayment of their
investments, loans and other financial assistance, and ultimately to protect the business
reputation of the foreign corporations. The drafters, by specifying such agreements involving
assistance, necessarily gave implied assent to everything that these agreements entailed or that
could reasonably be deemed necessary to make them tenable and effective -- including
management authority with respect to the day-to-day operations of the enterprise, and measures
for the protection of the interests of the foreign corporation, at least to the extent that they are
consistent with Philippine sovereignty over natural resources, the constitutional requirement of
State control, and beneficial ownership of natural resources remaining vested in the State.
From the foregoing, it is clear that agreements involving either technical or financial
assistance referred to in paragraph 4 are in fact service contracts, but such new service contracts
are between foreign corporations acting as contractors on the one hand, and on the other hand
government as principal or "owner" (of the works), whereby the foreign contractor provides the
capital, technology and technical know-how, and managerial expertise in the creation and
operation of the large-scale mining/extractive enterprise, and government through its agencies
(DENR, MGB) actively exercises full control and supervision over the entire enterprise.
Such service contracts may be entered into only with respect to minerals, petroleum and other
mineral oils. The grant of such service contracts is subject to several safeguards, among them: (1)
that the service contract be crafted in accordance with a general law setting standard or uniform
terms, conditions and requirements; (2) the President be the signatory for the government; and
(3) the President report the executed agreement to Congress within thirty days.
Ultimate Test: Full State Control
To repeat, the primacy of the principle of the State's sovereign ownership of all mineral resources,
and its full control and supervision over all aspects of exploration, development and utilization of
natural resources must be upheld. But "full control and supervision" cannot be taken literally to
mean that the State controls and superviseseverything down to the minutest details and makes
all required actions, as this would render impossible the legitimate exercise by the contractor of a
reasonable degree of management prerogative and authority, indispensable to the proper
functioning of the mining enterprise. Also, government need not 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 9640 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 foreignowned 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 antidummy law.
Clause 10.2(l) of the WMCP FTAA giving the contractor the right to mortgage and encumber the
mineral products extracted may have been a result of conditions imposed by creditor-banks to
secure the loan obligations of WMCP. Banks lend also upon the security of encumbrances
on goods produced, which can be easily sold and converted into cash and applied to the
repayment of loans. Thus, Clause 10.2(l) is not something out of the ordinary. Neither is it
objectionable, because even though the contractor is allowed to mortgage or encumber the
mineral end-products themselves, the contractor is not thereby relieved of its obligation to pay
the government its basic and additional shares in the net mining revenue. The contractor's ability
to mortgage the minerals does not negate the State's right to receive its share of net mining
revenues.
Clause 10.2(k) which gives the contractor authority "to change its equity structure at any time,"
means that WMCP, which was then 100 percent foreign owned, could permit Filipino equity
ownership. Moreover, what is important is that the contractor, regardless of its ownership, is
always in a position to render the services required under the FTAA, under the direction and
control of the government.
Clauses 10.4(e) and (i) bind government to allow amendments to the FTAA if required by banks
and other financial institutions as part of the conditions of new lendings. There is nothing
objectionable here, since Clause 10.4(e) also provides that such financing arrangements should in
no event reduce the contractor's obligations or the government's rights under the FTAA. Clause
10.4(i) provides that government shall "favourably consider" any request for amendments of this
agreement necessary for the contractor to successfully obtain financing. There is no renunciation
of control, as the proviso does not say that government shall automatically grant any such
request. Also, it is up to the contractor to prove the need for the requested changes. The
government always has the final say on whether to approve or disapprove such requests.
In fine, the FTAA provisions do not reduce or abdicate State control.
No Surrender of Financial Benefits
The second paragraph of Section 81 of RA 7942 has been denounced for allegedly limiting the
State's share in FTAAs with foreign contractors to just taxes, fees and duties, and depriving the
State of a share in the after-tax income of the enterprise. However, the inclusion of the
phrase "among other things" in the second paragraph of Section 81 clearly and unmistakably
reveals the legislative intent to have the State collect more than just the usual taxes, duties and
fees.
Thus, DAO 99-56, the "Guidelines Establishing the Fiscal Regime of Financial or Technical
Assistance Agreements," spells out the financial benefits government will receive from an FTAA,
as consisting of not only abasic government share, comprised of all direct taxes, fees and
royalties, as well as other payments made by the contractor during the term of the FTAA, but also
an additional government share, being a share in the earnings or cash flows of the
mining enterprise, so as to achieve a fifty-fifty sharing of net benefits from mining between the
government and the contractor.
The additional government share is computed using one of three (3) options or schemes
detailed in DAO 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 anappropriate balancing of interests and needs -- the need to develop our stagnating
mining industry and extract what NEDA Secretary Romulo Neri estimates is some US$840 billion
(approx. PhP47.04 trillion) worth of mineral wealth lying hidden in the ground, in order to
jumpstart our floundering economy on the one hand, and on the other, the need to enhance our
nationalistic aspirations, protect our indigenous communities, and prevent irreversible ecological
damage.

This Court cannot but be mindful that any decision rendered in this case will ultimately impact not
only the cultural communities which lodged the instant Petition, and not only the larger
community of the Filipino people now struggling to survive amidst a fiscal/budgetary deficit, ever
increasing prices of fuel, food, and essential commodities and services, the shrinking value of the
local currency, and a government hamstrung in its delivery of basic services by a severe lack of
resources, but also countless future generations of Filipinos.
For this latter group of Filipinos yet to be born, their eventual access to education, health care and
basic services, their overall level of well-being, the very shape of their lives are even now being
determined and affected partly by the policies and directions being adopted and implemented by
government today. And in part by the this Resolution rendered by this Court today.
Verily, the mineral wealth and natural resources of this country are meant to benefit not merely a
select group of people living in the areas locally affected by mining activities, but the entire
Filipino nation, present and future, to whom the mineral wealth really belong. This Court has
therefore weighed carefully the rights and interests of all concerned, and decided for the greater
good of the greatest number. JUSTICE FOR ALL, not just for some; JUSTICE FOR THE PRESENT AND
THE FUTURE, not just for the here and now.
WHEREFORE, the Court RESOLVES to GRANT the respondents' and the intervenors' Motions for
Reconsideration; to REVERSE and SET ASIDE this Court's January 27, 2004 Decision;
to DISMISS the Petition; and to issue this new judgment declaring CONSTITUTIONAL (1) Republic
Act No. 7942 (the Philippine Mining Law), (2) its Implementing Rules and Regulations contained in
DENR Administrative Order (DAO) No. 9640 -- insofar as they relate to financial and technical
assistance agreements referred to in paragraph 4 of Section 2 of Article XII of the Constitution;
and (3) the Financial and Technical Assistance Agreement (FTAA) dated March 30, 1995 executed
by the government and Western Mining Corporation Philippines Inc. (WMCP), except Sections 7.8
and 7.9 of the subject FTAA which are hereby INVALIDATED for being contrary to public policy and
for being grossly disadvantageous to the government.
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--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 stockholder 3 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 Philippines 5 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 centumof 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 productionsharing 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 otherthings, 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. 7942 1 ("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 1995 3 ("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 16 th 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 "coproduction, 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 activitiesonly 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 nonmining 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
productionsharing 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 (1%); 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 XIV 21 on government share in mineral productionsharing 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 preoperating, 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 isillusory. 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) yearsunder 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 81.52The 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 coproduction 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 theabsolute 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 grantedunder 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
ongovernment share in mineral production-sharing agreement and of Chapter
XVI on incentives of this Act shall immediately govern and apply to a mining
lessee or contractor unless the mining lessee or contractor indicates his intention to
the secretary, in writing, not to avail of said provisions:Provided, further, That no renewal
of mining lease contracts shall be made after the expiration of its term:Provided, finally,
That such leases, production-sharing agreements, financial or technical assistance
agreements shall comply with the applicable provisions of this Act and its implementing
rules and regulations. (Emphasis supplied)
Thus, Section 112 requires "all" FTAAs and MPSAs, as of the date of effectivity of RA 7942, to pay
only the excise tax - 2% on metallic and non-metallic minerals and 3% on petroleum 58 - 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 nonrenewable 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 56-99 59 prescribing 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 Ordershall 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. Theejusdem 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) yearsunder 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 coproduction, joint venture, or production-sharing agreements with Filipino citizens, or
corporations or associations at least sixty per centum of whose capital is owned by such
citizens. Such agreements may be for a period not exceeding twenty-five years,
renewable for not more than twenty-five years, and under such terms and
conditions as may be provided by law. In cases of water rights for irrigation, water
supply, fisheries, or industrial uses other than the development of water power,
beneficial use may be the measure and limit of the grant. (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 twentyfive 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 theDirector, 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
ongovernment 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 agreements shall comply with the applicable provisions of this Act and its
implementing rules and regulations." There is no shadow of doubt whatsoever that Section
112, by its own plain, clear and indisputable language, commands that FTAAs shall comply
with RA 7942. I truly cannot fathom how the majority opinion can assert that Section 112 cannot
apply to FTAAs.
Third, Section 112 expressly refers to Chapters XIV and XVI of RA 7942. Chapter XIV refers to the
"Government Share" and covers Sections 80, 81 and 82 of RA 7942. Section 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 nonfiscal 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]onimpairment 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 productionsharing 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 landbased 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 BenguetConsolidated 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) benefitprimarily 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 certaincompelling 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. Ramos 1 by which it declared certain
provisions2 of the Mining Act of 1995 3 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 wealthcontrary 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 limitations 20 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 controland 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. (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 largescale 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 isactually 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--vis its third party partner whereby it can adequately protect the interest of the Filipino
people, who are the beneficial owners of the resources.
By way of concrete example, the Government may enter into a joint venture agreement 45 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 caneffectively 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 welldocumented.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 prevailing 50 and had a settled
acceptation.
The other proffered raison d'tre 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.54Thus, 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 "agreementsconcerning 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," 56thus 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 coproduction, 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 byproducts 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 productionsharing 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 to thealien corporations but only for them to render financial or te
chnical assistance. It is not for them toenjoy our natural resources. Madam
President, our natural resources are depleting; our population is increasing by leaps and
bounds. Fifty years from now, if we will allow these aliens to exploit our natural
resources, there will be no more natural resources for the next generations of Filipinos. It
may last long if we will begin now. Since 1935 the aliens have been allowed to enjoy to a
certain extent the exploitation of our natural resources, and we became victims of
foreign dominance and control. The aliens are interested in coming to the Philippines
because they would like to enjoy the bounty of nature exclusively intended for the
Filipinos by God.
And so I appeal to all, for the sake of the future generations, that if we have to pray in
the Preamble "to preserve and develop the national patrimony for the sovereign Filipino
people and for the generations to come," we must at this time decide once and for all
that our natural resources must be reserved only to Filipino citizens.
Thank you.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
technical or financial assistance contemplated by the 1987 Constitution are different and
dissimilar from the service contracts under the 1973 Constitution must thus be affirmed. That
there is this difference, as noted in the Decision, is gathered from the change in
phraseology.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
constitutionthe 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 resour
ces.
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], coproduction 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 ortechnical assistance 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 ("agreementsinvolving 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.78Since 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:
x
x
x Needless to say, all licenses may thus be revoked or rescinded by executive a
ction. It is not acontract, property or a property right protected by the due pro
cess clause of the Constitution. InTan 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, or exercise his freedom of contract to work them harm. Equally
fundamental with the private right is that of the public to regulate it in the common
interest."
In short, the non-impairment clause must yield to the police power of the stat
e.84 (Emphasis 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 assistancebeing
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:
No.
ATTY. LEONEN:
Yes your Honor, but if it's management of sub-contracted activity like a
symposium then that would be all right your Honor. Mining companies do
symposiums also.
JUSTICE PANGANIBAN:
Management to protect their own investments, whether it be technical
or financial.
ATTY. LEONEN:
Their investment, your Honor, which cannot be the entire mining
operation from my perspective, your Honor.
JUSTICE PANGANIBAN:
Yes I agree because there is the Constitutional provision of control and
supervision, full control and supervision to the State.
ATTY. LEONEN:
And Filipino corporations your Honor.
JUSTICE PANGANIBAN:
Or even Filipino corporation, the full control and supervision is still with the
State.
ATTY. LEONEN:
Yes your Honor.
JUSTICE PANGANIBAN:
Even with Filipino citizens being the contractors, full control and supervision is
still with the State.
ATTY. LEONEN:
Yes, your Honor.
JUSTICE PANGANIBAN:
In all these contract full control and supervision is with the State.
ATTY. LEONEN:
Yes your Honor and we can only hope that the State is responsive to the people
we represent.
xxx
JUSTICE PANGANIBAN:
Yes, yes. Can it also not be said reading that the Constitution that the
safeguards on contracts with foreigners was left by the Constitutional
Commission or by Constitution itself to Congress to craft out.
ATTY. LEONEN:

I can accept your Honor that there was a province of power that was given to
Congress, but it was delimited by the fact, that they removed the word
management and other arrangement and put the words either
financial and technical.
JUSTICE PANGANIBAN:
Yes but you just admitted earlier that these two words would also
include some form of management or other things to protect the
investment or the technology being put by the foreign company.
ATTY. LEONEN:
Yes your Honor for so long as it's not the entire.
JUSTICE PANGANIBAN:
Yes, yes provided the State does not lose control and supervision, isn't
it?
ATTY. LEONEN:
Yes your Honor.87 (Emphasis and underscoring supplied)
Thus, the degree of the foreign corporation's participation in the management of the mining
concern is co-extensive with and strictly limited to the degree of financial or technical assistance
extended. The scope of the assistance defines the limits of the participation in management.
However, to whatever extent the foreign corporation's incidental participation in the management
of the mining concern may be, full control and supervision, sufficient to protect the
interest of the Filipino people, over all aspects of mining operations must be retained
by the Government. While this does not necessarily mean that the Government must assume
the role of a back seat driver, actively second guessing every decision made by the foreign
corporation, it does mean that sufficient safeguards must be incorporated into the FTAA to insure
that the people's beneficial interest in their natural resources are protected at all times.
Moreover, the foreign contractor's limited participation in management, as the Court held in its
Decision, should
not
effectively
grant
foreign-owned
corporations
beneficial
ownership over the natural resources.
The opinion, submitted by the OSG, of Bernardo M. Villegas, who was a Member of the
Constitutional Commission and Chair of its Committee on National Economy and Patrimony, is not
inconsistent with the foregoing conclusion. Commissioner Villegas opined:
The phrase "service contracts" contained in the 1973 Constitution was deleted in the
1987 Constitution because there was the general perception among the Concom
members that it was used during the Marcos regime as an instrument to circumvent the
60-40 limit in favor of Filipino ownership. There was also the impression that the inclusion
of the word "management" in the description of the service contract concept in the 1973
Constitution was tantamount to ownership by the foreign partner.
The majority of the Concom members, however, recognized the vital need of the
Philippine economy for foreign capital and technology in the exploitation of natural
resources to benefit Filipinos, especially the poor in the countryside where the mining
sites are located. For this reason, the majority voted for "agreements involving financial
or technical assistance" or FTAA.
I maintain that the majority who voted Yes to this FTAA provision realized that an FTAA
involved more than borrowing money and/or buying technology from foreigners. If an
FTAA involved only a loan and/or purchase of technology, there would not have been a
need for a constitutional provision because existing laws in the Philippines more than
adequately regulate these transactions.
It can be deducted from the various comments of both those who voted Yes and No to
the FTAA provision that an FTAA also involves the participation in management of the
foreign partner. What was then assumed in 1986 is now even clearer in the way business
organizations have evolved in the last decade or so under the modern concept of good
governance. There are numerous stakeholders in a business other than the stockholders
or equity owners who participate actively in the management of a business enterprise.

Not only do creditors and suppliers demand representation in boards of directors. There
are also other so-called independent directors who actively participate in management.
In summary, the word "management" was deleted from the description of the
FTAA because some CONCOM delegates identified management with beneficial
ownership. In order not to prolong the debate, those in favor of the FTAA provision
agreed not to include the word management. But from what has been discussed above,
it was clear in the minds of those who voted YES that the FTAA included more than
just a loan and/or purchase of technology from foreigners but necessarily
allowed the active participation of the 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 givenexclusive 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 ifnominally, 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
100
101
contractors auxiliary mining rights, i.e., timber rights, water rights, 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 9640. 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 concession 106 and service contract107systems, 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 quasibanking 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.124 Again, 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 fees 127 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 share 130 or (c)
an additional share based on the cumulative net mining revenue 131 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 in Republic 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 valueadded 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 buyercorporation.
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 million136in 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 largescaleexploration, 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) theright 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
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 illegallyacquired
mineral rights to the detriment of their Filipino purchasers as the past Bre-X scandal 145 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
the FTAA, why was an agreement with a foreign owned corporation entered into in the first place?
Second, does not the fact that, as alleged by petitioners 147 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 thefour 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 hasthe right to mortgage the same, and u
nder Section 2, Article XII of the Constitution the absolute owner ofthe minerals is non
e other than the State. While the foreign FTAA contractor may have an interest in
theproceeds 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 tenderand 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
up to 5,000 hectares, with the assistance of the State's powerof eminent domain, free

of charge, for a period of up to 50 years in contravention of Section 3, Article XIIof the

Constitution:
Section 3. Lands of the public domain are classified into agricultural, forest or timber,
mineral lands, and national parks. Agricultural lands of the public domain may be further
classified by law according to the uses which they may be devoted. Alienable lands of
the public domain shall be limited to agricultural lands. Private corporations or
associations may not hold such alienable lands of the public domain except by
lease, for a period not exceeding twenty-five years, renewable for not more
than twenty-five years, and not to exceed one thousand hectares in
area. Citizens of the Philippines may lease not more than five hundred hectares, or
acquire not more than twelve hectares thereof by purchase, homestead, or grant.
Taking into account the requirements of conservation, ecology, and development, and
subject to the requirements of agrarian reform, the Congress shall determine, by law, the
size of lands of the public domain which may be acquired, developed, held, or leased and
the conditions therefor. (Emphasis supplied)
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. 166It 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, aluminum 168
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 thatunder 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
approvedso 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.

G.R. No. 162331

November 20, 2006
LEPANTO
CONSOLIDATED
MINING
CO., Petitioner,
vs.
WMC RESOURCES INTL. 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 petitioners Petition for Review of the Decision 2 of the Office of the
President dated 23 July 2002 affirming in totothe 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 appeal 5 before the Court of
Appeals which subsequently ordered the dismissal of the case on the ground of forum shopping in
this wise:
Nevertheless, the Court finds that private respondent is guilty of forum-shopping. There is forumshopping whenever, as a result of an adverse opinion in one forum, a party seeks a favorable
opinion (other than by appeal or certiorari) in another. The principle applies not only with respect
to suits filed in courts but also in connection with litigation commenced in the courts while an
administrative processes and in anticipation of an unfavorable administrative ruling and a
favorable court ruling.
In this case, petitioners argue that private respondent is guilty of forum shopping for having
lodged the complain before respondent Court pending action by the Secretary of the DENR
through the Mines and Geo-Sciences Bureau (MGB) on its approval of the Sale and Purchase
Agreement dated July 12, 2000. Private respondent on the other hand, opposes the foregoing
contention arguing that the MGB will be merely exercising its administrative not quasi-judicial
power.

The action before respondent court was filed by private respondent to compel petitioner WMC
Resources to convey its equity in WMC Phils. and Hillcrest to the former. Meanwhile, in the case
before the MGB, private respondent sought the approval of Sale and that the MGBs authority
over the case is purely administrative, but further review shows that private respondent raised
contentious issues which need resolution by the MGB before it can recommend any approval to
the Secretary of the DENR. Particularly, in its letter dated October 13, 2000 to the Secretary of the
DENR, private respondent posed its objection to the approval of the Sales and Purchase
agreements between WMC Resources and the 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 MGBs 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 respondents act undisputably constitutes a clear case of forum-shopping, a
ground for summary dismissal with prejudice of the action. The respondent court committed
grave abuse of discretion in refusing to dismiss Civil Case No. 01-087 on ground of forumshopping.6
With the denial of petitioners Motion for Reconsideration, the case 7 was elevated to this Court. In
a Decision dated 24 September 2003, the Court affirmed the Decision of the appellate court and
dismissed the petition. In said Decision, the Court elucidated that:
True, the questioned agreements of sale between petitioner and WMC on one hand and between
WMC and the Tampakan Companies on the other pertain to transfer of shares of stock from one
entity to another. But said shares of stock represent ownership of mining rights or interest in
mining agreements. Hence, the power of the MGB to rule on the validity of the questioned
agreements of sale, which was raised by petitioner before the DENR, is inextricably linked to the
very nature of such agreements over which the MGB has jurisdiction under the law. Unavoidably,
there is identity of reliefs that petitioner seeks from both the MGB and the RTC.
Forum shopping exists when both actions involve the same transactions, same essential facts and
circumstances and raise identical causes of actions, subject matter, and issues. Such elements
are evidently present in both the proceedings before the MGB and before the trial court. The case
instituted with the RTC was thus correctly ordered dismissed by the appellate court on the ground
of forum shopping. Besides, not only did petitioner commit forum shopping but it also failed to
exhaust administrative remedies by opting to go ahead in seeking reliefs from the court even
while those same reliefs were appropriately awaiting resolution by the MGB. 8
In the interim, on 10 January 2001, contending that the 12 July Agreement between petitioner and
WMC Philippines had expired due to failure to meet the necessary preconditions for its validity,
WMC Resources and the Tampakan Companies executed another Sale and Purchase Agreement,
where Sagittarius Mines, Inc. was designated assignee and corporate vehicle which would acquire
the shareholdings and undertake the Columbio FTAA activities. On 15 January 2001, Sagittarius

Mines, Inc. increased its authorized capitalization to P250 million. Subsequently, WMC Resources
and Sagittarius Mines, Inc. executed a Deed of Absolute Sale of Shares of Stocks on 23 January
2001.
After due consideration and evaluation of the financial and technical qualifications of Sagittarius
Mines, Inc., the DENR Secretary approved the transfer of the Columbio FTAA from WMC Philippines
to Sagittarius Mines, Inc. in the assailed Order. According to said Order, pursuant to Section 66 of
Department Administrative Order No. 96-40, as amended, Sagittarius Mines, Inc. meets the
qualification requirements as Contractor-Transferee of FTAA No. 02-95-XI, and that the application
for transfer of said FTAA went thru the procedure and other requirements set forth under the law.
Aggrieved by the transfer of the Columbio FTAA in favor of Sagittarius Mines, Inc., petitioner filed
a Petition for Review of the Order of the DENR Secretary with the Office of the President. Petitioner
assails the validity of the 18 December 2001 Order on the ground that: 1) it violates the
constitutional right of Lepanto to due process; 2) it preempts the resolution of very crucial legal
issues pending with the regular courts; and 3) it blatantly violates Section 40 of the Mining Act.
In a Decision dated 23 July 2002, the Office of the President dismissed the petition in this wise:
At the outset, it bears emphasis that quite contrary to the argument of petitioner Lepanto, the
above Order of the DENR Secretary is not violative of the Mining Law. Since the subject Columbio
FTAA was granted in accordance with the pertinent provisions of Executive Order No. 279 and
Department Administrative Order No. 63 on 22 March 1995, or prior to the effectivity of the
Philippine Mining Act of 1995, especially as it highlights the non-impairment of existing mining
and/or quarrying rights, under Section 14.1 (b) thereof, only the consent of DENR Secretary is
required. To hold otherwise would be to unduly impose a burden on transferor WMC and thereby
restrict its freedom to dispose of or alienate this property right without due process. Thus, under
the Revised Implementing Rules and Regulations of the Philippine Mining Act of 1995, Chapter
XXX thereof expressly echoes the guaranty:
"Section 272. Non-Impairment of Existing Mining/Quarrying Rights.- All valid and existing mining
lease contracts, permits/licenses, leases pending renewal, Mineral Production Sharing
Agreements, FTAA granted under Executive Order No. 279, at the date of the Act shall remain
valid, shall not be impaired and shall be recognized by the Government x x x.
x x x Provided, finally, That this provision is applicable only to all FTAA/MPSA applications filed
under Department Administrative Order No. 63 prior to the effectivity of the act and these
implementing rules and regulations."
As correctly stated by the MGB Director and affirmed by the DENR Secretary, Section 14.1 of the
Columbio FTAA provides that the FTAA may be transferred provided that the Secretary consents to
the same. Pursuant to Section 112 of the Mining Act and Section 272 of DAO No. 96-40, as
amended, on non-impairment of existing mining rights, the subject application for transfer of the
Columbio FTAA to Sagittarius requires only the approval of the DENR Secretary.
Moreover, there is no merit in petitioner Lepantos argument that the DENR Secretary and
consequently, this Office, has no jurisdiction over the subject matter in issue. The assailed Order
of the DENR Secretary was pursuant to the latters exercise of the well-entrenched doctrine of
primary jurisdiction of administrative agencies.
By virtue of the operation of the doctrine of primary jurisdiction, "courts cannot and will not
determine a controversy involving a question which is within the jurisdiction of an administrative
tribunal, especially where the question demands the exercise of sound administrative discretion
requiring the special knowledge, experience and services of the tribunal to determine technical
and intricate matters of fact and where a uniformity of ruling is essential to comply with the
purposes regulatory statute administered." (Province of Zamboanga del Norte v. Court of Appeals,
342 SCRA 549 [2000]; Factoran v. Court of Appeals, 320 SCRA 530 [1999]; Brett v. Intermediate
Appellate Court, 191 SCRA 687 [1990]; 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 States mineral resources including those in reservations, watershed areas,
and lands of the public domain. The Secretary shall have the authority to enter into mineral
agreements on behalf of the Government upon the recommendation of the Director, promulgate
such rules and regulations as may be necessary to implement the intent and provisions of this
Act." (Chapter II, Section 8). Since an FTAA is "a contract involving financial or technical
assistance for large-scale exploration, development and utilization of mineral resources" (Ibid.,
Chapter 1, Section 3 [r]), any issue affecting the same is indubitably within the primary
jurisdiction of the DENR, as in fact, the government enters into FTAAs through the DENR ( Ibid.,
Chapter VI, Section 33).
There is no dispute that the instant case involves and requires the special technical knowledge
and expertise of the DENR. In the determination by the DENR of a "qualified person" pursuant to
the Philippine Mining Act of 1995, such person must possess the technical and financial capability
to undertake mineral resources development". (Chapter I, Section 3 [aq]) Obviously, this
determination peculiarly lies within the expertise of the DENR.
The validity of the successive transfers is not a civil issue, contrary to the allegation of petitioner
Lepanto, because validity of transfer depends on technical qualifications of the transferee and
compliance with the DENR requirements on qualifications, all of which require administrative
expertise. Notably, petitioner Lepanto is estopped from assailing the primary
jurisdiction of the DENR since petitioner Lepanto itself anchored its Petition (cf. pp. 45) on the contention that, allegedly, "the Tampakan Companies failed to match the
terms and conditions of the July 12 Agreement with petitioner Lepanto in that they did
not possess the financial and technical qualifications under the Mining Act and its
Implementing Rules". Petitioner Lepantos objections therefore go into the very
qualifications of a transferee which is a technical issue.
This contention is a recognition by petitioner Lepanto itself of the fact that the crucial and
determinative issue in the instant case is grounded on the financial and technical qualifications of
a transferee, which issue, indisputably, is within the exclusive domain and expertise of the DENR
and not of the courts.
xxxx
Moreover, petitioner Lepanto, by its conduct, is again estopped from assailing the
DENRs jurisdiction after actively participating in the proceedings therein and seeking
affirmative relief. A party who invoked the jurisdiction [of] a tribunal and actively participated in
the proceedings therein cannot impugn such jurisdiction when faced with an adverse decision. (cf.
Briad Agro Development Corporation v. dela Serna, 174 SCRA 524 [1989]).9 [Emphasis ours]
With the denial of its Motion for Reconsideration, petitioner lodged an appeal before the Court of
Appeals which was consequently dismissed by the appellate court in the herein assailed Decision.
According to the Court of Appeals:
Petitioner forcefully argues that the DENR Secretary had usurped the power of the President of
the Philippines to approve the transfer of FTAA, as under the provision of Section 40 of the
Philippine Mining Act of 1995, any transfer or assignment of an FTAA has to be approved not by
the DENR Secretary but by the President.
The argument does not wash.
The issue hinges on the applicability of Section 40 of RA 7942 or the Philippine Mining Act of 1995,
which took force on 14 April 1995, on the transfer of FTAA from WMC to the Tampakan Companies,
particularly the Sagittarius Mines, Inc.
The said law provides:
"Sec. 40. Assignment/Transfer A financial or technical assistance agreement may be assigned or
transferred, in whole or in part, to a qualified person subject to the prior approval of the President:
Provided, that the President shall notify Congress of every financial or technical assistance

agreement assigned or converted in accordance with this provision within thirty (30) days from
the date of approval."
However, the above provision does not apply to the Columbio FTAA which was entered into by and
between the Philippine Government and WMCP on 22 March 1995, or prior to the effectivity of RA
No. 7942. Section 14.1 of the Columbio FTAA, under which the Tampakan Companies claim their
rights to first refusal, reads:
"14.1 Assignment
"The Contractor may assign, transfer, convey or otherwise dispose of all or any part of its interest
in the Agreement provided that such assignment, transfer, conveyance or disposition does not
infringe any Philippine law applicable to foreign ownership:
(a) to an Affiliate provided that it gives notice of such assignment to the Secretary within
30 days after such assignment; or
(b) to any third party provided that the Secretary consents to the same, which consent
shall not be unreasonably withheld."
Section 10, Article III of the Philippine Constitution enjoins Congress from passing a law impairing
the obligation of contracts. It is axiomatic that a law that impairs an obligation of contract also
violates the due process clause. The obligation of an existing contract is impaired when its terms
and conditions are changed by law, ordinance, or any issuance having the force of law, thereby
weakening the position or diminishing the rights of a party to the contract. The extent of the
change is not material. It is not a question of degree or manner or cause, but of encroaching in
any respect on its obligations or dispensing with any part of its force. Impairment has also been
predicated on laws which, without destroying contracts, derogate from substantial contractual
rights.
The condition of RA No. 7942 requiring the further approval of the President, if made to apply
retroactively to the Columbio FTAA, would impair the obligation of contracts simply because it
constitutes a restriction on the right of the contractor to assign or transfer its interest in an FTAA.
In other words, it diminished the vested rights of the contractor to assign or transfer its interests
on mere approval of the DENR Secretary. The restriction is therefore substantive, and not merely
procedural, contrary to the contention of petitioner.
xxxx
Likewise militating against the petitioners side is the doctrine that statutes are to be construed as
having only a prospective operation unless the purpose and intention of the Legislature to give
them a retrospective effect is expressly declared or is necessarily implied from the language used.
In case of doubt, the doubt must be resolved against the retrospective effect. At any rate, even if
RA No. 7942 be accorded a retroactive effect, this does notipso facto permit the application of the
requirement of securing a prior presidential consent to the transfer of FTAA, for, to iterate, this
would impair the obligation of contract. In such a case, the correct application of RA No. 7942 is
for the provisions to [be] made to apply on existing FTAAs only if the same would not result in
impairment of obligation of contracts.
This is as it should be. To hold otherwise would be to unduly impose a burden on transferor WMC
and thereby restrict its freedom to dispose of or alienate its property right without due process. It
constitutes impairment of obligation of contracts, which the Fundamental Law enjoins, and
contravenes the doctrine of prospective application of laws.10
Hence, the instant Petition.
The pivotal issue to be resolved herein involves the propriety of the application to the Columbio
FTAA of Republic Act No. 7942 or the Philippine Mining Act of 1995, particularly Section 40 thereof
requiring the approval of the President of the assignment or transfer of financial or technical
assistance agreements. Petitioner maintains that respondents failed to comprehend the express
language of Section 40 of the Philippine Mining Act of 1995 requiring the approval of the President
on the transfer or assignment of a financial or technical assistance agreement.
To resolve this matter, it is imperative at this point to stress the fact that the Columbio FTAA was
entered into by the Philippine Government and WMC Philippines on 22 March 1995, undoubtedly
before the Philippine Mining Act of 1995 took effect on 14 April 1995. Furthermore, it is

undisputed that said FTAA was granted in accordance with Executive Order No. 279 and
Department Administrative Order No. 63, Series of 1991, which does not contain any similar
condition on the transfer or assignment of financial or technical assistance agreements. Thus, it
would seem that what petitioner would want this Court to espouse is the retroactive application of
the Philippine Mining Act of 1995 to the Columbio FTAA, a valid agreement concluded prior to the
naissance of said piece of legislation.
This posture of petitioner would clearly contradict the established legal doctrine that statutes are
to be construed as having only a prospective operation unless the contrary is expressly stated or
necessarily implied from the language used in the law. As reiterated in the case of Segovia v.
Noel,11 a sound cannon of statutory construction is that a statute operates prospectively only and
never retroactively, unless the legislative intent to the contrary is made manifest either by the
express terms of the statute or by necessary implication.
Article 4 of the Civil Code provides that: "Laws shall not have a retroactive effect unless therein
otherwise provided." According to this provision of law, in order that a law may have retroactive
effect it is necessary that an express provision to this effect be made in the law, otherwise
nothing should be understood which is not embodied in the law. 12 Furthermore, it must be borne in
mind that a law is a rule established to guide our actions without no binding effect until it is
enacted, wherefore, it has no application to past times but only to future time, and that is why it is
said that the law looks to the future only and has no retroactive effect unless the legislator may
have formally given that effect to some legal provisions.13
In the case at bar, there is an absence of either an express declaration or an implication in the
Philippine Mining Act of 1995 that the provisions of said law shall be made to apply retroactively,
therefore, any section of said law must be made to apply only prospectively, in view of the rule
that a statute ought not to receive a construction making it act retroactively, unless the words
used are so clear, strong, and imperative that no other meaning can be annexed to them, or
unless the intention of the legislature cannot be otherwise satisfied. 14
Be that as it may, assuming for the sake of argument that We are to apply the Philippine Mining
Act of 1995 retrospectively to the Columbio FTAA, the lack of presidential approval will not be fatal
as to render the transfer illegal, especially since, as in the instant case, the alleged lack of
presidential approval has been remedied when petitioner appealed the matter to the Office of the
President which approved the Order of the DENR Secretary granting the application for transfer of
the Columbio FTAA to Sagittarius Mines, Inc. As expounded by the Court in the Resolution of the
Motion for Reconsideration in the La Bugal-BLaan Tribal Association, Inc. v. Ramos[15]case,
involving the same FTAA subject of the instant case:
x x x Moreover, when the transferee of an FTAA is another foreign corporation, there is a logical
application of the requirement of prior approval by the President of the Republic and notification
to Congress in the event of assignment or transfer of an FTAA. In this situation, such approval and
notification are appropriate safeguards, considering that the new contractor is the subject of a
foreign government.1wphi1
On the other hand, when the transferee of the FTAA happens to be a Filipino
corporation, the need for such safeguard is not critical; hence, the lack of prior
approval and notification may not be deemed fatal as to render the transfer invalid.
Besides, it is not as if approval by the President is entirely absent in this instance. x x
x That case involved the review of the Decision of the Court of Appeals dated November 21, 2003
in CA G.R. SP No. 74161, which affirmed the DENR Order dated December 31, 2001 and the
Decision of the Office of the President dated July 23, 2002, both approving the assignment of
the WMCP FTAA to Sagittarius.16 (Emphasis ours.)
Furthermore, if petitioner was indeed of the mind that Section 40 of the Philippine Mining Act of
1995 is applicable to the Columbio FTAA, thus necessitating the approval of the President for the
validity of its transfer or assignment, it would seem contradictory that petitioner sought the
approval of the DENR Secretary, and not that of the President, of its 12 July 2000 Sale and
Purchase Agreement with WMC Resources. Hence, it may be glimpsed from the very act of

petitioner that it recognized that the provision of the Columbio FTAA regarding the consent of the
DENR Secretary with respect to the transfer of said FTAA must be upheld.
It is engrained in jurisprudence that the constitutional prohibition on the impairment of the
obligation of contract does not prohibit every change in existing laws, 17 and to fall within the
prohibition, the change must not only impair the obligation of the existing contract, but the
impairment must be substantial.18 Substantial impairment as conceived in relation to impairment
of contracts has been explained in the case of Clemons v. Nolting, 19 which stated that: a law which
changes the terms of a legal contract between parties, either in the time or mode of performance,
or imposes new conditions, or dispenses with those expressed, or authorizes for its satisfaction
something different from that provided in its terms, is law which impairs the obligation of a
contract and is therefore null and void. Section 40 of the Philippine Mining Act of 1995 requiring
the approval of the President with respect to assignment or transfer of FTAAs, if made applicable
retroactively to the Columbio FTAA, would be tantamount to an impairment of the obligations
under said contract as it would effectively restrict the right of the parties thereto to assign or
transfer their interests in the said FTAA.
By imposing a new condition apart from those already contained in the agreement, before the
parties to the Columbio FTAA may assign or transfer its rights and interest in the said agreement,
Section 40 of the Philippine Mining Act of 1995, if made to apply to the Columbio FTAA,
will effectively modify the terms of the original contract and thus impair the obligations of the
parties thereto and restrict the exercise of their vested rights under the original agreement. Such
modification to the Columbio FTAA, particularly in the conditions imposed for its valid transfer is
equivalent to an impairment of said contract violative of the Constitution.
WHEREFORE, premises considered, the instant petition is hereby DENIED. The Decision of the
Court of Appeals in CA G.R. SP No. 74161 dated 21 November 2003 is hereby AFFIRMED. Costs
against petitioner.
SO ORDERED.
G.R. No. 163101
February 13, 2008
BENGUET
CORPORATION, petitioner,
vs.
DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES -MINES ADJUDICATION
BOARD and J.G. REALTY AND MINING CORPORATION, respondents.
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 Resolution 2 of the Department of Environment and Natural
Resources-Mining Adjudication Board (DENR-MAB) in MAB Case No. 0124-01 (Mines Administrative
Case No. R-M-2000-01) entitled Benguet Corporation (Benguet) v. J.G. Realty and Mining
Corporation (J.G. Realty). The December 2, 2002 Decision upheld the March 19, 2001 Decision 3 of
the MAB Panel of Arbitrators (POA) which canceled the Royalty Agreement with Option to
Purchase (RAWOP) dated June 1, 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 Benguets Motion for Reconsideration.
The Facts
On June 1, 1987, Benguet and J.G. Realty entered into a RAWOP, wherein J.G. Realty was
acknowledged as the owner of four mining claims respectively named as Bonito-I, Bonito-II,
Bonito-III, and Bonito-IV, with a total area of 288.8656 hectares, situated in Barangay Luklukam,
Sitio Bagong Bayan, Municipality of Jose Panganiban, Camarines Norte. The parties also executed
a Supplemental 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:
a. The fact that your company has failed to perform the obligations set forth in the
RAWOP, i.e., to undertake development works within 2 years from the execution of the
Agreement;
b. Violation of the Contract by allowing high graders to operate on our claim.
c. No stipulation was provided with respect to the term limit of the RAWOP.
d. Non-payment of the royalties thereon as provided in the RAWOP. 7
In response, Benguets Manager for Legal Services, Reynaldo P. Mendoza, wrote J.G. Realty a letter
dated March 8, 1999,8 therein alleging that Benguet complied with its obligations under the
RAWOP by investing PhP 42.4 million to rehabilitate the mines, and that the commercial operation
was hampered by the non-issuance of a Mines Temporary Permit by the Mines and Geosciences
Bureau (MGB) which must be considered as force majeure, entitling Benguet to an extension of
time to prosecute such permit. Benguet further claimed that the high graders mentioned by J.G.
Realty were already operating prior to Benguets taking over of the premises, and that J.G. Realty
had the obligation of ejecting such small scale miners. Benguet also alleged that the nature of the
mining business made it difficult to specify a time limit for the RAWOP. Benguet then argued that
the royalties due to J.G. Realty were in fact in its office and ready to be picked up at any time. It
appeared that, previously, the practice by J.G. Realty was to pick-up checks from Benguet
representing such royalties. However, starting August 1994, J.G. Realty allegedly refused to collect
such checks from Benguet. Thus, Benguet posited that there was no valid ground for the
termination of the RAWOP. It also reminded J.G. Realty that it should submit the disagreement to
arbitration rather than unilaterally terminating the RAWOP.
On June 7, 2000, J.G. Realty filed a Petition for Declaration of Nullity/Cancellation of the
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 Appeal 11 with the MAB on April 23, 2001, docketed as Mines
Administrative Case No. R-M-2000-01. Thereafter, the MAB issued the assailed December 2, 2002
Decision. Benguet then filed a Motion for Reconsideration of the assailed Decision which was
denied in the March 17, 2004 Resolution of the MAB. Hence, Benguet filed the instant petition.
The Issues

