Apex Mining vs. South

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, PUTING-
BATO GOLD MINERS COOPERATIVE, ROMEO ALTAMERA, THELMA CATAPANG, LUIS
GALANG, RENATO BASMILLO, FRANCISCO YOBIDO, EDUARDO GLORIA, EDWIN ASION,
MACARIO HERNANDEZ, REYNALDO CARUBIO, ROBERTO BUNIALES, RUDY ESPORTONO,
ROMEO CASTILLO, JOSE REA, GIL GANADO, PRIMITIVA LICAYAN, LETICIA ALQUEZA and
joel brillantes management mining corporation, Respondents.
x--------------------------------------x
G.R. No. 152619-20 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 1980’s 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 (Agusan-Davao-
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 MMC’s 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 MMC’s petition on the ground that the area covered by the
Apex mining claims and MMC’s permit to explore was not a forest reservation. It further declared null
and void MMC’s 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 MMC’s 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 Apex’s 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 SEM’s MPSA application and the Deed of
Assignment over EP 133 executed in its favor by MMC. SEM’s application was designated MPSA
Application No. 128 (MPSAA 128). After publication of SEM’s 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 Miner’s Cooperative;
d) MAC Case No. 007(XI) – Monkayo Integrated Small Scale Miner’s 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. 8-8-
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 SEM’s 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 "People’s 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 133’s
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 SEM’s 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. SEM’s 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 SEM’s 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 MMC’s
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 MMC’s mining rights were validly
transferred to SEM prior to its expiration.
The Court of Appeals also ruled that MMC’s right to explore under EP 133 is a property right which
the 1987 Constitution protects and which cannot be divested without the holder’s consent. It
stressed that MMC’s 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 company’s 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:
WHETHER OR NOT SOUTHEAST MINDANAO GOLD MINING’S [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 IT’S
CLAIM OVER THE ENTIRE 4,941 HECTARES AGAINST SEM AND THE OTHER CLAIMANTS
PURSUANT TO THE TIME-HONORED 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:
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 BALITE’S 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:
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 Balite’s claims over
the Diwalwal Gold Rush Area.
On the first issue, Apex takes exception to the Court of Appeals’ ruling upholding the validity of
MMC’s 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, SEM’s MPSA application should
have been evaluated on its own merit.
As regards the Court of Appeals recognition of SEM’s 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-in-interest
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 SEM’s 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 MMC’s 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 Court’s 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 petitioner’s 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 Appeal’s findings are at odds to those of the National Labor Relations Commission (NLRC). Just
like in the foregoing case, it is this Court’s 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.
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 conditions26 :
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
former’s 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 MMC’s 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/SEM’s cause. While it is true that the case of
Apex Mining Co., Inc. v. Garcia40 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 non-
forest 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 Agusan-Davao-
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 socio-
economic 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
country’s 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 country’s natural resources, not only for national economic
development, but also for its security and national defense, Section 5 of Republic Act No. 7942
empowers the President, when the national interest so requires, to establish mineral reservations
where mining operations shall be undertaken directly by the State or through a contractor.
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. 2002-18,
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 Secretary’s authority.
Consequently, the State, should it so desire, may now award mining operations in the disputed area
to any qualified entity it may determine. No costs.
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, man-made or otherwise, brought about by unregulated mining activities. The
multifarious problems spawned by the gold rush assumed gargantuan proportions, such
that finding a "win-win" solution became a veritable needle in a haystack.
On March 10, 1988, Marcopper Mining Corporation (Marcopper) was granted

Exploration Permit No. 133 (EP No. 133) over 4,491 hectares of land, which included
the hotly-contested Diwalwal area.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 DENR3 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 small-scale mining.7 The issuance was made pursuant to the
powers vested in the DENR Secretary by Proclamation No. 369, which established the
Agusan-Davao-Surigao Forest Reserve.
Subsequently, a petition for the cancellation of EP No. 133 and the admission of a
Mineral Production Sharing Arrangement (MPSA) proposal over Diwalwal was filed
before the DENR Regional Executive Director, docketed as RED Mines Case No. 8-8-
94 entitled, "Rosendo Villaflor, et al. v. Marcopper Mining Corporation."
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.
RTC
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 Geo-sciences Bureau are
hereby ordered to undertake such studies. x x x11
CA
On July 16, 1997, petitioner filed a special civil action for certiorari,

prohibition and mandamus before the Court of Appeals against PMRB-Davao, the
DENR Secretary and Balite Communal Portal Mining Cooperative (BCPMC), which
represented all the OTP grantees. It prayed for the nullification of the above-quoted
Memorandum Order No. 97-03 on the ground that the "direct state utilization" espoused
therein would effectively impair its vested rights under EP No. 133; that the DENR
Secretary unduly usurped and interfered with the jurisdiction of the RPA which had
dismissed all adverse claims against SEM in the Consolidated Mines cases; and that
the memorandum order arbitrarily imposed the unwarranted condition that certain
studies be conducted before mining and environmental laws are enforced by the DENR.
Meanwhile, on January 6, 1998, the MAB rendered a decision in the Consolidated

Mines cases, setting aside the judgment of the RPA.12 This MAB decision was then
elevated to this Court by way of a consolidated petition, docketed as G.R. Nos. 132475
and 132528.1âwphi1.nêt
On March 19, 1998, the Court of Appeals, through a division of five members voting 3-
2,13 dismissed the petition in CA-G.R. SP No. 44693. It ruled that the DENR Secretary
did not abuse his discretion in issuing Memorandum Order No. 97-03 since the same
was merely a directive to conduct studies on the various options available to the
government for solving the Diwalwal conflict. The assailed memorandum did not
conclusively adopt "direct state utilization" as official government policy on the matter,
but was simply a manifestation of the DENR's intent to consider it as one of its options,
after determining its feasibility through studies. MO 97-03 was only the initial step in the
ladder of administrative process and did not, as yet, fix any obligation, legal relationship
or right. It was thus premature for petitioner to claim that its "constitutionally-protected
rights" under EP No. 133 have been encroached upon, much less, violated by its
issuance.
Additionally, the appellate court pointed out that petitioner's rights under EP No. 133 are
not inviolable, sacrosanct or immutable. Being in the nature of a privilege granted by the
State, the permit can be revoked, amended or modified by the Chief Executive when the
national interest so requires. The Court of Appeals, however, declined to rule on the
validity of the OTPs, reasoning that said issue was within the exclusive jurisdiction of
the RPA.
Petitioner filed a motion for reconsideration of the above decision, which was denied for
lack of merit on August 19, 1998.14
Supreme Court
Hence this petition, raising the following errors:
I. THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE

ERROR, AND HAS DECIDED A QUESTION OF SUBSTANCE NOT
THERETOFORE DETERMINED BY THIS HONORABLE SUPREME COURT,
OR HAS DECIDED IT IN A WAY PROBABLY NOT IN ACCORD WITH LAW OR
WITH APPLICABLE DECISIONS OF THIS HONORABLE COURT IN
UPHOLDING THE QUESTIONED ACTS OF RESPONDENT DENR
SECRETARY WHICH ARE IN VIOLATION OF MINING LAWS AND IN
DEROGATION OF PETITIONER'S VESTED RIGHTS OVER THE AREA
COVERED BY ITS EP NO. 133;
II. THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE
ERROR IN HOLDING THAT AN ACTION ON THE VALIDITY OF ORE
TRANSPORT PERMIT (OTP) IS VESTED IN THE REGIONAL PANEL OF
ARBITRATORS.15
In a resolution dated September 11, 2000, the appealed Consolidated Mines cases,
docketed as G.R. Nos. 132475 and 132528, were referred to the Court of Appeals for
proper disposition pursuant to Rule 43 of the 1997 Rules of Civil Procedure.16 These
cases, which were docketed as CA-G.R. SP Nos. 61215 and 61216, are still pending
before the Court of Appeals.
In the first assigned error, petitioner insists that the Court of Appeals erred when it
concluded that the assailed memorandum order did not adopt the "direct state utilization
scheme" in resolving the Diwalwal dispute. On the contrary, petitioner submits, said
memorandum order dictated the said recourse and, in effect, granted management or
operating agreements as well as provided for profit sharing arrangements to illegal
small-scale miners.
According to petitioner, MO 97-03 was issued to preempt the resolution of the

Consolidated Mines cases. The "direct state utilization scheme" espoused in the
challenged memorandum is nothing but a legal shortcut, designed to divest petitioner of
its vested right to the gold rush area under its EP No. 133.
We are not persuaded.
We agree with the Court of Appeals' ruling that the challenged MO 97-03 did not
conclusively adopt "direct state utilization" as a policy in resolving the Diwalwal dispute.
The terms of the memorandum clearly indicate that what was directed thereunder was
merely a study of this option and nothing else. Contrary to petitioner's contention, it did
not grant any management/operating or profit-sharing agreement to small-scale miners
or to any party, for that matter, but simply instructed the DENR officials concerned to
undertake studies to determine its feasibility. As the Court of Appeals extensively
discussed in its decision:
x x x under the Memorandum Order, the State still had to study prudently and
exhaustively the various options available to it in rationalizing the explosive and
ever perilous situation in the area, the debilitating adverse effects of mining in the
community and at the same time, preserve and enhance the safety of the mining
operations and ensure revenues due to the government from the development of
the mineral resources and the exploitation thereof. The government was still in
earnest search of better options that would be fair and just to all parties
concerned, including, notably, the Petitioner. The direct state utilization of the
mineral resources in the area was only one of the options of the State. Indeed, it
is too plain to see, x x x that before the State will settle on an option, x x x an
extensive and intensive study of all the facets of a direct state exploitation was
directed by the Public Respondent DENR Secretary. And even if direct state
exploitation was opted by the government, the DENR still had to promulgate
rules and regulations to implement the same x x x, in coordination with the other
concerned agencies of the government.17
Consequently, the petition was premature. The said memorandum order did not impose
any obligation on the claimants or fix any legal relation whatsoever between and among
the parties to the dispute. At this stage, petitioner can show no more than a mere
apprehension that the State, through the DENR, would directly take over the mines after
studies point to its viability. But until the DENR actually does so and petitioner's fears
turn into reality, no valid objection can be entertained against MO 97-03 on grounds
which are purely speculative and anticipatory.18
With respect to the alleged "vested rights" claimed by petitioner, it is well to note that the
same is invariably based on EP No. 133, whose validity is still being disputed in the
Consolidated Mines cases. A reading of the appealed MAB decision reveals that the
continued efficacy of EP No. 133 is one of the issues raised in said cases, with
respondents therein asserting that Marcopper cannot legally assign the permit which
purportedly had expired. In other words, whether or not petitioner actually has a vested
right over Diwalwal under EP No. 133 is still an indefinite and unsettled matter. And until
a positive pronouncement is made by the appellate court in the Consolidated Mines
cases, EP No. 133 cannot be deemed as a source of any conclusive rights that can be
impaired by the issuance of MO 97-03.
Similarly, there is no merit in petitioner's assertion that MO 97-03 sanctions violation of

mining laws by allowing illegal miners to enter into mining agreements with the State.
Again, whether or not respondent BCMC and the other mining entities it represents are
conducting illegal mining activities is a factual matter that has yet to be finally
determined in the Consolidated Mines cases. We cannot rightfully conclude at this point
that respondent BCMC and the other mining firms are illegitimate mining operators.
Otherwise, we would be preempting the resolution of the cases which are still pending
before the Court of Appeals.19
Petitioner's reliance on the Apex Mining case to justify its rights under E.P. No. 133 is
misplaced. For one, the said case was litigated solely between Marcopper and Apex
Mining Corporation and cannot thus be deemed binding and conclusive on respondent
BCMC and the other mining entities presently involved. While petitioner may be
regarded as Marcopper's successor to EP No. 133 and therefore bound by the
judgment rendered in the Apex Mining case, the same cannot be said of respondent
BCMC and the other oppositor mining firms, who were not impleaded as parties therein.
Neither can the Apex Mining case foreclose any question pertaining to the continuing
validity of EP No. 133 on grounds which arose after the judgment in said case was
promulgated. While it is true that the Apex Mining case settled the issue of who between
Apex and Marcopper validly acquired mining rights over the disputed area by availing of
the proper procedural requisites mandated by law, it certainly did not deal with the
question raised by the oppositors in the Consolidated Mines cases, i.e. whether EP No.
133 had already expired and remained valid subsequent to its transfer by Marcopper to
petitioner. Besides, as clarified in our decision in the Apex Mining case:
x x x is conclusive only between the parties with respect to the particular issue
herein raised and under the set of circumstances herein prevailing. In no case
should the decision be considered as a precedent to resolve or settle claims of
persons/entities not parties hereto. Neither is it intended to unsettle rights of
persons/entities which have been acquired or which may have accrued upon
reliance on laws passed by appropriate agencies.20
Clearly then, the Apex Mining case did not invest petitioner with any definite right to the
Diwalwal mines which it could now set up against respondent BCMC and the other
mining groups.
Incidentally, it must likewise be pointed out that under no circumstances may petitioner's
rights under EP No. 133 be regarded as total and absolute. As correctly held by the
Court of Appeals in its challenged decision, EP No. 133 merely evidences a privilege
granted by the State, which may be amended, modified or rescinded when the national
interest so requires. This is necessarily so since the exploration, development and
utilization of the country's natural mineral resources are matters impressed with great
public interest. Like timber permits, mining exploration permits do not vest in the
grantee any permanent or irrevocable right within the purview of the non-
impairment of contract and due process clauses of the Constitution,21 since the State,
under its all-encompassing police power, may alter, modify or amend the same, in
accordance with the demands of the general welfare.22
Additionally, there can be no valid opposition raised against a mere study of an

