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G.R. No. 127882 January 27, 2004

Ponente: Carpio-Morales


On July 25, 1987, then President Corazon C. Aquino issued

Executive Order (E.O.) No. 279 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.

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." R.A. No. 7942 defines the modes of mineral
agreements for mining operations, outlines the procedure for their filing and
approval, assignment/transfer and withdrawal, and fixes their terms. Similar
provisions govern financial or technical assistance agreements.

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. 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.

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repealed by DAO No. 96-40, s. 1996 which was adopted on December 20,

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, giving the DENR fifteen days from
receipt to act thereon. The DENR, however, has yet to respond or act on
petitioners' letter.

Petitioners claim that the DENR Secretary acted without or in excess of


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.

In January 2001, MMC a publicly listed Australian mining and exploration

company sold its whole stake in WMCP to Sagittarius Mines, 60% of
which is owned by Filipinos while 40% of which is owned by Indophil
Resources, an Australian company. DENR approved the transfer and
registration of the FTAA in Sagittarius name but Lepanto Consolidated
assailed the same. WMCP contends that the annulment of the FTAA would
violate a treaty between the Philippines and Australia which provides for the
protection of Australian investments.

(1) W/N the Philippine Mining Act is unconstitutional for allowing fully
foreign-owned corporations to exploit Philippine mineral resources. YES.

(2) W/N the FTAA between WMCP and the Philippines is a service
contract. YES.


First Issue:

RA 7942 or the Philippine Mining Act of 1995 is unconstitutional for

permitting fully foreign owned corporations to exploit Philippine natural
resources. Article XII Section 2 of the 1987 Constitution retained the
Regalian doctrine which states that All lands of the public domain, waters,
minerals, coal, petroleum, and other minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, fisheries, forests or timber,
wildlife, flora and fauna, and other natural resources are owned by the
State. The same section also states that, exploration and development
and utilization of natural resources shall be under the full control and
supervision of the State.
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. Y such omission, the utilization of inalienable lands of public
domain through license, concession or lease is no longer allowed under the
1987 Constitution.

Under the concession system, the concessionaire makes a direct

equity investment for the purpose of exploiting a particular natural resource
within a given area. The concession amounts to complete control by the
concessionaire over the countrys natural resource, for it is given exclusive
and plenary rights to exploit a particular resource at the point of extraction.

The 1987 Constitution, moreover, has deleted the phrase

management or other forms of assistance in the 1973 Charter. The
present Constitution now allows only technical and financial assistance.
The management or operation of mining activities by foreign contractors,
the primary feature of service contracts was precisely the evil the drafters
of the 1987 Constitution sought to avoid.

The constitutional provision allowing the President to enter into

FTAAs is an exception to the rule that participation in the nations natural
resources is reserved exclusively to Filipinos. Accordingly such provision
must be construed strictly against their enjoyment by non-Filipinos.
Therefore RA 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, its pertinent
provisions actually treat these agreements as service contracts that grant
beneficial ownership to foreign contractors contrary to the fundamental law.

The underlying assumption in the provisions of the law is that the

foreign contractor manages the mineral resources just like the foreign
contractor in a service contract. By allowing foreign contractors to manage
or operate all the aspects of the mining operation, RA 7942 has in effect
conveyed beneficial ownership over the nations mineral resources to these
contractors, leaving the State with nothing but bare title thereto.

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.

When parts of a 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, then if
some parts are unconstitutional, all provisions that are thus dependent,
conditional or connected must fall with them.
Under Article XII Section 2 of the 1987 Charter, foreign owned
corporations are limited only to merely technical or financial assistance to
the State for large scale exploration, development and utilization of
minerals, petroleum and other mineral oils.

2nd Issue:

The FTAA between WMCP and the Philippine government is likewise

unconstitutional since the agreement itself is a device contract.

Section 1.3 of the FTAA grants WMCP, a fully foreign owned

corporation, the exclusive right to explore, exploit, utilize and dispose of all
minerals and by-products that may be produced from the contract area.
Section 1.2 of the same agreement provides that WMCP shall provide all
financing, technology, management, and personnel necessary for the
Mining Operations.

These contractual stipulations and related provisions in the FTAA

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.