1. There was serious and palpable error when the Honorable Board failed to rule that the
contractual obligation of the parties to arbitrate under the Royalty Agreement is
mandatory.
2. The Honorable Board exceeded its jurisdiction when it sustained the cancellation of
the Royalty Agreement for alleged breach of contract despite the absence of evidence.
3. The Questioned Decision of the Honorable Board in cancelling the RAWOP prejudice[d]
the substantial rights of Benguet under the contract to the unjust enrichment of JG
Realty.12
Restated, the issues are: (1) Should the controversy have first been submitted to arbitration
before the POA took cognizance of the case?; (2) Was the cancellation of the RAWOP supported by
evidence?; and (3) Did the cancellation of the RAWOP amount to unjust enrichment of J.G. Realty
at the expense of Benguet?
The Courts Ruling
Before we dwell on the substantive issues, we find that the instant petition can be denied outright
as Benguet resorted to an improper remedy.
The last paragraph of Section 79 of Republic Act No. (RA) 7942 or the "Philippine Mining Act of
1995" states, "A petition for review by certiorari and question of law may be filed by the
aggrieved party with the Supreme Court within thirty (30) days from receipt of the order or
decision of the [MAB]."
However, this Court has already invalidated such provision in Carpio v. Sulu Resources
Development Corp.,13ruling that a decision of the MAB must first be appealed to the Court of
Appeals (CA) under Rule 43 of the Rules of Court, before recourse to this Court may be had. We
held, thus:
To summarize, there are sufficient legal footings authorizing a review of the MAB
Decision under Rule 43 of the Rules of Court. First, Section 30 of Article VI of the 1987
Constitution, mandates that "[n]o law shall be passed increasing the appellate
jurisdiction of the Supreme Court as provided in this Constitution without its advice and
consent." On the other hand, Section 79 of RA No. 7942 provides that decisions of the
MAB may be reviewed by this Court on a "petition for review by certiorari." This provision
is obviously an expansion of the Courts appellate jurisdiction, an expansion to which this
Court has not consented. Indiscriminate enactment of legislation enlarging the appellate
jurisdiction of this Court would unnecessarily burden it.
Second, when the Supreme Court, in the exercise of its rule-making power, transfers to
the CA pending cases involving a review of a quasi-judicial bodys decisions, such
transfer relates only to procedure; hence, it does not impair the substantive and vested
rights of the parties. The aggrieved partys right to appeal is preserved; what is changed
is only the procedure by which the appeal is to be made or decided. The parties still have
a remedy and a competent tribunal to grant this remedy.
Third, the Revised Rules of Civil Procedure included Rule 43 to provide a uniform rule on
appeals from quasi-judicial agencies. Under the rule, appeals from their judgments and
final orders are now required to be brought to the CA on a verified petition for review. A
quasi-judicial agency or body has been defined as an organ of government, other than a
court or legislature, which affects the rights of private parties through either adjudication
or rule-making. MAB falls under this definition; hence, it is no different from the other
quasi-judicial bodies enumerated under Rule 43. Besides, the introductory words in
Section 1 of Circular No. 1-91"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).15 However, 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 Carpio decision was already applicable, thus
Benguet should have filed the appeal with the CA.
Petitioner having failed to properly appeal to the CA under Rule 43, the decision of the MAB has
become final and executory. On this ground alone, the instant petition must be denied.
Even if we entertain the petition although Benguet skirted the appeal to the CA via Rule 43, still,
the December 2, 2002 Decision and March 17, 2004 Resolution of the DENR-MAB in MAB Case No.
0124-01 should be maintained.
First
Issue:
The
case
should
have
first
been
brought
to
voluntary arbitration before the POA
Secs. 11.01 and 11.02 of the RAWOP pertinently provide:
11.01 Arbitration
Any disputes, differences or disagreements between BENGUET and the OWNER with
reference to anything whatsoever pertaining to this Agreement that cannot be amicably
settled by them shall not be cause of any action of any kind whatsoever in any court or
administrative agency but shall, upon notice of one party to the other, be referred to a
Board of Arbitrators consisting of three (3) members, one to be selected by BENGUET,
another to be selected by the OWNER and the third to be selected by the
aforementioned two arbitrators so appointed.
xxxx
11.02 Court Action
No action shall be instituted in court as to any matter in dispute as hereinabove stated,
except to enforce the decision of the majority of the Arbitrators. 16
Thus, Benguet argues that the POA should have first referred the case to voluntary arbitration
before taking cognizance of the case, citing Sec. 2 of RA 876 on persons and matters subject to
arbitration.
On the other hand, in denying such argument, the POA ruled that:
While the parties may establish such stipulations clauses, terms and conditions as they may deem
convenient, the same must not be contrary to law and public policy. At a glance, there is nothing
wrong with the terms and conditions of the agreement. But to state that an aggrieved party
cannot initiate an action without going to arbitration would be tying ones hand even if there is a
law which allows him to do so.17
The MAB, meanwhile, denied Benguets contention on the ground of estoppel, stating:
Besides, by its own act, Benguet is already estopped in questioning the jurisdiction of the
Panel of Arbitrators to hear and decide the case. As pointed out in the appealed Decision,
Benguet initiated and filed an Adverse Claim docketed as MAC-R-M-2000-02 over the
same mining claims without undergoing contractual arbitration. In this particular case
(MAC-R-M-2000-02) now subject of the appeal, Benguet is likewise in estoppel from
questioning the competence of the Panel of Arbitrators to hear and decide in the
summary proceedings J.G. Realtys petition, when Benguet itself did not merely move for

the dismissal of the case but also filed an Answer with counterclaim seeking affirmative
reliefs from the Panel of Arbitrators.18
Moreover, the MAB ruled that the contractual provision on arbitration merely provides for an
additional forum or venue and does not divest the POA of the jurisdiction to hear the case. 19
In its July 20, 2004 Comment,20 J.G. Realty reiterated the above rulings of the POA and MAB. It
argued that RA 7942 or the "Philippine Mining Act of 1995" is a special law which should prevail
over the stipulations of the parties and over a general law, such as RA 876. It also argued that the
POA cannot be considered as a "court" under the contemplation of RA 876 and that jurisprudence
saying that there must be prior resort to arbitration before filing a case with the courts is
inapplicable to the instant case as the POA is itself already engaged in arbitration.
On this issue, we rule for Benguet.
Sec. 2 of RA 876 elucidates the scope of arbitration:
Section 2. Persons and matters subject to arbitration.Two or more persons or
parties may submit to the arbitration of one or more arbitrators any
controversy existing between them at the time of the submission and which
may be the subject of an action, or the parties to any contract may in such
contract agree to settle by arbitration a controversy thereafter arising
between them. Such submission or contract shall be valid, enforceable and
irrevocable, save upon such grounds as exist at law for the revocation of any
contract.
Such submission or contract may include question[s] arising out of valuations, appraisals
or other controversies which may be collateral, incidental, precedent or subsequent to
any issue between the parties. (Emphasis supplied.)
In RA 9285 or the "Alternative Dispute Resolution Act of 2004," the Congress reiterated the
efficacy of arbitration as an alternative mode of dispute resolution by stating in Sec. 32 thereof
that domestic arbitration shall still be governed by RA 876. Clearly, a contractual stipulation that
requires prior resort to voluntary arbitration before the parties can go directly to court is not
illegal and is in fact promoted by the State. Thus, petitioner correctly cites several cases whereby
arbitration clauses have been upheld by this Court. 21
Moreover, the contention that RA 7942 prevails over RA 876 presupposes a conflict between the
two laws. Such is not the case here. To reiterate, availment of voluntary arbitration before resort is
made to the courts or quasi-judicial agencies of the government is a valid contractual stipulation
that must be adhered to by the parties. As stated in Secs. 6 and 7 of RA 876:
Section 6. Hearing by court.A party aggrieved by the failure, neglect or refusal
of another to perform under an agreement in writing providing for arbitration
may petition the court for an order directing that such arbitration proceed in
the manner provided for in such agreement. Five days notice in writing of the
hearing of such application shall be served either personally or by registered mail upon
the party in default. The court shall hear the parties, and upon being satisfied
that the making of the agreement or such failure to comply therewith is not in
issue, shall make an order directing the parties to proceed to arbitration in
accordance with the terms of the agreement. If the making of the agreement
or default be in issue the court shall proceed to summarily hear such issue. If
the finding be that no agreement in writing providing for arbitration was
made, or that there is no default in the proceeding thereunder, the proceeding
shall be dismissed. If the finding be that a written provision for arbitration was
made and there is a default in proceeding thereunder, an order shall be made
summarily directing the parties to proceed with the arbitration in accordance
with the terms thereof.
xxxx
Section 7. Stay of civil action.If any suit or proceeding be brought upon an issue arising
out of an agreement providing for the arbitration thereof, the court in which such suit or
proceeding is pending, upon being satisfied that the issue involved in such suit or

proceeding is referable to arbitration, shall stay the action or proceeding until an

arbitration has been had in accordance with the terms of the agreement: Provided, That
the applicant, for the stay is not in default in proceeding with such arbitration. (Emphasis
supplied.)
In other words, in the event a case that should properly be the subject of voluntary arbitration is
erroneously filed with the courts or quasi-judicial agencies, on motion of the defendant, the court
or quasi-judicial agency shall determine whether such contractual provision for arbitration is
sufficient and effective. If in affirmative, the court or quasi-judicial agency shall then order the
enforcement of said provision. Besides, in BF Corporation v. Court of Appeals, we already ruled:
In this connection, it bears stressing that the lower court has not lost its jurisdiction over
the case. Section 7 of Republic Act No. 876 provides that proceedings therein have only
been stayed. After the special proceeding of arbitration has been pursued and
completed, then the lower court may confirm the award made by the arbitrator. 22
J.G. Realtys contention, that prior resort to arbitration is unavailing in the instant case because
the POAs mandate is to arbitrate disputes involving mineral agreements, is misplaced. A
distinction must be made between voluntary and compulsory arbitration. In Ludo and Luym
Corporation v. Saordino, the Court had the occasion to distinguish between the two types of
arbitrations:
Comparatively, in Reformist Union of R.B. Liner, Inc. vs. NLRC, compulsory arbitration has
been defined both as "the process of settlement of labor disputes by a government
agency which has the authority to investigate and to make an award which is
binding on all the parties, and as a mode of arbitration where the parties are compelled
to accept the resolution of their dispute through arbitration by a third party." While a
voluntary arbitrator is not part of the governmental unit or labor departments
personnel, said arbitrator renders arbitration services provided for under labor
laws.23 (Emphasis supplied.)
There is a clear distinction between compulsory and voluntary arbitration. The arbitration
provided by the POA is compulsory, while the nature of the arbitration provision in the RAWOP is
voluntary, not involving any government agency. Thus, J.G. Realtys argument on this matter must
fail.
As to J.G. Realtys contention that the provisions of RA 876 cannot apply to the instant case which
involves an administrative agency, it must be pointed out that Section 11.01 of the RAWOP states
that:
[Any controversy with regard to the contract] shall not be cause of any action of any kind
whatsoever in any court or administrative agency but shall, upon notice of one party
to the other, be referred to a Board of Arbitrators consisting of three (3) members, one to
be selected by BENGUET, another to be selected by the OWNER and the third to be
selected by the aforementioned two arbiters so appointed.24 (Emphasis supplied.)
There can be no quibbling that POA is a quasi-judicial body which forms part of the DENR, an
administrative agency. Hence, the provision on mandatory resort to arbitration, freely entered into
by the parties, must be held binding against them.25
In sum, on the issue of whether POA should have referred the case to voluntary arbitration, we
find that, indeed, POA has no jurisdiction over the dispute which is governed by RA 876, the
arbitration law.
However, we find that Benguet is already estopped from questioning the POAs jurisdiction. As it
were, when J.G. Realty filed DENR Case No. 2000-01, Benguet filed its answer and participated in
the proceedings before the POA, Region V. Secondly, when the adverse March 19, 2001 POA
Decision was rendered, it filed an appeal with the MAB in Mines Administrative Case No. R-M2000-01 and again participated in the MAB proceedings. When the adverse December 2, 2002
MAB Decision was promulgated, it filed a motion for reconsideration with the MAB. When the
adverse March 17, 2004 MAB Resolution was issued, Benguet filed a petition with this Court
pursuant to Sec. 79 of RA 7942 impliedly recognizing MABs jurisdiction. In this factual milieu, the
Court rules that the jurisdiction of POA and that of MAB can no longer be questioned by Benguet

at this late hour. What Benguet should have done was to immediately challenge the POAs
jurisdiction by a special civil action for certiorari when POA ruled that it has jurisdiction over the
dispute. To redo the proceedings fully participated in by the parties after the lapse of seven years
from date of institution of the original action with the POA would be anathema to the speedy and
efficient administration of justice.
Second
Issue:
The
cancellation
of
the
RAWOP
was supported by evidence
The cancellation of the RAWOP by the POA was based on two grounds: (1) Benguets failure to pay
J.G. Realtys royalties for the mining claims; and (2) Benguets failure to seriously pursue MPSA
Application No. APSA-V-0009 over the mining claims.
As to the royalties, Benguet claims that the checks representing payments for the royalties of J.G.
Realty were available for pick-up in its office and it is the latter which refused to claim them.
Benguet then thus concludes that it did not violate the RAWOP for nonpayment of royalties.
Further, Benguet reasons that J.G. Realty has the burden of proving that the former did not pay
such royalties following the principle that the complainants must prove their affirmative
allegations.
With regard to the failure to pursue the MPSA application, Benguet claims that the lengthy time of
approval of the application is due to the failure of the MGB to approve it. In other words, Benguet
argues that the approval of the application is solely in the hands of the MGB.
Benguets arguments are bereft of merit.
Sec. 14.05 of the RAWOP provides:
14.05 Bank Account
OWNER shall maintain a bank account at ___________ or any other bank from time to time
selected by OWNER with notice in writing to BENGUET where BENGUET shall deposit to
the OWNERs credit any and all advances and payments which may become due the
OWNER under this Agreement as well as the purchase price herein agreed upon in the
event that BENGUET shall exercise the option to purchase provided for in the
Agreement. Any and all deposits so made by BENGUET shall be a full and
complete acquittance and release to [sic] BENGUET from any further liability to
the OWNER of the amounts represented by such deposits. (Emphasis supplied.)
Evidently, the RAWOP itself provides for the mode of royalty payment by Benguet. The fact that
there was the previous practice whereby J.G. Realty picked-up the checks from Benguet is
unavailing. The mode of payment is embodied in a contract between the parties. As such, the
contract must be considered as the law between the parties and binding on both. 26 Thus, after J.G.
Realty informed Benguet of the bank account where deposits of its royalties may be made,
Benguet had the obligation to deposit the checks. J.G. Realty had no obligation to furnish Benguet
with a Board Resolution considering that the RAWOP itself provided for such payment scheme.
Notably, Benguets claim that J.G. Realty must prove nonpayment of its royalties is both illogical
and unsupported by law and jurisprudence.
The allegation of nonpayment is not a positive allegation as claimed by Benguet. Rather, such is a
negative allegation that does not require proof and in fact transfers the burden of proof to
Benguet. Thus, this Court ruled in Jimenez v. National Labor Relations Commission:
As a general rule, one who pleads payment has the burden of proving it. Even where the
plaintiff must allege non-payment, the general rule is that the burden rests on the
defendant to prove payment, rather than on the plaintiff to prove non-payment. The
debtor has the burden of showing with legal certainty that the obligation has
been discharged by payment.27 (Emphasis supplied.)
In the instant case, the obligation of Benguet to pay royalties to J.G. Realty has been admitted and
supported by the provisions of the RAWOP. Thus, the burden to prove such obligation rests on
Benguet.
It should also be borne in mind that MPSA Application No. APSA-V-0009 has been pending with the
MGB for a considerable length of time. Benguet, in the RAWOP, obligated itself to perfect the
rights to the mining claims and/or otherwise acquire the mining rights to the mineral claims but

failed to present any evidence showing that it exerted efforts to speed up and have the
application approved. In fact, Benguet never even alleged that it continuously followed-up the
application with the MGB and that it was in constant communication with the government agency
for the expeditious resolution of the application. Such allegations would show that, indeed,
Benguet was remiss in prosecuting the MPSA application and clearly failed to comply with its
obligation in the RAWOP.
Third Issue: There is no unjust enrichment in the instant case
Based on the foregoing discussion, the cancellation of the RAWOP was based on valid grounds and
is, therefore, justified. The necessary implication of the cancellation is the cessation of Benguets
right to prosecute MPSA Application No. APSA-V-0009 and to further develop such mining claims.
In Car Cool Philippines, Inc. v. Ushio Realty and Development Corporation, we defined unjust
enrichment, as follows:
We have held that "[t]here is unjust enrichment when a person unjustly retains a
benefit to the loss of another, or when a person retains money or property of another
against the fundamental principles of justice, equity and good conscience." Article 22 of
the Civil Code provides that "[e]very person who through an act of performance by
another, or any other means, acquires or comes into possession of something at the
expense of the latter without just or legal ground, shall return the same to him." The
principle of unjust enrichment under Article 22 requires two conditions: (1) that a person
is benefited without a valid basis or justification, and (2) that such benefit is derived at
anothers expense or damage.
There is no unjust enrichment when the person who will benefit has a valid
claim to such benefit.28 (Emphasis supplied.)
Clearly, there is no unjust enrichment in the instant case as the cancellation of the RAWOP, which
left Benguet without any legal right to participate in further developing the mining claims, was
brought about by its violation of the RAWOP. Hence, Benguet has no one to blame but itself for its
predicament.
WHEREFORE, we DISMISS the petition, and AFFIRM the December 2, 2002 Decision and March
17, 2004 Resolution of the DENR-MAB in MAB Case No. 0124-01 upholding the cancellation of the
June 1, 1987 RAWOP. No costs.
SO ORDERED.
G.R. No. 92605 July 16, 1991
APEX MINING CO., INC., MT., DIWATA EXPLORATION AND MINING CORPORATION,
CAMILO BANAD, PRUDENCIO SUAREZ, AURORA SUAREZ, RODOLFO BOLO, LEONILA
VILLAFLOR, MAURICIA AMACIO, ANITA BITAGAN, APOLINARIO CANETE, ORLANDO
CASTILLO,
PAUL
GALICIA,
and
ROSARY
V.
GALICIA,petitioners,
vs.
HONORABLE CANCIO C. GARCIA ASSISTANT EXECUTIVE SECRETARY, OFFICE OF THE
PRESIDENT, HON. FULGENCIO S. FACTORAN, JR., SECRETARY OF ENVIRONMENT AND
NATURAL RESOURCES, and MARCOPPER MINING CORPORATION, respondents.
Martin T. Lu for petitioner-intervenor.
Gozon, Fernandez, Defensor & Parel for Marcopper Mining Corp.
PARAS, J.:p
This is a petition for certiorari with prayer for the issuance of a wit of preliminary injunction and/or
restraining order seeking to nullify and set aside the July 27, 1989 decision of the Office of the
President * in O.P. Case No. 3728 dismissing the appeal of Apex Mining Co., Inc. and affirming the
April 15, 1987 decision and January 14, 1988 order of the Department of Environment and Natural
Resources (DENR), respectively, declaring that the respective mining claims of Apex Mining Co.,
Inc., et al., as well as Small Scale Mining Permits Nos. (X-1) 04 (X-1), 05, are null and void and/or

inoperative and the Permit to Explore No. 133 of Marcopper Mining Corporation as valid and
subsisting; and denying the motion for reconsideration.
The controversy in this case involves conflicting mining claims between herein petitioners Apex
Mining Co., Inc., et al. (Apex for short) and private respondent Marcopper Mining Corporation
(MARCOPPER for short). The disputed area is inside a timberland area located at Moncayo, Davao
del Norte and Cateel, Davao Oriental, consisting of 4,941.0 hectares (Rollo, p. 64).
MARCOPPER was one of the first mining claimants in the disputed area, having registered its 16
claims on January 19 and 20, 1984 through the filing of declarations of location pursuant to
Presidential Decree No. 463, otherwise known as the Mineral Resources Development Decree.
MARCOPPER, allegedly, after registering its mining claim, learned from the central office of the
Bureau of Forest Development (BFD) that the disputed area is within an existing forest reservation
known as the "Agusan-Davao-Surigao Forest Reserve" established by Proclamation No. 369 on
February 27, 1931 by then Governor General Dwight F. Davis, and realizing the invalidity of its
mining claims for having availed of a wrong procedure, abandoned its 16 mining claims and
applied for a prospecting permit instead with the BFD on April 11, 1984. The area covered by its
application consisted of 4,941.0 hectares overlapping its abandoned mining claims. On July 1,
1985, the BFD issued to it a Permit to Prospect No. 755-123185. Discovering strong evidence of
mineral deposits in the area, it applied for a permit to explore with the then Bureau of Mines and
Geo-Sciences (BMGS). On March 10, 1986, it was issued Permit to Explore No. 133. However, upon
verification from the records of the BMGS, Davao City Mineral District Office, it found that the area
covered by its Permit to Explore No. 133 is also the subject of several claims/declarations of APEX.
Thus, on August 11, 1986, MARCOPPER filed with the BMGS a "Petition for Cancellation of Mining
Claims and/or Small Scale Mining Permits" against APEX, alleging, among others and in substance,
that the area covered by its Permit to Explore No. 133 and the declarations of locations/mining
claims belonging to APEX are within an established and existing forest reservation (AgusanDavao-Surigao Forest Reserve) under Proclamation No. 369, dated February 27, 1931, that the
said mining claims/declarations of location of APEX are invalid for being violative of Presidential
Decree No. 463 and its implementing rules and regulations since the acquisition of mining rights
within a forest reserve is through the filing of application for a permit to prospect with the BFD
and not through registration of declarations of location with the BMGS (Rollo, p. 65; O.P. Decision,
p. 2).
On September 23, 1986, APEX filed a Motion to Dismiss Marcopper's petition, alleging, in
substance, that their mining claims are not within any established or proclaimed forest reserve,
and as such, the acquisition of mining lights thereto must be undertaken through the registration
of declaration of location with the BMGS and not through the filing of an application for permit to
prospect with the BFD; and that the permit to prospect and permit to explore issued to
MARCOPPER are inoperative and of no legal force and effect (Ibid., pp. 587-588).
On December 9, 1986, after COPPER filed its reply, the BMGS issued an order, the dispositive
portion of which reads:
VIEWED IN THE LIGHT OF THE FOREGOING, the motion to dismiss should be, as
hereby it is GRANTED. Accordingly, the Permit to Explore No. 133 of the MMC is
hereby declared null and void. (Rollo, P. 110).
MARCOPPER appealed the said order, and the DENR after due hearing, rendered the appealed
decision on April 15, 1987, the dispositive portion of which reads:
WHEREFORE, the Order dated 9 December 1986 of the Director, Bureau of
Mines and Geo-Sciences, is hereby REVERSED or SET ASIDE. Accordingly Permit
to Explore No. 133 of appellant Marcopper Mining Corporation is hereby

declared valid and subsisting. The respective mining claims of appellees Apex
Mining Corporation, et al., as well as Small Scale Mining Permit Nos. (X-1), 04
and (X-1), 05, are hereby declared null and void and/or inoperative. The
Director, Bureau of Mines and Geo-Sciences, is hereby directed to cancel the
registered mining claims and to revoke Small Scale Mining Permit Nos. (X-1) 04
(X-1), 05 of Apex Mining Co., et al. (Ibid., p. 100).
The motion for reconsideration of said decision having been denied by the DENR on January 4,
1988, APEX appealed the case to the Office of the President (Ibid., p. 591), which on July 27, 1989,
through the Assistant Executive Secretary for Legal Affairs, Cancio C. Garcia, rendered a decision,
the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, the instant appeal is hereby dismissed for lack of
merit and the appealed DENR decision and order, dated April 15, 1987 and
January 4, 1988, respectively, are hereby AFFIRMED, The stay-order issued by
this Office on February 11, 1988 is accordingly LIFTED.
Further the Petition to Intervene As Party filed by Minfed dated May 21, 1988, is
hereby DENIED. (Ibid., pp. 74-75; O.P. Decision, pp. 11-12)
APEX filed a motion for reconsideration, but the same was denied on November 16, 1989. Hence,
this petition.
This Court, after the parties had submitted the required pleadings, in its resolution of August 7,
1990 (Ibid., p. 637), resolved to give due course to the petition.
The instant petition is devoid of merit.
The main issue in this case is whether or not the disputed area is within an established and
existing forest reservation.
The answer is in the affirmative.
The thrust of the petitioners' argument is that the subject area is not situated within a forest
reserve and that Proclamation No. 369 did not establish a forest reservation. The said
proclamation merely withdrew from settlement or disposition certain tracts of land described
therein situated in the Province of Davao, Agusan and Surigao. It did so on the basis of Section 8
of Act No. 2874, otherwise known as "the Public Land Act" which was promulgated on November
29, 1919 (Rollo, pp. 654657). Proclamation No. 369 could not have, as a matter of law,
established a forest reserve for the simple reason that it was issued not on the basis of Chapter
XII, Title V of Act No. 2874 nor on the basis of Section 1826 of Act 2711 (the Revised
Administrative Code which took effect on June 15, 1939), but on the basis of Section 8 of Act 2874
which empowers the Governor-General only to reclassify lands of the public domain. In
confirmation, Proclamation No. 369 does not even use the word "reserve" or "forest reserve"
(Ibid., p. 24; Petition, p. 17).
Section 8 of Act No. 2874, the former Public Land Act, the basis of Proclamation No. 369, provides

Section 8. Only those lands shall be declared open to disposition or concession

which have been officially delimited and classified and, when practicable,
surveyed, and which have not been reserved for public or quasi-public uses, nor
appropriated by the Governor, nor in any manner become private property, not
those on which a private right authorized and recognized by this Act or any
other valid law may be claimed, or which, having been reserved or
appropriated, have ceased to do so. However, the Governor-General may, for
reasons of public interest, declare lands of the public domain open to disposition
before the same have had their boundaries established or been surveyed, or

may, for the same reasons, suspend their concession or disposition by

proclamation duly published or by Act of Legislature. (Rollo, pp. 745-746).
From the above-quoted provision, the Governor-General was specifically empowered not only to
declare lands of public domain open to disposition but also to suspend their concession or
disposition. Accordingly, withdrawal of a certain area to establish a forest reserve is, without
question, within the power of the Governor-General. The then Governor-General Dwight F. Davis,
in issuing Proclamation No. 369, withdrew from settlement or disposition the tracts of land
described therein to establish a forest reserve. The intention can be gleaned from the last
paragraph of Proclamation No. 369, which reads:
From this reserve shall be considered automatically excluded all areas which
had already been certified and which in the future may be proclaimed as
classified and certified by the Director of Forestry as non-forest lands and
approved by the Secretary of Agriculture and Natural Resources. (Rollo, P. 768).
Moreover, then President Carlos P. Garcia confirmed that Proclamation No. 369 did establish a
forest reserve when he issued on May 8, 1959 Proclamation No. 583 entitled "Excluding From the
Operation of Proclamation No. 369, Dated February 27, 1931, Which Established The AgusanDavao-Surigao Forest Reserve, Certain Parcels of Land Embraced Therein, And Declaring the
Same Open to Disposition Under the Provisions of the Mining Act." (Emphasis supplied). This
proclamation was concurred in by the Congress of the Philippines on May 21, 1959 through
Concurrent Resolution No. 17 entitled "Concurrent Resolution Concurring in Proclamation
Numbered Five Hundred Eighty-Three of the President of the Philippines, Dated May Eight,
Nineteen Hundred Fifty Nine, Excluding From the Operation of Proclamation Numbered Three
Hundred Sixty-Nine, which Established the Agusan-Davao-Surigao Forest Reserve, Certain Parcels
of Land Embraced Therein, and Declaring the Same Open to Disposition Under the Provisions of
the Mining Act." (Emphasis supplied).
In this connection, it should be stated that the findings of government agencies with respect to
the construction of statutes the implementation of which has been reposed in them, are
controlling on the Court (Greenhills Mining Company v. Office of the President, 163 SCRA 350
[1988]).
The disputed areas, being clearly within a forest reserve, are not open to mining location. Sections
8 and 13 of P.D. No. 463, as amended by P.D. No. 1385, provide:
Sec. 8. Prospecting, Exploration and Exploitation of Minerals in Reserved Lands.
Prospecting, exploration and exploitation of minerals in reserved lands other
than mineral reservations may be undertaken by the proper Government
agencies. In the event that said agencies Cannot undertake the prospecting,
exploration and exploitation of mineral in reserved lands, qualified persons may
be permitted to undertake such prospecting, exploration and exploitation in
accordance with the rules and regulations promulgated by the Secretary. The
right to exploit the minerals found therein shag 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 prospecting,
exploration and exploitation of said area shall be given priority.
Notwithstanding the provisions of the preceding paragraph, a special permit
may be issued by the Director to the exploration permittee to extract, remove
and dispose of minerals in limited quantities as verified by the Bureau of Mines.
Sec. 13. Areas Closed to Mining Location. No prospecting and exploration shall
be allowed:

a) In military, or other Government reservations except when

authorized by the proper Government agency concerned;
xxx xxx xxx
Pursuant to P.D. No. 463, as amended, one can acquire mining rights within forest reserves by
initially applying for a permit to prospect with the Bureau of Forest and Development (BFD) and
subsequently for a permit to explore with the Bureau of Mines and Geo-Sciences (BMGS). Such
procedural requisites were complied with and undertaken by MARCOPPER after it had ascertained
that its mining claims were found to be within the Agusan-Davao-Surigao Forest Reserve. On the
other hand, the mining claims and SSMPs of APEX being located within said forest reserve, are in
violation of the law and therefore result in a failure to validly acquire mining rights.
Finally, invariable is the rule that in reviewing administrative decisions of the Executive Branch of
the government, the findings of fact made therein must be respected, as long as they are
supported by substantial evidence, even if not overwhelming or preponderant. It is not for the
reviewing court to weigh the conflicting evidence, determine the credibility of the witnesses, or
otherwise substitute its own judgment for that of the administrative agency on the sufficiency of
the evidence. The administrative decision in matters within the executive jurisdiction can only be
set aside on proof of gross abuse of discretion, fraud or error of law (Assistant Executive Secretary
for Legal Affairs of the Office of the President v. Court of Appeals, 169 SCRA 27 [1989]).
PREMISES CONSIDERED, the appealed decision of the Office of the President is AFFIRMED and the
petition forcertiorari is DISMISSED.
SO ORDERED.

G.R. No. 152613 & No. 152628

June 23, 2006
APEX
MINING
CO.,
INC., petitioner,
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, PUTINGBATO 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
June 23, 2006
BALITE
COMMUNAL
PORTAL
MINING
COOPERATIVE, petitioner,
vs.
SOUTHEAST MINDANAO GOLD MINING CORPORATION, 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
June 23, 2006
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 MINADANAO GOLD MINING CORPORATION, Respondent.
DECISION
CHICO-NAZARIO, J.:
On 27 February 1931, Governor General Dwight F. Davis issued Proclamation No. 369, establishing
the Agusan-Davao-Surigao Forest Reserve consisting of approximately 1,927,400 hectares. 1
The disputed area, a rich tract of mineral land, is inside the forest reserve located at Monkayo,
Davao del Norte, and Cateel, Davao Oriental, consisting of 4,941.6759 hectares. 2 This mineral
land is encompassed by Mt. Diwata, which is situated in the municipalities of Monkayo and Cateel.
It later became known as the "Diwalwal Gold Rush Area." It has since the early 1980s been
stormed by conflicts brought about by the numerous mining claimants scrambling for gold that
lies beneath its bosom.
On 21 November 1983, Camilo Banad and his group, who claimed to have first discovered traces
of gold in Mount Diwata, filed a Declaration of Location (DOL) for six mining claims in the area.
Camilo Banad and some other natives pooled their skills and resources and organized the Balite
Communal Portal Mining Cooperative (Balite).3
On 12 December 1983, Apex Mining Corporation (Apex) entered into operating agreements with
Banad and his group.
From November 1983 to February 1984, several individual applications for mining locations over
mineral land covering certain parts of the Diwalwal gold rush area were filed with the Bureau of
Mines and Geo-Sciences (BMG).
On 2 February 1984, Marcopper Mining Corporation (MMC) filed 16 DOLs or mining claims for
areas adjacent to the area covered by the DOL of Banad and his group. After realizing that the
area encompassed by its mining claims is a forest reserve within the coverage of Proclamation No.
369 issued by Governor General Davis, MMC abandoned the same and instead applied for a
prospecting permit with the Bureau of Forest Development (BFD).
On 1 July 1985, BFD issued a Prospecting Permit to MMC covering an area of 4,941.6759 hectares
traversing the municipalities of Monkayo and Cateel, an area within the forest reserve under
Proclamation No. 369. The permit embraced the areas claimed by Apex and the other individual
mining claimants.
On 11 November 1985, MMC filed Exploration Permit Application No. 84-40 with the BMG. On 10
March 1986, the BMG issued to MCC Exploration Permit No. 133 (EP 133).
Discovering the existence of several mining claims and the proliferation of small-scale miners in
the area covered by EP 133, MMC thus filed on 11 April 1986 before the BMG a Petition for the
Cancellation of the Mining Claims of Apex and Small Scale Mining Permit Nos. (x-1)-04 and (x-1)05 which was docketed as MAC No. 1061. MMC alleged that the areas covered by its EP 133 and
the mining claims of Apex were within an established and existing forest reservation (AgusanDavao-Surigao Forest Reserve) under Proclamation No. 369 and that pursuant to Presidential
Decree No. 463,4 acquisition of mining rights within a forest reserve is through the application for
a permit to prospect with the BFD and not through registration of a DOL with the BMG.
On 23 September 1986, Apex filed a motion to dismiss MMCs petition alleging that its mining
claims are not within any established or proclaimed forest reserve, and as such, the acquisition of

mining rights thereto must be undertaken via registration of DOL with the BMG and not through
the filing of application for permit to prospect with the BFD.
On 9 December 1986, BMG dismissed MMCs petition on the ground that the area covered by the
Apex mining claims and MMCs permit to explore was not a forest reservation. It further declared
null and void MMCs EP 133 and sustained the validity of Apex mining claims over the disputed
area.
MMC appealed the adverse order of BMG to the Department of Environment and Natural
Resources (DENR).
On 15 April 1987, after due hearing, the DENR reversed the 9 December 1996 order of BMG and
declared MMCs EP 133 valid and subsisting.
Apex filed a Motion for Reconsideration with the DENR which was subsequently denied. Apex then
filed an appeal before the Office of the President. On 27 July 1989, the Office of the President,
through Assistant Executive Secretary for Legal Affairs, Cancio C. Garcia, 5 dismissed Apexs
appeal and affirmed the DENR ruling.
Apex filed a Petition for Certiorari before this Court. The Petition was docketed as G.R. No. 92605
entitled, "Apex Mining Co., Inc. v. Garcia." 6 On 16 July 1991, this Court rendered a Decision against
Apex holding that the disputed area is a forest reserve; hence, the proper procedure in acquiring
mining rights therein is by initially applying for a permit to prospect with the BFD and not through
a registration of DOL with the BMG.
On 27 December 1991, then DENR Secretary Fulgencio Factoran, Jr. issued Department
Administrative Order No. 66 (DAO No. 66) declaring 729 hectares of the areas covered by the
Agusan-Davao-Surigao Forest Reserve as non-forest lands and open to small-scale mining
purposes.
As DAO No. 66 declared a portion of the contested area open to small scale miners, several
mining entities filed applications for Mineral Production Sharing Agreement (MPSA).
On 25 August 1993, Monkayo Integrated Small Scale Miners Association (MISSMA) filed an MPSA
application which was denied by the BMG on the grounds that the area applied for is within the
area covered by MMC EP 133 and that the MISSMA was not qualified to apply for an MPSA under
DAO No. 82,7 Series of 1990.
On 5 January 1994, Rosendo Villaflor and his group filed before the BMG a Petition for Cancellation
of EP 133 and for the admission of their MPSA Application. The Petition was docketed as RED
Mines Case No. 8-8-94. Davao United Miners Cooperative (DUMC) and Balite intervened and
likewise sought the cancellation of EP 133.
On 16 February 1994, MMC assigned EP 133 to Southeast Mindanao Gold Mining Corporation
(SEM), a domestic corporation which is alleged to be a 100% -owned subsidiary of MMC.
On 14 June 1994, Balite filed with the BMG an MPSA application within the contested area that
was later on rejected.
On 23 June 1994, SEM filed an MPSA application for the entire 4,941.6759 hectares under EP 133,
which was also denied by reason of the pendency of RED Mines Case No. 8-8-94. On 1 September
1995, SEM filed another MPSA application.
On 20 October 1995, BMG accepted and registered SEMs MPSA application and the Deed of
Assignment over EP 133 executed in its favor by MMC. SEMs application was designated MPSA
Application No. 128 (MPSAA 128). After publication of SEMs application, the following filed before
the BMG their adverse claims or oppositions:
a) MAC Case No. 004 (XI) JB Management Mining Corporation;
b) MAC Case No. 005(XI) Davao United Miners Cooperative;
c) MAC Case No. 006(XI) Balite Integrated Small Scale Miners Cooperative;
d) MAC Case No. 007(XI) Monkayo Integrated Small Scale Miners Association, Inc.
(MISSMA);

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

f) MAC Case No. 009(XI) Rosendo Villafor, et al.;
g) MAC Case No. 010(XI) Antonio Dacudao;
h) MAC Case No. 011(XI) Atty. Jose T. Amacio;
i) MAC Case No. 012(XI) Puting-Bato Gold Miners Cooperative;
j) MAC Case No. 016(XI) Balite Communal Portal Mining Cooperative;
k) MAC Case No. 97-01(XI) Romeo Altamera, et al. 8
To address the matter, the DENR constituted a Panel of Arbitrators (PA) to resolve the following:
(a) The adverse claims on MPSAA No. 128; and
(b) The Petition to Cancel EP 133 filed by Rosendo Villaflor docketed as RED Case No. 88-94.9
On 13 June 1997, the PA rendered a resolution in RED Mines Case No. 8-8-94. As to the Petition for
Cancellation of EP 133 issued to MMC, the PA relied on the ruling in Apex Mining Co., Inc. v.
Garcia,10 and opined that EP 133 was valid and subsisting. It also declared that the BMG Director,
under Section 99 of the Consolidated Mines Administrative Order implementing Presidential
Decree No. 463, was authorized to issue exploration permits and to renew the same without limit.
With respect to the adverse claims on SEMs MPSAA No. 128, the PA ruled that adverse claimants
petitions were not filed in accordance with the existing rules and regulations governing adverse
claims because the adverse claimants failed to submit the sketch plan containing the technical
description of their respective claims, which was a mandatory requirement for an adverse claim
that would allow the PA to determine if indeed there is an overlapping of the area occupied by
them and the area applied for by SEM. It added that the adverse claimants were not claim owners
but mere occupants conducting illegal mining activities at the contested area since only MMC or
its assignee SEM had valid mining claims over the area as enunciated in Apex Mining Co., Inc. v.
Garcia.11 Also, it maintained that the adverse claimants were not qualified as small-scale miners
under DENR Department Administrative Order No. 34 (DAO No. 34), 12 or the Implementing Rules
and Regulation of Republic Act No. 7076 (otherwise known as the "Peoples Small-Scale Mining Act
of 1991"), as they were not duly licensed by the DENR to engage in the extraction or removal of
minerals from the ground, and that they were large-scale miners. The decretal portion of the PA
resolution pronounces:
VIEWED IN THE LIGHT OF THE FOREGOING, the validity of Expoloration Permit No. 133 is hereby
reiterated and all the adverse claims against MPSAA No. 128 are DISMISSED. 13
Undaunted by the PA ruling, the adverse claimants appealed to the Mines Adjudication Board
(MAB). In a Decision dated 6 January 1998, the MAB considered erroneous the dismissal by the PA
of the adverse claims filed against MMC and SEM over a mere technicality of failure to submit a
sketch plan. It argued that the rules of procedure are not meant to defeat substantial justice as
the former are merely secondary in importance to the latter. Dealing with the question on EP
133s validity, the MAB opined that said issue was not crucial and was irrelevant in adjudicating
the appealed case because EP 133 has long expired due to its non-renewal and that the holder of
the same, MMC, was no longer a claimant of the Agusan-Davao-Surigao Forest Reserve having
relinquished its right to SEM. After it brushed aside the issue of the validity of EP 133 for being
irrelevant, the MAB proceeded to treat SEMs MPSA application over the disputed area as an
entirely new and distinct application. It approved the MPSA application, excluding the area
segregated by DAO No. 66, which declared 729 hectares within the Diwalwal area as non-forest
lands open for small-scale mining. The MAB resolved:
WHEREFORE, PREMISES CONSIDERED, the decision of the Panel of Arbitrators dated 13 June 1997
is hereby VACATED and a new one entered in the records of the case as follows:

1. SEMs MPSA application is hereby given due course subject to the full and strict
compliance of the provisions of the Mining Act and its Implementing Rules and
Regulations;
2. The area covered by DAO 66, series of 1991, actually occupied and actively mined by
the small-scale miners on or before August 1, 1987 as determined by the Provincial
Mining Regulatory Board (PMRB), is hereby excluded from the area applied for by SEM;
3. A moratorium on all mining and mining-related activities, is hereby imposed until such
time that all necessary procedures, licenses, permits, and other requisites as provided
for by RA 7076, the Mining Act and its Implementing Rules and Regulations and all other
pertinent laws, rules and regulations are complied with, and the appropriate
environmental protection measures and safeguards have been effectively put in place;
4. Consistent with the spirit of RA 7076, the Board encourages SEM and all small-scale
miners to continue to negotiate in good faith and arrive at an agreement beneficial to all.
In the event of SEMs strict and full compliance with all the requirements of the Mining
Act and its Implementing Rules and Regulations, and the concurrence of the small-scale
miners actually occupying and actively mining the area, SEM may apply for the inclusion
of portions of the areas segregated under paragraph 2 hereof, to its MPSA application. In
this light, subject to the preceding paragraph, the contract between JB [JB Management
Mining Corporation] and SEM is hereby recognized.14
Dissatisfied, the Villaflor group and Balite appealed the decision to this Court. SEM, aggrieved by
the exclusion of 729 hectares from its MPSA application, likewise appealed. Apex filed a Motion for
Leave to Admit Petition for Intervention predicated on its right to stake its claim over the Diwalwal
gold rush which was granted by the Court. These cases, however, were remanded to the Court of
Appeals for proper disposition pursuant to Rule 43 of the 1997 Rules of Civil Procedure. The Court
of Appeals consolidated the remanded cases as CA-G.R. SP No. 61215 and No. 61216.
In the assailed Decision15 dated 13 March 2002, the Court of Appeals affirmed in toto the decision
of the PA and declared null and void the MAB decision.
The Court of Appeals, banking on the premise that the SEM is the agent of MMC by virtue of its
assignment of EP 133 in favor of SEM and the purported fact that SEM is a 100% subsidiary of
MMC, ruled that the transfer of EP 133 was valid. It argued that since SEM is an agent of MMC, the
assignment of EP 133 did not violate the condition therein prohibiting its transfer except to MMCs
duly designated agent. Thus, despite the non-renewal of EP 133 on 6 July 1994, the Court of
Appeals deemed it relevant to declare EP 133 as valid since MMCs mining rights were validly
transferred to SEM prior to its expiration.
The Court of Appeals also ruled that MMCs right to explore under EP 133 is a property right which
the 1987 Constitution protects and which cannot be divested without the holders consent. It
stressed that MMCs failure to proceed with the extraction and utilization of minerals did not
diminish its vested right to explore because its failure was not attributable to it.
Reading Proclamation No. 369, Section 11 of Commonwealth Act 137, and Sections 6, 7, and 8 of
Presidential Decree No. 463, the Court of Appeals concluded that the issuance of DAO No. 66 was
done by the DENR Secretary beyond his power for it is the President who has the sole power to
withdraw from the forest reserve established under Proclamation No. 369 as non-forest land for
mining purposes. Accordingly, the segregation of 729 hectares of mining areas from the coverage
of EP 133 by the MAB was unfounded.
The Court of Appeals also faulted the DENR Secretary in implementing DAO No. 66 when he
awarded the 729 hectares segregated from the coverage area of EP 133 to other corporations
who were not qualified as small-scale miners under Republic Act No. 7076.