alternative which the State, through the DENR, is authorized to undertake in the first
place. Worth noting is Article XII, Section 2, of the 1987 Constitution, which specifically
provides:
SEC. 2. All lands of the public domain, waters, minerals, coal, petroleum, and
other mineral oils, all forces of potential energy, fisheries, forests or timber,
wildlife, flora and fauna, and other natural resources are owned by the State.
With the exception of agricultural lands, all other natural resources shall not be
alienated. The exploration, development, and utilization of natural resources shall
be under the full control and supervision of the State. The State may directly
undertake such activities, or it may enter into co-production, joint venture, or
production-sharing agreements with Filipino citizens, or corporations or
associations at least sixty per centum of whose capital is owned by such citizens.
Such agreements may be for a period not exceeding twenty-five years,
renewable for not more than twenty-five years, and under such terms and
conditions as may be provided by law. In cases of water rights for irrigation,
water supply, fisheries, or industrial uses other than the development of water
power, beneficial use may be the measure and limit of the grant. (Underscoring
ours)
Likewise, Section 4, Chapter II of the Philippine Mining Act of 1995 states:
SEC. 4. Ownership of Mineral Resources. - Mineral Resources are owned by the

State and the exploration, development, utilization, and processing thereof shall
be under its full control and supervision. The State may directly undertake such
activities or it may enter into mineral agreements with contractors. (Underscoring
ours)
Thus, the State may pursue the constitutional policy of full control and supervision of the
exploration, development and utilization of the country's natural mineral resources, by
either directly undertaking the same or by entering into agreements with qualified
entities. The DENR Secretary acted within his authority when he ordered a study of the
first option, which may be undertaken consistently in accordance with the constitutional
policy enunciated above. Obviously, the State may not be precluded from considering a
direct takeover of the mines, if it is the only plausible remedy in sight to the gnawing
complexities generated by the gold rush. As implied earlier, the State need be guided
only by the demands of public interest in settling for this option, as well as its material
and logistic feasibility.
In this regard, petitioner's imputation of bad faith on the part of the DENR Secretary
when the latter issued MO 97-03 is not well-taken. The avowed rationale of the
memorandum order is clearly and plainly stated in its "whereas" clauses.23 In the
absence of any concrete evidence that the DENR Secretary violated the law or abused
his discretion, as in this case, he is presumed to have regularly issued the
memorandum with a lawful intent and pursuant to his official functions.1âwphi1.nêt
Given these considerations, petitioner's first assigned error is baseless and premised on
tentative assumptions. Petitioner cannot claim any absolute right to the Diwalwal
mines pending resolution of the Consolidated Mines cases, much less ask us to
assume, at this point, that respondent BCMC and the other mining firms are
illegal miners. These factual issues are to be properly threshed out in CA G.R. SP
Nos. 61215 and 61216, which have yet to be decided by the Court of Appeals. Any
objection raised against MO 97-03 is likewise premature at this point, inasmuch as it
merely ordered a study of an option which the State is authorized by law to undertake.
We see no need to rule on the matter of the OTPs, considering that the grounds
invoked by petitioner for invalidating the same are inextricably linked to the issues
raised in the Consolidated Mines cases.
WHEREFORE, in view of the foregoing, the instant petition is DENIED. The decision of
the Court of Appeals in CA-G.R. SP No. 44693 is AFFIRMED.
SO ORDERED.
G.R. No. 127882 January 27, 2004
LA BUGAL-B'LAAN TRIBAL ASSOCIATION, INC vs. Ramos
CARPIO-MORALES, J.:
The present petition for mandamus and prohibition assails the constitutionality of
Republic Act No. 7942,5 otherwise known as the PHILIPPINE MINING ACT OF 1995,
along with the Implementing Rules and Regulations issued pursuant thereto,
Department of Environment and Natural Resources (DENR) Administrative Order 96-
40, and of the Financial and Technical Assistance Agreement (FTAA) entered into on
March 30, 1995 by the Republic of the Philippines and WMC (Philippines), Inc.
(WMCP), a corporation organized under Philippine laws.
On July 25, 1987, then President Corazon C. Aquino issued Executive Order (E.O.) No.
2796 authorizing the DENR Secretary to accept, consider and evaluate proposals from
foreign-owned corporations or foreign investors for contracts or agreements involving
either technical or financial assistance for large-scale exploration, development, and
utilization of minerals, which, upon appropriate recommendation of the Secretary, the
President may execute with the foreign proponent. In entering into such proposals, the
President shall consider the real contributions to the economic growth and general
welfare of the country that will be realized, as well as the development and use of local
scientific and technical resources that will be promoted by the proposed contract or
agreement. Until Congress shall determine otherwise, large-scale mining, for purpose of
this Section, shall mean those proposals for contracts or agreements for mineral
resources exploration, development, and utilization involving a committed capital
investment in a single mining unit project of at least Fifty Million Dollars in United States
Currency (US $50,000,000.00).7
On March 3, 1995, then President Fidel V. Ramos approved R.A. No. 7942 to "govern
the exploration, development, utilization and processing of all mineral resources."8 R.A.
No. 7942 defines the modes of mineral agreements for mining operations,9 outlines the
procedure for their filing and approval,10 assignment/transfer11 and withdrawal,12 and
fixes their terms.13 Similar provisions govern financial or technical assistance
agreements.14
The law prescribes the qualifications of contractors15 and grants them certain rights,
including timber,16 water17 and easement18 rights, and the right to possess
explosives.19 Surface owners, occupants, or concessionaires are forbidden from
preventing holders of mining rights from entering private lands and concession
areas.20 A procedure for the settlement of conflicts is likewise provided for.21
The Act restricts the conditions for exploration,22 quarry23 and other24 permits. It

regulates the transport, sale and processing of minerals,25 and promotes the
development of mining communities, science and mining technology,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,29 incentives granted.30 Aside from penalizing certain acts,31 the law
likewise specifies grounds for the cancellation, revocation and termination of
agreements and permits.32
On April 9, 1995, 30 days following its publication on March 10, 1995 in Malaya and
Manila Times, two newspapers of general circulation, R.A. No. 7942 took
effect.33 Shortly before the effectivity of R.A. No. 7942, however, or on March 30, 1995,
the President entered into an FTAA with WMCP covering 99,387 hectares of land in
South Cotabato, Sultan Kudarat, Davao del Sur and North Cotabato.34
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:
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

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
Republic Act No. 7942, the latter being unconstitutional in that it violates Sec. 1, Art. III
of the Constitution;
IV

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;

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

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,
2002.49 Its motion for reconsideration having been denied by the Office of the President
by Resolution of November 12, 2002,50 Lepanto filed a petition for review51 before the
Court of Appeals. Incidentally, two other petitions for review related to the approval of
the transfer and registration of the FTAA to Sagittarius were recently resolved by this
Court.52
It bears stressing that this case has not been rendered moot either by the transfer and
registration of the FTAA to a Filipino-owned corporation or by the non-issuance of a
temporary restraining order or a preliminary injunction to stay the above-said July 23,
2002 decision of the Office of the President.53 The validity of the transfer remains in
dispute and awaits final judicial determination. This assumes, of course, that such
transfer cures the FTAA's alleged unconstitutionality, on which question judgment is
reserved.
WMCP also points out that the original claimowners of the major mineralized areas
included in the WMCP FTAA, namely, Sagittarius, Tampakan Mining Corporation, and
Southcot Mining Corporation, are all Filipino-owned corporations,54 each of which was a
holder of an approved Mineral Production Sharing Agreement awarded in 1994, albeit
their respective mineral claims were subsumed in the WMCP FTAA;55 and that these
three companies are the same companies that consolidated their interests in Sagittarius
to whom WMC sold its 100% equity in WMCP.56 WMCP concludes that in the event that
the FTAA is invalidated, the MPSAs of the three corporations would be revived and the
mineral claims would revert to their original claimants.57
These circumstances, while informative, are hardly significant in the resolution of this
case, it involving the validity of the FTAA, not the possible consequences of its
invalidation.
Of the above-enumerated seven grounds cited by petitioners, as will be shown later,

only the first and the last need be delved into; in the latter, the discussion shall dwell
only insofar as it questions the effectivity of E. O. No. 279 by virtue of which order the
questioned FTAA was forged.
Before going into the substantive issues, the procedural questions posed by
respondents shall first be tackled.
REQUISITES FOR JUDICIAL REVIEW
When an issue of constitutionality is raised, this Court can exercise its power of judicial
review only if the following requisites are present:
(1) The existence of an actual and appropriate case;
(2) A personal and substantial interest of the party raising the constitutional
question;
(3) The exercise of judicial review is pleaded at the earliest opportunity; and
(4) The constitutional question is the lis mota of the case. 58
Respondents claim that the first three requisites are not present.
Section 1, Article VIII of the Constitution states that "(j)udicial power includes the duty of
the courts of justice to settle actual controversies involving rights which are legally
demandable and enforceable." The power of judicial review, therefore, is limited to the
determination of actual cases and controversies.59
An actual case or controversy means an existing case or controversy that is appropriate

or ripe for determination, not conjectural or anticipatory,60 lest the decision of the court
would amount to an advisory opinion.61 The power does not extend to hypothetical
questions62 since any attempt at abstraction could only lead to dialectics and barren
legal questions and to sterile conclusions unrelated to actualities.63
"Legal standing" or locus standi has been defined as a personal and substantial interest
in the case such that the party has sustained or will sustain direct injury as a result of
the governmental act that is being challenged,64 alleging more than a generalized
grievance.65 The gist of the question of standing is whether a party alleges "such
personal stake in the outcome of the controversy as to assure that concrete
adverseness which sharpens the presentation of issues upon which the court depends
for illumination of difficult constitutional questions."66 Unless a person is injuriously
affected in any of his constitutional rights by the operation of statute or ordinance, he
has no standing.67
Petitioners traverse a wide range of sectors. Among them are La Bugal B'laan Tribal
Association, Inc., a farmers and indigenous people's cooperative organized under
Philippine laws representing a community actually affected by the mining activities of
WMCP, members of said cooperative,68 as well as other residents of areas also affected
by the mining activities of WMCP.69 These petitioners have standing to raise the
constitutionality of the questioned FTAA as they allege a personal and substantial injury.
They claim that they would suffer "irremediable displacement"70 as a result of the
implementation of the FTAA allowing WMCP to conduct mining activities in their area of
residence. They thus meet the appropriate case requirement as they assert an interest
adverse to that of respondents who, on the other hand, insist on the FTAA's validity.
In view of the alleged impending injury, petitioners also have standing to assail the
validity of E.O. No. 279, by authority of which the FTAA was executed.
Public respondents maintain that petitioners, being strangers to the FTAA, cannot sue
either or both contracting parties to annul it.71 In other words, they contend that
petitioners are not real parties in interest in an action for the annulment of contract.
Public respondents' contention fails. The present action is not merely one for annulment
of contract but for prohibition and mandamus. Petitioners allege that public respondents
acted without or in excess of jurisdiction in implementing the FTAA, which they submit is
unconstitutional. As the case involves constitutional questions, this Court is not
concerned with whether petitioners are real parties in interest, but with whether they
have legal standing. As held in Kilosbayan v. Morato:72
x x x. "It is important to note . . . that standing because of its constitutional and public
policy underpinnings, is very different from questions relating to whether a particular
plaintiff is the real party in interest or has capacity to sue. Although all three
requirements are directed towards ensuring that only certain parties can maintain an
action, standing restrictions require a partial consideration of the merits, as well as
broader policy concerns relating to the proper role of the judiciary in certain areas.["]
(FRIEDENTHAL, KANE AND MILLER, CIVIL PROCEDURE 328 [1985])
Standing is a special concern in constitutional law because in some cases suits are
brought not by parties who have been personally injured by the operation of a law or by
official action taken, but by concerned citizens, taxpayers or voters who actually sue in
the public interest. Hence, the question in standing is whether such parties have
"alleged such a personal stake in the outcome of the controversy as to assure that
concrete adverseness which sharpens the presentation of issues upon which the court
so largely depends for illumination of difficult constitutional questions." (Baker v. Carr,
369 U.S. 186, 7 L.Ed.2d 633 [1962].)
As earlier stated, petitioners meet this requirement.
The challenge against the constitutionality of R.A. No. 7942 and DAO No. 96-40
likewise fulfills the requisites of justiciability. Although these laws were not in force when
the subject FTAA was entered into, the question as to their validity is ripe for
adjudication.
The WMCP FTAA provides:
14.3 Future Legislation
Any term and condition more favourable to Financial &Technical Assistance Agreement
contractors resulting from repeal or amendment of any existing law or regulation or from
the enactment of a law, regulation or administrative order shall be considered a part of
this Agreement.
It is undisputed that R.A. No. 7942 and DAO No. 96-40 contain provisions that are more
favorable to WMCP, hence, these laws, to the extent that they are favorable to WMCP,
govern the FTAA.
In addition, R.A. No. 7942 explicitly makes certain provisions apply to pre-existing
agreements.
SEC. 112. Non-impairment of Existing Mining/Quarrying Rights. – x x x That the