As to the petitions of Villaflor and company, the Court of Appeals argued that their failure to
submit the sketch plan to the PA, which is a jurisdictional requirement, was fatal to their appeal. It
likewise stated the Villaflor and companys mining claims, which were based on their alleged
rights under DAO No. 66, cannot stand as DAO No. 66 was null and void. The dispositive portion of
the Decision decreed:
WHEREFORE, premises considered, the Petition of Southeast Mindanao Gold Mining Corporation is
GRANTED while the Petition of Rosendo Villaflor, et al., is DENIED for lack of merit. The Decision of
the Panel of Arbitrators dated 13 June 1997 is AFFIRMED in toto and the assailed MAB Decision is
hereby SET ASIDE and declared as NULL and VOID. 16
Hence, the instant Petitions for Review on Certiorari under Rule 45 of the Rules of Court filed by
Apex, Balite and MAB.
During the pendency of these Petitions, President Gloria Macapagal-Arroyo issued Proclamation
No. 297 dated 25 November 2002. This proclamation excluded an area of 8,100 hectares located
in Monkayo, Compostela Valley, and proclaimed the same as mineral reservation and as
environmentally critical area. Subsequently, DENR Administrative Order No. 2002-18 was issued
declaring an emergency situation in the Diwalwal gold rush area and ordering the stoppage of all
mining operations therein. Thereafter, Executive Order No. 217 dated 17 June 2003 was issued by
the President creating the National Task Force Diwalwal which is tasked to address the situation in
the Diwalwal Gold Rush Area.
In G.R. No. 152613 and No. 152628, Apex raises the following issues:
I
WHETHER OR NOT SOUTHEAST MINDANAO GOLD MININGS [SEM] E.P. 133 IS NULL AND VOID DUE
TO THE FAILURE OF MARCOPPER TO COMPLY WITH THE TERMS AND CONDITIONS PRESCRIBED IN
EP 133.
II
WHETHER OR NOT APEX HAS A SUPERIOR AND PREFERENTIAL RIGHT TO STAKE ITS CLAIM OVER
THE ENTIRE 4,941 HECTARES AGAINST SEM AND THE OTHER CLAIMANTS PURSUANT TO THE TIMEHONORED PRINCIPLE IN MINING LAW THAT "PRIORITY IN TIME IS PRIORITY IN RIGHT." 17
In G.R. No. 152619-20, Balite anchors its petition on the following grounds:
I
WHETHER OR NOT THE MPSA OF SEM WHICH WAS FILED NINE (9) DAYS LATE (JUNE 23, 1994)
FROM THE FILING OF THE MPSA OF BALITE WHICH WAS FILED ON JUNE 14, 1994 HAS A
PREFERENTIAL RIGHT OVER THAT OF BALITE.
II
WHETHER OR NOT THE DISMISSAL BY THE PANEL OF ARBITRATORS OF THE ADVERSE CLAIM OF
BALITE ON THE GROUND THAT BALITE FAILED TO SUBMIT THE REQUIRED SKETCH PLAN DESPITE
THE FACT THAT BALITE, HAD IN FACT SUBMITTED ON TIME WAS A VALID DISMISSAL OF BALITES
ADVERSE CLAIM.
III
WHETHER OR NOT THE ACTUAL OCCUPATION AND SMALL-MINING OPERATIONS OF BALITE
PURSUANT TO DAO 66 IN THE 729 HECTARES WHICH WAS PART OF THE 4,941.6759 HECTARES
COVERED BY ITS MPSA WHICH WAS REJECTED BY THE BUREAU OF MINES AND GEOSCIENCES WAS
ILLEGAL.18
In G.R. No. 152870-71, the MAB submits two issues, to wit:
I
WHETHER OR NOT EP NO. 133 IS STILL VALID AND SUBSISTING.
II

WHETHER OR NOT THE SUBSEQUENT ACTS OF THE GOVERNMENT SUCH AS THE ISSUANCE OF
DAO NO. 66, PROCLAMATION NO. 297, AND EXECUTIVE ORDER 217 CAN OUTWEIGH EP NO. 133
AS WELL AS OTHER ADVERSE CLAIMS OVER THE DIWALWAL GOLD RUSH AREA.19
The common issues raised by petitioners may be summarized as follows:
I. Whether or not the Court of Appeals erred in upholding the validity and continuous
existence of EP 133 as well as its transfer to SEM;
II. Whether or not the Court of Appeals erred in declaring that the DENR Secretary has no
authority to issue DAO No. 66; and
III. Whether or not the subsequent acts of the executive department such as the issuance
of Proclamation No. 297, and DAO No. 2002-18 can outweigh Apex and Balites claims
over the Diwalwal Gold Rush Area.
On the first issue, Apex takes exception to the Court of Appeals ruling upholding the validity of
MMCs EP 133 and its subsequent transfer to SEM asserting that MMC failed to comply with the
terms and conditions in its exploration permit, thus, MMC and its successor-in-interest SEM lost
their rights in the Diwalwal Gold Rush Area. Apex pointed out that MMC violated four conditions in
its permit. First, MMC failed to comply with the mandatory work program, to complete exploration
work, and to declare a mining feasibility. Second, it reneged on its duty to submit an
Environmental Compliance Certificate. Third, it failed to comply with the reportorial requirements.
Fourth, it violated the terms of EP 133 when it assigned said permit to SEM despite the explicit
proscription against its transfer.
Apex likewise emphasizes that MMC failed to file its MPSA application required under DAO No.
8220 which caused its exploration permit to lapse because DAO No. 82 mandates holders of
exploration permits to file a Letter of Intent and a MPSA application not later than 17 July 1991. It
said that because EP 133 expired prior to its assignment to SEM, SEMs MPSA application should
have been evaluated on its own merit.
As regards the Court of Appeals recognition of SEMs vested right over the disputed area, Apex
bewails the same to be lacking in statutory bases. According to Apex, Presidential Decree No. 463
and Republic Act No. 7942 impose upon the claimant the obligation of actually undertaking
exploration work within the reserved lands in order to acquire priority right over the area. MMC,
Apex claims, failed to conduct the necessary exploration work, thus, MMC and its successor-ininterest SEM lost any right over the area.
In its Memorandum, Balite maintains that EP 133 of MMC, predecessor-in-interest of SEM, is an
expired and void permit which cannot be made the basis of SEMs MPSA application.
Similarly, the MAB underscores that SEM did not acquire any right from MMC by virtue of the
transfer of EP 133 because the transfer directly violates the express condition of the exploration
permit stating that "it shall be for the exclusive use and benefit of the permittee or his duly
authorized agents." It added that while MMC is the permittee, SEM cannot be considered as
MMCs duly designated agent as there is no proof on record authorizing SEM to represent MMC in
its business dealings or undertakings, and neither did SEM pursue its interest in the permit as an
agent of MMC. According to the MAB, the assignment by MMC of EP 133 in favor of SEM did not
make the latter the duly authorized agent of MMC since the concept of an agent under EP 133 is
not equivalent to the concept of assignee. It finds fault in the assignment of EP 133 which lacked
the approval of the DENR Secretary in contravention of Section 25 of Republic Act No.
794221 requiring his approval for a valid assignment or transfer of exploration permit to be valid.
SEM, on the other hand, counters that the errors raised by petitioners Apex, Balite and the MAB
relate to factual and evidentiary matters which this Court cannot inquire into in an appeal by
certiorari.

The established rule is that in the exercise of the Supreme Courts power of review, the Court not
being a trier of facts, does not normally embark on a re-examination of the evidence presented by
the contending parties during the trial of the case considering that the findings of facts of the
Court of Appeals are conclusive and binding on the Court. 22 This rule, however, admits of
exceptions as recognized by jurisprudence, to wit:
(1) [w]hen the findings are grounded entirely on speculation, surmises or conjectures; (2) when
the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on misapprehension of facts; (5) when the findings of
facts are conflicting; (6) when in making its findings the Court of Appeals went beyond the issues
of the case, or its findings are contrary to the admissions of both the appellant and the appellee;
(7) when the findings are contrary to the trial court; (8) when the findings are conclusions without
citation of specific evidence on which they are based; (9) when the facts set forth in the petition
as well as in the petitioners main and reply briefs are not disputed by the respondent; (10) when
the findings of fact are premised on the supposed absence of evidence and contradicted by the
evidence on record; and (11) when the Court of Appeals manifestly overlooked certain relevant
facts not disputed by the parties, which, if properly considered, would justify a different
conclusion.23
Also, in the case of Manila Electric Company v. Benamira, 24 the Court in a Petition for Review on
Certiorari, deemed it proper to look deeper into the factual circumstances of the case since the
Court of Appeals findings are at odds to those of the National Labor Relations Commission
(NLRC). Just like in the foregoing case, it is this Courts considered view that a re-evaluation of the
attendant facts surrounding the present case is appropriate considering that the findings of the
MAB are in conflict with that of the Court of Appeals.
I
At the threshold, it is an undisputed fact that MMC assigned to SEM all its rights under EP 133
pursuant to a Deed of Assignment dated 16 February 1994.25
EP 133 is subject to the following terms and conditions 26 :
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; and
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.

Under Section 9027 of Presidential Decree No. 463, the applicable statute during the issuance of
EP 133, the DENR Secretary, through Director of BMG, is 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 has 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. 28 This power of
administration includes 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.
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. For a contract of agency to exist, it is essential that the
principal consents that the other party, the agent, shall act on its behalf, and the agent consents
so as to act.29 In the case of Yu Eng Cho v. Pan American World Airways, Inc., 30 this Court had the
occasion to set forth the elements of agency, viz:
(1) consent, express or implied, of the parties to establish the relationship;
(2) the object is the execution of a juridical act in relation to a third person;
(3) the agent acts as a representative and not for himself;
(4) the agent acts within the scope of his authority.
The existence of the elements of agency is a factual matter that needs to be established or
proven by evidence. The burden of proving that agency is extant in a certain case rests in the
party who sets forth such allegation. This is based on the principle that he who alleges a fact has
the burden of proving it.31 It must likewise be emphasized that the evidence to prove this fact
must be clear, positive and convincing.32
In the instant Petitions, it is incumbent upon either MMC or SEM to prove that a contract of agency
actually exists between them so as to allow SEM to use and benefit from EP 133 as the agent of
MMC. SEM did not claim nor submit proof that it is the designated agent of MMC to represent the
latter in its business dealings or undertakings. SEM cannot, therefore, be considered as an agent
of MMC which can use EP 133 and benefit from it. Since SEM is not an authorized agent of MMC, it
goes without saying that the assignment or transfer of the permit in favor of SEM is null and void
as it directly contravenes the terms and conditions of the grant of EP 133.
Furthermore, the concept of agency is distinct from assignment. In agency, the agent acts not on
his own behalf but on behalf of his principal.33 While in assignment, there is total transfer or
relinquishment of right by the assignor to the assignee. 34 The assignee takes the place of the
assignor and is no longer bound to the latter. The deed of assignment clearly stipulates:
1. That for ONE PESO (P1.00) and other valuable consideration received by the ASSIGNOR from
the ASSIGNEE, the ASSIGNOR hereby ASSIGNS, TRANSFERS and CONVEYS unto the ASSIGNEE
whatever rights or interest the ASSIGNOR may have in the area situated in Monkayo, Davao del
Norte and Cateel, Davao Oriental, identified as Exploration Permit No. 133 and Application for a
Permit to Prospect in Bunawan, Agusan del Sur respectively. 35
Bearing in mind the just articulated distinctions and the language of the Deed of Assignment, it is
readily obvious that the assignment by MMC of EP 133 in favor of SEM did not make the latter the
formers agent. Such assignment involved actual transfer of all rights and obligations MMC have
under the permit in favor of SEM, thus, making SEM the permittee. It is not a mere grant of
authority to SEM, as an agent of MMC, to use the permit. It is a total abdication of MMCs rights
over the permit. Hence, the assignment in question did not make SEM the authorized agent of
MMC to make use and benefit from EP 133.

The condition stipulating that the permit is for the exclusive use of the permittee or its duly
authorized agent is not without any reason. Exploration permits are strictly granted to entities or
individuals possessing the resources and capability to undertake mining operations. Without such
a condition, non-qualified entities or individuals could circumvent the strict requirements under
the law by the simple expediency acquiring the permit from the original permittee.
We cannot lend recognition to the Court of Appeals theory that SEM, being a 100% subsidiary of
MMC, is automatically an agent of MMC.
A corporation is an artificial being created by operation of law, having the right of succession and
the powers, attributes, and properties expressly authorized by law or incident to its existence. 36 It
is an artificial being invested by law with a personality separate and distinct from those of the
persons composing it as well as from that of any other legal entity to which it may be
related.37 Resultantly, absent any clear proof to the contrary, SEM is a separate and distinct entity
from MMC.
The Court of Appeals pathetically invokes the doctrine of piercing the corporate veil to legitimize
the prohibited transfer or assignment of EP 133. It stresses that SEM is just a business conduit of
MMC, hence, the distinct legal personalities of the two entities should not be recognized. True, the
corporate mask may be removed when the corporation is just an alter ego or a mere conduit of a
person or of another corporation. 38 For reasons of public policy and in the interest of justice, the
corporate veil will justifiably be impaled only when it becomes a shield for fraud, illegality or
inequity committed against a third person. 39 However, this Court has made a caveat in the
application of the doctrine of piercing the corporate veil. Courts should be mindful of the milieu
where it is to be applied. Only in cases where the corporate fiction was misused to such an extent
that injustice, fraud or crime was committed against another, in disregard of its rights may the
veil be pierced and removed. Thus, a subsidiary corporation may be made to answer for the
liabilities and/or illegalities done by the parent corporation if the former was organized for the
purpose of evading obligations that the latter may have entered into. In other words, this doctrine
is in place in order to expose and hold liable a corporation which commits illegal acts and use the
corporate fiction to avoid liability from the said acts. The doctrine of piercing the corporate veil
cannot therefore be used as a vehicle to commit prohibited acts because these acts are the ones
which the doctrine seeks to prevent.
To our mind, the application of the foregoing doctrine is unwarranted. The assignment of the
permit in favor of SEM is utilized to circumvent the condition of non-transferability of the
exploration permit. To allow SEM to avail itself of this doctrine and to approve the validity of the
assignment is tantamount to sanctioning illegal act which is what the doctrine precisely seeks to
forestall.
Quite apart from the above, a cursory consideration of the mining law pertinent to the case, will,
indeed, demonstrate the infraction committed by MMC in its assignment of EP 133 to SEM.
Presidential Decree No. 463, enacted on 17 May 1974, otherwise known as the Mineral Resources
Development Decree, which governed the old system of exploration, development, and utilization
of mineral resources through "license, concession or lease" prescribed:
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.)

The same provision is reflected in Republic Act No. 7942, otherwise known as the Philippine
Mining Act of 1995, which is the new law governing the exploration, development and utilization
of the natural resources, which provides:
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.
The records are bereft of any indication that the assignment bears the imprimatur of the
Secretary of the DENR. Presidential Decree No. 463, which is the governing law when the
assignment was executed, explicitly requires that the transfer or assignment of mining rights,
including the right to explore a mining area, must be with the prior approval of the Secretary of
DENR. Quite conspicuously, SEM did not dispute the allegation that the Deed of Assignment was
made without the prior approval of the Secretary of DENR. Absent the prior approval of the
Secretary of DENR, the assignment of EP 133, was, therefore, without legal effect for violating the
mandatory provision of Presidential Decree No. 463.
An added significant omission proved fatal to MMC/SEMs cause. While it is true that the case of
Apex Mining Co., Inc. v. Garcia 40 settled the issue of which between Apex and MMC validly
acquired mining rights over the disputed area, such rights, though, had been extinguished by
subsequent events. Records indicate that on 6 July 1993, EP 133 was extended for 12 months or
until 6 July 1994.41 MMC never renewed its permit prior and after its expiration. Thus, EP 133
expired by non-renewal.
With the expiration of EP 133 on 6 July 1994, MMC lost any right to the Diwalwal Gold Rush Area.
SEM, on the other hand, has not acquired any right to the said area because the transfer of EP
133 in its favor is invalid. Hence, both MMC and SEM have not acquired any vested right over the
4,941.6759 hectares which used to be covered by EP 133.
II
The Court of Appeals theorizes that DAO No. 66 was issued beyond the power of the DENR
Secretary since the power to withdraw lands from forest reserves and to declare the same as an
area open for mining operation resides in the President.
Under Proclamation No. 369 dated 27 February 1931, the power to convert forest reserves as nonforest reserves is vested with the DENR Secretary. Proclamation No. 369 partly states:
From this reserve shall be considered automatically excluded all areas which had already been
certified and which in the future may be proclaimed as classified and certified lands and approved
by the Secretary of Agriculture and Natural Resources. 42
However, a subsequent law, Commonwealth Act No. 137, otherwise known as "The Mining Act"
which was approved on 7 November 1936 provides:
Sec. 14. Lands within reservations for purposes other than mining, which, after such reservation is
made, are found to be more valuable for their mineral contents than for the purpose for which the
reservation was made, may be withdrawn from such reservations by the President with the
concurrence of the National Assembly, and thereupon such lands shall revert to the public domain
and be subject to disposition under the provisions of this Act.
Unlike Proclamation No. 369, Commonwealth Act No. 137 vests solely in the President, with the
concurrence of the National Assembly, the power to withdraw forest reserves found to be more
valuable for their mineral contents than for the purpose for which the reservation was made and
convert the same into non-forest reserves. A similar provision can also be found in Presidential
Decree No. 463 dated 17 May 1974, with the modifications that (1) the declaration by the
President no longer requires the concurrence of the National Assembly and (2) the DENR
Secretary merely exercises the power to recommend to the President which forest reservations
are to be withdrawn from the coverage thereof. Section 8 of Presidential Decree No. 463 reads:

SEC. 8. Exploration and Exploitation of Reserved Lands. When lands within reservations, which
have been established for purposes other than mining, are found to be more valuable for their
mineral contents, they may, upon recommendation of the Secretary be withdrawn from such
reservation by the President and established as a mineral reservation.
Against the backdrop of the applicable statutes which govern the issuance of DAO No. 66, this
Court is constrained to rule that said administrative order was issued not in accordance with the
laws. Inescapably, DAO No. 66, declaring 729 hectares of the areas covered by the AgusanDavao-Surigao Forest Reserve as non-forest land open to small-scale mining operations, is null
and void as, verily, the DENR Secretary has no power to convert forest reserves into non-forest
reserves.
III
It is the contention of Apex that its right over the Diwalwal gold rush area is superior to that of
MMC or that of SEM because it was the first one to occupy and take possession of the area and
the first to record its mining claims over the area.
For its part, Balite argues that with the issuance of DAO No. 66, its occupation in the contested
area, particularly in the 729 hectares small-scale mining area, has entitled it to file its MPSA.
Balite claims that its MPSA application should have been given preference over that of SEM
because it was filed ahead.
The MAB, on the other hand, insists that the issue on who has superior right over the disputed
area has become moot and academic by the supervening events. By virtue of Proclamation No.
297 dated 25 November 2002, the disputed area was declared a mineral reservation.
Proclamation No. 297 excluded an area of 8,100 hectares located in Monkayo, Compostela Valley,
and proclaimed the same as mineral reservation and as environmentally critical area, viz:
WHEREAS, by virtue of Proclamation No. 369, series of 1931, certain tracts of public land situated
in the then provinces of Davao, Agusan and Surigao, with an area of approximately 1,927,400
hectares, were withdrawn from settlement and disposition, excluding, however, those portions
which had been certified and/or shall be classified and certified as non-forest lands;
WHEREAS, gold deposits have been found within the area covered by Proclamation No. 369, in the
Municipality of Monkayo, Compostela Valley Province, and unregulated small to medium-scale
mining operations have, since 1983, been undertaken therein, causing in the process serious
environmental, health, and peace and order problems in the area;
WHEREAS, it is in the national interest to prevent the further degradation of the environment and
to resolve the health and peace and order problems spawned by the unregulated mining
operations in the said area;
WHEREAS, these problems may be effectively addressed by rationalizing mining operations in the
area through the establishment of a mineral reservation;
WHEREAS, after giving due notice, the Director of Mines and Geoxciences conducted public
hearings on September 6, 9 and 11, 2002 to allow the concerned sectors and communities to air
their views regarding the establishment of a mineral reservation in the place in question;
WHEREAS, pursuant to the Philippine Mining Act of 1995 (RA 7942), the President may, upon the
recommendation of the Director of Mines and Geosciences, through the Secretary of Environment
and Natural Resources, and when the national interest so requires, establish mineral reservations
where mining operations shall be undertaken by the Department directly or thru a contractor;
WHEREAS, as a measure to attain and maintain a rational and orderly balance between socioeconomic growth and environmental protection, the President may, pursuant to Presidential
Decree No. 1586, as amended, proclaim and declare certain areas in the country as
environmentally critical;

NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of the Philippines, upon

recommendation of the Secretary of the Department of Environment and Natural Resources
(DENR), and by virtue of the powers vested in me by law, do hereby exclude certain parcel of land
located in Monkayo, Compostela Valley, and proclaim the same as mineral reservation and as
environmentally critical area, with metes and bound as defined by the following geographical
coordinates;
xxxx
with an area of Eight Thousand One Hundred (8,100) hectares, more or less. Mining operations in
the area may be undertaken either by the DENR directly, subject to payment of just compensation
that may be due to legitimate and existing claimants, or thru a qualified contractor, subject to
existing rights, if any.
The DENR shall formulate and issue the appropriate guidelines, including the establishment of an
environmental and social fund, to implement the intent and provisions of this Proclamation.
Upon the effectivity of the 1987 Constitution, the State assumed a more dynamic role in the
exploration, development and utilization of the natural resources of the country. 43 With this policy,
the State may pursue full control and supervision of the exploration, development and utilization
of the countrys natural mineral 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.44 Thus, Article XII, Section 2, of the 1987 Constitution, specifically
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. x x x
xxxx
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 (Underscoring supplied.)
Recognizing the importance of the countrys natural resources, not only for national economic
development, but also for its security and national defense, Section 5 of Republic Act No. 7942
empowers the President, when the national interest so requires, to establish mineral reservations
where mining operations shall be undertaken directly by the State or through a contractor.
To implement the intent and provisions of Proclamation No. 297, the DENR Secretary issued DAO
No. 2002-18 dated 12 August 2002 declaring an emergency situation in the Diwalwal Gold Rush
Area and ordering the stoppage of all mining operations therein.
The issue on who has priority right over the disputed area is deemed overtaken by the above
subsequent developments particularly with the issuance of Proclamation 297 and DAO No. 200218, both being constitutionally-sanctioned acts of the Executive Branch. Mining operations in the
Diwalwal Mineral Reservation are now, therefore, within the full control of the State through the

executive branch. Pursuant to Section 5 of Republic Act No. 7942, the State can either directly
undertake the exploration, development and utilization of the area or it can enter into agreements
with qualified entities, 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 .
It is now up to the Executive Department whether to take the first option, i.e., to undertake
directly the mining operations of the Diwalwal Gold Rush Area. As already ruled, 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. The State need be guided only
by the demands of public interest in settling on this option, as well as its material and logistic
feasibility.45 The State can also opt to award mining operations in the mineral reservation to
private entities including petitioners Apex and Balite, if it wishes. The exercise of this prerogative
lies with the Executive Department over which courts will not interfere.
WHEREFORE, premises considered, the Petitions of Apex, Balite and the MAB are PARTIALLY
GRANTED, thus:
1. We hereby REVERSE and SET ASIDE the Decision of the Court of Appeals, dated 13
March 2002, and hereby declare that EP 133 of MMC has EXPIRED on 7 July 1994 and
that its subsequent transfer to SEM on 16 February 1994 is VOID.
2. We AFFIRM the finding of the Court of Appeals in the same Decision declaring DAO No.
66 illegal for having been issued in excess of the DENR Secretarys authority.
Consequently, the State, should it so desire, may now award mining operations in the disputed
area to any qualified entity it may d
G.R. No. L-54305 February 14, 1990
ATLAS
CONSOLIDATED
MINING
&
DEVELOPMENT
CORPORATION, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, MALAYAN INTEGRATED INDUSTRIES
CORPORATION, BIGA COPPER MINES EXPLORATION COMPANY, PABLO B. GOROSIN,
FRANCISCO B. GOROSIN, HEIRS OF PEDRO B. GOROSIN and VICENTE T.
GARAYGAY, respondents.
Belo, Ermitao, Abiera & Associates for petitioner.
Jose T. Sumcad for respondent Malayan Integrated Industries, et al.
Ramon B. Ceniza for intervenor.
GANCAYCO, J.:
Can a person who is not a party to a contract file a petition for declaratory relief and seek a
judicial intepretation of such contract? Can a trial court which had already taken cognizance of an
action involving a mining controversy be divested of jurisdiction to hear and decide the case upon
the promulgation of Presidential Decree No. 1281? 1These are the threshold issues brought about
by the long drawn legal battle between the conflicting parties in this case.
The facts are undisputed.
On June 5, 1973, Atlas Consolidated Mining & Development Corporation (ATLAS) entered into an
operating agreement with the heirs of Manuel Cuenco and Jose P. Velez (collectively referred to
herein as CUENCO-VELEZ) whereby in consideration of royalties to be paid by ATLAS to CUENCOVELEZ, the former was granted the right to explore, develop and operate twelve (12) mining
claims belonging to the latter located at Toledo City, Cebu.

On June 17, 1973, ATLAS entered into a similar agreement with the Biga Copper Mines Exploration
Company (BIGA COPPER), a partnership composed of Pablo B. Gorosin, Francisco B. Gorosin, Pedro
B. Gorosin and Vicente T. Garaygay (collectively referred to herein as the BIGA PARTNERS).
Subject of this Operating Agreement are thirty-one (31) mining claims of BIGA-COPPER likewise
located at Toledo City, Cebu.
It appears, however, that of the total mining claims "leased" by ATLAS from both the CUENCOVELEZ and BIGA COPPER, nine (9) mining claims overlap. These nine (9) overlapping mining
claims became the subject of Mines Administrative Cases Nos. V-727 and V-750 whereby under
date of February 12, 1974, the Director of Mines resolved the same in favor of CUENCO-VELEZ.
BIGA COPPER appealed this decision to the Secretary of Agriculture and Natural Resources who, in
a decision dated April 14, 1974, in DANR Cases Nos. 3936 and 3936-A, affirmed the decision of
the Director of Mines. This later decision was appealed to the Office of the President under O.P.
Case No. 0435.
During the pendency of this appeal in the Office of the President, the parties, namely, CUENCOVELEZ and BIGA COPPER, entered into a compromise agreement. 2 This compromise agreement
enabled BIGA-COPPER to eventually lay claim over the nine (9) overlapping mining claims.
Earlier, ATLAS alleged that when it started the operation of its Carmen Project, which includes
some of the mining claims subject of the aforestated Operating Agreements with BIGA COPPER
and CUENCO-VELEZ ATLAS received numerous letters from third- parties claiming that they were
assignees of BIGA COPPER and the BIGA PARTNERS over the mining claims. These third-parties
claim that as such assignees, they are legally entitled to receive the corresponding royalties from
the mining operation. In effect, they ask ATLAS that they be substituted to the rights of BIGA
COPPER and the BIGA PARTNERS under the operating agreement.
ATLAS allegedly conducted a verification of the said demands and later on confirmed that before
the registration of the Articles of Partnership of BIGA COPPER, the BIGA PARTNERS sold and/or
assigned some of their respective shares, rights, interests and participations over the mining
claims to third parties 3 and that BIGA COPPER, acting separately from the BIGA PARTNERS,
likewise sold and/or assigned its undivided shares, interests and participations over the mining
claims to third parties. 4
On the other hand, a certain Alejandro T. Escano wrote ATLAS informing the latter that he is an
assignee of CUENCO-VELEZ with respect to the three (3) mining claims which CUENCO-VELEZ
retained under the compromise agreement with BIGA COPPER. Escano, alleged that CUENCOVELEZ had assigned to him fifty percent (50%) of their rights, interests and participations in the
said mining claims. 5 In turn, CUENCO-VELEZ advised ATLAS that their assignment to Alejandro T.
Escano was already revoked or rescinded for failure of the said assignee to fulfill the conditions
contained in their deed of assignment. 6
In the light of the foregoing situation, ATLAS instituted a petition for declaratory relief with the
then Court of First Instance of Cebu, Branch 8, and which was docketed as Civil Case No. 16669-R.
Cited as respondents therein were BIGA COPPER, BIGA PARTNERS, CUENCO-VELEZ and some
thirty-one (31) assignees. 7
In their amended petition filed with the trial court, ATLAS raised the following issues for resolution,
to wit:
1. Since ATLAS is now in the process of developing and exploring the Carmen
project which includes the mining claims of the BIGA COPPER and CUENCOVELEZ, should it extract and sipose (sic) of ores from the BIGA COPPER and
CUENCO-VELEZ claims, to whom shall ATLAS pay the royalties due thereon?
2. Considering that a Compromise Agreement has been entered into by and
between BIGA COPPER and CUENCO- VELEZ on some claims contested by them,

which compromise agreement was already submitted to the President for his
final approval, should ATLAS respect the same before the final approval of the
President in paying royalties under the operating agreements with BIGA COPPER
and CUENCO-VELEZ, respectively?
3. Considering further that before the compromise agreement was entered into,
BIGA COPPER had already assigned a large part of its interest to third parties,
does the compromise agreement entered into by BIGA COPPER bind these
assignees? Can BIGA COPPER enter into a compromise agreement with the
CUENCO-VELEZ insofar as the shares of these assignees are concerned?
4. Considering finally that before and after the compromise agreement was
entered into, BIGA COPPER and/or its partners as signed and/or sold various
rights to royalties over the mining claims covered by its Operating Agreement
with ATLAS; on the other hand, CUENCO-VELEZ made assignments after the
compromise agreement was entered into, should ATLAS recognize these
assignments and pay royalties to the assignees?
5. Since the assignments made by BIGA COPPER and/or its PARTNERS exceeded
the participation and/or shares of the PARTNERS in the partnership, which
assignment or who of the assignees are entitled to royalties?
6. Considering that the PARTNERS made individual assignments of their
respective shares, rights, interests and/or participations in the so-called
partnership, the total of which together with the assignments made directly by
the said partnership itself, aggregated 37.5% of the interest therein as of the
date the PARTNERS registered the Articles of Partnership of BIGA COPPER,
wherein the PARTNERS represented that they own 25% each in the partnership,
with the Securities and Exchange Commission, is ATLAS, by law, bound to
respect the assignments by the PARTNERS and/or by the partnership itself prior
to and/or subsequent to said registration?
7. Considering that the PARTNERS have also made assignments of their
respective shares, rights, interests and/or participations after the registration of
the said partnership, are those assignments valid and binding upon ATLAS? 8
To this petition for declaratory relief, respondents filed a motion to dismiss dated January 18, 1978
stating as grounds therefor the following:
1. The Honorable Court has no jurisdiction over the subject of the action or suit;
2. The complaint states no cause of action;
3. The court has no jurisdiction over the nature of the suit. 9
ATLAS filed a written opposition thereto dated February 4, 1978. 10
Meanwhile, due to the promulgation of Presidential Decree No. 1281, effective January 16, 1978, a
number of the defendants in the court below filed a supplemental motion to dismiss dated
February 17, 1978. 11 They alleged in their supplemental motion that the operating agreement
which BIGA COPPER signed with ATLAS had already been revoked by a letter dated February 11,
1978, 12 and that by reason of this rescission, the trial court is deemed to have lost jurisdiction
pursuant to Section 7, paragraphs A and C and Section 12 of Presidential Decree No. 1281.
Section 7, paragraphs A and C and Section 12 of the Decree provide:
SECTION 7. In addition to its regulatory and adjudicative functions over
companies, partnerships or persons engaged in mining explorations,
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;
xxx xxx xxx

xxx xxx xxx

(b) Cancellation and/or enforcement of mining contracts due to the refusal of

the claim owner/operator to abide by the terms and conditions thereof.

SECTION 12. All laws, executive orders, decrees, rules and regulations or parts
thereof contrary to or inconsistent with the provisions of this decree, are hereby
repealed and amended or modified accordingly. (Emphasis supplied.)
On March 13,1978, ATLAS filed a supplemental opposition to the supplemental motion to dismiss
arguing that BIGA COPPER had no right to unilaterally cancel their operating agreement. 13
After considering the pleadings filed by the conflicting parties to the case, the trial court, then
presided by Judge Regino Hermosisima, Jr., issued an order dated May 29, 1978 requiring the
defendants therein to answer the petition for declaratory relief it appearing "[t]hat the ground
stated in the motion to dismiss does not appear to be indubitable." 14
Accordingly, the defendants filed their answer which reiterated the allegations contained in their
motion to dismiss filed earlier. 15
On December 29, 1978, some of the defendants in the court below, namely, BIGA COPPER, BIGA
PARTNERS, Malayan Integrated Industries Corp., Guillermo Ponce and Esmael Garaygay, filed
another motion to dismiss the proceedings reiterating, once again, the same allegations in their
previous motions to dismiss. 16 It was likewise alleged in that same motion that the trial court had
already lost jurisdiction over the case in view of an action for annulment of the operating
agreement between BIGA COPPER and ATLAS which had been filed with the Bureau of Mines
(docketed as Special Case No. V-95) and which was set for hearing on January 22, 1979.
In an order dated January 17, 1979, the trial court denied the above mentioned motion, ruling that
there is no mining controversy involved in the case before it. Further, the court a quo clarified that
the declaratory action is merely for a judicial pronouncement on the rights and obligations of
ATLAS under several operating agreements. It went on to state that the action for annulment of
the operating agreement filed with the Bureau of Mines is not Identical with the petition for
declaratory relief and, therefore, does not oust the trial court of its jurisdiction to hear the
petition. 17
Respondents herein sought reconsideration of the immediately preceding order but failed in their
attempt. Thus, a petition for certiorari was filed with the Court of Appeals, docketed as CA-G.R.
No. SP-09773, assailing the orders of the court a quo as having been issued with grave abuse of
discretion amounting to lack or excess of jurisdiction.
The issues presented before the Court of Appeals were as follows:
(1) Whether or not the trial court had jurisdiction to try the action for
declaratory relief, and assuming it had, whether it was divested of said
jurisdiction by the subsequent enactment of PD 1281 ... and
(2) Whether or not respondent Judge committed grave abuse of discretion ... in
issuing the assailed orders. 18
In its decision, 19 the appellate court ruled in favor of herein respondents and ordered the trial
court to dismiss the declaratory action. We quote the pertinent portions of that decision, to wit:
But while we hold that respondent Judge has jurisdiction over the declaratory
action of which he was not divested by the promulgation of PD 1281, he should
have precisely exercised his jurisdiction by sustaining petitioners' motion to
dismiss grounded on lack of cause of action primordially because the allegations
of the complaint patently present no justiciable controversy. ...
xxx xxx xxx

Considering then that the declaratory suit calls for resolution of questions which
necessarily involve the validity and enforcement of the operating and deeds of
assignment, now subject of pending administrative cases before the Bureau of
Mines from which adequate and exclusive relief may be obtained, and the fact
that Atlas' right to file the suit is even questionable, the ineluctable conclusion
is that respondent Judge gravely abused his discretion ...
xxx xxx xxx

Here, We are confronted with a situation where the declaratory action should
not have been allowed xxx, the allegations of the complaint clearly suggesting
more of a request for an advisory opinion or the more proper remedy of
interpleader. ... 20
Claiming to be adversely affected by the decision of the Court of Appeals, ATLAS interposed the
present petition for review on certiorari.
After requiring respondents herein to file their comments to the petition, 21 Epifanio A. Anoos,
claiming to have a legal interest over the matter in litigation, filed with this Court a motion to
admit his petition in intervention dated September 12, 1980. In support thereof, Anoos alleges
that he is one of the defendants in the proceedings for declaratory relief; and that the trial court
in the same case, under date of February 21, 1979, had already rendered a summary judgment in
his favor. 22
Anoos, in effect, joins ATLAS in its prayer to have the decision of the respondent appellate court
set aside and additionally, as arguments peculiar only to him, asserts that (1) the Court of
Appeals violated the due process clause of the Constitution when it rendered the questioned
decision without notice to the rest of the parties in the proceeding below; and (2) that the
summary judgment in his favor dated February 21, 1979 had already become final and executory
by reason of the failure of private respondents herein to take steps to appeal therefrom. 23
On December 8, 1980, Milagros Cuenco, Antonio V. Cuenco, Ramon V. Cuenco, Manuel V. Cuenco,
Jr., Jose V. Cuenco, Filomena Cuenco, Jesus V. Cuenco and Jose P. Velez, earlier referred to herein
as CUENCO-VELEZ, filed with this Court a similar petition in intervention 24 alleging that (1) their
right to both substantive and procedural due process was violated, inasmuch as they were not
impleaded before the respondent appellate court; and (2) that the decision of the appellate court
is not in accordance with law. 25
In a resolution dated July 1, 1981 this Court finally resolved to give due course to the petition for
review filed by ATLAS. In that same resolution, the motions for intervention of both Efifanio A.
Anoos and CUENCO-VELEZ were granted. 26
We now proceed to the discussion of the merits of this petition. To reiterate the first issuecan a
person who is not a party to a contract file a petition for declaratory relief and seek a judicial
interpretation of such contract?
We rule in the negative.
Declaratory relief has been defined as an action by any person interested under a deed, will,
contract or other written instrument or whose rights are affected by a statute, ordinance,
executive order or regulation to determine any question of construction or validity arising under
the instrument, executive order or regulation, or statute and for a declaration of his rights and
duties thereunder. 27 The only question that may be raised in such kind of petition is the question
of "construction' or "validity" arising under an instrument or statute. 28
Corollary to this is the general rule that such an action must be justified such that no other
adequate relief or remedy is available under the circumstances. 29 This, in turn, can be explained
by the fact that the only object of a declaratory action is merely to terminate uncertainties in an

instrument or a statute. The judgment of the court concerned cannot extend beyond a declaration
of the rights and duties of the parties to the action or provide for corrective relief. 30
In the case at bar, ATLAS wants Us to sustain its position that under the factual backdrop narrated
earlier, it is entitled, as a matter of law, to proceed with its petition for declaratory relief.
After a careful analysis of the arguments presented by the parties herein, this Court rules that
there is no legal ground to sustain the contention of ATLAS.
ATLAS cannot be considered as an interested party under the deeds of assignment and, therefore,
has no standing to institute the declaratory action.
It cannot be disputed that ATLAS, being one of the parties to the operating agreements, has an
interest therein. A review of the record, in fact, reveals that ATLAS purports to be seeking a
judicial interpretation of its operating agreements with BIGA COPPER and CUENCO-VELEZ But
after evaluating the lengthy arguments it presented to justify the declaratory action this Court
arrives at one logical conclusionthe ambiguity is not in the operating agreements themselves
but in the validity of the assignments of mining rights made by BIGA COPPER and CUENCO-VELEZ
to third parties. Obviously, these third parties are not part of ATLAS' contract with either BIGA
COPPER or CUENCO-VELEZ. In the same vein, neither is ATLAS a party to the deeds of
assignments executed by BIGA COPPER or CUENCO-VELEZ. While this Court may concede that as
a result of the numerous assignments made by both BIGA COPPER and CUENCO-VELEZ, ATLAS is
left in a quandary as to whom to pay the royalties in the course of its mining operations, legally
speaking however, the ambiguity or uncertainty is not of the character as to call for the
procedural remedy of a declaratory actionATLAS not being a party to the said deeds of
assignment.
While this issue cannot find a square precedent in existing jurisprudence, however,
pronouncements made by this Court in Tadeo vs. Provincial Fiscal of Pangasinan 31 and United
Central & Cellulose Labor Association (PLUM) vs. Santos 32 are of great significance in the
resolution of this legal question.
In Tadeo, this Court ruled that a notary public before whom the execution of a deed of sale was
acknowledged is not entitled to file an action for declaratory judgment. "None of his rights or
duties thereunder need be declared." 33 On the other hand, in United Central, We seriously
doubted if a declaratory action can be filed in relation to a contract by persons who are not
parties thereto after considering that a substantive law, more specifically Article 1311 of the Civil
Code provides that contracts take effect only between the parties." Thus, "[i]t is quite plain that
one who is not a party to a contract cannot have the interest in it that the rule requires as basis
for a declaratory relief." 34
Aside from the reason advanced herein above, this Court is in agreement with the observation
made by respondent appellate court at least insofar as the question of justiciability is concerned
Clearly then, other effective remedies are available to ATLASsuch as an action for interpleader
to determine with finality who among BIGA COPPER, CUENCO-VELEZ and the latter's respective
assignees is entitled to the royalties it will pay later on under the operating agreements. At this
juncture, it is worthy to recall that courts should refuse to exercise its prerogative to declare rights
and to construe instruments where it would not terminate the uncertainty or controversy which
gave rise to the action or where it is not necessary and proper at the time under all
circumstances. 35
We now come to the second issue. Is the trial court divested of jurisdiction to hear and decide a
mining controversy in view of the promulgation of Presidential Decree No. 1281?
The answer is in the affirmative.

Tracing the development of Presidential Decree No. 1281, Justice Nocon, now Presiding Justice of
the Court of Appeals, in his separate concurring opinion on the assailed decision, thus, correctly
noted the following:
As early as January 15, 1973, PD 99-A provided where mining controversies
should be litigated: Director of Mines whose decision is appealable to the
Secretary of Agriculture and Natural Resources and finally to the President (Sec.
2). All laws in conflict or inconsistent therewith were repealed (Sec. 3). ...
The same procedure was reiterated in PD 309 (Sec. 5), issued on October 10,
1973, to accelerate disposition of mining controversies with creation (sic) of a
panel of investigators to submit a report to the Director of Mines within five
days (Sec. 1). Exclusive jurisdiction of the Bureau of Mines is implicit from
Section 3 thereof which give parties in pending litigations "before any judicial
tribunal" 15 days to file 'an adverse claim of any nature whatsoever with the
Bureau of Mines.'
PD 1281 issued on January 16, 1978, gives more teeth to the Bureau of Mines
(Sec. 3) for its regulatory and adjudicative powers and functions which becomes
(sic) 'original and exclusive even over 'cancellation and/or enforcement of
mining contracts,' reiterating the same procedure laid down in PD 99-A and PD
309. Clearly, the three Decrees99-A, 309 and 1281divested judicial
tribunals of jurisdiction over mining controversies including cancellation and
enforcement of mining contractsby making the regulatory and adjudicative
functions of the Bureau 'original and exclusive' (Sec. 7, PD 1281). 36 (Emphasis
supplied).
This Court agrees with the conclusion espoused by the respondent appellate court as to this
aspect of the case.
The declaratory action flied by ATLAS is within the ambit of Presidential Decree No. 1281. It is not
an entirely different or distinct cause of action. Were We to rule otherwise it would be ratifying two
judicial bodies exercising jurisdiction over an essentially the same subject mattera situation
analogous to split jurisdiction which is obnoxious to the orderly administration of justice. 37
Presidential Decree No. 1281 is a remedial statute. It does not create new rights or take away
rights that are already vested. It only operates in furtherance of a remedy or confirmation of
rights already in existence. It does not come within the legal purview of a prospective law. As
such, it can be applied retroactively independent of the general rule against the retrospective
application of statutes. 38 Being procedural in nature, it shall apply to all actions pending at the
time of its enactment except only with respect to those cases which had already attained the
character of a final and executory judgment. 39 Were it not so, the purpose of the Decree, which is
to facilitate the immediate resolution of mining controversies by granting jurisdiction to a body or
agency more adept to the technical complexities of mining operations, would be thwarted and
rendered meaningless. Litigants in a mining controversy cannot be permitted to choose a forum of
convenience. Jurisdiction is imposed by law and not by any of the parties to such proceedings.
Furthermore, Presidential Decree No. 1281 is a special law and under a well-accepted principle in
statutory construction, the special law will prevail over a statute or law of general
application. 40 Jurisdiction having been conferred by a special statute therefore prevails over the
jurisdiction granted by a general law. 41
Finally, as aptly observed by the respondent appellate court, it is a rule oft repeated by this Court
that the construction placed upon a law by the officials in charge of enforcing the same deserves
great and considerable weight. Unless the same would result in legal absurdity, the same should
be respected. 42

From the foregoing, the inevitable conclusion is that the operative act which divested the trial
court of jurisdiction to decide the declaratory action is not respondents' act of filing an
administrative suit for the cancellation of their operating agreement with ATLAS. With or without
such administrative action, the trial court is deemed to have lost jurisdiction to proceed with the
declaratory action immediately upon the effectivity of Presidential Decree No. 1281 on January
16, 1978.
The case of Twin Peaks Mining Association vs. Navarro, 43 while not squarely applicable to the
present case in view of the difference in the dates when the respective declaratory actions were
commenced, 44 nevertheless bolsters the conclusion We have reached thus far when it pointed
out that the promulgation of Presidential Decree No. 1281 is indicative of "[t]he trend to make the
adjudication of mining cases a purely administrative matter." 45
WHEREFORE, inasmuch as the trial court has lost jurisdiction to proceed, hear and decide the
action for declaratory relief filed by ATLAS, the summary judgment in favor of herein intervenor
Efifanio A. Anoos is declared null and void, having been rendered on February 21, 1979 when
Presidential Decree No. 1281 was already in full force and effect. The petition in intervention of
CUENCO-VELEZ is hereby dismissed for lack of merit. And, finally, the decision of the Court of
Appeals in CA-G.R. No. SP-09773 is affirmed insofar as it declared that the trial court acted with
grave abuse of discretion in proceeding with the declaratory action. No pronouncement as to
costs.
SO ORDERED.

G.R. No. 63528 September 9, 1996

ATOK
BIG-WEDGE
MINING
COMPANY, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and TUKTUKAN SAINGAN, respondents.
HERMOSISIMA, JR., J.:
In the face of two sets of divergent rulings of the Supreme Court on the nature of the rights of
mining claimants over the land where their claim is located, the parties herein seek a definitive
ruling on the issue: What is actually the right of a locator of a mining claim located and perfected
under the Philippine Bill of 1902 over the land where the claim is found? Does he have an
absolute right of ownership thereof or does he have the mere right to possess and claim the
same? Whose right to the land should, therefore, prevail: the mining claimant's or that of an
applicant for land registration? Does the mere recording or location of a mining claim ipso
facto and irreversibly convert the land into mineral land, notwithstanding the fact the mining
claimant failed to comply with the strict work requirement under the Philippine Bill of 1902?
Petitioner Atok Big Wedge Mining Company appeals from the decision 1 of the Court of
Appeals 2 which reversed the decision 3 of the then Court of First Instance of Baguio City 4 in a land
registration case. 5 The court a quo denied and correspondingly dismissed the application for
registration of title filed by private respondent Tuktukan Saingan, finding no merit in Saingan's
claim of adverse, open and continuous possession in concept of an owner of the tract of land
applied for by him, which happened to be claimed by petitioner as part of its mining duly recorded
by the Mining Recorder of Benguet. Respondent appellate court found petitioner to have
abandoned its mining claim over the said tract of land and, on the other hand, adjudged private
respondent to be the owner thereof by virtue of his having possessed the same under a bona fide

claim of ownership for at least thirty (30) years prior to the filing of his land registration
application in 1965.
The court a quo made the following findings of fact:
Applicant {private respondent} seeks the registration of a parcel of land with an
area of 41,296 square meters situated in the barrio of Lucnab, Itogon, Benguet,
which is shown in survey plan Psu-209851 . . .
The evidence for the applicant [private respondent] who was 70 years old at the
time he testified shows that he acquired the land from his father-in-law, Dongail,
when he married his daughter; that he was then 18 years old; that at the time
of his acquisition, it was planted with camotes, casava [sic], langka, gabi, coffee
and avocados; that he lived on the land since his marriage up to the present;
that he has been paying the taxes during the Japanese occupation and even
before it; that he was never disturbed in his possession. Supporting his oral
testimony, applicant [private respondent] submitted tax declarations . . . both
dated March 20, 1948, the former for a rural land and the latter for urban land
and improvement therein. The receipt showing payment of the taxes on such
tax declarations is dated Feb. 8, 1949 . . . The said tax declarations . . . show
that they cancel tax declaration No. 439 dated Feb. 10, 1947 which was
presented by the Oppositor [petitioner] Atok Big Wedge Mining Company as its
Exhibit 14, and the land tax under Exh. 14 was paid by applicant [private
respondent] in 1947 . . . Applicant [private respondent] has also submitted Exh.
"C", which indicates that all pre-war records of tax declarations and real
property receipts of the municipality of Itogon where the property is located
were burned and destroyed during the last world war.
The Bureau of Lands and Bureau of Forestry, represented by the Provincial
Fiscal, oppose [sic] application. The Atok Big Wedge Mining Company came in
also as oppositor claiming that the land in question is within its mineral claims
Sally, Evelyn and Ethel . . . Atok Big Wedge Mining Company submitted
Exhibits 6, 7 and 8, all showing that the annual assessment work of these
mineral claims were maintained from 1932 to 1967 for Sally and Evelyn and
from 1946 to 1967 for Ethel. It was likewise shown that these mineral claims
were recorded in the mining recorder's office; Sally and Evelyn on Jan. 2, 1931
and Ethel on March 18, 1921 . . . 6
The respondent appellate court additionally found that the tract of land in question "according to
the evidence, Exh. 2, covers portion of mineral claims, Sally, Evelyn and Ethel, the first two
located by one Reynolds in 1931 and the last, also by Reynolds in 1921" 7 but "Atok . . . has not
even been shown how connected with locator Reynolds." 8Private respondent reiterates this fact in
his Comment:
. . . (T)he mining claims have become vested rights and properties of the
locators, Messrs. H. I. Reynolds and E. J. Harrison.
However, the locators, Reynolds and Harrison, or the PETITIONERS herein,
assuming that there is any relation between Atok Big Wedge Mining Co., and the
locators. Reynolds and Harrison, have never shown that their rights have been
preserved or remain vested.
xxx xxx xxx
Furthermore, when the land in question was registered in the office of the
Mining Recorder in 1921, and 1931, respectively, the mineral claims covering
the land in question namely: Sally, Evelyn and Ethel were in the name of the

Locators E.J. Harrison and H. I. Reynolds. No evidence was ever presented as to

how Petitioner herein obtained ownership over said claims during the hearing of
this case in the Lower Court up to this time. It was not even shown how
Petitioner herein, Atok Big Wedge Mining Co., is connected or related to locator
Reynolds. . . 9
Significantly, nothing in the subsequent pleadings filed by petitioner rebuts, disputes or proves
otherwise, the aforecited issue raised by private respondent with regard to its personality,
interests and authority to oppose the application for registration filed by private respondent
respecting land to which petitioner claims rights but as to which it is not the duly recorded mining
locator.
The Director of Lands, thru the Office of the Solicitor General, opposed private respondent's
application on the ground that the applicant did not have title in fee simple over the questioned
land and that he had not exercised continuous, exclusive and notorious possession and
occupation over the said land for at least thirty (30) years immediately preceding the filing of the
application. However, the Solicitor General no longer joined petitioner in this ultimate appeal, the
Solicitor General later conceding existence of private respondent's rights.
Petitioner's presentation of evidence proving registration of the mining claims of petitioner in the
Mining Recorder of Benguet dating back to 1931, at the lattest, notably about sixteen (16) years
before private respondent declared the land in question for taxation purposes and thirty four (34)
years before private respondent filed the land registration proceedings in 1965, apparently
inpressed the court a quo. And so it ruled in favor of petitioner as oppositor in the land
registration proceedings, the court a quo ratiocinating in this wise:
. . . (T)he mining claims were recorded ahead of the time when the applicant
[private respondent] declared the land for taxation purposes based on his
documentary exhibits. So the evidence of the applicant [private respondent]
cannot prevail over the documentary exhibits of the oppositor Atok Big Wedge
Mining Company. The government oppositors adopted the evidence of the
mining company.
Moreover, if applicant [private respondent] was already in possession and
occupation of the land in the concept of owner, as claimed, it is strange that he
did not oppose its survey when the mining company surveyed the area
preparatory to its recording in the mining recorder's office. The conclusion is
that he was not yet there when the survey by the mining company was
conducted or if he was already there the nature of his occupation was not in the
concept of owner for otherwise he could have asserted it at the time.
The foregoing facts show that the mining company had established its rights
long before applicant [private respondent] asserted ownership over the land.
The perfection of mining claims over the mineral lands involved segregate [sic]
them from the public domain and the beneficial ownership thereof became
vested in the locator. 10
The trial court having dismissed private respondent's application for registration on the ground
that petitioners had already required a vested right over the subject land, private respondent
appealed to the respondent court. The Director of Lands, thru the Solicitor General, adopted as his
own, the appellee's brief filed by petitioner.
The respondent appellate court, on its part, correctly considered inadequate, however, the mere
recording of petitioner's mining claims in the Mining Recorder of Benguet and the corresponding,
albeit religious, payment of annual assessment fees therefor, to vest in petitioner ownership
rights over the land in question. Truly, under Executive Order No. 141 11, the payment of annual

assessment fees is only proof of compliance with the charges imposed by law and does not
constitute proof of actual assessment work on the mining land concerned. Respondent court ruled
in this connection:
. . . (I)t must conceded that the same having been located and existing since
1921 and 1931, the rights of locator if correspondingly preserved, remained
vested, but as this Court also examines the evidence, what has been shown
is that affidavits of assessment work had been filed, yes, from 1932 in
connection with claim Sally and from 1933 as to Evelyn, and from 1936 as to
claim Ethel, but tsn. would not show that in truth and in fact, there had been
that assessment work on the claims, [sic] witness Pelayo of Atok admits that he
had not gone over the area . . . in fact he joined the company in 1962 only, [ sic]
in other words, all that Atok has shown as to assessment work is the affidavit
thereon, but as Ex. Order 141 of 1 August, [sic] 1968 has said:
"(W)hat matters is [sic] maintaining and preserving possessory rights to the
claims is the continuous performance of the required assessment work, not the
filing of an affidavit which may be disproved by findings of [sic] the ground."
and here, the very fact that applicant has possessed continuously apparently
without protest from Atok . . . must disprove the truth that locator or Atok had
indeed
done
assessment
work . . . 12
Private respondent, in support of respondent court's quoted findings, points out in his pleading
that:
. . . The APPLICANT [private respondent] constructed various improvements on
the land consisting of his 3 residential houses, fruit trees, ricefields and other
permanent improvements. . .
xxx xxx xxx
On the other hand, the PETITIONER Mining company has not shown that it has
introduced a singleimprovement ("assessment work") on the property. It has
only paid the minimum annual assessment required by law of P200.00 a year.
There was no evidence, whatsoever, of its alleged "factual" possession of the
property. No assessment work was shown during the ocular inspection ordered
by the Honorable Trial Court neither during the ocular inspection conducted by
the Bureau of Forestry.
THIS ritual of paying the uniform sum of P200.00 a year for alleged assessment
work is not enough evidence that such assessment work was actually made. It
is precisely for this reason that Executive Order 141 dated August 1, 1968 was
issued by the President of the Philippines. This order made is mandatory that it
is not enough to pay P200.00 a year but there must be actual continuous
assessment work done on the surface of the mineral claims . . . [Emphasis
supplied by private respondent.] 13
Also, private respondent also additionally informs this court that:
. . . PETITIONER Atok Big Wedge Mining Company has, on October 12, 1978,
converted its application on mineral claims in question (SALLY, EVELYN and
ETHEL) into mining lease only in compliance with Presidential Decree 1214.
PETITIONER mining company is now a mere lessee of the mining claims. And as
such lessee, it has no right on the surface rights of such mineral claims. An
official certification to that effect by the Bureau of Mines & Geo-Sciences,
Regional Officer No. 1 of the City of Baguio is hereby attached as Annex "A" and

made
integral
part
hereof. . . 14
an allegation which obviously clinches this case in his favor.
Respondent court having reversed the trial court's decision on the ground that private respondent
had, by sufficient evidence, shown his right to registration over the contested parcel of land,
petitioner elevated its cause to this court. The Director of Lands, however, did not join in
petitioner's appeal. Thus, in a Manifestation and Motion, dated June 21, 1983, 15 the Director of
Lands, thru the Solicitor General, acknowledged that "the respondent Court's decision has
become final with respect to the Director of Lands." 16
Petitioner, left to its own by the Director of Lands, cites the following grounds from the grant of
the instant petition:
I
THAT THE LAND IN QUESTION HAD LONG BEEN SEGREGATED FROM THE PUBLIC
DOMAIN AND OWNERSHIP THERETO HAD LONG BECOME VESTED IN HEREIN
PETITIONER WHEN ITS MINING CLAIMS IN QUESTION WERE REGISTERED IN THE
OFFICE OF THE MINING RECORDER IN 1921 AND 1931 RESPECTIVELY.
II
THAT THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION IN
FINDING THAT THE APPLICANT WAS IN CONTINUOUS OPEN AND ADVERSE
POSSESSION. 17
We find these arguments to be devoid of merit.
The records bear out that private respondent has been in possession of subject
parcel of land in concept of owner for more than thirty (30) years.
The court a quo made the following factual findings based on the testimony of private
respondent:
The evidence . . .shows that he [private respondent] acquired the land from his
father-in-law, Dongail, when he married his daughter; that he was then 18 years
old; that at the time of his acquisition, it was planted with camotes, casava [sic],
langka, gabi, coffee and avocados; that he lived on the land since his marriage
up to the present; that he has been paying the taxes during the Japanese
occupation and even before it; that he was never disturbed in his possession.
Supporting his oral testimony, applicant submitted tax declarations . . . both
dated March 20, 1948, the former for a rural land and the latter for urban land
and improvement therein. 18
Substantiating the aforecited testimonial evidence of private respondent's actual, adverse and
continuous possession of the subject land for more than thirty (30) years are the observations of
the court commissioner during the ocular inspection of the subject land on February 1, 1969,
pertinent transcribed portions of which read as follows:
Upon verification of the extent of the area applied for by the applicant which
tallies with the plan on record, we find the following improvements;
The land applied for is almost 90% improved with numerous irrigated rice
terraces newly planted to palay at the time of the ocular inspection and others
planted to vegetables such as potatoes, banana plants, flowering plants and
fruit trees such as mangoes, jackfruits, coffee plants, avocados and citrus all
fruit bearing.
Most of the fruit trees such as the mango trees are about one half (1/2) meter in
diameter.
There are four houses owned by the applicant [private respondent] and his
children.

There is a creek traversing the middle portion of the land which serve as
irrigation for the numerous rice paddies.
Upon verification of the surrounding area which we did by hiking all the way,
there are no assessment tunnels or any sign of mining activities.
xxx xxx xxx
There are earthen dikes and fences surrounding the property applied for.
It also appears that the surrounding area of the land applied for is also fully
cultivated especially on the western portion, southern portion and also on the
northern portion.
On the northwestern ridge are numerous terraces planted to various vegetables
and on the edges of the property is a plantation of tiger grass used for brooms.
On the eastern slope are also numerous terraces planted to flowering plants and
numerous banana plants.
There are only two (2) pine trees growing situated on the eastern slope of the
land in question.
On the northern portion are terraces and ricefields and mango tree as well as
banana plants.
At the northern slope of the land applied for is [sic] fully cultivated with the
exception of whatever portions are planted to bananas and tiger grass.
The terraces at the time of the ocular inspection is planted to vegetables and
flowering plants such as African dishes [sic].
On the northwestern portion of the land are numerous terraces planted to
seasonal vegetable crops. The rest are planted to banana except the small
steep portion planted to tiger grass to prevent the land from eroding.
On the western portion is a big irrigation canal with plenty of water which serve
[sic] as a water supply to irrigate the ricefields which are found around the
property.
An estimate of around 90 to 120 big and small trees are scattered all over the
property. Around the houses are full of fruit trees.
xxx xxx xxx
The mining compound of Itogon is very far from this place and this land is at the
boundary of Baguio City and Itogon. That is why it is more suitable for
residential and agricultural purposes. Nowhere do we find any mining work
done, any cable or anything that would show any mining operation in this area.
Around the yard of the houses of the applicant are numerous coffee trees,
jackfruits, pomelos, papaya, pineapples, banana plants, guava trees and
carrots.
The orchard is fully planted to coffee trees. The area is estimated to be more
than one hectare which is planted to coffee trees and other
plants. 19
Private respondent, it must be emphasized, offered in evidence in the land registration
proceedings before the court a quo, tax declarations, dated March 20, 1948, and tax payment
receipts, dated February 8, 1949.
Significantly, petitioner did not present any evidence in rebuttal of private respondent's
aforestated claims of having acquired the subject land from his wife's father and having lived on
the land since his marriage at the age of eighteen (18). Neither has petitioner taken exception to
the aforecited observations of the court commissioner during the ocular inspection of the subject
land. There is nary a showing in petitioner's numerous pleadings filed before us that there exists
substantial basis for us not to believe petitioner's claims, and this is understandable, for petitioner

largely anchored its cause on its alleged vested rights to its mining claims under the mandate of
the Philippine Bill of 1902 and our rulings in McDaniel vs. Apacible and Cuisia 20 and the catena of
cases subsequent thereto.
Considering the aforestated evidence borned out by the records of the instant case, their
credibleness and the lack of adequate opposition thereto, we agree with respondent Court of
Appeals that "a reading of tsn. would rather persuade that applicant [private respondent] had
shown quite well that subject property had been in (the) continuous and adverse possession, first,
of his predecessor-in-interest, Dongail and, after the death of the latter, (by respondent) himself,
years before, that is, long before the outbreak of the last war. 21
Petitioner
is
deemed
to
have
abandoned
his
mining
claims
under
E.O.
No.
141
and
P.D.
No. 1214.
All mineral lands, as part of the country's natural resources, belong to the Philippine State. This
concept of jura regalia enshrined in past and present Philippine constitutions, has not always been
the prevailing principle in this jurisdiction, however, the abundant resources within our coastal
frontiers having in the past filled not just one colonizer's booty haul. Indeed, there was a time in
our history when the mining laws prevailing in this jurisdiction were compromising, to say the
least, of the Filipino people's inherent rights to their natural wealth.
Before the cession of the Philippine Islands to the United States under the Treaty of Paris, the
prevailing mining law in the colony was the Royal Decree of May, 1867, otherwise known as The
Spanish Mining Law.
In the advent of American occupation, the Philippines was governed by means of organic acts
which were in the nature of charters serving as a Constitution of the occupied territory from 1900
to 1935 22. Among the principal organic acts of the Philippines was the Act of Congress of July 1,
1902 through which the United States Congress assumed the administration of the Philippine
islands.
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 . . . 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 . . . 23
Any qualified person desiring to locate a mineral claim may enter upon the same and locate a plot
of ground measuring, where possible, but not exceeding, one thousand feet in length by one
thousand feet in breath, in as nearly as possible a rectangular form. 24 Under the Philippine bill of
1902, the holder of the mineral claim so located is entitled to all the minerals which may lie within
his
claim,
but
he
may
not
mine
outside
the
boundary
lines
of
his
claim. 25 the mine claim locator must have his claim recorded in the mining recorder within thirty
(30) days after the location thereof; otherwise, he will be deemed to have abandoned the same. 26
One of the continuing requirements for the subsistence of the mining claim is performance of not
less than one hundred dollars' worth of labor or undertaking of improvements of the same value
every year. 27 This is a strict requisite, the locator's failure to comply with which shall operate to
open the claim or mine to relocation in the same manner as if no location of the same had even
been made. 28 Unequivocal is the mandatory nature of the work or labor requirement on the mine
that the Philippine Bill specifically designates the time when the work or labor required to be done
annually on all unpatented mineral claims, shall commence. 29

Subsequently, among a few laws passed amending the Philippine Bill of 1902 was Act No. 624
passed by the United States Philippine Commission and approved on February 7, 1903. Said Act
prescribed regulations to govern the location and the manner of recording mining claims and the
amount of work necessary to hold possession thereof. Such regulations reinforced the annual
work or labor requirement of not less than one hundred dollars' worth as provided for in the
Philippine Bill of 1902, in accordance with Section 36 thereof which limits the power of the United
States Philippine Commission to make regulations but "not in conflict with the provision of this
Act. [i.e., the Philippine Bill of 1902], governing the location, manner of recording, and amount of
work necessary to hold possession of a mining claim . . ."
On November 15, 1935, the Constitution of the Commonwealth took effect. The 1935 Constitution
declared all natural resources of the Philippines, including mineral lands and minerals, to be
property belonging to the State.30 However, as it turned out, not really all of the Philippines'
natural resources were considered part of the public domain. Those natural resources, and for
that matter, those mineral lands and minerals with respect to which there already was "any
existing right, grant, lease, or concession at the time of the inauguration of the Government
established under in Constitution," were then considered outside the application of the jura
regalia doctrine or at least not unconditionally or totally within the contemplation of said doctrine.
On November 7, 1936, the First National Assembly enacted Commonwealth Act No. 137,
otherwise known as the Mining Act. In contradistinction with the Philippine Bill of 1902 which was
patterned after the United States Federal Mining Acts which rejected the regalian doctrine, the
Mining Act expressly adopted the regalian doctrine following the provisions of the 1935
Constitution. Since said Constitution necessarily prohibits the alienation of mining lands, the
Mining Act granted only lease rights to mining claimants who are proscribed from purchasing the
mining claim itself. These provisions of the Mining Act, however, were expressly inapplicable to
mining claimants who had located and recorded their claims under the Philippine Bill of 1902.
The nationalism underlying the adoption of the regalian doctrine in the 1935 Constitution was
further eroded by the amendment thereto which was adopted by the First Congress on September
18, 1946 and approved by a majority at the elections held on March 11, 1947. This amendment
which came in the form of an "Ordinance Appended to the Constitution" is what is known as the
"Parity Rights" amendment. It provided that, notwithstanding the adoption in the Constitution of
the regalian doctrine and the proscription against aliens participating in the natural wealth of the
nation, excepted therefrom were the citizens of the United States and its business enterprises
which would have the equal right in the disposition, exploitation, development and utilization of
our natural resources, among them, our mining lands and minerals for the period from July 4,
1946 to July 3, 1974.
In the meantime, the provisions of the Philippine Bill of 1902 regarding mining claims, insofar as
the mining lands and mining claims acquired before the effectivity of the 1935 Constitution are
concerned, continued to be in effect. Annual performance of labor or undertaking of
improvements on the mine remained an annual requirement, non-compliance with which resulted
in the mine becoming again open to relocation but now subject to the lease provisions of the
Mining Act. The intention for this annual work requirement to be a strict prerequisite to
maintenance of a claimant's rights under the Philippine Bill of 1902 apparently not lost on
subsequent legislators, they took the same as an absolute prerequisite with grave consequences
and believed it necessary to expressly enact a law 31 waiving this requirement during the period
from January 1, 1954 as the circumstances then necessitated the same.
The Philippine Bill of 1902 clearly required the annual performance of work on the mine or the
undertaking of improvements thereon in order for the mine claim locator to continue enjoying all

the rights accruing to him as such under the said Bill. This and nothing short of this was the
requirement. The filing of affidavits of annual assessment work, which procedure is not even
provided for in the Philippine Bill of 1902, is required only for purposes of proving that there had
actually been work or improvements done. Such filing could not have been intended to replace
the actual work requirement, and nary is there a basis in law to support any conclusion to the
contrary, notwithstanding what was appearing to be the practice of mine claim locators of
annually filing affidavits of annual assessment but willfully not undertaking actual work or tangile
improvement on the mine site.
On August 1, 1968, then President Marcos issued Executive Order (E.O.) No. 141. Whereas mining
claim holders under the Philippine Bill of 1902 ". . . are of the impression that they may hold on to
their claims indefinitely by he mere filing of affidavits of annual assessment work . . .," E.O. No.
141 precisely declared that "such impression is not correct, for what matters in maintaining and
preserving possessory title to the claim is the continuous performance of the required assessment
work, not the filing of an affidavit which may be disproved by findings on the ground."
Consequently, E.O. No. 141 established the status of such unpatended mining claims which have
not complied with the annual work requirement, as having been abandoned and open for
relocation, their declarations of location being accordingly cancelled.
On January 17, 1973, the 1973 Constitution came into force and effect. Unlike the former Charter
the 1973 Constitution did not expressly qualify the application of the regalian doctrine as being
subject to any right granted before the effectivity of the 1935 Constitution or the 1973
Constitution for the matter. It provided:
Sec. 8. All lands of the public domain, waters, minerals, coal, petroleum and
other mineral oils, all forces of potential energy, fisheries, wildlife, and other
natural
resources
of
the
Philippines
belong
to
the
State. . . 32
But the conditional application of the regalian doctrine under the 1973 Constitution could be
found in Presidential Decree (P.D.) No. 463, enacted on May 17, 1874, which revised the Mining
Act (C.A. No. 137). While the said decree declares that ". . . all mineral deposits in public or
private lands . . . belong to the State, inalienably and imprescriptively . . .," it also recognizes
whatever rights or reservations had already been existing with respect to certain mining lands 33,
apparently alluding to the rights of mining claim holders under the Philippine Bill of 1902.
Under the Philippine Bill of 1902, the procedure was that a mining claim locator need not apply for
a patent soon after locating the mine. The patent may come later, and the said locator, for as
long as he complies with the annual actual work requirement, enjoyed possessory rights with
respect to such mining claim with or without a patent therefor. It has already been stated that
under E.O. No. 141, unpatented mining claims shall be deemed abandoned upon a finding that
the holders thereof had not been actually performing any work or labor or undertaking any
improvement at the mine site notwithstanding their having religiously filed annual affidavits of
assessment.
Even under P.D. 463 which was enacted in 1974, the possessory rights of mining claim holders
under the Philippine Bill of 1902 remained effective for as long as said holders complied with the
annual actual work requirement. But on October 14, 1977, P.D. No. 1214 required all the holders
of unpatented mining claims to secure mining lease contracts under P.D. No. 463. Faced with the
grave consequence of forfeiture of all their rights to their claims, holders of subsisting and valid
patentable mining claims located under the Philippine Bill of 1902 were to file mining lease
applications therefor within one (1) year from the effectivity of the said decree. 34The filing of such
mining lease application was considered a waiver of the holders' rights to the issuance of mining

patents for their claims 35. Corollarily, non-filing of applications for mining lease by the holders
thereof within the one-year period would cause the forfeiture of all their rights to their claims. 36
Against the backdrop of the aforechronicle evolution of the pertinent mining laws, past and
present, in this jurisdiction, we now proceed to resolve the controlling issue in this case: Whether
or not the ownership of subject land had long been vested on petitioner after it had allegedly
located and recorded its mining claim in accordance with the pertinent provisions of the Philippine
Bill of 1902.
This issue is certainly not a novel one. It has been first ruled upon by this court in the 1922 case
of McDaniel vs.Apacible and Cuisia 37. There, applying American precedents, we stated:
The moment the locator discovered a valuable mineral deposit on the lands
located, and perfected his location in accordance with law, the power of the
United States Government to deprive him of the exclusive right to the
possession and enjoyment of the located claim was gone, the lands had become
mineral lands and they were exempted from lands that could be granted to any
other person. The reservations of public lands cannot be made so as to include
prior mineral perfected located locations; and of course, if a valid mining
location is made upon public lands afterward included in a reservation, such
inclusion or reservation does not affect the validity of the former location. By
such location and perfection, the land located is segregated from the public
domain even as against the Government. . . 38
We
reiterated
this
ruling
in
the
subsequent
cases
of Gold
Creek
Mining
vs. Rodriguez (1938), 39 Salacot Mining Company vs. Abadilla (1939), 40 Salacot Mining Company
vs. Rodriguez (1939), 41 Bambao
vs. Lednicky
(1961), 42 Comilang
vs. Buendia (1967), 43 Benguet
Consolidated,
Inc. vs. Republic (1986), 44 Republic vs. Court of Appeals (1988) 45 and Atok-Big Wedge Mining
Co., Inc. vs. Court of Appeals (1991). 46
Notwithstanding our ruling in the aforecited cases, however, there came about thereafter a
catena of cases where we declared that the rights of the holder of a mining claim located under
the Philippine Bill of 1902, are not absolute or are not strictly of ownership. This declaration was a
necessary premise in our affirmation of the constitutionality of P.D. No. 1214 in the 1987 case
of Santa Rosa Mining Co., Inc. vs. Leido, Jr. 47 where we stated:
Mere location does not mean absolute ownership over the affected land or
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 rigths
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. 48
And our ruling there was upheld in tradition of stare decisis in the subsequent cases of
Director of Lands vs.Kalahi Investments, Inc. (1989), 49 Zambales Chromite Mining
Company, Inc. vs. Leido Jr. (1989), 50 Poe Mining Association vs. Garcia (1991), 51 United
Paracale Mining Company, Inc. vs. De La Rosa (1993), 52 and Manuel vs.Intermediate
Appellate Court (1995). 53
While petitioner adamantly insists that there is only one construction of the provisions of the
Philippine Bill of 1902 as regards his mining claim rights, and this is that the same are absolute
and in the nature of ownership, private respondent posits the ultimate question of which between

the aforecited seemingly inconsistent rulings is the correct interpretation of the Philippine Bill of
1902 in relation to E.O. No. 141 and P.D. 1214 insofar as the rights of mining claim holders under
the said Bill are concerned.
This is not the first time either that we are asked to, in all awareness of the precedents, resolve
these postulation of this court that are perceived to be contradictory. In the 1994 case of United
Paracale Mining Company vs.Court of Appeals, 54 posed before us by petitioner therein was the
same question that herein private respondent asks us to resolve in the ultimate. We noted in that
case:
"The query of petitioner" "What is actually the right of a locator of mining claim
located and perfected under the Philippine Bill of 1902. Does he have an
absolute right of ownership, or merely a right to possess and claim?"
Petitioner contends that there are two (2) conflicting rulings made by this Court
on the same issue. InDirector of Lands vs. Kalahi Investments, Inc. (169 SCRA
683), a locator of mining claims perfected under the Philippine Bill of 1902 has
been held not to have an absolute right of ownership over said claims but
merely a possessory right thereto. In Atok-Big Wedge Mining Company,
Inc. vs. Court of Appeals and Liwan Consi (193 SCRA 71), however, a locator of
mining claim perfected under the Philippine Bill of 1902, the Court has ruled,
does have an absolute right of ownership over his claim being thereby removed
from
the
public
domain. 55
In that case United Paracale Mining, it would have been premature for us to rule on the
query, not all indispensable parties therein having been joined. That is not the situation
in this present controversy, however, and so we shall forthwith resolve the matter at
hand once and for all.
The earlier chronicle of the evolution of the mining laws, past and present, in this jurisdiction was
not without a predetermined purpose. The detailing of the provisions of those laws, especially of
the Philippine Bill of 1902, was certainly deliberate. It is undeniable at this point that the
determination of the rights of a mining claim holder under the said Bill is best undertaken on the
basis of the very source of those rights, that is, the Bill itself. And any alteration of change in the
nature of those rights must be conceded for as long as such is statutorily and constitutionally
sanctioned, for even vested rights may be taken away by the State in the exercise of its absolute
police power.
Under the Philippine Bill of 1902, the mining claim holder, upon locating and recording of his
claim, has the right to acquire for himself all mineral deposits found within his claim to the
exclusion of everyone, including the Government. Such rights are necessarily possessory as they
are essentially utilitarian and exploitative. Such rights accruing to the mining claim locator are
personal to him in the sense that no conclusion as to the nature of the land may definitively be
made based solely on the fact that a mining claim has been recorded as regards a particular land.
However, insofar as his rights are exclusive and no other person may undertake mining activities
on a recorded mining claim, unless the same has been abandoned or the works thereon not done,
the mining locator's rights also protected against adverse mining claims of this persons. He also
has the right to immediately or eventually secure a patent on his mining claim and in the event
that he postpones securing a patent, his rights to exclusive possession and exploitation of his
mining claim subsist for as long as he complies with the continuing requirement of annually
performing work or undertaking improvements at the mine site. Insofar as the Philippine Bill of
1902 does not provide a specific time within which the mining claim holder must secure a patent,

his rights to possession and use of the mining land appear to be unconditional, the option not at
all to secure a patent being available to him in the absence of a deadline or ultimatum therefor.
The Philippine Bill of 1902, however, did not foreclose a subsequent act on the part of the State to
limit the time within which the said patent must be secured under threat of forfeiture of rights
provided for under the Philippine Bill of 1902. Thus, in the sense that the rights of a mining claim
holder may in the future be curtailed by failure to obtain a patent, especially if we recall that
Section 36 of the said Bill itself foretold the subsequent promulgation of regulations regarding
mining claims, such rights cannot also be said to be truly unconditional or absolute.
We also learn from our reading of our past and present mining laws in their proper historical
perspectives, that the process of recording mining claims could not have been intended to be the
operative act of classifying lands into mineral lands. The recording of a mining claim only operates
to reserve to the registrant exclusive rights to undertake mining activities upon the land subject of
the claim. The power to classify lands into mineral lands into mineral lands could not have been
intended under the Philippine Bill of 1902 to be vested in just anyone who records a mining claim.
In fact, this strengthens our holding that the rights of a mining claimant are corfined to possessing
the land for purposes of extracting therefrom minerals in exclusion of any or all other persons
whose claims are subsequent to the original mining locator. Thus, if no minerals are extracted
therefrom, notwithstanding the recording of the claim, the land is not mineral and registration
thereof is not precluded by such recorded claim. Thus, in the case at bench, the mining claimant,
who had failed to comply with the annual minimum labor requirement, could not, all the more, be
expected to have extracted minerals from the mining location. Utter lack of proof of even its
potential deposits on the part of the petitioner, thus, does not surprise us at all.
Thus, it can be said (1) that the rights under the Philippine Bill of 1902 of a mining claim holder
over his claim has been made subject by the said Bill itself to the strict requirement that he
actually performs work or undertakes improvements on the mine every year and does not merely
file his affidavit of annual assessment, which requirement was correctly identified and declared in
E.O. No. 141; and (2) that the same rights have been terminated by P.D. No. 1214, a police power
enactment, under which non-application for mining lease amounts to waiver of all rights under
the Philippine Bill of 1902 and application for mining lease amounts to waiver of the right under
said Bill to apply for patent. In the light of these substantial conditions upon the rights of a mining
claim holder under the Philippine Bill of 1902, there should remain no doubt now that such rights
were not, in the first place, absolute or in the nature of ownership, and neither were they intended
to be so.
Applying the aforecited ruling to the facts of this case, we find that, not only has petitioner failed
to sufficiently show compliance with actual annual work requirement on its mining claims but also
that credible are the transcribed observations of the trial commissioner that nowhere on the
subject land could be found tangible works or improvements of an extent that would have existed
has petitioner really complied with the annual work requirement from 1931 when it allegedly first
located said mining claims. In fact, no mining infrastructure or equipment of any sort can be
found on the area. Understandable thus is the action of the Director of Lands not to further appeal
from respondent court's decision, Director of Lands eventually conceding the subject land to be
registrable, considering petitioner's non-performance of mining works thereon, private
respondent's adverse possession of the subject land more than thirty (30) years and its use
thereof for as many years solely for agricultural purposes.
Equally borne out by the records is the fact that petitioner has indeed applied for a mining lease
under P.D. No. 1214. For that reason, it has, in effect, waived its right to secure a patent and it
shall have been governed, if private respondent's claim of adverse and open possession of the

subject land for more than 30 years were not established, by P.D. No. 463 in its activities
respecting its mining lease.
WHEREFORE, the petition is HEREBY DISMISSED, with costs against petitioner.
SO ORDERED.