provisions of Chapter XIV on government share in mineral production-sharing
agreement and of Chapter XVI on incentives of this Act shall immediately govern and
apply to a mining lessee or contractor unless the mining lessee or contractor indicates
his intention to the secretary, in writing, not to avail of said provisions x x x Provided,
finally, That such leases, production-sharing agreements, financial or technical
assistance agreements shall comply with the applicable provisions of this Act and its
implementing rules and regulations.
As there is no suggestion that WMCP has indicated its intention not to avail of the
provisions of Chapter XVI of R.A. No. 7942, it can safely be presumed that they apply to
the WMCP FTAA.
Misconstruing the application of the third requisite for judicial review – that the exercise
of the review is pleaded at the earliest opportunity – WMCP points out that the petition
was filed only almost two years after the execution of the FTAA, hence, not raised at the
earliest opportunity.
The third requisite should not be taken to mean that the question of constitutionality
must be raised immediately after the execution of the state action complained of. That
the question of constitutionality has not been raised before is not a valid reason for
refusing to allow it to be raised later.73 A contrary rule would mean that a law, otherwise
unconstitutional, would lapse into constitutionality by the mere failure of the proper party
to promptly file a case to challenge the same.
PROPRIETY OF PROHIBITION AND MANDAMUS
Before the effectivity in July 1997 of the Revised Rules of Civil Procedure, Section 2 of
Rule 65 read:
SEC. 2. Petition for prohibition. – When the proceedings of any tribunal, corporation,
board, or person, whether exercising functions judicial or ministerial, are without or in
excess of its or his jurisdiction, or with grave abuse of discretion, and there is no appeal
or any other plain, speedy, and adequate remedy in the ordinary course of law, a
person aggrieved thereby may file a verified petition in the proper court alleging the
facts with certainty and praying that judgment be rendered commanding the defendant
to desist from further proceeding in the action or matter specified therein.
Prohibition is a preventive remedy.74 It seeks a judgment ordering the defendant to

desist from continuing with the commission of an act perceived to be illegal.75
The petition for prohibition at bar is thus an appropriate remedy. While the execution of
the contract itself may be fait accompli, its implementation is not. Public respondents, in
behalf of the Government, have obligations to fulfill under said contract. Petitioners seek
to prevent them from fulfilling such obligations on the theory that the contract is
unconstitutional and, therefore, void.
The propriety of a petition for prohibition being upheld, discussion of the propriety of the
mandamus aspect of the petition is rendered unnecessary.
HIERARCHY OF COURTS
The contention that the filing of this petition violated the rule on hierarchy of courts does
not likewise lie. The rule has been explained thus:
Between two courts of concurrent original jurisdiction, it is the lower court that should
initially pass upon the issues of a case. That way, as a particular case goes through the
hierarchy of courts, it is shorn of all but the important legal issues or those of first
impression, which are the proper subject of attention of the appellate court. This is a
procedural rule borne of experience and adopted to improve the administration of
justice.
This Court has consistently enjoined litigants to respect the hierarchy of courts.
Although this Court has concurrent jurisdiction with the Regional Trial Courts and the
Court of Appeals to issue writs of certiorari, prohibition, mandamus, quo warranto,
habeas corpus and injunction, such concurrence does not give a party unrestricted
freedom of choice of court forum. The resort to this Court's primary jurisdiction to issue
said writs shall be allowed only where the redress desired cannot be obtained in the
appropriate courts or where exceptional and compelling circumstances justify such
invocation. We held in People v. Cuaresma that:
A becoming regard for judicial hierarchy most certainly indicates that petitions for the
issuance of extraordinary writs against first level ("inferior") courts should be filed with
the Regional Trial Court, and those against the latter, with the Court of Appeals. A direct
invocation of the Supreme Court's original jurisdiction to issue these writs should be
allowed only where there are special and important reasons therefor, clearly and
specifically set out in the petition. This is established policy. It is a policy necessary to
prevent inordinate demands upon the Court's time and attention which are better
devoted to those matters within its exclusive jurisdiction, and to prevent further over-
crowding of the Court's docket x x x.76 [Emphasis supplied.]
The repercussions of the issues in this case on the Philippine mining industry, if not the
national economy, as well as the novelty thereof, constitute exceptional and compelling
circumstances to justify resort to this Court in the first instance.
In all events, this Court has the discretion to take cognizance of a suit which does not
satisfy the requirements of an actual case or legal standing when paramount public
interest is involved.77 When the issues raised are of paramount importance to the public,
this Court may brush aside technicalities of procedure.78
II
Petitioners contend that E.O. No. 279 did not take effect because its supposed date of
effectivity came after President Aquino had already lost her legislative powers under the
Provisional Constitution.
And they likewise claim that the WMC FTAA, which was entered into pursuant to E.O.
No. 279, violates Section 2, Article XII of the Constitution because, among other
reasons:
(1) It allows foreign-owned companies to extend more than mere financial or

technical assistance to the State in the exploitation, development, and utilization
of minerals, petroleum, and other mineral oils, and even permits foreign owned
companies to "operate and manage mining activities."
(2) It allows foreign-owned companies to extend both technical and financial
assistance, instead of "either technical or financial assistance."
To appreciate the import of these issues, a visit to the history of the pertinent
constitutional provision, the concepts contained therein, and the laws enacted pursuant
thereto, is in order.
Section 2, Article XII reads in full:
Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and
fauna, and other natural resources are owned by the State. With the exception of
agricultural lands, all other natural resources shall not be alienated. The exploration,
development, and utilization of natural resources shall be under the full control and
supervision of the State. The State may directly undertake such activities or it may enter
into co-production, joint venture, or production-sharing agreements with Filipino citizens,
or corporations or associations at least sixty per centum of whose capital is owned by
such citizens. Such agreements may be for a period not exceeding twenty-five years,
renewable for not more than twenty-five years, and under such terms and conditions as
may be provided by law. In cases of water rights for irrigation, water supply, fisheries, or
industrial uses other than the development of water power, beneficial use may be the
measure and limit of the grant.
The State shall protect the nation's marine wealth in its archipelagic waters, territorial
sea, and exclusive economic zone, and reserve its use and enjoyment exclusively to
Filipino citizens.
The Congress may, by law, allow small-scale utilization of natural resources by Filipino
citizens, as well as cooperative fish farming, with priority to subsistence fishermen and
fish-workers in rivers, lakes, bays, and lagoons.
The President may enter into agreements with foreign-owned corporations involving
utilization of minerals, petroleum, and other mineral oils according to the general terms
and conditions provided by law, based on real contributions to the economic growth and
general welfare of the country. In such agreements, the State shall promote the
development and use of local scientific and technical resources.
The President shall notify the Congress of every contract entered into in accordance
with this provision, within thirty days from its execution.
THE SPANISH REGIME AND THE REGALIAN DOCTRINE
The first sentence of Section 2 embodies the Regalian doctrine or jura regalia.
Introduced by Spain into these Islands, this feudal concept is based on the State's
power of dominium, which is the capacity of the State to own or acquire property.79
In its broad sense, the term "jura regalia" refers to royal rights, or those rights which the
King has by virtue of his prerogatives. In Spanish law, it refers to a right which the
sovereign has over anything in which a subject has a right of property or propriedad.
These were rights enjoyed during feudal times by the king as the sovereign.
The theory of the feudal system was that title to all lands was originally held by the King,
and while the use of lands was granted out to others who were permitted to hold them
under certain conditions, the King theoretically retained the title. By fiction of law, the
King was regarded as the original proprietor of all lands, and the true and only source of
title, and from him all lands were held. The theory of jura regalia was therefore nothing
more than a natural fruit of conquest.80
The Philippines having passed to Spain by virtue of discovery and conquest, 81 earlier
Spanish decrees declared that "all lands were held from the Crown."82
The Regalian doctrine extends not only to land but also to "all natural wealth that may
be found in the bowels of the earth." 83 Spain, in particular, recognized the unique value
of natural resources, viewing them, especially minerals, as an abundant source of
revenue to finance its wars against other nations.84 Mining laws during the Spanish
regime reflected this perspective.85
THE AMERICAN OCCUPATION AND THE CONCESSION REGIME
By the Treaty of Paris of December 10, 1898, Spain ceded "the archipelago known as
the Philippine Islands" to the United States. The Philippines was hence governed by
means of organic acts that were in the nature of charters serving as a Constitution of
the occupied territory from 1900 to 1935.86 Among the principal organic acts of the
Philippines was the Act of Congress of July 1, 1902, more commonly known as the
Philippine Bill of 1902, through which the United States Congress assumed the
administration of the Philippine Islands.87 Section 20 of said Bill reserved the disposition
of mineral lands of the public domain from sale. Section 21 thereof allowed the free and
open exploration, occupation and purchase of mineral deposits not only to citizens of
the Philippine Islands but to those of the United States as well:
Sec. 21. That all valuable mineral deposits in public lands in the Philippine Islands, both
surveyed and unsurveyed, are hereby declared to be free and open to exploration,
occupation and purchase, and the land in which they are found, to occupation and
purchase, by citizens of the United States or of said Islands: Provided, That when on
any lands in said Islands entered and occupied as agricultural lands under the
provisions of this Act, but not patented, mineral deposits have been found, the working
of such mineral deposits is forbidden until the person, association, or corporation who or
which has entered and is occupying such lands shall have paid to the Government of
said Islands such additional sum or sums as will make the total amount paid for the
mineral claim or claims in which said deposits are located equal to the amount charged
by the Government for the same as mineral claims.
Unlike Spain, the United States considered natural resources as a source of wealth for
its nationals and saw fit to allow both Filipino and American citizens to explore and
exploit minerals in public lands, and to grant patents to private mineral lands.88 A person
who acquired ownership over a parcel of private mineral land pursuant to the laws then
prevailing could exclude other persons, even the State, from exploiting minerals within
his property.89 Thus, earlier jurisprudence90 held that:
A valid and subsisting location of mineral land, made and kept up in accordance with
the provisions of the statutes of the United States, has the effect of a grant by the
United States of the present and exclusive possession of the lands located, and this
exclusive right of possession and enjoyment continues during the entire life of the
location. x x x.
x x x.
The discovery of minerals in the ground by one who has a valid mineral location
perfects his claim and his location not only against third persons, but also against the
Government. x x x. [Italics in the original.]
The Regalian doctrine and the American system, therefore, differ in one essential
respect. Under the Regalian theory, mineral rights are not included in a grant of land by
the state; under the American doctrine, mineral rights are included in a grant of land by
the government.91
Section 21 also made possible the concession (frequently styled "permit", license" or
"lease")92 system.93 This was the traditional regime imposed by the colonial
administrators for the exploitation of natural resources in the extractive sector
(petroleum, hard minerals, timber, etc.).94
Under the concession system, the concessionaire makes a direct equity investment for
the purpose of exploiting a particular natural resource within a given area. 95 Thus, the
concession amounts to complete control by the concessionaire over the country's
natural resource, for it is given exclusive and plenary rights to exploit a particular
resource at the point of extraction.96 In consideration for the right to exploit a natural
resource, the concessionaire either pays rent or royalty, which is a fixed percentage of
the gross proceeds.97
Later statutory enactments by the legislative bodies set up in the Philippines adopted
the contractual framework of the concession.98 For instance, Act No. 2932,99 approved
on August 31, 1920, which provided for the exploration, location, and lease of lands
containing petroleum and other mineral oils and gas in the Philippines, and Act No.
2719,100 approved on May 14, 1917, which provided for the leasing and development of
coal lands in the Philippines, both utilized the concession system.101
THE 1935 CONSTITUTION AND THE NATIONALIZATION OF NATURAL