G.R. No. 71412 August 15, 1986

BENGUET
CONSOLIDATED,
INC.,
(now
vs.
REPUBLIC OF THE PHILIPPINES, respondent.
Jose P. O. Aliling for petitioner.
Antonio C. Amor for respondent.

Benguet

Corporation), petitioners,

GUTIERREZ, JR., J.:

This is a petition to review the decision of the Intermediate Appellate Court in an expropriation
case, insofar as the decision affects the petitioner.
On June 18, 1958, the Republic of the Philippines filed with the then Court of First Instance of
Benguet and Baguio a complaint for expropriation against ten (10) defendants, among them
Benguet Consolidated, Inc. The Republic stated that it needed the property for the purpose of
establishing and maintaining a permanent site for the Philippine Military Academy, a training
institution for officers in the Armed Forces of the Philippines, under the direct authority and
supervision of the Department of National Defense. It also averred that it had occupied since May
6, 1950, the area covered by the mining claims of the defendants and had already installed
therein permanent buildings and other valuable improvements with no less than P3,000,000.00 in
the belief that the area was unoccupied portions of the public domain, and that according to the
Appraisal Committee constituted under Administrative Order No. 144, dated October 10, 1955, by
the President of the Philippines, the reasonable and fair market value of the rights and interests of
all the defendants which win be affected by these eminent domain proceedings cannot exceed
the total sum of P532,371.40.
The locations of the petitioner's four mining claims with a total area of 25.1082 hectares were
made on the following dates:
JEAN May 18, 1933 DOLORES FR May 15, 1933 NUGGET FR August 24, 1930
SMOKE May 11 & 12, 1933
The petitioner filed a motion to dismiss on the ground that, insofar as it is concerned, the Republic
did not need and has not occupied the areas covered by the above-mentioned mining claims and
neither have improvements been made on the said areas and that the area covers ground which
is rugged in terrain for which the Philippine Military Academy could have no use. By way of
separate and special grounds for dismissal, Benguet Consolidated, Inc. alleged that the authority
given by the President of the Philippines for the expropriation proceedings refers to privately
owned mineral lands, mining interests, and other private interests of private individuals and
entities of private individuals in certain portions of the site surveyed for and presently occupied
by the Philippine Military Academy at Loakan, Baguio and that the expropriation of Benguet
Consolidated, Inc.'s mineral claims is in violation of law.
On December 28, 1955, the trial court heard Benguet Consolidated Inc.'s motion to dismiss.
Valentin Camado was presented as witness and he testified that he performed the annual
assessment work for movant's mineral claims. Since the possibility of an amicable settlement was
raised, the representatives of both parties agreed that pending any definite settlement, the

hearing of the motion to dismiss would be held in abeyance. On this same day, the trial court
issued an order, the dispositive portion of which reads:
In view of the fact that the defendants are no longer challenging plaintiff's right
to condemn the property, subject of the instant case, the plaintiff Republic of
the Philippines is hereby declared to have lawful right to take the property
sought to be condemned, for the public use described in the complaint, upon
payment of just compensation to be determined as of the date of the filing of
the complaint.
Benguet Consolidated, Inc. took exception to the order of condemnation by filing a motion stating
that at no time, had it manifested, either expressly or impliedly, that it was no longer challenging
the plaintiff's right to expropriate its former mineral claims. In the same motion, Benguet
Consolidated, Inc. moved for the setting of a date for the continuation of the hearing of its motion
to dismiss.
Acting on this motion, the trial court in its Order dated February 23, 1960, stated that " ... to
satisfy Benguet Consolidated, Inc., this Court makes it of record that, pending negotiations
between the Government and Benguet Consolidated, Inc. said corporation has not waived its right
to challenge plaintiff's right to condemn the mineral claims in question."
In the course of the proceedings, a Board of Commissioners to assess and establish the
reasonable amount of compensation was formed. Appointed by the court as members of the
board of Commissioners were Engineer Ernesto C. Bengson and Attorney-Engineer Rolando J.
Gamboa representing the court and the army respectively and Mining Engineer Francisco G.
Joaquin, nominated by the defendants to represent all of them.
Commissioner Joaquin resigned after attending eight (8) hearings leaving the two other
commissioners to conduct 56 more hearings.
On February 28, 1963, the Board of Commissioners submitted their report recommending the
payment of P43,703.37 to the ten (10) defendants as just compensation for their expropriated
properties.
The parties filed their objections to the Commissioners' report.
The trial court rejected the Commissioners' Report and made its own findings and conclusions. On
July 5, 1973, the trial court promulgated a decision awarding various sums to the defendants.
Benguet Consolidated filed a motion to clarify the decision since the dispositive portion of the
decision computed the respective amounts to be paid by the Republic to the defendants without,
however, including the amount to be paid to Benguet Consolidated for the expropriation of its four
(4) mining claims. In other words, the petitioner was excluded from the awards made by the trial
court.
After Benguet Consolidated filed two other motions (motion for new trial and/or reconsideration;
second motion for clarification) reiterating its objection to the decision in not providing for just
compensation for their expropriated properties, the trial court issued an order fixing the "just
compensation of the surface area of the four (4) claims of Benguet Consolidated, Inc. in the
amount of P128,051.82 with interest at 6% per annum from May 6, 1950 until fully paid, plus
attorney's fees in an amount equal to 5 % of the sum fixed by this Court." A motion to reopen the
case praying for a new trial to allow it to present evidence as to the value of the properties filed
by Benguet Consolidated was denied by the trial court.
Among all parties, only the plaintiff and defendant Benguet Consolidated, Inc. pursued their
appeal before the then Court of Appeals.
On June 28, 1985, the Intermediate Appellate Courts promulgated a decision setting aside the trial
court's decision. The dispositive portion of the decision reads:

WHEREFORE, the appealed judgment is hereby reversed and set aside, and
another one is rendered (1) condemning the mineral claims described in the
complaint belonging to the defendants for the public use therein stated; and (2)
ordering the plaintiff to pay the defendants as follows:
Demonstration Gold Mines, Ltd. 22.0037 Has. x P600.00 P13,202.22
Benguet Goldfields Mining Co. 50.6633 Has. x P300.00 15,198.99
Crown Mines, Inc. none Benguet Consolidated Mining Co. 25.1082 Has. x
P300.00 7,532.46
Josephine McKenzie none Josephine Murphy 5.8432 Has. x P300.00 1,752.96
J.E.H. Stevenot 1.1151 Has. 334.53 x P300.00
Andres Trepp none Gregoria Beley 18.9407 Has. x P300.00 5,682.21
No costs.
The petitioner asserts that there is a need to review and reverse the appellate court's decision
because of the following reasons:
A.
THE CONDEMNATION OF PETITIONER'S MINERAL CLAIM IS CONTRARY TO LAW
AND APPLICABLE JURISPRUDENCE.
B.
THE APPROVAL OF THE COMMISSIONER'S REPORT IS CONTRARY TO LAW AND
APPLICABLE JURISPRUDENCE.
The petitioner states that its mineral claims were located since 1933 at the latest. It argues that
by such location and perfection, the land is segregated from the public domain even as against
the government. Citing Gold Greek Mining Corporation v. Rodriguez, et al (66 Phil. 259), it states
that when the location of a mining claim is perfected, this has the effect of a grant of exclusive
possession with right to the enjoyment of the surface ground as well as of all the minerals within
the lines of the claim and that this right may not be infringed.
The petitioner's arguments have no merit. The filing of expropriation proceedings recognizes the
fact that the petitioner's property is no longer part of the public domain. The power of eminent
domain refers to the power of government to take private property for public use. If the mineral
claims are public, there would be no need to expropriate them. The mineral claims of the
petitioner are not being transferred to another mining company or to a public entity interested in
the claims as such. The land where the mineral claims were located is needed for the Philippine
Military Academy, a public use completely unrelated to mining. The fact that the location of a
mining claim has been perfected does not bar the Government's exercise of its power of eminent
domain. The right of eminent domain covers all forms of private property, tangible or intangible,
and includes rights which are attached to land.
The petitioner next raises a procedural point-whether or not in expropriation proceedings an order
of condemnation may be entered by the court before a motion to dismiss is denied.
Citing the case of Nieto v. Ysip, etc., et al (97 Phil. 31), the petitioner claims that this cannot be
done.
We ruled in the Nieto case that:
A cursory reading of Sections 4, 5 and 6 of Rules 69 of the Rules of Court
discloses the steps to be followed, one after another, in condemnation
proceedings from the institution thereof. Thep is the presentation by defendants
of their objections and defenses to the right of plaintiff to take the property for
the use specified, which objections and defenses shall be set forth in a single
motion to dismiss (Section 4). The second is the hearing on the motion and the
unfavorable resolution thereon by the court. That an adverse resolution on the
motion to dismiss, if objections and defenses are presented, is required because

the rule (Sec. 5) authorizes the court to enter an order of condemnation only if
the motion to dismiss is overruled, or if no motion to dismiss had been
presented. The second step includes the order of condemnation, which may be
embodied in the resolution overruling the motion to dismiss. The third is the
appointment of commissioners to assess the just compensation for the property
(Sec. 6). That the above steps must follow one another is evident from the
provisions of the rules as well as from the inter-relation between the steps and
the dependence of one upon the previous step. Thus no order of condemnation
may be entered if the motion to dismiss has not been passed upon and
overruled, and no assessment should be undertaken unless and until an order of
condemnation has already been entered.
In the instant case the ruling on the motion to dismiss was deferred by the trial court in view of a
possible amicable settlement. Moreover, after the trial court entered an order of condemnation
over the objection of the petitioner, the court issued an order to the effect that the trial court"...
makes it of record that, pending negotiations between the Government and Benguet
Consolidated, Inc. said corporation has not waived its right to challenge plaintiff's right to
condemn the mineral claims in question."
At the hearing conducted by the Board of Commissioners, the counsel for the petitioner
manifested that its motion to dismiss was still pending in court, and requested that the hearing
for the presentation of evidence for the petitioner be cancelled. At this point, negotiations
between the government and the petitioner were still going on.
In its original decision, the lower court overlooked an award of just compensation for the
petitioner. This triggered off the filing of the following motions by the petitioner: (1) motion for
clarification praying that an order be issued clarifying the decision insofar as the compensation to
be paid to the petitioner is concerned; (2) motion for new trial and/or reconsideration on the
ground that the court did not award just compensation for the properties of the petitioner; (3)
motion to re-open case on the ground that the issues insofar as the petitioner is concerned have
not been joined since its motion to dismiss has not been resolved; and (4) a second motion for
clarification praying therein:
WHEREFORE, it is respectfully prayed that a clarification of the decision
rendered on July 9th 1973 be made particularly with respect to defendant
Benguet Consolidated, Inc., so as to make a specific award, as in the case of all
the other defendants, for the just and fair market value of the surface rights to
its four condemned mineral claims at the very least on the basis of the same
rate of P0.51 per square meter, or for the total amount of P128,051.82; with
interest thereon at 6% per annum from May 6, 1950 until fully paid; plus
attorney's fees in an amount equal to 5% of the sum fixed to be just and fair
market value of the mineral claims.
The lower court denied the motion to re-open the case by stating in its Order:
xxx xxx xxx
When this Court issued the order declaring that plaintiff has a lawful right to
take the property sought to be condemned,it impliedly overruled defendant's
Motion to dismiss which in expropriation cases takes the place of an answer
(Sec. 3, Rule 67, Rules of Court), and what defendant could have done at the
time would have been to present evidence on the fair market value of its
properties. Having slept on its rights, Benguet Consolidated, Inc. can no longer
have this case reopened for the presentation of its evidence.

This order was not challenged by the petitioner. Instead, it filed its above-mentioned second
motion for clarification. It is to be noted that in its motion for new trial and/or reconsideration, the
petitioner stated:
Defendant Benguet Consolidated, Inc., does not dispute the right of the
government to exercise the power of eminent domain with respect to its
property. However, in so doing this court failed to comply with the basic
constitutional provision that said power can only be exercised upon payment of
just compensation ...
Under these circumstances, the petitioner is estopped from questioning the proceedings of
condemnation followed by the court. We cannot condone the inconsistent positions of the
petitioner. (See Republic v. Court of Appeals, 133 SCRA 505). it is very clear from the statements
of the petitioner that it had already abandoned its earlier stand on the propriety of expropriation
and that its intent shifted to the just compensation to be paid by the plaintiff for its condemned
properties.
The second issue centers on the amount of just compensation which should be paid by the
respondent to the petitioner for the condemned properties.
The petitioner assails the appellate court's approval of the Commissioners' Report which fixed the
amount of P7,532.46 as just compensation for the mineral claims. The petitioner contends that
this amount is by any standard ridiculously low and cannot be considered just and that in fact the
commissioners' report was rejected by the trial court.
The Commissioners' Report was submitted by Ernesto C. Bengson, chairman of the board and
Rolando J. Gamboa, Francisco Joaquin, representing the defendants resigned after attending eight
(8) hearings due to ill health. The defendants did not ask for a replacement.
The conclusion of the Commissioners are the result of documentary evidence presented by the
parties, testimonies of several mining experts and executives of mining companies including Mr.
Ralph W. Crosby, the then vice-president of the petitioner, and ocular inspections of the mining
claims involved in this case. Among those present during the ocular inspection were Mr. Joventino
S. Perfecto and Mr. Kevin A. Callow, the Chief Engineer of the Acupan Mines and the Exploration
Geologist of the Benguet Consolidated, Inc., respectively. Among those considered by the
commissioners in order to determine the just compensation to be paid to the defendants were the
ore reserves, base metal concentrates, and gypsums deposits of the mining claims.
The P7,532.46 just compensation for the petitioner was based on the following findings of the
Board of Commissioners:
The Commissioners conducted an ocular inspection of the mining claims
involved in this case, on October 14, 1961, with prior notice to all the parties. At
this ocular inspection, Mr. Joventino S. Perfecto and Mr. Kevin A. Callow, Chief
Engineer of the Acupan Mines and Exploration Geologist, respectively, of the
Benguet Consolidated, Inc., also took part. In the mining claims of Benguet
Consolidated, Inc., involved in this case, namely, Dolores, Nugget, Jean and
Smoke mining claims, there are some exploration tunnels and trenches to
explore the mineral character of these claims. However, the exploration and/or
development work on these claims is not sufficient for making any estimate of
the value of these claims for mining purposes. The property has possibilities;
but, with the limited work done on these claims, no ore body has as yet been
found. Consequently, the value of these claims cannot be determined at the
present time.
xxx xxx xxx

With respect to the mining claims of Benguet Consolidated, Inc., which are
considered apart from the other mining claims involved in this case, the mineral
value of these claims cannot possibly be determined for the present, as these
claims are not yet sufficiently developed.
Upon the foregoing considerations, it would appear that authorities that the
defendants would be entitled to would be the value of the surface rights of their
mining claims.
xxx xxx xxx
According to the 'Schedule of Assessed Value of Mineral Lands (Exhs. B and B1), the assessed value of a patented lode claim (producing or non-producing) or
a non-patented producing claim is P600.00 per hectare, and for a nonproducing unpatented claim, it is P300.00 per hectare.
The petitioner's mining claims were classified as non-producing unpatented claims. It was
established that the area of the mineral claims belonging to the petitioner and included in the
Philippine Military Reservation was 25.1082 hectares. Hence, the commissioners arrived at the
total amount of P7,532.46 (25.1082 x P300.00) as just compensation to be paid to the petitioner
for its mining claims.
The Schedule of Assessment Value of Mineral Lands (Exhibits B, B-1) presented by the
government, is a "SCHEDULE of Assessed Values of mineral lands, furnished by the Provincial
Assessor of Mountain Province on June 30, 1955" issued by Onofre D. Alabanza, ex-oficio Mining
Recorder of the Office of the Mining Recorder, City of Baguio, Bureau of Mines, Department of
Agriculture and Natural Resources.
These findings negate the trial court's observation that the commissioners only took into
consideration the surface value of the mineral claims. In fact, the lower court affirmed the
commissioners' report to the effect that the petitioner herein is only entitled to the surface value
of the mineral claims when it said:
The Court regrets that it has no basis on which to evaluate the value of the
other claims the mineral reserves of which were not included or taken into
consideration in the above- mentioned evaluations. The Court, however, realizes
that these mineral claims have values. In the absence of any evidence as to
their positive, possible and probable ore contents, said claims shall be
evaluated only on the basis of their surface areas.
"Other claims" include the petitioner's mining claims. Thus, the trial court computed the amount
to be paid to the petitioner as just compensation on the basis of the surface value of its mining
claims.
We find no reason to disturb the lower court's findings on this matter. The petitioner has not
advanced any reason for us to reject such findings.
As stated earlier, the appellate court based its findings on the Commissioners' Report. The
petitioner now assails the approval of the commissioners' report regarding the P7,532.46 just
compensation to be paid by the government for its four (4) mining claims.
While it is true that a court may reject a Commissioners' Report on the ground that the amount
allowed is palpably inadequate (Republic v. Vda. de Castellvi, 58 SCRA 336, citing Manila Railroad
Co. v. Caligsihan, 40 Phil. 326) it is to be noted that the petitioner herein has not supported its
stand that the P7,532.46 just compensation for its mining claims is by any standard ridiculously
low and cannot be considered just.
On the other hand, the appellate court said:
The integrity and impartiality of the remaining Commissioners, Engrs. Bengson
and Gamboa, were not questioned by the defendants. They are experienced

mining engineers and members of the bar. And the Commissioners did give
value to the mineral contents of the claims. Pages 168 to 206 of the Report will
show that the Board considered the ore reserves and the base metal
concentrates and gypsum deposits. The Board concluded that it was not
profitable to operate the claims, taking into account the cost of production,
rehabilitation and depletion, depreciation and smelting and marketing
expenses. Although Engineer Joaquin resigned after eight hearings of the Board,
the defendants did not ask for a replacement. Anyway, the Court was ably
represented by Engineer Bengson. The Board held a total of 64 hearings.
Besides documentary evidence, and an ocular inspection of the mining claims
involved made with prior notice, twelve witnesses were presented by the
parties.
We are not inclined to reject these findings of facts of the appellate court in the absence of any
contrary evidence pointed to by the petitioner.
Moreover, it is to be noted that unlike the plaintiff and other defendants, the petitioner did not file
any opposition to the Commissioners' Report in the lower court.
The appellate court, however, should have provided for the payment of legal interest from the
time the government took over the petitioner's mining claims until payment is made by the
government. (See National Power Corporation v. Court of Appeals, 129 SCRA 665).
We ruled in Republic v. Juan (92 SCRA 26):
xxx xxx xxx
...[S]aid interest ... 'runs as a matter of law and follows as a matter of course
from the right of the landowner to be placed in as good a position as money can
accomplish, as of the date of the taking' (30 CJS 230). Stated otherwise: 'Where
the payment of compensation does not accompany the taking of property for
public use but is postponed to a later date, the owner of the property is
ordinarily entitled to the award of an additional sum which will compensate for
delay (cases cited) or which was in other words, produce the full equivalent of
the value of the property paid contemporaneously with the taking' (29-A CJS
762). Under this view, the interest awarded is deemed part of the just
compensation required to be paid to the owner (27 Am. Jur. 112). ...
The appellate court's decision is, therefore, modified in this respect.
WHEREFORE, the decision of the Intermediate Appellate Court is MODIFIED in that the
government is directed to pay the petitioner the amount of SEVEN THOUSAND FIVE HUNDRED
THIRTY-TWO PESOS) and 46/100 (P7,532.46) plus 6% interest from May 6, 1950 to July 29, 1974
and 12% thereafter until fully paid, and AFFIRMED in all other respects.
SO ORDERED.

G.R. No. L-65021 November 21, 1991

BENGUET
CORPORATION, petitioner,
vs.
HON OSCAR L. LEVISTE, in his capacity as Presiding Judge of the Regional Trial Court
(National Capital Judicial Region, Branch XCVII, Quezon City) and HELEN DIZONREYES, respondents.
Sycip Salazar Feliciano & Hernandez for petitioner.
Laurel Law offices for private respondent.

FERNAN, C.J.:p
At issue in this petition for certiorari and prohibition with preliminary injunction is the jurisdiction
of the regional trial court (RTC) to take cognizance of an action for annulment of operations
agreement entered into by and between two mining companies.
The action under consideration was commenced by private respondent Helen Dizon-Reyes against
herein petitioner Benguet Corporation and Dizon Copper-Silver Mines, Inc. 1 on June 20, 1980
before the Regional Trial Court of Quezon City. In her complaint, docketed as Civil Case No. Q30171, private respondent alleged that she is the claimowner of 11 mining claims all located in
the province of Zambales. On January 15, 1967, she executed a Special Power of Attorney
constituting her father, Celestino M. Dizon, as her attorney-in-fact with full powers to "transfer,
assign and dispose of her 11 mining claims." 2
Soon thereafter on January 21, 1967, Celestino M. Dizon, acting as such attorney-in-fact for
private respondent and other claimowners, entered into an Agreement, 3 with Dizon Mine
whereby the latter was granted the right to explore, develop, exploit and operate the 57 mining
claims owned by the claimowners including the 11 claims of private respondent.
Seven (7) years later, on December 17, 1974, private respondent and the other claimowners
executed a Deed of Ratification of Assignment, 4 confirming the assignment, transfer and
conveyance unto Dizon Mines and its assigns and successors of the rights to possess, occupy,
explore, develop and operate all the aforesaid mining claims.
On March 1, 1975, or almost three (3) months after the Deed of Ratification was executed, private
respondent revoked Special Power of Attorney of January 15, 1967, stating that "while there is no
question that I still have complete and full trust and confidence in the judgment and wisdom of
my father, it is not my wish to add any more to his already many a mounting problems." 5 Notice
of the revocation was served on Dizon Mines on March 20, 1975 and on Benguet on August 26,
1975.
However, in spite of said notice, on September 6, 1975, Dizon Mines and Benguet entered into an
Operations Agreement 6 whereby the former transferred to the latter the possession of the 57
mining claims for the purpose of exploring, developing and operating them for production and
marketing of marketable products under the terms and conditions specified therein.
Claiming that the Operations Agreement lacked legal basis by reason of the revocation of
Celestino Dizon's special power of attorney; the obligation imposed by the Agreement of January
21, 1967 on Dizon Mines to itself operate the mines after raising the capital needed therefor,
without authority to engage another corporation for this purpose; and the inefficacy of the Deed
of Ratification arising from the physiological incapacity of Celestino Dizon to give his consent
thereto, private respondent prayed that the Operations Agreement be declared null and void and
inoperative insofar as it covers her eleven (11) lode mining claims. In the alternative, private
respondent prayed that should the validity of the Operations Agreement be upheld, defendants
therein be ordered to observe and comply with the sharing of profits stipulated in the Agreement
of January 21, 1967. She further prayed for the award of attorney's fees and expenses of litigation
as may be proved during the trial.
On August 12, 1980, Benguet filed a Motion to Dismiss on the following grounds: 1) the court is
without jurisdiction over the subject matter and nature of the action; 2) the action is barred by
prior judgment and laches; 3) the action to declare invalid the Deed of Ratification has prescribed;
and 4) the venue of the action was improperly laid. Dizon Mines filed its own motion to dismiss.

After private respondent has filed her consolidated opposition to the motions to dismiss and
Benguet, its reply to said consolidated opposition, the trial court issued an Order dated March 26,
1982, denying the motions to dismiss for lack merit. 7
Its motion for reconsideration having been likewise denied in an Order dated June 20,
1983, 8 petitioner Benguet is now before this Court, reiterating the four (4) grounds stated in its
motion to dismiss.
Invoking Section 7 (c) of Presidential Decree No. 1281 and the ruling in Twin Peaks Mining
Association vs. Navarro and Philex Mining Corp., 9 petitioner contends that the RTC has no
jurisdiction over Civil Case No. 30171 as jurisdiction over actions to cancel mining contracts is
vested exclusively in the Bureau of Mines and Geo-Sciences. It likewise adverts to the decision of
the Secretary of Natural Resources dated March 17, 1976 on the private respondent's opposition
to the registration of the subject Operations Agreement. It claims that that decision had become
final upon private respondent's failure to appeal to the Office of the President, constitutes res
judicata to the question of the validity of the Operations Agreement. Besides, by failing to take
seasonable action, private respondent is guilty of laches in that she has led petitioner Benguet to
believe that she was amenable to the decision of the Secretary of Natural Resources and to incur
huge expenses in connection with the development of the mining claims.
Moreover, petitioner maintains that the action to annul the Deed of Ratification upon which
private respondent thinks the validity of the Operations Agreement necessarily depends, should
have been brought within four (4) years from its execution on December 12, 1974. Thus, the
complaint filed on June 20, 1980 came too late.
Lastly, petitioner theorizes that since the action to annul the mining contract necessarily involves
the recovery of possession of the mining claims which are located in Zambales, venue of the
action should have been laid in Zambales.
Private respondent in her Comment, later adopted as her Memorandum, 10 confined her
discussion to the issues of jurisdiction and venue, because in her opinion, the other grounds
involve questions of facts entailing the presentation of evidence, which is premature and improper
in a petition for certiorari. 11
While admitting that the contract sought to be annulled is a mining contract, private respondent
nonetheless opines that the action for its annulment does not fall under the jurisdiction of the
Bureau of Mines. The reason given is that Section 7 (c) of P.D. 1281 contemplates a mining
contract, valid and binding in all respects, but either the claimowner or operator refuses to
comply with its terms and conditions. In the case at bar, the contract is null and void because of
the mental incapacity of the late Celestino Dizon to execute the Deed of Ratification on the
validity of which the validity of the Operations Agreement is in turn dependent. Thus, the principal
issue in this case is not whether or not the claimowner or operator refuses to comply with the
contract's terms and conditions, but rather the mental capacity of the attorney-in-fact to execute
a prior agreement upon which the Operations Agreement is based. It is claimed that the Bureau of
Mines and Geo-Sciences is not equipped to determine the question of mental capacity.
Anent the issue of venue, private respondent contends that the case does not affect title to or
possession of real property, and therefore, is not a real action but an action in personam, for
which venue is laid in the residence of the plaintiff.
We grant the petition. Presidential Decree No. 1281 which took effect on January 16,1978 vests
the Bureau of Mines 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. 12 To effectively discharge its task as the Government's arm in the administration and

disposition of mineral resources, Section 7 of P.D. No. 1281 confers upon the Bureau quasi-judicial
powers as follows:
Sec. 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 case involving:
xxx xxx 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.
Analyzing the objectives of P.D. 1281, particularly said Section 7 thereof, the Court in Twin Peaks
Mining Association, 13 the case relied upon by petitioner, noted that the trend is to make the
adjudication of mining cases a purely administrative matter. This observation was reiterated in
the
more
recent case of Atlas Consolidated Mining & Development Corp. vs. Court of Appeals. 14
In the case at bar, it is not disputed that the subject agreement is a mining contract and private
respondent, in seeking a judicial declaration of its nullity, does not wish to abide by its terms and
conditions. These elements alone bring the action within the ambit of Section 7 of P.D. 1281.
Whatever the basis for the refusal to abide by the contract's terms and conditions, the basic issue
remains one of its cancellation, which is precisely what P.D. No. 1281 places within the exclusive
original jurisdiction for the Bureau.
The reason underlying such refusal is indeed an irrelevant matter insofar as jurisdictional
competence is concerned, for to make jurisdiction dependent thereon would not only be "ratifying
two judicial bodies exercising jurisdiction over an essentially the same subject mattera situation
analogous to split jurisdiction which is obnoxious to the orderly administration of justice" 15 but
also clearly ignoring the object of P.D. 1281 to make the adjudication of mining cases a purely
administrative matter.
And if, perchance the law did intend to split jurisdiction, it could have done so by providing
exceptions to par. (c), Section 7 of P.D. No. 1281. Not having done so, there can be no justification
for restricting or limiting the Bureau's jurisdiction over "actions for cancellation and/or
enforcement of mining contracts due to the refusal of the claimowner/operator to abide by the
terms and conditions thereof."
In the light of our ruling that the jurisdiction over private respondent's action to annul the
Operations Agreement pertains to the Bureau of Mines and Geo-Sciences rather than the regional
trial court, the question of venue becomes immaterial.
Considering further that the other issues raised by petitioner, namely res judicata, laches and
prescription are factual matters which are not only improper in a petition for certiorari but which,
more importantly, petitioner failed to substantiate, no ruling on these issues need be made.
WHEREFORE, the instant petition is GRANTED. The assailed orders of March 26, 1982 and June 20,
1983 are set aside and Civil Case No. Q-30171 of the Regional Trial Court of Quezon City, Branch
XCVII, is ordered DISMISSED. This decision is immediately executory. Costs against private
respondent.
SO ORDERED.

G.R. No. L-24757

MARCOS
vs.

October 25, 1967

B.

COMILANG, petitioner-appellant,

HON. GENEROSO A. BUENDIA, Judge of the City Court of Baguio; ABDON DELENELA,
GUILLERMO PEREZ and THE PROVINCIAL SHERIFF OF BAGUIO AND BENGUET, Mountain
Province, respondents-appellees.
Bienvenido
L.
Garcia
for
petitioner-appellant.
Daniel M. Zarate for respondents-appellees.
ANGELES, J.:
On appeal from an order of the Court of First Instance of Baguio City, in Civil Case No. 1440,
denying the petition of Marcos Comilang to annul the order of the Municipal Court of Baguio City,
in Civil Case No. 1433, dated August 11, 1964, directing the sheriff of Mountain Province to place
Abdon Delenela and Guillermo Perez in possession of a parcel of land occupied by the petitioner.
The antecedents of the controversy which culminated in this appeal are as follows:
About the year 1908, Nicolas Comilang staked a mining claim known as the "Bua Fraction Mineral
Claim" over a parcel of land in Tuding, Benguet, Mountain Province, with an area of 76,809 square
meters, more or less. His exploration works in the mining claim did not last for long, for he
abandoned it, and stopped the exploration, but he continued to live in the house he built on a
portion of the land with his wife, brothers and sisters.
In the year 1918, Macario Comilang also settled on a portion of the land with an area of about one
(1) hectare, for residential and agricultural purposes. After his death, his daughter, Fabiana
Comilang Perez remained to live in the house built by her father on the land. Still later, other
relatives of the old Nicolas Comilang settled and built their own houses over other portions of the
land, one of which houses was acquired by Abdon Delenela who now resides on the land with the
other Comilang heirs.
Surface rights over the area embraced in the original Bua Fraction Mineral Claim of Nicolas
Comilang soon became the subject of litigation in the Court of First Instance of Baguio City (Civil
Case No. 250 Action to Quiet Title), instituted by the heirs of Guillerma, Marcelina, Julian,
Timoteo, Melecio and Macario, all surnamed Comilang, against appellant herein Marcos Comilang
who claimed to have bought the rights and interest of Nicolas Comilang in the old mining claim. In
a decision rendered in said case No. 250, dated November 26, 1952, the court dismissed both
claims of ownership of the plaintiffs and the defendant and declared the area public land. The
court, however, recognized the possession of the parties over certain specified portions of the
area, among which was an area of about one and one-half (1-1/2) hectares in possession of
Marcos Comilang, which has been declared for taxation purposes in his name. This decision was
affirmed by the Court of Appeals in CA-G.R. No. 11157-R on October 29, 1955.
In the same year, the 1-1/2 hectares of land occupied by Marcos Comilang, then declared under
Tax Declaration No. 4771 in his name, was levied upon and sold at public auction by the sheriff of
Mountain Province to satisfy a judgment for a sum of money obtained by the spouses Jose Coloma
and Eugenia Rumbaoa against Marcos Comilang in the Court of First Instance of Baguio, in Civil
Case No. 1433. The judgment creditors were the purchasers at the auction sale, and a certificate
of sale was executed in their favor by the sheriff on June 1, 1957.
In the meantime, an application for lode patent covering the Bua Fraction Mineral Claim was filed
with the Bureau of Mines. Abdon Delenela and his co-heirs filed their opposition to the application.
Pending the controversy before the Bureau of Mines, Delenela and his co-heirs instituted an action
for determination of their rights on the land in the Court of First Instance of Baguio City, docketed
as Civil Case No. 735. The parties submitted an amicable settlement recognizing co-ownership
among themselves of the Bua Mineral Claim. In a decision rendered in said Case No. 735, dated
March 3, 1958, the court awarded one-half in undivided share in the mineral claim in favor of
Marcos Comilang, and the other half also in undivided share in favor of Abdon Delenela and coheirs.

Later, in the exercise of their right as co-owners, Abdon Delenela and Guillermo Perez, with the
knowledge and conformity of Marcos Comilang, redeemed and bought from the Coloma spouses,
the latter's rights, title, interest and claim to the 1-1/2 hectares of land acquired under the
certificate of sale thereof executed in the latter's favor by the sheriff on June 1, 1957. This
redemption sale took place on June 11, 1958.
On February 9, 1959, the Director of Mines recommended the issuance of a lode patent over the
Bua Mineral Claim in favor of Marcos Comilang, Delenela, and the other claimants in the
proportion of one-half (1/2) in undivided share in favor of Marcos Comilang, and the other one-half
(1/2) also in undivided share in favor of Delenela and the other heirs pursuant to the decision of
March 3, 1958, aforementioned, in Civil Case No. 735.
On August 12, 1959, upon motion of Abdon Delenela and Perez, who have thus acquired and
succeeded to the rights of the Coloma spouses on the 1-1/2 hectares, the Municipal Court of
Baguio City issued a writ of possession in their favor directing the sheriff of Mountain Province to
evict Marcos Comilang and his wife from the 1-1/2 hectares of land sold in the execution sale.
In a petition for certiorari with preliminary injunction filed in the Court of First Instance of Baguio
City, docketed as Civil Case No. 897, Maxima Nieto de Comilang, wife of Marcos Comilang,
questioned the power of the Municipal Court to issue said writ of possession on two grounds,
namely: (1) that conjugal property had been levied upon and sold in the execution sale, and her
share therein is affected; and (2) that there can be no severance of surface rights over a mineral
claim located under the Philippine Bill of 1902, and petitioner argued that the sheriff could not
have validly sold the surface rights in the execution sale of June 1, 1957. On February 23, 1961,
the court rendered a decision in said case, holding that the writ of possession issued by the
respondent Municipal Judge was within his competence and jurisdiction. On appeal to the
Supreme Court, docketed as G. R. No. L-18897, a decision was rendered on March 31, 1964, the
dispositive portion of which is as follows:
For the foregoing considerations the judgment appealed from is hereby affirmed insofar
as it denies the petition of Maxima Nieto de Comilang to exclude from the sale, or annul
the sale on execution of the residential lot formerly owned by her husband, of 1-1/2
hectares covered in the final certificate of sale; but that part of the appealed decision
holding that the sale at public auction included the 1/2 undivided share of Marcos
Comilang to the Bua Mineral Claim, is hereby set aside and said mineral rights of Marcos
Comilang are hereby declared free from the execution or sale on execution.
The decision having become final, Abdon Delenela and Guillermo Perez reiterated their motion in
the Municipal Court of Baguio City in Civil Case No. 1433, praying that an alias writ of possession
be issued to evict Marcos Comilang and his wife from the 1-1/2 hectares of land in question. On
August 11, 1964, over the objection of Marcos Comilang, the court issued the writ prayed for.
For a second time, a petition for certiorari and mandamus with preliminary injunction was
instituted by Marcos Comilang in the Court of First Instance of Baguio City seeking the annulment
of the order granting the alias writ of possession in favor of Delenela and Perez, and again the
Court of First Instance of Baguio threw out the petition in its order dated October 22, 1964. The
court expressed its views in the following rationale:
The one and one-half hectares of land referred to therein (S.C. decision) is the same
parcel of land and house above-described which was already sold at public auction to the
respondents, Guillermo Perez and Abdon Delenela.
The said judgment is res adjudicata and the consequent execution, and the writ of
possession is but its necessary consequence.
All the authorities cited by the petitioner were no longer of any value because they were
necessarily passed upon and disposed of in the course of finally deciding the case.

Wherefore, the petition for certiorari is hereby denied.