RESOURCES
By the Act of United States Congress of March 24, 1934, popularly known as the
Tydings-McDuffie Law, the People of the Philippine Islands were authorized to adopt a
constitution.102 On July 30, 1934, the Constitutional Convention met for the purpose of
drafting a constitution, and the Constitution subsequently drafted was approved by the
Convention on February 8, 1935.103 The Constitution was submitted to the President of
the United States on March 18, 1935.104 On March 23, 1935, the President of the United
States certified that the Constitution conformed substantially with the provisions of the
Act of Congress approved on March 24, 1934.105 On May 14, 1935, the Constitution was
ratified by the Filipino people.106
The 1935 Constitution adopted the Regalian doctrine, declaring all natural resources of
the Philippines, including mineral lands and minerals, to be property belonging to the
State.107 As adopted in a republican system, the medieval concept of jura regalia is
stripped of royal overtones and ownership of the land is vested in the State.108
Section 1, Article XIII, on Conservation and Utilization of Natural Resources, of the 1935
Constitution provided:
SECTION 1. All agricultural, timber, and mineral lands of the public domain,
waters, minerals, coal, petroleum, and other mineral oils, all forces of potential
energy, and other natural resources of the Philippines belong to the State, and
their disposition, exploitation, development, or utilization shall be limited to
citizens of the Philippines, or to corporations or associations at least sixty per
centum of the capital of which is owned by such citizens, subject to any existing
right, grant, lease, or concession at the time of the inauguration of the
Government established under this Constitution. Natural resources, with the
exception of public agricultural land, shall not be alienated, and no license,
concession, or lease for the exploitation, development, or utilization of any of the
natural resources shall be granted for a period exceeding twenty-five years,
except as to water rights for irrigation, water supply, fisheries, or industrial uses
other than the development of water power, in which cases beneficial use may
be the measure and the limit of the grant.
The nationalization and conservation of the natural resources of the country was one of
the fixed and dominating objectives of the 1935 Constitutional Convention.109 One
delegate relates:
There was an overwhelming sentiment in the Convention in favor of the principle of

state ownership of natural resources and the adoption of the Regalian doctrine. State
ownership of natural resources was seen as a necessary starting point to secure
recognition of the state's power to control their disposition, exploitation, development, or
utilization. The delegates of the Constitutional Convention very well knew that the
concept of State ownership of land and natural resources was introduced by the
Spaniards, however, they were not certain whether it was continued and applied by the
Americans. To remove all doubts, the Convention approved the provision in the
Constitution affirming the Regalian doctrine.
The adoption of the principle of state ownership of the natural resources and of the
Regalian doctrine was considered to be a necessary starting point for the plan of
nationalizing and conserving the natural resources of the country. For with the
establishment of the principle of state ownership of the natural resources, it would not
be hard to secure the recognition of the power of the State to control their disposition,
exploitation, development or utilization.110
The nationalization of the natural resources was intended (1) to insure their
conservation for Filipino posterity; (2) to serve as an instrument of national defense,
helping prevent the extension to the country of foreign control through peaceful
economic penetration; and (3) to avoid making the Philippines a source of international
conflicts with the consequent danger to its internal security and independence.111
The same Section 1, Article XIII also adopted the concession system, expressly
permitting the State to grant licenses, concessions, or leases for the exploitation,
development, or utilization of any of the natural resources. Grants, however, were
limited to Filipinos or entities at least 60% of the capital of which is owned by
Filipinos.lawph!l.ne+
The swell of nationalism that suffused the 1935 Constitution was radically diluted when
on November 1946, the Parity Amendment, which came in the form of an "Ordinance
Appended to the Constitution," was ratified in a plebiscite.112 The Amendment extended,
from July 4, 1946 to July 3, 1974, the right to utilize and exploit our natural resources to
citizens of the United States and business enterprises owned or controlled, directly or
indirectly, by citizens of the United States:113
Notwithstanding the provision of section one, Article Thirteen, and section eight, Article
Fourteen, of the foregoing Constitution, during the effectivity of the Executive
Agreement entered into by the President of the Philippines with the President of the
United States on the fourth of July, nineteen hundred and forty-six, pursuant to the
provisions of Commonwealth Act Numbered Seven hundred and thirty-three, but in no
case to extend beyond the third of July, nineteen hundred and seventy-four, the
disposition, exploitation, development, and utilization of all agricultural, timber, and
mineral lands of the public domain, waters, minerals, coals, petroleum, and other
mineral oils, all forces and sources of potential energy, and other natural resources of
the Philippines, and the operation of public utilities, shall, if open to any person, be open
to citizens of the United States and to all forms of business enterprise owned or
controlled, directly or indirectly, by citizens of the United States in the same manner as
to, and under the same conditions imposed upon, citizens of the Philippines or
corporations or associations owned or controlled by citizens of the Philippines.
The Parity Amendment was subsequently modified by the 1954 Revised Trade
Agreement, also known as the Laurel-Langley Agreement, embodied in Republic Act
No. 1355.114
THE PETROLEUM ACT OF 1949 AND THE CONCESSION SYSTEM

In the meantime, Republic Act No. 387,115 also known as the Petroleum Act of 1949,
was approved on June 18, 1949.
The Petroleum Act of 1949 employed the concession system for the exploitation of the
nation's petroleum resources. Among the kinds of concessions it sanctioned were
exploration and exploitation concessions, which respectively granted to the
concessionaire the exclusive right to explore for116 or develop117 petroleum within
specified areas.
Concessions may be granted only to duly qualified persons118 who have sufficient

finances, organization, resources, technical competence, and skills necessary to
conduct the operations to be undertaken.119
Nevertheless, the Government reserved the right to undertake such work itself.120 This
proceeded from the theory that all natural deposits or occurrences of petroleum or
natural gas in public and/or private lands in the Philippines belong to the
State.121 Exploration and exploitation concessions did not confer upon the
concessionaire ownership over the petroleum lands and petroleum
122
deposits. 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 12½% of the petroleum produced and saved, less that consumed in the operations
of the concessionaire.130 Under Article 66, R.A. No. 387, the exploitation tax may be
credited against the royalties so that if the concessionaire shall be actually producing
enough oil, it would not actually be paying the exploitation tax.131
Failure to pay the annual exploitation tax for two consecutive years,132 or the royalty due
to the Government within one year from the date it becomes due,133 constituted grounds
for the cancellation of the concession. In case of delay in the payment of the taxes or
royalty imposed by the law or by the concession, a surcharge of 1% per month is
exacted until the same are paid.134
As a rule, title rights to all equipment and structures that the concessionaire placed on
the land belong to the exploration or exploitation concessionaire.135 Upon termination of
such concession, the concessionaire had a right to remove the same.136
The Secretary of Agriculture and Natural Resources was tasked with carrying out the
provisions of the law, through the Director of Mines, who acted under the Secretary's
immediate supervision and control.137 The Act granted the Secretary the authority to
inspect any operation of the concessionaire and to examine all the books and accounts
pertaining to operations or conditions related to payment of taxes and royalties.138
The same law authorized the Secretary to create an Administration Unit and a Technical
Board.139 The Administration Unit was charged, inter alia, with the enforcement of the
provisions of the law.140 The Technical Board had, among other functions, the duty to
check on the performance of concessionaires and to determine whether the obligations
imposed by the Act and its implementing regulations were being complied with.141
Victorio Mario A. Dimagiba, Chief Legal Officer of the Bureau of Energy Development,
analyzed the benefits and drawbacks of the concession system insofar as it applied to
the petroleum industry:
Advantages of Concession. Whether it emphasizes income tax or royalty, the most

positive aspect of the concession system is that the State's financial involvement is
virtually risk free and administration is simple and comparatively low in cost.
Furthermore, if there is a competitive allocation of the resource leading to substantial
bonuses and/or greater royalty coupled with a relatively high level of taxation, revenue
accruing to the State under the concession system may compare favorably with other
financial arrangements.
Disadvantages of Concession. There are, however, major negative aspects to this

system. Because the Government's role in the traditional concession is passive, it is at a
distinct disadvantage in managing and developing policy for the nation's petroleum
resource. This is true for several reasons. First, even though most concession
agreements contain covenants requiring diligence in operations and production, this
establishes only an indirect and passive control of the host country in resource
development. Second, and more importantly, the fact that the host country does not
directly participate in resource management decisions inhibits its ability to train and
employ its nationals in petroleum development. This factor could delay or prevent the
country from effectively engaging in the development of its resources. Lastly, a direct
role in management is usually necessary in order to obtain a knowledge of the
international petroleum industry which is important to an appreciation of the host
country's resources in relation to those of other countries.142
Other liabilities of the system have also been noted:
x x x there are functional implications which give the concessionaire great economic
power arising from its exclusive equity holding. This includes, first, appropriation of the
returns of the undertaking, subject to a modest royalty; second, exclusive management
of the project; third, control of production of the natural resource, such as volume of
production, expansion, research and development; and fourth, exclusive responsibility
for downstream operations, like processing, marketing, and distribution. In short, even if
nominally, the state is the sovereign and owner of the natural resource being exploited,
it has been shorn of all elements of control over such natural resource because of the
exclusive nature of the contractual regime of the concession. The concession system,
investing as it does ownership of natural resources, constitutes a consistent
inconsistency with the principle embodied in our Constitution that natural resources
belong to the state and shall not be alienated, not to mention the fact that the
concession was the bedrock of the colonial system in the exploitation of natural
resources.143
Eventually, the concession system failed for reasons explained by Dimagiba:
Notwithstanding the good intentions of the Petroleum Act of 1949, the concession
system could not have properly spurred sustained oil exploration activities in the
country, since it assumed that such a capital-intensive, high risk venture could be
successfully undertaken by a single individual or a small company. In effect,
concessionaires' funds were easily exhausted. Moreover, since the concession system
practically closed its doors to interested foreign investors, local capital was stretched to
the limits. The old system also failed to consider the highly sophisticated technology and
expertise required, which would be available only to multinational companies.144
A shift to a new regime for the development of natural resources thus seemed
imminent.
PRESIDENTIAL DECREE NO. 87, THE 1973 CONSTITUTION AND THE SERVICE
CONTRACT SYSTEM
The promulgation on December 31, 1972 of Presidential Decree No. 87, 145 otherwise
known as The Oil Exploration and Development Act of 1972 signaled such a
transformation. P.D. No. 87 permitted the government to explore for and produce
indigenous petroleum through "service contracts."146
"Service contracts" is a term that assumes varying meanings to different people, and it
has carried many names in different countries, like "work contracts" in Indonesia,
"concession agreements" in Africa, "production-sharing agreements" in the Middle East,
and "participation agreements" in Latin America.147 A functional definition of "service
contracts" in the Philippines is provided as follows:
A service contract is a contractual arrangement for engaging in the exploitation and

development of petroleum, mineral, energy, land and other natural resources by which a
government or its agency, or a private person granted a right or privilege by the
government authorizes the other party (service contractor) to engage or participate in
the exercise of such right or the enjoyment of the privilege, in that the latter provides
financial or technical resources, undertakes the exploitation or production of a given
resource, or directly manages the productive enterprise, operations of the exploration
and exploitation of the resources or the disposition of marketing or resources.148
In a service contract under P.D. No. 87, service and technology are furnished by the
service contractor for which it shall be entitled to the stipulated service fee.149 The
contractor must be technically competent and financially capable to undertake the
operations required in the contract.150
Financing is supposed to be provided by the Government to which all petroleum

produced belongs.151 In case the Government is unable to finance petroleum exploration
operations, the contractor may furnish services, technology and financing, and the
proceeds of sale of the petroleum produced under the contract shall be the source of
funds for payment of the service fee and the operating expenses due the
contractor.152 The contractor shall undertake, manage and execute petroleum
operations, subject to the government overseeing the management of the
operations.153 The contractor provides all necessary services and technology and the
requisite financing, performs the exploration work obligations, and assumes all
exploration risks such that if no petroleum is produced, it will not be entitled to
reimbursement.154 Once petroleum in commercial quantity is discovered, the contractor
shall operate the field on behalf of the government.155
P.D. No. 87 prescribed minimum terms and conditions for every service contract.156 It
also granted the contractor certain privileges, including exemption from taxes and
payment of tariff duties,157 and permitted the repatriation of capital and retention of
profits abroad.158
Ostensibly, the service contract system had certain advantages over the concession
regime.159 It has been opined, though, that, in the Philippines, our concept of a service
contract, at least in the petroleum industry, was basically a concession regime with a
production-sharing element.160
On January 17, 1973, then President Ferdinand E. Marcos proclaimed the ratification of
a new Constitution.161 Article XIV on the National Economy and Patrimony contained
provisions similar to the 1935 Constitution with regard to Filipino participation in the
nation's natural resources. Section 8, Article XIV thereof provides:
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
utilization of minerals, petroleum, and other mineral oils according to the general terms
and conditions provided by law, based on real contributions to the economic growth and
general welfare of the country. In such agreements, the State shall promote the
development and use of local scientific and technical resources.
The President shall notify the Congress of every contract entered into in accordance
with this provision, within thirty days from its execution.
Although Section 2 sanctions the participation of foreign-owned corporations in the
exploration, development, and utilization of natural resources, it imposes certain
limitations or conditions to agreements with such corporations.
First, the parties to FTAAs. Only the President, in behalf of the State, may enter
into these agreements, and only with corporations. By contrast, under the 1973
Constitution, a Filipino citizen, corporation or association may enter into a service
contract with a "foreign person or entity."
Second, the size of the activities: only large-scale exploration, development, and
utilization is allowed. The term "large-scale usually refers to very capital-intensive
activities."183
Third, the natural resources subject of the activities is restricted to minerals,

petroleum and other mineral oils, the intent being to limit service contracts to
those areas where Filipino capital may not be sufficient.184
Fourth, consistency with the provisions of statute. The agreements must be in

accordance with the terms and conditions provided by law.
Fifth, Section 2 prescribes certain standards for entering into such agreements.
The agreements must be based on real contributions to economic growth and
general welfare of the country.
Sixth, the agreements must contain rudimentary stipulations for the promotion of
the development and use of local scientific and technical resources.
Seventh, the notification requirement. The President shall notify Congress of

every financial or technical assistance agreement entered into within thirty days
from its execution.
Finally, the scope of the agreements. While the 1973 Constitution referred to
"service contracts for financial, technical, management, or other forms of
assistance" the 1987 Constitution provides for "agreements. . . involving either
financial or technical assistance." It bears noting that the phrases "service
contracts" and "management or other forms of assistance" in the earlier
constitution have been omitted.
By virtue of her legislative powers under the Provisional Constitution,185 President

Aquino, on July 10, 1987, signed into law E.O. No. 211 prescribing the interim
procedures in the processing and approval of applications for the exploration,
development and utilization of minerals. The omission in the 1987 Constitution of the
term "service contracts" notwithstanding, the said E.O. still referred to them in Section 2
thereof:
Sec. 2. Applications for the exploration, development and utilization of mineral
resources, including renewal applications and applications for approval of operating
agreements and mining service contracts, shall be accepted and processed and may be
approved x x x. [Emphasis supplied.]
The same law provided in its Section 3 that the "processing, evaluation and approval of
all mining applications . . . operating agreements and service contracts . . . shall be
governed by Presidential Decree No. 463, as amended, other existing mining laws, and
their implementing rules and regulations. . . ."
As earlier stated, on the 25th also of July 1987, the President issued E.O. No. 279 by
authority of which the subject WMCP FTAA was executed on March 30, 1995.
On March 3, 1995, President Ramos signed into law R.A. No. 7942. Section 15 thereof
declares that the Act "shall govern the exploration, development, utilization, and
processing of all mineral resources." Such declaration notwithstanding, R.A. No. 7942
does not actually cover all the modes through which the State may undertake the
exploration, development, and utilization of natural resources.
The State, being the owner of the natural resources, is accorded the primary power and
responsibility in the exploration, development and utilization thereof. As such, it may
undertake these activities through four modes:
The State may directly undertake such activities.
(2) The State may enter into co-production, joint venture or production-sharing
agreements with Filipino citizens or qualified corporations.
(3) Congress may, by law, allow small-scale utilization of natural resources by

Filipino citizens.
(4) For the large-scale exploration, development and utilization of minerals,

petroleum and other mineral oils, the President may enter into agreements with
foreign-owned corporations involving technical or financial assistance.186
Except to charge the Mines and Geosciences Bureau of the DENR with performing
researches and surveys,187 and a passing mention of government-owned or controlled
corporations,188 R.A. No. 7942 does not specify how the State should go about the first
mode. The third mode, on the other hand, is governed by Republic Act No. 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 contractor192 the exclusive right to conduct mining operations
within a contract area193 and shares in the gross output.194 The MPSA contractor
provides the financing, technology, management and personnel necessary for the
agreement's implementation.195 The total government share in an MPSA is the excise
tax on mineral products under Republic Act No. 7729,196 amending Section 151(a) of the
National Internal Revenue Code, as amended.197
In a co-production agreement (CA),198 the Government provides inputs to the mining

operations other than the mineral resource,199 while in a joint venture agreement (JVA),
where the Government enjoys the greatest participation, the Government and the JVA
contractor organize a company with both parties having equity shares.200 Aside from
earnings in equity, the Government in a JVA is also entitled to a share in the gross
output.201 The Government may enter into a CA202 or JVA203 with one or more
contractors. The Government's share in a CA or JVA is set out in Section 81 of the law:
The share of the Government in co-production and joint venture agreements shall be
negotiated by the Government and the contractor taking into consideration the: (a)
capital investment of the project, (b) the risks involved, (c) contribution of the project to
the economy, and (d) other factors that will provide for a fair and equitable sharing
between the Government and the contractor. The Government shall also be entitled to
compensations for its other contributions which shall be agreed upon by the parties, and
shall consist, among other things, the contractor's income tax, excise tax, special
allowance, withholding tax due from the contractor's foreign stockholders arising from
dividend or interest payments to the said foreign stockholders, in case of a foreign
national and all such other taxes, duties and fees as provided for under existing laws.
All mineral agreements grant the respective contractors the exclusive right to conduct
mining operations and to extract all mineral resources found in the contract area.204 A
"qualified person" may enter into any of the mineral agreements with the
Government.205 A "qualified person" is
any citizen of the Philippines with capacity to contract, or a corporation, partnership,

association, or cooperative organized or authorized for the purpose of engaging in
mining, with technical and financial capability to undertake mineral resources
development and duly registered in accordance with law at least sixty per centum (60%)
of the capital of which is owned by citizens of the Philippines x x x.206
The fourth mode involves "financial or technical assistance agreements." An FTAA is

defined as "a contract involving financial or technical assistance for large-scale
exploration, development, and utilization of natural resources."207 Any qualified person
with technical and financial capability to undertake large-scale exploration,
development, and utilization of natural resources in the Philippines may enter into such
agreement directly with the Government through the DENR. 208 For the purpose of
granting an FTAA, a legally organized foreign-owned corporation (any corporation,
partnership, association, or cooperative duly registered in accordance with law in which
less than 50% of the capital is owned by Filipino citizens)209 is deemed a "qualified
person."210
Other than the difference in contractors' qualifications, the principal distinction between
mineral agreements and FTAAs is the maximum contract area to which a qualified
person may hold or be granted.211 "Large-scale" under R.A. No. 7942 is determined by
the size of the contract area, as opposed to the amount invested (US $50,000,000.00),
which was the standard under E.O. 279.
Like a CA or a JVA, an FTAA is subject to negotiation.212 The Government's

contributions, in the form of taxes, in an FTAA is identical to its contributions in the two
mineral agreements, save that in an FTAA:
The collection of Government share in financial or technical assistance agreement shall

commence after the financial or technical assistance agreement contractor has fully
recovered its pre-operating expenses, exploration, and development expenditures,
inclusive.213
III
Having examined the history of the constitutional provision and statutes enacted
pursuant thereto, a consideration of the substantive issues presented by the petition is
now in order.
THE EFFECTIVITY OF EXECUTIVE ORDER NO. 279
Petitioners argue that E.O. No. 279, the law in force when the WMC FTAA was
executed, did not come into effect.
E.O. No. 279 was signed into law by then President Aquino on July 25, 1987, two days
before the opening of Congress on July 27, 1987.214 Section 8 of the E.O. states that the
same "shall take effect immediately." This provision, according to petitioners, runs
counter to Section 1 of E.O. No. 200,215 which provides:
SECTION 1. Laws shall take effect after fifteen days following the completion of their
publication either in the Official Gazette or in a newspaper of general circulation in the
Philippines, unless it is otherwise provided.216 [Emphasis supplied.]
On that premise, petitioners contend that E.O. No. 279 could have only taken effect
fifteen days after its publication at which time Congress had already convened and the
President's power to legislate had ceased.
Respondents, on the other hand, counter that the validity of E.O. No. 279 was settled in
Miners Association of the Philippines v. Factoran, supra. This is of course incorrect for
the issue in Miners Association was not the validity of E.O. No. 279 but that of DAO
Nos. 57 and 82 which were issued pursuant thereto.
Nevertheless, petitioners' contentions have no merit.

It bears noting that there is nothing in E.O. No. 200 that prevents a law from taking
effect on a date other than – even before – the 15-day period after its publication.
Where a law provides for its own date of effectivity, such date prevails over that
prescribed by E.O. No. 200. Indeed, this is the very essence of the phrase "unless it is
otherwise provided" in Section 1 thereof. Section 1, E.O. No. 200, therefore, applies
only when a statute does not provide for its own date of effectivity.
What is mandatory under E.O. No. 200, and what due process requires, as this Court
held in Tañada v. Tuvera,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 Tañada held, mandates the publication of statutes, is read into
Section 8 of E.O. No. 279. Additionally, Section 1 of E.O. No. 200 which provides for
publication "either in the Official Gazette or in a newspaper of general circulation in the
Philippines," finds suppletory application. It is significant to note that E.O. No. 279 was
actually published in the Official Gazette220 on August 3, 1987.
From a reading then of Section 8 of E.O. No. 279, Section 1 of E.O. No. 200, and
Tañada v. Tuvera, this Court holds that E.O. No. 279 became effective immediately
upon its publication in the Official Gazette on August 3, 1987.
That such effectivity took place after the convening of the first Congress is irrelevant. At
the time President Aquino issued E.O. No. 279 on July 25, 1987, she was still validly
exercising legislative powers under the Provisional Constitution.221 Article XVIII
(Transitory Provisions) of the 1987 Constitution explicitly states:
Sec. 6. The incumbent President shall continue to exercise legislative powers until the
first Congress is convened.
The convening of the first Congress merely precluded the exercise of legislative powers
by President Aquino; it did not prevent the effectivity of laws she had previously
enacted.
There can be no question, therefore, that E.O. No. 279 is an effective, and a validly
enacted, statute.
THE CONSTITUTIONALITY OF THE WMCP FTAA
Petitioners submit that, in accordance with the text of Section 2, Article XII of the
Constitution, FTAAs should be limited to "technical or financial assistance" only. They
observe, however, that, contrary to the language of the Constitution, the WMCP FTAA
allows WMCP, a fully foreign-owned mining corporation, to extend more than mere
financial or technical assistance to the State, for it permits WMCP to manage and
operate every aspect of the mining activity. 222
Petitioners' submission is well-taken. It is a cardinal rule in the interpretation of

constitutions that the instrument must be so construed as to give effect to the intention
of the people who adopted it.223 This intention is to be sought in the constitution itself,
and the apparent meaning of the words is to be taken as expressing it, except in cases
where that assumption would lead to absurdity, ambiguity, or contradiction.224 What the
Constitution says according to the text of the provision, therefore, compels acceptance
and negates the power of the courts to alter it, based on the postulate that the framers
and the people mean what they say.225 Accordingly, following the literal text of the
Constitution, assistance accorded by foreign-owned corporations in the large-scale
exploration, development, and utilization of petroleum, minerals and mineral oils should
be limited to "technical" or "financial" assistance only.
WMCP nevertheless submits that the word "technical" in the fourth paragraph of Section
2 of E.O. No. 279 encompasses a "broad number of possible services," perhaps,
"scientific and/or technological in basis."226 It thus posits that it may also well include
"the area of management or operations . . . so long as such assistance requires
specialized knowledge or skills, and are related to the exploration, development and
utilization of mineral resources."227
This Court is not persuaded. As priorly pointed out, the phrase "management or other
forms of assistance" in the 1973 Constitution was deleted in the 1987 Constitution,
which allows only "technical or financial assistance." Casus omisus pro omisso
habendus est. A person, object or thing omitted from an enumeration must be held to
have been omitted intentionally.228 As will be shown later, the management or operation
of mining activities by foreign contractors, which is the primary feature of service
contracts, was precisely the evil that the drafters of the 1987 Constitution sought to
eradicate.
Respondents insist that "agreements involving technical or financial assistance" is just

another term for service contracts. They contend that the proceedings of the CONCOM
indicate "that although the terminology 'service contract' was avoided [by the
Constitution], the concept it represented was not." They add that "[t]he concept is
embodied in the phrase 'agreements involving financial or technical assistance.'"229 And
point out how members of the CONCOM referred to these agreements as "service
contracts." For instance:
SR. TAN. Am I correct in thinking that the only difference between these future
service contracts and the past service contracts under Mr. Marcos is the general
law to be enacted by the legislature and the notification of Congress by the
President? That is the only difference, is it not?
MR. VILLEGAS. That is right.
SR. TAN. So those are the safeguards[?]
MR. VILLEGAS. Yes. There was no law at all governing service contracts before.
SR. TAN. Thank you, Madam President.230 [Emphasis supplied.]
WMCP also cites the following statements of Commissioners Gascon, Garcia,