Marcos Comilang is now before Us on appeal from this last decision.
Appellant contends that the lower court erred in denying his petition on the ground of res
adjudicata, arguing that it was his wife Maxima Nieto de Comilang, and not be, the party in the
former case appealed to the Supreme Court in G. R. No. L-18897. Therefore, it is claimed, one of
the requisites of res adjudicata is lacking. We find no merit in the argument. As husband and wife
and before the dissolution of their marital union, their interest in the said property is one and the
same. The fact that the wife was the party in the former case while it is the husband who is the
petitioner in the instant case, when admittedly both actions were instituted for the protection of
their common interest therein, is no argument to the proposition that there is no identity of
parties in these cases. Such identity of interest is enough to hold that they are privy to one
another, having a common interest in the property. Neither is it tenable to contend that the issue
involved in the two cases are not identical. It cannot be disputed that in both cases, the main
relief sought is the annulment of writs of possession issued by the Municipal Court of Baguio City
directing the sheriff concerned to evict the spouses Comilang from the land, and the questions
involved in both cases pertain to the legality or validity of those writs aforementioned. In the
decision in L-18897, this Court sustained the validity of the execution sale. There can be no doubt,
therefore, that the judgment in the former case is binding in the instant proceeding.
It is argued further by the appellant that the final certificate of sale conveying the land described
in Tax Declaration No. 4771 to the purchasers in the execution sale is not a valid disposition of a
portion of the public domain, and specially in view of the subsequent issuance of a mineral lode
patent over the Bua Mineral Claim by the Director of Mines (Patent issued on November 7, 1966)
whereby full ownership not only of the minerals therein but also of the surface ground have been
conveyed to the patentee thereof, and, therefore, the Municipal Court of Baguio City may no
longer eject them from the land.
We do not agree with the contention of the appellant.
The Court has not overlooked the doctrines heavily relied upon by the appellant that the moment
the locator discovered a valuable mineral deposit on the land located, and perfected his location
in accordance with the provisions of the Philippine Bill of 1902, the power of the Government to
deprive him of the exclusive right to possession of the located claim was gone, the land had
become mineral land and they were excepted from the lands that could be granted to any other
person (McDaniel v. Apacible and Cuisia, 42 Phil. 749, 756); and that when a location of a mining
claim is perfected under said law, it has the effect of a grant by the United States of the right of
present possession, with the right to the exclusive enjoyment of all the surface ground as well as
of all the minerals within the lines of the claim (Gold Creek Mining Corporation v. Rodriguez, 66
Phil. 259). We are also cognizant of the rule invoked by the appellant that when circumstances
have arisen subsequent to the remanding of the record from the Supreme Court to the trial court,
a stay of execution may be allowed on grounds which are in their nature peculiarly equitable, as
for instance, to give defendant an opportunity to set off a claim against plaintiff (Chua A. H. Lee v.
Mapa, 51 Phil. 624); or when after judgment has been rendered and it has become final, facts and
circumstances transpire which rendered its execution impossible and unjust, the interested party
may ask the court to alter or modify the judgment to harmonize the same with justice and the
facts (De la Costa v. Cleopas, 67 Phil. 686; Realiza v. Duarte, L-25027, L-20528 & L-20529, August
31, 1967); and this remains true, notwithstanding affirmance of the judgment by the Supreme
Court, which imparts no higher quality than to a final judgment unappealed from, except that it
cannot be questioned or reviewed (Chua A. H. Lee v. Mapa, supra). However, these authorities, by
no means, render the argument of herein appellant unassailable . There are factual differences in

the settings of the case cited and the one at bar, the equities of which require the application of a
different rule.
To begin with, the 1- hectares portions of the Bua Fraction Mineral Claim described in Tax
Declaration No. 4771 in the name of herein appellant was levied upon and sold at public auction
to satisfy the money judgment against him in Civil Case No. 1433 of the Municipal Court of Baguio
City, and the corresponding certificate of sale was issued in favor of the judgment creditors.
Interest acquired under like certificates of sale alone has been described as more than a lien on
the property, more than an equitable estate, an inchoate legal title to the property. (21 Am. Jur.,
section 264, p. 133). The validity of that sale was questioned when the Municipal Court ordered
the eviction of appellant from the land sold on execution, and the Supreme Court declared in L18897 that the sale was valid. The sale operated to divest appellant of his rights to the land which
vested in the purchasers at the auction sale. The parties herein subsequently litigated their rights
to the mineral claim in Civil Case No. 735 of the Court of First Instance of Baguio City, and on the
basis of their amicable agreement (appellant was a party in the case), the court declared the Bua
Mineral Claim co-ownership property of the parties thereto "except the improvements existing
thereon" (p. 9, appellant's petition). There is no room for doubt, therefore, that the right to
possess or own the surface ground is separate and distinct from the mineral rights over the same
land. And when the application for lode patent to the mineral claim was prosecuted in the Bureau
of Mines, the said application could not have legally included the surface ground sold to another
in the execution sale. Consequently, We have to declare that the patent procured thereunder, at
least with respect to the 1- hectares sold in execution pertains only to the mineral right and
does not include the surface ground of the land in question.
Viewed from another perspective, We have arrived at the same conclusion. In his letter to the
Secretary of Agriculture and Natural Resources, dated February 9, 1959, recommending the
approval of Mineral Lode Patent No. V-24, the Director of Mines said that applicants Marcos
Comilang, et al., had acquired vested rights on the Bua Fraction Mineral Claim before the
Constitution of the Philippines was approved on November 15, 1935. Under the doctrines laid
down in McDaniel v. Apacible, and in Gold Creek Mining v. Rodriguez, supra, said vested rights
include the ownership of both the minerals and the surface ground; that such was the locator's
right before as well as after the issuance of the patent; and that such was vested property
although fee remains in the Government until patent issues. Such vested right of herein appellant
passed to the appellees under the sale on execution aforementioned of the 1- hectares portion
of the mineral claim. The subsequent issuance of the Lode Patent to the entire area of the Bua
Mineral Claim did not militate against that acquired rights, for Sec. 45 of the Philippine Bill of
1902 expressly provides that nothing in said Act shall be deemed to impair any lien which may
have attached in any way whatever prior to the issuance of the patent. Moreover, it is significant
to note that the very Lode Patent No. V-24 aforementioned expressly declares on its face that
"the mining premises hereby conveyed shall be held subject to all vested lights and accrued
rights", the legal import of which is that the patentee Marcos Comilang, shall hold the1 hectares
portion of the area embraced in the patent as described in the Tax Declaration No. 4771, in trust
for the appellees.
Apart and independent of the statute, there is a rule in American Law known as the "Doctrine of
Relation", to the effect "that all parts and ceremonies necessary to complete a conveyance shall
be taken together as one act, and operate from the substantial part by relation." This "substantial
part" is recognized as the "original act" which is to be preferred, and to this all subsequent acts
are to have relation. This doctrine of relation appears to have been often applied to the
adjudication of real actions by American courts.

The case of Landes v. Brant, 10 How. 348, U. S. 13 Law ed., 449, broadly asserts this doctrine of
relation. In that case, a Spanish claim of land was acquired by Clamorgan under Dodier, the
original claimant, by virtue of ten consecutive years possession prior to December 20, 1903. Such
claim was authorized by the Act of Congress. Clamorgan was entitled to a patent by virtue of a
certificate of confirmation made by commissioners. His petition for such confirmation was filed in
December, 1805. In 1808 judgment was recovered against Clamorgan, the claim was sold and the
sheriff's deed executed to McNair. It was held that the execution sale passed to the purchaser all
the title that could have passed from Clamorgan to McNair by a quitclaim deed; that applying
thedoctrine of relation and taking all the parts and ceremonies necessary to complete the title
together as one act, then the confirmation of 1811 and the patent of 1845 must be taken to relate
to the first act; that of filing the claim in 1805. On this assumption, intermediate conveyances
made by the confirmed or by the sheriff on his behalf, of a date after the first substantial act, are
covered by the legal title and pass that title to the alienee. And on this ground, the deed made by
the sheriff to McNair is valid. This doctrine has been applied in a great number of decisions.
Applying the same rule to the case before Us, it is seen that the original act that ripened into
Mineral Lode Patent No. V-24 was the location of the mineral claim and the recording thereof in
the Mining Recorder of Mt. Province sometime in 1922. Vested right to the property accrued to the
locator before 1935, although patent was issued only recently (November 7, 1966). This Patent
cannot nullify the intermediate conveyance of that right in the execution sale of 1958 to herein
appellees.
Finally, the argument that the proceedings for the issuance of a writ of possession, as has been
resorted to by the appellees, is not the proper court procedure, the appellant intimating that it
should be by a proper action. The contention does not deserve serious consideration. The
corresponding rights of the parties to the property in question had been ventilated in the various
cases affecting it, and the decisions in those cases have sustained the validity of the sale. It is
now a matter of right on the part of the appellees to be placed in possession of the land by clear
mandate of Sec. 35, Rule 39 of the Rules of Court which requires that upon execution and delivery
of the final deed of sale in execution the possession of the property shall be given to the
purchaser or last redemptioner unless a third party is actually holding the property adversely to
the judgment debtor. As this Court said in Tan Soo Huat v. Ongwico, 63 Phil. 747:
There is no law in this jurisdiction whereby the purchaser at a sheriff's sale of real
property is obliged to bring a separate and independent suit for possession after the oneyear period for redemption has expired and after he has obtained the sheriff's final
certificate of sale. There is neither legal ground nor reason of public policy precluding the
court from ordering the sheriff in this case to yield possession of the property purchased
at public auction where it appears that the judgment debtor is the one in possession
thereof and no rights of third persons are involved.
WHEREFORE, the decision appealed from is affirmed. Costs against appellants.

G.R. No. 161957

January 22, 2007
JORGE
GONZALES
and
PANEL
OF
ARBITRATORS, Petitioners,
vs.
CLIMAX MINING LTD., CLIMAX-ARIMCO MINING CORP., and AUSTRALASIAN PHILIPPINES
MINING INC.,Respondents.
x--------------------------------------------------------------------------------- x

G.R. No. 167994

January 22, 2007
JORGE
GONZALES, Petitioner,
vs.
HON. OSCAR B. PIMENTEL, in his capacity as PRESIDING JUDGE of BR. 148 of the
REGIONAL
TRIAL
COURT
of
MAKATI
CITY,
and
CLIMAX-ARIMCO
MINING
CORPORATION, Respondents.
RESOLUTION
TINGA, J.:
This is a consolidation of two petitions rooted in the same disputed Addendum Contract entered
into by the parties. In G.R. No. 161957, the Court in its Decision of 28 February 2005 1 denied the
Rule 45 petition of petitioner Jorge Gonzales (Gonzales). It held that the DENR Panel of Arbitrators
had no jurisdiction over the complaint for the annulment of the Addendum Contract on grounds of
fraud and violation of the Constitution and that the action should have been brought before the
regular courts as it involved judicial issues. Both parties filed separate motions for
reconsideration. Gonzales avers in his Motion for Reconsideration 2 that the Court erred in holding
that the DENR Panel of Arbitrators was bereft of jurisdiction, reiterating its argument that the case
involves a mining dispute that properly falls within the ambit of the Panels authority. Gonzales
adds that the Court failed to rule on other issues he raised relating to the sufficiency of his
complaint before the DENR Panel of Arbitrators and the timeliness of its filing.
Respondents Climax Mining Ltd., et al., (respondents) filed their Motion for Partial Reconsideration
and/or Clarification3 seeking reconsideration of that part of the Decision holding that the case
should not be brought for arbitration under Republic Act (R.A.) No. 876, also known as the
Arbitration Law.4 Respondents, citing American jurisprudence5 and the UNCITRAL Model
Law,6 argue that the arbitration clause in the Addendum Contract should be treated as an
agreement independent of the other terms of the contract, and that a claimed rescission of the
main contract does not avoid the duty to arbitrate. Respondents add that Gonzaless argument
relating to the alleged invalidity of the Addendum Contract still has to be proven and adjudicated
on in a proper proceeding; that is, an action separate from the motion to compel arbitration.
Pending judgment in such separate action, the Addendum Contract remains valid and binding and
so does the arbitration clause therein. Respondents add that the holding in the Decision that "the
case should not be brought under the ambit of the Arbitration Law" appears to be premised on
Gonzaless having "impugn[ed] the existence or validity" of the addendum contract. If so, it
supposedly conveys the idea that Gonzaless unilateral repudiation of the contract or mere
allegation of its invalidity is all it takes to avoid arbitration. Hence, respondents submit that the
courts holding that "the case should not be brought under the ambit of the Arbitration Law" be
understood or clarified as operative only where the challenge to the arbitration agreement has
been sustained by final judgment.
Both parties were required to file their respective comments to the other partys motion for
reconsideration/clarification.7 Respondents filed their Comment on 17 August 2005, 8 while
Gonzales filed his only on 25 July 2006.9
On the other hand, G.R. No. 167994 is a Rule 65 petition filed on 6 May 2005, or while the motions
for reconsideration in G.R. No. 16195710 were pending, wherein Gonzales challenged the orders of
the Regional Trial Court (RTC) requiring him to proceed with the arbitration proceedings as sought
by Climax-Arimco Mining Corporation (Climax-Arimco).
On 5 June 2006, the two cases, G.R. Nos. 161957 and 167994, were consolidated upon the
recommendation of the Assistant Division Clerk of Court since the cases are rooted in the same
Addendum Contract.

We first tackle the more recent case which is G.R. No. 167994. It stemmed from the petition to
compel arbitration filed by respondent Climax-Arimco before the RTC of Makati City on 31 March
2000 while the complaint for the nullification of the Addendum Contract was pending before the
DENR Panel of Arbitrators. On 23 March 2000, Climax-Arimco had sent Gonzales a Demand for
Arbitration pursuant to Clause 19.1 11 of the Addendum Contract and also in accordance with Sec.
5 of R.A. No. 876. The petition for arbitration was subsequently filed and Climax-Arimco sought an
order to compel the parties to arbitrate pursuant to the said arbitration clause. The case,
docketed as Civil Case No. 00-444, was initially raffled to Br. 132 of the RTC of Makati City, with
Judge Herminio I. Benito as Presiding Judge. Respondent Climax-Arimco filed on 5 April 2000 a
motion to set the application to compel arbitration for hearing.
On 14 April 2000, Gonzales filed a motion to dismiss which he however failed to set for hearing.
On 15 May 2000, he filed an Answer with Counterclaim, 12 questioning the validity of the
Addendum Contract containing the arbitration clause. Gonzales alleged that the Addendum
Contract containing the arbitration clause is void in view of Climax-Arimcos acts of fraud,
oppression and violation of the Constitution. Thus, the arbitration clause, Clause 19.1, contained
in the Addendum Contract is also null and void ab initio and legally inexistent.1awphi1.net
On 18 May 2000, the RTC issued an order declaring Gonzaless motion to dismiss moot and
academic in view of the filing of his Answer with Counterclaim.13
On 31 May 2000, Gonzales asked the RTC to set the case for pre-trial. 14 This the RTC denied on 16
June 2000, holding that the petition for arbitration is a special proceeding that is summary in
nature.15 However, on 7 July 2000, the RTC granted Gonzaless motion for reconsideration of the
16 June 2000 Order and set the case for pre-trial on 10 August 2000, it being of the view that
Gonzales had raised in his answer the issue of the making of the arbitration agreement. 16
Climax-Arimco then filed a motion to resolve its pending motion to compel arbitration. The RTC
denied the same in its 24 July 2000 order.
On 28 July 2000, Climax-Arimco filed a Motion to Inhibit Judge Herminio I. Benito for "not
possessing the cold neutrality of an impartial judge." 17 On 5 August 2000, Judge Benito issued an
Order granting the Motion to Inhibit and ordered the re-raffling of the petition for arbitration. 18 The
case was raffled to the sala of public respondent Judge Oscar B. Pimentel of Branch 148.
On 23 August 2000, Climax-Arimco filed a motion for reconsideration of the 24 July 2000
Order.19 Climax-Arimco argued that R.A. No. 876 does not authorize a pre-trial or trial for a motion
to compel arbitration but directs the court to hear the motion summarily and resolve it within ten
days from hearing. Judge Pimentel granted the motion and directed the parties to arbitration. On
13 February 2001, Judge Pimentel issued the first assailed order requiring Gonzales to proceed
with arbitration proceedings and appointing retired CA Justice Jorge Coquia as sole arbitrator. 20
Gonzales moved for reconsideration on 20 March 2001 but this was denied in the Order dated 7
March 2005.21
Gonzales thus filed the Rule 65 petition assailing the Orders dated 13 February 2001 and 7 March
2005 of Judge Pimentel. Gonzales contends that public respondent Judge Pimentel acted with
grave abuse of discretion in immediately ordering the parties to proceed with arbitration despite
the proper, valid, and timely raised argument in his Answer with Counterclaim that the Addendum
Contract, containing the arbitration clause, is null and void. Gonzales has also sought a temporary
restraining order to prevent the enforcement of the assailed orders directing the parties to
arbitrate, and to direct Judge Pimentel to hold a pre-trial conference and the necessary hearings
on the determination of the nullity of the Addendum Contract.
In support of his argument, Gonzales invokes Sec. 6 of R.A. No. 876:
Sec. 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.
The court shall decide all motions, petitions or applications filed under the provisions of this Act,
within ten (10) days after such motions, petitions, or applications have been heard by it.
Gonzales also cites Sec. 24 of R.A. No. 9285 or the "Alternative Dispute Resolution Act of 2004:"
Sec. 24. Referral to Arbitration.A court before which an action is brought in a matter which is the
subject matter of an arbitration agreement shall, if at least one party so requests not later than
the pre-trial conference, or upon the request of both parties thereafter, refer the parties to
arbitration unless it finds that the arbitration agreement is null and void, inoperative or incapable
of being performed.
According to Gonzales, the above-quoted provisions of law outline the procedure to be followed in
petitions to compel arbitration, which the RTC did not follow. Thus, referral of the parties to
arbitration by Judge Pimentel despite the timely and properly raised issue of nullity of the
Addendum Contract was misplaced and without legal basis. Both R.A. No. 876 and R.A. No. 9285
mandate that any issue as to the nullity, inoperativeness, or incapability of performance of the
arbitration clause/agreement raised by one of the parties to the alleged arbitration agreement
must be determined by the court prior to referring them to arbitration. They require that the trial
court first determine or resolve the issue of nullity, and there is no other venue for this
determination other than a pre-trial and hearing on the issue by the trial court which has
jurisdiction over the case. Gonzales adds that the assailed 13 February 2001 Order also violated
his right to procedural due process when the trial court erroneously ruled on the existence of the
arbitration agreement despite the absence of a hearing for the presentation of evidence on the
nullity of the Addendum Contract.
Respondent Climax-Arimco, on the other hand, assails the mode of review availed of by Gonzales.
Climax-Arimco cites Sec. 29 of R.A. No. 876:
Sec. 29. Appeals.An appeal may be taken from an order made in a proceeding under this Act, or
from a judgment entered upon an award through certiorari proceedings, but such appeals shall be
limited to questions of law. The proceedings upon such an appeal, including the judgment thereon
shall be governed by the Rules of Court in so far as they are applicable.
Climax-Arimco mentions that the special civil action for certiorari employed by Gonzales is
available only where there is no appeal or any plain, speedy, and adequate remedy in the
ordinary course of law against the challenged orders or acts. Climax-Arimco then points out that
R.A. No. 876 provides for an appeal from such orders, which, under the Rules of Court, must be
filed within 15 days from notice of the final order or resolution appealed from or of the denial of
the motion for reconsideration filed in due time. Gonzales has not denied that the relevant 15-day
period for an appeal had elapsed long before he filed this petition for certiorari. He cannot use the
special civil action of certiorari as a remedy for a lost appeal.
Climax-Arimco adds that an application to compel arbitration under Sec. 6 of R.A. No. 876 confers
on the trial court only a limited and special jurisdiction, i.e., a jurisdiction solely to determine (a)

whether or not the parties have a written contract to arbitrate, and (b) if the defendant has failed
to comply with that contract. Respondent cites La Naval Drug Corporation v. Court of
Appeals,22 which holds that in a proceeding to compel arbitration, "[t]he arbitration law explicitly
confines the courts authority only to pass upon the issue of whether there is or there is no
agreement in writing providing for arbitration," and "[i]n the affirmative, the statute ordains that
the court shall issue an order summarily directing the parties to proceed with the arbitration in
accordance with the terms thereof." 23 Climax-Arimco argues that R.A. No. 876 gives no room for
any other issue to be dealt with in such a proceeding, and that the court presented with an
application to compel arbitration may order arbitration or dismiss the same, depending solely on
its finding as to those two limited issues. If either of these matters is disputed, the court is
required to conduct a summary hearing on it. Gonzaless proposition contradicts both the trial
courts limited jurisdiction and the summary nature of the proceeding itself.
Climax-Arimco further notes that Gonzaless attack on or repudiation of the Addendum Contract
also is not a ground to deny effect to the arbitration clause in the Contract. The arbitration
agreement is separate and severable from the contract evidencing the parties commercial or
economic transaction, it stresses. Hence, the alleged defect or failure of the main contract is not a
ground to deny enforcement of the parties arbitration agreement. Even the party who has
repudiated the main contract is not prevented from enforcing its arbitration provision. R.A. No.
876 itself treats the arbitration clause or agreement as a contract separate from the commercial,
economic or other transaction to be arbitrated. The statute, in particular paragraph 1 of Sec. 2
thereof, considers the arbitration stipulation an independent contract in its own right whose
enforcement may be prevented only on grounds which legally make the arbitration agreement
itself revocable, thus:
Sec. 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.
xxxx
The grounds Gonzales invokes for the revocation of the Addendum Contractfraud and
oppression in the execution thereofare also not grounds for the revocation of the arbitration
clause in the Contract, Climax-Arimco notes. Such grounds may only be raised by way of defense
in the arbitration itself and cannot be used to frustrate or delay the conduct of arbitration
proceedings. Instead, these should be raised in a separate action for rescission, it continues.
Climax-Arimco emphasizes that the summary proceeding to compel arbitration under Sec. 6 of
R.A. No. 876 should not be confused with the procedure in Sec. 24 of R.A. No. 9285. Sec. 6 of R.A.
No. 876 refers to an application to compel arbitration where the courts authority is limited to
resolving the issue of whether there is or there is no agreement in writing providing for
arbitration, while Sec. 24 of R.A. No. 9285 refers to an ordinary action which covers a matter that
appears to be arbitrable or subject to arbitration under the arbitration agreement. In the latter
case, the statute is clear that the court, instead of trying the case, may, on request of either or
both parties, refer the parties to arbitration, unless it finds that the arbitration agreement is null
and void, inoperative or incapable of being performed. Arbitration may even be ordered in the
same suit brought upon a matter covered by an arbitration agreement even without waiting for
the outcome of the issue of the validity of the arbitration agreement. Art. 8 of the UNCITRAL
Model Law24 states that where a court before which an action is brought in a matter which is

subject of an arbitration agreement refers the parties to arbitration, the arbitral proceedings may
proceed even while the action is pending.
Thus, the main issue raised in the Petition for Certiorari is whether it was proper for the RTC, in
the proceeding to compel arbitration under R.A. No. 876, to order the parties to arbitrate even
though the defendant therein has raised the twin issues of validity and nullity of the Addendum
Contract and, consequently, of the arbitration clause therein as well. The resolution of both
Climax-Arimcos Motion for Partial Reconsideration and/or Clarification in G.R. No. 161957 and
Gonzaless Petition for Certiorari in G.R. No. 167994 essentially turns on whether the question of
validity of the Addendum Contract bears upon the applicability or enforceability of the arbitration
clause contained therein. The two pending matters shall thus be jointly resolved.
We address the Rule 65 petition in G.R. No. 167994 first from the remedial law perspective. It
deserves to be dismissed on procedural grounds, as it was filed in lieu of appeal which is the
prescribed remedy and at that far beyond the reglementary period. It is elementary in remedial
law that the use of an erroneous mode of appeal is cause for dismissal of the petition for certiorari
and it has been repeatedly stressed that a petition for certiorari is not a substitute for a lost
appeal. As its nature, a petition for certiorari lies only where there is "no appeal," and "no plain,
speedy and adequate remedy in the ordinary course of law." 25 The Arbitration Law specifically
provides for an appeal by certiorari, i.e., a petition for review under certiorari under Rule 45 of the
Rules of Court that raises pure questions of law. 26 There is no merit to Gonzaless argument that
the use of the permissive term "may" in Sec. 29, R.A. No. 876 in the filing of appeals does not
prohibit nor discount the filing of a petition for certiorari under Rule 65. 27 Proper interpretation of
the aforesaid provision of law shows that the term "may" refers only to the filing of an appeal, not
to the mode of review to be employed. Indeed, the use of "may" merely reiterates the principle
that the right to appeal is not part of due process of law but is a mere statutory privilege to be
exercised only in the manner and in accordance with law.
Neither can BF Corporation v. Court of Appeals 28 cited by Gonzales support his theory. Gonzales
argues that said case recognized and allowed a petition for certiorari under Rule 65 "appealing
the order of the Regional Trial Court disregarding the arbitration agreement as an acceptable
remedy."29 The BF Corporation case had its origins in a complaint for collection of sum of money
filed by therein petitioner BF Corporation against Shangri-la Properties, Inc. (SPI). SPI moved to
suspend the proceedings alleging that the construction agreement or the Articles of Agreement
between the parties contained a clause requiring prior resort to arbitration before judicial
intervention. The trial court found that an arbitration clause was incorporated in the Conditions of
Contract appended to and deemed an integral part of the Articles of Agreement. Still, the trial
court denied the motion to suspend proceedings upon a finding that the Conditions of Contract
were not duly executed and signed by the parties. The trial court also found that SPI had failed to
file any written notice of demand for arbitration within the period specified in the arbitration
clause. The trial court denied SPI's motion for reconsideration and ordered it to file its responsive
pleading. Instead of filing an answer, SPI filed a petition for certiorari under Rule 65, which the
Court of Appeals, favorably acted upon. In a petition for review before this Court, BF Corporation
alleged, among others, that the Court of Appeals should have dismissed the petition for certiorari
since the order of the trial court denying the motion to suspend proceedings "is a resolution of an
incident on the merits" and upon the continuation of the proceedings, the trial court would
eventually render a decision on the merits, which decision could then be elevated to a higher
court "in an ordinary appeal." 30
The Court did not uphold BF Corporations argument. The issue raised before the Court was
whether SPI had taken the proper mode of appeal before the Court of Appeals. The question

before the Court of Appeals was whether the trial court had prematurely assumed jurisdiction
over the controversy. The question of jurisdiction in turn depended on the question of existence of
the arbitration clause which is one of fact. While on its face the question of existence of the
arbitration clause is a question of fact that is not proper in a petition for certiorari, yet since the
determination of the question obliged the Court of Appeals as it did to interpret the contract
documents in accordance with R.A. No. 876 and existing jurisprudence, the question is likewise a
question of law which may be properly taken cognizance of in a petition for certiorari under Rule
65, so the Court held.31
The situation in B.F. Corporation is not availing in the present petition. The disquisition in B.F.
Corporation led to the conclusion that in order that the question of jurisdiction may be resolved,
the appellate court had to deal first with a question of law which could be addressed in a certiorari
proceeding. In the present case, Gonzaless petition raises a question of law, but not a question of
jurisdiction. Judge Pimentel acted in accordance with the procedure prescribed in R.A. No. 876
when he ordered Gonzales to proceed with arbitration and appointed a sole arbitrator after
making the determination that there was indeed an arbitration agreement. It has been held that
as long as a court acts within its jurisdiction and does not gravely abuse its discretion in the
exercise thereof, any supposed error committed by it will amount to nothing more than an error of
judgment reviewable by a timely appeal and not assailable by a special civil action of
certiorari.32 Even if we overlook the employment of the wrong remedy in the broader interests of
justice, the petition would nevertheless be dismissed for failure of Gonzalez to show grave abuse
of discretion.
Arbitration, as an alternative mode of settling disputes, has long been recognized and accepted in
our jurisdiction. The Civil Code is explicit on the matter. 33 R.A. No. 876 also expressly authorizes
arbitration of domestic disputes. Foreign arbitration, as a system of settling commercial disputes
of an international character, was likewise recognized when the Philippines adhered to the United
Nations "Convention on the Recognition and the Enforcement of Foreign Arbitral Awards of 1958,"
under the 10 May 1965 Resolution No. 71 of the Philippine Senate, giving reciprocal recognition
and allowing enforcement of international arbitration agreements between parties of different
nationalities within a contracting state.34 The enactment of R.A. No. 9285 on 2 April 2004 further
institutionalized the use of alternative dispute resolution systems, including arbitration, in the
settlement of disputes.
Disputes do not go to arbitration unless and until the parties have agreed to abide by the
arbitrators decision. Necessarily, a contract is required for arbitration to take place and to be
binding. R.A. No. 876 recognizes the contractual nature of the arbitration agreement, thus:
Sec. 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 arising out of valuations, appraisals or other
controversies which may be collateral, incidental, precedent or subsequent to any issue between
the parties.
A controversy cannot be arbitrated where one of the parties to the controversy is an infant, or a
person judicially declared to be incompetent, unless the appropriate court having jurisdiction
approve a petition for permission to submit such controversy to arbitration made by the general
guardian or guardian ad litem of the infant or of the incompetent. [Emphasis added.]

Thus, we held in Manila Electric Co. v. Pasay Transportation Co. 35 that a submission to arbitration is
a contract. A clause in a contract providing that all matters in dispute between the parties shall be
referred to arbitration is a contract,36 and in Del Monte Corporation-USA v. Court of Appeals 37 that
"[t]he provision to submit to arbitration any dispute arising therefrom and the relationship of the
parties is part of that contract and is itself a contract. As a rule, contracts are respected as the
law between the contracting parties and produce effect as between them, their assigns and
heirs."38
The special proceeding under Sec. 6 of R.A. No. 876 recognizes the contractual nature of
arbitration clauses or agreements. It provides:
Sec. 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.
The court shall decide all motions, petitions or applications filed under the provisions of this Act,
within ten days after such motions, petitions, or applications have been heard by it. [Emphasis
added.]
This special proceeding is the procedural mechanism for the enforcement of the contract to
arbitrate. The jurisdiction of the courts in relation to Sec. 6 of R.A. No. 876 as well as the nature of
the proceedings therein was expounded upon in La Naval Drug Corporation v. Court of
Appeals.39 There it was held that R.A. No. 876 explicitly confines the court's authority only to the
determination of whether or not there is an agreement in writing providing for arbitration. In the
affirmative, the statute ordains that the court shall issue an order "summarily directing the parties
to proceed with the arbitration in accordance with the terms thereof." If the court, upon the other
hand, finds that no such agreement exists, "the proceeding shall be dismissed." 40 The cited case
also stressed that the proceedings are summary in nature. 41 The same thrust was made in the
earlier case of Mindanao Portland Cement Corp. v. McDonough Construction Co. of Florida 42 which
held, thus:
Since there obtains herein a written provision for arbitration as well as failure on respondent's part
to comply therewith, the court a quo rightly ordered the parties to proceed to arbitration in
accordance with the terms of their agreement (Sec. 6, Republic Act 876). Respondent's arguments
touching upon the merits of the dispute are improperly raised herein. They should be addressed
to the arbitrators. This proceeding is merely a summary remedy to enforce the agreement to
arbitrate. The duty of the court in this case is not to resolve the merits of the parties' claims but
only to determine if they should proceed to arbitration or not. x x x x 43
Implicit in the summary nature of the judicial proceedings is the separable or independent
character of the arbitration clause or agreement. This was highlighted in the cases of Manila
Electric Co. v. Pasay Trans. Co.44and Del Monte Corporation-USA v. Court of Appeals.45

The doctrine of separability, or severability as other writers call it, enunciates that an arbitration
agreement is independent of the main contract. The arbitration agreement is to be treated as a
separate agreement and the arbitration agreement does not automatically terminate when the
contract of which it is part comes to an end. 46
The separability of the arbitration agreement is especially significant to the determination of
whether the invalidity of the main contract also nullifies the arbitration clause. Indeed, the
doctrine denotes that the invalidity of the main contract, also referred to as the "container"
contract, does not affect the validity of the arbitration agreement. Irrespective of the fact that the
main contract is invalid, the arbitration clause/agreement still remains valid and enforceable. 47
The separability of the arbitration clause is confirmed in Art. 16(1) of the UNCITRAL Model Law
and Art. 21(2) of the UNCITRAL Arbitration Rules.48
The separability doctrine was dwelt upon at length in the U.S. case of Prima Paint Corp. v. Flood &
Conklin Manufacturing Co.49 In that case, Prima Paint and Flood and Conklin (F & C) entered into a
consulting agreement whereby F & C undertook to act as consultant to Prima Paint for six years,
sold to Prima Paint a list of its customers and promised not to sell paint to these customers during
the same period. The consulting agreement contained an arbitration clause. Prima Paint did not
make payments as provided in the consulting agreement, contending that F & C had fraudulently
misrepresented that it was solvent and able for perform its contract when in fact it was not and
had even intended to file for bankruptcy after executing the consultancy agreement. Thus, F & C
served Prima Paint with a notice of intention to arbitrate. Prima Paint sued in court for rescission
of the consulting agreement on the ground of fraudulent misrepresentation and asked for the
issuance of an order enjoining F & C from proceeding with arbitration. F & C moved to stay the
suit pending arbitration. The trial court granted F & Cs motion, and the U.S. Supreme Court
affirmed.
The U.S. Supreme Court did not address Prima Paints argument that it had been fraudulently
induced by F & C to sign the consulting agreement and held that no court should address this
argument. Relying on Sec. 4 of the Federal Arbitration Actwhich provides that "if a party [claims
to be] aggrieved by the alleged failure x x x of another to arbitrate x x x, [t]he court shall hear the
parties, and upon being satisfied that the making of the agreement for arbitration or the failure to
comply therewith is not in issue, the court shall make an order directing the parties to proceed to
arbitration x x x. If the making of the arbitration agreement or the failure, neglect, or refusal to
perform the same be in issue, the court shall proceed summarily to the trial thereof"the U.S.
High Court held that the court should not order the parties to arbitrate if the making of the
arbitration agreement is in issue. The parties should be ordered to arbitration if, and only if, they
have contracted to submit to arbitration. Prima Paint was not entitled to trial on the question of
whether an arbitration agreement was made because its allegations of fraudulent inducement
were not directed to the arbitration clause itself, but only to the consulting agreement which
contained the arbitration agreement.50 Prima Paint held that "arbitration clauses are separable
from the contracts in which they are embedded, and that where no claim is made that fraud was
directed to the arbitration clause itself, a broad arbitration clause will be held to encompass
arbitration of the claim that the contract itself was induced by fraud." 51
There is reason, therefore, to rule against Gonzales when he alleges that Judge Pimentel acted
with grave abuse of discretion in ordering the parties to proceed with arbitration. Gonzaless
argument that the Addendum Contract is null and void and, therefore the arbitration clause
therein is void as well, is not tenable. First, the proceeding in a petition for arbitration under R.A.
No. 876 is limited only to the resolution of the question of whether the arbitration agreement
exists. Second, the separability of the arbitration clause from the Addendum Contract means that

validity or invalidity of the Addendum Contract will not affect the enforceability of the agreement
to arbitrate. Thus, Gonzaless petition for certiorari should be dismissed.
This brings us back to G.R. No. 161957. The adjudication of the petition in G.R. No. 167994
effectively modifies part of the Decision dated 28 February 2005 in G.R. No. 161957. Hence, we
now hold that the validity of the contract containing the agreement to submit to arbitration does
not affect the applicability of the arbitration clause itself. A contrary ruling would suggest that a
partys mere repudiation of the main contract is sufficient to avoid arbitration. That is exactly the
situation that the separability doctrine, as well as jurisprudence applying it, seeks to avoid. We
add that when it was declared in G.R. No. 161957 that the case should not be brought for
arbitration, it should be clarified that the case referred to is the case actually filed by Gonzales
before the DENR Panel of Arbitrators, which was for the nullification of the main contract on the
ground of fraud, as it had already been determined that the case should have been brought
before the regular courts involving as it did judicial issues.
The Motion for Reconsideration of Gonzales in G.R. No. 161957 should also be denied. In the
motion, Gonzales raises the same question of jurisdiction, more particularly that the complaint for
nullification of the Addendum Contract pertained to the DENR Panel of Arbitrators, not the regular
courts. He insists that the subject of his complaint is a mining dispute since it involves a dispute
concerning rights to mining areas, the Financial and Technical Assistance Agreement (FTAA)
between the parties, and it also involves claimowners. He adds that the Court failed to rule on
other issues he raised, such as whether he had ceded his claims over the mineral deposits located
within the Addendum Area of Influence; whether the complaint filed before the DENR Panel of
Arbitrators alleged ultimate facts of fraud; and whether the action to declare the nullity of the
Addendum Contract on the ground of fraud has prescribed.1avvphi1.net
These are the same issues that Gonzales raised in his Rule 45 petition in G.R. No. 161957 which
were resolved against him in the Decision of 28 February 2005. Gonzales does not raise any new
argument that would sway the Court even a bit to alter its holding that the complaint filed before
the DENR Panel of Arbitrators involves judicial issues which should properly be resolved by the
regular courts. He alleged fraud or misrepresentation in the execution of the Addendum Contract
which is a ground for the annulment of a voidable contract. Clearly, such allegations entail legal
questions which are within the jurisdiction of the courts.
The question of whether Gonzales had ceded his claims over the mineral deposits in the
Addendum Area of Influence is a factual question which is not proper for determination before this
Court. At all events, moreover, the question is irrelevant to the issue of jurisdiction of the DENR
Panel of Arbitrators. It should be pointed out that the DENR Panel of Arbitrators made a factual
finding in its Order dated 18 October 2001, which it reiterated in its Order dated 25 June 2002,
that Gonzales had, "through the various agreements, assigned his interest over the mineral
claims all in favor of [Climax-Arimco]" as well as that without the complainant [Gonzales]
assigning his interest over the mineral claims in favor of [Climax-Arimco], there would be no FTAA
to speak of."52 This finding was affirmed by the Court of Appeals in its Decision dated 30 July 2003
resolving the petition for certiorari filed by Climax-Arimco in regard to the 18 October 2001 Order
of the DENR Panel.53
The Court of Appeals likewise found that Gonzaless complaint alleged fraud but did not provide
any particulars to substantiate it. The complaint repeatedly mentioned fraud, oppression, violation
of the Constitution and similar conclusions but nowhere did it give any ultimate facts or
particulars relative to the allegations.54
Sec. 5, Rule 8 of the Rules of Court specifically provides that in all averments of fraud, the
circumstances constituting fraud must be stated with particularity. This is to enable the opposing

party to controvert the particular facts allegedly constituting the same. Perusal of the complaint
indeed shows that it failed to state with particularity the ultimate facts and circumstances
constituting the alleged fraud. It does not state what particulars about Climax-Arimcos financial
or technical capability were misrepresented, or how the misrepresentation was done.
Incorporated in the body of the complaint are verbatim reproductions of the contracts,
correspondence and government issuances that reportedly explain the allegations of fraud and
misrepresentation, but these are, at best, evidentiary matters that should not be included in the
pleading.
As to the issue of prescription, Gonzaless claims of fraud and misrepresentation attending the
execution of the Addendum Contract are grounds for the annulment of a voidable contract under
the Civil Code.55 Under Art. 1391 of the Code, an action for annulment shall be brought within four
years, in the case of fraud, beginning from the time of the discovery of the same. However, the
time of the discovery of the alleged fraud is not clear from the allegations of Gonzaless
complaint. That being the situation coupled with the fact that this Court is not a trier of facts, any
ruling on the issue of prescription would be uncalled for or even unnecessary.
WHEREFORE, the Petition for Certiorari in G.R. No. 167994 is DISMISSED. Such dismissal
effectively renders superfluous formal action on the Motion for Partial Reconsideration and/or
Clarification filed by Climax Mining Ltd., et al. in G.R. No. 161957.
The Motion for Reconsideration filed by Jorge Gonzales in G.R. No. 161957 is DENIED WITH
FINALITY.
SO ORDERED.
G.R. No. 85904 August 21, 1990
TEODORO
MEDRANA, petitioner,
vs.
OFFICE OF THE PRESIDENT and SUPREME AGGREGATES CORPORATION, respondents.
Abelardo Albis, Jr. for petitioner.
Benigno Ignacio for Supreme Aggregates Corporation.
RESOLUTION
FELICIANO, J.:
In this Special Civil Action for Certiorari, petitioner Teodoro Medrana asks us to set aside the
decision of the Office of the President dated 20 September 1988 in O.P. Case No. 2143. In that
decision, the Hon. Magdangal B. Elma, Deputy Executive Secretary, acting "by authority of the
President, set aside a decision of the then Minister of Natural Resources dated 7 May 1982 and
reinstated a decision of the Director of Mines dated 13 March 1981.
This controversy, which began in 1979, relates to Mining Lease Contract ("MLC") No. V-754 which
the then Secretary of Agriculture and Natural Resources issued to private respondent Supreme
Aggregates Corporation ("Supreme Aggregates") on 30 June 1969. This Mining Lease Contract has
a lifetime of twenty-five (25) years and covers twenty-two (22) mining claims for volcanic cinder,
etc., situated in Calamba, Laguna Province and Sto. Tomas, Batangas Province.
On 17 May 1974, P.D. No. 463 known as "The Mineral Resources Development Decree of 1974"
was promulgated. Sections 100 and 101 of P.D. No. 463 provided as follows:
Sec. 100. Old Valid Mining Rights May Come Under This Decree. Holders of
valid and subsisting mining locations and other rights under other
laws, irrespective of the areas covered, may avail of the rights and privileges
granted under this Decree by making the necessary application therefor and
approval thereof by the Director within a period of two (2) years from the date
of approval of this Decree.