Nolledo and Tadeo who alluded to service contracts as they explained their
respective votes in the approval of the draft Article:
MR. GASCON. Mr. Presiding Officer, I vote no primarily because of two reasons:
One, the provision on service contracts. I felt that if we would constitutionalize
any provision on service contracts, this should always be with the concurrence of
Congress and not guided only by a general law to be promulgated by Congress.
x x x.231 [Emphasis supplied.]
x x x.
MR. GARCIA. Thank you.
I vote no. x x x.
Service contracts are given constitutional legitimization in Section 3, even when

they have been proven to be inimical to the interests of the nation, providing as
they do the legal loophole for the exploitation of our natural resources for the
benefit of foreign interests. They constitute a serious negation of Filipino control
on the use and disposition of the nation's natural resources, especially with
regard to those which are nonrenewable.232 [Emphasis supplied.]
xxx
MR. NOLLEDO. While there are objectionable provisions in the Article on

National Economy and Patrimony, going over said provisions meticulously,
setting aside prejudice and personalities will reveal that the article contains a
balanced set of provisions. I hope the forthcoming Congress will implement such
provisions taking into account that Filipinos should have real control over our
economy and patrimony, and if foreign equity is permitted, the same must be
subordinated to the imperative demands of the national interest.
x x x.
It is also my understanding that service contracts involving foreign corporations

or entities are resorted to only when no Filipino enterprise or Filipino-controlled
enterprise could possibly undertake the exploration or exploitation of our natural
resources and that compensation under such contracts cannot and should not
equal what should pertain to ownership of capital. In other words, the service
contract should not be an instrument to circumvent the basic provision, that the
exploration and exploitation of natural resources should be truly for the benefit of
Filipinos.
Thank you, and I vote yes.233 [Emphasis supplied.]
x x x.
MR. TADEO. Nais ko lamang ipaliwanag ang aking boto.
Matapos suriin ang kalagayan ng Pilipinas, ang saligang suliranin, pangunahin

ang salitang "imperyalismo." Ang ibig sabihin nito ay ang sistema ng lipunang
pinaghaharian ng iilang monopolyong kapitalista at ang salitang "imperyalismo"
ay buhay na buhay sa National Economy and Patrimony na nating ginawa. Sa
pamamagitan ng salitang "based on," naroroon na ang free trade sapagkat tayo
ay mananatiling tagapagluwas ng hilaw na sangkap at tagaangkat ng yaring
produkto. Pangalawa, naroroon pa rin ang parity rights, ang service contract, ang
60-40 equity sa natural resources. Habang naghihirap ang sambayanang
Pilipino, ginagalugad naman ng mga dayuhan ang ating likas na yaman. Kailan
man ang Article on National Economy and Patrimony ay hindi nagpaalis sa
pagkaalipin ng ating ekonomiya sa kamay ng mga dayuhan. Ang solusyon sa
suliranin ng bansa ay dalawa lamang: ang pagpapatupad ng tunay na reporma
sa lupa at ang national industrialization. Ito ang tinatawag naming pagsikat ng
araw sa Silangan. Ngunit ang mga landlords and big businessmen at ang mga
komprador ay nagsasabi na ang free trade na ito, ang kahulugan para sa amin,
ay ipinipilit sa ating sambayanan na ang araw ay sisikat sa Kanluran. Kailan man
hindi puwedeng sumikat ang araw sa Kanluran. I vote no.234 [Emphasis supplied.]
This Court is likewise not persuaded.
As earlier noted, the phrase "service contracts" has been deleted in the 1987
Constitution's Article on National Economy and Patrimony. If the CONCOM intended to
retain the concept of service contracts under the 1973 Constitution, it could have simply
adopted the old terminology ("service contracts") instead of employing new and
unfamiliar terms ("agreements . . . involving either technical or financial assistance").
Such a difference between the language of a provision in a revised constitution and that
of a similar provision in the preceding constitution is viewed as indicative of a difference
in purpose.235 If, as respondents suggest, the concept of "technical or financial
assistance" agreements is identical to that of "service contracts," the CONCOM would
not have bothered to fit the same dog with a new collar. To uphold respondents' theory
would reduce the first to a mere euphemism for the second and render the change in
phraseology meaningless.
An examination of the reason behind the change confirms that technical or financial
assistance agreements are not synonymous to service contracts.
[T]he Court in construing a Constitution should bear in mind the object sought to be
accomplished by its adoption, and the evils, if any, sought to be prevented or remedied.
A doubtful provision will be examined in light of the history of the times, and the
condition and circumstances under which the Constitution was framed. The object is to
ascertain the reason which induced the framers of the Constitution to enact the
particular provision and the purpose sought to be accomplished thereby, in order to
construe the whole as to make the words consonant to that reason and calculated to
effect that purpose.236
As the following question of Commissioner Quesada and Commissioner Villegas'

answer shows the drafters intended to do away with service contracts which were used
to circumvent the capitalization (60%-40%) requirement:
MS. QUESADA. The 1973 Constitution used the words "service contracts." In
this particular Section 3, is there a safeguard against the possible control of
foreign interests if the Filipinos go into coproduction with them?
MR. VILLEGAS. Yes. In fact, the deletion of the phrase "service contracts" was
our first attempt to avoid some of the abuses in the past regime in the use of
service contracts to go around the 60-40 arrangement. The safeguard that has
been introduced – and this, of course can be refined – is found in Section 3, lines
25 to 30, where Congress will have to concur with the President on any
agreement entered into between a foreign-owned corporation and the
government involving technical or financial assistance for large-scale exploration,
development and utilization of natural resources.237 [Emphasis supplied.]
In a subsequent discussion, Commissioner Villegas allayed the fears of

Commissioner Quesada regarding the participation of foreign interests in
Philippine natural resources, which was supposed to be restricted to Filipinos.
MS. QUESADA. Another point of clarification is the phrase "and utilization of

natural resources shall be under the full control and supervision of the State." In
the 1973 Constitution, this was limited to citizens of the Philippines; but it was
removed and substituted by "shall be under the full control and supervision of the
State." Was the concept changed so that these particular resources would be
limited to citizens of the Philippines? Or would these resources only be under the
full control and supervision of the State; meaning, noncitizens would have access
to these natural resources? Is that the understanding?
MR. VILLEGAS. No, Mr. Vice-President, if the Commissioner reads the next
sentence, it states:
Such activities may be directly undertaken by the State, or it may enter into co-
production, joint venture, production-sharing agreements with Filipino citizens.
So we are still limiting it only to Filipino citizens.
x x x.
MS. QUESADA. Going back to Section 3, the section suggests that:
The exploration, development, and utilization of natural resources… may be directly

undertaken by the State, or it may enter into co-production, joint venture or production-
sharing agreement with . . . corporations or associations at least sixty per cent of whose
voting stock or controlling interest is owned by such citizens.
Lines 25 to 30, on the other hand, suggest that in the large-scale exploration,
development and utilization of natural resources, the President with the concurrence of
Congress may enter into agreements with foreign-owned corporations even for
technical or financial assistance.
I wonder if this part of Section 3 contradicts the second part. I am raising this point for
fear that foreign investors will use their enormous capital resources to facilitate the
actual exploitation or exploration, development and effective disposition of our natural
resources to the detriment of Filipino investors. I am not saying that we should not
consider borrowing money from foreign sources. What I refer to is that foreign interest
should be allowed to participate only to the extent that they lend us money and give us
technical assistance with the appropriate government permit. In this way, we can insure
the enjoyment of our natural resources by our own people.
MR. VILLEGAS. Actually, the second provision about the President does not permit
foreign investors to participate. It is only technical or financial assistance – they do not
own anything – but on conditions that have to be determined by law with the
concurrence of Congress. So, it is very restrictive.
If the Commissioner will remember, this removes the possibility for service contracts
which we said yesterday were avenues used in the previous regime to go around the
60-40 requirement.238 [Emphasis supplied.]
The present Chief Justice, then a member of the CONCOM, also referred to this
limitation in scope in proposing an amendment to the 60-40 requirement:
MR. DAVIDE. May I be allowed to explain the proposal?
MR. MAAMBONG. Subject to the three-minute rule, Madam President.
MR. DAVIDE. It will not take three minutes.

The Commission had just approved the Preamble. In the Preamble we clearly stated
that the Filipino people are sovereign and that one of the objectives for the creation or
establishment of a government is to conserve and develop the national patrimony. The
implication is that the national patrimony or our natural resources are exclusively
reserved for the Filipino people. No alien must be allowed to enjoy, exploit and develop
our natural resources. As a matter of fact, that principle proceeds from the fact that our
natural resources are gifts from God to the Filipino people and it would be a breach of
that special blessing from God if we will allow aliens to exploit our natural resources.
I voted in favor of the Jamir proposal because it is not really exploitation that we granted
to the alien corporations but only for them to render financial or technical assistance. It
is not for them to enjoy our natural resources. Madam President, our natural resources
are depleting; our population is increasing by leaps and bounds. Fifty years from now, if
we will allow these aliens to exploit our natural resources, there will be no more natural
resources for the next generations of Filipinos. It may last long if we will begin now.
Since 1935 the aliens have been allowed to enjoy to a certain extent the exploitation of
our natural resources, and we became victims of foreign dominance and control. The
aliens are interested in coming to the Philippines because they would like to enjoy the
bounty of nature exclusively intended for Filipinos by God.
And so I appeal to all, for the sake of the future generations, that if we have to pray in
the Preamble "to preserve and develop the national patrimony for the sovereign Filipino
people and for the generations to come," we must at this time decide once and for all
that our natural resources must be reserved only to Filipino citizens.
Thank you.239 [Emphasis supplied.]
The opinion of another member of the CONCOM is persuasive240 and leaves no doubt

as to the intention of the framers to eliminate service contracts altogether. He writes:
Paragraph 4 of Section 2 specifies large-scale, capital-intensive, highly technological

undertakings for which the President may enter into contracts with foreign-owned
corporations, and enunciates strict conditions that should govern such contracts. x x x.
This provision balances the need for foreign capital and technology with the need to
maintain the national sovereignty. It recognizes the fact that as long as Filipinos can
formulate their own terms in their own territory, there is no danger of relinquishing
sovereignty to foreign interests.
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 PROPOSED ARTICLE XII OF THE

LAW CONSTITUTION RESOLUTION NO. 1987 CONSTITUTION
PROJECT 496 OF THE
CONSTITUTIONAL
COMMISSION
Sec. 1. All lands of the Sec. 3. All lands of the Sec. 2. All lands of the
public domain, waters, public domain, waters, public domain, waters,
minerals, coal, minerals, coal, minerals, coal,
petroleum and other petroleum and other petroleum, and other
mineral oils, all forces mineral oils, all forces mineral oils, all forces
of potential energy, of potential energy, of potential energy,
fisheries, flora and fisheries, forests, flora fisheries, forests or
fauna and other natural and fauna, and other timber, wildlife, flora
resources of the natural resources are and fauna, and other
Philippines are owned owned by the State. natural resources are
by the State. With the With the exception of owned by the State.
exception of agricultural lands, all With the exception of
agricultural lands, all other natural resources agricultural lands, all
other natural resources shall not be alienated. other natural resources
shall not be alienated. The exploration, shall not be alienated.
The exploration, development, and The exploration,
development and utilization of natural development, and
utilization of natural resources shall be utilization of natural
resources shall be under the full control resources shall be
under the full control and supervision of the under the full control
and supervision of the State. Such activities and supervision of the
State. Such activities may be directly State. The State may
may be directly undertaken by the directly undertake such
undertaken by the State, or it may enter activities or it may
state, or it may enter into co-production, joint enter into co-
into co-production, joint venture, production- production, joint
venture, production sharing agreements venture, or production-
sharing agreements with Filipino citizens or sharing agreements
with Filipino citizens or corporations or with Filipino citizens, or
corporations or associations at least corporations or
associations sixty per sixty per cent of whose associations at least
cent of whose voting voting stock or sixty per centum of
stock or controlling controlling interest is whose capital is owned
interest is owned by owned by such by such citizens. Such
such citizens for a citizens. Such agreements may be for
period of not more than agreements shall be for a period not exceeding
twenty-five years, a period of twenty-five twenty-five years,
renewable for not more years, renewable for renewable for not more
than twenty-five years not more than twenty- than twenty-five years,
and under such terms five years, and under and under such terms
and conditions as may such term and and conditions as may
be provided by law. In conditions as may be be provided by law. In
case as to water rights provided by law. In case of water rights for
for irrigation, water cases of water rights irrigation, water supply,
supply, fisheries, or for irrigation, water fisheries, or industrial
industrial uses other supply, fisheries or uses other than the
than the development industrial uses other development of water
of water power, than the development power, beneficial use
beneficial use may be for water power, may be the measure
the measure and limit beneficial use may be and limit of the grant.
of the grant. the measure and limit
of the grant. The State shall protect
The National Assembly the nation's marine
may by law allow small The Congress may by wealth in its
scale utilization of law allow small-scale archipelagic waters,
natural resources by utilization of natural territorial sea, and
Filipino citizens. resources by Filipino exclusive economic
citizens, as well as zone, and reserve its
The National cooperative fish use and enjoyment
Assembly, may, by farming in rivers, lakes, exclusively to Filipino
two-thirds vote of all its bays, and lagoons. citizens.
members by special
law provide the terms The President with the The Congress may, by
and conditions under concurrence of law, allow small-scale
which a foreign-owned Congress, by special utilization of natural
corporation may enter law, shall provide the resources by Filipino
into agreements with terms and conditions citizens, as well as
the government under which a foreign- cooperative fish
involving either owned corporation may farming, with priority to
technical or financial enter into agreements subsistence fishermen
assistance for large- with the government and fish-workers in
scale exploration, involving either rivers, lakes, bays, and
development, or technical or financial lagoons.
utilization of natural assistance for large-
resources. [Emphasis scale exploration, The President may
supplied.] development, and enter into agreements
utilization of natural with foreign-owned
resources. [Emphasis corporations
supplied.] 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.
[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], co-production agreements, joint ventures, production-sharing
– could still be utilized and adopted without violating constitutional provisions. In other
words, we can adopt contract forms which recognize and assert our sovereignty and
ownership over natural resources, and where the foreign entity is just a pure contractor
instead of the beneficial owner of our economic resources.247 [Emphasis supplied.]
Still another member of the working group, Professor Eduardo Labitag, proposed that:
2. Service contracts as practiced under the 1973 Constitution should be discouraged,