Sec. 101. Recognition and Survey of Old Subsisting Mining Claims. All mining
grants, patents, locations, leases and permits subsisting at the time of the
approval of this Decree shall be recognized if registered pursuant to Section
100 thereof-Provided, That Spanish Royal Grants and unpatented mining claims
located and registered under the Act of the United States Congress of July 1,
1902, as amended, otherwise known as the 'Philippine Bill' shall be surveyed
within one (1) year from the approval of this Decree: Provided, further, That no
such mining rights shall be recognized if there is failure to comply with the
fundamental requirements of the respective grants And provided, finally, That
such grants, patents, locations, leases or permits as may be recognized by the
Director after proper investigation shall comply with the applicable provisions of
this Decree, more particularly with the annual work obligations, submittal of
reports, fiscal provisions and other obligations. (Emphasis supplied)
On 14 May 1976, within the period prescribed in Section 100 above, Supreme Aggregates filed
with the Bureau of Mines an Application to Avail of Rights and Privileges under P.D. No. 463 which
application was required by Sections 100 and 101, above, from all claimowners and lessees
desirous of maintaining their pre-existing rights under the regime inaugurated by that decree.
On 27 February 1979, the Director of the Bureau of Mines issued an order denying Supreme
Aggregates' Application on the ground that Supreme Aggregates had failed to submit Affidavits of
Annual Work Obligations.
On 15 June 1979, the Director of Mines issued Quarry Temporary Permits ("QTPs") Nos. 85, 86 and
87 to petitioner Teodoro Medrana. These permits covered areas within the territory leased to
Supreme Aggregates under MLC No. V-754.
Fourteen days later, on 29 June 1979, Supreme Aggregates filed a petition with the Director of
Mines praying for reinstatement of its rejected Application to Avail of Rights and Privileges and for
cancellation of Medrana's QTPs Nos. 85, 86 and 87. Medrana filed an answer to this petition.
After investigation, the Director of Mines rendered a decision dated 13 March 1981 ordering the
reinstatement of Supreme Aggregates' Application to Avail of Rights and Privileges and the
cancellation of Medrana's QTPs Nos. 85, 86 and 87 since these covered areas within Supreme
Aggregates' valid and subsisting MLC No. V-754.
On appeal by Medrana, the Ministry of Natural Resources reinstated Medrana's QTPs Nos. 85, 86
and 87, and declared that Supreme Aggregates' MLC No. V-754 had lapsed. In so deciding, former
Minister of Natural Resources Teodoro Q. Pea reasoned that the order of the Bureau of Mines
which had rejected Supreme Aggregates' Application to Avail of Rights and Privileges had already
become final when Supreme Aggregates filed its petition for reinstatement of its Application on 29
June 1979, that is, one hundred and twenty (120) days after its receipt of the Bureau of Mines
order of denial. Former Minister Pena further held that the failure of Supreme Aggregates to file an
Application to Avail of Rights and Privileges under P.D. No. 463 caused its Mining Lease Contract to
lapse and opened the leased area to relocation. 1
Supreme Aggregates then filed an appeal with the Office of the President. The Office of the
President, as already noted, in a decision dated 20 September 1988, reversed the decision of the
Minister of Natural Resources and in essence held that the failure to submit Affidavits of Annual
Work Obligations for two (2) consecutive years did not, by itself and standing alone, result in the
automatic cancellation of MLC No. V-754.
In the instant Petition for Certiorari, petitioner Medrana submits that the Office of the President
acted with grave abuse of discretion, amounting to lack of jurisdiction, in reinstating Supreme
Aggregates' MLC No. V-754 and cancelling petitioner's QTPs for the following reasons:

1. Private respondent Supreme Aggregates had abandoned its Mining Lease Contract by failing to
comply with the mandatory requirements of Section 27 of P.D. No. 463.
2. The Bureau of Mines had declared the quarry covered by MLC No. V-754 as open for relocation
of claims by virtue of the cancellation of that MLC. Moreover, petitioner Medrana, being registered
owner of much of the land covered by MLC No. V-754, claims a preferential right to exploit the
said quarry under Section 67 of P.D. No. 463.
3. Even before the issuance of QTPs Nos. 85, 86 and 87 to petitioner, the order of the Director of
Mines denying Supreme Aggregates' Application had already become final and executory five (5)
days from receipt of that order by private respondent Supreme Aggregates.
We consider below petitioner's contentions seriatim. We note, preliminarily, that under Section 5
of P.D. No. 309, from a decision of the Secretary of Natural Resources in cases involving conflicting
mining claims, an appeal may be taken within five (5) days to the President "whose decision shall
be final and executory". Clearly, therefore, further appeal from or review of the decision of the
Office of the President is not available to petitioner. To succeed, petitioner must show that the
Office of the President committed a grave abuse of discretion, or acted without or in excess of its
jurisdiction, in rendering the decision he assails.
1. In the form it existed at the relevant time i.e., February 1979-Section 27 of P.D. No. 463, as
amended by P.D. No. 1385, read as follows:
Sec. 27. Proof of Annual Work Obligations. The claimowner/ lessee shall
submit proof ofcompliance with the annual work obligations by filing an affidavit
therefor and the statement of expenditures and technical report in the
prescribed form in support thereof with the Mines Regional Officer within sixty
(60) days from the end of the year in which the work obligation is
required:Provided, That failure of the claimowner to comply therewith for two
(2) consecutive years shall constitute automatic abandonment of the mining
claims: Provided, Further, That, if it is found uponfield verification that no such
work was actually done on the mining claims, the claimowner/lessee shall
likewise lose all his rights thereto notwithstanding submission of the aforesaid
documents. (Emphasis supplied)
Careful reading of the above-quoted Section 27 shows that abandonment of a mining claim or
lease results fromfailure to comply with the annual work obligations on the area covered by a
mining claim or lease for two (2) consecutive years. The precipitating event of the lapse of a
mining claim or lease contemplated in Section 27 is the failure to carry out actual work on a
mining claim or lease, and not simply the failure to submit in a timely manner the Affidavit of
annual Work Obligations. That Affidavit constitutes simply proof of compliance with the annual
work obligations. 2 Execution and submission of an Affidavit of Annual Work Obligations creates a
presumption that the work obligation was indeed carried out. This presumption is by no means a
conclusive one, but is, on the contrary, merely a prima facie one since Section 27 expressly
prescribes that "if it is found upon field verification that no such work was actually done on the
mining claims, the claimowner/lessee shall likewise lose his rights thereto notwithstanding
submission of the aforesaid documents". It follows that, conversely, failure to submit the Affidavit
of Annual Work Obligations raises the presumption that no work was actually done, but that this
presumption too can be overturned by affirmative proof e.g. by "field verification that the
required annual work obligations had in fact been carried out on the mining claim or leased area.
To hold that the mere failure to submit the Affidavits resulted in automatic abandonment of MLC
No. V-754 notwithstanding the actual performance of work obligations, would not only run counter
to the express language of Section 27, but would also be to exalt form over substance.

In Teodoro v. Macaraeg, 3 the Court elaborated on the notion of abandonment in the following,
quite definite, terms:
The word "abandon", in its ordinary sense, means to forsake entirely; to forsake
or renounce utterly. The dictionaries trace this word to the root Idea of "putting
under a ban." The emphasis is on thefinality and the publicity with which some
thing or body is thus put in the control of another, and hence the meaning
of giving up absolutely, with intent never again to resume or claim one's rights
or interests. in other words the act of abandonment constitutes actual,
absolute and irrevocable desertion of one's right or property. In the case at bar,
Macaraeg merely intended to vacate his leasehold possession on the condition
that a certain Claus be taken as his successor. Hence, his act did not constitute
desertion of his leasehold as it was a mere intended surrender of the same. And
as correctly espoused by the counsel for the respondent court, it is 'only
through the actual surrender of the land that tenancy relation terminates; no
amount of intention to surrender severs the relationship'. Furthermore, the said
act of Macaraeg was not an absolute renunciation of his leasehold possession,
as it was in fact clearly conditional. 4 (Emphasis supplied)
Thus, abandonment may be said to result where there is concurrence of two (2) elements: the
first being the intent to abandon a right or claim and the second being the external act by which
that intention is expressed and carried into effect. There must, moreover, be an actual, as
distinguished from a merely projected, relinquishment of a claim or right; otherwise the right or
claim is not vacated or waived so as to be susceptible of being appropriated by the next owner.
These two (2) requirements are clearly lacking in the case at bar. The Director of Mines and public
respondent Office of the President had found that, in point of fact, private respondent Supreme
Aggregates had performed its annual work obligations. Supreme Aggregates could not therefore
be said to have intended to abandon its mining claim or lease, notwithstanding the fact that it had
failed to submit the normal documentary proof of performance of annual work obligations that is,
the Affidavit of Annual Work Obligations. We agree, therefore, with the conclusion of the Office of
the President that in the instant case, there was no abandonment, whether automatic or
voluntary, of MLC No. V-754.
2. It is true that under Section 67 of P.D. No. 463, petitioner Medrana, as registered owner of
the superficies of the land here involved, had a "preferential right to exploit the quarry resources
found therein". That right, however, was simply a preferential right, and that right was ineffective
to dissolve the pre-existing or subsisting right of private respondent Supreme Aggregates. The
order of 27 February 1979 of the Director of Mines, denying Supreme Aggregates' Application to
Avail of Rights and Privileges, did not have, nor did it purport to have, the effect of cancelling or
declaring the automatic abandonment of MLC No. V-754; as noted above, there simply was no
legal basis for so cancelling or declaring it as abandoned. It follows that the 27 February 1979
order did not produce the effect of opening up the areas leased in MLC No. V-754 to location or
new acquisition of lights by petitioner Medrana, or by any other person for that matter. 5 It follows,
furthermore, that petitioner's QTPs Nos. 85, 86 and 87 were not validly issued to begin with and
that the express cancellation of the QTPs decreed in the Director of Mines' decision of 13 March
1981, which formally rectified his error by reinstating Supreme Aggregates' Application, was not
even necessary being mere confirmatory of the juridical situation.
3. We turn to the question of whether or not Supreme Aggregates' petition dated 29 June 1979 for
reinstatement of its rejected Application to Avail of Rights and Privileges and for cancellation of
Medrana's QTPs Nos. 85, 86 and 87, had been filed seasonably. It is claimed by petitioner

Medrana that that order of the Director of Mines hadipso facto cancelled Supreme Aggregates'
MLC No. V-754 and that in any case, that order of the Director of Mines had already become final
and executory by the time Supreme Aggregates filed its petition for reinstatement of its
Application to Avail of Rights and Privileges.
We have already pointed out above that the denial order of the Director of Mines did not have the
effect of ipsofacto cancelling MLC No. V-754. It remains only therefore to determine whether, as
petitioner contends and as the former Minister of Natural Resources held, the rejection order of
the Director of Mines became final and executory upon expiration of five (5) days from receipt
thereof by Supreme Aggregates, under Section 5 of P.D. No. 309. Section 5 of P.D. No. 309,
entitled
Establishing Rules and Procedures for the Speedy Disposition or Settlement of
Conflicting Mining Claims", provides as follows:
Sec. 5. Any party not satisfied with the decision or order of the Director of Mines
may, within five (5) days from receipt thereof, appeal to the Secretary of
Agriculture and Natural Resources who shall render his decision within five (5)
days from receipt of the appeal or submission of the report of the Department
panel of investigators, as the case may be. From the decision of the Secretary,
an appeal may be taken within five (5) days to the President whose decision
shall be final and executory.
We agree with the Office of the President that Section 5 of P.D. No. 309 has no application to the
case at bar. As its title clearly indicates, P.D. No. 309 applies only to cases
involving conflicting mining claims, that is to say, to orders or decisions issued in adversarial or
litigated proceedings involving mining claims with conflicting or overlapping boundaries. Section 3
of P.D. No. 309 makes this clear
Sec. 3 . ...
For the purpose of expediting the exploration and exploitation of our mineral
resources, theproceedings above-described will be so conducted so that the
case so heard by the Director of Mines and/or through the Panel of Investigators
shall be a final adjudication of rights over mining claim or claims subject to
litigations and conflicts. including the exploration and exploitation thereof.
xxx xxx xxx
(Emphasis supplied)
Section 5 of P.D. No. 309 quoted above and the five (5) days reglementary period can scarcely be
made to apply to situations where there are no opposing or contending parties, as in the case of
private respondent Supreme Aggregates' Application to Avail of Rights and Privileges with the
Bureau of Mines. It must also be recalled that when the Director of Mines on 27 February 1979
denied Supreme Aggregates' Application to Avail of Rights and Privileges, there were as yet no
conflicting claims asserted in respect of Supreme Aggregates' leased area. Petitioner Medrana's
QTPs were issued only three (3) months after the Director of Mines had initially denied Supreme
Aggregates' application.
We conclude that petitioner has entirely failed to show that Deputy Executive Secretary
Magdangal Elma had committed any error in rendering the decision of the Office of the President
dated 20 September 1988. But even if petitioner had succeeded in showing that the Office of the
President had indeed misconstrued some provision of P.D. No. 463 as amended, or of the Rules
and Regulations implementing P.D. No. 463, or of P.D. No. 309, such error would still be merely an
error of law or an error of judgment and certainly not a grave abuse of discretion or an act without
or in excess of jurisdiction correctible by certiorari.

WHEREFORE, the Petition for certiorari must be, as it is hereby, DISMISSED for lack of merit and
the Decision dated 20 September 1988 of the Office of the President AFFIRMED in toto. Costs
against petitioner.
SO ORDERED.
G.R. No. 98332 January 16, 1995
MINERS
ASSOCIATION
OF
THE
PHILIPPINES,
INC., petitioner,
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 Constitutions 1 allowed under the 1987
Constitution.
The adoption of the concept of jura regalia 2 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
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 and technical resources.
The President shall notify the Congress of every contract entered into in
accordance with this provision, within thirty days from its execution. (Emphasis
supplied)
Pursuant to the mandate of the above-quoted provision, legislative acts 4 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, including existing operating agreements and mining service
contracts, shall continue and remain 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, coproduction, 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 productionsharing 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 productionsharing 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, 16 decided 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 foreignowned 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 rulemaking 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 productionsharing. 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, coproduction, 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.
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 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.
G.R. No. L-43938 April 15, 1988
REPUBLIC OF THE PHILIPPINES (DIRECTOR OF FOREST DEVELOPMENT), petitioner,
vs.
HON. COURT OF APPEALS (THIRD DIVISION) and JOSE Y. DE LA ROSA, respondents.
G.R. No. L-44081 April 15, 1988
BENGUET
CONSOLIDATED,
INC., petitioner,
vs.
HON. COURT OF APPEALS, JOSE Y. DE LA ROSA, VICTORIA, BENJAMIN and EDUARDO, all
surnamed DE LA ROSA, represented by their father JOSE Y. DE LA ROSA, respondents.
G.R. No. L-44092 April 15, 1988
ATOK-BIG
WEDGE
MINING
COMPANY, petitioner,
vs.
HON. COURT OF APPEALS, JOSE Y. DE LA ROSA, VICTORlA, BENJAMIN and EDUARDO, all
surnamed DE LA ROSA, represented by their father, JOSE Y. DE LA ROSA, respondents.
CRUZ, J.:
The Regalian doctrine reserves to the State all natural wealth that may be found in the bowels of
the earth even if the land where the discovery is made be private. 1 In the cases at bar, which
have been consolidated because they pose a common issue, this doctrine was not correctly
applied.
These cases arose from the application for registration of a parcel of land filed on February 11,
1965, by Jose de la Rosa on his own behalf and on behalf of his three children, Victoria, Benjamin
and Eduardo. The land, situated in Tuding, Itogon, Benguet Province, was divided into 9 lots and
covered by plan Psu-225009. According to the application, Lots 1-5 were sold to Jose de la Rosa
and Lots 6-9 to his children by Mamaya Balbalio and Jaime Alberto, respectively, in 1964. 2

The application was separately opposed by Benguet Consolidated, Inc. as to Lots 1-5, Atok Big
Wedge Corporation, as to Portions of Lots 1-5 and all of Lots 6-9, and by the Republic of the
Philippines, through the Bureau of Forestry Development, as to lots 1-9. 3
In support of the application, both Balbalio and Alberto testified that they had acquired the
subject land by virtue of prescription Balbalio claimed to have received Lots 1-5 from her father
shortly after the Liberation. She testified she was born in the land, which was possessed by her
parents under claim of ownership. 4 Alberto said he received Lots 6-9 in 1961 from his mother,
Bella Alberto, who declared that the land was planted by Jaime and his predecessors-in-interest to
bananas, avocado, nangka and camote, and was enclosed with a barbed-wire fence. She was
corroborated by Felix Marcos, 67 years old at the time, who recalled the earlier possession of the
land by Alberto's father. 5 Balbalio presented her tax declaration in 1956 and the realty tax
receipts from that year to 1964, 6 Alberto his tax declaration in 1961 and the realty tax receipts
from that year to 1964. 7
Benguet opposed on the ground that the June Bug mineral claim covering Lots 1-5 was sold to it
on September 22, 1934, by the successors-in-interest of James Kelly, who located the claim in
September 1909 and recorded it on October 14, 1909. From the date of its purchase, Benguet had
been in actual, continuous and exclusive possession of the land in concept of owner, as evidenced
by its construction of adits, its affidavits of annual assessment, its geological mappings,
geological samplings and trench side cuts, and its payment of taxes on the land. 8
For its part, Atok alleged that a portion of Lots 1-5 and all of Lots 6-9 were covered by the Emma
and Fredia mineral claims located by Harrison and Reynolds on December 25, 1930, and recorded
on January 2, 1931, in the office of the mining recorder of Baguio. These claims were purchased
from these locators on November 2, 1931, by Atok, which has since then been in open,
continuous and exclusive possession of the said lots as evidenced by its annual assessment work
on the claims, such as the boring of tunnels, and its payment of annual taxes thereon. 9
The location of the mineral claims was made in accordance with Section 21 of the Philippine Bill of
1902 which provided that:
SEC. 21. All valuable mineral deposits in public lands in the philippine Islands
both surveyed and unsurveyed are hereby declared to be free and open to
exploration, occupation and purchase and the land in which they are found to
occupation and purchase by the citizens of the United States, or of said islands.
The Bureau of Forestry Development also interposed its objection, arguing that the land sought to
be registered was covered by the Central Cordillera Forest Reserve under Proclamation No. 217
dated February 16, 1929. Moreover, by reason of its nature, it was not subject to alienation under
the Constitutions of 1935 and 1973. 10
The trial court * denied the application, holding that the applicants had failed to prove their claim
of possession and ownership of the land sought to be registered. 11 The applicants appealed to the
respondent court, * which reversed the trial court and recognized the claims of the applicant, but
subject to the rights of Benguet and Atok respecting their mining claims. 12 In other words, the
Court of Appeals affirmed the surface rights of the de la Rosas over the land while at the same
time reserving the sub-surface rights of Benguet and Atok by virtue of their mining claims.
Both Benguet and Atok have appealed to this Court, invoking their superior right of ownership.
The Republic has filed its own petition for review and reiterates its argument that neither the
private respondents nor the two mining companies have any valid claim to the land because it is
not alienable and registerable.
It is true that the subject property was considered forest land and included in the Central
Cordillera Forest Reserve, but this did not impair the rights already vested in Benguet and Atok at
that time. The Court of Appeals correctly declared that:

There is no question that the 9 lots applied for are within the June Bug mineral
claims of Benguet and the "Fredia and Emma" mineral claims of Atok. The June
Bug mineral claim of plaintiff Benguet was one of the 16 mining claims of James
E. Kelly, American and mining locator. He filed his declaration of the location of
the June Bug mineral and the same was recorded in the Mining Recorder's Office
on October 14, 1909. All of the Kelly claims ha subsequently been acquired by
Benguet Consolidated, Inc. Benguet's evidence is that it had made
improvements on the June Bug mineral claim consisting of mine tunnels prior to
1935. It had submitted the required affidavit of annual assessment. After World
War II, Benguet introduced improvements on mineral claim June Bug, and also
conducted geological mappings, geological sampling and trench side cuts. In
1948, Benguet redeclared the "June Bug" for taxation and had religiously paid
the taxes.
The Emma and Fredia claims were two of the several claims of Harrison
registered in 1931, and which Atok representatives acquired. Portions of Lots 1
to 5 and all of Lots 6 to 9 are within the Emma and Fredia mineral claims of Atok
Big Wedge Mining Company.
The June Bug mineral claim of Benguet and the Fredia and Emma mineral claims
of Atok having been perfected prior to the approval of the Constitution of the
Philippines of 1935, they were removed from the public domain and had
become private properties of Benguet and Atok.
It is not disputed that the location of the mining claim under
consideration was perfected prior to November 15, 1935,
when the Government of the Commonwealth was
inaugurated; and according to the laws existing at that time,
as construed and applied by this court in McDaniel v. Apacible
and Cuisia (42 Phil. 749), a valid location of a mining claim
segregated the area from the public domain. Said the court in
that case: The moment the locator discovered a valuable
mineral deposit on the lands located, and perfected his
location in accordance with law, the power of the United
States Government to deprive him of the exclusive right to the
possession and enjoyment of the located claim was gone, the
lands had become mineral lands and they were exempted
from lands that could be granted to any other person. The
reservations of public lands cannot be made so as to include
prior mineral perfected locations; and, of course, if a valid
mining location is made upon public lands afterwards included
in a reservation, such inclusion or reservation does not affect
the validity of the former location. By such location and
perfection, the land located is segregated from the public
domain even as against the Government. (Union Oil Co. v.
Smith, 249 U.S. 337; Van Mess v. Roonet, 160 Cal. 131; 27
Cyc. 546).
"The legal effect of a valid location of a mining claim is not
only to segregate the area from the public domain, but to
grant to the locator the beneficial ownership of the claim and

the right to a patent therefor upon compliance with the terms

and conditions prescribed by law. Where there is a valid
location of a mining claim, the area becomes segregated from
the public domain and the property of the locator." (St. Louis
Mining & Milling Co. v. Montana Mining Co., 171 U.S. 650; 655;
43 Law ed., 320, 322.) "When a location of a mining claim is
perfected it has the effect of a grant by the United States of
the right of present and exclusive possession, with the right to
the exclusive enjoyment of all the surface ground as well as of
all the minerals within the lines of the claim, except as limited
by the extralateral right of adjoining locators; and this is the
locator's right before as well as after the issuance of the
patent. While a lode locator acquires a vested property right
by virtue of his location made in compliance with the mining
laws, the fee remains in the government until patent
issues."(18 R.C.L. 1152) (Gold Creek Mining Corporation v.
Hon. Eulogio Rodriguez, Sec. of Agriculture and Commerce,
and Quirico Abadilla, Director of the Bureau of Mines, 66 Phil.
259, 265-266)
It is of no importance whether Benguet and Atok had secured a patent for as
held in the Gold Creek Mining Corp. Case, for all physical purposes of ownership,
the owner is not required to secure a patent as long as he complies with the
provisions of the mining laws; his possessory right, for all practical purposes of
ownership, is as good as though secured by patent.
We agree likewise with the oppositors that having complied with all the
requirements of the mining laws, the claims were removed from the public
domain, and not even the government of the Philippines can take away this
right from them. The reason is obvious. Having become the private properties of
the oppositors, they cannot be deprived thereof without due process of law. 13
Such rights were not affected either by the stricture in the Commonwealth Constitution against
the alienation of all lands of the public domain except those agricultural in nature for this was
made subject to existing rights. Thus, in its Article XIII, Section 1, it was categorically provided
that:
SEC. 1. All agricultural, timber and mineral lands of the public domain, waters,
minerals, coal, petroleum and other mineral oils, all forces of potential energy
and other natural resources of the Philipppines 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 60% 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
lands, 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 25 years, except as to water rights for irrigation,
water supply, fisheries, or industrial uses other than the development of water
power, in which case beneficial use may be the measure and the limit of the
grant.

Implementing this provision, Act No. 4268, approved on November 8, 1935, declared:
Any provision of existing laws, executive order, proclamation to the contrary
notwithstanding, all locations of mining claim made prior to February 8, 1935
within lands set apart as forest reserve under Sec. 1826 of the Revised
Administrative Code which would be valid and subsisting location except to the
existence of said reserve are hereby declared to be valid and subsisting
locations as of the date of their respective locations.
The perfection of the mining claim converted the property to mineral land and under the laws
then in force removed it from the public domain. 14 By such act, the locators acquired exclusive
rights over the land, against even the government, without need of any further act such as the
purchase of the land or the obtention of a patent over it. 15 As the land had become the private
property of the locators, they had the right to transfer the same, as they did, to Benguet and
Atok.
It is true, as the Court of Appeals observed, that such private property was subject to the
"vicissitudes of ownership," or even to forfeiture by non-user or abandonment or, as the private
respondents aver, by acquisitive prescription. However, the method invoked by the de la Rosas is
not available in the case at bar, for two reasons.
First, the trial court found that the evidence of open, continuous, adverse and exclusive
possession submitted by the applicants was insufficient to support their claim of ownership. They
themselves had acquired the land only in 1964 and applied for its registration in 1965, relying on
the earlier alleged possession of their predecessors-in-interest. 16 The trial judge, who had the
opportunity to consider the evidence first-hand and observe the demeanor of the witnesses and
test their credibility was not convinced. We defer to his judgment in the absence of a showing that
it was reached with grave abuse of discretion or without sufficient basis. 17
Second, even if it be assumed that the predecessors-in-interest of the de la Rosas had really been
in possession of the subject property, their possession was not in the concept of owner of
the mining claim but of the property asagricultural land, which it was not. The property was
mineral land, and they were claiming it as agricultural land. They were not disputing the lights of
the mining locators nor were they seeking to oust them as such and to replace them in the mining
of the land. In fact, Balbalio testified that she was aware of the diggings being undertaken "down
below" 18 but she did not mind, much less protest, the same although she claimed to be the owner
of the said land.
The Court of Appeals justified this by saying there is "no conflict of interest" between the owners
of the surface rights and the owners of the sub-surface rights. This is rather doctrine, for it is a
well-known principle that the owner of piece of land has rights not only to its surface but also to
everything underneath and the airspace above it up to a reasonable height. 19 Under the aforesaid
ruling, the land is classified as mineral underneath and agricultural on the surface, subject to
separate claims of title. This is also difficult to understand, especially in its practical application.
Under the theory of the respondent court, the surface owner will be planting on the land while the
mining locator will be boring tunnels underneath. The farmer cannot dig a well because he may
interfere with the operations below and the miner cannot blast a tunnel lest he destroy the crops
above. How deep can the farmer, and how high can the miner, go without encroaching on each
other's rights? Where is the dividing line between the surface and the sub-surface rights?
The Court feels that the rights over the land are indivisible and that the land itself cannot be half
agricultural and half mineral. The classification must be categorical; the land must be either
completely mineral or completely agricultural. In the instant case, as already observed, the land
which was originally classified as forest land ceased to be so and became mineral and
completely mineral once the mining claims were perfected. 20 As long as mining operations

were being undertaken thereon, or underneath, it did not cease to be so and become agricultural,
even if only partly so, because it was enclosed with a fence and was cultivated by those who were
unlawfully occupying the surface.
What must have misled the respondent court is Commonwealth Act No. 137, providing as follows:
Sec. 3. All mineral lands of the public domain and minerals 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 60% 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 government
established under the Constitution.
SEC. 4. The ownership of, and the right to the use of land for agricultural,
industrial, commercial, residential, or for any purpose other than mining does
not include the ownership of, nor the right to extract or utilize, the minerals
which may be found on or under the surface.
SEC. 5. The ownership of, and the right to extract and utilize, the minerals
included within all areas for which public agricultural land patents are granted
are excluded and excepted from all such patents.
SEC. 6. The ownership of, and the right to extract and utilize, the minerals
included within all areas for which Torrens titles are granted are excluded and
excepted from all such titles.
This is an application of the Regalian doctrine which, as its name implies, is intended for the
benefit of the State, not of private persons. The rule simply reserves to the State all minerals that
may be found in public and even private land devoted to "agricultural, industrial, commercial,
residential or (for) any purpose other than mining." Thus, if a person is the owner of agricultural
land in which minerals are discovered, his ownership of such land does not give him the right to
extract or utilize the said minerals without the permission of the State to which such minerals
belong.
The flaw in the reasoning of the respondent court is in supposing that the rights over the land
could be used for both mining and non-mining purposes simultaneously. The correct
interpretation is that once minerals are discovered in the land, whatever the use to which it is
being devoted at the time, such use may be discontinued by the State to enable it to extract the
minerals therein in the exercise of its sovereign prerogative. The land is thus converted to mineral
land and may not be used by any private party, including the registered owner thereof, for any
other purpose that will impede the mining operations to be undertaken therein, For the loss
sustained by such owner, he is of course entitled to just compensation under the Mining Laws or
in appropriate expropriation proceedings. 21
Our holding is that Benguet and Atok have exclusive rights to the property in question by virtue of
their respective mining claims which they validly acquired before the Constitution of 1935
prohibited the alienation of all lands of the public domain except agricultural lands, subject to
vested rights existing at the time of its adoption. The land was not and could not have been
transferred to the private respondents by virtue of acquisitive prescription, nor could its use be
shared simultaneously by them and the mining companies for agricultural and mineral purposes.
WHEREFORE, the decision of the respondent court dated April 30, 1976, is SET ASIDE and that of
the trial court dated March 11, 1969, is REINSTATED, without any pronouncement as to costs.
SO ORDERED.
G.R. No. 137174

July 10, 2000

REPUBLIC OF THE PHILIPPINES, Represented by the POLLUTION ADJUDICATION BOARD

(DENR),petitioner,
vs.
MARCOPPER MINING CORPORATION, respondent.
DECISION
GONZAGA-REYES, J.:
In this petition for review on certiorari, petitioner REPUBLIC OF THE PHILIPPINES through the
Pollution Adjudication Board of the Department of Environment and Natural Resources seeks to
annul the Decision1 of the Court of Appeals 2 in CA-G.R. SP No. 44656 setting aside the Order 3 of
the Pollution Adjudication Board 4 in DENR-PAB Case No. 04-00597-96; as well as the
Resolution5 denying reconsideration of said Decision.
The following antecedent facts are undisputed:
Respondent Marcopper Mining Corporation (MMC) was issued a temporary permit to operate a
tailings6 sea disposal system under TPO No. POW-85-454-EJ for the period October 31, 1985 to
October 21, 1986. Before it expired, MMC filed an application for the renewal thereof with the
National Pollution Control Commission (NPCC). On September 20, 1986, MMC received a
telegraphic order from the NPCC directing the former to "(i)mmediately cease and desist from
discharging mine tailings into Calancan Bay." The directive was brought about through the efforts
of certain religious groups which had been protesting MMCs tailings sea disposal system. MMC
requested the NPCC to refrain from implementing the aforesaid directive until its adoption of an
alternative tailings disposal system. The NPCC granted MMCs request and called a conference to
discuss possible alternative disposal systems. Consequently, an Environmental Technical
Committee, composed of representatives from the NPCC, the Bureau of Mines and Geo-Sciences,
and MMC was created to study the feasibility of various tailings disposal systems that may be
appropriate for utilization by MMC and to submit its findings and recommendations thereon.
Meanwhile, after the expiration of MMCs TPO No. POW-85-454-EJ on October 21, 1986, the NPCC
issued to MMC a new temporary permit, TPO No. POW-86-454-EJ dated November 11, 1986, to
expire on February 10, 1987, with the condition that "[t]he tailings disposal system shall be
transferred to San Antonio Pond within two (2) months from the date of this permit." MMC moved
for the deletion of the condition stating that it needed to develop and mine the ore deposits
underneath the San Antonio pond for it to continue its mining operations. In a letter-manifestation
dated February 5, 1987, MMC requested the NPCC for an extension of TPO No. POW-86-454-EJ and
the indefinite suspension of the condition in said permit until such time that the NPCC shall have
finally resolved the NPCC case entitled "Msgr. Rolly Oliverio, et al. vs. Marcopper Mining
Corporation."
In the meantime, the NPCC was abolished by Executive Order No. 192 7 dated June 10, 1987, and
its powers and functions were integrated into the Environmental Management Bureau and into the
Pollution Adjudication Board (PAB).8
On April 11, 1988, the Secretary of Environment and Natural Resources, in his capacity as
Chairman of the PAB, issued an Order directing MMC to "cease and desist from discharging mine
tailings into Calancan Bay." The order reads:
The Temporary Permit to Operate issued to Marcopper Mining Corporation expired on February 10,
1987.
Section 96 of the National Pollution Control Commission (NPCC) Rules and Regulations, which
were adopted by the Board, provides that in no case can a permit be valid for more than one (1)
year.
Records show that Marcopper Mining Corporation has not filed any application for renewal of the
permit.

Marcopper Mining Corporation is hereby ordered to cease and desist from discharging mine
tailings into Calancan Bay immediately upon receipt of this Order.
SO ORDERED."9
Immediately thereafter, the DENR Undersecretary for Environment and Research issued a
telegraphic order dated April 15, 1988, enjoining immediate compliance by MMC of the cease and
desist order of April 11, 1988.
MMC appealed the above orders of April 11, 1988 and April 15, 1988 to the Office of the
President, docketed as O.P. Case No. 3802. In an Order dated May 2, 1988, the Office of the
President denied MMCs requests for issuance of restraining orders against the orders of the PAB.
Consequently, MMC filed an "Urgent Ex-Parte Partial Motion for Reconsideration" dated May 6,
1988, seeking the reconsideration of the above Order. In an Order dated May 13, 1988, the Office
of the President granted the above partial motion for reconsideration, thus:
"WHEREFORE, the instant "Urgent Ex-Parte Motion for Reconsideration" is hereby GRANTED, and
the Order of this Office, dated May 2, 1988, is hereby set aside insofar as it denies respondentappellants requests for issuance of restraining orders.
Accordingly, the Pollution Adjudication Board, its agents, deputies or representatives are hereby
enjoined from enforcing its cease and desist order of April 15, 1988 pending resolution by this
Office of respondent-appellants appeal from said orders.
It is further directed that the status quo obtaining prior to the issuance of said cease and desist
order be maintained until further orders from this Office.
It is understood, however, that during the efficacy of this restraining order, respondent-appellant
shall immediately undertake, at a cost of not less than P30,000.00 a day, the building of artificial
reefs and planting of sea grass, mangroves and vegetation on the causeway of Calancan Bay
under the supervision of the Pollution Adjudication Board and subject to such guidelines as the
Board may impose.
SO ORDERED."10
In line with the directive from the Office of the President, the Calancan Bay Rehabilitation Project
(CBRP) was created, and MMC remitted the amount of P30,000.00 a day, starting from May 13,
1988 to the Ecology Trust Fund (ETF) thereof. However, on June 30, 1991, MMC stopped
discharging its tailings in the Bay, hence, it likewise ceased from making further deposits to the
ETF.
From the issuance of the Order on May 13, 1988 until the cessation of the tailings disposal on June
30, 1991, MMC made its contribution to the ETF in the total amount of Thirty-Two Million Nine
Hundred and Seventy-Five Thousand Pesos (P32,975,000.00). Thereafter, MMC filed a Motion
dated July 9, 1991 manifesting that it would discontinue its contributions/deposits to the ETF since
it had stopped dumping tailings in the Bay. MMC prayed that the Order issued by the Office of the
President on May 13, 1988 be lifted.
On February 5, 1993, the Office of the President rendered a decision in O.P. Case No. 3802
dismissing the appeal; affirming the cease and desist Order issued by the PAB; and lifting the TRO
dated May 13, 1988. The Office of the President resolved the appeal in this wise:
"This brings to the fore the primordial issue of whether or not the Secretary of Environment and
Natural Resources gravely erred in declaring the TPO No. POW-86-454-EJ issued to respondentappellant MMC expired on February 10, 1987, and in ordering the latter to cease and desist from
discharging mine tailings into Calancan Bay.
Respondent-appellant argues that the cease and desist orders were issued by the PAB ex-parte, in
violation of its procedural and substantive rights provided for under Section 7 (a) of P.D. No. 984
requiring a public hearing before any order or decision for the discontinuance of discharge of a
sewage or industrial wastes into the water, air or land could be issued by the PAB.

We are not persuaded.