instead the government may be allowed, subject to authorization by special law passed
by an extraordinary majority to enter into either technical or financial assistance. This is
justified by the fact that as presently worded in the 1973 Constitution, a service contract
gives full control over the contract area to the service contractor, for him to work,
manage and dispose of the proceeds or production. It was a subterfuge to get around
the nationality requirement of the constitution.248 [Emphasis supplied.]
In the annotations on the proposed Article on National Economy and Patrimony, the
U.P. Law draft summarized the rationale therefor, thus:
5. The last paragraph is a modification of the service contract provision found in Section
9, Article XIV of the 1973 Constitution as amended. This 1973 provision shattered the
framework of nationalism in our fundamental law (see Magallona, "Nationalism and its
Subversion in the Constitution"). Through the service contract, the 1973 Constitution
had legitimized that which was prohibited under the 1935 constitution—the exploitation
of the country's natural resources by foreign nationals. Through the service contract,
acts prohibited by the Anti-Dummy Law were recognized as legitimate arrangements.
Service contracts lodge exclusive management and control of the enterprise to the
service contractor, not unlike the old concession regime where the concessionaire had
complete control over the country's natural resources, having been given exclusive and
plenary rights to exploit a particular resource and, in effect, having been assured of
ownership of that resource at the point of extraction (see Agabin, "Service Contracts:
Old Wine in New Bottles"). Service contracts, hence, are antithetical to the principle of
sovereignty over our natural resources, as well as the constitutional provision on
nationalization or Filipinization of the exploitation of our natural resources.
Under the proposed provision, only technical assistance or financial assistance

agreements may be entered into, and only for large-scale activities. These are contract
forms which recognize and assert our sovereignty and ownership over natural
resources since the foreign entity is just a pure contractor and not a beneficial owner of
our economic resources. The proposal recognizes the need for capital and technology
to develop our natural resources without sacrificing our sovereignty and control over
such resources by the safeguard of a special law which requires two-thirds vote of all
the members of the Legislature. This will ensure that such agreements will be debated
upon exhaustively and thoroughly in the National Assembly to avert prejudice to the
nation.249 [Emphasis supplied.]
The U.P. Law draft proponents viewed service contracts under the 1973 Constitution as
grants of beneficial ownership of the country's natural resources to foreign owned
corporations. While, in theory, the State owns these natural resources – and Filipino
citizens, their beneficiaries – service contracts actually vested foreigners with the right
to dispose, explore for, develop, exploit, and utilize the same. Foreigners, not Filipinos,
became the beneficiaries of Philippine natural resources. This arrangement is clearly
incompatible with the constitutional ideal of nationalization of natural resources, with the
Regalian doctrine, and on a broader perspective, with Philippine sovereignty.
The proponents nevertheless acknowledged the need for capital and technical know-
how in the large-scale exploitation, development and utilization of natural resources –
the second paragraph of the proposed draft itself being an admission of such scarcity.
Hence, they recommended a compromise to reconcile the nationalistic provisions dating
back to the 1935 Constitution, which reserved all natural resources exclusively to
Filipinos, and the more liberal 1973 Constitution, which allowed foreigners to participate
in these resources through service contracts. Such a compromise called for the
adoption of a new system in the exploration, development, and utilization of natural
resources in the form of technical agreements or financial agreements which,
necessarily, are distinct concepts from service contracts.
The replacement of "service contracts" with "agreements… involving either technical or

financial assistance," as well as the deletion of the phrase "management or other forms
of assistance," assumes greater significance when note is taken that the U.P. Law draft
proposed other equally crucial changes that were obviously heeded by the CONCOM.
These include the abrogation of the concession system and the adoption of new
"options" for the State in the exploration, development, and utilization of natural
resources. The proponents deemed these changes to be more consistent with the
State's ownership of, and its "full control and supervision" (a phrase also employed by
the framers) over, such resources. The Project explained:
3. In line with the State ownership of natural resources, the State should take a more
active role in the exploration, development, and utilization of natural resources, than the
present practice of granting licenses, concessions, or leases – hence the provision that
said activities shall be under the full control and supervision of the State. There are
three major schemes by which the State could undertake these activities: first, directly
by itself; second, by virtue of co-production, joint venture, production sharing
agreements with Filipino citizens or corporations or associations sixty per cent (60%) of
the voting stock or controlling interests of which are owned by such citizens; or third,
with a foreign-owned corporation, in cases of large-scale exploration, development, or
utilization of natural resources through agreements involving either technical or financial
assistance only. x x x.
At present, under the licensing concession or lease schemes, the government benefits
from such benefits only through fees, charges, ad valorem taxes and income taxes of
the exploiters of our natural resources. Such benefits are very minimal compared with
the enormous profits reaped by theses licensees, grantees, concessionaires. Moreover,
some of them disregard the conservation of natural resources and do not protect the
environment from degradation. The proposed role of the State will enable it to a greater
share in the profits – it can also actively husband its natural resources and engage in
developmental programs that will be beneficial to them.
4. Aside from the three major schemes for the exploration, development, and utilization
of our natural resources, the State may, by law, allow Filipino citizens to explore,
develop, utilize natural resources in small-scale. This is in recognition of the plight of
marginal fishermen, forest dwellers, gold panners, and others similarly situated who
exploit our natural resources for their daily sustenance and survival.250
Professor Agabin, in particular, after taking pains to illustrate the similarities between
the two systems, concluded that the service contract regime was but a "rehash" of the
concession system. "Old wine in new bottles," as he put it. The rejection of the service
contract regime, therefore, is in consonance with the abolition of the concession system.
In light of the deliberations of the CONCOM, the text of the Constitution, and the
adoption of other proposed changes, there is no doubt that the framers considered and
shared the intent of the U.P. Law proponents in employing the phrase "agreements . . .
involving either technical or financial assistance."
While certain commissioners may have mentioned the term "service contracts" during
the CONCOM deliberations, they may not have been necessarily referring to the
concept of service contracts under the 1973 Constitution. As noted earlier, "service
contracts" is a term that assumes different meanings to different people.251 The
commissioners may have been using the term loosely, and not in its technical and legal
sense, to refer, in general, to agreements concerning natural resources entered into by
the Government with foreign corporations. These loose statements do not necessarily
translate to the adoption of the 1973 Constitution provision allowing service contracts.
It is true that, as shown in the earlier quoted portions of the proceedings in CONCOM, in
response to Sr. Tan's question, Commissioner Villegas commented that, other than
congressional notification, the only difference between "future" and "past" "service
contracts" is the requirement of a general law as there were no laws previously
authorizing the same.252 However, such remark is far outweighed by his more
categorical statement in his exchange with Commissioner Quesada that the draft article
"does not permit foreign investors to participate" in the nation's natural resources –
which was exactly what service contracts did – except to provide "technical or financial
assistance."253
In the case of the other commissioners, Commissioner Nolledo himself clarified in his
work that the present charter prohibits service contracts.254 Commissioner Gascon was
not totally averse to foreign participation, but favored stricter restrictions in the form of
majority congressional concurrence.255 On the other hand, Commissioners Garcia and
Tadeo may have veered to the extreme side of the spectrum and their objections may
be interpreted as votes against any foreign participation in our natural resources
whatsoever.
WMCP cites Opinion No. 75, s. 1987,256 and Opinion No. 175, s. 1990257 of the
Secretary of Justice, expressing the view that a financial or technical assistance
agreement "is no different in concept" from the service contract allowed under the 1973
Constitution. This Court is not, however, bound by this interpretation. When an
administrative or executive agency renders an opinion or issues a statement of policy, it
merely interprets a pre-existing law; and the administrative interpretation of the law is at
best advisory, for it is the courts that finally determine what the law means.258
In any case, the constitutional provision allowing the President to enter into FTAAs with
foreign-owned corporations is an exception to the rule that participation in the nation's
natural resources is reserved exclusively to Filipinos. Accordingly, such provision must
be construed strictly against their enjoyment by non-Filipinos. As Commissioner Villegas
emphasized, the provision is "very restrictive."259 Commissioner Nolledo also remarked
that "entering into service contracts is an exception to the rule on protection of natural
resources for the interest of the nation and, therefore, being an exception, it should be
subject, whenever possible, to stringent rules."260 Indeed, exceptions should be strictly
but reasonably construed; they extend only so far as their language fairly warrants and
all doubts should be resolved in favor of the general provision rather than the
exception.261
With the foregoing discussion in mind, this Court finds that R.A. No. 7942 is invalid
insofar as said Act authorizes service contracts. Although the statute employs the
phrase "financial and technical agreements" in accordance with the 1987 Constitution, it
actually treats these agreements as service contracts that grant beneficial ownership to
foreign contractors contrary to the fundamental law.
Section 33, which is found under Chapter VI (Financial or Technical Assistance

Agreement) of R.A. No. 7942 states:
SEC. 33. Eligibility.—Any qualified person with technical and financial capability to
undertake large-scale exploration, development, and utilization of mineral resources in
the Philippines may enter into a financial or technical assistance agreement directly with
the Government through the Department. [Emphasis supplied.]
"Exploration," as defined by R.A. No. 7942,
means the searching or prospecting for mineral resources by geological, geochemical

or geophysical surveys, remote sensing, test pitting, trending, drilling, shaft sinking,
tunneling or any other means for the purpose of determining the existence, extent,
quantity and quality thereof and the feasibility of mining them for profit.262
A legally organized foreign-owned corporation may be granted an exploration

permit,263 which vests it with the right to conduct exploration for all minerals in specified
areas,264 i.e., to enter, occupy and explore the same.265 Eventually, the foreign-owned
corporation, as such permittee, may apply for a financial and technical assistance
agreement.266
"Development" is the work undertaken to explore and prepare an ore body or a mineral
deposit for mining, including the construction of necessary infrastructure and related
facilities.267
"Utilization" "means the extraction or disposition of minerals."268 A stipulation that the

proponent shall dispose of the minerals and byproducts produced at the highest price
and more advantageous terms and conditions as provided for under the implementing
rules and regulations is required to be incorporated in every FTAA.269
A foreign-owned/-controlled corporation may likewise be granted a mineral processing

permit.270 "Mineral processing" is the milling, beneficiation or upgrading of ores or
minerals and rocks or by similar means to convert the same into marketable products.271
An FTAA contractor makes a warranty that the mining operations shall be conducted in
accordance with the provisions of R.A. No. 7942 and its implementing rules272 and for
work programs and minimum expenditures and commitments.273 And it obliges itself to
furnish the Government records of geologic, accounting, and other relevant data for its
mining operation.274
"Mining operation," as the law defines it, means mining activities involving exploration,
feasibility, development, utilization, and processing.275
The underlying assumption in all these provisions is that the foreign contractor manages
the mineral resources, just like the foreign contractor in a service contract.
Furthermore, Chapter XII of the Act grants foreign contractors in FTAAs the same
auxiliary mining rights that it grants contractors in mineral agreements (MPSA, CA and
JV).276 Parenthetically, Sections 72 to 75 use the term "contractor," without
distinguishing between FTAA and mineral agreement contractors. And so does "holders
of mining rights" in Section 76. A foreign contractor may even convert its FTAA into a
mineral agreement if the economic viability of the contract area is found to be
inadequate to justify large-scale mining operations,277 provided that it reduces its equity
in the corporation, partnership, association or cooperative to forty percent (40%).278
Finally, under the Act, an FTAA contractor warrants that it "has or has access to all the
financing, managerial, and technical expertise. . . ."279 This suggests that an FTAA
contractor is bound to provide some management assistance – a form of assistance
that has been eliminated and, therefore, proscribed by the present Charter.
By allowing foreign contractors to manage or operate all the aspects of the mining
operation, the above-cited provisions of R.A. No. 7942 have in effect conveyed
beneficial ownership over the nation's mineral resources to these contractors, leaving
the State with nothing but bare title thereto.
Moreover, the same provisions, whether by design or inadvertence, permit a