Section 7(a) of P.D. No. 984, reads in part:
"Sec. 7(a) Public Hearing. Public hearing shall be conducted by the Commissioner, Deputy
Commissioner or any senior official duly designated by the Commissioner prior to issuance or
promulgation of any order or decision by the Commissioner requiring the discontinuance of
discharge of sewage, industrial wastes and other wastes into the water, air or land resources of
the Philippines as provided in the Decree: provided, that whenever the Commission finds a prima
facie evidence that the discharged sewage or wastes are of immediate threat to life, public
health, safety or welfare, or to animal or plant life, or exceeds the allowable standards set by the
Commission, the Commissioner may issue an ex-parte order directing the discontinuance of the
same or the temporary suspension or cessation of operation of the establishment or person
generating such sewage or wastes without the necessity of a prior public hearing. x x x .
(underscoring supplied).
Clearly then, it is self-indulgent nonsense to assume that the DENR Secretary, acting as PAB
Chairman, is absolutely without authority to issue an ex-parte order requiring the discontinuance
of discharge of sewage or other industrial wastes without public hearing. As can be gleaned from
the afroequoted proviso, this authority to issue an ex-parte order suspending the discharge of
industrial wastes is postulated upon his finding of prima-facieevidence of an imminent "threat to
life, public health, safety or welfare, to animal or plant life or exceeds the allowable standards set
by the Commission."11
In a letter dated January 22, 199712 , Municipal Mayor Wilfredo A. Red of Sta. Cruz, Marinduque
informed the PAB that MMC stopped remitting the amount of 30,000.00 per day as of July 1, 1991
to the ETF of the CBRP. This letter-complaint of Mayor Red was docketed as DENR-PAB Case No.
04-00597-96, for violation of P.D. 98413 and its implementing Rules and Regulations.
In an order dated April 23, 1997, the PAB ruled that the obligation of MMC to deposit P30,000.00
per day to the ETF of the CBRP subsists, as provided for in the Order of the Office of the President
dated May 13, 1988, during the "efficacy of said order restraining the PAB from enforcing its cease
and desist order against MMC". Since the Order was lifted only on February 5, 1993, the obligation
of MMC to remit was likewise extinguished only on said date and not earlier as contended by MMC
from the time it ceased dumping tailings into the Bay on July 1, 1991. We quote in part:
"The issue before this Board is whether Marcopper Mining Corporation is still obliged to remit the
amount of P30,000.00 to the CBRP. The answer by the Order from the Office of the President
dated 13 May 1988, which states that the obligation on the part of Marcopper Mining to pay the
amount of P30,000.00 per day for the rehabilitation of Calancan Bay is binding only during the
efficacy of the said Order.
The record further shows that on 05 February 1993, the Office of the President lifted its Order
dated 13 May 1988. This means that as of the date of the lifting, Marcopper Mining Corporation no
longer had any obligation to remit the amount of P30,000.00 to the CBRP. Thus, Marcoppers
obligation only runs from 13 May 1988 to 05 February 1993. Beyond the cut-off date of 05
February 1993, Marcopper is no longer obligated to remit the amount of P30,000.00 per day to
the CBRP.
It does not matter whether Marcopper was no longer dumping its tail minings into the sea even
before the cut-off date of 05 February 1993. The obligation of Marcopper to pay the amount of
P30,000.00 to the CBRP arises from the Office of the President Order dated 13 May 1988, not from
it dumping of mine tailings.
WHEREFORE, Marcopper Mining Corporation is hereby ordered to pay the CBRP the amount of
P30,000.00 per day, computed from the date Marcopper Mining Corporation stopped paying on 01

July 1991, up to the formal lifting of the subject Order from the Office of the President on 05
February 1993.
SO ORDERED."14
MMC assailed the aforequoted Order dated April 23, 1997 of the PAB as null and void for having
been issued without jurisdiction or with grave abuse of discretion in a petition for Certiorari and
Prohibition (with prayer for temporary restraining order and preliminary injunction) before the
Court of Appeals which was docketed as CA-G.R. No. SP-44656. In a Resolution dated July 15,
1997, the Court of Appeals required the PAB and its members to comment on said petition.
On November 19, 1997, the Office of the Solicitor General, on behalf of the PAB and its members,
filed with the Court of Appeals the required comment.
On September 15, 1997, for purposes of determining whether or not to grant MMCs prayer for a
temporary restraining order and preliminary injunction, the Court of Appeals conducted a hearing
where counsel for the parties were heard on oral arguments.
In a Resolution dated September 19, 1997, the Court of Appeals issued a writ of preliminary
injunction, conditioned upon the filing of a bond by MMC in the amount of P500,000.00 enjoining
the PAB and its members to cease and desist from enforcing the assailed Order dated April 23,
1997, until it had made a full determination on the merits of the case.
On January 7, 1998, the Court of Appeals promulgated a Decision in CA-G.R. SP No. 44656, the
dispositive portion of which reads:
"In view of the foregoing, the instant petition is hereby GRANTED and, accordingly, the questioned
Order of respondent Pollution Adjudication Board dated 23 April 1997 is hereby SET ASIDE.
Respondents are ordered to REFRAIN and DESIST from enforcing aforesaid Order. The injunctive
bond filed by the petitioner in the amount of Five Hundred Thousand (P500,000.00) is hereby
RELEASED."
The motion for reconsideration of the above decision was denied in a Resolution dated January 13,
1999 of the Court of Appeals.
Hence, the instant petition on the following grounds:
I
The Court of Appeals erred in ruling that Republic Act No. 7942 (otherwise known as the Philippine
Mining Act of 1995) repealed the provisions of Republic Act No. 3931, as amended by Presidential
Decree No. 984, (otherwise known as the National Pollution Control Decree of 1976), with respect
to the power and function of petitioner Pollution Adjudication Board to issue, renew or deny
permits for the discharge of the mine tailings.
II
Respondent Marcopper Mining Corporation bound itself to pay the amount of P30,000.00 a day for
the duration of the period starting May 13, 1988 up to February 5, 1993.
III
Respondent Marcopper Mining Corporation was not deprived of due process of law when
petitioner Pollution Adjudication Board directed it to comply with its long-existing P30,000.00 per
day obligation under the Order of the Office of the President dated May 13, 1988. 15
In setting aside the Order of the PAB dated April 23, 1997, requiring MMC to pay its arrears in
deposits, the Court of Appeals ruled that the PAB exceeded its power and authority in issuing the
subject Order for the following reasons:
"The applicable and governing law in this petition is Republic Act No. 7942 otherwise known as
the Philippine Mining Act of 1995 ("Mining Act", approved on March 3, 1995).
Chapter XI of the Mining Act contains a series of provisions relating to safety and environmental
protection on mining and quarrying operations. More specifically, Section 67 of the Mining Act in
essence, grants the mines regional director the power to issue orders or to take appropriate

measures to remedy any practice connected with mining or quarrying operations which is not in
accordance with safety and anti-pollution laws and regulations.
From a reading of that provision, it would appear therefore that prior to the passage of the Mining
Act, the Pollution Adjudication Board had jurisdiction to act on pollution-related matters in the
mining business. With the effectivity of the Mining Act and in congruence with its Sec. 115 (i.e.,
Repealing and Amending Clause), the power to impose measures against violations of
environmental policies by mining operators is now vested on the mines regional director. Be that
as it may, we are constrained to enunciate that the PAB had no authority to issue the challenged
Order dated 23 April 1997. More so, respondent PAB as petitioner argued and We note, had
remained perplexingly silent on the matter for almost six (6) years from July 1991 when MMC
ceased to make its deposits up to April 1997 when respondent PAB precipitately issued the Order
requiring MMC to pay its arrears in deposits to the ETF. And PAB, apparently oblivious to MMCs
economic quandary had issued said Order ex-parte without hearing or notice.
xxx
As a general rule, the adjudication of pollution cases pertains to the Pollution Adjudication Board
(PAB), except in cases where the special law, expressly or impliedly, provides for another forum,
as in the instant petition.
Thus under Republic Act No. 7942 and its implementing rules and regulations, the mines regional
director, in consultation with the Environmental Management Bureau (italics ours), is specifically
mandated to carry out and make effective the declared national policy that the State shall
promote the rational exploration, development, utilization and conservation of all mineral
resources in public and private lands within the territory and exclusive economic zone of the
Republic of the Philippines, through the combined efforts of government and the private sector in
order to enhance national growth and protect the rights of affected communities. (Sec. 2, R.A.
7942).
Under this expansive authority, the Mines Regional Director, by virtue of this special law, has the
primary responsibility to protect the communities surrounding a mining site from the deleterious
effects of pollutants emanating from the dumping of tailing wastes from the surrounding areas.
Thus, in the exercise of its express powers under this special law, the authority of the Mines
Regional Director to impose appropriate protective and/or preventive measures with respect to
pollution cases within mining operations is perforce, implied. Otherwise, the special law granting
this authority may well be relegated to a mere paper tiger talking protection but allowing
pollution.
It bears mention that the Pollution Adjudication Board has the power to issue an ex-parte order
when there is prima facie evidence of an establishment exceeding the allowable standards set by
the anti-pollution laws of the country. (Pollution Adjudication Board v. Court of Appeals, et al., 195
SCRA 112). However, with the passage of R.A. 7942, insofar as the regulation, monitoring and
enforcement of anti-pollution laws are concerned with respect to mining establishments, the
Mines Regional Director has a broad grant of power and authority. Clearly, pollution-related issues
in mining operations are addressed to the Mines Regional Director, not the Pollution Adjudication
Board.
This being the case, the questioned Order dated 23 April 1997 requiring MMC to pay its arrears in
deposits was beyond the power and authority of the Pollution Adjudication Board to issue and as
such, petitioner may seek appropriate injunctive relief from the court. Thus, certiorari lies against
public respondent PAB."16
The Court of Appeals likewise ruled that the obligation of MMC to contribute to the ETF of the
CBRP ceased inasmuch as the latter discontinued dumping tailings into the Bay and the actual
funds in the ETF are sufficient to rehabilitate the Bay. It ratiocinated thus:

"In the instant case, it is of record that petitioner MMC undertakes its obligation to provide for the
rehabilitation of the Bay waters. This obligation, through its monetary contribution to the ETF, is
however anchored on its continuing disposal of the mines tailings waste into the Bay. Hence, since
it ceased its mining operations in the affected area as of July 1991 and had not been discharging
any tailings wastes since then, its consequent duty to rehabilitate the polluted waters, if any, no
longer exists.
xxx
Be that as it may, this Court observes that out of the approximate sum of thirty-two (32) million
pesos contributed by the petitioner to the ETF there is admittedly an existing estimated balance
of fourteen (14) million pesos in the Fund. For its part, petitioner does not renege on its obligation
to rehabilitate and in fact undertakes to continue the rehabilitation process until its completion
within two (2) years time and which would only cost six (6) million pesos. Thus, as petitioner
convincingly argued and which respondent unsatisfactorily rebuked, the existing fourteen (14)
million pesos in the ETF is more than enough to complete the rehabilitation project. (TSN, Hearing
dated 15 September 1997, at pp. 56 to 62, Rollo).
xxx. Without much ado, the Court concurs with the finding that to demand a daily deposit of thirty
thousand (P30, 000.00) pesos even if the root of the obligation, that is, the dumping of tailings
waste, had ceased to exist, is indubitably of a herculean and onerous burden on the part of
petitioner amounting to a deprivation of its property and a denial of its right to due process." 17
Unsatisfied, the OSG argues that the Philippine Mining Act of 1995 did not amend or repeal the
provisions of Republic Act No. 3931, as amended by Presidential Decree No. 984 (otherwise known
as the National Pollution Control Decree of 1976); that the Mines Regional Director has no power
over areas outside mining installations and over areas which are not part of the mining or
quarrying operations such as Calancan Bay; that the powers of the Mines Regional Director cannot
be exercised to the exclusion of other government agencies; that the jurisdiction of a Mines
Regional Director with respect to anti-pollution laws is limited to practices committed within the
confines of a mining or quarrying installation; that the dumping of mine tailings into Calancan Bay
occurred long before the effectivity of the Philippine Mining Act and that MMC cannot hide under
cover of this new law. The OSG further argues that the portion of the Order of May 13, 1988,
setting the period of time within which MMC shall pay P30,000.00 per day, which is during the
efficacy of the restraining order was never questioned or appealed by MMC. Finally, the OSG
argues that PAB did not violate MMCs right to due process by the issuance of the Order dated
April 23, 1988 without notice and hearing as it was simply requiring MMC to comply with an
obligation in an Order which has long become final and executory.
In the context of the established facts, the issue that actually emerges is: Has the PAB under RA
3931 as amended by PD 984 (National Pollution Control Decree of 1976) been divested of its
authority to try and hear pollution cases connected with mining operations by virtue of the
subsequent enactment of RA 7942 (Philippine Mining Act of 1995)? As mentioned earlier, the PAB
took cognizance and ruled on the letter-complaint (for violation of PD 984 and its implementing
rules and regulations) filed against MMC by Marinduque Mayor Wilfredo Red. In the subject Order
dated April 23, 1997, the PAB ruled that MMC should pay its arrears in deposits to the ETF of the
CBRP computed from the day it stopped dumping and paying on July 1, 1991 up to the lifting of
the Order of the Office of the President dated May 13, 1988 on February 5, 1993.
The answer is in the negative. We agree with the Solicitor General that the Court of Appeals
committed reversible error in ruling that the PAB had no authority to issue the Order dated April
23, 1997.

Republic Act No. 3931 (An Act Creating The National Water And Air Pollution Control Commission)
was passed in June 18, 1964 to maintain reasonable standards of purity for the waters and air of
the country with their utilization for domestic, agricultural, industrial and other legitimate
purposes. Said law was revised in 1976 by Presidential Decree No. 984 (Providing For The Revision
Of Republic Act No. 3931, Commonly Known As The Pollution Control Law, And For Other
Purposes) to strengthen the National Pollution Control Commission to best protect the people from
the growing menace of environmental pollution. Subsequently, Executive Order No. 192, s. 1987
(The Reorganization Act of the DENR) was passed. The internal structure, organization and
description of the functions of the new DENR, particularly the Mines and Geosciences Bureau,
reveals no provision pertaining to the resolution of cases involving violations of the pollution
laws.18 The Mines and Geo-Sciences Bureau was created under the said EO 192 to absorb the
functions of the abolished Bureau of Mines and Geo-Sciences, Mineral Reservations Development
Board and the Gold Mining Industry Development Board to, among others, recommend policies,
regulations and programs pertaining to mineral resources development; assist in the monitoring
and evaluation of the Bureaus programs and projects; and to develop and promulgate standards
and operating procedures on mineral resources development. 19
On the other hand, the PAB was created and granted under the same EO 192 broad powers to
adjudicate pollution cases in general. Thus,
SEC. 19. Pollution Adjudication Board. There is hereby created a Pollution Adjudication Board
under the Office of the Secretary. The Board shall be composed of the Secretary as Chairman, two
(2) Undersecretaries as may be designated by the Secretary, the Director of Environmental
management, and three (3) others to be designated by the Secretary as members. The Board
shall assume the powers and functions of the Commission/Commissioners of the National Pollution
Control Commission with respect to the adjudication of pollution cases under Republic Act 3931
and Presidential Decree 984, particularly with respect to Section 6 letters e, f, g, j, k, and p of P.D.
984. The Environmental Management Bureau shall serve as the Secretariat of the Board. These
powers and functions may be delegated to the regional offices of the Department in accordance
with rules and regulations to be promulgated by the Board.20
Section 6 letters e, f, g, j, k, and p of PD 984 referred to above are quoted as follows:
SEC. 6. Powers and Functions. The Commission shall have the following powers and functions:
(e) Issue orders or decision to compel compliance with the provisions of this Decree and
its implementing rules and regulations only after proper notice and hearing.
(f) Make, alter or modify orders requiring the discontinuance of pollution specifying the
conditions and the time within which such discontinuance must be accomplished.
(g) Issue, renew, or deny permits, under such conditions as it may determine to be
reasonable, for the prevention and abatement of pollution, for the discharge of sewage,
industrial waste, or for the installation or operation of sewage works and industrial
disposal system or parts thereof: Provided, however, That the Commission, by rules and
regulations, may require subdivisions, condominium, hospitals, public buildings and other
similar human settlements to put up appropriate central sewerage system and sewage
treatment works, except that no permits shall be required to any sewage works or
changes to or extensions of existing works that discharge only domestic or sanitary
wastes from a singles residential building provided with septic tanks or their equivalent.
The Commission may impose reasonable fees and charges for the issuance or renewal of
all permits required herein.
(j) Serve as arbitrator for the determination of reparations, or restitution of the damages
and losses resulting from pollution.

(k) Deputize in writing or request assistance of appropriate government agencies or

instrumentalities for the purpose of enforcing this Decree and its implementing rules and
regulations and the orders and decisions of the Commission.
(p) Exercise such powers and perform such other functions as may be necessary to carry
out its duties and responsibilities under this Decree.
Section 7(a) of P.D. No. 984 further provides in part:
"Sec. 7(a) Public Hearing. Public hearing shall be conducted by the Commissioner, Deputy
Commissioner or any senior official duly designated by the Commissioner prior to issuance or
promulgation of any order or decision by the Commissioner requiring the discontinuance of
discharge of sewage, industrial wastes and other wastes into the water, air or land resources of
the Philippines as provided in the Decree: provided, that whenever the Commission finds a prima
facie evidence that the discharged sewage or wastes are of immediate threat to life, public
health, safety or Welfare, or to animal or plant life, or exceeds the allowable standards set by the
Commission, the Commissioner may issue and ex-parte order directing the discontinuance of the
same or the temporary suspension or cessation of operation of the establishment or person
generating such sewage or wastes without the necessity of a prior public hearing. x x x .
(underscoring supplied).
The ruling of the Court of Appeals that the PAB has been divested of authority to act on pollutionrelated matters in mining operations is anchored on the following provisions of RA 7942
(Philippine Mining Act of 1995):
SEC. 67. Power to Issue Orders. The mines regional director shall, in consultation with the
Environmental Management Bureau, forthwith or within such time as specified in his order,
require the contractor to remedy any practice connected with mining or quarrying operations,
which is not in accordance with safety and anti-pollution laws and regulations. In case of imminent
danger to life or property, the mines regional director may summarily suspend the mining or
quarrying operations until the danger is removed, or appropriate measures are taken by the
contractor or permittee.
And
SEC. 115. Repealing and Amending Clause. All laws, executive orders, presidential decrees,
rules and regulations, or parts thereof which are inconsistent with any of the provisions of this Act
are hereby repealed or amended accordingly.
The other provisions in Chapter XI on Safety and Environmental Protection found in RA 7942
promote the safe and sanitary upkeep of mining areas to achieve waste-free and efficient mine
development with particular concern for the physical and social rehabilitation of areas and
communities affected by mining activities21 , without however, arrogating unto the mines regional
director any adjudicative responsibility.
From a careful reading of the foregoing provisions of law, we hold that the provisions of RA 7942
do not necessarily repeal RA 3931, as amended by PD 984 and EO 192. RA 7942 does not contain
any provision which categorically and expressly repeals the provisions of the Pollution Control
Law. Neither could there be an implied repeal. It is well-settled that repeals of laws by implication
are not favored and that courts must generally assume their congruent application. Thus, it has
been held:
"The two laws must be absolutely incompatible, and a clear finding thereof must surface, before
the inference of implied repeal may be drawn. The rule is expressed in the maxim, interpretare et
concordare leqibus est optimus interpretendi, i.e., every statute must be so interpreted and
brought into accord with other laws aas to form a uniform system of jurisprudence. The
fundament is that the legislature should be presumed to have known the existing laws on the
subject and not have enacted conflicting statutes. Hence, all doubts must be resolved against any

implied repeal, and all efforts should be exerted in order to harmonize and give effect to all laws
on the subject."22
There is no irreconcilable conflict between the two laws. Section 19 of EO 192 vested the PAB with
the specific power to adjudicate pollution cases in general. Sec. 2, par. (a) of PD 984 defines the
term "pollution" as referring to any alteration of the physical, chemical and biological properties of
any water, air and/or land resources of the Philippines , or any discharge thereto of any liquid,
gaseous or solid wastes as will or is likely to create or to render such water, air and land resources
harmful, detrimental or injurious to public health, safety or welfare or which will adversely affect
their utilization for domestic, commercial, industrial, agricultural, recreational or other legitimate
purposes.
On the other hand, the authority of the mines regional director is complementary to that of the
PAB. Section 66 of RA 7942 gives the mines regional director exclusive jurisdiction over the safety
inspection of all installations, surface or underground in mining operations. Section 67 thereof
vests upon the regional director power to issue orders requiring a contractor to remedy any
practice connected with mining or quarrying operations which is not in accordance with safety
and anti-pollution laws and regulations; and to summarily suspend mining or quarrying operations
in case of imminent danger to life or property. The law likewise requires every contractor to
undertake an environmental protection and enhancement program which shall be incorporated in
the work program which the contractor shall submit as an accompanying document to the
application for a mineral agreement or permit. In addition, an environmental clearance certificate
is required based on an environment impact assessment. The law also requires contractors and
permittees to rehabilitate the mined-out areas, and set up a mine rehabilitation fund.
Significantly, the law allows and encourages peoples organizations and non-governmental
organizations to participate in ensuring that contractors/permittees shall observe all the
requirements of environmental protection.
From the foregoing, it readily appears that the power of the mines regional director does not
foreclose PABs authority to determine and act on complaints filed before it. The power granted to
the mines regional director to issue orders requiring the contractor to remedy any practice
connected with mining or quarrying operations or to summarily suspend the same in cases of
violation of pollution laws is for purposes of effectively regulating and monitoring activities within
mining operations and installations pursuant to the environmental protection and enhancement
program undertaken by contractors and permittees in procuring their mining permit. While the
mines regional director has express administrative and regulatory powers over mining operations
and installations, it has no adjudicative powers over complaints for violation of pollution control
statutes and regulations.
True, in Laguna Lake Development Authority vs. Court of Appeals,23 this Court held that
adjudication of pollution cases generally pertains to the Pollution Adjudication Board (PAB) except
where the special law provides for another forum. However, contrary to the ruling of the Court of
Appeals, RA 7942 does not provide for another forum inasmuch as RA 7942 does not vest quasijudicial powers in the Mines Regional Director. The authority is vested and remains with the PAB.
Neither was such authority conferred upon the Panel of Arbitrators and the Mines Adjudication
Board which were created by the said law. The provisions creating the Panel of Arbitrators for the
settlement of conflicts refers to disputes involving rights to mining areas, mineral agreements or
permits and those involving surface owners, occupants and claim-holders/concessionaires. 24 The
scope of authority of the Panel of Arbitrators and the Mines Adjudication Board conferred by RA
7942 clearly exclude adjudicative responsibility over pollution cases. Nowhere is there vested any
authority to adjudicate cases involving violations of pollution laws and regulations in general.

Thus, there is no genuine conflict between RA 7942 and RA 3931 as amended by PD 984 that
precludes their co-existence. Moreover, it has to be conceded that there was no intent on the part
of the legislature to repeal the said law. There is nothing in the sponsorship speech 25 of the laws
proponent, Representative Renato Yap, and the deliberations that followed thereafter, to indicate
a legislative intent to repeal the pollution law. Instead, it appears that the legislature intended to
maximize the exploration, development and utilization of the countrys mineral resources to
contribute to the achievement of national economic and social development with due regard to
the social and environmental cost implications relative thereto. The law intends to increase the
productivity of the countrys mineral resources while at the same time assuring its sustainability
through judicious use and systematic rehabilitation. Henceforth, the Department of Environment
and Natural Resources as the primary government agency responsible for the conservation,
management, development, and proper use of the States mineral resources, through its
Secretary, has the authority to enter into mineral agreements on behalf of the Government upon
the recommendation of the Director, and to promulgate such rules and regulations as may be
necessary to carry out the provisions of RA 7942. 26 The PAB and the Mines Regional Director, with
their complementary functions and through their combined efforts, serve to accomplish the
mandate of RA 3931 (National Pollution Control Decree of 1976) as amended by PD 984 and EO
192 and that of RA 7942 (Philippine Mining Act of 1995).
That matter settled, we now go to the issue of whether the appellate court erred in ruling that
there is no basis for further payments by MMC to the Ecology Trust Fund of the Calancan Bay
Rehabilitation Project considering that MMC "convincingly argued and which respondent
unsatisfactorily rebuked, the existing fourteen (14) million pesos in the ETF is more than enough
to complete the rehabilitation project." Indeed, the records reveal that witness for PAB, Mr. Edel
Genato, who is the Technical Resource person of the PAB for the project admitted that the funds in
the ETF amounting to about Fourteen Million Pesos are more than sufficient to cover the costs of
rehabilitation. Hereunder are excerpts from the transcript of stenographic notes taken during the
hearing held on September 15, 1997:
We must sustain the appellate court on this point on account of the testimony of Mr. Edel
Genato.1wphi1 Further, we note that the Office of the President never objected nor ruled on the
manifestation dated July 9, 1991 filed by MMC that it would stop paying since it already ceased
dumping mine tailings into the bay. Still further, the order of the OP directing MMC to rehabilitate
at a cost of P30,000.00 a day "during the efficacy of the restraining order" had become functus
officio since MMC voluntarily stopped dumping mine tailings into the bay.
To sum up, PAB has jurisdiction to act and rule on the letter-complaint of Mayor Wilfredo Red of
Marinduque for violation of PD 984 and its implementing rules and regulations which jurisdiction
was not lost upon the passage of RA 7942 (the Philippine Mining Act of 1995). Nevertheless, MMC
must be declared not to have arrears in deposits as admittedly, the ETF already has more than
sufficient funds to undertake the rehabilitation of Calancan Bay.
WHEREFORE, the petition is hereby partially GRANTED. The assailed Decision is REVERSED
insofar as the jurisdiction of the PAB to act on the complaint is concerned; but AFFIRMED insofar
as Marcopper Mining Corporation has no arrears in deposits with the Ecology Trust Fund of the
Calancan Bay Rehabilitation Project.
SO ORDERED.
G.R. No. 135190
April 3, 2002
SOUTHEAST
MINDANAO
GOLD
MINING
CORPORATION, petitioner,
vs.
BALITE PORTAL MINING COOPERATIVE and others similarly situated; and THE HONORABLE

ANTONIO CERILLES, in his capacity as Secretary of the Department of Environment and Natural
Resources (DENR),PROVINCIAL MINING REGULATORY BOARD OF DAVAO (PMRB-Davao),
respondents.
YNARES-SANTIAGO, J.:
This is a petition for review of the March 19, 1998 decision of the Court of Appeals in CA-G.R. SP
No. 44693, dismissing the special civil action for certiorari, prohibition and mandamus, and the
resolution dated August 19, 1998 denying petitioner's motion for reconsideration.
The instant case involves a rich tract of mineral land situated in the Agusan-Davao-Surigao Forest
Reserve known as the "Diwalwal Gold Rush Area." Located at Mt. Diwata in the municipalities of
Monkayo and Cateel in Davao Del Norte, the land has been embroiled in controversy since the
mid-80's due to the scramble over gold deposits found within its bowels.
From 1985 to 1991, thousands of people flocked to Diwalwal to stake their respective claims.
Peace and order deteriorated rapidly, with hundreds of people perishing in mine accidents, manmade or otherwise, brought about by unregulated mining activities. The multifarious problems
spawned by the gold rush assumed gargantuan proportions, such that finding a "win-win" solution
became a veritable needle in a haystack.
On March 10, 1988, Marcopper Mining Corporation (Marcopper) was granted Exploration Permit
No. 133 (EP No. 133) over 4,491 hectares of land, which included the hotly-contested Diwalwal
area.1 Marcopper's acquisition of mining rights over Diwalwal under its EP No. 133 was
subsequently challenged before this Court in "Apex Mining Co., Inc., et al. v. Hon. Cancio C.
Garcia, et al.,"2 where Marcopper's claim was sustained over that of another mining firm, Apex
Mining Corporation (Apex). The Court found that Apex did not comply with the procedural
requisites for acquiring mining rights within forest reserves.
Not long thereafter, Congress enacted on June 27, 1991 Republic Act No. 7076, or the People's
Small-Scale Mining Act. The law established a People's Small-Scale Mining Program to be
implemented by the Secretary of the DENR 3 and created the Provincial Mining Regulatory Board
(PMRB) under the DENR Secretary's direct supervision and control. 4 The statute also authorized
the PMRB to declare and set aside small-scale mining areas subject to review by the DENR
Secretary5 and award mining contracts to small-scale miners under certain conditions. 6
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 smallscale 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."
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.
In due time, the Mines and Geosciences Bureau Regional Office No. XI in Davao City (MGB-XI)
accepted and registered the integrated MPSA application of petitioner. After publication of the
application, the following filed their oppositions:
a) MAC Case No. 004(XI) - JB Management Mining Corporation;
b) MAC Case No. 005(XI) - Davao United Miners Cooperative;
c) MAC Case No. 006(XI) - Balite Integrated Small Scale Miner's Cooperative;
d) MAC Case No. 007(XI) - Monkayo Integrated Small Scale Miner's Association, Inc.;
e) MAC Case No. 008(XI) - Paper Industries Corporation of the Philippines;
f) MAC Case No. 009(XI) - Rosendo Villaflor, et al.;

g) MAC Case No. 010(XI) - Antonio Dacudao;

h) MAC Case No. 011(XI) - Atty. Jose T. Amacio;
i) MAC Case No. 012(XI) - Puting-Bato Gold Miners Cooperative;
j) MAC Case No. 016(XI) - Balite Communal Portal Mining Cooperative; and
k) MAC Case No. 97-01(XI) - Romeo Altamera, et al.
In the meantime, on March 3, 1995, Republic Act No. 7942, the Philippine Mining Act, was
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 the MAC
cases.
On April 1, 1997, Provincial Mining Regulatory Board of Davao passed Resolution No. 26, Series of
1997, authorizing the issuance of ore transport permits (OTPs) to small-scale miners operating in
the Diwalwal mines.
Thus, on May 30, 1997, petitioner filed a complaint for damages before the Regional Trial Court of
Makati City, Branch 61, against the DENR Secretary and PMRB-Davao. SEM alleged that the illegal
issuance of the OTPs allowed the extraction and hauling of P60,000.00 worth of gold ore per
truckload from SEM's mining claim.
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. 97-03 10 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 Geosciences 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 132528.1wphi1.nt

On March 19, 1998, the Court of Appeals, through a division of five members voting 32,13 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 "constitutionallyprotected 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 allowingillegal 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
validsubsequent to its transfer by Marcopper to petitioner. Besides, as clarified in our decision in
the Apex Miningcase:
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 nonimpairment 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.1wphi1.nt
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-43277

April 26, 1990
STANDARD
MINERAL
PRODUCTS,
INC., petitioner,
vs.
THE HON. COURT OF APPEALS, RUFINO DEEUNHONG, PAZ SUMULONG-TANJUATCO AND
EMIGDIO G. TANJUATCO, respondents, REPUBLIC OF THE PHILIPPINES, intervenor.
Bengzon,
Zarraga,
Narciso,
Cudala,
Pecson,
Azcuna &
Bengson
for
petitioner.
Tanjuatco, Oreta, Tanjuatco, Berenguer & Sanvicente for private respondents.
MELENCIO-HERRERA, J.:
A Petition for Review on Certiorari of the Decision of Respondent Appellate Court in CA-G.R. No.
44220-R, affirming the judgment of the former Court of First Instance of Rizal denying surface
rights for mining purposes to Petitioner.
Petitioner-Appellant Standard Mineral Products, Inc. (SMPI, for short) claims that it is the locator of
placer mining claims "Celia IV" and "Celia VI" containing limestone in Kaysipot, Antipolo, Rizal,
which were duly registered in the Office of the Mining Recorder of Rizal on 13 April 1959 (Exhibits
"S" and "T") and 3 July 1959 (Exhibits "S-3" and "T-3",). The aforementioned mining claims cover
about fifteen (15) hectares of the one hundred-twenty (120) hectares of land registered in the
name of Respondent-Appellee, Rufino Deeunhong, under TCT-NO. 92665 of the Register of Deeds
of Rizal. Although title is in the name of Deeunhong alone, it is a fact that he and his coRespondents, Paz Sumulong-Tanjuatco and her husband (the Tanjuatcos, for short), are the coowners in undivided equal shares of the said one hundred-twenty (120) hectare property, as
shown by an "Acknowledgment of Trust" executed by Deeunhong (Exhibits "5" and "6").
Collectively, they shall hereinafter be referred to as the Landowners.

After locating the claims, SMPI applied for a mining lease from the Bureau of Mines on 8 May
1959. The Landowners opposed the application on the ground that SMPI had entered their land
and filed its mining lease application without their permission. The Bureau of Mines held SMPI's
application in abeyance pending submission of the permission of the surface owners. No
agreement having been reached by the parties, on 20 December 1965, SMPI brought an action in
the Court of First Instance of Rizal against Respondents-Appellees praying that it be granted
surface rights for mining purposes over fifteen (15) hectares of the Landowner's property and a
right-of-way over a portion of five (5) hectares leading to and covered by the said mining claims.
The Landowners traversed the Complaint, by averring that SMPI is not entitled to the relief
demanded because the prospecting was accomplished without previously securing the
Landowner's written permission as surface owners as required by Section 27 of the Mining Act
(Commonwealth Act No. 137, as amended).
On 29 October 1968, the Trial Court, finding that the mineral claims were not located in
accordance with law dismissed the complaint and, on the counterclaim, sentenced SMPI to pay to
Deeunhong and the Tanjuatcos actual damages in the sum of P50,000.00 each, attorney's fees of
P5,000.00 and costs. The Appellate Court 1affirmed that Decision with the sole modification that
temperate or moderate damages (not actual damages) of P25,000.00 each were awarded instead.
In another Resolution dated 18 June 1976 2 the Appellate Court likewise denied, for being devoid
of legal interest, the Petition for Intervention filed on 23 March 1976 by the Republic of the
Philippines through the Solicitor General, claiming that it had filed Civil Case No. 11410 with the
then Court of First Instance of Rizal for the reversion to the State of the same property subject of
this case.
After SMPI elevated the case to this Court for review on Certiorari, the Republic reiterated its
Petition for Intervention, which we granted in the Resolution of 24 November 1976 (p. 215, Rollo).
On 3 July 1985, the Solicitor General manifested that the then Court of First Instance of Rizal
decided Civil Case No. 11410 adversely to the Republic, but that said decision is the subject of an
appeal in the then Intermediate Appellate Court.
"Considering that the appealed case was closely interrelated with the case at bar, such that the
final determination of the rights of the parties herein is dependent and subject to the outcome of
this appeal," the Court resolved, on 2 September 1985, to hold this case in abeyance until the
then Appellate Court shall have resolved the appeal in Civil Case No. 11410, with the directive to
the latter Court to decide the appeal promptly.
On 29 February 1988, the parties were required to inform the Court of the status of the appealed
case and whether or not supervening events had transpired which have rendered the case moot
and academic.
In its Compliance of 29 March 1988, the Solicitor General manifested that he knew of no such
supervening event.
On 23 May 1988, having been informed that the appealed case had not yet been resolved and
since the case was not yet ripe for determination, the case was ordered archived.
On 8 December 1989, the private respondents manifested that the Appellate Court had
promulgated a decision on 21 September 1989 affirming the dismissal of Civil Case No. 11410
and declaring that the land in question cannot be reverted to the State as it is essentially an
agricultural and not a mineral land. This decision became final on 12 October 1989. As the
ownership of the land in question has been finally settled, the controversy between the parties is
now ripe for determination.
The focal issue for resolution is whether or not SMPI is entitled to surface rights and a right of way
to a 15-hectare portion of the Landowners' property covered by SMPI's mining claims for mining
purposes. A corollary issue raised is whether or not the Trial Court and the Appellate Court had
jurisdiction over the proceedings before them in the light of Section 61 of the Mining Act.
We agree with the declaration of both lower Courts that SMPI is not entitled to said surface rights
as it failed to comply with the requisite of prior written permission by the Landowners before
entering the private land in question.
Section 27 of the Mining Act explicitly provides:

Section 27. 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 of the province in
which said lands are situated in an action instituted for the purpose by the prospector, or
his principal: Provided, however, that the prospector, or his principal upon depositing
with the court the sum considered jointly by him and the Director of the Bureau of Mines
and the court to be just compensation for the damages resulting from such prospecting,
shall be permitted to enter upon, and locate the said land without such written
permission pending final adjudication of the amount of such compensation; and in such
case the prospector, or his principal, shall have a prior right as against the world, from
the date of his application. The court in its final judgment, besides determining the
corresponding compensation of the damages which may be caused by the prospecting,
shall make a pronouncement as to the value and the reasonable rental for the
occupation and utilization thereof for mining purposes in case the prospector decides to
locate and exploit the minerals found therein. (Emphasis ours).
The purpose of the law is obvious, which is, to prevent trespass on private property. The
importance of the written permission of the owner of private land is also apparent from the forms
prescribed by the Bureau of Mines for the declaration of location of a mining claim which require
the locator to state that the landowner has granted written permission for the prospecting and
location of the mining claim if the latter is located on private property.
The subsequent amendments requiring only mere notification to the owner of the private land
(Section 2, P.D. No. 512) are not discussed for being inapplicable during the period pertinent to
this controversy.
SMPI argues, however, that Section 27 is inapplicable as it never entered the land for the purpose
of "prospecting" but already for "locating" a mining claim inasmuch as the limestone deposits
were prominently exposed and spread visibly and recognizably on the surface of the land such
that "there was no need of "entering" the land." In finding the same to be without merit, suffice it
to state that "entering" has to be precede "prospecting"; "prospecting" necessarily precedes
"discovery"; and a valid "discovery" is essential for the "location" of a mining claim. As expounded
by the Court of Appeals:
Section 26 of the Mining Act provides that prospecting shall be carried on "in accordance
with the provisions of this Act". As appellants prospecting was done in violation of the
law, it was an illegal act and the subsequent location of the mining claims was also
illegal and null and void. For the Mining Act regards a valid discovery as that which gives
the prospector the right to locate a mining claim (Sections 29 and 30), and the validity of
a location depends upon Compliance with the law.
It is clear, of course, that the validity of a location depends upon compliance
with the statutes. The law requires that the locator shall act in good faith, and it
will not countenance a trespass as the basis of a mining right (36 Am. Jur. Sec.
77).
SMPI would have us believe that it did not have knowledge of the private ownership of the land.
Both the Trial Court and the Appellate Court, however, found as a fact that SMPI knew that the
land in question is the property of the Landowners. That is a finding of fact, which we not only find
supported by substantial evidence but also conclusive upon us, the well-known exceptions to the
rule not obtaining in the case at bar.
SMPI's suggestion that the remedy provided in Section 67 of the Mining Act be applied to it is also
unacceptable. This Section itself provides:

Section 67. Any person authorized to locate a mining claim, having claimed and located
a piece of land for mining purposes who has complied the terms of this Act, may file with
the Director of the Bureau of Mines an application under oath for a mining lease thereon,
showing such compliance. . . . In the case of an application to lease a mining claim
located on private lands, the same shall be accompanied by a written authority of the
owners of the land: Provided, however, that in case of refusal of the owner of the land to
grant such written authority, the same shall be granted by the court as soon as the
applicant deposits the amount fixed as the value of the land and as compensation for
any resulting damage or file a bond to be approved by the court sufficient to insure the
payment of the rental of the land as determined in accordance with section twenty seven
of this Act. Should there have been no proceeding instituted by the applicant as provided
for under section twenty-seven of this Act, the court shall determine the value of the land
and the compensation for any resulting damage or its reasonable rental for the purposes
above mentioned and grant the written authority required herein.
It is evident that the foregoing speaks of lease of a mining claim to which SMPI would neither be
entitled for failure to comply with the provisions of the Mining Act and to accompany its
application for lease with a written authority of the Landowners. In fact, SMPI left the space
provided for the same in its application blank. For the same reasons, authority cannot be granted
by the Court, nor can rental be fixed, compliance with the terms of this Act being an indispensable
prerequisite.
We proceed to SMPI's averment that its constitutional and statutory rights to use and exploit
mineral resources discovered and located by it are being unduly curtailed. Again, we find this
submission untenable. No one can dispute that under the Regalian doctrine, minerals found in
one's land belong to the State and not to a private landowner (Section 8, Article XIV, 1973
Constitution; Sections 3 and 4, Mining Act). Nonetheless, a condition sine qua non is that the
prospecting, exploration, discovery and location must be done in accordance with the law. As it is,
SMPI's rights to use and exploit the mineral resources discovered and located never matured
because of its omission to comply with a condition precedent. To allow SMPI its claim for surface
rights and right of way would be to countenance illegal trespass into private property.
SMPI would also deprive the lower Courts of jurisdiction over the controversy arguing that
exclusive jurisdiction to resolve it rests with the Director of Mines (now the Bureau of Mines on
Geo-Sciences pursuant to P.D. No. 128) invoking Section 61 of the Mining Act, quoted
hereinbelow:
Section 61. Conflicts and disputes arising out of mining locations shall be submitted to
the Director of Mines for decision; Provided, That the decision or order of the Director of
Mines may be appealed to the Secretary of Agriculture and Natural Resources within
thirty days from receipt of such decision or order. In case any one of the parties should
disagree with the decision or order of the Secretary of Agriculture and Natural Resources,
the matter may be taken to the Court of Appeals or the Supreme Court, as the case may
be, within thirty days from the receipt of such decision or order, otherwise the said
decision or order shall be final and binding upon the parties concerned. Findings of facts
in the decision or order of the Director of Mines when affirmed by the Secretary of
Agriculture and Natural Resources shall be final and conclusive, and the aggrieved party
or parties desiring to appeal from such decision or order shall file in the Supreme Court a
petition for review wherein only questions of law may be raised.
Said provision is inapplicable, however, as it refers to "conflicts and disputes arising out of mining
locations," which is not the subject matter in the case at bar. The basic issue herein is SMPI's
entitlement to surface rights and right of way. The dispute is not a mining conflict. It is essentially
judicial. In SMPI's own words. "The present case is not for resolving a conflict, if any, between the
"Celia" claims and the "Tanjuatco" claims as this is for the Bureau of Mines to decide."
As the petitioner's adverse claim is not one grounded on overlapping of claims nor is it a
mining conflict arising out of mining locations (there being only one involved) but one
originating from the alleged fiduciary or contractual relationship between the petitioner

mining corporation and the locator and his transferees, the adverse claim is not within
the executive or administrative authority of the mining director to resolve, but in the
courts (Philex Mining Corporation vs. Zaldivar, G.R. No. L-29669, 29 February 1972, 43
SCRA 479).
The suit below was not merely for a determination of the amount to be paid for surface rights, as
SMPI contends, inasmuch as the very validity of those surface rights was likewise squarely put in
issue.
Of significance, too, is the fact that SMPI filed its action with the Trial Court, actively participated
in the hearings therein, but, it was only after a judgment adverse to it was rendered that it raised
the issue of jurisdiction. It is now estopped, therefore, from impugning said jurisdiction (Tijam vs.
Sibonghanoy, G.R. No. L-21450, 15 April 1968, 23 SCRA 29; Royales vs. Intermediate Appellate
Court, G.R. No. L-65072, 31 January 1984, 127 SCRA 470; Philippine National Bank vs.
Intermediate Appellate Court, G.R. No. L-62831-32, 31 July 1986, 143 SCRA 299).
In the exercise of our discretion, we are reducing the award of temperate damages to P10,000. 00
for Deeunhong, and another P10,000.00 for the Tanjuatcos, which we find reasonable under the
circumstances.

WHEREFORE, with the sole modification as to the award of temperate damages, which are hereby
reduced as indicated, the judgment under review is hereby affirmed in all other respects.
No costs.
SO ORDERED.

GOOD LUCK!

~nothing follows~