circumvention of the constitutionally ordained 60%-40% capitalization requirement for
corporations or associations engaged in the exploitation, development and utilization of
Philippine natural resources.
In sum, the Court finds the following provisions of R.A. No. 7942 to be violative of
Section 2, Article XII of the Constitution:
(1) The proviso in Section 3 (aq), which defines "qualified person," to wit:
Provided, That a legally organized foreign-owned corporation shall be deemed a

qualified person for purposes of granting an exploration permit, financial or
technical assistance agreement or mineral processing permit.
(2) Section 23,280 which specifies the rights and obligations of an exploration
permittee, insofar as said section applies to a financial or technical assistance
agreement,
(3) Section 33, which prescribes the eligibility of a contractor in a financial or

technical assistance agreement;
(4) Section 35,281 which enumerates the terms and conditions for every financial
or technical assistance agreement;
(5) Section 39,282 which allows the contractor in a financial and technical

assistance agreement to convert the same into a mineral production-sharing
agreement;
(6) Section 56,283 which authorizes the issuance of a mineral processing permit to

a contractor in a financial and technical assistance agreement;
The following provisions of the same Act are likewise void as they are dependent on the
foregoing provisions and cannot stand on their own:
(1) Section 3 (g),284 which defines the term "contractor," insofar as it applies to a

financial or technical assistance agreement.
Section 34,285 which prescribes the maximum contract area in a financial or

technical assistance agreements;
Section 36,286 which allows negotiations for financial or technical assistance

agreements;
Section 37,287 which prescribes the procedure for filing and evaluation of financial
or technical assistance agreement proposals;
Section 38,288 which limits the term of financial or technical assistance

agreements;
Section 40,289 which allows the assignment or transfer of financial or technical

assistance agreements;
Section 41,290 which allows the withdrawal of the contractor in an FTAA;
The second and third paragraphs of Section 81,291 which provide for the
Government's share in a financial and technical assistance agreement; and
Section 90,292 which provides for incentives to contractors in FTAAs insofar as it

applies to said contractors;
When the parts of the statute are so mutually dependent and connected as conditions,
considerations, inducements, or compensations for each other, as to warrant a belief
that the legislature intended them as a whole, and that if all could not be carried into
effect, the legislature would not pass the residue independently, then, if some parts are
unconstitutional, all the provisions which are thus dependent, conditional, or connected,
must fall with them.293
There can be little doubt that the WMCP FTAA itself is a service contract.
Section 1.3 of the WMCP FTAA grants WMCP "the exclusive right to explore, exploit,
utilise[,] process and dispose of all Minerals products and by-products thereof that may
be produced from the Contract Area."294 The FTAA also imbues WMCP with the
following rights:
(b) to extract and carry away any Mineral samples from the Contract area for the
purpose of conducting tests and studies in respect thereof;
(c) to determine the mining and treatment processes to be utilised during the
Development/Operating Period and the project facilities to be constructed during
the Development and Construction Period;
(d) have the right of possession of the Contract Area, with full right of ingress and
egress and the right to occupy the same, subject to the provisions of Presidential
Decree No. 512 (if applicable) and not be prevented from entry into private ands
by surface owners and/or occupants thereof when prospecting, exploring and
exploiting for minerals therein;
xxx
(f) to construct roadways, mining, drainage, power generation and transmission

facilities and all other types of works on the Contract Area;
(g) to erect, install or place any type of improvements, supplies, machinery and
other equipment relating to the Mining Operations and to use, sell or otherwise
dispose of, modify, remove or diminish any and all parts thereof;
(h) enjoy, subject to pertinent laws, rules and regulations and the rights of third
Parties, easement rights and the use of timber, sand, clay, stone, water and
other natural resources in the Contract Area without cost for the purposes of the
Mining Operations;
xxx
(i) have the right to mortgage, charge or encumber all or part of its interest and
obligations under this Agreement, the plant, equipment and infrastructure and the
Minerals produced from the Mining Operations;
x x x. 295
All materials, equipment, plant and other installations erected or placed on the Contract
Area remain the property of WMCP, which has the right to deal with and remove such
items within twelve months from the termination of the FTAA.296
Pursuant to Section 1.2 of the FTAA, WMCP shall provide "[all] financing, technology,
management and personnel necessary for the Mining Operations." The mining company
binds itself to "perform all Mining Operations . . . providing all necessary services,
technology and financing in connection therewith,"297 and to "furnish all materials,
labour, equipment and other installations that may be required for carrying on all Mining
Operations."298> WMCP may make expansions, improvements and replacements of the
mining facilities and may add such new facilities as it considers necessary for the
mining operations.299
These contractual stipulations, taken together, grant WMCP beneficial ownership over
natural resources that properly belong to the State and are intended for the benefit of its
citizens. These stipulations are abhorrent to the 1987 Constitution. They are precisely
the vices that the fundamental law seeks to avoid, the evils that it aims to suppress.
Consequently, the contract from which they spring must be struck down.
In arguing against the annulment of the FTAA, WMCP invokes the Agreement on the
Promotion and Protection of Investments between the Philippine and Australian
Governments, which was signed in Manila on January 25, 1995 and which entered into
force on December 8, 1995.
x x x. Article 2 (1) of said treaty states that it applies to investments whenever made and
thus the fact that [WMCP's] FTAA was entered into prior to the entry into force of the
treaty does not preclude the Philippine Government from protecting [WMCP's]
investment in [that] FTAA. Likewise, Article 3 (1) of the treaty provides that "Each Party
shall encourage and promote investments in its area by investors of the other Party and
shall [admit] such investments in accordance with its Constitution, Laws, regulations
and investment policies" and in Article 3 (2), it states that "Each Party shall ensure that
investments are accorded fair and equitable treatment." The latter stipulation indicates
that it was intended to impose an obligation upon a Party to afford fair and equitable
treatment to the investments of the other Party and that a failure to provide such
treatment by or under the laws of the Party may constitute a breach of the treaty. Simply
stated, the Philippines could not, under said treaty, rely upon the inadequacies of its
own laws to deprive an Australian investor (like [WMCP]) of fair and equitable treatment
by invalidating [WMCP's] FTAA without likewise nullifying the service contracts entered
into before the enactment of RA 7942 such as those mentioned in PD 87 or EO 279.
This becomes more significant in the light of the fact that [WMCP's] FTAA was executed
not by a mere Filipino citizen, but by the Philippine Government itself, through its
President no less, which, in entering into said treaty is assumed to be aware of the
existing Philippine laws on service contracts over the exploration, development and
utilization of natural resources. The execution of the FTAA by the Philippine
Government assures the Australian Government that the FTAA is in accordance with
existing Philippine laws.300 [Emphasis and italics by private respondents.]
The invalidation of the subject FTAA, it is argued, would constitute a breach of said
treaty which, in turn, would amount to a violation of Section 3, Article II of the
Constitution adopting the generally accepted principles of international law as part of the
law of the land. One of these generally accepted principles is pacta sunt servanda,
which requires the performance in good faith of treaty obligations.
Even assuming arguendo that WMCP is correct in its interpretation of the treaty and its
assertion that "the Philippines could not . . . deprive an Australian investor (like
[WMCP]) of fair and equitable treatment by invalidating [WMCP's] FTAA without likewise
nullifying the service contracts entered into before the enactment of RA 7942 . . .," the
annulment of the FTAA would not constitute a breach of the treaty invoked. For this
decision herein invalidating the subject FTAA forms part of the legal system of the
Philippines.301 The equal protection clause302 guarantees that such decision shall apply
to all contracts belonging to the same class, hence, upholding rather than violating, the
"fair and equitable treatment" stipulation in said treaty.
One other matter requires clarification. Petitioners contend that, consistent with the
provisions of Section 2, Article XII of the Constitution, the President may enter into
agreements involving "either technical or financial assistance" only. The agreement in
question, however, is a technical and financial assistance agreement.
Petitioners' contention does not lie. To adhere to the literal language of the Constitution
would lead to absurd consequences.303 As WMCP correctly put it:
x x x such a theory of petitioners would compel the government (through the President)
to enter into contract with two (2) foreign-owned corporations, one for financial
assistance agreement and with the other, for technical assistance over one and the
same mining area or land; or to execute two (2) contracts with only one foreign-owned
corporation which has the capability to provide both financial and technical assistance,
one for financial assistance and another for technical assistance, over the same mining
area. Such an absurd result is definitely not sanctioned under the canons of
constitutional construction.304 [Underscoring in the original.]
Surely, the framers of the 1987 Charter did not contemplate such an absurd result from
their use of "either/or." A constitution is not to be interpreted as demanding the
impossible or the impracticable; and unreasonable or absurd consequences, if possible,
should be avoided.305 Courts are not to give words a meaning that would lead to absurd
or unreasonable consequences and a literal interpretation is to be rejected if it would be
unjust or lead to absurd results.306 That is a strong argument against its
adoption.307 Accordingly, petitioners' interpretation must be rejected.
The foregoing discussion has rendered unnecessary the resolution of the other issues
raised by the petition.
WHEREFORE, the petition is GRANTED. The Court hereby declares unconstitutional

and void:
(1) The following provisions of Republic Act No. 7942:
(a) The proviso in Section 3 (aq),
(b) Section 23,
(c) Section 33 to 41,
(d) Section 56,
(e) The second and third paragraphs of Section 81, and
(f) Section 90.
(2) All provisions of Department of Environment and Natural Resources

Administrative Order 96-40, s. 1996 which are not in conformity with this
Decision, and
(3) The Financial and Technical Assistance Agreement between the Government
of the Republic of the Philippines and WMC Philippines, Inc.
SO ORDERED.

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G.R. No. 152613 & No.

152628 June 23, 2006

APEX MINING CO., INC., petitioner,

G.R. No. 152619-20 June 23, 2006

BALITE COMMUNAL PORTAL MINING COOPERATIVE, petitioner,

G.R. No. 152870-71 June 23, 2006

a) MAC Case No. 004 (XI) – JB Management Mining Corporation;

b) MAC Case No. 005(XI) – Davao United Miners Cooperative;

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

(a) The adverse claims on MPSAA No. 128; and

WHETHER OR NOT THE DISMISSAL BY THE PANEL OF ARBITRATORS OF THE ADVERSE

WHETHER OR NOT THE ACTUAL OCCUPATION AND SMALL-MINING OPERATIONS OF

In G.R. No. 152870-71, the MAB submits two issues, to wit:

WHETHER OR NOT EP NO. 133 IS STILL VALID AND SUBSISTING.

WHETHER OR NOT THE SUBSEQUENT ACTS OF THE GOVERNMENT SUCH AS THE

The common issues raised by petitioners may be summarized as follows:

In its Memorandum, Balite maintains that EP 133 of MMC, predecessor-in-interest of SEM, is an

EP 133 is subject to the following terms and conditions26 :

(1) consent, express or implied, of the parties to establish the relationship;

(3) the agent acts as a representative and not for himself;

(4) the agent acts within the scope of his authority.

SEC. 25. Transfer or Assignment. - An exploration permit may be transferred or assigned to a

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

SOUTHEAST MINDANAO GOLD MINING CORPORATION, petitioner,

On March 10, 1988, Marcopper Mining Corporation (Marcopper) was granted

a) MAC Case No. 004(XI) - JB Management Mining Corporation;

b) MAC Case No. 005(XI) - Davao United Miners Cooperative;

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;

k) MAC Case No. 97-01(XI) - Romeo Altamera, et al.

VIEWED IN THE LIGHT OF THE FOREGOING, the validity of Exploration Permit

On July 16, 1997, petitioner filed a special civil action for certiorari,

Meanwhile, on January 6, 1998, the MAB rendered a decision in the Consolidated

Hence this petition, raising the following errors:

I. THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE

According to petitioner, MO 97-03 was issued to preempt the resolution of the

We are not persuaded.

Similarly, there is no merit in petitioner's assertion that MO 97-03 sanctions violation of

Additionally, there can be no valid opposition raised against a mere study of an

SEC. 4. Ownership of Mineral Resources. - Mineral Resources are owned by the

LA BUGAL-B'LAAN TRIBAL ASSOCIATION, INC vs. Ramos

The Act restricts the conditions for exploration,22 quarry23 and other24 permits. It

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

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

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

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

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

x x x in recommending approval of and implementing the Financial and Technical

They pray that the Court issue an order:

(a) Permanently enjoining respondents from acting on any application for